WSFS Financial (WSFS) - 2019 Q3 - Quarterly Report

PART I. Financial Information Financial Statements (Unaudited) The unaudited consolidated financial statements for Q3 and nine months ended September 30, 2019, reflect significant growth in assets, liabilities, and equity, primarily due to the Beneficial Bancorp acquisition Consolidated Statements of Income Net income attributable to WSFS significantly increased in Q3 2019 to $53.9 million, driven by a substantial rise in net interest income, while nine-month net income slightly decreased due to acquisition-related expenses Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Change | Nine Months 2019 | Nine Months 2018 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $120,833 | $63,097 | +91.5% | $327,379 | $181,800 | +80.1% | | Provision for Loan Losses | $4,121 | $3,716 | +10.9% | $23,970 | $9,864 | +143.0% | | Noninterest Income | $62,346 | $41,901 | +48.8% | $146,339 | $124,355 | +17.7% | | Noninterest Expense | $109,561 | $52,454 | +108.9% | $315,001 | $163,697 | +92.4% | | Net Income Attributable to WSFS | $53,882 | $38,935 | +38.4% | $103,105 | $105,025 | -1.8% | | Diluted EPS | $1.02 | $1.20 | -15.0% | $2.12 | $3.26 | -35.0% | - Corporate development and restructuring expenses significantly increased in 2019 due to the Beneficial acquisition, totaling $18.9 million in Q3 2019 and $65.7 million for the nine-month period, compared to $3.8 million and $4.3 million in the respective 2018 periods[14] Consolidated Statements of Financial Condition Total assets grew to $12.3 billion as of September 30, 2019, a 69.3% increase primarily driven by the Beneficial acquisition, which significantly expanded loans, deposits, and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $12,272,673 | $7,248,870 | +69.3% | | Net Loans and Leases | $8,480,712 | $4,863,919 | +74.4% | | Goodwill | $472,958 | $166,007 | +184.9% | | Total Deposits | $9,533,193 | $5,640,431 | +69.0% | | Total Liabilities | $10,416,216 | $6,427,950 | +62.0% | | Total Stockholders' Equity | $1,856,457 | $820,920 | +126.1% | Notes to the Consolidated Financial Statements The notes detail significant accounting policies, the financial impact of the $1.2 billion Beneficial acquisition, and the adoption of new lease accounting standards, reflecting substantial balance sheet expansion - On March 1, 2019, the company acquired Beneficial Bancorp, Inc. for a total consideration of $1.2 billion, consisting of $950.0 million in stock and $228.2 million in cash, which resulted in goodwill of $307.0 million[54][57] - The company adopted new lease accounting guidance (ASC 842) on January 1, 2019, resulting in the recognition of right-of-use assets of $121.3 million and lease liabilities of $132.3 million[40][27] - The company is preparing to adopt the Current Expected Credit Losses (CECL) methodology (ASU 2016-13) on January 1, 2020, which is expected to materially increase the allowance for credit losses and decrease capital levels[45][46][47] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant financial growth, including $12.3 billion in total assets and increased Q3 net income, primarily to the Beneficial acquisition, while also highlighting a strong net interest margin and ongoing share repurchases - The acquisition of Beneficial Bancorp, Inc. on March 1, 2019, is the primary driver of financial changes, creating the largest locally-headquartered bank in the Greater Delaware Valley with $12.3 billion in assets[245][253] - The company completed the systems integration and rebranding of Beneficial Bank in Q3 2019, along with a branch optimization plan that included consolidating or divesting 30 branches[254][255] - WSFS repurchased 1,230,640 shares of common stock for $51.9 million (average price $42.20) during the first nine months of 2019 under its buyback program[260] Key Performance Metrics | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (attributable to WSFS) | $53.9M | $38.9M | $103.1M | $105.0M | | Net Interest Margin | 4.38% | 4.11% | 4.47% | 4.07% | | Provision for Loan Losses | $4.1M | $3.7M | $24.0M | $9.9M | Quantitative and Qualitative Disclosures About Market Risk The company manages market risk, primarily from interest rate fluctuations, through its Asset/Liability Committee, with detailed disclosures incorporated by reference from Item 2 - The information regarding market risk is incorporated by reference from the 'Interest Rate Sensitivity' section in Item 2 of this report[310] Controls and Procedures The principal executive and financial officers concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q3 2019 - The CEO and CFO concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[312] - No material changes to the internal control over financial reporting occurred during the third quarter of 2019[312] PART II. Other Information Legal Proceedings Legal proceedings information is incorporated by reference, detailing ongoing efforts to recover settlement costs and a pending lawsuit concerning life settlement policies scheduled for trial in Q1 2020 - The company is pursuing recovery of costs related to a $12.0 million settlement with Universitas Education, LLC, having already recovered $7.9 million from insurance carriers in Q3 2018[241] - A lawsuit by Nature's Healing Trust (NHT) alleging failure to provide notice on lapsed life settlement policies is scheduled for trial in Q1 2020 The company is vigorously defending itself[242] Risk Factors No material changes to the previously disclosed risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to risk factors were reported since the Form 10-K for the year ended December 31, 2018[315] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased 959,300 shares of common stock at an average price of $42.33, as part of an ongoing buyback program with 1,906,338 shares remaining available Share Repurchases in Q3 2019 | Month | Total Shares Purchased | Average Price Paid Per Share | Shares Remaining in Program | | :--- | :--- | :--- | :--- | | July | 144,300 | $41.80 | 2,721,338 | | August | 475,000 | $41.50 | 2,246,338 | | September | 340,000 | $43.72 | 1,906,338 | | Total Q3 | 959,300 | $42.33 | 1,906,338 | - The share buyback program was approved in Q4 2018, authorizing the repurchase of up to 3,136,978 shares of common stock following the Beneficial acquisition[317] Defaults upon Senior Securities There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[320] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[321] Other Information There was no other information to report for the period - There was no other information to report for the period[322] Exhibits This section lists exhibits filed with the Form 10-Q, including the Beneficial Bancorp reorganization agreement, corporate governance documents, CEO/CFO certifications, and XBRL data files - Key exhibits filed include CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL interactive data files (Exhibits 101 and 104)[323]