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$15.1 billion in assets and$26.7 billion in assets under management (AUM) and assets under administration (AUA) atJune 30, 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 two wholly owned subsidiaries:Beneficial Equipment Finance Corporation (BEFC) and 1832Holdings, Inc. , and one majority-owned subsidiary,NewLane Finance Company (NewLane Finance®). Our banking business had a total loan and lease portfolio of$8.3 billion as ofJune 30, 2021 , which was funded primarily through commercial relationships and retail and customer generated deposits. We have built a$6.5 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, in addition to mortgage and title services through our branches and WSFS Mortgage®, our mortgage banking company specializing in a variety of residential mortgage and refinancing solutions. Our leasing business, conducted by 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 captive insurance through its subsidiary, Prime Protect. 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, Cash Connect® manages approximately$1.8 billion in total cash and services approximately 28,100 non-bank ATMs and approximately 5,800 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 614 branded ATMs for WSFS Bank Customers, which is 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$26.7 billion of AUM and AUA atJune 30, 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® andChristiana 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 ofJune 30, 2021 , we service our customers primarily from 112 offices located inPennsylvania (52),Delaware (42),New Jersey , (16),Virginia (1) andNevada (1), our ATM network, our website at www.wsfsbank.com and our mobile app. 53 -------------------------------------------------------------------------------- Table of Contents Highlights for Second Quarter and First Six Months of 2021 Results and other notable items include the following: •OnMarch 9, 2021 , WSFS signed an Agreement and Plan of Merger (the Merger Agreement) withBryn Mawr , aPennsylvania corporation and the parent holding company of TheBryn Mawr Trust Company , aPennsylvania chartered bank and wholly owned subsidiary ofBryn Mawr (Bryn Mawr Bank). OnJune 10, 2021 , the stockholders of both WSFS andBryn Mawr approved the Merger. OnJuly 21, 2021 , we received a key regulatory approval from theOffice of the Comptroller of the Currency . The Merger is subject to customary conditions and the remaining required regulatory approval, and is currently expected to close early in the fourth quarter of 2021. We recorded$2.4 million of corporate development and restructuring expense primarily related to the pending Merger during the second quarter of 2021. •OnJune 15, 2021 , WSFS completed the redemption of$100.0 million in aggregate principal amount of our 4.50% fixed-to-floating rate senior notes due 2026 (the 2026 Notes). We recorded a$1.1 million loss of debt extinguishment to recognize the remaining unamortized debt issue costs associated with these notes. •We recorded a reduction in the allowance for credit losses (ACL) of$72.4 million and$96.4 million during the three and six months endedJune 30, 2021 , respectively, as a result of continued improving credit trends and economic forecasts. •During the quarter, we recorded a$5.1 million unrealized gain on our investment inSocial Finance, Inc. (SoFi), which was subsequently liquidated at a realized gain of approximately$4.4 million inJuly 2021 . •Taking a portion of the SoFi proceeds, we contributed$1.0 million to theWSFS CARES Foundation to further fund support to our expanded communities. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Financial Condition Total assets increased$814.9 million to$15.1 billion atJune 30, 2021 compared toDecember 31, 2020 . This increase is primarily comprised of the following: •Investment securities, available-for-sale increased$837.5 million during the six months endedJune 30, 2021 primarily due to$1.3 billion in purchases partially offset by repayments of$354.3 million , decreased market-values on available-for-sale securities of$45.7 million and sales of$9.3 million . •Cash and cash equivalents increased$766.4 million , primarily reflecting the continuation of excess cash held due to increased deposits related to PPP loans, additional government stimulus and reduced levels of customer spending during the COVID-19 pandemic. •Net loans and leases, excluding loans held for sale, decreased$664.1 million , reflecting a$612.4 million decline in commercial and industrial loans that included a$528.3 million decrease due to forgiveness of PPP loans, a$221.4 million decline in residential and commercial real estate loans, largely due to non-relationship run-off portfolios acquired through the Beneficial acquisition, and lower commercial loan demand resulting from higher levels of borrower liquidity. Partially offsetting these decreases was$134.1 million of growth across our owner-occupied, construction and commercial small business lease portfolios, and a decrease of$96.4 million in our allowance for credit losses due to positive developments in our economic forecasts and continued stable and improved credit quality metrics with notable declines in our problem assets, nonperforming assets and delinquencies. •Loans held for sale decreased$84.4 million during the six months endedJune 30, 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 six months endedJune 30, 2021 . Total liabilities increased$722.6 million to$13.3 billion atJune 30, 2021 compared toDecember 31, 2020 . This increase is primarily comprised of the following: •Total deposits increased$870.2 million , due to an increase in customer funding, reflecting continued 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 increase also reflects a$476.3 million increase in core deposits from our Trust business. The ratio of net loans and leases (including loans held for sale) to customer deposits was 65% atJune 30, 2021 reflecting significant liquidity capacity. •Senior debt decreased$98.8 million due to the redemption of the 2026 Notes, as described above. 54 -------------------------------------------------------------------------------- Table of Contents •Other liabilities decreased$43.9 million primarily due to$35.7 million in lower accrued expenses, reflecting the timing of settlement for debt security trades, payment of Associate incentives and taxes in 2021, and a$3.1 million release of the unfunded commitments reserve, which is consistent with reductions in ACL based upon our stable and improving credit quality metrics. •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 increased$92.3 million betweenDecember 31, 2020 andJune 30, 2021 . This increase was primarily due to$160.7 million of income attributable to WSFS for the six months endedJune 30, 2021 , partially offset by$45.7 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 inJanuary 2021 , and the payment of dividends on our common stock of$11.9 million . During the second quarter of 2021, our Board of Directors approved a quarterly cash dividend of$0.13 per share of common stock. This dividend will be paid onAugust 19, 2021 to stockholders of record as ofAugust 5, 2021 . Book value per share of common stock was$39.63 atJune 30, 2021 , an increase of$2.11 from$37.52 atDecember 31, 2020 . Tangible book value per share of common stock (a non-GAAP financial measure) was$28.02 atJune 30, 2021 , an increase of$2.17 from$25.85 atDecember 31, 2020 . These increases are due to the same drivers of the increase in stockholders' equity of WSFS described above. We believe tangible book value per common share helps management and investors better understand and assess changes from period to period in stockholders' equity exclusive of changes in intangible assets. This non-GAAP measure should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in theU.S. (GAAP), and is not a substitute for, or superior to, GAAP results. For a reconciliation of tangible book value per common share to book value per share in accordance with GAAP, see "Reconciliation of Non-GAAP Measure to GAAP Measure." The table below compares the Bank's and the Company's consolidated capital position to the minimum regulatory requirements as ofJune 30, 2021 : To be Well-Capitalized Consolidated Minimum For Capital Under Prompt Corrective Capital Adequacy Purposes Action Provisions (Dollars in thousands) Amount Percent Amount Percent Amount Percent Total Capital (to Risk-Weighted Assets) Wilmington Savings Fund Society, FSB$ 1,561,568 15.41 %$ 810,934 8.00 % $ 1,013,667 10.00 % WSFS Financial Corporation 1,542,475 15.14 814,845 8.00 1,018,556 10.00 Tier 1 Capital (to Risk-Weighted Assets) Wilmington Savings Fund Society, FSB 1,440,393 14.21 608,200 6.00 810,934 8.00 WSFS Financial Corporation 1,421,301 13.95 611,134 6.00 814,845 8.00 Common Equity Tier 1 Capital (to Risk-Weighted Assets) Wilmington Savings Fund Society, FSB 1,440,393 14.21 456,150 4.50 658,884 6.50 WSFS Financial Corporation 1,356,301 13.32 458,350 4.50 662,062 6.50 Tier 1Leverage Capital Wilmington Savings Fund Society, FSB 1,440,393 10.11 569,876 4.00 506,834 5.00 WSFS Financial Corporation 1,421,301 9.96 570,601 4.00 713,251 5.00 55
-------------------------------------------------------------------------------- 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, which may include restrictions on 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. 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 ofJune 30, 2021 , the Bank and the Company were in compliance with the regulatory capital requirements and met or 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$112.3 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.
Liquidity
We manage our liquidity and funding needs through ourTreasury 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 six months endedJune 30, 2021 , cash, cash equivalents and restricted cash increased$766.4 million to$2.4 billion from$1.7 billion as ofDecember 31, 2020 . Cash provided by operating activities was$89.1 million , primarily reflecting the cash impact of earnings and a$58.9 million increase from the net activity for loans held for sale during the six months endedJune 30, 2021 . These increases were partially offset by a decrease of$35.2 million in other liabilities from the settlement for debt security trades and payment of Associate incentives and taxes, as described above. Cash used in investing activities was$62.6 million primarily due to net purchases of available-for-sale debt securities of$913.7 million , partially offset by$826.1 million from decreased lending activity related to PPP loan forgiveness,$16.2 million in repayments, maturities and calls of held-to-maturity debt securities, and proceeds of$9.3 million from sales of available-for-sale debt securities. Cash provided by financing activities was$739.9 million , primarily due to a$871.4 million net increase in deposits, as a result of the increase in customer funding discussed above, partially offset by$100.0 million for the redemption of the 2026 Notes,$13.2 million for repurchases of common stock under the previously announced stock repurchase plan, common stock dividends of$11.9 million and$6.6 million for repayment of FHLB advances. 56 -------------------------------------------------------------------------------- Table of Contents NONPERFORMING ASSETS Nonperforming assets include nonaccruing loans, other real estate owned (OREO) and restructured loans. Nonaccruing loans are those on which we no longer accrue interest. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management's assessment of the ultimate collectability of principal and interest. Past due loans are defined as loans contractually past due 90 days or more as to principal or interest payments but which remain in accrual status because they are considered well secured and in the process of collection. The following table shows our nonperforming assets and past due loans at the dates indicated: (Dollars in thousands) June 30, 2021 December 31, 2020 Nonaccruing loans: Commercial and industrial$ 14,261 $ 13,816 Owner-occupied commercial 2,781 5,360 Commercial mortgages 1,615 17,175 Residential 2,726 3,247 Consumer 2,641 2,310 Total nonaccruing loans 24,024 41,908 Other real estate owned 1,044 3,061 Restructured loans(1)(6) 14,997 15,539 Total nonperforming assets$ 40,065 $ 60,508 Past due loans: Commercial $ 482 $ 5,634 Residential 1,093 25 Consumer (2) 6,958 11,035 Total past due loans $
8,533 $ 16,694 Ratio of allowance for credit losses to total loans and leases(3)
1.59 % 2.51 %
Ratio of nonaccruing loans to total gross loans and leases(4)
0.29 0.46
Ratio of nonperforming assets to total assets 0.26 0.42
Ratio of allowance for credit losses to nonaccruing loans
551 546
Ratio of allowance for credit losses to total
nonperforming assets(5) 331 378
(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 of $120.4 million at June 30, 2021
and $114.8 million at December 31, 2020 .
Nonperforming assets decreased $20.4 million between December 31, 2020 and
June 30, 2021 . This decrease was primarily due to $24.3 million of collection
activity during the period, which included the payoff of one commercial real
estate relationship of approximately $15.1 million during the first quarter of
2021. The decrease was partially offset by the transfer to non-accrual of
approximately $3.0 million (net of charge-offs) in small commercial and retail
loans and the move to non-accrual of one large commercial relationship during
the first quarter of 2021 that was fully charged-off by June 30, 2021 . The ratio
of nonperforming assets to total assets decreased from 0.42% at December 31,
2020 to 0.26% at June 30, 2021 .
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The following table summarizes the changes in nonperforming assets during the
periods indicated:
Six Months Ended June 30,
(Dollars in thousands) 2021 2020
Beginning balance $ 60,508 $ 39,808
Additions 14,790 18,155
Collections (24,286) (8,171)
Transfers to accrual (28) -
Charge-offs (10,919) (4,914)
Ending balance $ 40,065 $ 44,878
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.
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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
June 30, 2021 , interest-earning assets exceeded interest-bearing liabilities
that mature or reprice within one year (interest-sensitive gap) by $2.2 billion .
Our interest-sensitive assets as a percentage of interest-sensitive liabilities
within the one-year window was 140.47% at June 30, 2021 compared with 133.10% at
December 31, 2020 . Likewise, the one-year interest-sensitive gap as a percentage
of total assets was 14.38% at June 30, 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 June 30, 2021 and December 31, 2020 :
June 30, 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 24.2% 19.92% 19.7% 19.10%
+200 16.0% 19.45% 13.1% 18.69%
+100 7.9% 18.90% 6.5% 18.05%
+50 3.8% 18.06% 3.2% 17.59%
+25 1.9% 17.96% 1.5% 17.32%
- -% 17.83% -% 17.04%
-25 (1.8)% 17.56% (1.5)% 16.62%
-50 (2.4)% 17.21% (2.1)% 16.20%
-100 (3.6)% 16.38% (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.
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RESULTS OF OPERATIONS
Three months ended June 30, 2021 : Net income for the three months ended June 30,
2021 was $95.7 million , compared to net loss of $7.1 million for the three
months ended June 30, 2020 .
•Net interest income decreased $7.0 million during the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 , primarily due to
a decrease in purchase accounting accretion and the purposeful run-off of
acquired non-relationship loan portfolios, partially offset by PPP income. See
"Net Interest Income" for further information.
•Our (recovery of) provision for credit losses for the three months ended
June 30, 2021 decreased $162.3 million compared to the three months ended
June 30, 2020 , primarily due to the positive economic outlook from our ACL
modeling and improved credit quality metrics reflecting overall declines in
problem assets, nonperforming assets and delinquencies, as compared to ACL
reserve builds required during 2020 as a result of the economic uncertainty
associated with the COVID-19 pandemic at that time. See "Allowance for Credit
Losses" for further information.
•Noninterest income for the three months ended June 30, 2021 decreased $15.4
million compared to the three months ended June 30, 2020 , primarily due to the
year-over-year impact from of sale of Visa Class B shares in the prior year, a
decline in our mortgage banking business and lower interchange fees from the
impact of the Durbin Amendment on the second quarter of 2021 results, partially
offset by unrealized gain in equity investments driven by our SoFi investment
and higher revenues generated through our trust services in the current period
compared to the prior period. See "Noninterest Income" for further information.
•Noninterest expense increased $2.6 million during the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 due to increases
in salaries and benefits, other operating expenses, equipment expense, and debt
extinguishments costs from our 2026 Notes, partially offset loan workout and
other credit costs. See "Noninterest Expense" for further information.
•Income tax provision (benefit) for the three months ended June 30, 2021
increased $33.9 million compared to the three months ended June 30, 2020 ,
primarily due to the $137.4 million increase in pre-tax income.
Six months ended June 30, 2021 : Net income for the six months ended June 30,
2021 was $160.7 million , compared to net income of $3.8 million for the six
months ended June 30, 2020 .
•Net interest income decreased $9.0 million during the six months ended June 30,
2021 compared to the six months ended June 30, 2020 , primarily due to lower loan
volumes relating to purposeful run-off of acquired non-relationship loan
portfolios, a lower interest rate environment and a decrease in purchase
accounting accretion, partially offset by favorable customer funding and PPP
income. See "Net Interest Income" for further information.
•Our (recovery of) provision for credit losses for the six months ended June 30,
2021 decreased $239.1 million compared to the six months ended June 30, 2020 ,
due to the reasons described above. See "Allowance for Credit Losses" for
further information.
•Noninterest income for the six months ended June 30, 2021 decreased $8.4
million compared to the six months ended June 30, 2020 , primarily due to the
Visa Class B sale in 2020 and lower interchange fees from the impact of the
Durbin Amendment on the first half of 2021 results as described above. These
decreases were offset by the higher revenues generated through our trust
services, the unrealized gain in equity investments from SoFi, and higher
traditional banking fees in the current period compared to the prior period. See
"Noninterest Income" for further information.
•Noninterest expense increased $9.7 million during the six months ended June 30,
2021 compared to the six months ended June 30, 2020 due to increases in salaries
and benefits, equipment expense and debt extinguishment costs, as described
above, partially offset by lower loan workout and other credit costs and other
operating expenses. See "Noninterest Expense" for further information.
•Income tax provision for the six months ended June 30, 2021 increased $54.1
million compared to the six months ended June 30, 2020 , primarily due to the
$212.0 million increase in pre-tax income.
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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 June 30,
2021 2020
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate(1) Balance Interest Rate(1)
Assets:
Interest-earning assets:
Loans:(2)
Commercial loans and leases $ 3,900,612 $ 46,039 4.74 % $ 4,291,301 $ 53,390 5.01 %
Commercial real estate loans 2,791,438 28,277 4.06 2,841,231 31,230 4.42
Residential loans 647,442 11,271 6.96 933,854 13,679 5.86
Consumer loans 1,123,440 11,950 4.27 1,124,742 13,065 4.67
Loans held for sale 131,460 1,108 3.38 92,252 896 3.91
Total loans and leases 8,594,392 98,645 4.61 9,283,380 112,260 4.87
Mortgage-backed securities(3) 2,978,331 12,506 1.68 2,048,357 12,549 2.45
Investment securities(3) 318,415 1,383 1.97 130,671 1,009 3.82
Other interest-earning assets 1,414,264 368 0.10 220,801 65 0.12
Total interest-earning assets $ 13,305,402 $ 112,902 3.41 % $ 11,683,209 $ 125,883 4.34 %
Allowance for credit losses (194,211) (156,576)
Cash and due from banks 176,015 108,463
Cash in non-owned ATMs 468,136 319,154
Bank-owned life insurance 32,329 29,965
Other noninterest-earning assets 998,948 1,036,500
Total assets $ 14,786,619 $ 13,020,715
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 2,560,283 $ 531 0.08 % $ 2,213,369 $ 882 0.16 %
Savings 1,922,342 149 0.03 1,681,587 877 0.21
Money market 2,754,895 801 0.12 2,262,737 2,311 0.41
Customer time deposits 1,078,296 1,842 0.69 1,242,730 4,954 1.60
Total interest-bearing customer deposits 8,315,816 3,323 0.16 7,400,423 9,024 0.49
Brokered deposits 63,407 455 2.88 286,655 808 1.13
Total interest-bearing deposits 8,379,223 3,778 0.18 7,687,078 9,832 0.51
Federal Home Loan Bank advances - - - 106,694 625 2.36
Trust preferred borrowings 67,011 317 1.90 67,011 484 2.90
Senior debt 228,260 2,053 3.60 98,681 1,180 4.78
Other borrowed funds(4) 21,661 5 0.09 25,580 6 0.09
Total interest-bearing liabilities $ 8,696,155 $ 6,153 0.28 % $ 7,985,044 $ 12,127 0.61 %
Noninterest-bearing demand deposits 3,963,476 2,882,999
Other noninterest-bearing liabilities 329,341 311,697
Stockholders' equity 1,799,839 1,842,525
Noncontrolling interest (2,192) (1,550)
Total liabilities and stockholders' equity $ 14,786,619 $ 13,020,715
Excess of interest-earning assets over
interest-bearing liabilities $ 4,609,247 $ 3,698,165
Net interest and dividend income $ 106,749 $ 113,756
Interest rate spread 3.13 % 3.73 %
Net interest margin 3.23 % 3.93 %
(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.
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Six months ended June 30,
2021 2020
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate(1) Balance Interest Rate(1)
Assets:
Interest-earning assets:
Loans:(2)
Commercial loans and leases $ 4,018,667 $ 98,659 4.96 % $ 3,912,464 $ 109,084 5.62 %
Commercial real estate loans 2,797,375 57,468 4.14 2,825,049 65,522 4.66
Residential loans 690,776 24,135 6.99 963,131 27,219 5.65
Consumer loans 1,141,414 24,786 4.38 1,127,483 28,000 4.99
Loans held for sale 146,291 2,449 3.38 81,068 1,637 4.06
Total loans and leases 8,794,523 207,497 4.76 8,909,195 231,462 5.23
Mortgage-backed securities(3) 2,744,420 23,210 1.69 2,003,997 25,768 2.57
Investment securities 327,363 2,832 1.97 130,896 1,935 3.61
Other interest-earning assets 1,259,806 644 0.10 148,578 573 0.78
Total interest-earning assets $ 13,126,112 $ 234,183 3.61 % $ 11,192,666 $ 259,738 4.68 %
Allowance for credit losses (210,471) (120,816)
Cash and due from banks 145,568 124,129
Cash in non-owned ATMs 431,226 327,314
Bank-owned life insurance 32,242 30,059
Other noninterest-earning assets 998,202 1,036,767
Total assets $ 14,522,879 $ 12,590,119
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 2,566,271 $ 1,149 0.09 % $ 2,149,299 $ 2,779 0.26 %
Savings 1,876,815 299 0.03 1,627,901 2,621 0.32
Money market 2,718,758 1,655 0.12 2,207,861 6,400 0.58
Customer time deposits 1,097,636 4,219 0.78 1,274,081 10,610 1.67
Total interest-bearing customer deposits 8,259,480 7,322 0.18 7,259,142 22,410 0.62
Brokered deposits 99,979 952 1.92 258,539 2,059 1.60
Total interest-bearing deposits 8,359,459 8,274 0.20 7,517,681 24,469 0.65
Federal Home Loan Bank advances 366 5 2.75 138,376 1,455 2.11
Trust preferred borrowings 67,011 641 1.93 67,011 1,070 3.21
Senior debt 237,406 4,319 3.64 98,654 2,359 4.78
Other borrowed funds(4) 20,664 10 0.10 86,918 479 1.11
Total interest-bearing liabilities $ 8,684,906 $ 13,249 0.31 % $ 7,908,640 $ 29,832 0.76 %
Noninterest-bearing demand deposits 3,728,459 2,524,755
Other noninterest-bearing liabilities 325,838 318,941
Stockholders' equity 1,785,907 1,839,013
Noncontrolling interest (2,231) (1,230)
Total liabilities and stockholders' equity $ 14,522,879 $ 12,590,119
Excess of interest-earning assets over
interest-bearing liabilities $ 4,441,206 $ 3,284,026
Net interest and dividend income $ 220,934 $ 229,906
Interest rate spread 3.30 % 3.92 %
Net interest margin 3.40 % 4.14 %
(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.
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Three months ended June 30, 2021 : During the three months ended June 30, 2021 ,
net interest income decreased $7.0 million from the three months ended June 30,
2020 primarily due to a $4.9 million decrease in purchase accounting accretion
and a $3.0 million reduction, excluding PPP loans, primarily from lower loan
balances due to purposeful run-off of acquired non-relationship loans. These
decreases were partially offset by $0.9 million of higher PPP income. Net
interest margin was 3.23% for the second quarter of 2021, a 70 basis point
decrease compared to 3.93% for the second quarter of 2020 reflecting 45 bps from
the short-term liquidity increase in customer deposits, a 19 bps net decline
from the lower interest rate environment and balance sheet mix, and 22 bps from
lower purchase accounting accretion, partially offset by a 16 bps increase from
the impact of PPP loans.
Six months ended June 30, 2021 : During the six months ended June 30, 2021 , net
interest income decreased $9.0 million from the six months ended June 30, 2020 .
This decrease included a $26.1 million reduction from lower loan volumes due to
purposeful run-off of acquired non-relationship loans and the net impact of a
lower interest rate environment, and a $7.8 million decrease in purchase
accounting accretion. This was partially offset by a favorable increase of $15.1
million from lower customer funding and $10.2 million of net interest income
from PPP loans. Net interest margin was 3.40% for the six months ended June 30,
2021 , a 74 basis point decrease compared to 4.14% for the six months ended
June 30, 2020 reflecting 70 bps net decline from the lower interest rate
environment and balance sheet mix, 28 bps from the significant short-term
liquidity increase in customer deposits, and 20 bps from lower purchase
accounting accretion, partially offset by a 29 bps increase from the favorable
impact from customer funding and a 14 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 ended June 30, 2021 , we recorded a recovery of credit
losses of $67.6 million , a net change of $162.3 million as compared with the
provision for credit losses of $94.8 million for the three months ended June 30,
2020 . During the six months ended June 30, 2021 , we recorded a recovery of
credit losses of $87.7 million , a net change of $239.1 million as compared with
the provision for credit losses of $151.4 million for the six months ended
June 30, 2020 . These improvements reflect the continued 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 $132.4 million at June 30, 2021
from $228.8 million at December 31, 2020 , primarily due to the $87.7 million
recovery of credit losses during the six months ended June 30, 2021 , as
described above. The ratio of allowance for credit losses to total loans and
leases was 1.59% at June 30, 2021 and 2.51% at December 31, 2020 . Net
charge-offs were $4.8 million and $8.7 million during the three and six months
ended June 30, 2021 , respectively, and were primarily driven by one commercial
relationship, as described above in Nonperforming Assets.
When compared to the three and six months ended June 30, 2020 , net charge-offs
increased by $3.2 million and $6.0 million , respectively. The ratio of net
charge-offs to average gross loans net of unearned income, which excludes loans
held for sale and reverse mortgages, was 0.20% (annualized) and 0.09% at
June 30, 2021 and December 31, 2020 , respectively.
See Note 7 to the unaudited Consolidated Financial Statements and Nonperforming
Assets above for further information.
Noninterest Income
Three months ended June 30, 2021 : During the three months ended June 30, 2021 ,
noninterest income was $49.0 million , a decrease of $15.4 million from $64.4
million during the three months ended June 30, 2020 . This decrease includes the
impact of a $22.1 million gain on sale of Visa Class B shares that occurred in
June 2020 , a $4.0 million decrease in mortgage banking activities from the
expected decline in pipeline volume compared to the historically higher levels
in the prior period, and a $1.7 million decrease in Credit/debit card and ATM
income, which included a reduction in interchange fees of $3.4 million resulting
from the Durbin amendment (effective for us on July 1, 2020 ). Partially
offsetting these decreases were $5.3 million of unrealized gains on equity
investments primarily driven by our investment in SoFi and an increase of $4.4
million in Investment management and fiduciary revenue driven by our trust
services.
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Six months ended June 30, 2021 : During the six months ended June 30, 2021 ,
noninterest income was $96.8 million , a decrease of $8.4 million from $105.2
million during the six months ended June 30, 2020 . This decrease includes the
$22.1 million gain on sale of Visa Class B shares as described above, and a $6.3
million decrease in Credit/debit card and ATM income primarily due to a
reduction in interchange fees resulting from the Durbin Amendment, offset by an
increase of $7.7 million in Investment management and fiduciary revenue driven
by trust services revenue, $4.6 million of unrealized gains on equity
investments driven primarily from the gains associated with SoFi, $4.0 million
from higher traditional banking fees, and $4.4 million from other income, driven
primarily by $2.0 million from Cash Connect® and $1.4 million from gains on SBA
loans.
For further information, see Note 3 to the unaudited Consolidated Financial
Statements.
Noninterest Expense
Three months ended June 30, 2021 : During the three month ended June 30, 2021 ,
noninterest expense was $96.0 million , an increase of $2.6 million from $93.4
million for the three months ended June 30, 2020 . The increase was primarily due
to a $3.7 million increase in Salaries, benefits and other compensation as a
result of higher salaries and incentive compensation due to continued franchise
growth, a $1.9 million increase in Other operating expenses that included a $1.0
million contribution to the WSFS CARES Foundation , a $1.6 million increase in
Equipment expense including higher third-party software expenses related to our
ongoing delivery transformation initiatives, and $1.1 million in debt
extinguishment costs from the repayment of our 2026 Notes. These increases were
partially offset by a $5.1 million decrease in Loan workout and other credit
costs due to the release of reserves on our unfunded commitments.
Six months ended June 30, 2021 : During the six months ended June 30, 2021 ,
noninterest expense was $191.7 million , an increase of $9.7 million from $181.9
million for the six months ended June 30, 2020 . The increase was primarily due
to a $11.4 million increase in Salaries, benefits and other compensation as a
result of higher salaries and incentive compensation due to franchise growth, a
$4.0 million increase in Equipment expense including our ongoing delivery
transformation initiatives as described above, and $1.1 million in debt
extinguishment costs. These increases were partially offset by a $4.5 million
decrease in Loan workout and other credit costs and $3.9 million decrease in
Other operating expenses primarily due to $2.0 million in lower contributions to
the WSFS CARES Foundation (formerly the WSFS Community Foundation ) when compared
to the prior year and $1.4 million of plan settlement loss incurred from the
termination of the Alliance Pension Plan in June 2020 .
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 $31.7 million and $53.1 million during the three and six months ended
June 30, 2021 , respectively, compared to income tax benefit of $2.2 million and
$1.0 million for the same periods in 2020.
Our effective tax rate was 24.9% and 24.8% for the three and six months ended
June 30, 2021 , respectively, compared to 22.3% and 53.4% for the same periods in
2020. The effective tax rate for the six months ended June 30, 2021 increased
primarily due to the $1.7 million in tax benefits recognized during the six
months ended June 30, 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 $0.2 million and $0.6 million of tax
expense related to nondeductible acquisition costs during the three and six
months ended June 30, 2021 whereas none were incurred in the comparable periods
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 at June 30, 2021 did not significantly change from
our contractual obligations at December 31, 2020 , which are disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2020 .
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