WSFS Financial Corp. of Wilmington has agreed to pay $1.5 billion in stock and cash for Philadelphia’s Beneficial Bancorp., merging the region’s two largest locally based banks into a $13 billion-asset company to better compete with five larger, national banks that dominate the regional market for bank loans, deposits, and investments.
Its leaders say WSFS will target area developers, consumers, and small and midsized companies that don’t feel well-served by the big banks that have dominated Philly banking since buying up CoreStates, Commerce, and other local lenders in job-destroying mergers more than a decade ago.
WSFS bosses Mark Turner and Rodger Levenson plan to close 30 of the combined companies’ 120 branches and eliminate around 350 of their 2,100 jobs. With 90 remaining branches, the enlarged WSFS will be the region’s sixth-largest bank, its deposits trailing Wells Fargo, TD, PNC, Citizens, and Bank of America at local offices.
The bank plans to plow some of the savings and profits into updated software that supports online, mobile, and high-speed finance. The goal: to make opening a deposit account, for example, a process that is too often “time-consuming and frustrating,” as simple as hailing and paying an Uber or buying online at Amazon, Levenson, WSFS chief operating officer, told investors in a conference call.
Turner, WSFS chairman and CEO, says small and local banks need to “level the playing field” by improving their technology and making bigger loans so they can compete with the big national lenders. The deal makes WSFS at least triple the size of other independent Philadelphia-area lenders, such as Bryn Mawr Trust, Univest, Firstrust, and Republic.
As a bigger bank, WSFS will be able to lend to developers and businesses twice the size of those the banks have lent to until now, Turner said.
The price works out to about $19.61 a share, a premium to Beneficial’s $16.30 closing price Tuesday and slightly above its all-time high two years ago. WSFS is a little larger than Beneficial, and three times as profitable; the WSFS share price topped a record $57 after a strong profit report last week. WSFS shares closed at $50.85 Wednesday, down 8 percent for the day.
“Beneficial growth has been slower than WSFS,” Joe Gladue, bank analyst at Merion Capital in Wayne, noted in a conference call with the bankers. Beneficial, formerly a depositor-owned mutual savings bank, as WSFS was until the 1980s, became a fully publicly traded bank only this year, ending restrictions on sale shares and the businesses it could enter. However, Beneficial’s price/earnings ratio is double that of WSFS, because investors expected it to be sold soon.
Turner said his goal is to boost Beneficial sales and profits to WSFS levels, by selling more WSFS loans and financial services to Beneficial customers, and to larger businesses the smaller banks couldn’t previously reach.
WSFS is betting that real estate development will continue, and that it will be able to borrow money cheaply from loyal depositors, at a time when some economists worry that the steady growth of the U.S. economy since early 2009 will start slowing due to rising interest rates, higher import costs, and weaker real estate demand. If the company doesn’t keep boosting profits, WSFS will itself become an acquisition target.
WSFS plans to cut $68 million, or more than 40 percent, of Beneficial’s current yearly costs, as it combines duplicate office and computer systems. Although it plans to eliminate about 350 branch and back-office jobs, it expects that many of those workers will fill vacancies over the next year. It will also invest $32 million in better IT, online, and mobile customer systems.
After the Trump administration signaled more liberal enforcement of banking regulations for midsized lenders, WSFS’s Turner and Beneficial CEO Gerry Cuddy began talking about combining their banks over beers at the Union League club last winter. WSFS signaled formal interest to Beneficial in a letter on Memorial Day weekend.
During the secret talks, which included a July directors meeting at the Ritz Carlton hotel, the dealmakers code-named WSFS “Rodney,” for Rodney Square in downtown Wilmington, and dubbed Beneficial “Bishop,” recalling its founding as a savings bank for Irish immigrants with support in the 1850s from the Catholic bishop of Philadelphia at the time, St. John Neumann.
The enlarged bank will use the WSFS name, with its main headquarters at the glass-walled WSFS office tower near I-95 in downtown Wilmington, and a second central office that WSFS boss Turner, a Chadds Ford resident and native of the city’s Logan section, calls “HQ2” at Beneficial’s Center City headquarters, 1818 Market St.
If the deal wins regulatory approval, as expected, the banks will replace blue Beneficial signs with green WSFS signs late in 2019.
The enlarged WSFS will be big enough to lend to individual companies with up to half a billion dollars in yearly sales, doubling current capacity. Turner says Philadelphia-area businesses can reach him and other top decision-makers more easily than his rivals in distant cities such as San Francisco, Toronto, and Pittsburgh.
The combined banks expect to employ 1,700 after combining computer systems and back offices, and shutting about 15 duplicate and 15 marginal branches; Beneficial currently has 61 full-service branches, and WSFS, 60. WSFS also is raising Beneficial’s $14-an-hour minimum wage to its own $15 level.
Turner will serve as executive chairman of the combined banks as his lieutenant, Levenson, becomes chief executive. Beneficial’s Cuddy will be a vice chairman. WSFS has signed management contracts for eight senior Beneficial managers to stay on for at least the next two years.
WSFS has branches across Delaware and in parts of Delaware, Chester, and Montgomery Counties. Beneficial has branches around the city and its northern and western suburbs, and in suburban South Jersey. WSFS also manages $19 billion in investments for clients across the U.S., through affiliates including Christiana Bank & Trust and Cypress Capital Management.
WSFS, like other banks, has been consolidating branches as customers go online. The company shut two underused offices in affluent neighborhoods near Concord Mall earlier this year and directed users to a new, smaller office, with desks instead of teller stations, south of Chadds Ford on U.S. 202, next to the new Wilmington University campus and a big new Wawa.
WSFS will add Cuddy and two more Beneficial directors to its 11-member board under terms of the deal.
WSFS hired investment bank Boenning & Scattergood Inc., West Conshohocken, as financial adviser for the deal, along with Washington law firm Covington & Burling. Beneficial used adviser Sandler O’Neill + Partners LP, New York, and law firm Kilpatrick Townsend & Stockton LLP.
WSFS (stands for Wilmington Savings Fund Society, the company’s bank subsidiary) and Beneficial (long known as Beneficial Savings Bank) are the last of the region’s former depositor-owned mutual savings banks, which also included the Philadelphia Savings Fund Society (PSFS).
Now that his bank is coming to Philly, Turner has said he looked into making use of the old PSFS name, which still adorns the bank’s landmark high-rise Market Street East ex-headquarters, but found that PSFS successor Citizens Financial Group, of Providence, R.I., has rights to its old signage. Turner has also joked that he doesn’t want Philadelphians pronouncing the PSFS name to rhyme with “wiss-fiss,” as his bank is known.