KBRA Affirms Ratings for WSFS Financial Corporation

KBRA affirms the senior unsecured debt rating of A-, the subordinated debt rating of BBB+, and the short-term debt rating of K2 for Wilmington, Delaware-based WSFS Financial Corporation (NASDAQ: WSFS)(“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A, the subordinated debt rating of A-, and the short-term deposit and debt ratings of K1 for its subsidiary, Wilmington Savings Fund Society, FSB ("WSFS Bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The primary driver of the ratings, and a key differentiating factor for WSFS, is its significant and stable fee revenue base, which has averaged ~30% of revenues in its recent operating history (32% for 1H24), and is derived from diversified channels that reflect meaningful scale, particularly its premier wealth and trust divisions with $85 billion of AUM/AUA as of 2Q24. Moreover, WSFS has reported considerable growth in its cash logistics & payments business over the years as the company has captured market share as competitors have exited the space, which is becoming a larger piece of noninterest income. Additionally, these segments are projected to continue growing at a double-digit pace prospectively from continued market share gains and dislocation in the marketplace. The favorable fee income trends and maintenance of a healthy NIM due to its lower-beta deposit base (average cost of 1.89% for 2Q24) and well-balanced loan portfolio with regard to fixed/variable interest rate structures that results in solid loan yields, have produced strong profitability in recent years, as well as historically. Moreover, management is forecasting NIM to be flat assuming stable interest rates. Other considerations incorporated into the ratings are WSFS’ favorable core funding profile and strong market position within footprint, including the largest deposit market share among locally headquartered banks, though we recognize that the operations are relatively concentrated compared to larger regional peers, but are somewhat offset by its national reach in the equipment leasing, wealth/trust divisions, and Cash Connect business. Moreover, we acknowledge that its markets reflect favorable demographics and are economically diverse, which provides some resilience in periods of stress. Historical asset quality metrics have been solid overall, supported by sound underwriting and credit administration. NCOs have been slightly higher due to its consumer and equipment finance books, while the rest of portfolio has performed well. We also favorably view the diversified loan portfolio, including a comparatively lower level of investor CRE, including a manageable level of office exposure. Moreover, we recognize WSFS’ strong earnings power and higher level of loss absorbing capacity in the form of reserves and capital. WSFS also reflects a conservative liquidity position evidenced by a below average loan-to-deposit ratio and ample on-balance sheet liquidity. In the near-term, loan growth is expected to be funded with cash flow from the securities portfolio, and management noted that there is no desire to materially leverage the balance sheet prospectively.

Rating Sensitivities

Given that the ratings are at the higher end of the KBRA rated bank universe, an upgrade over the medium term is unlikely. However, geographical diversification while maintaining peer leading financial metrics could support positive rating momentum over the longer term. Any meaningful deterioration in the core funding base, fee-based revenue, credit quality, or capital profile could have a negative impact on the ratings.

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