Wilmington Savings Fund Society president Marvin N. Schoenhals recently recounted an anecdote that he said best illustrates how the WSFS Financial Corp. unit was able to double the size of its commercial portfolio in less than three years.
A construction company whose business the Delaware thrift had been trying to win for several years was offered a deal to buy an attractive piece of property - the only hitch being that the seller needed to close within a week.
The construction company's primary bank could not make a loan in that time and suggested that it use its line of credit. But it was reserving the credit line for another project, so it approached the $2.7 billion-asset Wilmington Savings.
"We closed the loan in two days for that customer, and guess where the rest of its business is coming over the next 60 days?" said Mr. Schoenhals, who is also the thrift's chairman and chief executive.
In the late 1990s and early this decade, Wilmington Savings reported consistently stellar profits, thanks largely to two business lines: reverse mortgages and subprime lending.
But in 2002 Mr. Schoenhals decided to get out of those risky businesses and shift the company's focus. It sold the reverse mortgage and subprime businesses for $108 million and used the proceeds to ramp up in commercial and commercial real estate lending.
The strategy has paid off.
Wilmington now has $1.1 billion of commercial loans on its books, up 112% since Dec. 31, 2002, and is now the No. 2 commercial lender in Delaware, up two notches from 2002.
"We have grown faster than I thought we would, to tell you the truth," Mr. Schoenhals said. "If you'd have asked me three years ago if we would be celebrating" passing $1 billion of commercial loans, "I would have said, 'No way.' "
The thrift did not loosen its underwriting standards. In fact, its asset quality has improved as its portfolio has grown. The ratio of nonperforming assets to total assets was 0.22% on June 30, versus 0.44% at the end of 2002.
For those familiar with the 57-year-old Mr. Schoenhals, that outcome is not surprising. He has turned around three banking companies - including Wilmington Savings - during his career, and his commitment to credit quality appears to be more personal than professional.
"I'm absolutely determined that no one is going to have to fix a bank after me," he said during a presentation last month at Keefe, Bruyette & Woods Inc.'s Community Bank Investor Conference in New York.
Interestingly, Wilmington experienced the loan growth after narrowing its geographic footprint.
As late as 2001 the company had nine branches in southeastern Pennsylvania, in addition to 19 in Delaware. It sold five of the Pennsylvania branches in 2002 and a couple more shortly thereafter, leaving it with just two in Pennsylvania, both in suburbs of Philadelphia.
Mr. Schoenhals and analysts who cover his company say that serving a smaller area actually helped it by allowing it to concentrate more on Delaware, where it has done business since 1832.
"They took a look at the marketplace and they saw an opportunity to take business from some of their larger competitors," said Thomas Doheny of Sandler O'Neill & Partners LP. "The growth has been tremendous. I'm always impressed with how this management team executes and how it thinks out of the box."
Said Mr. Schoenhals: "It all comes back to focus. Delaware is the area we know best and it is also where we are known best."
Despite its rapid loan growth, Wilmington Savings still has a ways to go before achieving its goal of a return on equity of 18% or better. It reported net income of $25.9 million and an ROE of 13.54% for 2004 and is on pace to top both figures this year, though without hitting 18% ROE.
"We are absolutely driven by return on equity," Mr. Schoenhals said. "We have not met our target over the last three years. We have been slowly redeploying that capital … but are working our way back to that 18%."
To boost profits Wilmington wants to increase noninterest income. The centerpiece of its fee-income initiative is a move into wealth management; it created a wealth management division in July and hired Joseph D. Blair from Commerce Bancorp Inc. of Cherry Hill, N.J., to run it.
Mr. Doheny said getting into wealth management is a natural, customer-driven outgrowth of Wilmington's commercial expansion. It is trying to serve its commercial customers' personal-finance needs but probably will not try to become a major player in wealth management, he said.
Mr. Schoenhals agreed, adding that the move into wealth management came after several customers told him they would bring their business to Wilmington Savings if it offered the service.
At the same time, he said he sees an opportunity to produce a good return in wealth management. He wants the business to generate 10% of Wilmington's net income within five years, he said.
That will probably mean making some acquisitions, Mr. Schoenhals said. The company has shown little interest in whole bank deals - it has never done one - but is scouting asset managers and investment advisory firms, he said.
