WSFS reinvention continues with Bryn Mawr Bank deal

With its pending purchase of Bryn Mawr Bank, WSFS Financial in Wilmington, Del., would remove a rival, gain scale in affluent Philadelphia suburbs and accelerate its transformation from a branch-heavy lender to a digital-first bank.

The $14.3 billion-asset WSFS announced plans on Wednesday to buy the $5.4 billion-asset Bryn Mawr for $976.4 million in stock in a deal that should close by the end of this year.

WSFS will emerge from the deal with $43 billion of assets under management — nearly double what it has right now — and the ability to offer digital banking products and services to more customers. The company also plans to close nearly a third of the 135 branches it would have after completing the acquisition.

Much like the 2019 purchase of Beneficial Bancorp, where executives pledged to reinvest $32 million of cost savings over five years into technology upgrades, WSFS is using M&A to position itself for sweeping industry changes. Only now, change is being accelerated by the coronavirus pandemic.

The digital strategy “has been validated by the events of the past year,” WSFS Chairman, President and CEO Rodger Levenson said during a Wednesday conference call to discuss the deal. “In the world of technology … things move very quickly.”

Banks that want to compete need bigger balance sheets and ample capital to invest and keep pace, Levenson said.

Bryn Mawr also allows WSFS to double down in wealth management, a popular source of fee income that tends to avoid the cyclical ups and downs seen in businesses such as mortgages. An increasing number of banks are building scale in the business.

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The ongoing evolution at WSFS comes with a cost.

At roughly 229% of Bryn Mawr’s tangible book value, the deal’s premium is the highest for a bank acquisition since October 2019, according to data compiled by Keefe, Bruyette & Woods. Only five bank acquisitions announced in 2019 had a higher premium.

The median premium in the past year has been 130%, according to Janney Montgomery Scott.

“The deal is definitely not cheap, no matter how you slice it,” said Chris Marinac, an analyst at Janney Montgomery Scott, adding that it will take more than three years for WSFS to earn back an estimated 6.1% dilution to its own tangible book value.

“It’s the one knock — you have to be aware that the market can get nervous about dilution,” Marinac said. “Having said that, the deal otherwise makes a lot of sense on paper. It’s potentially a very powerful combination.”

WSFS executives made their financial case during the conference call, vowing that the acquisition would be 13.4% accretive to the company’s 2023 earnings per share. The plan is to cut about $73 million in annual noninterest expenses, led by branch closures.

A plan to close scores of branches hearkens back to the company’s last acquisition. It sold or shuttered 30 branches, or roughly a quarter of its network, after buying Beneficial.

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The cost savings should bolster the company’s bottom line and free up funding to make more digital investments, Levenson said.

The acquisition would mark the ninth for WSFS since 2010 but its first since buying Beneficial. After announcing the Beneficial deal, WSFS faced some investor pushback because of its plan to reinvest cost savings — a move that several banks, including BB&T as part of its purchase of SunTrust Banks, have since adopted.

WSFS will hold about 6.5% of the deposits in the Philadelphia area, which is the fourth-largest banking market in the United States, according to the Federal Deposit Insurance Corp. It would only trail Wells Fargo, TD Bank, Bank of America, PNC Financial Services Group and Citizens Financial.

Levenson also said that, after extensive due diligence in the wake of the pandemic, he is confident in the health of Bryn Mawr’s loan book.

“We don’t foresee any material change” in problem loan levels, Levenson said.

Wealth management will become an even bigger focus for WSFS, which entered the business in 2010 with its purchase of Christiana Bank & Trust. The company has since bought several more banks and wealth managers, amassing $24.2 billion of assets under management.

Bryn Mawr, founded in January 1889, has had a large wealth management business for years. It has about $19 billion of assets under management.

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Together, they will have the sixth-biggest wealth management business among banks with less than $100 billion of assets.

WSFS said that, as part of the deal, key Bryn Mawr leaders will run the combined company’s wealth management business and talent retention will be a heavy focus during the integration.

Philadelphia’s affluent neighborhoods remain fertile ground for growth-minded banks, said Robert Bolton, president of Iron Bay Capital. He said holding onto that money would justify the deal’s price tag.

But that could come at a price in the form of compensating the employees responsible for affluent clients.

“Client retention — which means talent retention in wealth management — is key,” Bolton said. “If they can do that well then they’ve got one very good bank doing the business that two banks did before, and that makes this combination work.”

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