# WSFS FINANCIAL CORP (WSFS) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from WSFS FINANCIAL CORP's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/828944/000162828025008977/wsfs-20241231.htm
Accession: 0001628280-25-008977
Filing date: 2025-02-28
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WSFS/
All MD&A years: /company/WSFS/mda/
Previous year: /company/WSFS/mda/fy2023/ (FY 2023)
Next year: /company/WSFS/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

WSFS Financial Corporation (WSFS, and together with its subsidiaries, the Company) is a savings and loan holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies in the United States (U.S.) continuously operating under the same name. With $20.8 billion in assets and $89.4 billion in assets under management (AUM) and assets under administration (AUA) at December 31, 2024, WSFS Bank is the oldest and largest locally-managed bank and trust company headquartered in the Greater Philadelphia and Delaware region. As a federal savings bank that was formerly chartered as a state mutual savings bank, WSFS Bank enjoys a broader scope of permissible activities than most other financial institutions. A fixture in the community, we have been in operation for more than 192 years. In addition to our focus on stellar client experience, we have continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution. Our mission is simple: “We Stand for Service®.” Our strategy of “Engaged Associates, living our culture, enriching the communities we serve” focuses on exceeding client expectations, delivering stellar experiences and building client advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

As of December 31, 2024, we had six consolidated subsidiaries: WSFS Bank, The Bryn Mawr Trust Company of Delaware (BMT-DE), Bryn Mawr Capital Management, LLC (BMCM), WSFS Wealth Management, LLC (Powdermill®), WSFS SPE Services, LLC, and 601 Perkasie, LLC. The Company also has three unconsolidated subsidiaries: WSFS Capital Trust III, Royal Bancshares Capital Trust I, and Royal Bancshares Capital Trust II. WSFS Bank has two wholly-owned subsidiaries: Beneficial Equipment Finance Corporation (BEFC) and 1832 Holdings, Inc., and one majority-owned subsidiary, NewLane Finance Company (NewLane Finance®).

Our banking business had a total loan and lease portfolio of $12.8 billion as of December 31, 2024, which was funded primarily through commercial relationships and client generated deposits. We have built a $9.9 billion commercial loan and lease portfolio by recruiting seasoned commercial lenders in our markets, offering the high level of service and flexibility typically associated with a community bank and through acquisitions. We also offer a broad variety of consumer loan products and retail securities brokerage through our retail branches, in addition to mortgage and title services through our branches and WSFS Mortgage®, our mortgage banking division specializing in a variety of residential mortgage and refinancing solutions. Our leasing business, conducted by NewLane Finance®, originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas. In addition, NewLane Finance® offers captive insurance through its subsidiary, Prime Protect.

Our Cash Connect® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. Cash Connect® services non-bank and WSFS-branded ATMs and smart safes nationwide, and manages approximately $1.6 billion in total cash and services approximately 28,600 non-bank ATMs and 10,000 smart safes nationwide. Cash Connect® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, and deposit safe cash logistics. Cash Connect® also supports 567 owned or branded ATMs for WSFS Bank Clients, which is one of the largest branded ATM networks in our market.

Our Wealth Management business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate and institutional clients. Combined, these businesses had $89.4 billion of AUM and AUA at December 31, 2024.

Bryn Mawr Trust® is our predominant Private Wealth Management brand, providing advisory, investment management and trustee services to institutions, affluent and high-net-worth individuals. Private Wealth Management serves high-net-worth clients and institutions by providing trustee and advisory services, financial planning, customized investment strategies, brokerage products such as annuities and traditional banking services such as credit and deposit products tailored to its clientele. Private Wealth Management includes businesses that operate under the Bank’s charter, through a broker/dealer and as a registered investment advisor (RIA). It generates revenue through a percentage fee based on account assets, fee-only arrangements, net interest income and other fee-only services such as estate administration, trust tax planning and custody. Powdermill® is a multi-family office specializing in providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach.

BMT-DE provides personal trust and fiduciary services to families and individuals across the U.S. and internationally. WSFS Institutional Services® provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional, corporate clients and special purpose vehicles.

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As of December 31, 2024, we service our Clients primarily from 114 offices located in Pennsylvania (57), Delaware (39), New Jersey (14), Florida (2), Nevada (1) and Virginia (1), our ATM network, our website at www.wsfsbank.com, and our mobile app.

Notable Items Impacting Results of Operations, Financial Condition and Business Outlook

Notable items in 2024 include the following:

•Customer deposits increased $607.4 million, or 4%, driven by the Consumer and Commercial businesses, with growth in time, money market, and noninterest demand deposits.

•During the fourth quarter, WSFS completed the repayment of $800.0 million of borrowings from the Bank Term Funding Program (BTFP).

•Net loans and leases grew $413.0 million, or 3%, compared to December 31, 2023. Increases in commercial mortgage and commercial & industrial were partially offset by decreases in construction loans, partially driven by migration into commercial mortgages.

•Returned $131.2 million of capital to shareholders through $95.4 million of share repurchases and $35.8 million of quarterly dividends. Under the Company's share repurchase program, 2,049,739 shares of common stock were repurchased at an average price of $46.55 per share.

•Fee revenue grew by 18%, primarily driven by Cash Connect and Wealth Management, resulting in a fee revenue ratio of 32.5% compared to 28.5% for the prior year. Wealth Management fee revenue grew 12% to a record $148.1 million.

•Recognized $4.3 million of nonrecurring income from our partnership with Spring EQ, comprised of the $2.3 million annual earnout and $2.0 million of post-close distributions related to the sale of our equity investment in Spring EQ that occurred in the fourth quarter of 2023.

•Our Wealth Management segment completed the conversions of its trust accounting system and client portal. These conversions were executed as part of our Bryn Mawr Trust integration plan.

•The Bank and the Company continue to be well above well-capitalized across all measures of regulatory capital, with total common equity tier 1 capital of 13.88% and 13.81%, respectively, and total risk-based capital of 15.13% and 15.77%, respectively.

•In June 2024, Moody's Investor Services reaffirmed the Company's investment-grade issuer rating of Baa2 with a stable outlook and in August 2024, Kroll Bond Rating Agency reaffirmed the Company's senior unsecured debt rating of A-. We believe the ratings reaffirmations reflect the benefits of our diversified business model, our strong capital levels, earnings, liquidity, and asset quality.

•During the year, we held our second annual "We Stand for Service Day", during which nearly 1,500 of our Associates volunteered at more than 130 community organizations across the Greater Philadelphia, Southern New Jersey and Delaware region. In addition, WSFS Associates surpassed the Bank's 2024 volunteer commitment goal of 24,000 hours of service.

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FINANCIAL CONDITION

Total assets increased $219.6 million, or 1%, to $20.8 billion as of December 31, 2024, compared to $20.6 billion as of December 31, 2023. The increase is primarily comprised of the following (in descending order of magnitude):

•Net loans and leases held for investment increased $413.0 million, primarily due to increases of $229.4 million in commercial mortgages, $116.1 million in commercial and industrial loans, $94.3 million in residential mortgage loans, $87.6 million in owner-occupied commercial loans, and $74.3 million in consumer loans (primarily from Spring EQ home equity loans). Construction loans decreased $203.4 million partially due to the migration of construction loans to permanent commercial mortgage and owner-occupied commercial loans.

•Other assets increased $145.1 million, primarily driven by a $63.8 million receivable due to the settlement timing of ACH payments, $18.8 million from the transfer of three properties to held for sale, an $18.3 million increase in derivatives from our Capital Markets business due to changes in fair value, $17.9 million in deferred taxes, and $12.5 million driven by new low-income housing tax credit investments.

•Total cash and cash equivalents increased $61.9 million, primarily due to increased deposits, partially offset by the repayment of borrowings from the BTFP and increased lending activity.

•Total investment securities decreased $379.3 million:

◦Investment securities, available-for-sale decreased $335.9 million, primarily due to repayments of $350.4 million and decreased market values on available-for-sale securities of $49.8 million, partially offset by $67.4 million in purchases .

◦Investment securities, held to maturity decreased $43.4 million primarily due to repayments, maturities and calls of $61.3 million, partially offset by $14.8 million of amortization of net unrealized losses on available-for-sale securities transferred to held-to-maturity.

•Premises and equipment decreased $18.5 million primarily driven by the transfer of three properties to held for sale.

Total liabilities increased $110.1 million, or 1%, to $18.2 billion at December 31, 2024 compared to the prior year, primarily comprised of the following (in descending order of magnitude):

•Total deposits increased $555.7 million, primarily driven by the Consumer and Commercial businesses, with growth in time, money market, and noninterest demand deposits.

•Other liabilities increased $74.3 million primarily due to an increase of $53.1 million in collateral held on derivatives and derivative liabilities and $12.8 million due to performance-based incentive increases.

•FHLB advances increased $51.0 million due to favorable pricing terms.

•Other borrowed funds decreased $562.9 million primarily due to the repayment of borrowings from the BTFP.

Stockholders’ equity increased $112.1 million to $2.6 billion at December 31, 2024 compared to the prior year. The increase was primarily due to earnings of $263.7 million during the year, partially offset by significant capital returns to shareholders ($96.3 million from the repurchase of shares of common stock under our stock repurchase plan as well as payment of dividends on our common stock of $35.8 million), and an increase of $30.9 million in accumulated other comprehensive loss due to market value decreases on investment securities.

We repurchased 2,049,739 and 1,247,178 shares of our common stock in 2024 and 2023, respectively. We held 17,607,002 shares and 15,557,263 shares of our common stock as treasury shares at December 31, 2024 and 2023, respectively.

For further information on our regulatory capital requirements, refer to our Capital Resources discussion below.

LIQUIDITY AND CAPITAL RESOURCES

Capital Resources

Regulatory capital requirements for the Bank and the Company include a minimum common equity Tier 1 capital ratio of 4.50% of risk-weighted assets, a Tier 1 capital ratio of 6.00% of risk-weighted assets, a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets. In order to avoid limits on capital distributions and discretionary bonus payments, the Bank and the Company must maintain a capital conservation buffer of 2.5% of common equity Tier 1 capital over each of the risk-based capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory actions and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements.

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Regulators have established five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. A depository institution’s capital tier depends upon its capital levels in relation to various relevant capital measures, which include leveraged and risk-based capital measures and certain other factors. Under the Prompt Corrective Action framework of the Federal Deposit Insurance Corporation Act, depository institutions that are not classified as well-capitalized are subject to various restrictions regarding capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities. At December 31, 2024, the Bank was in compliance with regulatory capital requirements and all of its regulatory ratios exceeded “well-capitalized” regulatory benchmarks. The Bank’s December 31, 2024 common equity Tier 1 capital ratio of 13.88%, Tier 1 capital ratio of 13.88%, total risk based capital ratio of 15.13% and Tier 1 leverage capital ratio of 11.03%, all remain substantially in excess of “well-capitalized” regulatory benchmarks, the highest regulatory capital rating. In addition, and not included in the Bank's capital, the holding company held $275.4 million in cash to support potential dividends, acquisitions and strategic growth plans.

Liquidity

We manage our liquidity and funding needs through our Treasury function and our Asset/Liability Committee. We have a policy that separately addresses liquidity, and management monitors our adherence to policy limits. Also, liquidity risk management is a primary area of examination by the banking regulators.

Funding sources to support growth and meet our liquidity needs include cash from operations, commercial, consumer, wealth and trust deposit programs, loan repayments, FHLB borrowings, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues. In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration mortgage-backed securities, that provide a near-continuous source of cash flow to meet current cash needs, or can be sold to meet larger discrete needs for cash. We believe these sources are sufficient to meet our funding needs as well as maintain required and prudent levels of liquidity over the next twelve months and beyond.

As of December 31, 2024, the Company has $1.2 billion in cash, cash equivalents, and restricted cash. Our estimated uninsured deposits were $6.4 billion, or 38% of total customer deposits, and our estimated unprotected deposits (uninsured and uncollateralized) were $5.2 billion, or 31% of total customer deposits.

As of December 31, 2024, the Company had a readily available, secured borrowing capacity of $5.7 billion from the FHLB and $2.4 billion through the Federal Reserve Discount Window. In addition, the Company had $1.1 billion in unpledged securities that could be used to support additional borrowings and $0.6 billion of cash deposited with the Federal Reserve Bank.

During the year ended December 31, 2024, cash, cash equivalents and restricted cash increased $61.9 million to $1.2 billion from $1.1 billion as of December 31, 2023. Cash provided by operating activities was $219.9 million, primarily reflecting the cash impact of earnings. Cash used for investing activities was $66.7 million primarily due to purchases of loans held for investment of $269.6 million and a $138.3 million net increase in loans and leases. These outflows were partially offset by net repayments of available-for-sale and held-to-maturity debt securities of $283.0 million and $61.3 million, respectively. Cash used by financing activities was $91.2 million, primarily due to the net repayment of $565.0 million of BTFP borrowings, $96.3 million for repurchases of common stock under the previously announced stock repurchase plan, and common stock dividends of $35.8 million, partially offset by a $557.7 million net increase in deposits and $51.0 million for the receipt of fixed rate FHLB term advances.

Our primary cash contractual obligations relate to operating leases, long-term debt, credit obligations, and data processing. At December 31, 2024, we had $212.5 million in total contractual payments for ongoing leases that have remaining lease terms of less than one year to 21 years, which includes renewal options that are exercised at our discretion. For additional information on our operating leases see Note 9 to the Consolidated Financial Statements. At December 31, 2024, we had obligations for principal payments on long-term debt including $51.0 million of FHLB advances, $67.0 million for our trust preferred borrowings, due June 1, 2035, $23.8 million for our trust preferred borrowings, due December 15, 2034, $70.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2027, and $150.0 million for our senior debt, due December 15, 2030. We are also contractually obligated to make interest payments on our long-term debt through their respective maturities.

We are also contractually obligated to make interest payments on our long-term debt through their respective maturities. For additional information regarding long-term debt, see Note 12 to the Consolidated Financial Statements. At December 31, 2024, the Company had total commitments to extend credit of $4.2 billion, which are generally one year commitments. For additional information regarding commitments to extend credit, see Note 17 to the Consolidated Financial Statements.

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NONPERFORMING ASSETS

Nonperforming assets include nonaccruing loans and OREO. Nonaccruing loans are those on which we no longer accrue interest. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal and interest. Past due loans are defined as loans contractually past due 90 days or more as to principal or interest payments but which remain in accrual status because they are considered well secured and in the process of collection. Troubled loans are loans modified in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, or a term extension to borrowers experiencing financial difficulty.

The following table shows our nonperforming assets, past due loans, and troubled loans at the dates indicated:

[[GREPCENT_TABLE]]
[["","At December 31,"],["(Dollars in thousands)","2024","","2023"],["Nonaccruing loans(1):"],["Commercial and industrial","$","61,809","","","$","29,389"],["Owner-occupied commercial","4,710","","","4,862"],["Commercial mortgages","22,223","","","22,292"],["Construction","25,600","","","12,617"],["Residential","5,011","","","2,579"],["Consumer","2,828","","","2,446"],["Total nonaccruing loans(2)","122,181","","","74,185"],["Other real estate owned","5,204","","","1,569"],["Total nonperforming assets","$","127,385","","","$","75,754"],["Past due loans:"],["Commercial","$","1,812","","","$","1,552"],["Residential","15","","","\u2014"],["Consumer(3)","7,375","","","10,032"],["Total past due loans","$","9,202","","","$","11,584"],["Troubled loans(4):"],["Commercial","$","143,904","","","$","85,330"],["Residential","144","","","777"],["Consumer","7,240","","","9,161"],["Total troubled loans","$","151,288","","","$","95,268"],["Ratio of allowance for credit losses to total gross loans and leases(5)","1.48","%","","1.46","%"],["Ratio of nonaccruing loans to total gross loans and leases(6)","0.93","","","0.58"],["Ratio of nonperforming assets to total assets","0.61","","","0.37"],["Ratio of allowance for credit losses to nonaccruing loans","160","","","251"],["Ratio of allowance for credit losses to total nonperforming assets(7)","153","","","246"]]
[[/GREPCENT_TABLE]]

(1)Includes nonaccruing troubled loans.

(2)Includes nonaccrual loans held-for-sale as of December 31, 2023

(3)Includes U.S. government guaranteed student loans with little risk of credit loss.

(4)Represents loans with certain modifications (as prescribed in ASU 2022-02) to borrowers experiencing financial difficulty.

(5)Represents amortized cost basis for loans and leases.

(6)Total loans exclude loans held for sale and reverse mortgages.

(7)Excludes acquired purchase credit deteriorated loans.

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Nonperforming assets increased $51.6 million between December 31, 2023 and December 31, 2024. This increase was primarily due to the transfer in of three commercial mortgage relationships totaling $74.1 million and two commercial and industrial relationships totaling $37.7 million during the period. These inflows were partially offset by partial charge-offs on some of the commercial mortgage and commercial and industrial relationships totaling $14.2 million, several smaller payoffs, and the continued collection of principal payments on the majority of these loans. The ratio of nonperforming assets to total assets increased from 0.37% at December 31, 2023 to 0.61% at December 31, 2024.

The following table summarizes the changes in nonperforming assets during the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(Dollars in thousands)","","2024","","2023"],["Beginning balance","","$","75,754","","","$","43,372"],["Additions","","207,135","","","110,586"],["Collections","","(75,810)","","","(19,874)"],["Transfers to accrual(1)","","(15,653)","","","(20,263)"],["Charge-offs","","(64,041)","","","(38,067)"],["Ending balance","","$","127,385","","","$","75,754"]]
[[/GREPCENT_TABLE]]

(1)2023 includes impact of ASU No. 2022-02 adoption.

The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Problem loans are all criticized, classified and nonperforming loans and other real estate owned. Timely identification enables us to take appropriate action and accordingly, minimize losses. An asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets. In general, this system uses guidelines established by federal regulation.

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RESULTS OF OPERATIONS

2023 compared with 2022

For a discussion of our results for the year ended December 31, 2023 compared to the year ended December 31, 2022, please see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.

2024 compared with 2023

We recorded net income attributable to WSFS of $263.7 million, or $4.41 per diluted common share, for the year ended December 31, 2024, a decrease of $5.5 million compared to $269.2 million, or $4.40 per diluted common share, for the year ended December 31, 2023.

•Net interest income for the year ended December 31, 2024 was $705.4 million, a decrease of $19.7 million compared to 2023, primarily due to continued deposit mix shift and growth in higher priced deposit products over the past year, partially offset by higher loan volumes and yields. See “Net Interest Income” for further information.

•Our provision for credit losses decreased $26.7 million in 2024, primarily driven by a lower provision on our consumer portfolio due to the runoff of our Upstart portfolio and higher provisions on our owner-occupied and construction portfolios in the prior year, partially offset by loan growth. See “Provision/Allowance for Credit Losses” for further information.

•Noninterest income increased $51.0 million in 2024, primarily due to increases from Cash Connect® driven by higher ATM bailment volume and growth in smart safes, Wealth Management driven by WSFS Institutional Services® and Bryn Mawr Capital Management, mortgage banking income, and a gain on our Visa B derivative liability. See “Noninterest Income” for further information.

•Noninterest expense increased $76.1 million in 2024, primarily due to increases in salaries and benefits from annual performance-based increases, talent additions in key business lines and increased medical benefits costs, Cash Connect® funding costs, and equipment expense as we continued to invest in technology, including a new Trust accounting system and client portal. These increases were partially offset by decreases in occupancy expense and FDIC expenses related to the FDIC special assessment charged in 2023 to recover losses to the Deposit Insurance Fund related to closures of certain banks. See “Noninterest Expense” for further information.

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Net Interest Income

The following table provides information regarding the average balances of, and yields/rates on, interest-earning assets and interest-bearing liabilities during the periods indicated:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","","2024","","2023"],["(Dollars in thousands)","","AverageBalance","","Interest &Dividends","","Yield/Rate(1)","","Average Balance","","Interest & Dividends","","Yield/Rate (1)"],["Assets:"],["Interest-earning assets:"],["Loans:(2)"],["Commercial loans and leases","","$","5,161,318","","","$","362,909","","","7.04","%","","$","5,041,280","","","$","346,389","","","6.88","%"],["Commercial mortgage loans","","4,937,177","","","349,507","","","7.08","","","4,570,839","","","317,603","","","6.95"],["Residential","","911,345","","","46,094","","","5.06","","","820,600","","","38,886","","","4.74"],["Consumer","","2,088,699","","","156,195","","","7.48","","","1,922,827","","","138,510","","","7.20"],["Loans held for sale","","44,263","","","3,676","","","8.30","","","47,424","","","3,883","","","8.19"],["Total loans and leases","","13,142,802","","","918,381","","","6.99","","","12,402,970","","","845,271","","","6.82"],["Mortgage-backed securities(3)","","4,365,155","","","102,024","","","2.34","","","4,640,646","","","107,555","","","2.32"],["Investment securities(3)","","364,896","","","8,739","","","2.65","","","367,026","","","8,783","","","2.71"],["Other interest-earning assets","","647,361","","","34,438","","","5.32","","","282,462","","","14,913","","","5.28"],["Total interest-earning assets","","18,520,214","","","1,063,582","","","5.75","","","17,693,104","","","976,522","","","5.53"],["Allowance for credit losses","","(195,126)","","","","","","","(169,140)"],["Cash and due from banks","","182,368","","","","","","","256,984"],["Cash in non-owned ATMs","","339,646","","","","","","","392,007"],["Bank owned life insurance","","38,958","","","","","","","98,935"],["Other noninterest-earning assets","","1,935,011","","","","","","","1,931,147"],["Total assets","","$","20,821,071","","","","","","","$","20,203,037"],["Liabilities and stockholders\u2019 equity:"],["Interest-bearing liabilities:"],["Interest-bearing deposits:"],["Interest-bearing demand","","$","2,823,136","","","$","33,007","","","1.17","%","","$","3,019,050","","","$","26,671","","","0.88","%"],["Money market","","5,202,179","","","183,306","","","3.52","","","4,317,810","","","122,168","","","2.83"],["Savings","","1,535,151","","","7,314","","","0.48","","","1,832,601","","","5,733","","","0.31"],["Customer time deposits","","1,998,134","","","84,871","","","4.25","","","1,571,682","","","45,184","","","2.87"],["Total interest-bearing customer deposits","","11,558,600","","","308,498","","","2.67","","","10,741,143","","","199,756","","","1.86"],["Brokered deposits","","4,577","","","178","","","3.89","","","214,608","","","10,064","","","4.69"],["Total interest-bearing deposits","","11,563,177","","","308,676","","","2.67","","","10,955,751","","","209,820","","","1.92"],["Federal Home Loan Bank (FHLB) advances","","56,855","","","2,967","","","5.22","","","103,268","","","5,348","","","5.18"],["Trust preferred borrowings","","90,730","","","6,910","","","7.62","","","90,534","","","6,736","","","7.44"],["Senior and subordinated debt","","218,507","","","9,690","","","4.43","","","221,975","","","9,815","","","4.42"],["Other borrowed funds(4)","","645,921","","","29,901","","","4.63","","","442,197","","","19,700","","","4.46"],["Total interest-bearing liabilities","","12,575,190","","","358,144","","","2.85","","","11,813,725","","","251,419","","","2.13"],["Noninterest-bearing demand deposits","","4,926,702","","","","","","","5,306,511"],["Other noninterest-bearing liabilities","","793,465","","","","","","","787,573"],["Stockholders\u2019 equity of WSFS","","2,535,737","","","","","","","2,300,467"],["Noncontrolling interest","","(10,023)","","","","","","","(5,239)"],["Total liabilities and stockholders\u2019 equity","","$","20,821,071","","","","","","","$","20,203,037"],["Excess of interest-earning assets over interest-bearing liabilities","","$","5,945,024","","","","","","","$","5,879,379"],["Net interest and dividend income","","","","$","705,438","","","","","","","$","725,103"],["Interest rate spread","","","","","","2.90","%","","","","","","3.40","%"],["Net interest margin","","","","","","3.82","%","","","","","","4.11","%"]]
[[/GREPCENT_TABLE]]

(1)Weighted average yields for tax-exempt securities and loans have been computed on a tax-equivalent basis.

(2)Average balances are net of unearned income and include nonperforming loans.

(3)Includes securities held-to-maturity (at amortized cost) and securities available-for-sale (at fair value).

(4)Includes federal funds purchased.

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Net interest income decreased $19.7 million, or 3%, to $705.4 million in 2024, compared to 2023 primarily due to continued deposit mix shift and growth in higher priced deposit products, partially offset by higher loan volumes and yields. Net interest margin decreased 29 bps to 3.82% in 2024 from 4.11% in 2023. The decrease was primarily due to 54 bps decrease from the mix shift and growth in higher priced deposit products, partially offset by 21 bps from higher loan yields. While average loan yields were higher year-over-year for 2024, as a result of the interest rate environment further described within "Item 1A. Risk Factors," loan yields ended the year below the full-year average.

The following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on the changes that are attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii) changes in rates (change in rate multiplied by prior year volume on each category); and (iii) net change (the sum of the change in volume and the change in rate). Changes due to the combination of rate and volume changes (changes in volume multiplied by changes in rate) are allocated proportionately between changes in rate and changes in volume.

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2024 vs. 2023"],["(Dollars in thousands)","Volume","","Yield/Rate","","Net"],["Interest Income:"],["Loans:"],["Commercial loans and leases(1)","$","8,358","","","$","8,162","","","$","16,520"],["Commercial mortgage loans","25,867","","","6,037","","","31,904"],["Residential","4,475","","","2,733","","","7,208"],["Consumer","12,190","","","5,495","","","17,685"],["Loans held for sale","(259)","","","52","","","(207)"],["Mortgage-backed securities","(6,450)","","","919","","","(5,531)"],["Investment securities(2)","(9)","","","(35)","","","(44)"],["Other interest-earning assets","19,411","","","114","","","19,525"],["Favorable","63,583","","","23,477","","","87,060"],["Interest expense:"],["Deposits:"],["Interest-bearing demand","(1,838)","","","8,174","","","6,336"],["Money market","27,912","","","33,226","","","61,138"],["Savings","(1,062)","","","2,643","","","1,581"],["Customer time deposits","14,316","","","25,371","","","39,687"],["Brokered deposits","(8,419)","","","(1,467)","","","(9,886)"],["FHLB advances","(2,422)","","","41","","","(2,381)"],["Trust preferred borrowings","15","","","159","","","174"],["Senior and subordinated debt","(148)","","","23","","","(125)"],["Other borrowed funds","9,421","","","780","","","10,201"],["Unfavorable","37,775","","","68,950","","","106,725"],["Net change, as reported","$","25,808","","","$","(45,473)","","","$","(19,665)"]]
[[/GREPCENT_TABLE]]

(1)Includes a tax-equivalent income adjustment related to commercial loans.

(2)Includes a tax-equivalent income adjustment related to municipal bonds.

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Investment Securities

The following table details the maturity and weighted average yield of the available-for-sale investment portfolio as of December 31, 2024:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","Maturing During 2025","","Maturing From 2026 Through 2029","","Maturing From 2030 Through 2034","","Maturing After 2034","","Total"],["Collateralized mortgage obligations (CMO)"],["Amortized cost","$","\u2014","","","$","50,924","","","$","48,316","","","$","427,556","","","$","526,796"],["Weighted average yield","\u2014","%","","2.51","%","","2.25","%","","0.92","%","","1.91","%"],["Fannie Mae (FNMA) mortgage-backed securities (MBS)"],["Amortized cost","$","16,833","","","$","60,965","","","$","201,089","","","$","3,026,531","","","$","3,305,418"],["Weighted average yield","2.17","%","","2.53","%","","2.03","%","","2.04","%","","2.05","%"],["Freddie Mac (FHLMC) MBS"],["Amortized cost","$","\u2014","","","$","29,884","","","$","20,623","","","$","68,098","","","$","118,605"],["Weighted average yield","\u2014","%","","2.76","%","","1.85","%","","3.15","%","","2.83","%"],["Ginnie Mae (GNMA) MBS"],["Amortized cost","$","\u2014","","","$","385","","","$","23","","","$","44,170","","","$","44,578"],["Weighted average yield","\u2014","%","","2.89","%","","4.91","%","","3.51","%","","3.50","%"],["Government-sponsored enterprises (GSE) agency notes"],["Amortized cost","$","\u2014","","","$","4,999","","","$","217,870","","","$","\u2014","","","$","222,869"],["Weighted average yield","\u2014","%","","1.13","%","","1.31","%","","\u2014","%","","1.31","%"],["Total amortized cost","$","16,833","","","$","147,157","","","$","487,921","","","$","3,566,355","","","$","4,218,266"],["Weighted average yield","2.17","%","","2.52","%","","1.72","%","","2.05","%","","2.03","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, WSFS does not have any tax-exempt securities within the available-for-sale investment portfolio. Yields are calculated on a weighted average basis using the investments amortized cost and respective average yields for each investment category. Expected maturities of mortgage-backed securities may differ from contractual maturities due to calls or prepay obligations.

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Provision/Allowance for Credit Losses (ACL)

We maintain an ACL at an appropriate level based on our assessment of current expected credit losses in the loan portfolio, which we evaluate in accordance with applicable accounting principles, as discussed further in “Nonperforming Assets.” Our evaluation is based on a review of the portfolio and requires significant, complex and difficult judgments.

For the year ended December 31, 2024, we recorded a provision for credit losses of $61.4 million, a net change of $26.7 million, compared to a provision for credit losses of $88.1 million in 2023. The decrease was primarily driven by a lower provision on our consumer portfolio due to the runoff of our Upstart portfolio and higher provisions on our owner-occupied and constructions portfolios in 2023 driven by economic uncertainty in the commercial real estate market, partially offset by loan growth.

The ACL was $195.3 million at December 31, 2024 compared to $186.1 million at December 31, 2023. The increase of the ACL was primarily due to net loan growth, as well as increases in criticized loan levels in the commercial mortgages portfolio and specific reserves on certain commercial loans. The ratio of allowance for credit losses to total loans and leases was 1.48% at December 31, 2024 and 1.46% at December 31, 2023.

Net charge-offs were $52.3 million for the year ended December 31, 2024 compared to $53.8 million for the year-ended December 31, 2023. The decrease in net charge-offs was primarily driven by our commercial and industrial portfolio, offset by higher charge-offs in commercial mortgages and commercial small business leases portfolios.

The following tables detail the allocation of the ACL and show our net charge-offs (recoveries) by portfolio category:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Commercial and Industrial","","Owner- occupied Commercial","","Commercial Mortgages","","Construction","","Commercial Small Business Leases","","Residential(1)","","Consumer(2)","","Total"],["As of December 31, 2024"],["Allowance for credit losses","","$","57,131","","","$","9,139","","","$","48,962","","","$","9,185","","","$","15,965","","","$","5,566","","","$","49,333","","","$","195,281"],["% of ACL to total ACL","","29","%","","5","%","","25","%","","5","%","","8","%","","3","%","","25","%","","100","%"],["Loan portfolio balance","","$","2,656,174","","","$","1,973,645","","","$","4,030,627","","","$","832,093","","","$","647,516","","","$","961,426","","","$","2,086,393","","","$","13,187,874"],["% to total loans and leases","","20","%","","15","%","","31","%","","6","%","","5","%","","7","%","","16","%","","100","%"],["Year ended December 31, 2024"],["Charge-offs","","$","15,490","","","$","177","","","$","5,749","","","$","\u2014","","","$","20,033","","","$","125","","","$","23,549","","","$","65,123"],["Recoveries","","(6,883)","","","(217)","","","(183)","","","\u2014","","","(2,705)","","","(225)","","","(2,654)","","","(12,867)"],["Net charge-offs (recoveries)","","$","8,607","","","$","(40)","","","$","5,566","","","$","\u2014","","","$","17,328","","","$","(100)","","","$","20,895","","","$","52,256"],["Average loan balance","","$","2,586,833","","","$","1,937,449","","","$","3,991,686","","","$","945,491","","","$","637,036","","","$","908,368","","","$","2,088,699","","","$","13,095,562"],["Ratio of net charge-offs (recoveries) to average gross loans","","0.33","%","","NMF","","0.14","%","","\u2014","%","","2.72","%","","(0.01)","%","","1.00","%","","0.40","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Commercial and Industrial","","Owner- occupied Commercial","","Commercial Mortgages","","Construction","","Commercial Small Business Leases","","Residential(1)","","Consumer(2)","","Total"],["As of December 31, 2023"],["Allowance for credit losses","","$","49,394","","","$","10,719","","","$","36,055","","","$","10,762","","","$","15,170","","","$","5,483","","","$","58,543","","","$","186,126"],["% of ACL to total ACL","","27","%","","6","%","","19","%","","6","%","","8","%","","3","%","","31","%","","100","%"],["Loan portfolio balance","","$","2,540,070","","","$","1,886,087","","","$","3,801,180","","","$","1,035,530","","","$","623,622","","","$","867,895","","","$","2,012,134","","","$","12,766,518"],["% to total loans and leases","","19","%","","15","%","","30","%","","8","%","","5","%","","7","%","","16","%","","100","%"],["Year ended December 31, 2023"],["Charge-offs","","$","26,653","","","$","184","","","$","300","","","$","794","","","$","15,641","","","$","41","","","$","22,394","","","$","66,007"],["Recoveries","","(7,735)","","","(54)","","","(7)","","","(532)","","","(1,986)","","","(260)","","","(1,625)","","","(12,199)"],["Net charge-offs (recoveries)","","$","18,918","","","$","130","","","$","293","","","$","262","","","$","13,655","","","$","(219)","","","$","20,769","","","$","53,808"],["Average loan balance","","$","2,589,147","","","$","1,863,542","","","$","3,562,070","","","$","1,008,768","","","$","588,592","","","$","817,758","","","$","1,922,828","","","$","12,352,704"],["Ratio of net charge-offs (recoveries) to average gross loans","","0.73","%","","0.01","%","","0.01","%","","0.03","%","","2.32","%","","(0.03)","%","","1.08","%","","0.44","%"]]
[[/GREPCENT_TABLE]]

(1)Excludes reverse mortgages.

(2)Includes home equity lines of credit, installment loans unsecured lines of credit and education loans.

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Noninterest Income

Noninterest income increased $51.0 million to $340.9 million in 2024 from $289.9 million in 2023. This increase reflects a $32.1 million increase from Cash Connect® driven by higher ATM bailment volume from new clients added in the fourth quarter of 2023 and first quarter of 2024 and growth in smart safes, $15.2 million in Wealth Management revenue driven by WSFS Institutional Services® and Bryn Mawr Capital Management, $2.8 million in mortgage banking fees, and a $2.8 million net gain on our Visa B derivative liability established from our previous sale of 360,000 shares in 2Q 2020. Our diverse fee-based businesses support sustainability of noninterest income through economic cycles.

Noninterest Expenses

Noninterest expense increased $76.1 million to $637.7 million in 2024 from $561.6 million in 2023. The increase was primarily due to increases of $43.5 million in salaries and benefits costs from annual performance-based increases, talent additions in key business lines and higher medical benefits costs, $37.1 million in other operating expense driven by higher funding costs from Cash Connect®, and $5.5 million in equipment expense as we continued to invest in technology, including a new Trust accounting system and client portal. These increases were partially offset by a $4.6 million decrease in occupancy expense and a $3.7 million decrease in FDIC expenses related to the FDIC special assessment charged in 2023 to recover losses to the Deposit Insurance Fund related to closures of certain banks.

Income Taxes

We recorded $83.8 million of income tax expense for the year ended December 31, 2024 compared to $96.2 million for the year ended December 31, 2023. The decrease in income tax expense was primarily driven by a decrease in income before taxes of $18.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The effective tax rates for the years ended December 31, 2024 and 2023 were 24.1% and 26.3%, respectively. The effective tax rate for year ended December 31, 2024 decreased primarily due to our decision to surrender certain BOLI policies in 2023 that resulted in $7.1 million of tax expense.

The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, income from bank-owned life insurance policies, various federal income tax credits, and excess tax benefits from recognized stock compensation. These tax benefits are offset by the tax effect of stock-based compensation expense related to incentive stock options, and a provision for state income tax expense.

We frequently analyze our projections of taxable income and make adjustments to our provision for income taxes accordingly.

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SEGMENT INFORMATION

For financial reporting purposes, our business has three reporting segments: WSFS Bank, Cash Connect®, and Wealth Management. The WSFS Bank segment provides loans and leases and other financial products to Commercial and Consumer Clients. Cash Connect® provides ATM vault cash, smart safe and other cash logistics services in the U.S through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. Cash Connect® services non-bank and WSFS-branded ATMs and smart safes nationwide. The Wealth Management segment provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate and institutional clients.

WSFS Bank Segment

The WSFS Bank segment income before taxes decreased $22.0 million, or 9%, in 2024 compared to 2023. The decrease was driven by an increase in salaries, benefits, and other compensation of $34.5 million, or 15%, largely due to talent additions in key business lines including Commercial and Technology, and a decrease in net external client interest income of $11.6 million, or 2%, driven by growth in higher-priced deposit products, partially offset by higher loan yields. The decrease in income before taxes was partially offset by a $26.8 million, or 31%, decrease in provision for credit losses, primarily due to lower provision on our consumer portfolio due to the runoff of our Upstart portfolio and higher provisions on our owner-occupied and constructions portfolios in 2023 driven by economic uncertainty in the commercial real estate market, partially offset by loan growth.

WSFS Bank segment net loans and leases held for investment increased by $0.4 billion to $12.6 billion, driven by commercial loan growth within the commercial mortgage, commercial and industrial, and owner-occupied portfolios, residential mortgage loans and consumer loans (primarily from Spring EQ home equity loans), and was partially offset by a decrease in construction loans partially due to the migration to permanent commercial mortgage and owner-occupied commercial loans. Customer deposits increased by $0.6 billion to $14.6 billion, driven by growth in money market and time deposits.

Cash Connect® Segment

The Cash Connect® segment income before taxes decreased to $1.0 million in 2024 from $4.2 million in 2023. The decrease was primarily due to one-time charges during 2024 associated with the termination of a longstanding Client relationship during the fourth quarter totaling $4.7 million, partially offset by higher ATM bailment volume from new clients added in the fourth quarter of 2023 and first quarter of 2024 and double digit growth in smart safes. The full-year 2024 ROA for the Cash Connect® segment decreased 63 bps to 0.17% compared to 0.80% for the full-year 2023 primarily due to the termination of the vault cash relationship described above. Cash Connect® had $1.6 billion in total cash managed at December 31, 2024 and $1.9 billion at December 31, 2023. At year-end 2024, Cash Connect® serviced approximately 28,600 non-bank ATMs compared to approximately 33,000 at year-end 2023 and approximately 10,000 smart safes nationwide compared to approximately 8,700 smart safes at year-end 2023.

Wealth Management Segment

The Wealth Management segment income before taxes increased $7.2 million in 2024 compared to 2023, primarily attributable to growth in our institutional trust activity and Bryn Mawr Capital Management, partially offset by increases in salaries and benefits as a result of talent additions to support future growth. At December 31, 2024, Wealth Management had AUA/AUM of $89.4 billion, a 15% increase from 2023 balances. WSFS Institutional Services® ended 2024 as the securitization industry's fourth most active trustee by number of deals for U.S. ABS and MBS according to Asset-Backed Alert’s ABS Database.

Segment financial information for the years ended December 31, 2024, 2023 and 2022 is provided in Note 21 to the Consolidated Financial Statements.

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ASSET/LIABILITY MANAGEMENT

Our primary asset/liability management goal is to optimize long term net interest income opportunities within the constraints of managing interest rate risk, ensuring adequate liquidity and funding and maintaining a strong capital base.

In general, interest rate risk is mitigated by closely matching the maturities or repricing periods of interest-sensitive assets and liabilities to ensure a favorable interest rate spread. We regularly review our interest-rate sensitivity, and use a variety of strategies as needed to adjust that sensitivity within acceptable tolerance ranges established by management and our Board of Directors. Changing the relative proportions of fixed-rate and adjustable-rate assets and liabilities is one of our primary strategies to accomplish this objective.

The matching of assets and liabilities may be analyzed using a number of methods including by examining the extent to which such assets and liabilities are “interest-rate sensitive” and by monitoring our interest-sensitivity gap. An interest-sensitivity gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing within a defined period, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets repricing within a defined period. For additional information related to interest rate sensitivity, see "Quantitative and Qualitative Disclosures About Market Risk."

The repricing and maturities of our interest-rate sensitive assets and interest-rate sensitive liabilities at December 31, 2024 are shown in the following table:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","","Less thanOne Year","","One to FiveYears","","Five to Fifteen Years","","Over Fifteen Years","","Total"],["Interest-rate sensitive assets:"],["Loans(1):"],["Commercial loans and leases","","$","4,278,839","","","$","1,578,106","","","$","361,454","","","$","9,618","","","$","6,228,017"],["Commercial mortgage loans","","2,906,950","","","921,943","","","206,131","","","5,711","","","4,040,735"],["Residential(2)","","147,714","","","347,431","","","384,090","","","89,641","","","968,876"],["Consumer","","965,140","","","786,513","","","293,063","","","33,253","","","2,077,969"],["Loans held for sale","","71,558","","","\u2014","","","\u2014","","","\u2014","","","71,558"],["Investment securities, available-for-sale","","942,628","","","1,327,486","","","2,081,775","","","445,366","","","4,797,255"],["Investment securities, held-to-maturity","","66,910","","","255,687","","","541,275","","","251,830","","","1,115,702"],["Other interest-earning assets","","11,804","","","\u2014","","","\u2014","","","\u2014","","","11,804"],["Total interest-rate sensitive assets:","","$","9,391,543","","","$","5,217,166","","","$","3,867,788","","","$","835,419","","","$","19,311,916"],["Interest-rate sensitive liabilities:"],["Interest-bearing deposits:"],["Interest-bearing demand","","$","1,486,716","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","1,486,716"],["Savings","","795,147","","","\u2014","","","\u2014","","","\u2014","","","795,147"],["Money market","","4,281,877","","","\u2014","","","\u2014","","","\u2014","","","4,281,877"],["Customer time deposits","","2,016,630","","","112,716","","","527","","","\u2014","","","2,129,873"],["Trust preferred borrowings","","90,834","","","\u2014","","","\u2014","","","\u2014","","","90,834"],["Senior and subordinated debt","","218,631","","","\u2014","","","\u2014","","","\u2014","","","218,631"],["Other borrowed funds","","23,102","","","\u2014","","","\u2014","","","\u2014","","","23,102"],["Total interest-rate sensitive liabilities:","","$","8,920,819","","","$","155,874","","","$","527","","","$","\u2014","","","$","9,077,220"],["Excess of interest-rate sensitive assets over interest-rate liabilities (interest-rate sensitive gap)","","$","470,724","","","$","5,061,292","","","$","3,867,261","","","$","835,419","","","$","10,234,696"],["One-year interest-rate sensitive assets/interest-rate sensitive liabilities","","105.28","%"],["One-year interest-rate sensitive gap as a percent of total assets","","2.26","%"]]
[[/GREPCENT_TABLE]]

(1)Loan balances exclude nonaccruing loans, deferred fees and costs

(2)Includes reverse mortgage loans

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Generally, during a period of rising interest rates, a positive gap would result in an increase in net interest income while a negative gap would adversely affect net interest income. Conversely, during a period of falling rates, a positive gap would result in a decrease in net interest income while a negative gap would augment net interest income. However, the interest-sensitivity table does not provide a comprehensive representation of the impact of interest rate changes on net interest income. Each category of assets or liabilities will not be affected equally or simultaneously by changes in the general level of interest rates. Even assets and liabilities which contractually reprice within the rate period may not reprice at the same price, at the same time or with the same frequency. It is also important to consider that the table represents a specific point in time. Variations can occur as we adjust our interest sensitivity position throughout the year.

To provide a more accurate position of our one-year gap, certain deposit classifications are based on the interest-rate sensitive attributes and not on the contractual repricing characteristics of these deposits. For the purpose of this analysis, we estimate, based on historical trends of our deposit accounts, with the exception of certain deposits estimated at 100%, that the majority of our money market deposits are 75%, and the majority of our savings and interest-bearing demand deposits are 50% sensitive to interest rate changes. Accordingly, these interest-sensitive portions are classified in the “Less than One Year” category with the remainder in the “Over Five Years” category. Deposit rates other than time deposit rates are variable. Changes in deposit rates are generally subject to local market conditions and our discretion and are not indexed to any particular rate.

Impact of Inflation

Our Consolidated Financial Statements have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without consideration of the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased costs of our operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or the same extent as the price of goods and services.

OFF BALANCE SHEET ARRANGEMENTS

We have no off balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. For a description of certain financial instruments to which we are party and which expose us to certain credit risk not recognized in our financial statements, see Note 17 to the Consolidated Financial Statements.

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CRITICAL ACCOUNTING ESTIMATES

The discussion and analyses of the financial condition and results of operations are based on the Consolidated Financial Statements, which are prepared in conformity with U.S. GAAP and general practices within the banking industry. The significant accounting policies of the Company are described in Note 2 to the Consolidated Financial Statements. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that may materially affect the reported amounts of assets, liabilities, revenues and expenses. We regularly evaluate these estimates and assumptions including those related to the allowance for credit losses, business combinations, deferred taxes, fair value measurements and goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The following critical accounting policy involves more significant judgments and estimates. We have reviewed this critical accounting policy and estimates with the Audit Committee.

Allowance for Credit Losses

We maintain an allowance for credit losses (ACL) which represents our best estimate of expected losses in our financial assets, which include loans, leases and held-to-maturity debt securities. We establish our allowance in accordance with guidance provided in ASC 326, Financial Instruments – Credit Losses. The ACL includes two primary components: (i) an allowance established on financial assets which share similar risk characteristics collectively evaluated for credit losses (collective basis), and (ii) an allowance established on financial assets which do not share similar risk characteristics with any loan segment and is individually evaluated for credit losses (individual basis). We consider the determination of the ACL to be critical because it requires significant judgment reflecting our best estimate of expected credit losses based on our historical loss experience, current conditions and economic forecasts. Our evaluation is based upon a continuous review of our financial assets, with consideration given to evaluations resulting from examinations performed by regulatory authorities. See Note 7 to the Consolidated Financial Statements, for further discussion of the ACL.

The calculation of expected credit losses is determined using a single scenario third-party economic forecast to adjust the calculated historical loss rates of the portfolio segments to incorporate the effects of current and future economic conditions. The determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates, including modeling methodology, historical loss experience, relevant available information from internal and external sources relating to qualitative adjustment factors, prepayment speeds and reasonable and supportable forecasts about future economic conditions. The Company's economic forecast considers the general health of the economy, the interest rate environment, real estate pricing and market risk.

The ACL may increase or decrease due to changes in economic conditions affecting borrowers and macroeconomic variables that our financial assets are more susceptible to, including unforeseen events such as natural disasters and pandemics, new information regarding existing financial assets, identification of additional problems assets, the fair value of underlying collateral, and other factors. These changes, both within and outside the Company’s control, may frequently update and have a material impact to our financial results.

Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on our financial assets, and therefore the appropriateness of the ACL, could change significantly. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall ACL because a wide variety of factors and inputs are considered in these estimates and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across the Company’s portfolio mix and segmentation. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. As of December 31, 2024, the Company believes that its ACL was adequate.

62