Integration Of Bryn Mawr Trust And Effective Risk Management Will Support Future Expansion

Key Takeaways

• Anticipated net interest margin compression and higher provisions for credit losses could negatively impact future profitability and net interest income.
  
• Decreased contributions from Cash Connect and Spring EQ, alongside rising noninterest expenses, may pressure overall revenue growth and net margins.
  
• Strategic growth and financial stability for WSFS Financial are supported by strong results, successful integration, and effective risk management.

Catalysts

Operates as the savings and loan holding company for the Wilmington Savings Fund Society, FSB that provides various banking services in the United States.

• The company's update for future net interest margin (NIM) guidance indicates an expected compression to 3.70% to 3.75% in the fourth quarter and approximately 3.80% for the full year 2024, triggered partly by rate cuts and higher-priced deposit growth. This pressure on NIM is likely to impact future net interest income negatively.
  
• There's an anticipation of continued increase in nonperforming assets and net charge-offs, driven by recognized problem loans in the portfolio, which is expected to lead to higher provisions for credit losses. This could negatively impact future profitability and earnings.
  
• The diminishing profitability from Cash Connect is highlighted due to increased idle cash suggesting optimization issues. As interest rates decline, Cash Connect's top line fee revenues are expected to fall, potentially affecting fee income growth negatively in the near future, even as expenses may reduce.
  
• With no new originations expected from Spring EQ in the fourth quarter and uncertain future volume for 2025, revenue from this segment may diminish, impacting future fee income and overall revenue.
  
• The company's increased noninterest expenses, driven by unfunded loan commitment reserves and compensation-related costs, to support future growth could pressure net margins if not offset by equivalent revenue growth.

WSFS Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WSFS Financial's revenue will decrease by -0.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.1% today to 27.3% in 3 years time.
• Analysts expect earnings to reach $265.2 million (and earnings per share of $4.67) by about December 2027, up from $263.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2027 earnings, up from 13.2x today. This future PE is greater than the current PE for the US Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 1.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.97%, as per the Simply Wall St company report.

WSFS Financial Future Earnings Per Share Growth

Risks

• WSFS Financial demonstrates strong quarterly results, with core EPS of $1.08 per share and an increase in both loans and deposits, suggesting continued growth potential which may positively impact future revenue and earnings.
  
• The bank's integration of Bryn Mawr Trust and enhancements in client services position it well for future expansion, potentially supporting revenue growth through improved customer satisfaction and service offerings.
  
• Significant market share gains in Cash Connect and optimization efforts may lead to increased profitability, positively affecting net margins and contributing to stable earnings.
  
• The strategic use of hedging for interest rate risk could protect WSFS's net interest margin from volatility, supporting earnings stability in a fluctuating rate environment.
  
• Continued investments in talent and successful fee income generation indicate a robust foundation for sustained growth, contributing potentially to enhanced revenue streams and solid financial performance.

Valuation

• The analysts have a consensus price target of $60.4 for WSFS Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $68.0, and the most bearish reporting a price target of just $52.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $970.7 million, earnings will come to $265.2 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 6.0%.
• Given the current share price of $59.09, the analyst's price target of $60.4 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.