WSFS Financial Corp., the parent company of WSFS Bank, announced the firm's implementation of selected asset strategies. This includes sellling MBS as part of its portfolio management.
The company also disclosed its updated earnings for 1Q12.
WSFS Financial revealed that it has been monitoring the distressed asset sales market during the economic recovery. It has also, from time to time, executed small bulk sales of problem assets.
The firm's board of directors recently approved the marketing of roughly $52 million in unpaid principal balances of problem and nonperforming loans in bulk sale deals. These loans were reclassified as loans held for sale in the 2Q12 and will result in a charge to earnings over that period.
After receiving acceptable bids, the firm expects that the sale closing will be on or around June 30. If successful, this deal will improve some of the firm's asset quality statistics such as the nonperforming assets ratio, WSFS Financial stated.
In recent quarters, WSFS has also sold MBS as part of its portfolio management, and has recorded gains on sale of these securities. In 2Q12, it expects to sell roughly $300 million in high-quality MBS and to reinvest the proceeds in high-quality securities but with a shorter duration. The firm said this lessens the prepayment and interest-rate risk in the overall portfolio. Because the securities to be sold carry higher yields, WSFS expects to record a gain that will be added to its earnings and bank capital.
This gain from MBS might offset all, or at least most, of the loss from the bulk sale transaction described previously, the company said.
While future earnings will be negatively impacted by the decreased securities portfolio yield, WSFS expects that the impact on 2012 earnings will be mitigated by an improvement in the bulk sales' total credit costs.
"Leveraging existing investments, increasing our bottom line, improving asset quality, and reducing the risk of rising rates on our securities portfolio are important outcomes for us this year," Mark Turner, president and CEO said "If the two asset sales are successful, the Company anticipates that the transactions combined will be relatively neutral to overall earnings and capital in 2012, will reduce prepayment and interest rate risk in our investment portfolio, and will reduce problem assets, freeing up management to focus on other productive activities."
In terms of its updated earnings, for 1Q12, the firm announced a decrease in net income of $726,000, or $0.08 per diluted common share for 1Q12. This revision is related to adoption of a new loan risk rating system and is the result of $1.6 million in additional provision for loan losses.
On March 1, WSFS adopted a new loan risk-rating system for its commercial loans that included industry experts' recommendations. Following this implementation, WSFS undertook an extensive internal review. As a result of its review, it downgraded an incremental $62 million in loans, which increased the provision for loan losses.