Q2 2024 WSFS Financial Corp Earnings Call

July 26, 2024

Thank you for standing by. At this time, I would like to welcome everyone to today's Wilmington Savings Fund Society Financial Corporation second quarter earnings call. All lines have been placed on mute to prevent any background noise.

Unknown Executive: and Savings Fund Society Financial Corporation, Second Quarter earnings call. All lines have been placed on mute to prevent any background noise.

Operator: Fund Society Financial Corporation's second quarter earnings call. All lines have been placed on mute to prevent any background noise.

Unknown Executive: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. Once again, star one.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. Once again, star one.

Arthur Bacci: I'd now like to turn the call over to your host for today, Mr. Art Bacci, Chief Welp Officer and Interim Chief Financial Officer. Sir, you may begin.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. Once again, star one. I'd now like to turn the call over to your host for today, Mr. Art Bacci, Chief Wealth Officer and Interim Chief Financial Officer. Sir, you may begin.

I'd now like to turn the call over to your host for today, Mr. Art Bacci, Chief Wealth Officer and Interim Chief Financial Officer. Sir, you may begin.

Arthur Bacci: Good morning or good afternoon, and thank you for joining our second quarter 2024 earnings call. Our earnings release and earnings release supplement, which we will refer to on today's call, can be found in the Investor Relations section of our company website. With me on this call, Roger Levenson, Chairman, President and CEO; Steve Clark, Chief Commercial Banking Officer; and Shari Kruzinski, Chief Consumer Banking Officer.

Arthur J. Bacci: Good morning, or good afternoon, and thank you for joining our second quarter 2024 earnings call. Our earnings release and earnings release supplement, which we will refer to on today's call, can be found in the investor relations section of our company website. With me on this call are Rodger Levenson, Chairman, President, and CEO; Steve Clark, Chief Commercial Banking Officer; and Shari Kruzinski, Chief Consumer Banking Officer.

Speaker Change: With me on this call are Rodger Levenson, Chairman, President, and CEO , Steve Clark, Chief Commercial Banking Officer, and Shari Kruzinski, Chief Consumer Banking Officer.

Arthur Bacci: Before I turn the call over to Roger and for his remarks on the quarter, I would like to read our Safe Harbor Statement. Our discussion today will include information about our management's view of the future expectations, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by those forward-looking statements due to risks and uncertainties, including but not limited to. The risk factors included in our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q. As well as other documents, we periodically file with the Securities and Exchange Commission.

Arthur J. Bacci: Before I turn the call over to Rodger for his remarks on the quarter, I would like to read our safe harbor statement. Our discussion today will include information about our management's view of future expectations, plans, and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by those forward-looking statements due to a number of risks and uncertainties, including but not limited to the risk factors included in our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q, as well as other documents we periodically file with the Securities and Exchange Commission. All comments made during today's call are subject to this Safe Harbors statement. I will now turn the call over to Rodger.

Speaker Change: Before I turn the call over to Rodger and for his remarks on the quarter, I would like to read our Safe Harbor Statement.

Speaker Change: Our discussion today will include information about our management's view of the future expectations, plans, and prospects that constitute forward-looking statements.

Speaker Change: Actual results may differ materially from historical results or those indicated by those forward-looking statements.

Speaker Change: due to risk and uncertainties including, but not limited to, the risk factors included in our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q , as well as other documents we periodically file with the Securities and Exchange Commission.

Arthur Bacci: All comments made during today's call are subject to the State Harbor Statement.

Speaker Change: All comments made during today's call are subject to the Safe Harbors Statement.

Rodger Levenson: I will now turn the call over to Roger. Thank you, Art, and everyone else for joining us on the call today. During the second quarter, WISFIS continued to demonstrate the strength of our franchise and diverse business model. Results included a core earnings per share of $1.08, core return on assets of 1.25%, and core return on tangible common equity of 18.83%. Core fee revenue of $86 million was up 13% link quarter and 28% year-over-year driven by growth across all major fee businesses. Wealth management fee revenue grew 14% link quarter and 16% over the second quarter of 2023, driven by strong results in WISFIS institutional services, higher activity at Brinmore Trust Company of Delaware, and seasonal fees for tax services.

Rodger Levenson: Thank you, Art, and everyone else for joining us on the call. During the second quarter, WSFS continued to demonstrate the strength of our franchise and diverse business. Results included a core earnings per share of $1.08, a Core Return on Assets of 1.25%, and a Core Return on Tangible Common Equity of 18.8%. Core fee revenue of $86 million was up 13% in the second quarter and 28% year-over-year, driven by growth across all major fee businesses. Wealth management fee revenue grew 14% in the second quarter and 16% in the second quarter of 2023, driven by strong results in WSFS institutional services, higher activity at Bryn Mawr Trust Company of Delaware, and seasonal fees for tax services. Cash Connect has added nearly 8,000 service non-bank ATMs since the third quarter of 2023 by gaining market share from the previously discussed exit of a large industry participant.

Speaker Change: I will now turn the call over to Rodger.

Rodger Levenson: Thank you, Art, and everyone else for joining us on the call today.

Rodger Levenson: During the second quarter, WSFS continued to demonstrate the strength of our franchise and diverse business model.

Speaker Change: Results included a core earnings per share of $1.08.

Rodger Levenson: Core Return on Assets of 1.25% and Core Return on Tangible Common Equity of 18.83%.

Rodger Levenson: Corp fee revenue of $86 million was up 13% link quarter and 28% year-over-year driven by growth across all major fee businesses.

Rodger Levenson: Wealth Management Fee Revenue grew 14% late quarter and 16% over the second quarter of 2023, driven by strong results in WSFS Institutional Services, higher activity at Bryn Mawr Trust Company of Delaware, and seasonal fees for tax services.

Rodger Levenson: Cash Connect has added nearly 8,000 service non-bank ATMs since the third quarter of 2023 by gaining market share from the previously discussed exit of a large industry participant. This combined with the optimization of its unit and funding mix increased Cash Connect's ROA to 1.72% in the second quarter. Our capital markets and mortgage businesses increased fee revenue by 13% and 35%, respectively, over the prior quarter due to increased activity. In addition, we saw growth in both loans and deposits, which increased 6% and 3%, respectively, on an annualized basis. The Coordinate Interest Margin was 3.85% for the quarter.

Rodger Levenson: This, combined with the optimization of its unit and funding mix, increased Cash Connect's ROA to 1.72% in the second quarter. Our capital markets and mortgage businesses increased fee revenue by 13% and 35%, respectively, over the prior quarter due to increased activity. In addition, we saw growth in both loans and deposits, which increased 6% and 3%, respectively, on an annualized basis. The Core Net Interest Margin was 3.85% for the quarter. The higher income from our continued loan growth and redeployment of cash flows from the securities portfolio offsets the increase in our cost of funds resulting from the current interest rate environment and high retention in our maturing CD portfolio, as outlined in the release. Additionally, asset quality remains stable. NPAs declined to 32 basis points of total assets, while delinquencies dropped to 13 basis points. However, problem loans increased primarily due to the downgrade of three C&I loans.

Rodger Levenson: This, combined with the optimization of its unit and funding mix, increased Cash Connect's ROA to 1.72% in the second quarter.

Rodger Levenson: Our capital markets and mortgage businesses increased fee revenue by 13% and 35% respectively over the prior quarter due to increased activity.

Rodger Levenson: In addition, we saw growth in both loans and deposits, which increased 6% and 3% respectively on an annualized basis.

Rodger Levenson: The Core Net Interest Margin was 3.85% for the quarter.

Rodger Levenson: The higher income from our continued loan growth and redeployment of cash flows from the securities portfolio offset the increase in our cost of funds, resulting from the current interest rate environment and high retention in our maturing CD portfolio, as outlined in the release. As the quality remains stable, NPA declined to 32 basis points of total asset while the link whencees dropped to 13 basis points. Problem loans increased primarily due to the downgrade of 3C and I loans. Net charge-offs for the quarter were 44 basis points, or 17 basis points, excluding Upstart and leasing portfolios, in line with net charge-off levels over the past year.

Rodger Levenson: The higher income from our continued loan growth and redeployment of cash flows from the securities portfolio offset the increase in our cost of funds resulting from the current interest rate environment and high retention in our maturing CD portfolio as outlined in the release.

Rodger Levenson: Asset quality remains stable. NPAs declined to 32 basis points of total assets, while delinquencies dropped to 13 basis points.

Rodger Levenson: Problem loans increased primarily due to the downgrade of three C&I loans.

Rodger Levenson: Net charge-offs for the quarter were 44 basis points, or 17 basis points, excluding upstart and leasing portfolios, in line with net charge-off levels over the past year. During the quarter, we returned $48.7 million, or approximately 70% of earnings, to shareholders in the form of $9 million in dividends and $39.7 million from a mix of routine and incremental stock buybacks. We continue to have substantial capital levels above the well-capitalized regulatory benchmarks, including the full impact of AOCI.

Speaker Change: Net charge-offs for the quarter were 44 basis points or 17 basis points excluding upstart and leasing portfolios in line with net charge-off levels over the past year.

Rodger Levenson: During the quarter, we returned 48.7 million dollars, or approximately 70% of earnings, to shareholders in the form of 9 million dollars in dividends and 39.7 million dollars from a mix of routine and incremental stock buybacks. We continue to have substantial capital levels above the well-capitalized regulatory benchmarks, including the full impact of AOCI. Despite the economic uncertainty, WISFIS continued to grow and deliver a strong first half of 2024. We remain well-positioned to execute our strategy and produce sustainable top quintile financial performance. Just as importantly, the strength in our earnings, liquidity, and capital positions provides us a question to absorb any unexpected changes we might face going forward.

Speaker Change: During the quarter, we returned $48.7 million, or approximately 70% of earnings, to shareholders in the form of $9 million in dividends and $39.7 million from a mix of routine and incremental stock buybacks.

Speaker Change: We continue to have substantial capital levels above the well-capitalized regulatory benchmarks, including the full impact of AOCI.

Rodger Levenson: Despite the economic uncertainty, WSFS continued to grow and deliver a strong first half of 2024. We remain well positioned to execute our strategy and produce sustainable top quintile financial performance. Just as importantly, the strength in our earnings, liquidity, and capital positions provides us a cushion to absorb any unexpected changes we might face going forward. I will now turn it over to Art to update you on our mid-year outlook.

Speaker Change: Despite the economic uncertainty, WSFS continued to grow and deliver a strong first half of 2024.

Speaker Change: We remain well positioned to execute our strategy and produce sustainable top quintile financial performance.

Speaker Change: Just as importantly, the strength in our earnings, liquidity and capital positions provides us a cushion to absorb any unexpected changes we might face going forward.

Arthur Bacci: I will now turn it over to Art to update you on our mid-year outlook. Thank you, Roger. We are tracking above the full-year outlook communicated in January, with first half core ROA of 1.28% for EPS of $2.19 and core ROTCE of 19.01%. As we look to the second half of 2024, we remain well-positioned to execute our strategy and deliver top quintile financial performance with a full-year core ROA of around 1.25%. The underlying components of our mid-year outlook remain relatively unchanged from our January outlook.

Speaker Change: I will now turn it over to Art to update you on our mid-year outlook.

Arthur J. Bacci: We are tracking above the full year outlook communicated in January with a first half core ROA of 1.28%, core EPS of $2.19, and core ROTCE of 19.01%. As we look to the second half of 2024, we remain well positioned to execute our strategy and deliver top quintile financial performance with a full year core ROA of around 1.25%. The underlying components of our Mid-Year Outlook remain relatively unchanged from our January Outlook. I will highlight several items.

Arthur J. Bacci: Thank you, Rodger. We are tracking above the full-year outlook communicated in January with first half core ROA of 1.28 percent, core EPS of $2.19 and core ROTCE of 19.01 percent.

Arthur J. Bacci: As we look to the second half of 2024, we remain well-positioned to execute our strategy and deliver top quintile financial performance with a full-year core ROA of around 1.25%.

Arthur J. Bacci: The underlying components of our mid-year outlook remain relatively unchanged from our January outlook. I will highlight several items.

Arthur Bacci: I will highlight several items. We continue to assume no interest rate cuts in 2024. While the Fed has made indications to reduce rates, we have found it best to use a no-cut scenario as a baseline for our business. Our analysis shows that a 25 basis point reduction or, alternatively, an increase would have a full-year annualized impact of three basis points to ROA. Assuming any rate cuts would occur later this year, it would not materially impact our full-year performance.

Arthur J. Bacci: We continue to assume no interest rate cuts in 2024. While the Fed has made indications that it will reduce rates, we have found it best to use a no rate cut scenario as a baseline for our business. Our analysis shows that a 25 basis point reduction, or alternatively, an increase, would have a full year annualized impact of 3 basis points on ROA. Assuming any rate cuts would occur later this year, they would not materially impact our full year performance.

Arthur J. Bacci: We continue to assume no interest rate cuts in 2024. While the Fed has made indications to reduce rates, we have found it best to use a no-cut scenario as a baseline for our business.

Arthur J. Bacci: Our analysis shows that a 25 basis point reduction, or alternatively an increase, would have a full year annualized impact of three basis points to ROA.

Arthur J. Bacci: Assuming any rate cuts would occur later this year, it would not materially impact our full-year performance.

Arthur Bacci: The positive growth is projected to be flat year-over-year, primarily due to competitive pressures, as well as the natural volatility and seasonality of trust and certain. We expect our interest-bearing deposit data to be less than 55%, compared to the previously communicated 50%. The higher beta is due to the continued shift in deposit mix, repricing of CDs, and the competitive marketplace pricing. Our loan to deposit ratio is forecasted to end the year at 83%.

Arthur J. Bacci: Deposit growth is projected to be flat year over year, primarily due to competitive pressures, as well as the natural volatility and seasonality of trust in certain commercial deposits. We expect our interest-bearing deposit data to be less than 55% compared to the previously communicated 50%. The higher beta is due to the continued shift in deposit mix, repricing of CDs, and the competitive marketplace price. Our loan-to-deposit ratio is forecasted to end the year at 83 percent.

Arthur J. Bacci: We expect our interest-bearing deposit data to be less than 55% compared to the previously communicated 50%.

Arthur J. Bacci: The higher beta is due to the continued shift in deposit mix, repricing of CDs, and the competitive marketplace pricing.

Arthur J. Bacci: Our loan-to-deposit ratio is forecasted to end the year at 83 percent.

Arthur Bacci: Net charge-offs of 30 basis points, excluding Upstart in New Lane, reflect potential weakness in a small group of problem loans where we are actively working with the borrowers and this continued softening economy.

Arthur J. Bacci: Net charge-offs of 30 basis points, excluding upstart and new lane, reflect potential weakness in a small group of problem loans where we are actively working with the borrowers and this continued softening economy. Finally, I would reiterate our long-term commitment to return approximately 35% of our net income in the form of dividends and routine stock buybacks. Any incremental stock repurchases would be determined by the economic environment, our financial results, and would need to be in line with our historic buyback framework. Thank you, and we will now open the line for questions.

Arthur J. Bacci: Net charge-offs of 30 basis points excluding upstart and new lane reflect potential weakness in a small group of problem loans where we are actively working with the borrowers and this continued softening economy.

Arthur Bacci: Finally, I would reiterate a long-term commitment to return approximately 35% of our net income in the form of dividends and routine stock buybacks. Any incremental stock repurchases would be determined by the economic environment, our financial results, and would need to be in line with our historic buyback framework.

Arthur J. Bacci: Finally, I would reiterate our long-term commitment to return approximately 35% of our net income in the form of dividends and routine stock buybacks.

Arthur J. Bacci: Any incremental stock repurchases would be determined by the economic environment, our financial results, and would need to be in line with our historic buyback framework.

Unknown Executive: Thank you, and we will now open the line for questions. Thank you, and at this time, I would like to remind everyone, again, to ask a question, press star and the number one on your telephone keypad. Once again, star one, and we will pause just a moment to compile the Q&A roster.

Speaker Change: Thank you, and we will now open the line for questions.

Operator: Thank you. And at this time, I would like to remind everyone again, to ask a question, press star and the number one on your telephone keypad. Once again, star one. And we will pause just a moment to compile the Q&A roster. Our first question today comes from the line of Russell Gunther with Stevens Incorporated. Russell, please go ahead.

Speaker Change: Thank you and at this time I would like to remind everyone again to ask a question press star and the number one on your telephone keypad once again star one and we will pause just a moment to compile the Q&A roster.

Russell Gunther: Looks like our first question today comes from the line of Russell Gunther with Stevens Incorporated. Russell, please go ahead.

Speaker Change: Looks like our first

Speaker Change: Question today comes from the line of Russell Gunther with Stevens Incorporated. Russell, please go ahead.

Russell Elliott Teasdale Gunther: Hey guys, good afternoon Russell. I wanted to first ask if I could on the fee outlook, and more specifically, bailment fees. Can you guys give us a sense for where they shook out this quarter and what we should expect for the back half of the year?

Russell Gunther: Hey, guys. Good afternoon.

Unknown Executive: Hi, Russell. I wanted to first ask if I could on the fee outluff and more specifically bailment fees. Can you guys give us a sense for where they shook out this quarter and what we should expect for the back half of the year?

Speaker Change: Hey guys, good afternoon.

Speaker Change: Hey, Russell.

Russell Elliott Teasdale Gunther: I wanted to first ask if I could on the fee outlook and more specifically bailment fees, can you guys give us a sense for where they shook out this quarter and what we should expect for the back half of the year?

Unknown Executive: Sure, Russell. I think fee income still. I'll break it up into the visions that we have. It's thick been mortgage and capital markets. We're continuing to see good activity levels going into July. I will caution us sometimes in August, September; the summer months tend to slow down, but at this point, we're seeing really good activity there.

Unknown Executive: Sure, Russell. I think fee income is still... I'll break it up into the divisions that we have. I think in mortgage and capital markets, we're continuing to see good activity levels going into July. I will caution us sometimes in August and September, you know; the summer months tend to slow down. But at this point, we're seeing really good activity there. Wealth, the same thing.

Speaker Change: Sure, Russell. I think fee income still...

Speaker Change: I'll break it up into the divisions that we have. I think in mortgage and capital markets, we're continuing to see good activity levels going into July .

Speaker Change: I will caution us sometimes in August , September , you know, the summer months tend to slow down. But at this point, we're seeing really good activity there.

Unknown Executive: We've got some really nice pipeline potential winds here in the third quarter, which would help, and the activity level at our Delaware Trust Company of Delaware remains pretty elevated, as well as our institutional trust services are seeing really good volumes in July. Cash Connect, I would expect somewhat of a slowdown in the growth of the revenue there. We have pretty much onboarded all the new ATMs that came over from the other player, so the 8,000 ATMs Roger referred to is pretty much it. So I would see that returning to more of a normal growth rate in the second half of the year.

Unknown Executive: We've got some really nice pipeline potential wins here in the third quarter, which would help. And the activity level at our Delaware Trust Company or Brentmar Trust Company of Delaware remains pretty elevated, as well as our institutional trust services are seeing really good volumes in July. Cash Connect, I would expect somewhat of a slowdown in the growth of the revenue there. We have pretty much onboarded all the new ATMs that came over from the other player. So the 8,000 ATMs Rodger referred to is pretty much it. So I would see it returning to more of a normal growth rate in the second half of the year.

Speaker Change: Wealth, the same thing, we've got some really nice pipeline potential wins here in the third quarter, which would help in the activity level at our Delaware Trust Company of, or

Russell Elliott Teasdale Gunther: Okay, all right. Thank you for that.

Speaker Change: Brenmar Trust Company of Delaware's remains pretty elevated as well as our institutional trust services are seeing really good volumes in July . CashConnect I would expect somewhat of a slowdown in the growth of the

Speaker Change: The revenue there, we have pretty much onboarded all the new ATMs that came over from the other player. So the 8,000 ATMs Rodger referred to is pretty much it. So I would see that returning to more of a normal growth rate in the second half of the year.

Unknown Executive: Okay.

Unknown Executive: And then maybe switching gears a second on to expenses. So, I appreciate the overall guide and the efficiency ratio target. Could you guys just maybe walk through the step up in the salary benefits line this quarter? And then similarly, just broad stroke expectations for that trend in the back half of the year.

Unknown Executive: Thank you for that.

Unknown Executive: And then maybe switching gears a second on two expenses. So appreciate the overall guide and the efficiency ratio target.

Speaker Change: Okay, all right. Thank you for that. And then maybe switching gears a second on to expenses.

Speaker Change: appreciate the overall guide and the efficiency ratio target. Could you guys just maybe walk through the step up in the salary benefits line this quarter? And then similarly, just broad stroke expectations for

Unknown Executive: Could you guys just maybe walk through the step up in the salary benefits line this quarter and then similarly just brought stroke expectations for that trend in the back half of the year?

Unknown Executive: Sure, on the salary line, recall that we reversed about $3.2 million in the first quarter because we paid out incentives that were less than targeted for 2023, but we had accrued at target, so we had to reverse those per GAAP. What you'll see is this quarter, when you look at the gross increase, it's coming off an artificially low first quarter because of that reverse. So the net increase is more like 4% quarter over quarter. Now, probably half of that is really Cash Connect external funding, which as we transitioned those 8,000 accounts, we used more external funding than internal funding in that process.

Unknown Executive: Sure. On the salary line, recall that we reverse about 3.2 million in the first quarter because we paid out incentives that were less than targeted in for 2023, but we had accrued at targets, so we had to reverse those per GAAP. What you'll see is this quarter, you know, when you look at the gross increase, it's coming off an artificially low first quarter because of that reversal. So the net increases more like 4% quarter over quarter. Now, probably half of that is really the cash connect external funding that, as we transition those 8,000 accounts, we use more external funding than internal funding in that process.

Speaker Change: That trend in the back half of the year.

Speaker Change: Sure. On the salary line, recall that we reversed about $3.2 million in the first quarter because we paid out incentives that were less than targeted in for 2023, but we had accrued at target so we had to reverse those per GAAP.

Speaker Change: What you'll see is this quarter, you know, when you look at the gross increase, it's coming off at a

Speaker Change: artificially low first quarter because of that reversal. So the net increase is more like 4% quarter over quarter. Now, probably half of that is really the Cash Connect external funding.

Speaker Change: As we transition those 8,000 accounts, we use more external funding than internal funding in that process.

Unknown Executive: The other thing is we've just had merit increases in the first quarter, and it was late in the first quarter that we've processed merit increases. So we've now got a full year or a full quarter of those increases.

Unknown Executive: The other thing is we've just had merit increases in the first quarter, and it was late in the first quarter that we processed those increases. So we've now got a full year or a full quarter of those increases. We've continued to invest in the business and hire people. And, you know, we will look to kind of run a rate probably a little bit higher on incentive accruals for the second half of the year because we are running above target.

Speaker Change: The other thing is we've just had merit increases in the first quarter and it was late in the first quarter that we processed merit increases. So we've now got a full year or full quarter of those increases. We've continued to invest in the business and hiring.

Unknown Executive: We've continued to invest in the business and hiring people, and you know, we will look to kind of continue to run rate probably a little bit higher on incentive accruals for the second half of the year because we are running above target, and so we'll have to start accruing for that. So those are kind of really the drivers.

Speaker Change: We will look to continue to run rate probably a little bit higher on incentive accruals for the second half of the year because we are running above target and so we'll have to start accruing for that.

Unknown Executive: And so we'll have to start accruing for that. So those are kind of the real drivers. We also did, just to highlight, we did have an elevated medical, we call it medical benefits, but it's some claims, medical claims from our associates. It's, you know, a small portion of the population that had higher than average claims for, we can't get into the reason, but that kind of drove a little bit higher expense this quarter. We don't think that will continue.

Unknown Executive: We also did, just to highlight, we did have an elevated medical, we call the medical benefits, but if some claim medical claims from our associates, you know, a small portion of the population that had higher than average claims for we can get into the reason, but that kind of drove a little bit higher expenses. We don't think that will continue.

Speaker Change: [inaudible]

Unknown Executive: Okay, I appreciate it.

Russell Elliott Teasdale Gunther: Okay, I appreciate it. And then I guess just to follow up in terms of Dash Connect and the onboarding of the ATM, the use of external versus internal funding, how should we extrapolate that from an expense perspective for the next couple quarters?

Unknown Executive: And then I guess just to follow up in terms of with the cash connect and the onboarding of the ATM, the use of external versus internal funding. How should we extrapolate that from an expense perspective next for the next couple of quarters? I think you'll see that come down from expense perspective slightly. We are targeting to have roughly 75% of that funding done with external partners and 25% internally, so that coming from a much higher level of external funding in the first half of the year. So that should help on there. Obviously, that will also impact our way; the 170 we saw in the second quarter would probably drop more to like a 130 140, as we've used more of our own cash to fund the ATMs. Okay, that's very helpful.

Speaker Change: Okay, I appreciate it. And then I guess just to follow up in terms of with the

Speaker Change: Cash Connect and the onboarding of the ATMs, the use of external versus internal funding. How should we extrapolate that from an expense perspective for the next couple of quarters?

Unknown Executive: I think you'll see that come down from an expense perspective slightly. We are targeting to have roughly 75% of that funding done with external partners and 25% internally, so that comes from a much higher level of external funding in the first half of the year. So that should help on there. Obviously, that will also impact their ROA. The 170 we saw in the second quarter would probably drop more to around 130-140 as we use more of our own cash to fund the ATMs.

Speaker Change: I think you'll see that come down from an expense perspective slightly.

Speaker Change: are targeting to have roughly 75% of that.

Speaker Change: funding done with external partners and 25% internally. So that coming from a much higher level of external funding in the first half of the year. So that should help on there. Obviously,

Speaker Change: That will also impact their ROA, the 170 we saw in the second quarter would probably drop more to like a 130-140 as we've used more of our own cash to fund the ATMs.

Russell Elliott Teasdale Gunther: Okay, that's very helpful. Thank you, Art.

Unknown Executive: Thank you.

Russell Gunther: And then, guys, the last one for me would just be on the net charge-off expectation. You know, those are unchanged implies the second half of the year steps up a bit. Just curious as to what you're seeing or expecting that would drive that.

Speaker Change: Okay, that's very helpful. Thank you, Art. And then guys, last one for me would just be on the net charge-off expectation.

Russell Elliott Teasdale Gunther: And then guys, the last one for me would just be on the net charge off expectation. You know, those are unchanged, and it implies the second half of the year steps up a bit. Just curious as to what you're seeing or expecting that would drive that.

Speaker Change: You know, those are unchanged, implies the second half of the year.

Speaker Change: steps up a bit. Just curious as to what you're seeing or expecting that would drive that.

Rodger Levenson: Russell, this is Rodger. I'd say, as Art outlined in his comments, you saw a little bit of an increase in our problem loans, and there are some situations we're monitoring closely. And so we feel as though the outlook reflects potential losses, depending upon how those work.

Rodger Levenson: Russell, this is Roger saying art outlined in his comments. You saw a little bit of an increase in our problem loans, and there are some situations we're monitoring closely, and so we feel as though the outlook reflects potential losses depending upon how those work out. Got it. Okay, very good guys.

Rodger Levenson: Russell, this is Rodger. I'd say, as Art outlined in his comments, you saw a little bit of an increase in our problem loans, and there are some situations we're monitoring closely, and so we feel as though the outlook reflects potential losses, depending upon how those work out.

Russell Elliott Teasdale Gunther: Got it. Okay. Very good, guys. Thank you very much for taking my question.

Russell Gunther: Thank you very much for taking my question.

Rodger Levenson: Got it. Okay. Very good, guys. Thank you very much for taking my questions.

Manuel Antonio Navas: And our next question comes from the line of Manuel Navas with DA Davidson. Manuel, please go ahead.

Manuel Navas: And our next question comes from the line of Manuel Novice with the a Davidson Manuel, please go ahead. Hey, how does the exit men in 4Q kind of that rain shift if we do have a September rate cut? Yeah, Manuel, I think the X is the rate cut is happening late in the year we've kind of projected we probably would see. on a full-year basis of about a 1.5% impact on NII. What that would translate into NIM is probably about five BIPs of lower NIMs going as an exit rate if rates were to be cut later in the quarter.

Speaker Change: Thanks, Russell.

Speaker Change: And our next question comes from the line of Manuel Navas with DA Davidson. Manuel, please go ahead.

Manuel Antonio Navas: Hey, how does the exit NIM in 4Q kind of shift that range if we do have a September rate cut?

Manuel Antonio Navas: Hey, how does the exit NIM in 4Q, kind of that range shift if we do have a September rate cut?

Unknown Executive: Um, you know, Manuel, I think the X, if the rate cut is happening late in the year, we've kind of projected we probably would see, on a four-year basis, about a 1.5% impact on NII. What that would translate into NIM is probably about 5 bps of lower NIM going in as an exit rate if rates were to be cut later in the quarter.

Speaker Change: You know, Manuel, I think if the rate cut is happening late in the year, as we've kind of projected, we probably would see

Speaker Change: On a full-year basis, about a 1.5% impact on NII. What that would translate into NIM is probably about 5 bps of lower NIM going in as an exit rate, if rates were to be cut later in the quarter.

Unknown Executive: Okay, that's similar to what you said in the past, so I appreciate that. How is the 55% of the positive expectation kind of arrived at? Are you seeing increased competition? Is it just where we're just staying in this higher rate for longer? Can you kind of give some extra thoughts on that projection?

Unknown Executive: Okay, that's similar to what you said in the past. So I appreciate that. How is the 55% deposit beta expectation, Unknown Executive, Rodger Levenson, Feddie Strickland, Shari Kruzinski, WSFS Financial?

Manuel Antonio Navas: Okay, that's that's similar to what you said in the past, so I appreciate that. How is the

Speaker Change: 55% deposit beta expectation.

Speaker Change: kind of arrived at is, are you seeing increased competition? Or is it just we're at a

Speaker Change: We're just staying in this higher rate for longer, just can you kind of give some extra thoughts on that?

Unknown Executive: I'll let Shari talk about the competitive environment on the consumer side. But I think the other thing we've looked at really closely is just our back book on the CD side. We've been able to retain a higher percentage of those CDs as they mature, but they're coming off a lower price. And as they mature and reprice, they're being renewed at higher rates. Shari, do you want to cover some of the competitive environment

Shari Kruzinski: I'll let Shari talk about the competitive environment on the consumer side. I think the other thing we've looked at really closely is just our back book on the CD side, and we've been able to retain a higher percentage of those CDs as they mature. But they're coming off a lower price, and as they mature and reprice, they're being renewed at higher rates.

Speaker Change: projection up.

Speaker Change: I'll let Shari talk about the competitive environment on the consumer side. I think the other thing we've looked at really closely is just our back book on the CD side. We've been able to retain a higher percentage of those CDs as they mature, but they're coming off a lower price. And as they mature and reprice, they're being renewed at higher rates.

Shari Kruzinski: Sherry, do you want to cover some of your competitors?

Shari Kruzinski: Sure, I'm Manuel the Sherry. I would say that the competitive landscape, though it is eased a bit, it's still something that we're monitoring very closely and certainly very focused on protecting our customer base. So again, as Art said, we see, as the CD's mature, we do have some specials available for customers based on the current rate environment that they're taking advantage of, and so most of that is being driven by our successfully retaining those clients. Manuel, I'd also add that about 65, 70% of our money market accounts are exception priced, and that's usually in reaction to the competitive environment.

Shari A. Kruzinski: Sure. Hi Manuel. This is Shari.

Terry: Shari, do you want to cover some of the competitors?

Terry: Hi Manuel, this is Shari. I would say that the competitive landscape, though it has eased a bit, it's still something that we're monitoring very closely and certainly very focused on protecting our customer base.

Shari A. Kruzinski: I would say that the competitive landscape, though it has eased a bit, it's still something that we're monitoring very closely and certainly very focused on protecting our customer base. So again, as Art said, we see as the CDs mature, we do have some specials available for customers based on the current rate environment that they're taking advantage of. And so most of that is being driven by our success in really retaining those clients.

Terry: So again, as Art said, we see as the CDs mature, we do have some specials available for customers based on the current.

Shari A. Kruzinski: I'd also add that about 65-70% of our money market accounts are exception priced, and that's usually in reaction to the competitive environment.

Speaker Change: I'd also add that about 65-70% of our money market accounts are exception priced, and that's usually in reaction to the competitive environment.

Unknown Executive: That's all really helpful.

Manuel Antonio Navas: That's all really helpful. Can I circle back?

Manuel Navas: Can I circle back to your long-term commitment to that 35% of net income return as buybacks? Yet a really strong amount of buybacks is past quarter; pricing has moved higher. Can you just talk a little bit about thoughts with that?

Speaker Change: That's all really helpful. Can I circle back?

Manuel Antonio Navas: to your long-term commitment to that 35% of net income return as buybacks. You had a really strong amount of buybacks this past quarter. Pricing has moved higher. Could you just talk a little bit about your thoughts on that?

Speaker Change: to your long-term.

Speaker Change: commitment to that 35% of net income return as buybacks. He had a really strong amount of buybacks this past quarter. Pricing has moved higher. Can you just...

Unknown Executive: And then buyback is a huge tool for keeping ROE up. And you're about to enter another three-year planning process. I think ROE is where you stand out. And just kind of thoughts on where buyback fits in with maintaining ROE's high.

Rodger Levenson: And then buyback is a huge tool for keeping ROE up, and you're about to enter another three-year planning process. I think ROE is where you stand out and just kind of thoughts on where buyback fits in on maintaining ROE's high. Yeah, Manuel, I mean, our philosophy hasn't changed about the 35% that we will continue to do routine dividends and buybacks. It's we've having to pass clearly anything incremental will have to be driven by what we're seeing in terms of our own financial results, the economy and, more importantly, our historic framework where we generally target the 16% IRR and our incremental buybacks.

Speaker Change: talk a little bit about thoughts with that. And then, buyback is a huge tool for keeping ROE up, and you're about to enter another three-year planning process. I think ROE is where you stand out, and just kind of thoughts on where buyback fits in on maintaining ROE's high.

Manuel Antonio Navas: Yeah, Manuel. I mean, our philosophy hasn't changed about the 35% that we will continue to do routine dividends and stock buybacks as we've done in the past. Clearly, anything incremental will have to be driven by what we're seeing in terms of our own financial results, the economy, and, more importantly, our historic framework, where we generally target a 16% IRR on our incremental buybacks. So we've been very disciplined about that. And clearly, in the second quarter, we saw some really nice opportunities.

Speaker Change: Yeah Manuel, I mean our philosophy hasn't changed about the 35% that we will continue to do routine

Speaker Change: dividends and stock buybacks as we've had in the past. Clearly, anything incremental will have to be driven by what we're seeing in terms of our own financial results, the economy, and more importantly, our historic framework.

Speaker Change: where we generally target the 16% IRR on our incremental buybacks. So, we've been very disciplined about that and clearly in the second quarter we saw some really nice opportunities, so we got aggressive in the buybacks.

Rodger Levenson: So we've been very disciplined about that, and clearly in the second quarter we saw some really nice opportunity, so we got aggressive in the buybacks. The stock has appreciated materially here.

Manuel Antonio Navas: So we got aggressive in the buybacks. The stock has appreciated materially here. So we would have to really look at our framework and determine if, longer term, we think there are still some changes in the underlying assumptions to get us to a 16% IRR if we're going to do incremental buybacks.

Rodger Levenson: So we would have to really look at our framework and determine if longer term we think there's still some changes in the underlying assumptions to get us to a 16% IRR if we're going to do incremental buybacks.

Speaker Change: The stock has appreciated materially here, so we would have to really look at our framework and determine if longer term we think there's still some changes in the underlying assumptions to get us to a 16% IR if we're going to do incremental buybacks.

Unknown Executive: Okay, I appreciate the commentary. I'll step back into the queue. All right.

Manuel Antonio Navas: Okay, I appreciate the commentary. I'll step back into the queue.

Speaker Change: Okay, I appreciate the commentary. I'll step back into the queue.

Operator: All right. Thanks, Manuel. And our next question comes from the line of Kelly Motta with Keith Brouillette and Woods. Kelly, please go ahead.

Unknown Executive: Thanks, Manuel.

Kelly Motta: And our next question comes from the line of Kelly Motta with Keith Briette and Woods. Kelly, please go ahead.

Manuel Antonio Navas: All right. Thanks, Manuel.

Manuel Antonio Navas: And our next question comes from the line of Kelly Motta with Keith Brouette and Woods. Kelly, please go ahead.

Kelly Ann Motta: Hey, good morning. Thanks for the question, or afternoon rather. Where did the day go? I was hoping to circle back to... Asset Quality. I mean, everything looks really strong, and PAs came down, but I noticed the reserves built, particularly on the investor CRE side. I was hoping to get additional color on the driver of that, and it's at 116 basis points now, the comfort level there.

Kelly Motta: Hey, good morning. Thanks for the question or afternoon, rather. There's the day go.

Speaker Change: Hey, good morning. Thanks for the question, or afternoon rather. Where did the day go? I was hoping to circle back to

Kelly Motta: I was hoping to circle back to the actuality. I mean, everything looks really strong, and pain came down. But I noticed the reserves still, particularly on the investor CRE side.

Kelly Ann Motta: Asset Quality. I mean, everything looks really strong and PAs came down, but I noticed the reserves built particularly on the investor CRE side. I was hoping to get additional color on

Kelly Motta: I was hoping to get additional color on the driver of that. And it's at 116 basis points now; comfort level there.

Speaker Change: the driver of that. And it's at 116 basis points now, comfort level there.

Rodger Levenson: Hey Kelly, it's Rodger and you recall we've been talking about for several quarters this process that we have a 24-month roll forward look at all maturing CRE loans over two and a half million dollars and re-sensitizing those for the current interest rate environment with no changes in their cash flow and so based upon that analysis every time we go through that and we roll forward another quarter we update the impact of that into our ACL model where wherever we see you know potential weakness so what you're seeing there is just reflecting the continued roll forward of that project it's a modest amount of reserves that they're increased there you saw we also you know continue to increase in the office sector of CRE and so that's really what's driving that that build in the CRE overall.

Rodger Levenson: Hey, Kelly, it's Rodger. And you recall we've been talking about for several quarters this process that we have a 24-month roll forward look at all maturing CRE loans over $2.5 million. And we sensitizing those for the current interest rate environment with no changes in their cash flow. And so, based upon that analysis, every time we go through that and we roll forward another quarter, we update the impact of that into our ATL model, wherever we see potential weakness. So what you're seeing there is just reflecting the continued roll forward of that project. It's a modest amount of reserves that are increased there.

Speaker Change: Hey Kelly, it's Rodger and you recall we've been talking about for several quarters

Rodger Levenson: This process that we have, a 24-month, roll-forward look at all maturing CRE loans over $2.5 million.

Speaker Change: and re-sensitizing those for the current interest rate environment with no changes in their cash flow. And so based upon that analysis, every time we go through that and we roll forward another quarter,

Speaker Change: We update the impact of that into our ACL model where wherever we see, you know, potential weakness. So what you're seeing there is just reflecting the continued roll forward of that project. It's a modest amount of reserves that they're increased there. You saw we also...

Rodger Levenson: It's all we also continue to increase in the office sector of CRE. And so that's really what's driving that build in the CRE overall. We've got it.

Speaker Change: You know, continue to increase in the office sector of CRE, and so that's really what's driving that build in the CRE overall.

Kelly Ann Motta: Got it. Thank you so much.

Kelly Motta: Thank you so much.

Kelly Motta: Last question from me. I'm going to apologize if this was covered already. I joined a little bit late.

Speaker Change: Got it, thank you so much. Last question from me, and I apologize if this was covered already, I joined a little bit late.

Kelly Ann Motta: Last question from me, and I apologize if this was covered already. I joined a little bit late.

Arthur J. Bacci: But with the revised deposit growth guidance being flat for the year, is the right way to think of the balance sheet from here just kind of steady as cash flows are redeployed into loans or any kind of puts or takes that you could help us out with in terms of that with, putting together with a margin guide. Kelly, this is Art.

Kelly Motta: But we'd be revised to deposit growth guidance being flat for the year. It's the right way to think of the balance sheet from here. Just kind of steady as cash flows are redeployed into loans or any kind of puts or takes that you could help us out with that with putting together with the margin guys. Thanks.

Speaker Change: But with the revised deposit growth guidance being flat for the year, is the right way to think of the balance sheet from here just kind of steady as cash flows are redeployed into loans or any kind of puts or takes that you could help us out with in terms of that with?

Arthur Bacci: Kelly, this is art. I would absolutely say that the balance sheet should be pretty steady. I don't see a lot of material change in the size of the balance sheet. I would tell you that part of the flat in deposits, we really ended the end of 2023 with an elevated level of deposits coming from our institutional trust business and some commercial business. And that's put a lot of extra cash on our balance sheet that we were able to deploy in Fed funds that we're probably down cash, $250 million. Quarter to quarter on an average basis.

Arthur J. Bacci: Kelly, this is Art. I would absolutely say that the balance sheet should be pretty steady. I don't see a lot of material change in the size of the balance sheet. I would tell you that, despite the flat in deposits, we really ended the end of 2023 with an elevated level of deposits coming from our institutional trust business and some commercial business. And that put a lot of extra cash on our balance sheet that we were able to deploy in Fed funds that were probably down cash, $250 million quarter over quarter on an average basis. So that impacts III, but it doesn't really impact them. But, at the bottom line, the overall balance sheet really won't change much.

Speaker Change: putting together with a margin guide. Thanks.

Speaker Change: Kelly, this is Art. I would absolutely say that the balance sheet should be pretty steady. I don't see a lot of material change in the size of the balance sheet. I would tell you that

Speaker Change: Part of the flat in deposits, we really ended the end of 2023 with an elevated level of deposits coming from our institutional trust business and some

Speaker Change: Commercial Business, and that put a lot of extra cash on our balance sheet that we were able to deploy.

Speaker Change: in Fed funds that we're probably down cash $250 million quarter over quarter on an average basis. So that impacts II, but it doesn't really impact them in. But bottom line, the overall balance sheet really won't change much.

Kelly Motta: So that impacts III, but it doesn't really impact them in. But bottom line, the overall balance sheet really won't change much. Thank you so much.

Unknown Executive: Thank you, Kelly. One last reminder, again, if you'd like to ask a question, star one on your telephone keypad once again, star one.

Frank Joseph Schiraldi: Thank you, Kelly. One last reminder again, if you'd like to ask a question, press one on your telephone keypad once again, one. And our next question comes from the line of Frank Schiraldi with Piper Sandler. Frank, please go ahead.

Speaker Change: Thank you so much.

Speaker Change: Thank you, Kelly. One last reminder, again, if you'd like to ask a question, star 1 on your telephone keypad. Once again, star 1.

Frank Schiraldi: And our next question comes from the line of Frank Scheraldi with Piper Sandler. Frank, please go ahead.

Speaker Change: And our next question comes from the line of Frank Schiraldi with Piper Sandler. Frank, please go ahead.

Rodger Levenson: Hey guys. Just curious, are you doing anything balance sheet wise, you know, naturally or synthetically here that you would expect that three basis point impact from a given 25 bits and rate cuts. See that move it all lower, or is that just kind of an acceptable asset sensitivity of the business here? Frank, I would just highlight that when you look at our loan portfolio and you look at the springy Q portfolio, some of our consumer loans, about 50% of our loan book is fixed rate. And we feel pretty balanced right now that regardless of where you go up or down 25 basis points, it has the same impact in both directions.

Frank Joseph Schiraldi: Just curious, are you doing anything balance sheet wise, you know, naturally or synthetically here that you would expect that three basis point impact from a given 25 bits and rate cuts to see that move at all lower? Or is that just kind of an acceptable asset sensitivity of the business here?

Frank Joseph Schiraldi: Hi, guys.

Frank Joseph Schiraldi: I'm just curious, are you doing anything balance sheet wise?

Speaker Change: naturally or synthetically here that you would expect that three basis point impact from a given 25 bits and rate cuts, see that move at all lower or is that just kind of an acceptable assets sensitivity of the business here?

Unknown Executive: Frank, I would just highlight that, you know, when you look at our loan portfolio and you look at the SpringEQ Portfolio, some of our consumer loans, about 50% of our loan book is fixed rate. And we feel pretty balanced right now that regardless of whether the rates go up or down 25 basis points, it has the same impact in both directions. We did put on, you know, we have put on about $1.2 billion in hedges, and we are authorized to do another $300 million. Yeah.

Speaker Change: Frank, I would just highlight that, you know, when you look at our loan portfolio and you look at the

Speaker Change: SpringEQ Portfolio, some of our consumer loans, about 50% of our loan book is fixed rate.

Speaker Change: And we feel pretty balanced right now that regardless of whether rates go up or down 25 basis points, it has the same impact in both directions.

Rodger Levenson: We did put on, you know, we have put on about a billion two of hedges, and we are authorized to do another 300 million. Yeah, and so, you know, on the tech on the downside. And I'd also just kind of remind everyone that we've been through these rate cycles, and we continue to produce top quintile them regardless of whether rates are higher or lower. And so, you know, we want to make sure we're not over-insuring against down rates, because, as we've seen over the last few years, all the rate projections have tended to be wrong.

Speaker Change: We did put on, you know, we have put on about $1.2 billion of hedges and we are authorized to do another $300 million.

Unknown Executive: And so, you know, to protect on the downside. And I'd also just kind of remind everyone that we've been through these rate cycles before, and we continue to produce top quintile NIM, regardless of whether rates are higher or lower. And so, you know, we want to make sure we're not over-insuring against down rates because, as we've seen over the last few years, all the rate projections have tended to be wrong. And there's still the potential that rates could go up at some point. So we feel very comfortable having that balance where we're protected on both.

Speaker Change: Yeah, and so, you know, on the, to protect on the downside...

Speaker Change: And I'd also just kind of remind everyone that, you know, we've been through these rate cycles, and we continue to produce top quintile NIM, regardless of whether rates are higher or lower, and so

Speaker Change: You know, we want to make sure we're not.

Speaker Change: over-insuring against down rates because

Speaker Change: As we've seen over the last few years, all the rate projections have tended to be wrong, and there's still potential that rates could go up at some point. So we feel very comfortable having that balance where we're protected on both sides.

Rodger Levenson: And there's still potential that rates could go up at some point. So we feel very comfortable having that balance where we're protected on both sides.

Rodger Levenson: Okay, gotcha, and then on. Are you mentioned on the cash connect? You kind of built in that large piece of business that you added in terms of increasing shares in one rate at this point. So talk about more normal growth rate of that, you know, high single digits here. And do you see further sort of chunky opportunity to pick up significant market share, or is it more just maybe, you know, one Z2 Z from here? Yeah, I think it's the latter, Frank, and I don't know, be high single digits. We did have a nice win this quarter with one client where they gave back a fair number of ATMs that we were just doing reconciliation work.

Frank Joseph Schiraldi: Okay, gotcha. And then, on Art, you mentioned on the Cash Connect, you kind of built in that large piece of business that you added in terms of increasing shares in one way at this point. So talk about a more normal growth rate. Is that, you know, high single digits here? And do you see further sort of chunky opportunity to pick up significant market share, or is it more just maybe, you know, onesie twosie from here?

Speaker Change: Okay, gotcha. And then, and then on...

Arthur J. Bacci: Art, you mentioned on the Cash Connect, you kind of...

Arthur J. Bacci: built in that large piece of business that you added in terms of increasing shares in one way at this point. So talk about norm more normal growth rate is that

Speaker Change: you know, high single digits here and and do you see further sort of chunky opportunity to pick up significant market share? Or is it more just maybe, you know, onesie twosie from here?

Unknown Executive: Yeah, I think it's the latter, Frank. And I don't know, it'd be in the high single digits.

Rodger Levenson: Yeah, I think it's the latter, Frank. And I don't know, it'd be high single digits. I think we did have a nice win this quarter with one client where they

Unknown Executive: I think we did have a nice win this quarter with one client where they gave back a fair number of ATMs that we were just doing reconciliation work on. We got back about half the number of ATMs, but it was more full bailment services, and those bailment services are three times more profitable for us than just pure reconciliation. So, you know, if we could do those kinds of things, and it wouldn't really increase the number, but deeper services at better profit margins, we would certainly do those types of things all day long.

Rodger Levenson: gave back a fair number of ATMs that we were just doing reconciliation work.

Rodger Levenson: And we got back about half the number of ATMs, but it was more full payment services and that bailman services are three times more profitable for us and just pure reconciliation. So, you know, if we could do those kinds of things and it wouldn't really increase the number, but deeper services that better profit margins, we would certainly do those types of things all day long.

Rodger Levenson: And we got back about half the number of ATMs, but it was more full bailment services, and that bailment services are three times more profitable for us than just pure reconciliation. So, you know, if we could do those kind of things and it wouldn't really increase the number, but...

Frank Schiraldi: Great, and if I can just sneak in a quick one, sorry if I missed it, but in terms of the three CNI downgrades that led to the increase in problem assets, any common thread there?

Frank Joseph Schiraldi: Great. And if I could just sneak in a quick one,

Speaker Change: Great, and if I could just sneak in a quick one. Sorry if I missed it, but in terms of the three CMI downgrades that led to the increase in problem assets, any common thread there?

Stephen Clark: Hey, Frank, this is Steve. There really is no common thread. The three CNI customers were in three different geographies and three different industries. One, a cultural institution in Center City, Philly, that is going through a repositioning of its business. A logistics fulfillment trucking company up in the Lehigh Valley, Allen Ham, Bethlehem area that had some softness in the fourth quarter of last year and first quarter of this year. And then a newly built hotel property in Ocean City, Maryland, that has been slow to stabilize. So, you know, all good customers, all performing loans, no real related causes, so totally distinct geographically and industry.

Frank Joseph Schiraldi: Sorry if I missed it, but in terms of the three CMI downgrades that led to the increase in problem assets, is there any common thread there?

Speaker Change: Hey Frank, this is Steve. There really is no common thread. The three C&I customers were in three different geographies.

Stephen P. Clark: Hey, Frank, this is Steve. There really is no common thread. The three CNI customers were in three different geographies and three different industries, one a cultural institution in Center City, Philadelphia, that is going through a repositioning of its business. A logistics fulfillment trucking company in the Lehigh Valley, Allentown, Bethlehem area that had some softness in the fourth quarter of last year and first quarter of this year. And then a newly built hotel property in Ocean City, Maryland, that has been slow to stabilize. So all good customers, all performing loans, no real related causes, so totally distinct geographically and industry-wide.

Speaker Change: and three different industries. One, a cultural institution in Center City, Philly, that is going through a repositioning of its business.

Speaker Change: A logistics fulfillment trucking company up in the Lehigh Valley, Allentown, Bethlehem area that had some softness in the fourth.

Speaker Change: quarter of last year and first quarter of this year.

Speaker Change: and then a newly built hotel property in Ocean City, Maryland that has been slow to stabilize.

Speaker Change: So, you know, all good customers, all performing loans, no real related causes, so totally distinct geographically and industry wide.

Stephen Clark: Wide.

Frank Schiraldi: All right, thanks for the call.

Frank Joseph Schiraldi: Okay. All right. Thanks for the call. I appreciate it.

Unknown Executive: I appreciate it. All right, thanks, Frank.

Speaker Change: Okay. All right. Thanks for the call. I appreciate it.

Operator: All right. Thanks, Frank. And our next question comes from the line of Jake Civiello with Janney Montgomery Scott. Jake, please go ahead.

Jacob Civiello: And our next question comes from the line of Jake Civiello with Janie Montgomery Scott. Jake, please go ahead.

Frank Joseph Schiraldi: All right. Thanks, Frank.

Speaker Change: And our next question comes from the line of Jake Civiello with Janney Montgomery Scott. Jake, please go ahead.

Jacob Civiello: Great.

Jake Civiello: Great, good afternoon, everyone. Just one additional question from me. Is there any change in your appetite at all to consider recognizing a loss on the AFS securities portfolio to more quickly get to that 18 to 20% ratio of securities to assets target?

Jacob Civiello: Good afternoon, everyone. Just one additional question from me.

Rodger Levenson: Is there any change in your appetite at all to consider recognizing a loss on the AFS security portfolio to more quickly get to that 18 to 20% ratio of security to assets target? You know, Jake, we'll look at transactions, but we continue not to see anything that really pencils out for us that makes sense. And we continue to see very consistent cash flow. Coming off that portfolio, we're able to deploy it in new originations that have a mid-seven handle kind of yield. And we think that's just the best approach to go and continue to let that cash flow be redeployed naturally.

Jake Civiello: Great, good afternoon everyone. Just one additional question from me. Is there any change in your appetite at all to consider recognizing a loss on the AFS securities portfolio to more quickly get to that 18 to 20 percent ratio of securities to assets target?

Unknown Executive: You know, Jake, we'll look at transactions, but we continue to not see anything that really pencils out for us that makes sense. And we continue to see very consistent cash flow coming off that portfolio; we're able to deploy it on new originations that have a, you know, mid seven handle kind of yield. And we think that's just the best approach to go and continue to let that cash flow get redeployed naturally. If rates drop, maybe we'd take another look at that, but at this point, no, there are no real plans to restructure the portfolio.

Speaker Change: You know, Jake, we'll look at transactions, but we continue not to see anything that really pencils out for us that makes sense.

Jake Civiello: and we continue to see very consistent cash flow coming off that portfolio. We're able to deploy it in new originations that have a...

Jake Civiello: You know, mid-seven handle.

Jake Civiello: kind of yield. And we think that's just the best approach to go and continue to let that cash flow get redeployed naturally. If rates drop, maybe we'd take another look at that. But at this point, no, there's no real plans to restructure the portfolio.

Rodger Levenson: If rates drop, maybe we'd take another look at that, but at this point, no.

Rodger Levenson: There's no real plan through structure of the portfolio.

Unknown Executive: Okay, great. Thank you.

Jake Civiello: Okay, great. Thank you.

Unknown Executive: All right. Thank you, Jake.

Jake Civiello: Okay, great, thank you.

Operator: And our final question today comes from the line of Manuel Navas with BA Davidson. Manuel, welcome back.

Manuel Navas: And our final question today comes from the line of Manuel Levis with the adabiton. Manuel, welcome back. Hey, I just wanted to hop on and see if there's anything going on in the commercial loan pipeline. Are you seeing any changes based on rate forecasts or borrowers getting more excited or less excited? Just kind of thoughts there in context of your mid-single digit loan growth guide?

Jake Civiello: All right, thank you, Jake.

Speaker Change: And our final question today comes from the line of Manuel Navas with BA Davidson. Manuel, welcome back.

Manuel Antonio Navas: Hey, I just wanted to hop on and see if there's anything going on in the commercial loan pipeline. Are you seeing any changes based on rate forecasts or borrowers getting more excited or less excited? Just kind of thoughts there in the context of your single-digit loan growth.

Manuel Antonio Navas: Hey, I just wanted to hop on and see if there's anything going on in the in the commercial loan pipeline. Are you seeing any changes based on rate forecasts or borrowers getting more excited or less excited? Just kind of thoughts there in context of your single-digit loan growth guide.

Stephen P. Clark: Yeah Manuel, Steve again. So our 90-day weighted average pipeline is actually down to a little over 200 million, which is as low as it's been in several quarters, and that is really a reflection of the strong closings we had in the first half of the year. Having said that, we still remain very optimistic about that mid single-digit growth for the full year. We have significant opportunities in the early stage of our process, and believe they'll pull through at our normal pull-through rate. So sitting here today looking at the second half of the year, still comfortable with our four-year forecast.

Stephen Clark: Yeah, Manuel.

Stephen Clark: Steve, Steve again. So our 90-day weighted average pipeline is actually down to a little over 200 million, which is as low as it's been in several quarters. And that is really a reflection of the strong closings we had in the first half of the year. Having said that, we still remain very optimistic about that mid-single digit growth for the full year. We have significant opportunities in the early stage of our process and believe they'll pull through at our normal pull-through rate. So sitting here today, looking at the second half of the year, still comfortable with our four-year forecast.

Manuel Antonio Navas: Yeah, Manuel, Steve, Steve again. So our, our 90 day weighted average pipeline is actually down to a little over 200 million, which is

Speaker Change: As low as it's been in several quarters, and that is really a reflection of the strong closings we had in the first half of the year.

Speaker Change: Having said that, we still remain very optimistic about that mid-single-digit growth for the full year. We have significant opportunities in the early stage of our process.

Speaker Change: and believe they'll pull through at our normal pull-through rate. So, sitting here today looking at the second half of the year still comfortable with our four-year forecast.

Stephen Clark: Are those kind of pricing in that seven-and-a-half yield range? Is that kind of the right new loan origination yields? Yeah, so looking at our activity through June for all commercial loans funded over $250,000. Our yield in January for that population was 7.2, and we came out of June for the month of June 7.8.

Manuel Antonio Navas: And are those the kind of pricing in that seven and a half percent yield range? Is that kind of the right new loan origination yield? Yeah, so

Speaker Change: And are those kind of pricing in that seven and a half?

Speaker Change: Yield range, is that kind of the right new loan origination yields?

Manuel Antonio Navas: Thank you. I appreciate that commentary.

Unknown Executive: Yeah, so looking at our activity through June, for all commercial loans funded over $250,000, our yield in January for that population was 7.2, and we came out of June, for the month of June, 7.8, so we, as Art mentioned, you know, that securities portfolio amortizing down and being redeployed, definitely we're in that mid to high 7% yield range.

Speaker Change: Yeah, so looking at our activity through June , for all commercial loans funded over $250,000.

Speaker Change: Our yield in January for that population was 7.2, and we came out of June , for the month of June , 7.8, so we, as Art mentioned, you know, that securities portfolio amortizing down and being redeployed, definitely we're in that mid to high 7

Stephen Clark: So we, as Art mentioned, that security portfolio, amortizing down and being redeployed. Definitely, we're in that mid-to-high 7% yield range. Thank you.

Speaker Change: a. 1. B. B. B. B. B. B. B. B. B. B.

Unknown Executive: I appreciate that commentary.

Speaker Change: Thank you, I appreciate that commentary.

Arthur Bacci: All right, thank you, Manuel, and with no further questions in queue, I would like to turn the conference back over to Mr. Bacci, Art deplores yours. Thank you for joining the call today. If you have any specific follow-up questions, feel free to reach out to Andrew. Roger and I will be attending conferences and investor meetings throughout the quarter, and we look forward to meeting with many of you.

Arthur J. Bacci: Thank you, Manuel. And with no further questions in queue, I would like to turn the conference back over to Mr. Bacci. Art, the floor is yours.

Speaker Change: All right.

Arthur J. Bacci: Thank you, Manuel. And with no further questions in queue, I would like to turn the conference back over to Mr. Bacci. Art, the floor is yours.

Arthur J. Bacci: Thank you for joining the call today. If you have any specific follow-up questions, feel free to reach out to Andrew. Rodger and I will be attending conferences and investor meetings throughout the quarter, and we look forward to meeting with many of you. Have a good day. And, ladies and gentlemen, that concludes today's call.

Unknown Executive: Have a good day.

Unknown Executive: And ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. And that concludes today's call. Thank you all for joining, and you may now.

Operator: And ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. And that concludes today's call. Thank you all for joining, and you may now go.

Speaker Change: And ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.

Speaker Change: And that concludes today's call. Thank you all for joining and you may now disconnect.

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