WSFS announces actions related to the tax

Posted by Press Release on January 9, 2018

WSFS Financial Corporation, the parent company of WSFS Bank, announced in a press release a series of actions resulting from the enactment of H.R. 1, also known as the Tax Cuts and Jobs Act, and other decisions that will impact earnings for the fourth quarter of 2017. These actions include writing down a deferred tax asset, the planned surrender of bank-owned life insurance policies, realizing a fraud loss charge, and a periodic grant to the WSFS Foundation.

“The enactment of recent tax reform legislation along with continued strong core performance, positions us to further invest in our business and the communities we serve,” said Mark Turner, chairman, president and CEO, WSFS Bank. “These decisions will also enable us to focus our attention in 2018 on key performance metrics and exceeding goals set in our Strategic Plan.”

The impacts to earnings described in this release are preliminary estimates and subject to additional procedures which could result in material changes to the preliminary estimated impacts to earnings noted below. These additional procedures could result in material changes to our preliminary estimates during the course of our preparation of condensed consolidated financial statements as of and for the quarter and full year ended December 31, 2017.

Deferred Tax Asset Write-Down

The enactment of H.R. 1 results in significant changes to the U.S. tax code, including a reduction in the top corporate income tax rate from 35 percent to 21 percent, effective Jan. 1. As of Sept. 30, 2017, WSFS had a net deferred tax asset totaling $29.4 million. As a result of the reduction in the corporate income tax rate, WSFS is required to revalue its net DTA at Dec. 31, 2017. WSFS estimates the revaluation of its DTA will result in an incremental income tax charge of approximately $12 – $13 million in the fourth quarter of 2017. The company anticipates a negative earnings per share impact of approximately $0.37 – $0.40 resulting from this income tax charge. WSFS expects to recover this charge through lower taxes by the end of the third quarter in 2018.

Surrender of Bank-Owned Life Insurance

WSFS periodically reviews its various tax-advantaged investments. In light of the current higher interest

rate environment, the lower corporate tax rate, and the tax-equivalized yield on its Bank-Owned Life Insurance (investments, WSFS will surrender all BOLI policies in 2018, as the returns on such policies are no longer accretive to the Company’s expected high-performance goals for return on assets. In addition, the decision to surrender the policies was based on ongoing administrative complexity and a reduction in insured interest coverage, as a significant majority of those insured are no longer current Associates. WSFS’ decision to surrender the policies will result in an incremental income tax charge of approximately $8 million in the fourth quarter of 2017. The Company anticipates an impact on EPS of approximately $0.25 resulting from this income tax charge. The timing to surrender the BOLI policies in conjunction with the new tax rates represents a $3.6 million savings over the prior tax rate environment.

Fraud Loss

WSFS will record a pre-tax operating expense of approximately $2.8 million from a fraud loss in the fourth quarter of 2017, resulting from a scheme to defraud the bank that was previously disclosed in a current report on Form 8-K on June 22, 2017. The previously viable business loans associated with this relationship became delinquent when the individual decided to immediately wind-down and liquidate the assets of his business due to the significant reductions in revenue that occurred once his indictment was made public. WSFS is pursuing all available remedies, including working with insurance carriers to recoup the loss and believes it has a strong case for recovery in 2018. The company anticipates an impact on EPS of approximately $0.06 resulting from this pre-tax operating expense.

Grant to the WSFS Foundation

As a community-based organization, and consistent with WSFS’ mission, We Stand For Service, the company contributed $1.5 million (pre-tax) to the WSFS Foundation in the fourth quarter of 2017. This generational donation matches the only other grant made to the Foundation when it was formed in 2003. The grant will help fund the next generation of improvements in the communities served by WSFS Bank. The WSFS Foundation primarily focuses on educational programs for children in grades K-12 who live in underserved communities and who attend public schools. WSFS Bank anticipates an impact on EPS of approximately $0.03 resulting from this pre-tax expense.