WSFS Financial Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; balance-sheet comparisons are with December 31, 2022. WSFS is a regional bank holding company with banking, Cash Connect and wealth management businesses. It reported $20.4 billion in assets and $67.9 billion in wealth assets under management and administration at quarter-end.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net interest income | $181.8 million | $153.6 million | $364.4 million | $292.2 million |
| Net interest margin | 4.11% | 3.40% | 4.18% | 3.20% |
| Provision for credit losses | $15.8 million | $8.3 million | $44.8 million | $27.2 million |
| Noninterest income | $66.9 million | $72.0 million | $130.0 million | $132.6 million |
| Noninterest expense | $141.3 million | $134.0 million | $274.3 million | $308.5 million |
| Net income attributable to WSFS | $68.7 million | $60.7 million | $131.1 million | $64.5 million |
| Diluted EPS | $1.12 | $0.94 | $2.13 | $1.00 |
- Higher net interest income reflected rising rates, balance-sheet size and mix, and loan growth. Deposit interest expense rose sharply: $50.1 million in Q2 versus $3.8 million a year earlier.
- Q2 noninterest income fell mainly because prior-year results included a $6.0 million unrealized equity investment gain and income from the sold BMT Insurance Advisors business. Cash Connect income increased and partly offset the decline.
- Six-month noninterest expense declined largely because corporate development and restructuring costs were lower than in 2022; Q2 expense increased, including higher Cash Connect operating costs, compensation and FDIC assessments.
Financial condition, cash flow and capital
- Total assets were $20.4 billion, up $470.9 million from year-end. Net loans and leases were $12.17 billion, up $408.1 million; total deposits were $16.43 billion, up $224.4 million. Noninterest-bearing deposits declined to $5.46 billion from $5.74 billion.
- Cash, cash equivalents and restricted cash were $1.12 billion, up from $837.3 million. Six-month operating cash flow was $122.6 million, compared with $239.2 million in the prior-year period. Investing activities used $189.2 million; financing activities provided $344.9 million.
- Borrowings included $565 million outstanding under the Bank Term Funding Program (BTFP); other borrowed funds totaled $590.7 million. FHLB advances were zero at quarter-end, down from $350 million. The company also redeemed $30 million of subordinated notes.
- Stockholders’ equity attributable to WSFS was $2.31 billion. The bank’s and company’s CET1 ratios were 13.68% and 12.76%, respectively; both were above well-capitalized requirements. Tangible book value per share, a non-GAAP measure, was $21.45, versus $19.36 at year-end.
- The allowance for credit losses was $171.9 million, or 1.28% of loans and leases, compared with $151.9 million and 1.17% at year-end. Nonaccruing loans were $33.0 million, or 0.27% of gross loans, versus $22.8 million and 0.19% at year-end.
Material changes, outlook and risks
- Management attributed the higher credit-loss provision to economic uncertainty and forecasts, loan growth, and significant credit events involving two commercial and industrial relationships during Q2. Six-month net charge-offs were $24.8 million.
- Available-for-sale securities had a $724.9 million gross unrealized loss at June 30; management said it did not intend, and was not more likely than not required, to sell the securities before recovery. The held-to-maturity portfolio’s fair value was about $73.9 million below carrying value. Accumulated other comprehensive loss was $656.1 million.
- Management stated that available liquidity sources were sufficient for funding needs over the next twelve months and beyond. Estimated uninsured deposits were $6.0 billion (37% of deposits), while uninsured and uncollateralized deposits were $4.6 billion (28%). Reported available secured borrowing capacity included $5.2 billion at the FHLB, $0.2 billion at the Federal Reserve Discount Window and $1.0 billion through BTFP.
- The filing provides no specific earnings or revenue guidance. Management noted interest-rate, economic and credit risks, including exposure to commercial real estate and commercial lending; potential deposit competition and higher funding costs; and possible effects of recent bank failures and resulting regulatory changes.
- A proposed FDIC special assessment could affect future costs; the filing describes the proposal but does not provide a clear estimate of WSFS’s eventual expense. Management also cited possible regulatory reforms, new small-business lending data requirements and LIBOR transition risks. It reported no material changes to previously disclosed risk factors and no material changes to significant pending legal proceedings.
- During Q2, WSFS repurchased 357,278 shares for approximately $13.7 million at an average $38.32 per share and approved a $0.15 quarterly dividend. The company reported $45.0 million in total capital returns for the first half.
Investor verification priorities
- Track deposit composition, deposit pricing and retention, particularly uninsured and unprotected balances, and compare liquidity capacity with actual funding needs.
- Review subsequent credit performance in the two C&I relationships, commercial real estate exposures, charge-offs, criticized loans and allowance adequacy.
- Assess the effect of funding-cost increases on net interest margin and earnings, including management’s interest-rate sensitivity disclosures.
- Monitor the market value and liquidity of securities, the substantial unrealized losses, and any changes in management’s ability or intention to hold them.
- Verify actual costs from the FDIC special assessment and other regulatory changes, and progress in completing the LIBOR-to-SOFR transition.