WSFS Financial Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are against December 31, 2023. WSFS is a Delaware-based bank holding company with banking, Cash Connect and wealth-management businesses. It reported $20.6 billion in assets and $80.5 billion in assets under management and administration.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net interest income | $175.3 million | $182.5 million |
| Net interest margin | 3.84% | 4.25% |
| Provision for credit losses | $15.1 million | $29.0 million |
| Noninterest income | $75.9 million | $63.1 million |
| Noninterest expense | $149.1 million | $133.0 million |
| Net income attributable to WSFS | $65.8 million | $62.4 million |
| Diluted earnings per share | $1.09 | $1.01 |
| Net cash provided by operating activities | $112.9 million | $30.2 million |
Financial condition, liquidity and capital
- Total assets were $20.58 billion, broadly unchanged from year-end 2023. Gross loans and leases grew about $213 million; management reported net loan growth of $206.9 million, or 7% annualized.
- Deposits were $16.19 billion, down from $16.47 billion. Noninterest-bearing deposits declined to $4.65 billion from $4.92 billion.
- Cash, cash equivalents and restricted cash totaled $977.1 million, down from $1.09 billion. Other borrowed funds rose to $815.8 million from $586.0 million, including $235 million drawn from the Bank Term Funding Program (BTFP). Total borrowed funds, including debt and trust preferred borrowings, were approximately $1.12 billion.
- Management reported $5.3 billion in available secured FHLB borrowing capacity, $1.0 billion through the Federal Reserve Discount Window, $1.7 billion in unpledged securities, and $0.6 billion deposited with the Federal Reserve. Estimated uninsured deposits were $5.9 billion (37% of deposits); estimated uninsured and uncollateralized deposits were $4.5 billion (28%).
- The Bank’s common equity Tier 1 ratio was 14.00% and total risk-based capital ratio 15.25%; WSFS’s corresponding ratios were 13.29% and 15.35%. Both were above well-capitalized regulatory thresholds. WSFS repurchased 492,368 shares for about $21.0 million and declared a $0.15-per-share dividend.
- Operating cash flow was positive, while investing and financing activities used $142.1 million and $86.6 million, respectively. Cash declined by $115.8 million during the quarter.
Material changes and credit quality
- Net interest income fell $7.3 million year over year, primarily because deposit pricing increases lagged prior rate hikes; net interest margin declined 41 basis points. Higher loan yields and a larger balance sheet partly offset funding-cost pressure.
- Noninterest income rose $12.7 million, driven mainly by Cash Connect revenue, which benefited from additional ATM vault-cash units and higher rates, and by increased wealth-management fees. Noninterest expense rose $16.0 million, including higher Cash Connect funding costs, compensation and FDIC assessment expense.
- The credit-loss provision declined $13.9 million year over year. The allowance for credit losses increased to $192.6 million, or 1.48% of loans and leases, from $186.1 million, or 1.46%, at year-end. Net charge-offs were $8.6 million.
- Nonaccruing loans were $65.9 million and nonperforming assets were $67.2 million, down from $74.2 million and $75.8 million, respectively, at year-end. Nonperforming assets were 0.33% of total assets. Modified troubled loans totaled $119.2 million, up from $95.3 million at year-end.
- Available-for-sale securities had a $710.6 million gross unrealized loss at quarter-end; accumulated other comprehensive loss increased by $42.9 million during the quarter, primarily due to market-value declines in mortgage-backed securities. Management attributed securities losses to interest rates, stated it did not intend to sell and did not expect to be required to sell before recovery, and recorded no allowance for credit losses on those securities.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management said it believes available funding sources are sufficient for liquidity needs over the next twelve months and beyond; this is subject to the risks and uncertainties described in the filing.
- Management’s interest-rate sensitivity model estimates that an immediate 100-basis-point increase would raise net interest margin 5.9%, while a 100-basis-point decrease would reduce it 5.3%. These are modeled sensitivities, not forecasts.
- WSFS recorded a $1.3 million expense for the updated FDIC special assessment. The FDIC may adjust collections, extend the collection period or impose a final shortfall assessment.
- Key disclosed risks include deposit competition and funding costs, interest-rate and securities valuation changes, credit exposure—particularly commercial real estate, commercial and industrial, and construction lending—economic uncertainty, liquidity and capital requirements, regulation, cyber and third-party operational risks, and litigation. Management said there were no material changes to previously disclosed risk factors and no material changes to significant pending legal proceedings.
- Management’s estimates may be affected by worse-than-anticipated economic conditions. No goodwill impairment was identified in the quarter; the company recorded $0.1 million of impairment losses on servicing rights.
Important facts for investors to verify
- Whether deposit levels and mix stabilize, and how funding costs affect net interest margin and net interest income.
- Whether the $235 million BTFP borrowing remains outstanding and how WSFS uses its stated borrowing capacity and unpledged securities.
- Trends in commercial real estate and other criticized loans, troubled-loan performance, charge-offs and allowance adequacy.
- Changes in unrealized securities losses, accumulated other comprehensive loss, and the assumptions behind management’s ability and intent to hold securities until recovery.
- Future Cash Connect growth and funding costs, FDIC special-assessment adjustments, and the pace of share repurchases and dividends relative to capital levels.