Philly area’s biggest bank writes down millions in bad loans to refinery, health-care facility

Jul. 10--Shares of WSFS Financial Corp. dropped more than 4 percent in morning trading, slipping below $40 for the first time in a month, after the bank, the biggest based in the Philadelphia area, said it faced millions in losses from bad loans to an oil refinery and a nursing home operator.

WSFS, which next month plans to finish combining Beneficial Bank of Philadelphia into WSFS Bank of Wilmington to create a 90-branch network across the region, says it has had to write down a total of $11.6 million in bad loans due to events "occurring within the last 30 days."

After trading as low as $39.95, shares finished the day at $40.30, down 3.66 percent ($1.53),

In a filing with the Securities and Exchange Commission, WSFS did not identify the borrowers. The bad loans included:

-- a $5.7 million loan "related to a refinery that experienced an isolated event which impacted the facility's operations."

-- a $5.9 million loan "to a managed health-care facility that was recently placed into receivership by state authorities."

The total is slightly less than the $13 million in net income that WSFS reported for the first three months of 2019. WSFS acquired Beneficial in March.

WSFS had identified both credits as "nonperforming loans for an extended period," and said the company had been "actively working toward resolution" to get some of its money back, before the borrowers' recent crises.

Which refinery, and which managed-care facility?

The Philadelphia economy suffered a major blow last month when Philadelphia Energy Solutions (PES), the oil refinery complex in Southwest Philadelphia, suffered an explosion and fire. The creditors who own the complex are closing the refinery and putting it up for sale while labor leaders and public officials are scrambling to find a savior. If no buyer is found, PES has told employees that their jobs will be terminated on Aug. 25 (60 days after the closure announcement).

Bankruptcy filings list both WSFS and Beneficial as PES creditors. It is "reasonable to assume" WSFS' refinery losses are due to the PES fire, analyst Frank Schiraldi wrote in a report to clients at New York investment bank Sandler O'Neill + Partners.

Schiraldi did not hazard a guess on which health-care facility might be involved. There is no shortage of possibilities. For example, last year, the state of Pennsylvania took over nine nursing homes operated by Skyline Healthcare LLC and owned by Joseph Schwartz of Brooklyn, among other facilities, and began seeking new operators; Massachusetts put the company's nursing homes there in receivership in April.

Last week, Hahnemann University Hospital and its affiliates declared bankruptcy; its creditors have moved to close the hospital and sell its assets, for what people involved in the sale expect may be steep discounts.

Schiraldi says he expects other banks will be reporting similar credit problems. He cut his earnings estimates for WSFS but said he expects the company will remain profitable and growing.

Staff writer Andrew Maykuth contributed to this report.

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