Thursday, May 19 2022

helen89/iStock Editorial via Getty Images

Overview

Founded in 1832, WSFS Financial (NASDAQ:WSFS) is the largest independent bank and trust company headquarters in the Delaware and Greater Philadelphia area. Including the acquisition of Bryn Mawr Trust, on a pro forma basis, the bank has a deposit allowance of $17.3 billion, surpassing Santander (NYSE: SAN) to become the 7th largest franchise in the Phila-Camden-Wilmington area. WSFS has a regional presence in commercial, retail and mortgage underwriting while maintaining a national presence in wealth management, cash connection and NewLane equipment leasing.

WSFS has actively engaged in acquisitions to grow. As we mentioned in our article on Meridian Bank (NASDAQ: MRBK), the Greater Philadelphia banking market is fragmented and has consolidated over the years. WSFS, an active M&A participant, has engaged in the following transactions from the GFC:

  • 2014: Acquisition of First Wyoming Financial – Market acquisition strengthens WSFS’ presence in Kent County and strengthens its position as Delaware’s premier independent community bank.
  • 2015: Acquisition of Alliance Bancorp & Penn Liberty – acquisition of Alliance Bancorp expands WSFS coverage in southern Pennsylvania and complements WSFS’ existing branch network; acquisition of Penn Liberty complements existing WSFS network to strengthen presence.
  • 2016: Acquisition of Powdermill Financial & West Capital – the acquisition of Powdermill continues to expand WSFS’ ability to serve HNW clients and adds wealth management capabilities; The acquisition of West Capital underscores the bank’s decision to expand wealth management offerings to continue generating fee income.
  • 2019: Acquisition of Beneficial Bancorp – the acquisition of Beneficial enables WSFS to become a leading deposit-taking institution in terms of market share and consolidates approximately 25% of the branch infrastructure; Gaining scale streamlines technology investments, which will continue to increase efficiency over time.
  • 2022: Acquisition of BMT – continues to expand in the local market and adds fee generation capabilities while consolidating branches while eliminating costs.

After reviewing the list of acquisitions, the bank’s strategy became clear – to build a leading franchise in the Greater Philadelphia market through acquisitions. WSFS will continue to engage in acquisitions to gain market share in the fragmented market. As shown in the table below, there are considerable opportunities in the Greater Philadelphia market. Univest (NASDAQ: UVSP), Fulton (NASDAQ:FULT), Republic First (NASDAQ: FRBK), and Firstrust may be potential targets for the next trade.

Deposit market share

Q4 IR board

Reviewing the fourth quarter IR platform for investor guidance, the management team expects to hit an ex. Growth in residential mortgage loans; mid-single-digit royalty revenue growth while maintaining a royalty-to-revenue ratio of approximately 30%; the efficiency ratio is expected to decline, and the bank expects to raise the fourth quarter 2022 efficiency ratio to a high of 50.

With the scale the bank expects to achieve, WSFS has invested in technology to improve efficiency. The bank implements Salesforce to improve cross-selling opportunities with its customers; WSFS is redesigning the account sign-up process and offering a true omnichannel experience to reduce processing requirements; Finally, the bank plans to invest $15 million in anti-money laundering and fraud detection, integrating robotic processing automation to minimize manual execution times.

Transaction Review

From a profitability perspective, although ROA and ROE have been sporadic, both matrices have generally improved over time.

The credit quality of the loan portfolio is solid. Given the diversification of the loan portfolio, the bank has maintained good credit quality and performed well during the COVID 19 period.

The bank continued to improve its efficiency ratio, and as shown in the 2022 outlook, the efficiency ratio is expected to improve, benefiting from technology investments over time.

Operation Matrix

Cap IQ, 10-K

Evaluation

The bank is priced at 1.8x P/TBV and 9.3x P/E. With the expectation of single-digit loan growth and fee income growth, the bank is attractively priced on a multiple of earnings. Mortgage fee generation is only a tiny fraction of fee revenue for the bank, and given that Cash Connect has consistently grown in the double digits per year, Cash Connect fee revenue should be sufficient to offset a decline in fees. mortgage origination fees.

Evaluation

Cap IQ, 10-K

Risk/Reward

From a risk perspective, the integration of BMT presents certain risks. Additionally, larger-scale competitors can leverage the same acquisition strategy to expand into the Philadelphia market, driving up the purchase price of high-quality assets.

From a compensation perspective, the bank is well positioned in a rising interest rate environment. The bank’s strong fee-generating capabilities will continue to generate returns in excess of what other banks can produce. Over the long term, we expect technology investment to continue to lower operating expenses and streamline workflow, reducing overhead over time.

Conclusion

In summary, WSFS is a leading independent bank in the Greater Philadelphia market. We continue to expect the bank to be active in acquiring assets and integrating them into the existing structure. With a price of ~9x P/E with mid single digit growth in loan and fee income, investors have an attractive risk/reward opportunity. The bank has systematically repurchased shares over time, and the board suspended the repurchase due to the acquisition of BMT. Future redemption may be another driver of the stock price in the future.

Previous

India and UK conclude 'productive' first round of FTA talks

Next

NexGel Stock: Raised $14.2 Million From Its IPO (NASDAQ:NXGL)

Check Also