WSFS FINANCIAL CORPORATION OVERVIEW
WSFS Financial Corporation (the Company or WSFS) is a savings and loan holding company headquartered inWilmington, Delaware . Substantially all of our assets are held by our subsidiary,Wilmington Savings Fund Society , FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies inthe United States (U.S. ) continuously operating under the same name. With$14.7 billion in assets and$24.7 billion in assets under management (AUM) and assets under administration (AUA) atMarch 31, 2021 ,WSFS Bank is the oldest and largest locally-managed bank and trust company headquartered in theDelaware andGreater Philadelphia region. As a federal savings bank that was formerly chartered as a state mutual savings bank,WSFS Bank enjoys a broader scope of permissible activities than most other financial institutions. A fixture in the community, we have been in operation for more than 189 years. In addition to our focus on stellar customer experience, we have continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution. Our mission is simple: "We Stand for Service." Our strategy of "Engaged Associates , living our culture, making a better life for all we serve" focuses on exceeding customer expectations, delivering stellar experiences and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates. We have six consolidated subsidiaries:WSFS Bank ,WSFS Wealth Management, LLC (Powdermill®),WSFS Capital Management, LLC (West Capital ),Cypress Capital Management, LLC (Cypress),Christiana Trust Company of Delaware® (Christiana Trust DE) andWSFS SPE Services, LLC . We also have one unconsolidated subsidiary, WSFS Capital Trust III.WSFS Bank has three wholly owned subsidiaries:Beneficial Equipment Finance Corporation (BEFC),WSFS Investment Group, Inc. (WSFS Wealth® Investments), and 1832Holdings, Inc. , and one majority-owned subsidiary,NewLane Finance Company (NewLane Finance®). Our banking business had a total loan and lease portfolio of$8.6 billion as ofMarch 31, 2021 , which was funded primarily through commercial relationships and retail and customer generated deposits. We have built a$6.8 billion commercial loan and lease portfolio by recruiting seasoned commercial lenders in our markets, offering the high level of service and flexibility typically associated with a community bank and through acquisitions. We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches, and mortgage and title services through our branches and WSFS Mortgage®. WSFS Mortgage® is a mortgage banking company specializing in a variety of residential mortgage and refinancing solutions. Our leasing business is conducted by NewLane Finance®. NewLane Finance® originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas. In addition, NewLane Finance® offers insurance through its subsidiary, Prime Protect, which commenced operations during the fourth quarter of 2020. Our Cash Connect® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. Cash Connect® services non-bank and WSFS-branded ATMs and retail safes nationwide in theU.S. Cash Connect® manages over$1.7 billion in total cash and services approximately 28,100 non-bank ATMs and approximately 4,900 smart safes nationwide. Cash Connect® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, ATM processing equipment sales and deposit safe cash logistics. Cash Connect® also supports 625 branded ATMs for WSFS Bank Customers, which has one of the largest branded ATM networks in our market. Our Wealth Management business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate, and institutional clients through multiple integrated businesses. Combined, these businesses had$24.7 billion of AUM and AUA atMarch 31, 2021 . WSFS Wealth® Investments provides financial advisory services along with insurance and brokerage products. Cypress, a registered investment adviser, is a fee-only wealth management firm managing a "balanced" investment style portfolio focused on preservation of capital and generating current income.West Capital , a registered investment adviser, is a fee-only wealth management firm operating under a multi-family office philosophy to provide customized solutions to institutions and high-net-worth individuals. The trust division of WSFS, comprised of WSFS Institutional Services®, and Christiana Trust DE provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional and corporate clients. Christiana Trust DE also provides personal trust and fiduciary services to families and individuals across theU.S. Powdermill® is a multi-family office specializing in providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach. WSFS Wealth Client Management serves high-net-worth clients by delivering credit and deposit products and partnering with other Wealth Management businesses to provide comprehensive solutions to clients. As ofMarch 31, 2021 , we service our customers primarily from 111 offices located inPennsylvania (51),Delaware (42),New Jersey , (16),Virginia (1) andNevada (1), our ATM network, our website at www.wsfsbank.com and our mobile app. 48 -------------------------------------------------------------------------------- Table of Contents Highlights for First Quarter 2021 Results through the first quarter of 2021 and other notable items include the following: •OnMarch 9, 2021 , WSFS signed an Agreement and Plan of Merger (the Merger Agreement) with Bryn Mawr Bank Corporation (Bryn Mawr), aPennsylvania corporation and the parent holding company of TheBryn Mawr Trust Company , aPennsylvania chartered bank and wholly owned subsidiary of Bryn Mawr (Bryn Mawr Bank). Under the terms and subject to the conditions of the Merger Agreement, among other things, (i) Bryn Mawr will merge with and into WSFS, with WSFS continuing as the surviving corporation (the Merger), and (ii) simultaneously with the Merger, Bryn Mawr Bank will merge with and intoWSFS Bank , withWSFS Bank continuing as the surviving bank. The Merger is subject to customary conditions and regulatory approvals, and is currently expected to close early in the fourth quarter of 2021. We recorded$1.8 million of corporate development and restructuring expense primarily related to the pending Merger during the first quarter of 2021. •We recorded a reduction in the allowance for credit losses (ACL) of$24.0 million during the three months endedMarch 31, 2021 as a result of continued improving credit trends and economic forecasts. •We continued to participate in the regulatory relief programs offered as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended, including the Paycheck Protection Program (PPP). Activity during the first quarter of 2021 included the following: •Support for nearly$300 million of second round PPP loans to over 1,800 WSFS and non-WSFS Customers, which generated$2.2 million of referral fees during the first quarter of 2021 through our partnership with third party providers. •Loan forgiveness for first round PPP loans of$231.4 million . As ofMarch 31, 2021 , there was$526.8 million of PPP loans in our loan portfolio. •See "Financial Condition, Capital Resources and Liquidity - Financial Condition" and "Recent Regulatory Developments" for further details on PPP. •We were ranked number 10 on the Forbes 12th Annual America's Best Banks list and received The Gallup Exceptional Workplace Award for the fifth time. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Financial Condition Total assets increased$396.5 million to$14.7 billion atMarch 31, 2021 compared toDecember 31, 2020 . This increase is primarily comprised of the following: •Investment securities, available-for-sale increased$458.8 million during the three months endedMarch 31, 2021 primarily due to$748.3 million in purchases partially offset by repayments of$185.0 million , decreased market-values on available-for-sale securities of$69.8 million and sales of$9.3 million . •Cash and cash equivalents increased$409.4 million , primarily reflecting excess cash held due to increased deposits related to PPP loans, additional government stimulus and reduced levels of customer spending. •Net loans and leases, excluding loans held for sale, decreased$422.2 million , reflecting a$231.4 million decline in PPP loans due to forgiveness of round one PPP loans, a$203.5 million decline in residential and commercial real estate loans, primarily due to non-relationship run-off portfolios primarily acquired from the Beneficial acquisition, and lower commercial loan demand resulting from higher levels of borrower liquidity. Our allowance for credit losses decreased by$24.0 million due to positive economic developments in our forecasts and improved credit quality metrics with declines in our problem assets, nonperforming assets and delinquencies. •Loans held for sale decreased$42.1 million during the three months endedMarch 31, 2021 driven by a large commercial loan sale and a combination of lower origination volume and higher loans sales in our mortgage banking business during the quarter. 49
-------------------------------------------------------------------------------- Table of Contents Total liabilities increased$417.6 million to$13.0 billion atMarch 31, 2021 compared toDecember 31, 2020 . This increase is primarily comprised of the following: •Total deposits increased by$427.0 million , primarily due to an increase in customer funding, reflecting elevated deposits from our Customers who received PPP loans, the impact of government stimulus checks and reduced levels of customer spending during the COVID-19 pandemic. The ratio of loans to customer deposits was 70% atMarch 31, 2021 reflecting significant liquidity capacity. •FHLB advances decreased$6.6 million due to maturities during the first quarter of 2021. For further information, see "Notes to the Consolidated Financial Statements (Unaudited)." Capital Resources Stockholders' equity of WSFS decreased$21.1 million betweenDecember 31, 2020 andMarch 31, 2021 . This decrease was primarily due to$69.8 million from the effect of decreased market-values on available-for-sale securities,$12.0 million for the repurchases of 267,309 shares of common stock under our stock repurchase plan, and the payment of dividends on our common stock of$5.7 million . These decreases were partially offset by$65.1 million of income attributable to WSFS for the three months endedMarch 31, 2021 . During the first quarter of 2021, our Board of Directors approved a quarterly cash dividend of$0.13 per share of common stock, an 8% increase from our cash dividend in the fourth quarter of 2020. This dividend will be paid onMay 21, 2021 to stockholders of record as ofMay 7, 2021 . Book value per share of common stock was$37.27 atMarch 31, 2021 , a decrease of$0.25 from$37.52 atDecember 31, 2020 . Tangible book value per share of common stock (a non-GAAP financial measure) was$25.60 atMarch 31, 2021 , a decrease of$0.25 from$25.85 atDecember 31, 2020 . These decreases in both GAAP and non-GAAP financial measures are due to the reasons described above. We believe tangible book value per common share helps management and investors better understand and assess changes from period to period in stockholders' equity exclusive of changes in intangible assets. This non-GAAP measure should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in theU.S. (GAAP), and is not a substitute for, or superior to, GAAP results. For a reconciliation of tangible book value per common share to book value per share in accordance with GAAP, see "Reconciliation of Non-GAAP Measure to GAAP Measure." The table below compares the Bank's and the Company's consolidated capital position to the minimum regulatory requirements as ofMarch 31, 2021 : To be Well-Capitalized Consolidated For Capital Under Prompt Corrective Capital Adequacy Purposes Action Provisions (Dollars in thousands) Amount Percent Amount Percent Amount Percent Total Capital (to Risk-Weighted Assets) Wilmington Savings Fund Society, FSB$ 1,472,002 14.46 %$ 814,528 8.00 % $ 1,018,161 10.00 % WSFS Financial Corporation 1,457,952 14.28 816,913 8.00 1,021,141 10.00 Tier 1 Capital (to Risk-Weighted Assets) Wilmington Savings Fund Society, FSB 1,343,903 13.20 610,896 6.00 814,528 8.00 WSFS Financial Corporation 1,329,485 13.02 612,684 6.00 816,913 8.00 Common Equity Tier 1 Capital (to Risk-Weighted Assets) Wilmington Savings Fund Society, FSB 1,343,903 13.20 458,172 4.50 661,804 6.50 WSFS Financial Corporation 1,264,485 12.38 459,513 4.50 663,741 6.50 Tier 1Leverage Capital Wilmington Savings Fund Society, FSB 1,343,903 9.82 547,307 4.00 509,080 5.00 WSFS Financial Corporation 1,329,485 9.71 547,769 4.00 684,711 5.00 50
-------------------------------------------------------------------------------- Table of Contents Under the prompt corrective action regime, regulators have established five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. A depository institution's capital tier depends on its capital levels in relation to various relevant capital measures, which include leveraged and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities. Regulatory capital requirements for the Bank and the Company include a minimum common equity Tier 1 capital ratio of 4.50% of risk-weighted assets, a Tier 1 capital ratio of 6.00% of risk-weighted assets, a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets. PPP loans receive a zero percent risk weighting under the regulators' capital rules. In order to avoid limits on capital distributions and discretionary bonus payments, the Bank and the Company must maintain a capital conservation buffer of 2.5% of common equity Tier 1 capital over each of the risk-based capital requirements. As shown in the table above, as ofMarch 31, 2021 , the Bank and the Company were in compliance with regulatory capital requirements and exceeded the amounts required to be considered "well-capitalized" as defined in the regulations. Not included in the Bank's capital, the Company separately held$223.8 million in cash to support share repurchases, potential dividends, acquisitions, strategic growth plans and other general corporate purposes. As part of our adoption of CECL in 2020, we elected the Implementation and Transition of the Current Expected Credit Losses Methodology for Allowances and Related Adjustments to the Regulatory Capital Rule and Conforming Amendments to Other Regulations, which permits the Company to phase in the day-one adverse effects on regulatory capital that may result from the adoption of CECL over a three-year period. In addition, the final rule revises the agencies' regulatory capital rule, stress testing rules, and regulatory disclosure requirements to reflect CECL, and makes conforming amendments to other regulations that reference allowance for credit losses.
As a result of the three-year period phase-in related to our CECL adoption, the impact (by bps) to our capital ratios were as follows:
March 31, 2021
(Dollars in thousands) As Reported Proforma(1) CECL Impact
Total Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB 14.46 % 14.61 % (0.15) %
WSFS Financial Corporation 14.28 14.43 (0.15)
Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB 13.20 13.35 (0.15)
WSFS Financial Corporation 13.02 13.17 (0.15)
Common Equity Tier 1 Capital (to
Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB 13.20 13.35 (0.15)
WSFS Financial Corporation 12.38 12.54 (0.16)
Tier 1 Leverage Capital
Wilmington Savings Fund Society, FSB 9.82 9.92 (0.10)
WSFS Financial Corporation 9.71 9.81 (0.10)
(1) Excludes the phase-in impact of CECL.
51
--------------------------------------------------------------------------------
Table of Contents
Liquidity
We manage our liquidity and funding needs through our Treasury function and our
Asset/Liability Committee. We have a policy that separately addresses liquidity,
and management monitors our adherence to policy limits. Also, liquidity risk
management is a primary area of examination by the banking regulators.
Funding sources to support growth and meet our liquidity needs include cash from
operations, retail deposit programs, loan repayments, FHLB borrowings,
repurchase agreements, access to the Federal Reserve Discount Window, and access
to the brokered deposit market as well as other wholesale funding avenues. In
addition, we have a large portfolio of high-quality, liquid investments,
primarily short-duration mortgage-backed securities, that provide a
near-continuous source of cash flow to meet current cash needs, or can be sold
to meet larger discrete needs for cash. We believe these sources are sufficient
to meet our funding needs as well as maintain required and prudent levels of
liquidity over the next twelve months.
During the three months ended March 31, 2021 , cash, cash equivalents and
restricted cash increased $409.4 million to $2.1 billion from $1.7 billion as of
December 31, 2020 . Cash provided by operating activities was $69.7 million ,
primarily reflecting the cash impact of earnings and a $29.1 million increase in
net activity for loans held for sale, partially offset by the recovery of credit
losses in our ACL of $20.2 million during the three months ended March 31, 2021 .
Cash used in investing activities was $64.1 million primarily due to net
purchases of debt securities of $563.3 million , partially offset by $481.3
million from decreased lending activity related to PPP loan forgiveness and
proceeds of $9.3 million from sales of debt securities. Cash provided by
financing activities was $403.9 million , primarily due to a $428.1 million net
increase in deposits, as a result of the increase in customer funding discussed
above, partially offset by $12.0 million for repurchases of common stock under
the previously announced stock repurchase plan, $6.6 million for repayment of
FHLB advances, and common stock dividends of $5.7 million .
52
--------------------------------------------------------------------------------
Table of Contents
NONPERFORMING ASSETS
Nonperforming assets include nonaccruing loans, other real estate owned (OREO)
and restructured loans. Nonaccruing loans are those on which we no longer accrue
interest. Loans are placed on nonaccrual status immediately if, in the opinion
of management, collection is doubtful, or when principal or interest is past due
90 days or more and the value of the collateral is insufficient to cover
principal and interest. Interest accrued but not collected at the date a loan is
placed on nonaccrual status is reversed and charged against interest income. In
addition, the amortization of net deferred loan fees is suspended when a loan is
placed on nonaccrual status. Subsequent cash receipts are applied either to the
outstanding principal balance or recorded as interest income, depending on
management's assessment of the ultimate collectability of principal and
interest. Past due loans are defined as loans contractually past due 90 days or
more as to principal or interest payments but which remain in accrual status
because they are considered well secured and in the process of collection.
The following table shows our nonperforming assets and past due loans at the
dates indicated:
(Dollars in thousands) March 31, 2021 December 31, 2020
Nonaccruing loans:
Commercial and industrial $ 20,637 $ 13,816
Owner-occupied commercial 4,024 5,360
Commercial mortgages 1,642 17,175
Residential 3,173 3,247
Consumer 2,316 2,310
Total nonaccruing loans 31,792 41,908
Other real estate owned 2,068 3,061
Restructured loans(1)(6) 15,684 15,539
Total nonperforming assets $ 49,544 $ 60,508
Past due loans:
Commercial $ 436 $ 5,634
Residential 750 25
Consumer (2) 6,492 11,035
Total past due loans $ 7,678 $ 16,694 Ratio of allowance for credit losses to total loans and leases(3)
2.36 % 2.51 %
Ratio of nonaccruing loans to total gross loans and leases(4)
0.37 0.46
Ratio of nonperforming assets to total assets 0.34 0.42
Ratio of allowance for credit losses to nonaccruing loans
644 546
Ratio of allowance for credit losses to total
nonperforming assets(5) 413 378
(1)Accruing loans only, which includes acquired nonimpaired loans. Nonaccruing
Troubled Debt Restructurings (TDRs) are included in their respective categories
of nonaccruing loans.
(2)Includes U.S. government guaranteed student loans with little risk of credit
loss.
(3)Represents amortized cost basis for loans, leases and held-to-maturity
securities.
(4)Total loans exclude loans held for sale and reverse mortgages.
(5)Excludes acquired impaired loans.
(6)Balance excludes COVID-19 modifications.
Nonperforming assets decreased $11.0 million between December 31, 2020 and
March 31, 2021 . This decrease was primarily the result of the payoff of one
commercial relationship totaling approximately $15.1 million and continued
collection activity, including monthly payments and a few modest payoffs. This
decrease was partially offset by the move to non-accrual of one commercial
relationship totaling approximately $5.6 million (net of a $3.3 million
charge-off). The ratio of nonperforming assets to total assets decreased from
0.42% at December 31, 2020 to 0.34% at March 31, 2021 .
53
--------------------------------------------------------------------------------
Table of Contents
The following table summarizes the changes in nonperforming assets during the
periods indicated:
Three Months Ended March 31,
(Dollars in thousands) 2021 2020
Beginning balance $ 60,508 $ 39,808
Additions 13,317 6,674
Collections (19,604) (5,604)
Transfers to accrual (28) -
Charge-offs (4,649) (2,733)
Ending balance $ 49,544 $ 38,145
The timely identification of problem loans is a key element in our strategy to
manage our loan portfolio. Problem loans are all criticized, classified and
nonperforming loans and other real estate owned. Timely identification enables
us to take appropriate action and accordingly, minimize losses. An asset review
system established to monitor the asset quality of our loans and investments in
real estate portfolios facilitates the identification of problem assets. In
general, this system uses guidelines established by federal regulation.
In response to the COVID-19 pandemic, the CARES Act was enacted to provide
certain measures to support individuals and businesses in maintaining solvency
through monetary relief, including in the form of financing and automatic
forbearance. During 2020, we put significant effort into evaluating the needs of
our Customers and offering targeted relief through loan modifications, most of
which were short-term in duration. At March 31, 2021 and December 31, 2020 ,
COVID-19 related loan modifications were $110.9 million and $114.8 million ,
respectively.
54
--------------------------------------------------------------------------------
Table of Contents
INTEREST RATE SENSITIVITY
Our primary objective in managing interest rate risk is to minimize the adverse
impact of changes in interest rates on net interest income and capital, while
maximizing the yield/cost spread on our asset/liability structure. Interest
rates are partly a function of decisions by the Federal Open Market Committee
(FOMC) on the target range for the federal funds rate, and these decisions are
sometimes difficult to anticipate. In response to the pandemic, in March 2020
the FOMC lowered the range 150 basis points to 0 to 1/4 percent. The FOMC
recently indicated that the target range will remain at this level for some
time, but the FOMC is not locked into this result. In order to manage the risks
associated with changes or possible changes in interest rates, we rely primarily
on our asset/liability structure.
Our primary tool for achieving our asset/liability management strategies is to
match maturities or repricing periods of interest rate-sensitive assets and
liabilities to promote a favorable interest rate spread and mitigate exposure to
fluctuations in interest rates. We regularly review our interest rate
sensitivity and adjust the sensitivity within acceptable tolerance ranges. At
March 31, 2021 , interest-earning assets exceeded interest-bearing liabilities
that mature or reprice within one year (interest-sensitive gap) by $2.0 billion .
Our interest-sensitive assets as a percentage of interest-sensitive liabilities
within the one-year window was 135.63% at March 31, 2021 compared with 133.10%
at December 31, 2020 . Likewise, the one-year interest-sensitive gap as a
percentage of total assets was 13.26% at March 31, 2021 compared with 13.07% at
December 31, 2020 .
Market risk is the risk of loss from adverse changes in market prices and rates.
Our market risk arises primarily from interest rate risk inherent in our
lending, investing, and funding activities. To that end, we actively monitor and
manage our interest rate risk exposure. One measure, which we are required to
perform by federal regulation, measures the impact of an immediate change in
interest rates in 100 basis point increments on the economic value of equity
ratio. The economic value of the equity ratio is defined as the economic value
of the estimated cash flows from assets and liabilities as a percentage of
economic value of cash flows from total assets.
The following table shows the estimated impact of immediate changes in interest
rates on our net interest margin and economic value of equity ratio at the
specified levels at March 31, 2021 and December 31, 2020 :
March 31, 2021 December 31, 2020
% Change in Interest % Change in Net Economic Value of % Change in Net Economic Value of
Rate (Basis Points) Interest Margin(1) Equity(2) Interest Margin(1) Equity(2)
+300 22.3% 19.89% 19.7% 19.10%
+200 14.7% 19.52% 13.1% 18.69%
+100 7.2% 19.08% 6.5% 18.05%
+50 3.5% 18.28% 3.2% 17.59%
+25 1.7% 18.23% 1.5% 17.32%
- -% 18.15% -% 17.04%
-25 (1.4)% 17.93% (1.5)% 16.62%
-50 (2.0)% 17.62% (2.1)% 16.20%
-100 (3.3)% 16.80% (2.8)% 15.16%
'-200(3) NMF NMF NMF NMF
-300(3) NMF NMF NMF NMF
(1)The percentage difference between net interest margin in a stable interest
rate environment and net interest margin as projected under the various rate
change environments.
(2)The economic value of equity ratio in a stable interest rate environment and
the economic value of equity ratio as projected under the various rate change
environments.
(3)Sensitivity indicated by a decrease of 200 and 300 basis points is not deemed
meaningful (NMF) given the low absolute level of interest rates in the periods
presented.
We also engage in other business activities that are sensitive to changes in
interest rates. For example, mortgage banking revenues and expenses can
fluctuate with changing interest rates. These fluctuations are difficult to
model and estimate.
55
--------------------------------------------------------------------------------
Table of Contents
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2021 was $65.1 million , compared
to $10.9 million for the three months ended March 31, 2020 .
•Net interest income decreased $2.0 million during the three months ended
March 31, 2021 compared to the three months ended March 31, 2020 , primarily due
to a lower interest rate environment and a decrease in purchase accounting
accretion, partially offset by PPP income. See "Net Interest Income" for further
information.
•Our (recovery of) provision for credit losses for the three months ended
March 31, 2021 decreased $76.8 million compared to the three months ended
March 31, 2020 , primarily due to positive economic outlook from our ACL modeling
and improved credit quality metrics reflecting overall declines in problem
assets, nonperforming assets and delinquencies. See "Allowance for Credit
Losses" for further information.
•Noninterest income for the three months ended March 31, 2021 increased $7.0
million compared to the three months ended March 31, 2020 , primarily due to the
higher revenues generated through our mortgage banking business, trust services
and other banking fees in the current period compared to the prior period,
partially offset by lower interchange fees from the impact of the Durbin
Amendment on the first quarter of 2021 results. See "Noninterest Income" for
further information.
•Noninterest expense increased $7.1 million during the three months ended
March 31, 2021 compared to the three months ended March 31, 2020 due to
increases in salaries and benefits, equipment expense and net corporate
development and restructuring costs, partially offset by lower other operating
expenses. See "Noninterest Expense" for further information.
•Income tax provision for the three months ended March 31, 2021 increased $20.1
million compared to the three months ended March 31, 2020 , primarily due to the
$74.7 million increase in pre-tax income.
56
--------------------------------------------------------------------------------
Table of Contents
Net Interest Income
The following tables provide information concerning the balances, yields and
rates on interest-earning assets and interest-bearing liabilities during the
periods indicated:
Three months ended March 31,
2021 2020
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate(1) Balance Interest Rate(1)
Assets:
Interest-earning assets: Loans:(2) Commercial real estate loans$ 2,803,378 $ 29,191 4.22 %$ 2,808,867 $ 34,292 4.91 % Residential loans 734,593 12,864 7.00 992,408 13,541 5.46 Commercial loans and leases 4,138,034 52,620 5.16 3,533,626 55,693 6.35 Consumer loans 1,159,588 12,836 4.49 1,130,223 14,935 5.31 Loans held for sale 161,287 1,341 3.37 69,884 741 4.26 Total loans and leases 8,996,880 108,852 4.91 8,535,008 119,202 5.62 Mortgage-backed securities(3) 2,507,910 10,704 1.71 1,959,637 13,219 2.70 Investment securities(3) 336,410 1,449 1.98 131,121 926 3.40 Other interest-earning assets 1,103,632 276 0.10 76,356 508 2.68 Total interest-earning assets 12,944,832$ 121,281 3.81 % 10,702,122$ 133,855 5.04 % Allowance for credit losses (226,911) (85,055) Cash and due from banks 114,725 139,836 Cash in non-owned ATMs 393,964 335,434 Bank-owned life insurance 32,155 30,154 Other noninterest-earning assets 997,444 1,037,033 Total assets$ 14,256,209 $ 12,159,524 Liabilities and Stockholders' Equity: Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand$ 2,572,325 $ 618 0.10 %$ 2,085,229 $ 1,897 0.37 % Money market 2,682,219 854 0.13 2,152,986 4,090 0.76 Savings 1,830,781 150 0.03 1,574,215 1,744 0.45 Customer time deposits 1,117,191 2,377 0.86 1,305,432 5,655 1.74 Total interest-bearing customer deposits 8,202,516 3,999 0.20 7,117,862 13,386 0.76 Brokered deposits 136,957 497 1.47 230,423 1,251 2.18 Total interest-bearing deposits 8,339,473 4,496 0.22 7,348,285 14,637 0.80 Federal Home Loan Bank advances 736 5 2.76 170,058 830 1.96 Trust preferred borrowings 67,011 324 1.96 67,011 586 3.52 Senior debt 246,654 2,266 3.67 98,627 1,179 4.78 Other borrowed funds(4) 19,656 5 0.10 148,256 473 1.28 Total interest-bearing liabilities 8,673,530$ 7,096 0.33 % 7,832,237$ 17,705 0.91 % Noninterest-bearing demand deposits 3,490,831 2,166,510 Other noninterest-bearing liabilities 322,296 326,185 Stockholders' equity 1,771,822 1,835,501 Noncontrolling interest (2,270) (909) Total liabilities and stockholders' equity$ 14,256,209 $ 12,159,524 Excess of interest-earning assets over interest-bearing liabilities$ 4,271,302 $ 2,869,885 Net interest and dividend income$ 114,185 $ 116,150 Interest rate spread 3.48 % 4.13 % Net interest margin 3.59 % 4.38 % (1)Weighted average yields for tax-exempt securities and loans have been computed on a tax-equivalent basis. (2)Average balances are net of unearned income and include nonperforming loans. (3)Includes securities available-for-sale at fair value. (4)Includes federal funds purchased. 57 -------------------------------------------------------------------------------- Table of Contents During the three months endedMarch 31, 2021 , net interest income decreased$2.0 million from the three months endedMarch 31, 2020 primarily due to the lower rate environment and a$2.9 million decrease in purchase accounting accretion, partially offset by$9.4 million of net interest income from PPP loans which included$7.8 million of fee accretion mainly related to loan forgiveness. Net interest margin was 3.59% for the first quarter of 2021, a 79 basis point decrease compared to 4.38% for the first quarter of 2020 reflecting 39 bps from the significant short-term liquidity increase in customer deposits, a 36 bps net decline from the lower interest rate environment and balance sheet mix, and 16 bps from lower purchase accounting accretion, partially offset by a 12 bps increase from the impact of PPP loans. Allowance for Credit Losses We maintain the allowance for credit losses at an appropriate level based on our assessment of estimable and expected losses in the loan portfolio. Our allowance for credit losses is based on our historical loss experience that includes the inherent risk of our loans and various other factors including but not limited to, collateral values, trends in asset quality, level of delinquent loans and concentrations. Further, regional and national economic forecasts are considered in our expected credit losses. Our evaluation is based on a review of the portfolio and requires significant, complex and difficult judgments. During the three months endedMarch 31, 2021 , we recorded a recovery of credit losses of$20.2 million , a net change of$76.8 million as compared with the provision for credit losses of$56.6 million for the three months endedMarch 31, 2020 . This improvement reflects the positive economic outlook from our ACL modeling and improved credit quality metrics reflecting overall declines in problem assets, nonperforming assets and delinquencies. The allowance for credit losses decreased to$204.8 million atMarch 31, 2021 from$228.8 million atDecember 31, 2020 , primarily due to the$20.2 million recovery of credit losses during the three months endedMarch 31, 2021 , as described above. The ratio of allowance for credit losses to total loans and leases was 2.36% atMarch 31, 2021 and 2.51% atDecember 31, 2020 . During the three months endedMarch 31, 2021 , net charge-offs totaled$3.8 million , compared to$1.0 million during the three months endedMarch 31, 2020 . The ratio of net charge-offs to average gross loans net of unearned income, which excludes loans held for sale and reverse mortgages, was 0.18% (annualized) and 0.09% atMarch 31, 2021 andDecember 31, 2020 , respectively. See Note 7 to the unaudited Consolidated Financial Statements and Nonperforming Assets above for further information. Noninterest Income During the three months endedMarch 31, 2021 , noninterest income was$47.8 million , an increase of$7.0 million from$40.8 million during the three months endedMarch 31, 2020 . This increase includes a$5.1 million increase in mortgage banking activities due to improved secondary market conditions and increased volume from refinancings resulting from the lower interest rate environment, an increase of$3.3 million in Investment management and fiduciary revenue driven by trust services revenue, and$2.2 million of referral fees related to new PPP loans to be originated in 2021 (known as PPP 2.0) in the current period. Partially offsetting these increases was a$4.6 million decrease in Credit/debit card and ATM income primarily due to a reduction in interchange fees of$2.7 million resulting from the Durbin amendment (effective onJuly 1, 2020 ) and a$2.0 million decrease in Cash Connect® driven by the lower interest rate environment compared to the prior period. For further information, see Note 3 to the unaudited Consolidated Financial Statements. Noninterest Expense Noninterest expense for the three months endedMarch 31, 2021 was$95.6 million , an increase of$7.1 million from$88.5 million for the three months endedMarch 31, 2020 . The increase was primarily due to a$7.8 million increase in Salaries, benefits and other compensation as a result of higher salaries and incentive compensation due to franchise growth, and a$2.4 million increase in Equipment expense due to higher third-party software expenses related to our ongoing delivery transformation initiatives. We also incurred$0.5 million of higher net corporate development and restructuring costs as compared to the prior period driven by increased costs primarily related to our pending Merger with Bryn Mawr. These increases were partially offset by a$5.8 million decrease in Other operating expenses that included a$3.0 million contribution to theWSFS Community Foundation in the prior year. 58 -------------------------------------------------------------------------------- Table of Contents Income Taxes We and our subsidiaries file a consolidated federal income tax return and separate state income tax returns. Income taxes are accounted for in accordance with ASC 740, Income Taxes, which requires the recording of deferred income taxes for tax consequences of temporary differences. We recorded income tax expense of$21.4 million during the three months endedMarch 31, 2021 compared to income tax expense of$1.3 million for the same period in 2020. Our effective tax rate was 24.7% for the three months endedMarch 31, 2021 compared to 10.9% for the same period in 2020. The effective tax rate for the three months endedMarch 31, 2021 increased primarily due to the$1.8 million in tax benefits recognized during the three months endedMarch 31, 2020 related to tax law changes contained in the CARES Act, related to the ability to carry back certain acquired net operating losses to prior years where the statutory tax rate was higher than the current statutory tax rate. Further, we incurred$0.4 million of tax expense related to acquisition costs during the three months endedMarch 31, 2021 whereas none were incurred in the comparable quarter in 2020. The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, federal low-income housing tax credits, and excess tax benefits from recognized stock compensation. These tax benefits are offset by the tax effect of stock-based compensation expense related to incentive stock options, nondeductible acquisition costs and a provision for state income tax expense. We frequently analyze our projections of taxable income and make adjustments to our provision for income taxes accordingly. Contractual Obligations Our contractual obligations atMarch 31, 2021 did not significantly change from our contractual obligations atDecember 31, 2020 , which are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 59
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
