WSFS Financial Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. WSFS is a regional bank and financial-services company operating across banking, cash logistics, and wealth management. Results include Bryn Mawr Bank Corporation (BMBC) from its January 1, 2022 acquisition, so year-over-year comparisons reflect a substantially larger business and are not fully comparable.
Financial performance and position
| Metric | Q2 2022 | Comparison |
|---|---|---|
| Net interest income | $153.6 million | $106.7 million in Q2 2021 |
| Noninterest income | $72.0 million | $49.0 million in Q2 2021 |
| Net income attributable to WSFS | $60.7 million; diluted EPS $0.94 | $95.7 million; diluted EPS $2.01 in Q2 2021 |
| Net interest margin | 3.40% | 3.23% in Q2 2021 |
| Provision for credit losses | $8.3 million | $67.6 million recovery in Q2 2021 |
| Noninterest expense | $134.0 million | $96.0 million in Q2 2021 |
For the six months, net income attributable to WSFS was $64.5 million ($1.00 diluted EPS), compared with $160.7 million ($3.37) in 2021. Net interest income was $292.2 million and noninterest income was $132.6 million. Six-month net interest margin was 3.20%, down from 3.40%; management attributed the decline principally to lower purchase-accounting accretion. Q2 and six-month earnings comparisons were affected by the prior-year release of credit-loss reserves, acquisition-related costs, and increased share count following the merger.
Balance sheet at June 30: Assets were $20.55 billion; gross loans and leases were $11.48 billion ($11.34 billion net); deposits were $17.27 billion; and stockholders’ equity was $2.31 billion. Cash, cash equivalents, and restricted cash totaled $1.68 billion. Borrowed funds included $90.3 million of trust-preferred borrowings, $248.4 million of senior and subordinated debt, and $31.1 million of other borrowings. The allowance for credit losses was $142.0 million, or 1.13% of loans and leases.
Cash flow and capital: For the six months, operating cash flow was $239.2 million, investing cash flow was $119.3 million, and financing cash flow was negative $214.8 million; cash increased $143.7 million. WSFS reported consolidated total capital of 14.62%, Tier 1 capital of 12.48%, common equity Tier 1 of 12.48%, and Tier 1 leverage of 9.20%, and said it exceeded well-capitalized regulatory thresholds. The Bank had $4.9 billion of unused FHLB borrowing capacity. The company reported $3.4 billion of commitments to extend credit and estimated $10.6 billion of uninsured deposits.
Material changes and unusual items
- WSFS completed the $908.0 million BMBC acquisition on January 1. It acquired approximately $3.5 billion of loans and leases and $4.1 billion of deposits, and recorded $410.3 million of goodwill. Acquisition valuations remained subject to adjustment through January 1, 2023.
- Six-month corporate development and restructuring expenses were $40.4 million and $21.4 million, respectively, primarily related to the merger and integration. WSFS had consolidated 34 banking offices by the end of Q1.
- In Q2, WSFS transferred approximately $1.1 billion book value of available-for-sale mortgage-backed securities to held-to-maturity. At June 30, AFS securities had $521.6 million of gross unrealized losses; accumulated other comprehensive loss was $518.9 million. Management attributed securities losses primarily to market interest-rate increases, and said it did not intend, and was not more likely than not required, to sell the affected AFS securities before recovery.
- WSFS recognized a $6.0 million unrealized gain on its CRED.ai equity investment. Mortgage banking income declined as refinancing activity weakened; wealth-management income increased substantially, principally due to BMBC.
- WSFS repurchased 1.19 million shares in Q2 for $48.3 million at an average $40.74 per share. Six-month repurchases totaled 2.12 million shares for $95.9 million. The Board raised the quarterly dividend 15% to $0.15 and authorized repurchases of an additional 10% of shares outstanding.
Outlook, risks, and contingencies
The filing provides no quantified earnings or revenue guidance. Management said it believed liquidity sources were sufficient for expected needs over the next 12 months and beyond, and planned approximately $14 million of 2022 investment in digital delivery transformation. The company began a 2022–2024 strategic plan. Management cautioned that actual economic conditions could be worse than those reflected in estimates, potentially affecting credit losses, earnings, and financial condition.
Key stated risks include inflation and economic weakness, further interest-rate changes and their effects on funding costs, margins and securities values, commercial real-estate and commercial lending credit exposure, acquisition integration and customer retention, regulatory and liquidity requirements, cybersecurity and third-party systems, and the LIBOR transition. Nonperforming assets were $33.9 million (0.16% of assets); nonaccrual loans were $21.0 million. The company reported no material changes to significant pending legal proceedings. The FDIC proposed higher deposit-insurance assessment rates, and banking agencies proposed CRA rule changes that could increase compliance costs or affect approvals.
Most important facts for investors to verify
- Whether BMBC integration delivers expected cost savings and growth, and how remaining acquisition fair-value adjustments affect results.
- How rising rates affect net interest margin, deposit pricing and retention, securities valuations, and regulatory capital; review the large AOCI loss and securities transfer.
- Whether loan growth is accompanied by stable credit quality, and whether the $142.0 million allowance remains adequate as economic forecasts evolve.
- How much reported earnings depend on merger-related expenses, purchase-accounting accretion, and the CRED.ai unrealized gain; note that the filing does not provide a clear quantified forward earnings outlook.
- Whether liquidity and capital remain resilient given $10.6 billion of estimated uninsured deposits and $3.4 billion of lending commitments.