Repricing Deposits And Share Buybacks Will Optimize Capital Structure

Key Takeaways

• Effective management of net interest margin and credit costs could enhance revenue streams and stabilize future earnings through strategic repricing and debt redemption.
  
• The robust growth in core fee revenue and strategic buybacks are set to expand revenue and improve earnings per share, boosting shareholder returns.
  
• Macroeconomic uncertainty, declining loan originations, increased credit costs, and regulatory changes may collectively challenge WSFS Financial's revenue and profitability.

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.

• WSFS Financial has been effectively managing its net interest margin (NIM) through strategies like repricing actions on deposits and redeeming higher-priced sub debt, which could continue to enhance revenue streams and net margins.
  
• The growth in core fee revenue by 6% year-over-year, particularly the 19% growth in Wealth and Trust, indicates strong potential for future revenue expansion in these segments.
  
• The company is successfully managing credit costs and improving the stability of its loan portfolio, which could positively impact future earnings as the portfolio quality strengthens.
  
• WSFS Financial's buyback strategy, with 55% of the total 2024 buybacks completed in Q1 2025, along with a new 10% share repurchase authorization, is likely to drive significant earnings per share (EPS) growth.
  
• The company plans to optimize its capital structure by targeting a CET1 ratio of 12% over the next two to three years, which could enhance shareholder returns and bolster net margins through efficient capital allocation.

WSFS Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WSFS Financial's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.7% today to 27.1% in 3 years time.
• Analysts expect earnings to reach $277.1 million (and earnings per share of $5.25) by about April 2028, up from $263.8 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 13.7x on those 2028 earnings, up from 11.4x today. This future PE is greater than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 3.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

WSFS Financial Future Earnings Per Share Growth

Risks

• Macroeconomic uncertainty is leading clients to postpone investments, which could impact WSFS Financial's loan growth and, consequently, its revenue from interest on loans.
  
• Declining commercial loan originations and client deposits linked to seasonal outflows could negatively affect net interest income and margins.
  
• Increased credit costs and charge-offs, including a significant charge-off related to a C&I loan, may suggest challenges in credit quality, impacting net earnings and margins.
  
• The impact of interest rate cuts on lowering deposit costs may limit future net interest margin expansion, potentially affecting the bank's revenue-generating capabilities.
  
• Elevated delinquency rates and industry-wide uncertainties, like tariffs and regulatory changes, could lead to increased risk in the loan portfolio and additional provisions, affecting overall net profitability.

Valuation

• The analysts have a consensus price target of $62.0 for WSFS Financial based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $277.1 million, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $52.23, the analyst price target of $62.0 is 15.8% higher.
  
• 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.