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$15.4 billion in assets and$27.6 billion in assets under management (AUM) and assets under administration (AUA) atSeptember 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$8.0 billion as ofSeptember 30, 2021 , which was funded primarily through commercial relationships and retail and customer generated deposits. We have built a$6.3 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, and manages$1.7 billion in total cash and services approximately 28,000 non-bank ATMs and approximately 6,000 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 610 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$27.6 billion of AUM and AUA atSeptember 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® and Christiana Trust DE, provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional, corporate clients and special purpose vehicles. 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 ofSeptember 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 Three and Nine Months EndedSeptember 30, 2021 Results and other notable items include the following: •Bryn Mawr •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 respective stockholders of both WSFS andBryn Mawr each 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 approvals from theBoard of Governors of theFederal Reserve System (theFederal Reserve ). •We recorded$2.0 million and$6.7 million of corporate development primarily related to the pending Merger during the three and nine months endedSeptember 30, 2021 , respectively. •Balance Sheet •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. •During the year, our balance sheet was significantly impacted by continued high levels of excess liquidity resulting from customers who received PPP loans, government stimulus impact and lower customer spending, and the purchase of$2.3 billion of investment securities, available-for-sale. •Credit Metrics •There was a reduction in the allowance for credit losses (ACL) of$27.5 million and$123.9 million during the three and nine months endedSeptember 30, 2021 , respectively, as a result of continued future recovery in our economic forecasts used in the ACL model and improved credit quality metrics with notable declines in our problem assets and delinquencies. •Other Notable Items •During 2021, we recorded a$4.4 million net gain on the liquidation of our investment inSocial Finance, Inc. (SoFi). Taking a portion of the SoFi proceeds, we contributed$1.0 million to theWSFS CARES Foundation to further fund support to our expanded communities. •During the quarter we launched our strategic partnership with Upstart, a digital artificial intelligence lending platform specializing in consumer loans. •InOctober 2021 , Dr.Michelle L. Burroughs joined the Bank as Vice President, Director of Diversity, Equity and Inclusion (DE&I).Dr. Burroughs will support WSFS in creating and delivering a work environment designed to foster a culture of inclusion and ensure the long-term sustainability of the Company's DE&I efforts. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Financial Condition Total assets increased$1.0 billion to$15.4 billion atSeptember 30, 2021 compared toDecember 31, 2020 . This increase is primarily comprised of the following: •Investment securities, available-for-sale increased$1.7 billion during the nine months endedSeptember 30, 2021 primarily due to$2.3 billion in purchases partially offset by repayments of$509.7 million , decreased market-values on available-for-sale securities of$71.4 million and sales of$14.0 million . •Cash and cash equivalents increased$362.2 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$881.6 million , reflecting a$789.1 million decline in commercial and industrial loans that included a$684.5 million decrease due to forgiveness of PPP loans and higher loan payoffs, a$192.3 million decline in residential loans, largely due to non-relationship run-off portfolios acquired through the Beneficial acquisition, and a$98.1 million decline in commercial real estate loans due to higher loan payoffs. Partially offsetting these decreases were$114.7 million of growth across our construction and commercial small business lease portfolios, and a reduction of$123.9 million in our allowance for credit losses as described above. 54 -------------------------------------------------------------------------------- Table of Contents •Loans held for sale decreased$116.0 million during the nine months endedSeptember 30, 2021 driven by a combination of lower origination volume and higher loans sales in our mortgage banking business during the nine months endedSeptember 30, 2021 . Total liabilities increased$925.0 million to$13.5 billion atSeptember 30, 2021 compared toDecember 31, 2020 . This increase is primarily comprised of the following: •Total deposits increased$910.9 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$412.0 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 63% atSeptember 30, 2021 reflecting significant liquidity capacity. •Other liabilities increased$117.1 million primarily due to$116.7 million in higher accrued expenses reflecting the timing of settlement for debt security trades and a$10.7 million increase in our unfunded commitments. These increases were partially offset by decreases of$4.2 million in certain retirement plan liabilities,$4.1 million in our lease liabilities, and$2.7 million in our financial derivatives related to sales of certain Visa Class B shares. •Senior debt decreased$98.7 million due to the redemption of the 2026 Notes, as described above. •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$117.2 million betweenDecember 31, 2020 andSeptember 30, 2021 . This increase was primarily due to$215.2 million of income attributable to WSFS for the nine months endedSeptember 30, 2021 , partially offset by$71.4 million from the effect of decreased market-values on available-for-sale securities,$12.0 million for the repurchase of 267,309 shares of common stock under our stock repurchase plan inJanuary 2021 , and the payment of dividends on our common stock of$18.1 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 onNovember 18, 2021 to stockholders of record as ofNovember 4, 2021 . Book value per share of common stock was$40.15 atSeptember 30, 2021 , an increase of$2.63 from$37.52 atDecember 31, 2020 . Tangible book value per share of common stock (a non-GAAP financial measure) was$28.59 atSeptember 30, 2021 , an increase of$2.74 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." 55
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The table below compares the Bank's and the Company's consolidated capital
position to the minimum regulatory requirements as of
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 $ 1,591,710 15.50 % $ 821,625 8.00 % $ 1,027,032 10.00 %
WSFS Financial Corporation 1,567,314 15.22 823,666 8.00 1,029,583 10.00
Tier 1 Capital (to Risk-Weighted Assets)
Wilmington Savings Fund Society, FSB 1,498,503 14.59 616,219 6.00 821,625 8.00
WSFS Financial Corporation 1,474,106 14.32 617,750 6.00 823,666 8.00
Common Equity Tier 1 Capital (to Risk-Weighted
Assets)
Wilmington Savings Fund Society, FSB 1,498,503 14.59 462,164 4.50 667,571 6.50
WSFS Financial Corporation 1,409,106 13.69 463,312 4.50 669,229 6.50
Tier 1 Leverage Capital
Wilmington Savings Fund Society, FSB 1,498,503 10.27 583,450 4.00 513,516 5.00
WSFS Financial Corporation 1,474,106 10.09 584,255 4.00 730,319 5.00
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 of September 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 $111.5 million
in cash to support share repurchases, potential dividends, acquisitions,
strategic growth plans and other general corporate purposes.
As part of our adoption of the Current Expected Credit Losses (CECL) methodology
in 2020, we elected to phase in the day-one adverse effects on regulatory
capital that may result from the adoption of CECL over a three-year period, as
permitted under a final rule of the federal banking agencies.
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. 56 -------------------------------------------------------------------------------- Table of Contents During the nine months endedSeptember 30, 2021 , cash, cash equivalents and restricted cash increased$362.2 million to$2.0 billion from$1.7 billion as ofDecember 31, 2020 . Cash provided by operating activities was$289.5 million , primarily reflecting the cash impact of earnings, a$128.9 million increase in other liabilities from the settlement for debt security trades, and a$76.5 million increase from the net activity for loans held for sale during the nine months endedSeptember 30, 2021 . These increases were partially offset by the$109.0 million release on our allowance for credit losses as described above. Cash used in investing activities was$701.5 million primarily due to net purchases of available-for-sale debt securities of$1.8 billion , partially offset by$1.1 billion from decreased lending activity primarily related to PPP loan forgiveness,$19.0 million in repayments, maturities and calls of held-to-maturity debt securities, and proceeds of$14.0 million from sales of available-for-sale debt securities. Cash provided by financing activities was$774.1 million , primarily due to a$911.5 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, common stock dividends of$18.1 million ,$13.2 million for the repurchase of common stock under the previously announced stock repurchase plan, and$6.6 million for repayment of FHLB advances. NONPERFORMING ASSETS Nonperforming assets include nonaccruing loans, 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) September 30, 2021 December 31, 2020 Nonaccruing loans: Commercial and industrial $ 24,117 $ 13,816 Owner-occupied commercial 1,179 5,360 Commercial mortgages 837 17,175 Construction 2,212 - Residential 3,721 3,247 Consumer 2,533 2,310 Total nonaccruing loans 34,599 41,908 Other real estate owned 2,195 3,061 Restructured loans(1)(6) 15,036 15,539 Total nonperforming assets $ 51,830 $ 60,508 Past due loans: Commercial $ 1,447 $ 5,634 Residential 187 25 Consumer (2) 6,515 11,035 Total past due loans $ 8,149 $ 16,694
Ratio of allowance for credit losses to total loans and leases(3)
1.29 % 2.51 %
Ratio of nonaccruing loans to total gross loans and leases(4)
0.43 0.46
Ratio of nonperforming assets to total assets 0.34 0.42
Ratio of allowance for credit losses to nonaccruing loans
303 546
Ratio of allowance for credit losses to total
nonperforming assets(5) 202 378
(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 $22.8 million at September 30,
2021 and $114.8 million at December 31, 2020 .
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Nonperforming assets decreased$8.7 million betweenDecember 31, 2020 andSeptember 30, 2021 . This decrease was primarily due to$29.7 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$21.0 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 byJune 30, 2021 , as well as two large commercial relationships in the third quarter that were partially charged-off in the quarter. The ratio of nonperforming assets to total assets decreased from 0.42% atDecember 31, 2020 to 0.34% atSeptember 30, 2021 . The following table summarizes the changes in nonperforming assets during the periods indicated: Nine Months Ended September 30, (Dollars in thousands) 2021 2020 Beginning balance $ 60,508$ 39,808 Additions 42,159 23,276 Collections (29,669) (11,893) Transfers to accrual (494) (134) Charge-offs (20,674) (6,552) Ending balance $ 51,830$ 44,505 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. 58 -------------------------------------------------------------------------------- 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 theFederal 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, inMarch 2020 theFOMC lowered the range 150 basis points to 0 to 1/4 percent. TheFOMC recently indicated that the target range will remain at this level for some time, but theFOMC 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. AtSeptember 30, 2021 , interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by$1.6 billion . Our interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window was 128.64% atSeptember 30, 2021 compared with 133.10% atDecember 31, 2020 . Likewise, the one-year interest-sensitive gap as a percentage of total assets was 10.40% atSeptember 30, 2021 compared with 13.07% atDecember 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 atSeptember 30, 2021 andDecember 31, 2020 : September 30, 2021 December 31, 2020 % Change in Interest % Change in Net % Change in Net Economic Value of Rate (Basis Points) Interest Margin(1) Economic Value of Equity(2) Interest Margin(1) Equity(2) +300 29.3% 24.37% 19.7% 19.10% +200 19.4% 23.10% 13.1% 18.69% +100 9.6% 21.70% 6.5% 18.05% +50 4.7% 20.33% 3.2% 17.59% +25 2.3% 20.01% 1.5% 17.32% - -% 19.65% -% 17.04% -25 (1.5)% 19.15% (1.5)% 16.62% -50 (2.4)% 18.52% (2.1)% 16.20% -100 (3.9)% 17.00% (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. 59 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Three months endedSeptember 30, 2021 : Net income for the three months endedSeptember 30, 2021 was$54.4 million , compared to$51.1 million for the three months endedSeptember 30, 2020 . •Net interest income decreased$8.6 million during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to a decrease in purchase accounting accretion and PPP income. See "Net Interest Income" for further information. •Our (recovery of) provision for credit losses for the three months endedSeptember 30, 2021 decreased$24.0 million compared to the three months endedSeptember 30, 2020 , primarily due to the continued future economic recovery captured in our forecasts and improved credit quality metrics reflecting overall declines in problem 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. See "Allowance for Credit Losses" for further information. •Noninterest income for the three months endedSeptember 30, 2021 decreased$6.6 million compared to the three months endedSeptember 30, 2020 , primarily due to a decline in our mortgage banking business and lower securities gains, partially offset by higher revenues from Wealth Management and Cash Connect®. See "Noninterest Income" for further information. •Noninterest expense increased$2.9 million during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 due to increases in salaries and benefits, corporate development costs primarily related to our anticipated merger withBryn Mawr , and equipment expense, partially offset by a loss of early extinguishment of debt in the prior year and lower loan workout and other credit costs in the three months endedSeptember 30, 2021 . See "Noninterest Expense" for further information. •Income tax provision for the three months endedSeptember 30, 2021 increased$2.4 million compared to the three months endedSeptember 30, 2020 , primarily due to the$6.0 million increase in pre-tax income. Nine months endedSeptember 30, 2021 : Net income for the nine months endedSeptember 30, 2021 was$215.2 million , compared to$55.0 million for the nine months endedSeptember 30, 2020 . •Net interest income decreased$17.5 million during the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 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 nine months endedSeptember 30, 2021 decreased$263.1 million compared to the nine months endedSeptember 30, 2020 , due to the reasons described above. See "Allowance for Credit Losses" for further information. •Noninterest income for the nine months endedSeptember 30, 2021 decreased$14.9 million compared to the nine months endedSeptember 30, 2020 , primarily due to gains on the sale of Visa Class B shares in 2020, lower interchange fees due to the impact of the Durbin Amendment on 2021 results, lower securities gains, and a decline in our mortgage banking business. These decreases were partially offset by higher revenues from Wealth Management, traditional banking fees and other income, and total net gains on equity investments. See "Noninterest Income" for further information. •Noninterest expense increased$12.6 million during the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 due to increases in salaries and benefits, equipment expense, and corporate development 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 nine months endedSeptember 30, 2021 increased$56.4 million compared to the nine months endedSeptember 30, 2020 , primarily due to the$218.1 million increase in pre-tax income. 60 -------------------------------------------------------------------------------- Table of Contents Net Interest Income The following tables provide information concerning the balances, yields and rates on interest-earning assets and interest-bearing liabilities during the periods indicated: Three months ended September 30, 2021 2020 Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate(1) Balance Interest Rate(1) Assets: Interest-earning assets: Loans:(2) Commercial loans and leases$ 3,623,187 $ 43,335 4.75 %$ 4,472,190 $ 52,753 4.70 % Commercial real estate loans 2,788,963 28,454 4.05 2,848,655 30,218 4.22 Residential loans 601,998 9,245 6.14 892,634 12,512 5.61 Consumer loans 1,109,188 11,639 4.16 1,153,168 13,726 4.74 Loans held for sale 90,635 787 3.44 110,768 986 3.54 Total loans and leases 8,213,971 93,460 4.52 9,477,415 110,195 4.63 Mortgage-backed securities(3) 3,397,297 13,947 1.64 2,062,459 11,686 2.27 Investment securities(3) 319,226 1,353 1.89 261,670 1,265 2.22 Other interest-earning assets 1,697,840 691 0.16 530,178 224 0.17 Total interest-earning assets$ 13,628,334 $ 109,451 3.19 %$ 12,331,722 $ 123,370 3.99 % Allowance for credit losses (125,830) (233,301) Cash and due from banks 145,547 135,198 Cash in non-owned ATMs 481,755 370,912 Bank-owned life insurance 33,349 30,956 Other noninterest-earning assets 974,417 1,012,506 Total assets$ 15,137,572 $ 13,647,993 Liabilities and Stockholders' Equity: Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand$ 2,698,391 $ 573 0.08 %$ 2,372,547 $ 790 0.13 % Savings 1,931,433 139 0.03 1,753,489 621 0.14 Money market 2,761,222 780 0.11 2,404,202 1,805 0.30 Customer time deposits 1,045,746 1,646 0.62 1,234,637 4,402 1.42 Total interest-bearing customer deposits 8,436,792 3,138 0.15 7,764,875 7,618 0.39 Brokered deposits 58,645 412 2.79 243,728 728 1.19 Total interest-bearing deposits 8,495,437 3,550 0.17 8,008,603 8,346 0.41 Federal Home Loan Bank advances - - - 68,442 445 2.59 Trust preferred borrowings 67,011 316 1.87 67,011 347 2.06 Senior debt 147,730 1,089 2.95 98,733 1,179 4.78 Other borrowed funds(4) 23,324 5 0.09 20,062 5 0.10 Total interest-bearing liabilities$ 8,733,502 $ 4,960 0.23 %$ 8,262,851 $ 10,322 0.50 % Noninterest-bearing demand deposits 4,177,984 3,176,647 Other noninterest-bearing liabilities 320,421 374,206 Stockholders' equity 1,907,868 1,836,256 Noncontrolling interest (2,203) (1,967) Total liabilities and stockholders' equity$ 15,137,572 $ 13,647,993 Excess of interest-earning assets over interest-bearing liabilities$ 4,894,832 $ 4,068,871 Net interest and dividend income$ 104,491 $ 113,048 Interest rate spread 2.96 % 3.49 % Net interest margin 3.05 % 3.66 % (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. 61
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Nine months ended September 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 $ 3,885,392 $ 141,994 4.89 % $ 4,100,401 $ 161,837 5.28 %
Commercial real estate loans 2,794,540 85,922 4.11 2,832,976 95,740 4.51
Residential loans 660,858 33,380 6.73 939,460 39,731 5.64
Consumer loans 1,130,554 36,425 4.31 1,136,107 41,726 4.91
Loans held for sale 127,535 3,236 3.39 91,040 2,623 3.85
Total loans and leases 8,598,879 300,957 4.68 9,099,984 341,657 5.02
Mortgage-backed securities(3) 2,964,437 37,157 1.67 2,014,110 37,454 2.48
Investment securities 324,620 4,185 1.95 184,322 3,200 2.76
Other interest-earning assets 1,407,422 1,335 0.13 276,707 797 0.38
Total interest-earning assets $ 13,295,358 $ 343,634 3.46 % $ 11,575,123 $ 383,108 4.43 %
Allowance for credit losses (181,947) (158,584)
Cash and due from banks 145,571 127,859
Cash in non-owned ATMs 448,244 341,940
Bank-owned life insurance 32,615 30,360
Other noninterest-earning assets 990,187 1,028,620
Total assets $ 14,730,028 $ 12,945,318
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand $ 2,610,795 $ 1,722 0.09 % $ 2,224,258 $ 3,569 0.21 %
Savings 1,895,221 438 0.03 1,670,069 3,243 0.26
Money market 2,733,068 2,435 0.12 2,273,786 8,205 0.48
Customer time deposits 1,080,149 5,865 0.73 1,260,837 15,012 1.59
Total interest-bearing customer deposits 8,319,233 10,460 0.17 7,428,950 30,029 0.54
Brokered deposits 86,050 1,364 2.12 253,566 2,786 1.47
Total interest-bearing deposits 8,405,283 11,824 0.19 7,682,516 32,815 0.57
Federal Home Loan Bank advances 243 5 2.63 114,895 1,900 2.21
Trust preferred borrowings 67,011 957 1.91 67,011 1,417 2.82
Senior debt 207,186 5,408 3.48 98,681 3,538 4.78
Other borrowed funds(4) 21,561 15 0.09 64,470 484 1.00
Total interest-bearing liabilities $ 8,701,284 $ 18,209 0.28 % $ 8,027,573 $ 40,154 0.67 %
Noninterest-bearing demand deposits 3,879,948 2,743,638
Other noninterest-bearing liabilities 324,011 337,497
Stockholders' equity 1,827,007 1,838,087
Noncontrolling interest (2,222) (1,477)
Total liabilities and stockholders' equity $ 14,730,028 $ 12,945,318
Excess of interest-earning assets over
interest-bearing liabilities $ 4,594,074 $ 3,547,550
Net interest and dividend income $ 325,425 $ 342,954
Interest rate spread 3.18 % 3.76 %
Net interest margin 3.28 % 3.97 %
(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 September 30, 2021 : During the three months ended
September 30, 2021 , net interest income decreased $8.6 million from the three
months ended September 30, 2020 primarily due to a $4.8 million decrease in
purchase accounting accretion, a $3.7 million reduction in PPP income, and a
slight decline from the lower rate environment and balance sheet mix. Net
interest margin was 3.05% for the third quarter of 2021, a 61 basis point
decrease compared to 3.66% for the third quarter of 2020 reflecting a 53 basis
points net decline from the lower interest rate environment and balance sheet
mix, and 21 basis points from lower purchase accounting accretion, partially
offset by a 13 basis point increase from the impact of PPP loans.
Nine months ended September 30, 2021 : During the nine months ended September 30,
2021 , net interest income decreased $17.5 million from the nine months ended
September 30, 2020 . This decrease included an $11.3 million decline from balance
sheet mix, which included lower loan balances and yields offset by optimizing
our excess liquidity, and a $12.6 million decrease in purchase accounting
accretion. This was partially offset by $6.4 million of PPP income. Net interest
margin was 3.28% for the nine months ended September 30, 2021 , a 69 basis point
decrease compared to 3.97% for the nine months ended September 30, 2020
reflecting a 65 basis point net decline from the lower interest rate environment
and balance sheet mix, and a 20 basis point decrease from lower purchase
accounting accretion, partially offset by a 16 basis point 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 September 30, 2021 , we recorded a recovery of
credit losses of $21.3 million , a net change of $24.0 million as compared with
the provision for credit losses of $2.7 million for the three months ended
September 30, 2020 . During the nine months ended September 30, 2021 , we recorded
a recovery of credit losses of $109.0 million , a net change of $263.1 million as
compared with the provision for credit losses of $154.1 million for the nine
months ended September 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 and delinquencies.
The allowance for credit losses decreased to $104.9 million at September 30,
2021 from $228.8 million at December 31, 2020 , primarily due to the $109.0
million recovery of credit losses during the nine months ended September 30,
2021 , as described above. The ratio of allowance for credit losses to total
loans and leases was 1.29% at September 30, 2021 and 2.51% at December 31, 2020 .
Net charge-offs were $6.2 million for the three months ended September 30, 2021
driven by partial charge-offs on two downgraded relationships and partial
recoveries from previously charged-off commercial relationships. Net charge-offs
were $14.9 million during the nine months ended September 30, 2021 , which
included the items described above and one large commercial relationship that
was fully charged-off by June 30, 2021 .
When compared to the three and nine months ended September 30, 2020 , net
charge-offs decreased by $4.1 million and increased $10.1 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 0.24% (annualized)
and 0.09% at September 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 September 30, 2021 : During the three months ended
September 30, 2021 , noninterest income was $42.6 million , a decrease of $6.6
million from $49.2 million during the three months ended September 30, 2020 .
This decrease includes a $5.9 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 $3.3 million decrease in Securities gains,
net, partially offset by a $2.1 million increase in Wealth Management revenues
driven by our trust services and $1.0 million from Cash Connect®.
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Nine months ended September 30, 2021 : During the nine months ended September 30,
2021 , noninterest income was $139.5 million , a decrease of $14.9 million from
$154.4 million during the nine months ended September 30, 2020 . This decrease
reflects the $22.1 million gain on sale of Visa Class B shares that occurred in
June 2020 , a $5.9 million decrease in Credit/debit card and ATM income primarily
due to a reduction in interchange fees resulting from the Durbin Amendment
(effective for us on July 1, 2020 ), a $5.6 million decrease in Securities gains,
net, and a $4.8 million decrease in mortgage banking activities as described
above. Partially offsetting these decreases were increases of $9.8 million in
Wealth Management revenues for reasons described above, $5.2 million from higher
traditional banking fees, $4.7 million from other income, primarily from Cash
Connect® and gains on SBA loans, and $4.4 million of total net gains from the
sale of our SoFi investment.
For further information, see Note 3 to the unaudited Consolidated Financial
Statements.
Noninterest Expense
Three months ended September 30, 2021 : During the three month ended
September 30, 2021 , noninterest expense was $96.4 million , an increase of $2.9
million from $93.5 million for the three months ended September 30, 2020 . The
increase was primarily due to a $4.6 million increase in Salaries, benefits and
other compensation as a result of higher salaries and incentive compensation due
to continued franchise growth, $1.6 million of higher corporate development
costs related to our anticipated merger with Bryn Mawr , and a $1.1 million
increase in Equipment expense including higher third-party software expenses
related to our ongoing delivery transformation initiatives. These increases were
partially offset by the non-recurrence of a $2.3 million loss on early
extinguishment of debt during the three months ended September 30, 2020 and a
$1.2 million decrease in Loan workout and other credit costs due to the release
of reserves on our unfunded commitments driven by stable credit metrics.
Nine months ended September 30, 2021 : During the nine months ended September 30,
2021 , noninterest expense was $288.1 million , an increase of $12.6 million from
$275.5 million for the nine months ended September 30, 2020 . The increase was
primarily due to a $16.0 million increase in Salaries, benefits and other
compensation, a $5.1 million increase in Equipment expense, and $2.1 million
higher corporate development costs for reasons described above. These increases
were partially offset by a $5.7 million decrease in Loan workout and other
credit costs, and a $5.0 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 $17.5 million and $70.6 million during the three and nine months
ended September 30, 2021 , respectively, compared to income tax expense of $15.1
million and $14.2 million for the same periods in 2020.
Our effective tax rate was 24.3% and 24.7% for the three and nine months ended
September 30, 2021 , respectively, compared to 23.0% and 20.9% for the same
periods in 2020. The effective tax rate for the nine months ended September 30,
2021 increased primarily due to the $1.7 million in tax benefits recognized
during the nine months ended September 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 $0.1 million
and $0.8 million of tax expense related to nondeductible acquisition costs
during the three and nine months ended September 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, research and development 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 September 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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