KBRA Affirms Ratings for WSFS Financial Corporation
9 Aug 2023 | New York
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. The Outlook for all long-term ratings is Stable.
Key Credit Considerations
The ratings are supported by WSFS’ significant and stable fee revenue base (~30% of revenue) derived from diversified business operations, particularly its premier wealth management business, which KBRA views as a key differentiator and driver of the company’s ratings profile. Through a successfully executed growth strategy, including strategically sound M&A transactions, management has meaningfully expanded the scale of operations, including the wealth management platform. Also key to the ratings is WSFS’ favorable core funding profile and strong market position, with the largest deposit market share in the Philadelphia-Camden-Wilmington MSA among locally headquartered institutions, further enhanced by the acquisition of Bryn Mawr Bank Corporation (BMTC). As a result, WSFS has generated favorable risk-weighted returns (5-year average RORWA: ~1.85%). In addition, WSFS reflects plentiful access to secondary sources of liquidity (+35% of total assets) with minimal usage relative to many regional peers. The seasoned management team is long tenured, has deep ties within key markets, and has demonstrated the ability to successfully execute strategic initiatives over time. Following the close of the BMTC transaction, continuity of leadership and client retention in wealth management are viewed as important parts of the rating assessment. We acknowledge WSFS’ successful M&A track record and have a favorable view of the development of the franchise in Philadelphia and adjacent markets in light of recent M&A. Historical asset quality performance has been solid overall, supported by sound underwriting and credit administration, highlighted by comparatively lower levels of NPAs and minimal migration into criticized and classified loan balances. We also recognize WSFS’ growing earnings power and sufficient loss absorption capacity (ACL coverage of ~1.50%, including estimated remaining mark on acquired loans as of 2Q23). Compared to larger regional peers, operations are somewhat concentrated, however, we view WSFS’ operating footprint in the Greater Philadelphia and Delaware region as economically attractive and note the resilience of these markets during periods of stress.
The likelihood of positive momentum in WSFS’ ratings is remote through the medium term. Meaningful deterioration in deposit balances resulting in higher than peer reliance on borrowings, loss of fee-based revenue, or outsized weaknesses in asset quality metrics could negatively impact the ratings.
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