WSFS Reports 3Q 2023 EPS of $1.22 and ROA of 1.45%; Solid Loan Growth, NIM of 4.08%, and Fee Revenue Increase of 9%; Continued Strong Liquidity and Capital Levels

WSFS Financial Corporation (NASDAQ:WSFS), the parent company of WSFS Bank, today announced its financial results for the third quarter of 2023.

Selected financial results and metrics are as follows:

GAAP results for the quarterly periods shown included the following items that are excluded from core results.

CEO Commentary

Rodger Levenson, Chairman, President and CEO, said, "Our 3Q operating results reflect the continued optimization of the significant franchise investment over the past several years. Revenue growth was highlighted by solid quarterly loan growth of 3%, a NIM of 4.08%, and strong performance across our major fee businesses.

"While the Greater Philadelphia and Delaware regional economy continues to demonstrate resiliency, we anticipate continued uncertainty in the near-term outlook. In that regard, our balance sheet remains strong with an ACL coverage of 1.28%, significant liquidity capacity, and all regulatory capital ratios above "well-capitalized" levels.

"During the quarter, we were pleased to announce the expansion of our Wealth Management business in southern Delaware and the establishment of a new presence in Boca Raton, Florida with the acquisition of a registered investment advisory firm's business based in Rehoboth Beach, Delaware.

"In addition, WSFS was honored to be voted reader's pick as the Best Bank For Customer Service in 2023 in South Jersey Biz Magazine. This recognition is another tribute to our over 2,200 Associates who live our Mission: We Stand For Service every day."

Highlights for 3Q 2023:

• Core EPS⁽³⁾ was $1.23 flat from 3Q 2022.
• Core ROA⁽³⁾ was 1.46% compared to 1.52% for 3Q 2022.
• Core PPNR⁽³⁾ of $116.4 million, or 2.28% of average assets⁽³⁾ compared to $111.4 million and 2.18%, respectively, for 3Q 2022.
• Net loan growth of 3% (11% annualized) from 2Q 2023 driven by growth across the commercial portfolio and our consumer partnership with Spring EQ.
• Customer deposits decreased by $363.3 million, or 2% (9% annualized) for the quarter, driven by a $306.1 million decrease primarily in transactional trust deposits, which tend to be large and short-term in nature.
• Net interest margin of 4.08% compared to 4.11% for 2Q 2023, reflects increasing deposit betas, partially offset by higher loan yields.
• Core fee revenue (noninterest income)⁽³⁾ was a record $73.4 million, an increase of $6.0 million across all major business lines, or 9% (not annualized), compared to 2Q 2023.
• Total net credit costs were $18.2 million, driven by overall net loan growth and portfolio migration. The ACL coverage ratio was 1.28%, flat from 2Q 2023.
• WSFS Bank capital ratios remain significantly above "well-capitalized" levels, with total risk-based capital of 14.43% and Common Equity Tier 1 of 13.26%.
• WSFS repurchased 386,900 shares of common stock at an average price of $40.67 per share, totaling an aggregate of $15.7 million. The Board of Directors also approved a quarterly cash dividend of $0.15 per share.

Third Quarter 2023 Discussion of Financial Results

Balance Sheet

The following table summarizes loan and lease balances and composition at September 30, 2023 compared to June 30, 2023 and September 30, 2022:

At September 30, 2023, WSFS' net loan and lease portfolio increased $328.0 million, or 3% (11% annualized), when compared with June 30, 2023 due to increases of $92.9 million in commercial mortgage, $88.3 million in construction loans, $56.7 million in C&I, $51.9 million in consumer loans, primarily from Spring EQ (home equity loans), and $15.6 million in NewLane (commercial small business leases).

In line with our 2022-2024 Strategic Plan, the C&I portfolio (including owner-occupied real estate) continued to be our largest portfolio at 37% of net loans and leases. Additionally, our total commercial loan and lease portfolio continues to represent a majority of our lending portfolio at 79% of net loans and leases.

Net loans and leases at September 30, 2023 increased $918.2 million, or 8%, when compared with September 30, 2022. The increase was driven by increases of $365.3 million in commercial mortgage, $280.0 million in consumer loans, primarily from Spring EQ, $144.9 million in C&I, and $71.0 million in NewLane.

The following table summarizes customer deposit balances and composition at September 30, 2023 compared to June 30, 2023 and September 30, 2022:

Total customer deposits decreased $363.3 million, or 2% (9% annualized), when compared with June 30, 2023, driven by a $306.1 million decrease primarily in transactional trust deposits, which tend to be large and short-term in nature.

Customer deposits decreased by $804.8 million from September 30, 2022 primarily driven by customer utilization of excess liquidity and $312.5 million lower transactional trust deposits.

Our deposit base remains highly diverse, with more than half of our customer deposits, or 55%, from our Commercial, Small Business and Wealth Management customer relationships. The loan to deposit ratio⁽⁴⁾ was 79% at September 30, 2023, reflecting continued capacity to fund future loan growth. Our total protected deposits⁽⁵⁾ were 72% of total customer deposits.

Core deposits were a strong 89% of total customer deposits, and no- and low-cost checking accounts represented a robust 50% of total customer deposits at September 30, 2023, with a weighted average cost of 35bps for the quarter.

Net Interest Income

Net interest income increased $0.8 million, or less than 1% (not annualized), compared to 2Q 2023 and increased $5.8 million, or 3%, compared to 3Q 2022, primarily due to the benefits of our asset-sensitive balance sheet, partially offset by increasing deposit betas.

Net interest margin decreased 3bps from 2Q 2023, primarily due to increasing deposit betas, partially offset by higher loan yields. Net interest margin increased 9bps from 3Q 2022, primarily due to the benefits of our asset-sensitive balance sheet.

Total loan yields were 6.92%, an increase of 13bps compared to 2Q 2023. Total customer deposit costs were 1.38%, an increase of 22bps compared to 2Q 2023 and customer interest-bearing deposit costs were 2.05%, an increase of 30bps compared to 2Q 2023.

Asset Quality

The following table summarizes asset quality metrics as of and for the period ended September 30, 2023 compared to June 30, 2023 and September 30, 2022.

While overall asset quality metrics remained near historically favorable levels, leading indicators reflected the impact of the slowing economy. Problem assets to total Tier 1 capital plus ACL ratio increased to 23.61% from June 30, 2023 due to downgrades in the Construction, Commercial Mortgage - Office, and C&I portfolios. Delinquencies increased $38.0 million, or 28 bps of gross loans compared to June 30, 2023 largely due to two multi-family loans and one healthcare loan. Total delinquencies to gross loans were 87 bps.

Nonperforming assets increased $24.2 million, or 13 bps of total assets compared to June 30, 2023 primarily driven by two unrelated C&I loans that experienced significant operational challenges.

Net charge-offs were $14.3 million, or 0.45% (annualized) of average gross loans during the quarter. Approximately 60% of these charge-offs can be attributed to the Upstart and NewLane portfolios, while the remaining charge-offs were mainly linked to the loans mentioned above.

Total net credit costs were $18.2 million in the quarter compared to $16.4 million in 2Q 2023. The ACL was $176.0 million as of September 30, 2023, an increase of $4.1 million from June 30, 2023. The increases in net credit costs and ACL from the prior quarter were due to overall net loan growth. The ACL coverage ratio was 1.28%, flat from June 30, 2023.

Core Fee Revenue

Fees continue to be resilient and well-diversified among various sources, including Wealth Management, Cash Connect^®, traditional and other banking fees, capital markets and mortgage banking. Core fee revenue (noninterest income) of $73.4 million increased $6.0 million, or 9% (not annualized), compared to 2Q 2023, driven by increases of $2.0 million in core banking across consumer partnerships and BOLI income, $1.9 million in capital markets income, which can be uneven from period to period depending on market drivers, $1.2 million in Cash Connect^® and $1.0 million in Wealth Management fees driven by Institutional Trust and Private Wealth Management.

Core fee revenue increased $8.5 million, or 13%, compared to 3Q 2022. The increase was primarily driven by a $5.8 million increase in Cash Connect^®, $3.8 million in Wealth Management fees, and $2.8 million in capital markets fees, partially offset by a decrease of $3.7 million in core banking fees from lower returns on derivative collateral as a result of funding optimization and lower income from our consumer partnerships.

For 3Q 2023, our core fee revenue ratio⁽⁷⁾ was 28.6% compared to 27.0% in 2Q 2023 and 26.8% in 3Q 2022.

Core Noninterest Expense⁽⁸⁾

Core noninterest expense of $139.6 million increased $1.1 million, or 1% (not annualized), compared to 2Q 2023. The increase is primarily due to $2.1 million in salaries and benefits and $1.0 million from Cash Connect^® partially offset by decreases of $1.5 million in professional fees and $0.6 million in occupancy expenses.

Core noninterest expense increased $9.3 million, or 7%, compared to 3Q 2022. The increase is primarily due to $6.9 million in higher variable operating costs, driven by higher Cash Connect^® funding costs from the rising interest rate environment, and $2.2 million from salaries and benefits.

Our core efficiency ratio⁽⁸⁾ was 54.4% in 3Q 2023, compared to 55.5% in 2Q 2023 and 53.8% in 3Q 2022.

Income Taxes

We recorded a $22.9 million income tax provision in 3Q 2023, compared to $23.0 million in 2Q 2023 and $25.8 million in 3Q 2022.

The effective tax rate was 23.6% in 3Q 2023 compared to 25.1% in 2Q 2023 and 26.0% in 3Q 2022. The decrease in effective tax rate for 3Q 2023 compared to 2Q 2023 was primarily driven by favorable tax benefits projected from our Low Income Housing Tax Credit (LIHTC) investments and state taxes. The decrease in effective tax rate for 3Q 2023 compared to 3Q 2022 was primarily due to the favorable tax benefits described above and the impact of a discrete state tax item associated with the sale of the BMT Insurance Advisors business in 2022.

Capital Management

Capital levels remain strong and are all substantially in excess of the "well-capitalized" regulatory benchmarks at September 30, 2023 with WSFS Bank's Tier 1 leverage ratio of 10.72%, Common Equity Tier 1 capital ratio and Tier 1 capital ratio of 13.26%, and Total Risk-based capital ratio of 14.43%.

WSFS' total stockholders' equity decreased $71.9 million, or 3% (not annualized), during 3Q 2023. The decrease was primarily due to a decline in accumulated other comprehensive income (AOCI) of $124.7 million driven by market-value declines on investment securities due to the rising interest rate environment, capital returns of $24.9 million to stockholders, comprising $15.7 million from share repurchases and $9.2 million from quarterly dividends, and was partially offset by quarterly earnings of $74.2 million.

WSFS' tangible common equity⁽⁹⁾ decreased $76.1 million, or 6% (not annualized), compared to June 30, 2023. WSFS' common equity to assets ratio was 11.19% at September 30, 2023, and our tangible common equity to tangible assets ratio⁽⁹⁾ decreased by 27bps during the quarter to 6.49%, primarily due to the reasons described above.

At September 30, 2023, book value per share was $36.93, a decrease of $0.96, or 3% (not annualized), from June 30, 2023, and tangible common book value per share⁽⁹⁾ was $20.33, a decrease of $1.12, or 5% (not annualized), from June 30, 2023.

During 3Q 2023, WSFS repurchased 386,900 shares of common stock for an aggregate of $15.7 million. As of September 30, 2023, WSFS has 5,582,593 shares, or approximately 9% of outstanding shares, remaining to repurchase under its current authorizations.

The Board of Directors approved a quarterly cash dividend of $0.15 per share of common stock. This dividend will be paid on November 17, 2023 to stockholders of record as of November 3, 2023.

Selected Business Segments (included in previous results):

Wealth Management

The Wealth Management segment provides a broad array of planning and advisory services, investment management, trust services, credit and deposit products to individual, corporate, and institutional clients through multiple integrated businesses.

Selected quarterly performance results and metrics are as follows:

Wealth Management pre-tax income decreased $0.5 million compared to 2Q 2023. The decrease was primarily attributable to a higher recovery of credit losses during the prior quarter. Fee revenue increased $0.4 million, or 1%, from 2Q 2023, primarily due to continued growth in Institutional Services. Total noninterest expense increased $0.2 million compared to 2Q 2023.

Wealth Management pre-tax income increased $9.1 million compared to 3Q 2022, driven by higher net interest income and fee revenue in Institutional Services and Private Wealth Management. Fee revenue increased $3.4 million compared to 3Q 2022 due to account growth in Institutional Services and AUM in Private Wealth Management. Total noninterest expense increased $0.3 million compared to 3Q 2022.

Net AUM of $8.1 billion at the end of 3Q 2023 was flat compared to 2Q 2023, and increased $0.8 billion compared to 3Q 2022. AUM balances over the period were primarily impacted by returns in broader equity and fixed income markets.

Cash Connect^®

Cash Connect^® is a premier provider of ATM vault cash, smart safe and cash logistics services in the United States, servicing non-bank ATMs and smart safes nationwide and supporting ATMs for WSFS Bank Customers with one of the largest branded ATM networks in our region.

Selected quarterly financial results and metrics are as follows:

Cash Connect^® net revenue increased $1.0 million from 2Q 2023 driven by higher smart safe and managed services volume, the rising interest rate environment, and funding source optimization (offset by higher external funding expense). Noninterest expense increased $0.9 million compared to 2Q 2023 driven by higher external funding expense and armored carrier expense year-over-year.

Pre-tax income increased $0.2 million compared to 2Q 2023, driven by higher smart safe and managed services volume. ROA increased 15bps from 2Q 2023 primarily due to the same reasons.

Net Revenue increased $5.2 million and noninterest expense increased $6.1 million compared to 3Q 2022 due to the reasons described above.

Pre-tax income decreased $0.9 million compared to 3Q 2022 driven by increased insurance-related expense and personnel expense. ROA decreased 12bps from 3Q 2022 with lower pre-tax income.

At the end of 3Q 2023, Cash Connect^® had approximately $1.5 billion in cash managed with 19% year-over-year growth in smart safe units. Cash Connect^® continues to focus on investment in its growing product lines and expand these services across the country, alongside a wide network and strong pipeline of channel partners, retailers, and top-tier financial institutions.

Third Quarter 2023 Earnings Release Conference Call

Management will conduct a conference call to review 3Q 2023 results at 1:00 p.m. Eastern Time (ET) on Tuesday, October 24, 2023. Interested parties may access the conference call live on our Investor Relations website (https://investors.wsfsbank.com). For those who cannot access the live conference call, a replay will be accessible shortly after the event concludes through our Investor Relations website.

About WSFS Financial Corporation

WSFS Financial Corporation is a multibillion-dollar financial services company. Its primary subsidiary, WSFS Bank, is the oldest and largest locally-headquartered bank and trust company in the Greater Philadelphia and Delaware region. As of September 30, 2023, WSFS Financial Corporation had $20.0 billion in assets on its balance sheet and $77.6 billion in assets under management and administration. WSFS operates from 116 offices, 88 of which are banking offices, located in Pennsylvania (59), Delaware (40), New Jersey (14), Florida (1), Nevada (1) and Virginia (1) and provides comprehensive financial services including commercial banking, consumer banking, treasury management and trust and wealth management. Other subsidiaries or divisions include Arrow Land Transfer, Bryn Mawr Capital Management, LLC, Bryn Mawr Trust^®, The Bryn Mawr Trust Company of Delaware, Cash Connect^®, NewLane Finance^®, Powdermill^® Financial Solutions, WSFS Institutional Services^®, WSFS Mortgage^®, and WSFS Wealth^® Investments. Serving the Greater Delaware Valley since 1832, WSFS Bank is one of the ten oldest banks in the United States continuously operating under the same name. For more information, please visit www.wsfsbank.com.

Forward-Looking Statements

This press release contains estimates, predictions, opinions, projections and other "forward-looking statements" as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, references to the Company's predictions or expectations of future business or financial performance as well as its goals and objectives for future operations, financial and business trends, business prospects, and management's outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations. The words "believe," "expect," "anticipate," "plan," "estimate," "target," "project" and similar expressions, among others, generally identify forward-looking statements. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company's control) and are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to, difficult market conditions and unfavorable economic trends in the United States generally and in financial markets, particularly in the markets in which the Company operates and in which its loans are concentrated, including difficult and unfavorable conditions and trends related to housing markets, costs of living, unemployment levels, interest rates, supply chain issues, inflation, and economic growth; the impacts related to or resulting from recent bank failures and other economic and industry volatility, including potential increased regulatory requirements and costs and potential impacts to macroeconomic conditions; possible additional loan losses and impairment of the collectability of loans; the Company's level of nonperforming assets and the costs associated with resolving problem loans including litigation and other costs and complying with government-imposed foreclosure moratoriums; changes in market interest rates which may increase funding costs and reduce earning asset yields and thus reduce margin; the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of the Company's investment securities portfolio; the credit risk associated with the substantial amount of commercial real estate, construction and land development, and commercial and industrial loans in the Company's loan portfolio; the extensive federal and state regulation, supervision and examination governing almost every aspect of the Company's operations and potential expenses associated with complying with such regulations; the Company's ability to comply with applicable capital and liquidity requirements, including its ability to generate liquidity internally or raise capital on favorable terms; possible changes in trade, monetary and fiscal policies and stimulus programs, laws and regulations and other activities of governments, agencies, and similar organizations, and the uncertainty of the short- and long-term impacts of such changes; any impairments of the Company's goodwill or other intangible assets; the discontinued publication of London Inter-Bank Offered Rate (LIBOR) and the transition to Secured Overnight Financing Rate (SOFR) as an alternative reference interest rate; the success of the Company's growth plans, including its plans to grow the commercial small business leasing, residential, small business and Small Business Administration (SBA) portfolios and wealth management business; the Company's ability to successfully integrate and fully realize the cost savings and other benefits of its acquisitions, manage risks related to business disruption following those acquisitions, and post-acquisition Customer acceptance of the Company's products and services and related Customer disintermediation; negative perceptions or publicity with respect to the Company generally and, in particular, the Company's trust and wealth management business; failure of the financial and operational controls of the Company's Cash Connect^® and/or Wealth Management divisions; adverse judgments or other resolution of pending and future legal proceedings, and cost incurred in defending such proceedings; the Company's reliance on third parties for certain important functions, including the operation of its core systems, and any failures by such third parties; system failures or cybersecurity incidents or other breaches of the Company's network security, particularly given widespread remote working arrangements; the Company's ability to recruit and retain key Associates; the effects of problems encountered by other financial institutions that adversely affect the Company or the banking industry generally; the effects of weather, including climate change, and natural disasters such as floods, droughts, wind, tornadoes and hurricanes as well as effects from geopolitical instability, armed conflicts, public health crises and man-made disasters including terrorist attacks; the effects of regional or national civil unrest (including any resulting branch or ATM closures or damage); possible changes in the speed of loan prepayments by the Company's Customers and loan origination or sales volumes; possible changes in the speed of prepayments of mortgage-backed securities (MBS) due to changes in the interest rate environment, and the related acceleration of premium amortization on prepayments in the event that prepayments accelerate; regulatory limits on the Company's ability to receive dividends from its subsidiaries and pay dividends to its stockholders; any reputation, credit, interest rate, market, operational, litigation, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above; any compounding effects or unexpected interaction of the risks discussed above; and other risks and uncertainties, including those discussed in the Company's Form 10-K for the year ended December 31, 2022, the Company's Form 10-Q for the quarterly period ended March 31, 2023, the Company's Form 10-Q for the quarterly period ended June 30, 2023 and other documents filed by the Company with the Securities and Exchange Commission from time to time.

The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any duty to revise or update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company for any reason, except as specifically required by law. As used in this press release, the terms "WSFS," "the Company," "registrant," "we," "us," and "our" mean WSFS Financial Corporation and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

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