WSFS Financial Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Unaudited consolidated results include WSFS Bank and Cypress Capital Management. WSFS provides commercial and consumer banking, ATM cash services, and wealth management.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Net interest income | $38.8 million | $34.0 million; up 14% |
| Net interest margin | 3.82% | 3.62% |
| Noninterest income | $21.1 million | $18.4 million; up 15% |
| Noninterest expense | $38.9 million | $33.9 million; up 15% |
| Provision for loan losses | $0.8 million | $2.6 million |
| Income before taxes | $20.2 million | $15.9 million |
| Net income | $12.9 million | $16.9 million |
| Diluted EPS | $1.34 reported; $0.45 pro forma after announced 3-for-1 split | $1.85 reported; $0.62 split-adjusted |
| Operating cash flow | $(6.8) million | $26.2 million provided |
- Revenue growth reflected higher net interest income and fees. Wealth management, mortgage banking, and card/ATM income contributed to fee growth.
- Net income fell 24% year over year, primarily because Q1 2014 included a one-time $6.7 million tax benefit tied to the reverse-mortgage trust structure. Excluding that benefit, management said Q1 2015 net income rose from $10.2 million.
- Expenses increased with the First Wyoming acquisition, franchise infrastructure investment, and compliance costs. The filing reports a 36.2% effective tax rate for Q1 2015.
- Total assets were $4.95 billion at March 31, up 1.9% from year-end. Net loans were $3.19 billion; gross loans grew about 1.0% during the quarter.
- Total deposits were $3.52 billion, down $127.0 million from year-end; customer deposits fell $133.6 million, partly reflecting expected outflow of temporary trust-related balances. FHLB advances rose $217.9 million to $623.8 million. Total borrowed funds were $874.6 million.
- Cash and cash equivalents were $505.6 million, down $2.4 million. This balance includes $413.0 million of cash held in non-owned ATMs. Operating cash flow was negative, with loan originations held for sale and other working-capital movements among the factors.
- Stockholders’ equity was $505.5 million. WSFS Bank’s total risk-based capital ratio was 13.56%, Tier 1 and common equity Tier 1 ratios were 12.59%, and leverage ratio was 10.69%; each exceeded the stated well-capitalized benchmark.
Material changes and asset quality
- Nonperforming assets declined to $49.3 million from $52.4 million at year-end; NPAs were 1.00% of assets versus 1.08%. Nonaccrual loans fell to $20.7 million from $24.1 million.
- Net charge-offs were $0.7 million, or 0.09% of average loans, versus $2.5 million, or 0.34%, a year earlier. The allowance was $39.5 million, 1.22% of gross loans.
- Total delinquency increased to 0.67% from 0.55%. Troubled debt restructurings totaled $34.8 million, including $22.5 million accruing and $12.3 million nonaccruing.
- Available-for-sale securities increased to $786.5 million. Unrealized losses across securities in loss positions were $1.4 million; the company reported no other-than-temporary impairment. The filing notes interest-rate exposure and substantial mortgage-backed securities holdings.
Outlook, risks, and notable items
- The filing gives no specific earnings or financial guidance. Management attributed improved margin to loan growth, a more profitable commercial-loan mix, and an $0.8 million special FHLB dividend; it also noted ongoing competitive pricing and variability from acquired-loan accounting.
- WSFS announced a definitive agreement to acquire Alliance Bancorp of Pennsylvania, with reported year-end 2014 assets of about $421 million, loans of $310 million, and deposits of $345 million. Closing remained subject to shareholder and regulatory approvals and customary conditions.
- Management identifies risks including economic and credit deterioration, commercial real-estate and construction exposure, interest-rate and funding-cost changes, liquidity and capital requirements, acquisition execution, regulation, operational and cybersecurity threats, and Cash Connect cash-handling controls.
- A bankruptcy trustee’s lawsuit seeks approximately $5.0 million; management estimated a reasonably possible loss range of $0–$5.0 million and said summary-judgment motions were pending. A separate vendor claim was settled in April 2015 for an immaterial amount, accrued in Q1. Merger-related shareholder lawsuits were filed in April and May; outcome and impact were not yet predictable.
- The board declared a 3-for-1 stock split, payable around May 18, 2015 to holders of record May 4. Reported EPS and share counts should be compared on a consistent split-adjusted basis.
Key investor verification points
- Check the Alliance Bancorp transaction’s approvals, closing terms, integration costs, and expected contribution to earnings.
- Separate recurring earnings from the prior-year $6.7 million tax benefit and assess the drivers of expense growth and margin expansion.
- Review deposit outflows, higher FHLB funding, and the composition of reported cash, including ATM vault cash, when assessing liquidity.
- Track delinquencies, nonperforming assets, TDR performance, commercial credit concentrations, and allowance adequacy as loan growth continues.
- Confirm the status and potential exposure of the bankruptcy and merger litigation, and use split-adjusted per-share data for comparisons.