WSFS Financial (WSFS) - 2021 Q1 - Quarterly Report

PART I. Financial Information This section presents the unaudited consolidated financial statements and management's discussion and analysis for the first quarter Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for WSFS Financial Corporation, including statements of income, comprehensive income, financial condition, changes in stockholders' equity, and cash flows for the three months ended March 31, 2021 and 2020, along with detailed notes Consolidated Statements of Income This section provides the consolidated statements of income, detailing revenues, expenses, and net income for the specified periods Consolidated Statements of Income (Three Months Ended March 31): | Metric | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :--------------------------------- | :--------------- | :--------------- | :----------------------- | | Net Interest Income | $114,185 | $116,150 | -$1,965 | | (Recovery of) Provision for Credit Losses | ($20,160) | $56,646 | -$76,806 | | Noninterest Income | $47,822 | $40,847 | +$6,975 | | Noninterest Expense | $95,619 | $88,496 | +$7,123 | | Income Before Taxes | $86,548 | $11,855 | +$74,693 | | Net Income Attributable to WSFS | $65,082 | $10,927 | +$54,155 | | Basic EPS | $1.37 | $0.21 | +$1.16 | | Diluted EPS | $1.36 | $0.21 | +$1.15 | Consolidated Statements of Comprehensive (Loss) Income This section presents the consolidated statements of comprehensive income, including net income and other comprehensive income components Consolidated Statements of Comprehensive (Loss) Income (Three Months Ended March 31): | Metric | 2021 (Thousands) | 2020 (Thousands) | | :---------------------------------------------------------------- | :--------------- | :--------------- | | Net income attributable to WSFS | $65,082 | $10,927 | | Net change in unrealized (losses) gains on investment securities available-for-sale | ($69,839) | $45,509 | | Net change in securities held-to-maturity | ($16) | ($65) | | Net change in unfunded pension liability | ($16) | $4 | | Net change in cash flow hedge | ($111) | $1,585 | | Net change in equity method investments | $273 | — | | Total other comprehensive (loss) income | ($69,709) | $47,033 | | Total comprehensive (loss) income | ($4,627) | $57,960 | Consolidated Statements of Financial Condition This section outlines the consolidated financial position, including assets, liabilities, and equity at specific dates Consolidated Statements of Financial Condition (As of March 31, 2021 vs. Dec 31, 2020): | Metric | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | | :--------------------------------- | :----------------------- | :------------------------ | :----------------- | | Total Assets | $14,730,452 | $14,333,914 | +$396,538 | | Total Loans and Leases, Net | $8,373,766 | $8,795,935 | -$422,169 | | Total Deposits | $12,283,700 | $11,856,664 | +$427,036 | | Total Liabilities | $12,961,998 | $12,544,434 | +$417,564 | | Total Stockholders' Equity | $1,768,454 | $1,789,480 | -$21,026 | Consolidated Statements of Changes in Stockholders' Equity This section details changes in stockholders' equity, reflecting net income, dividends, and other equity transactions Consolidated Statements of Changes in Stockholders' Equity (Three Months Ended March 31, 2021): | Metric | Shares | Common Stock (Thousands) | Capital in Excess of Par Value (Thousands) | Accumulated Other Comprehensive (Loss) Income (Thousands) | Retained Earnings (Thousands) | Treasury Stock (Thousands) | Total Stockholders' Equity of WSFS (Thousands) | Noncontrolling Interest (Thousands) | Total Stockholders' Equity (Thousands) | | :--------------------------------- | :------- | :----------------------- | :--------------------------------- | :---------------------------------------- | :---------------------------- | :----------------------- | :----------------------------------- | :-------------------------------- | :----------------------------- | | Balance, December 31, 2020 | 57,575,783 | $576 | $1,053,022 | $56,007 | $977,414 | ($295,293) | $1,791,726 | ($2,246) | $1,789,480 | | Net income | — | — | — | — | $65,082 | — | $65,082 | $59 | $65,141 | | Other comprehensive loss | — | — | — | ($69,709) | — | — | ($69,709) | — | ($69,709) | | Cash dividend, $0.12 per share | — | — | — | — | ($5,699) | — | ($5,699) | — | ($5,699) | | Issuance of common stock | 13,547 | — | $115 | — | — | — | $115 | — | $115 | | Stock-based compensation expense | — | — | $1,155 | — | — | — | $1,155 | — | $1,155 | | Repurchases of common stock | — | — | ($1) | — | — | ($12,028) | ($12,029) | — | ($12,029) | | Balance, March 31, 2021 | 57,589,330 | $576 | $1,054,291 | ($13,702) | $1,036,797 | ($307,321) | $1,770,641 | ($2,187) | $1,768,454 | Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows (Three Months Ended March 31): | Metric | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :------------------------------------------------ | :--------------- | :--------------- | :----------------------- | | Net cash provided by operating activities | $69,650 | $62,422 | +$7,228 | | Net cash used in investing activities | ($64,089) | ($119,598) | +$55,509 | | Net cash provided by (used in) financing activities | $403,865 | ($9,466) | +$413,331 | | Increase (decrease) in cash, cash equivalents, and restricted cash | $409,426 | ($66,642) | +$476,068 | | Cash, cash equivalents, and restricted cash at end of period | $2,064,161 | $505,110 | +$1,559,051 | Notes to the Consolidated Financial Statements This section provides detailed explanatory notes supporting the consolidated financial statements, clarifying accounting policies and specific line items 1. BASIS OF PRESENTATION This note describes the company's structure, primary business activities, and the basis for financial statement presentation - WSFS Financial Corporation is a savings and loan holding company, with its primary subsidiary being Wilmington Savings Fund Society, FSB (WSFS Bank), one of the ten oldest continuously operating banks in the U.S.[30][31] - The Company's core business is commercial lending, funded by customer-generated deposits, complemented by wealth management and trust services[31] - NewLane Finance, a subsidiary, conducts the Company's leasing business, originating small business leases and commercial financing nationwide, and also offers insurance through Prime Protect[32] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the significant accounting policies applied in preparing the consolidated financial statements and recent accounting pronouncements - Significant accounting policies remain unchanged from the 2020 Annual Report on Form 10-K[36] - The Company adopted ASU No. 2019-12 (Income Taxes) and ASU No. 2020-01 (Investments) on January 1, 2021, with no impact on the Consolidated Financial Statements at adoption[37][38] - ASU No. 2021-01 (Reference Rate Reform) was adopted, expanding the scope of optional expedients for derivatives affected by interest rate changes, with no immediate impact[39] 3. NONINTEREST INCOME This note provides a detailed breakdown of the components contributing to noninterest income for the reported periods Credit/Debit Card and ATM Income (Three Months Ended March 31): | Component | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :---------------------- | :--------------- | :--------------- | :----------------------- | | Bailment fees | $3,059 | $5,081 | -$2,022 | | Interchange fees | $3,055 | $5,616 | -$2,561 | | Other card and ATM fees | $691 | $662 | +$29 | | Total | $6,805 | $11,359 | -$4,554 | - Interchange income decreased due to the Durbin Amendment, effective July 1, 2020, which capped interchange fees for banks over $10 billion in assets[44] Investment Management and Fiduciary Income (Three Months Ended March 31): | Component | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :------------------------------ | :--------------- | :--------------- | :----------------------- | | Trust fees | $9,764 | $6,954 | +$2,810 | | Wealth management and advisory fees | $4,489 | $4,008 | +$481 | | Total | $14,253 | $10,962 | +$3,291 | Deposit Service Charges (Three Months Ended March 31): | Component | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :---------------------- | :--------------- | :--------------- | :----------------------- | | Service fees | $3,422 | $3,211 | +$211 | | Return and overdraft fees | $1,578 | $2,332 | -$754 | | Other deposit service fees | $460 | $104 | +$356 | | Total | $5,460 | $5,647 | -$187 | Other Income (Three Months Ended March 31): | Component | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :-------------------------- | :--------------- | :--------------- | :----------------------- | | Managed service fees | $3,609 | $4,031 | -$422 | | Currency preparation | $948 | $840 | +$108 | | ATM loss protection | $622 | $647 | -$25 | | Miscellaneous products and services | $3,506 | $1,435 | +$2,071 | | Total | $8,685 | $6,953 | +$1,732 | 4. EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share, including the underlying components Earnings Per Share (Three Months Ended March 31): | Metric | 2021 | 2020 | | :--------------------------------- | :----- | :----- | | Net income attributable to WSFS (Thousands) | $65,082 | $10,927 | | Weighted average basic shares (Thousands) | 47,509 | 51,086 | | Dilutive potential common shares (Thousands) | 283 | 78 | | Weighted average fully diluted shares (Thousands) | 47,792 | 51,164 | | Basic EPS | $1.37 | $0.21 | | Diluted EPS | $1.36 | $0.21 | 5. INVESTMENTS This note provides a breakdown of the company's investment portfolio, including available-for-sale and held-to-maturity debt securities Available-for-Sale Debt Securities (March 31, 2021): | Type | Amortized Cost (Thousands) | Fair Value (Thousands) | | :------------------ | :----------------------- | :--------------------- | | CMO | $564,055 | $554,436 | | FNMA MBS | $1,997,140 | $1,998,045 | | FHLMC MBS | $182,271 | $190,453 | | GNMA MBS | $25,011 | $25,835 | | GSE agency notes | $232,509 | $219,116 | | Total | $3,000,986 | $2,987,885 | Held-to-Maturity Debt Securities (March 31, 2021): | Type | Amortized Cost (Thousands) | Fair Value (Thousands) | | :-------------------------- | :----------------------- | :--------------------- | | State and political subdivisions | $103,027 | $107,129 | | Foreign bonds | $501 | $500 | | Total | $103,528 | $107,629 | - During Q1 2021, the Company sold $9.3 million of available-for-sale debt securities, realizing $0.3 million in gains[61] - Unrealized losses on available-for-sale debt securities totaled $63.7 million at March 31, 2021, primarily due to changes in market interest rates, not credit loss[66] 6. LOANS This note details the composition of the loan and lease portfolio by category, including changes over the period Loan and Lease Portfolio by Category (March 31, 2021 vs. Dec 31, 2020): | Category | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | | :-------------------------- | :----------------------- | :------------------------ | :----------------- | | Commercial and industrial | $2,398,535 | $2,700,418 | -$301,883 | | Owner-occupied commercial | $1,333,989 | $1,332,727 | +$1,262 | | Commercial mortgages | $1,975,966 | $2,086,062 | -$110,096 | | Construction | $784,101 | $716,275 | +$67,826 | | Commercial small business leases | $264,937 | $248,885 | +$16,052 | | Residential | $681,022 | $774,455 | -$93,433 | | Consumer | $1,140,034 | $1,165,917 | -$25,883 | | Total Loans and Leases | $8,578,584 | $9,024,739 | -$446,155 | | Less: Allowance for credit losses | $204,818 | $228,804 | -$23,986 | | Net Loans and Leases | $8,373,766 | $8,795,935 | -$422,169 | - PPP loans included in Commercial and industrial were $526.8 million at March 31, 2021, down from $751.2 million at December 31, 2020[72] 7. ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY INFORMATION This note presents the activity in the allowance for credit losses and provides information on credit quality metrics, including nonaccrual and past due loans Allowance for Credit Losses Activity (Three Months Ended March 31, 2021): | Category | Beginning Balance (Thousands) | Charge-offs (Thousands) | Recoveries (Thousands) | Provision (Credit) (Thousands) | Ending Balance (Thousands) | | :-------------------------- | :---------------------------- | :---------------------- | :--------------------- | :----------------------------- | :------------------------- | | Commercial and industrial | $150,875 | ($5,052) | $1,140 | ($21,093) | $125,870 | | Owner-occupied Commercial | $9,615 | — | $90 | ($88) | $9,617 | | Commercial Mortgages | $31,071 | — | $14 | ($540) | $30,545 | | Construction | $12,190 | — | — | $2,097 | $14,287 | | Residential | $6,893 | — | $140 | ($1,331) | $5,702 | | Consumer | $18,160 | ($424) | $266 | $795 | $18,797 | | Total | $228,804 | ($5,476) | $1,650 | ($20,160) | $204,818 | - The decrease in ACL was primarily due to positive economic developments and improved credit quality metrics[74] Nonaccrual and Past Due Loans (March 31, 2021): | Category | 30-89 Days Past Due (Thousands) | >90 Days Past Due (Thousands) | Nonaccrual Loans (Thousands) | Total Loans (Thousands) | | :-------------------------- | :------------------------------ | :---------------------------- | :----------------------- | :---------------------- | | Commercial and industrial | $22,976 | $352 | $20,637 | $2,663,472 | | Owner-occupied commercial | $1,491 | — | $4,024 | $1,333,989 | | Commercial mortgages | $4,229 | $84 | $1,642 | $1,975,966 | | Construction | — | — | — | $784,101 | | Residential | $967 | $750 | $3,173 | $671,580 | | Consumer | $10,618 | $6,492 | $2,316 | $1,140,034 | | Total | $40,281 | $7,678 | $31,792 | $8,569,142 | - Nonperforming assets decreased by $11.0 million from December 31, 2020, primarily due to a $15.1 million commercial relationship payoff, partially offset by a $5.6 million commercial relationship moving to non-accrual[204] - Performing Troubled Debt Restructurings (TDRs) were $15.684 million at March 31, 2021, and nonperforming TDRs were $3.101 million[84] 8. LEASES This note details the company's operating and direct financing lease activities, including associated costs and income Operating Lease Cost (Three Months Ended March 31): | Metric | 2021 (Thousands) | 2020 (Thousands) | | :------------------ | :--------------- | :--------------- | | Operating lease cost | $4,654 | $4,550 | | Sublease income | ($107) | ($93) | | Net lease cost | $4,547 | $4,457 | - Right of use assets were $151.957 million and lease liabilities were $166.410 million at March 31, 2021[89] Direct Financing Lease Net Interest Income (Three Months Ended March 31): | Metric | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------------ | :--------------- | :--------------- | | Interest income on lease receivable | $4,623 | $3,566 | | Interest income on deferred fees and costs, net | ($318) | $94 | | Total direct financing lease net interest income | $4,305 | $3,660 | - Net investment in direct financing leases was $264.937 million at March 31, 2021[91] 9. GOODWILL AND INTANGIBLE ASSETS This note provides information on goodwill and other intangible assets, including their carrying values and amortization - Goodwill remained unchanged at $472.828 million at March 31, 2021, with no impairment identified[95][96] Intangible Assets (March 31, 2021): | Type | Gross Intangible Assets (Thousands) | Accumulated Amortization (Thousands) | Net Intangible Assets (Thousands) | Amortization Period | | :---------------------- | :-------------------------------- | :------------------------------- | :------------------------------ | :------------------ | | Core deposits | $93,811 | ($23,148) | $70,663 | 10 years | | Customer relationships | $15,281 | ($6,919) | $8,362 | 7-15 years | | Non-compete agreements | $221 | ($201) | $20 | 5 years | | Loan servicing rights | $5,511 | ($2,683) | $2,828 | 10-25 years | | Total | $114,824 | ($32,951) | $81,873 | | - Amortization expense on intangible assets was $2.7 million for Q1 2021, compared to $2.8 million for Q1 2020[97] 10. DEPOSITS This note presents a breakdown of deposits by category, illustrating changes in funding sources Deposits by Category (March 31, 2021 vs. Dec 31, 2020): | Category | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | | :-------------------------- | :----------------------- | :------------------------ | :----------------- | | Noninterest demand | $3,857,610 | $3,415,021 | +$442,589 | | Interest-bearing demand | $2,659,336 | $2,635,740 | +$23,596 | | Savings | $1,886,222 | $1,774,332 | +$111,890 | | Money market | $2,721,647 | $2,654,439 | +$67,208 | | Customer time deposits | $1,093,984 | $1,158,845 | -$64,861 | | Brokered deposits | $64,901 | $218,287 | -$153,386 | | Total Deposits | $12,283,700 | $11,856,664 | +$427,036 | 11. ASSOCIATE BENEFIT PLANS This note details the net periodic benefit costs for postretirement medical and pension plans Net Periodic Benefit Cost - Postretirement Medical Benefits (Three Months Ended March 31): | Metric | 2021 (Thousands) | 2020 (Thousands) | | :-------------------------- | :--------------- | :--------------- | | Service cost | $17 | $15 | | Interest cost | $13 | $17 | | Prior service cost amortization | ($19) | ($19) | | Net gain recognition | ($5) | ($9) | | Net periodic cost (benefit) | $6 | $4 | - The Alliance Associate Pension Plan was terminated in Q2 2020, with no net periodic benefit cost in Q1 2021[106][107] Net Periodic Benefit Cost - Beneficial Pension & Postretirement Benefits (Three Months Ended March 31, 2021): | Metric | Pension Benefits (Thousands) | Other Postretirement Benefits (Thousands) | | :-------------------------- | :--------------------------- | :------------------------------------ | | Service cost | — | $14 | | Interest cost | $530 | $77 | | Expected return on plan assets | ($1,705) | — | | Prior service cost amortization | — | ($3) | | Net loss (gain) recognition | $6 | — | | Net periodic (benefit) cost | ($1,169) | $88 | 12. INCOME TAXES This note provides information on income tax provisions, effective tax rates, and deferred tax assets - No unrecognized tax benefits as of March 31, 2021[112] - The Company recognized an $8.5 million income tax credit and deferred tax asset due to the adoption of ASC 326 (Credit Losses) on January 1, 2020[113] - An additional $1.8 million income tax benefit and deferred tax asset were recognized due to revaluing Net Operating Losses (NOLs) carryback claims at a 35% tax rate under the CARES Act[114] - Amortization of low-income housing credit investments resulted in $0.9 million income tax expense for Q1 2021[115] 13. FAIR VALUE DISCLOSURES OF FINANCIAL ASSETS AND LIABILITIES This note presents fair value measurements for financial assets and liabilities, categorized by valuation input levels Assets Measured at Fair Value on a Recurring Basis (March 31, 2021): | Type | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | Total Fair Value (Thousands) | | :-------------------------- | :------------------ | :------------------ | :------------------ | :--------------------------- | | Available-for-sale securities | — | $2,999,324 | — | $2,999,324 | | Other assets | — | $11,439 | — | $11,439 | | Total | — | $3,010,763 | — | $3,010,763 | Liabilities Measured at Fair Value on a Recurring Basis (March 31, 2021): | Type | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | Total Fair Value (Thousands) | | :---------------- | :------------------ | :------------------ | :------------------ | :--------------------------- | | Other liabilities | — | $3,912 | $22,871 | $26,783 | Assets Measured at Fair Value on a Nonrecurring Basis (March 31, 2021): | Type | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | Total Fair Value (Thousands) | | :-------------------- | :------------------ | :------------------ | :------------------ | :--------------------------- | | Other investments | — | — | $10,227 | $10,227 | | Other real estate owned | — | — | $2,068 | $2,068 | | Loans held for sale | — | $155,447 | — | $155,447 | | Total | — | $155,447 | $12,295 | $167,742 | - Fair value of available-for-sale securities is determined using Level 2 inputs from an independent pricing service[121] - Other investments (equity investments without readily determinable fair values and equity method investments) and Other real estate owned are categorized as Level 3[122][123] 14. DERIVATIVE FINANCIAL INSTRUMENTS This note details the company's derivative financial instruments, including their fair values and impact on financial statements Fair Values of Derivative Instruments Not Designated as Hedging (March 31, 2021): | Type | Notional (Thousands) | Balance Sheet Location | Derivatives (Fair Value) (Thousands) | | :-------------------------------------------------- | :------------------- | :--------------------- | :------------------------------- | | Interest rate products | $58,287 | Other assets | $3,464 | | Interest rate products | $58,287 | Other liabilities | ($3,702) | | Risk participation agreements | $4,333 | Other liabilities | ($6) | | Interest rate lock commitments with customers | $253,235 | Other assets | $4,889 | | Interest rate lock commitments with customers | $14,433 | Other liabilities | ($144) | | Forward sale commitments | $259,014 | Other assets | $3,086 | | Forward sale commitments | $19,755 | Other liabilities | ($60) | | Financial derivatives related to sales of certain Visa Class B shares | $113,177 | Other liabilities | ($22,871) | | Total Derivatives | $780,521 | | ($15,344) | - In April 2020, the Company terminated three cash flow hedges for a net gain of $1.3 million, which will be recognized into earnings on a straight-line basis over the original contract term[153] - The Company has swap guarantees with a fair value of $12.8 million at March 31, 2021, for customer interest rate derivative contracts, with no customer defaults[158] - Derivative financial instruments related to mortgage banking activities (interest rate lock commitments and forward sale commitments) are recorded at fair value and not designated as accounting hedges[159] 15. SEGMENT INFORMATION This note provides financial information by operating segment, including revenue, income before taxes, and assets - The Company operates in three segments: WSFS Bank, Cash Connect, and Wealth Management[165] Total Revenue by Segment (Three Months Ended March 31): | Segment | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :-------------- | :--------------- | :--------------- | :----------------------- | | WSFS Bank | $147,018 | $154,231 | -$7,213 | | Cash Connect | $10,257 | $11,908 | -$1,651 | | Wealth Management | $20,018 | $16,664 | +$3,354 | | Total | $177,293 | $182,803 | -$5,510 | Income Before Taxes by Segment (Three Months Ended March 31): | Segment | 2021 (Thousands) | 2020 (Thousands) | Change (YoY) (Thousands) | | :-------------- | :--------------- | :--------------- | :----------------------- | | WSFS Bank | $75,512 | $6,114 | +$69,398 | | Cash Connect | $1,692 | $1,990 | -$298 | | Wealth Management | $9,344 | $3,751 | +$5,593 | | Total | $86,548 | $11,855 | +$74,693 | Total Segment Assets (March 31, 2021 vs. Dec 31, 2020): | Segment | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | | :-------------- | :----------------------- | :------------------------ | :----------------- | | WSFS Bank | $14,032,489 | $13,662,368 | +$370,121 | | Cash Connect | $430,982 | $404,875 | +$26,107 | | Wealth Management | $266,981 | $266,671 | +$310 | | Total | $14,730,452 | $14,333,914 | +$396,538 | 16. COMMITMENTS AND CONTINGENCIES This note outlines the company's commitments and contingencies, including off-balance sheet arrangements and potential liabilities - The Company sells newly originated residential mortgage loans in the secondary market, typically with servicing retained or released on a nonrecourse basis, except for standard representations and warranties[171][172] - Allowance for credit losses on unfunded lending commitments was $8.9 million at March 31, 2021, with a $0.6 million provision recognized in Q1 2021[173] 17. CHANGE IN ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME This note details the changes in accumulated other comprehensive income, including components like unrealized gains and losses Accumulated Other Comprehensive (Loss) Income (March 31, 2021 vs. Dec 31, 2020): | Component | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | | :---------------------------------------------------------------- | :----------------------- | :------------------------ | :----------------- | | Net change in investment securities available-for-sale | ($9,957) | $59,882 | -$69,839 | | Net change in investment securities held-to-maturity | $260 | $276 | -$16 | | Net change in defined benefit plan | ($4,804) | ($4,788) | -$16 | | Net change in fair value of derivatives used for cash flow hedges | $535 | $646 | -$111 | | Net change in equity method investments | $264 | ($9) | +$273 | | Total | ($13,702) | $56,007 | -$69,709 | - Total reclassifications from accumulated other comprehensive (loss) income to the Consolidated Statements of Income were ($393) thousand for Q1 2021[177] 18. RELATED PARTY TRANSACTIONS This note discloses transactions and balances with related parties, such as loans and deposits - Outstanding balances of loans to related parties were $0.2 million at March 31, 2021 and December 31, 2020[180] - Total deposits from related parties were $7.1 million at March 31, 2021, down from $8.3 million at December 31, 2020[180] 19. LEGAL AND OTHER PROCEEDINGS This note provides information on ongoing legal and other proceedings affecting the company - The Company is pursuing recovery of remaining amounts related to the Universitas settlement ($12.0 million paid in 2018, $7.9 million recovered from insurance) by enforcing an indemnity right[183] - WSFS Bank is defending against a complaint filed by Nature's Healing Trust (NHT) regarding alleged failure to provide timely notice for life settlement policies, seeking $6.3 million[184] 20. SUBSEQUENT EVENTS This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On May 7, 2021, the Board approved the repayment of $100.0 million of 2016 senior notes due 2026, with a fixed coupon rate of 4.50% until June 15, 2021, then variable[187] - The Company expects to incur an additional $1.1 million in interest expense in Q2 2021 related to unamortized debt issuance costs from the senior notes repayment[187] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting key financial results, capital resources, liquidity, asset quality, and operational drivers for the first quarter of 2021 Overview This section provides a high-level summary of the company's business, mission, and segment operations - WSFS Financial Corporation is a savings and loan holding company with $14.7 billion in assets and $24.7 billion in assets under management (AUM) and assets under administration (AUA) at March 31, 2021[188] - The Company's mission is "We Stand for Service," with a strategy focused on "Engaged Associates, living our culture, making a better life for all we serve"[188] - The banking business had a total loan and lease portfolio of $8.6 billion as of March 31, 2021, primarily funded by commercial relationships and customer-generated deposits[189] - Cash Connect manages over $1.7 billion in total cash and services approximately 28,100 non-bank ATMs and 4,900 smart safes nationwide[189] - The Wealth Management business had $24.7 billion of AUM and AUA at March 31, 2021, offering planning, investment management, and trust services[189] Highlights for First Quarter 2021 This section summarizes key financial and operational achievements and changes during the first quarter of 2021 - Total assets increased by $396.5 million to $14.7 billion at March 31, 2021[190] - Allowance for credit losses (ACL) was reduced by $24.0 million due to improving credit trends and economic forecasts[190] - The Company supported nearly $300 million in second-round PPP loans, generating $2.2 million in referral fees, and saw $231.4 million in forgiveness for first-round PPP loans[190] - WSFS signed a Merger Agreement with Bryn Mawr Bank Corporation, expected to close in Q4 2021, incurring $1.8 million in related corporate development and restructuring expense[190] - Investment securities, available-for-sale, increased by $458.8 million, while net loans and leases decreased by $422.2 million, partly due to PPP loan forgiveness and lower commercial loan demand[190] Financial Condition, Capital Resources and Liquidity This section discusses the company's financial position, capital adequacy, and liquidity management strategies Financial Condition This subsection analyzes changes in total assets, loans, and deposits, reflecting the company's financial standing - Total assets increased $396.5 million to $14.7 billion at March 31, 2021[190] - Net loans and leases decreased $422.2 million, primarily due to $231.4 million in PPP loan forgiveness and a $203.5 million decline in residential and commercial real estate loans[190] - Total deposits increased by $427.0 million, driven by customer funding, government stimulus, and reduced customer spending[191] Capital Resources This subsection details changes in stockholders' equity, dividend policy, and regulatory capital ratios - Stockholders' equity of WSFS decreased $21.1 million, primarily due to decreased market values on available-for-sale securities ($69.8 million) and share repurchases ($12.0 million), partially offset by net income ($65.1 million)[191] - The Board approved an 8% increase in the quarterly cash dividend to $0.13 per share[192] - Book value per share decreased to $37.27, and tangible book value per share decreased to $25.60 at March 31, 2021[193] Regulatory Capital Ratios (March 31, 2021): | Metric | WSFS Bank | WSFS Financial Corporation | Well-Capitalized Minimum | | :------------------------------------ | :-------- | :----------------------- | :----------------------- | | Total Capital (to Risk-Weighted Assets) | 14.46% | 14.28% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 13.20% | 13.02% | 8.00% | | Common Equity Tier 1 Capital (to Risk Weighted Assets) | 13.20% | 12.38% | 6.50% | | Tier 1 Leverage Capital | 9.82% | 9.71% | 5.00% | - The Company and Bank were in compliance with and exceeded "well-capitalized" regulatory capital requirements[196] Liquidity This subsection examines the company's cash flows and funding sources to meet short-term and long-term obligations - Cash, cash equivalents, and restricted cash increased $409.4 million to $2.1 billion at March 31, 2021[201] - Net cash provided by operating activities was $69.7 million, while net cash used in investing activities was $64.1 million, and net cash provided by financing activities was $403.9 million[201] - Funding sources include retail deposits, loan repayments, FHLB borrowings, repurchase agreements, and access to the Federal Reserve Discount Window[200] Nonperforming Assets This section provides an overview of nonperforming assets, including nonaccruing loans and other real estate owned Nonperforming Assets (March 31, 2021 vs. Dec 31, 2020): | Metric | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | | :--------------------------------- | :----------------------- | :------------------------ | :----------------- | | Total Nonaccruing Loans | $31,792 | $41,908 | -$10,116 | | Other Real Estate Owned | $2,068 | $3,061 | -$993 | | Restructured Loans (Accruing only) | $15,684 | $15,539 | +$145 | | Total Nonperforming Assets | $49,544 | $60,508 | -$10,964 | - Ratio of nonperforming assets to total assets decreased from 0.42% at December 31, 2020, to 0.34% at March 31, 2021[204] - Nonperforming assets decreased primarily due to the payoff of one commercial relationship ($15.1 million) and continued collection activity, partially offset by a $5.6 million commercial relationship moving to non-accrual[204] - COVID-19 related loan modifications were $110.9 million at March 31, 2021[206] Interest Rate Sensitivity This section assesses the company's exposure to interest rate fluctuations and their potential impact on net interest margin and economic value of equity - Interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year by $2.0 billion at March 31, 2021[208] - The one-year interest-sensitive assets as a percentage of interest-sensitive liabilities was 135.63% at March 31, 2021[208] Estimated Impact of Immediate Changes in Interest Rates (March 31, 2021): | % Change in Interest Rate (Basis Points) | % Change in Net Interest Margin | Economic Value of Equity | | :--------------------------------------- | :------------------------------ | :----------------------- | | +300 | 22.3% | 19.89% | | +200 | 14.7% | 19.52% | | +100 | 7.2% | 19.08% | | -100 | (3.3)% | 16.80% | Results of Operations This section analyzes the company's financial performance, including net income, net interest income, and key expense categories - Net income for Q1 2021 was $65.1 million, up from $10.9 million in Q1 2020[211] Net Interest Income This subsection discusses the drivers of net interest income and changes in net interest margin - Net interest income decreased $2.0 million, primarily due to a lower interest rate environment and decreased purchase accounting accretion, partially offset by $9.4 million from PPP loans[212][214] - Net interest margin was 3.59% for Q1 2021, a 79 basis point decrease from 4.38% in Q1 2020[214] Allowance for Credit Losses This subsection details the provision for credit losses and the overall allowance balance, reflecting credit quality trends - A recovery of credit losses of $20.2 million was recorded in Q1 2021, a $76.8 million change from a $56.6 million provision in Q1 2020, reflecting positive economic outlook and improved credit quality[212][216] - The allowance for credit losses decreased to $204.8 million at March 31, 2021, from $228.8 million at December 31, 2020[217] - Net charge-offs totaled $3.8 million in Q1 2021, compared to $1.0 million in Q1 2020[217] Noninterest Income This subsection analyzes the components and changes in noninterest income, including fees and other revenue streams - Noninterest income increased $7.0 million to $47.8 million, driven by higher mortgage banking activities ($5.1 million increase), investment management and fiduciary revenue ($3.3 million increase), and PPP 2.0 referral fees ($2.2 million)[212][219] - This increase was partially offset by a $4.6 million decrease in Credit/debit card and ATM income, mainly due to the Durbin Amendment and lower interest rates impacting Cash Connect[219] Noninterest Expense This subsection examines the trends and drivers of noninterest expenses, such as salaries, benefits, and equipment costs - Noninterest expense increased $7.1 million to $95.6 million, primarily due to a $7.8 million increase in salaries and benefits and a $2.4 million increase in equipment expense[212][220] - These increases were partially offset by a $5.8 million decrease in other operating expenses, which included a $3.0 million contribution to the WSFS Community Foundation in the prior year[220] Income Taxes This subsection discusses the income tax provision and effective tax rate, explaining significant changes - Income tax provision increased $20.1 million to $21.4 million, primarily due to a $74.7 million increase in pre-tax income[212][221] - The effective tax rate increased to 24.7% from 10.9%, partly due to $1.8 million in tax benefits recognized in Q1 2020 from CARES Act NOL carryback provisions[222] Contractual Obligations This subsection provides an update on the company's contractual obligations, noting any material changes - No significant changes in contractual obligations from December 31, 2020[225] Reconciliation of Non-GAAP Measure to GAAP Measure This section reconciles non-GAAP financial measures, such as tangible book value per share, to their most directly comparable GAAP measures Tangible Book Value Per Share Reconciliation (March 31, 2021 vs. Dec 31, 2020): | Metric | March 31, 2021 (Thousands) | December 31, 2020 (Thousands) | | :------------------------------------ | :----------------------- | :------------------------ | | Stockholders' equity of WSFS | $1,770,641 | $1,791,726 | | Less: Goodwill and other intangible assets | $554,701 | $557,386 | | Tangible common equity | $1,215,940 | $1,234,340 | | Shares of common stock outstanding | 47,502 | 47,756 | | Book value per share of common stock | $37.27 | $37.52 | | Tangible book value per share of common stock | $25.60 | $25.85 | Critical Accounting Estimates This section discusses the critical accounting estimates that require significant judgment and their potential impact on financial results - Critical accounting estimates at March 31, 2021, did not significantly change from December 31, 2020[230] - Estimates are based on historical experience, various factors, and assumptions, but actual results may differ, especially if economic conditions are worse than anticipated[229] Recent Regulatory Developments This section details recent regulatory changes concerning the Paycheck Protection Program (PPP) and the transition away from LIBOR, outlining the Company's involvement and exposure to these developments Paycheck Protection Program (PPP) This subsection provides updates on the Paycheck Protection Program, including legislative changes and the company's participation - The American Rescue Plan Act of 2021 expanded eligibility for PPP loans, and the PPP Extension Act of 2021 extended the program through May 31, 2021[233] - In Q1 2021, WSFS Bank facilitated nearly $300 million in PPP 2.0 loans through third-party providers, generating $2.2 million in referral fees[234] Transition from London Inter-Bank Offered Rate (LIBOR) This subsection discusses the ongoing transition from LIBOR to alternative reference rates and its implications for the company's financial instruments - Most LIBOR term rates will cease publication on June 30, 2023, with some U.S. LIBOR rates ending December 31, 2021[235] - New York legislation provides for the substitution of SOFR (Secured Overnight Funding Rate) in LIBOR-based contracts without clear fallback language[235] - As of March 31, 2021, the Company had approximately $2.2 billion of loans and $1.0 billion of derivatives indexed to LIBOR that mature after 2021[236] - The Company expects its LIBOR transition to span several reporting periods beyond 2021, with a cross-functional team leading the effort[237] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the market risk disclosures from the Management's Discussion and Analysis, specifically the Interest Rate Sensitivity section, detailing the Company's exposure to market price and rate changes - The information required by this Item is incorporated by reference to the "Interest Rate Sensitivity" section within Item 2, Part I of this Quarterly Report on Form 10-Q[239] Item 4. Controls and Procedures The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2021[246] - There was no material change in internal control over financial reporting during the three months ended March 31, 2021[246] PART II. Other Information This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings This section refers to Note 19 of the financial statements for details on legal proceedings, which include ongoing efforts to recover funds from a 2018 settlement and defense against a complaint regarding life settlement policies - Information on legal proceedings is incorporated by reference from Note 19 to the unaudited Consolidated Financial Statements[242] Item 1A. Risk Factors The Company updated its risk factors, primarily focusing on strategic risks related to the pending merger with Bryn Mawr Bank Corporation, including potential delays, failure to complete, integration difficulties, and associated expenses - Material changes to risk factors primarily relate to the pending merger with Bryn Mawr Bank Corporation[243] - Risks include the failure to complete the merger, termination of the merger agreement, or significant delays, which could negatively impact the Company's business, financial condition, and stock price[244][245] - Combining businesses may be more difficult, costly, or time-consuming than expected, potentially leading to loss of key employees, business disruption, or failure to realize anticipated benefits and cost savings[248][249] - The Company expects to incur substantial expenses related to the merger, which could exceed anticipated savings[250] - Regulatory approvals may be delayed, not received, or impose burdensome conditions, potentially affecting the merger's completion or the combined company's operations[251] - Business uncertainties and contractual restrictions during the merger's pendency may adversely affect employee and customer relationships and divert management attention[252] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company's Board approved a share repurchase program in Q1 2020, authorizing the repurchase of up to 7,594,977 shares. In Q1 2021, 267,309 shares were repurchased for $44.97 per share, but repurchases are currently suspended due to the pending merger with Bryn Mawr - The Board approved a share repurchase program in Q1 2020, authorizing the repurchase of 7,594,977 shares (15% of outstanding shares as of March 31, 2020)[253] - In Q1 2021, 267,309 shares were repurchased at an average price of $44.97 per share[255] - Share repurchases are suspended following the announcement of the merger agreement with Bryn Mawr and are expected to remain suspended until the merger closes[255] Item 3. Defaults upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - None[256] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Not applicable[257] Item 5. Other Information This section states that there is no other information to report - None[258] Item 6. Exhibits This section lists various exhibits filed with the 10-Q report, including the Merger Agreement, organizational documents, incentive plan, certifications, and XBRL documents - This section lists various exhibits filed with the 10-Q report, including the Merger Agreement, organizational documents, incentive plan, certifications, and XBRL documents[259] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the report Signatures This section contains the signatures of the principal executive officer and principal financial officer, certifying the report's submission - The report is signed by Rodger Levenson, Chairman, President and Chief Executive Officer, and Dominic C. Canuso, Executive Vice President and Chief Financial Officer, on May 7, 2021[265]