WSFS Financial Corporation (NASDAQ:WSFS) is a diversified financial services company with a rich history dating back to 1832. As one of the ten oldest banks in the United States, WSFS has established itself as a leading provider of commercial and consumer banking, wealth management, and cash logistics services in the Greater Philadelphia and Delaware region.
With $20.7 billion in assets and $84.9 billion in assets under management and administration as of June 30, 2024, WSFS is the largest locally-headquartered bank and trust company in its market. The company's diverse business model, which includes its core banking operations, wealth management, and Cash Connect divisions, has enabled it to deliver consistent top-tier financial performance.
In the fiscal year ended December 31, 2023, WSFS reported annual net income of $269.16 million on revenues of $1.27 billion. The company generated annual operating cash flow of $237.00 million and free cash flow of $230.60 million, underscoring its strong liquidity position and ability to reinvest in the business.
For the second quarter of 2024, WSFS reported core earnings per share of $1.08, core return on assets of 1.25%, and core return on tangible common equity of 18.83%. These results reflect the company's ability to navigate the current economic environment and continue executing on its strategic initiatives.
Business Overview
WSFS operates through three primary business segments: WSFS Bank, Cash Connect, and Wealth Management.
WSFS Bank
: This segment encompasses the company's commercial and consumer banking operations, including lending, deposit-taking, and treasury management services. As of June 30, 2024, the bank had $17.2 billion in loans and leases, funded primarily through $16.2 billion in customer deposits. The bank's loan portfolio is well-diversified, with commercial and industrial loans accounting for 30%, commercial real estate loans at 29%, residential loans at 7%, and consumer loans at 16% of the total.Cash Connect
: WSFS's Cash Connect division is a premier provider of ATM vault cash, smart safe, and other cash logistics services. Cash Connect partners with several of the largest networks, manufacturers, and service providers in the ATM industry, servicing non-bank and WSFS-branded ATMs nationwide. As of June 30, 2024, Cash Connect managed approximately $2.0 billion in total cash and serviced around 36,900 non-bank ATMs and 9,100 smart safes.Wealth Management
: The Wealth Management segment provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate, and institutional clients. This division includes the Bryn Mawr Trust brand, which offers advisory, investment management, and trustee services to high-net-worth individuals and institutions, as well as Powdermill Financial Solutions, a multi-family office specializing in providing solutions to high-net-worth individuals and families.Geographic Footprint
WSFS operates primarily in the Greater Philadelphia and Delaware region, with 114 offices located in Pennsylvania (57), Delaware (39), New Jersey (14), Florida (2), Nevada (1), and Virginia (1). This strategic geographic footprint allows the company to leverage its local market expertise and relationships to serve its diverse customer base.
Financials
WSFS has demonstrated its ability to deliver consistent top-quintile financial performance, even in the face of economic uncertainty. In the second quarter of 2024, the company reported core earnings per share of $1.08, a 3.85% surprise over the Zacks Consensus Estimate of $1.04 per share. This performance was driven by strong growth across the company's fee-based businesses, including Wealth Management, Cash Connect, and the capital markets and mortgage banking divisions.
For the first half of 2024, WSFS reported a core return on assets of 1.28% and a core return on tangible common equity of 19.01%, reflecting the company's ability to generate robust profitability. Looking ahead, management has provided a full-year 2024 outlook for a core return on assets of around 1.25%.
The company's net interest margin (NIM) remained strong at 3.85% in the second quarter, as the higher income from loan growth and the redeployment of cash flows from the securities portfolio offset the increase in the cost of funds. WSFS expects its interest-bearing deposit beta to be less than 55% for the full year, compared to the previously communicated 50%, due to the continued shift in deposit mix and the repricing of CDs in the competitive marketplace.
Asset quality remains a strength, with nonperforming assets declining to 32 basis points of total assets as of June 30, 2024, and delinquencies dropping to 13 basis points. While the company has seen an increase in problem loans, primarily due to the downgrade of three commercial and industrial (C&I) loans, management remains confident in its ability to manage credit risk, projecting net charge-offs of 30 basis points, excluding the Upstart and NewLane portfolios, for the full year.
Capital Management and Shareholder Returns
WSFS maintains a strong capital position, with the Bank and the Company well above well-capitalized regulatory benchmarks. As of June 30, 2024, the Bank's total common equity tier 1 capital ratio was 14.00%, and the Company's ratio was 13.29%. This solid capital base provides the company with the flexibility to support growth initiatives, make strategic investments, and return capital to shareholders.
During the second quarter of 2024, WSFS returned $48.7 million, or approximately 70% of earnings, to shareholders through a combination of $9 million in dividends and $39.7 million in share repurchases. The company remains committed to its long-term target of returning approximately 35% of net income to shareholders through dividends and routine stock buybacks, with any incremental repurchases determined by the economic environment and financial results.
Risks and Challenges
While WSFS has demonstrated its ability to navigate various economic conditions, the company faces several risks and challenges that investors should be aware of:
1. Interest Rate Risk: As a financial institution, WSFS is exposed to interest rate risk, which could impact its net interest margin and profitability. The company's ability to manage this risk through its asset-liability management strategies will be crucial.
2. Credit Risk: The company's loan portfolio, particularly in the commercial and industrial, commercial real estate, and consumer lending segments, is susceptible to credit risk. Any deterioration in economic conditions could lead to an increase in nonperforming assets and credit losses.
3. Regulatory Environment: As a heavily regulated industry, changes in banking regulations and policies could impact WSFS's operations, compliance costs, and overall profitability.
4. Competition: WSFS operates in a highly competitive market, with both regional and national banks vying for customers. The company's ability to maintain its market share and pricing power will be essential to its continued success.
5. Technological Disruption: The financial services industry is undergoing rapid technological changes, which could require significant investments by WSFS to remain competitive and meet customer expectations.
Conclusion
WSFS Financial Corporation is a diversified financial services company with a strong track record of delivering consistent top-tier financial performance. The company's diverse business model, which includes its core banking operations, wealth management, and cash logistics divisions, has enabled it to navigate various economic environments and generate robust profitability.
With a solid capital position, strong liquidity, and a commitment to shareholder returns, WSFS is well-positioned to continue executing on its strategic initiatives and capitalizing on growth opportunities in its markets. While the company faces various risks and challenges, its experienced management team, deep local market expertise, and diversified revenue streams provide a solid foundation for long-term success.