Q2 2025 WSFS Financial Corp Earnings Call

Thank you for standing by. My name is Tina and I will be your conference operator. Today at this time I would like to welcome everyone to the WSFS Financial Corporation, second quarter earnings call.

Speaker Change: All lines have been placed on mute to prevent any background noise. 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 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again, thank you right now. I'd like to turn the call over to David Burke Chief Financial Officer. Sir, you may begin.

David Burke: Thank you, Tina and good afternoon. And thank you everyone for joining, our second quarter 2025 earnings call.

David Burke: Our earnings release and earnings release supplement, which we will refer to on today's call can be found in the investor relations section or a company website.

Roger Levenson: With me on this call are Roger levenson, chairman president, and CEO and arbat Chief Operating Officer.

Roger Levenson: Prior to reviewing our financial results. I would like to read or save Harbor statement.

Our discussion today will include information about our Management's view of our future expectations plans. And Prospects that constitute forward-looking statements

Roger Levenson: Actual results May differ materially from historical results or those indicated by these forward-looking statements.

Roger Levenson: Due to risks and uncertainties including but not limited to the risk factors included in our annual report on form 10K. And our most recent quarterly reports on form 10q as well as other documents with periodically filed with the Securities and Exchange Commission. All comments made during today's call are subject to the safe harbor statement.

Roger Levenson: I will now turn to our financial results.

During the second quarter with this performed. Well as we continue to demonstrate the strength of our franchise and diverse business model,

Results included a core earnings per share of $1.27.

Roger Levenson: core return on assets of 1.38%, and core return on tangible, common Equity of 18.03%

Roger Levenson: All of these metrics are up versus the first quarter.

Roger Levenson: Coordinating interest, margin expanded 1, basis, point to 3.89% this, reflects a reduction in total funding cost of 9 basis points with a deposit data of 43% for the quarter.

Roger Levenson: these reductions were partially offset by lower loan yields primarily driven by the announced upstart sale, which accelerated the disposition of a non-strategic portfolio that has been in runoff

Roger Levenson: Corey Revenue, grew 9% quarter over quarter driven by broad-based growth across a number of businesses, including wealth, Capital markets, and mortgage our wealth business. Grew, 17% year-over-year led by 39% growth in institutional services and 7% in the brimar, Trust Company of Delaware.

Roger Levenson: Total client deposits increased. 1% in quarter driven by an increase in trust deposits.

On a year-over-year basis client, deposits, grew 5% driven by growth across consumer commercial and Trust importantly, non-interest deposits, grew 11% year-over-year and now represent over 30%.

Of our total client deposits.

Roger Levenson: Gross loans were generally flat quarter of a quarter but we saw strong momentum in several areas. We saw the highest quarter of commercial funding in over a year and particularly strong fundings in. Cni were loan, balances grew 2% in quarter,

Roger Levenson: in our consumer business, we had strong growth in Residential Mortgage, which grew 2% when quarter, and in Hilux, which grew 8% Wing quarter, these results, reflect the momentum of our newly combined home lending business, as well as the learning obtained from our partnership, with spring EQ,

Roger Levenson: Total net credit costs were 14.3, million reflecting lower, net charge ups for the quarter. Net charges were 30 basis points with approximately half of that, coming from the impact of the upstart sale.

Roger Levenson: Excluding upstart total. Net charge offs were 14 basis points.

Those were stable and npas declined to 51 basis points of total assets as a result of payoffs.

Roger Levenson: While delinquencies ticked up in the quarter.

Roger Levenson: The relationship that drove the majority of the increase fully paid off in July.

Roger Levenson: During the second quarter, which was returned, 87.3 million of capital, including 77.7 million in BuyBacks, which represented 2.7% of our outstanding shares.

Roger Levenson: Year to date. We have returned approximately 150 million of capital resulting in BuyBacks of 4.4% of our outstanding shares.

Roger Levenson: The last page of the supplement we provided our mid-year Outlook and now assumed 225 basis point rate cuts for the remainder of the Year 1 in September and 1 in December.

Roger Levenson: Overall, we're increasing our Roa outlook for the year to approximately 1.30% as we continue to drive high performance and growth.

Roger Levenson: We expect low single digit growth growth in our commercial portfolio and flat growth in our Consumer Portfolio. Excluding upstart.

We're generating great momentum in our home lending business and we expect those originations to largely offset. The continued runoff in our spring, EQ partnership portfolio.

Roger Levenson: For deposits. Our Outlook Remains the Same and we expect to continue to generate broad-based growth across our business for the year.

Roger Levenson: We're raising our Nim Outlook to approximately 3.85% and this Outlook now includes the 2 additional rate cuts are mentioned earlier.

We continue to be focused on the positive repricing opportunities, and maintaining our beta through any interest rate cuts.

Roger Levenson: We also continue to see strong momentum and growth opportunities in our fee businesses. Which contribute almost a third of our total revenue.

Roger Levenson: Our wealth and Trust business is performing very well and the outlook for double digit. Fear Revenue growth this year remains unchanged

In the second quarter, with this completed, the sale of its powdermill business which provided tax and other administrative services.

Roger Levenson: In addition, we decided to unwind a wealth advisory partnership with Commonwealth Financial Network. As a result of Commonwealth's announced sale to LPL Financial

Roger Levenson: while these transactions will result in some near-term Revenue, headwinds, they create important strategic opportunities, to broaden our product offering and expand our wealth franchise.

Roger Levenson: We expect our overall, the revenue will go low single digits as cash. Connect revenues are expected to decline primarily as a result of interest rate, reductions and lower volume.

As a reminder, the interest rates few Revenue decline is more than offset in cash. Connects funding costs. Resulting in a higher profit margin.

Roger Levenson: Net charge offs are expected to be between 35 to 45 basis points of average loans, for the year, excluding the full impact of upstart, which has at this point largely been divested.

Roger Levenson: Our commercial portfolio continues to perform well, but losses, May remain uneven.

Roger Levenson: Our outlook for efficiency remains unchanged at approximately 60% and we will continue to leverage opportunities to invest in the franchise while prudently managing our expense space.

Lastly asleep as seen on slide, 9 of the earnings supplement.

Roger Levenson: We will continue to execute BuyBacks.

As part of a multi-year Glide path to our cet1 Capital Target of 12%.

Roger Levenson: While retaining discretion to adjust the pace based on the macro environment, business performance or potential investment opportunities that we see

we are very excited about the future and remain committed to delivering high performance. Thank you and will now open the line for questions.

Speaker Change: As a reminder to ask a question simply press star, followed by the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question comes from the line of Russell Gunther with Stevens. Please go ahead.

Russell Gunther: Hey, good afternoon, guys.

Speaker Change: Hey Russell.

Speaker Change: Uh, maybe could we start on the loan growth discussion? I I hear you on kind of what your overall expectations for commercial are, uh, for this year. Um, but it was a great cni quarter, so it would be helpful to just get some bigger picture takes on what your expectations are for that asset class, how you're thinking about, uh, pay Downs as a potential headwind, continuing going forward, and then just, uh, any sentiment shifts. You could share from your commercial borrowers whether or not tariffs are still at overhang, or as the environment improved for them at all, that would be a great place to start. Thank you.

Speaker Change: Sure Russell, so I'll kick off. So yeah, I think what I would say, um, importantly, is that, um, you know, we're focused on a creative loan growth. Um, and so, um, as you know, you know, we we really value the cni relationship model and we value our, our kind of cni franchise. And so, I think what you'll see us continue to lead into cni. We did have, you know, solid originations in in commercial real estate and construction. Um, we did have other payoffs and, you know, I I we're very, you know, we're not going to um, we're selective in terms of our originations in commercial real estate focusing on high-quality sponsors where we have strong relationships. Uh, you know, we're not going to chase things on price and and maintaining our profit margins.

Speaker Change: So you know, I think the focus for us continues to be around cni growth, but what we expect growth across both the cni and commercial commercial real estate franchise, but, you know, we, we will continue to lean into cni going forward.

Speaker Change: Roger. Let me just add some color. What I, hey, good to hear from you. What I've been hearing from uh, customers and clients when I'm when I'm out and about as it relates to tariffs, I I think that um, the there's certainly um, some level of uncertainty and, and how this all plays out and the timing of that. But we've noticed with the passage of time, I think it's kind of settling in a little bit post. You know, April 2nd. And, um, so I'd say we see a mild uptick in optimism, with, with our borrowers, moving forward with some projects that have been put on hold. Um, I I wouldn't declare it as kind of any significant change but so far because it's really been, you know, very, very little impact to anybody. I think it's, um, starting to change the dynamic for some people in terms of, uh, you know, moving ahead all to be determined by what ultimately gets, um, you know, plays out but, uh, I say the sentiment is moving, um, a little bit.

Speaker Change: In the positive direction.

Speaker Change: That's great, guys. Thank you both. Uh, and then, um, on the expense side of things, you know, I appreciate the core efficiency ratio guide here and unchanged for the year, uh, David it'd be helpful to get a sense. For how you think about the second quarter shaping up as a potential run rate. If we could think about, you know, potential Revenue related, seasonality, or Merit increases, I know you mentioned cash, connect and, and the offset that we could see in the bottom line. So,

Speaker Change: maybe help us with the Glide path, quarter to quarter, if you could

David Burke: Sure, sure. Happy happy to wrestle. So yeah, the um, just backing up a little bit to the first quarter. You know, as you may recall, I think the first quarter had some, we had some 1-time benefits uh and some timing related issues which is you know, while you see the jump to the second quarter. So I think uh, this quarter the number that you see here, you know, is a pretty good run rate to use for for future growth. Um, you know, I think it may take up a little bit, just with kind of bow activity, um, and and be a, uh, hiring into the back half of the year. But generally off of the runway that you the Run rate that you see, this quarter is a, is a good number to work from.

Speaker Change: Okay, excellent. Thank you, David. And then, last 1 for me guys. Um,

Speaker Change: You know, you bought back a bunch of stock, you barely put a dent in that C1, you guys make a ton of money. Um,

Speaker Change: You know, I know it's it's a multi-year Target, but what?

Speaker Change: Piece of it. If any do you expect either traditional depository m&a or m&a within your fee, verticals to uh play a role in in working that lower?

Yeah, so I'll I'll take that. Um, Russell, you know, obviously we'll go in at the BuyBacks hard because of the excess Capital, which we, we walked everybody through, uh, last quarter and we, we, we will continue to do that. But as we always said, our our first option for excess, capital is to invest in a business. Um, and so if those opportunities come along, whether they're in our fee businesses or the traditional banking,

Speaker Change: Business, you know, we will certainly, um, consider those. I think we have a little bit of a leaning when the fee business side. Particularly the wealth and Trust franchise, because we see such great, um, growth potential there, but we're open to it, uh, entire franchise, I would say on the traditional banking business. Um, you know, we continue to see nice organic growth from this unique position we have in our Market. Uh, so the bar would be High, um, but we're open to it, if it would be additive and consistent with our strategic plan,

Speaker Change: Thank you, Roger and thank you both for taking my questions.

Thanks much.

Our next question comes from the line of benuel novice with da Davis. Please go ahead Davidson

Benuel Novice: What about some potential? Um, upside on the Nim in the back, half of the Year kind of it, it, it seems like the guy has a little bit of a trail down. Uh, so it's kind of wondering about the exit Nim and where, where could there be upside? You've been really good at controlling deposit costs, um, and just wanted to start there.

Sure. Um, now while you broke up a little bit in the beginning, but I think you were asking about the the Nim in the back, half of the year the Run rate and and where the upside could be right,

Benuel Novice: Yes, that is correct, sorry about that. Okay sorry thanks. No no, no problem at all. So yeah, so I think, um, you know, as as you saw our, um,

Uh, in an additional cut in December. Um, the December 1 is not going to have a huge impact but but obviously we'll have the full quarter for the September cut and, you know, our impact per interest rate cut. And I would say, uh, temporary impact. Immediate impact is about a 2 to 3 basis. Point impact to our Nim from every 25 basis point interest rate, cut

Benuel Novice: But that is not, I would say, that's an impact in the first 1 or 2 quarters. But as our beta catches up, I think we look to mitigate that Nim impact.

Benuel Novice: From, you know, 2 to 3 basis, points to 1 basis point. Uh, so, so the reason why you see a little bit softer name in the back, half of the year, is really because of the timing of the cuts. Um, as we get into next year, again, assuming no other Cuts, we would to largely mitigate that impact.

Benuel Novice: Um,

Benuel Novice: In terms of, I would say that's 1 component. The second component is, um, as you saw we, we did sell our upstart portfolio. Uh, that portfolio has been uh, in in runoff as you know. But for the next couple of quarters, you know, the impact of that portfolio relative to the Run rate of the second quarter would be about 2 basis points of nim.

That would be a declining um a number because of the portfolio running off, but the immediate impact of the next couple quarters is 2 basis points.

Benuel Novice: For quarters of the combination of those 2 things, you know, gets us gets us to a little bit softer, run rate.

Um, offsetting that to your point, you know, we we continue to obviously, uh, do everything. We can around deposit, pricing, we pricing. Um, we've exceeded our beta Target, our Target was 40. We got up to 43% this quarter.

Benuel Novice: We still have some natural CD runoff, that's going to the majority of our CD portfolios in a 6-month. So there's not which is priced at 4%. So there's not a huge repricing around the 6-month, but we still have some longer dated CDs that are rolling off. So, we'll have another quarter benefits there, uh, and, you know, our security portfolio, uh, the the, the rollover of our Securities portfolio into loans or into other Securities, frankly. You know, we'll give us about 4 basis points a year of uplift.

So, you know, we still have some repricing, levers to pull the Securities portfolio is going to give us, you know, a constant kind of 4 basis points per year.

Benuel Novice: So those, you know, those are certainly important mitigates.

Speaker Change: I appreciate that commentary. Uh, just jumping back for the um, on the buyback piece. Uh, there's been a portion of your buyback and you generally have been priced agnostic, but uh, it's been substantial this quarter and the first quarter. Um,

How how much does pricing impact your your thought process from here? Um and how do you think about that pricing? Do you include aoci recovery in that pricing and just how, how is that shifted over time?

Speaker Change: Yeah. So so we, um, so as as you said, we definitely, uh, increase the pace of Buybacks in the first half of the year, we took advantage of the lower price opportunity. The lower price in our stock, uh, in the industry. Uh, what was happening in April, we took advantage of that to really lean into BuyBacks,

Speaker Change: so, um, to the extent that we see those price declines, you know, we'll continue to do that.

Um but as as Roger said, you know, generally regardless of price, you know, our goal is that in a in a gradual Glide path.

Speaker Change: Uh, you know, if if we don't see opportunities to invest that capital in the business, which is always the first option, you know, we will look to return that capital.

And we look to return that Capital through through BuyBacks, um, gradually, uh, obviously, taking into account kind of aoci risk, taking into account, what's happening in the environment, we're always going to keep an eye on, not just cet1, but also tce to take, you know, to make sure that we're being prudent around aoci. Um, but, but all else being equal, we're going to look to continue to deploy the capital through BuyBacks and and have that gradual path down. Um, and and, you know, we and we think we think that's, you know, that's the right decision. Again, second to having an investment in the business and opportunity there.

Speaker Change: Thank you. I mean you were able to do this amount of BuyBacks and your ct1 did barely changed.

Speaker Change: Yeah, yeah. That's, that's exactly right. I mean, obviously, you know, we generate, um, you know, a good amount of capital. So that's, uh, you know, that's really important and and accretive to us, I would say number 2, um, you know, the uh, there are a couple of other effects. Our risk weighted assets, take down a little bit this quarter. When our aoci goes down the Deferred tax asset associated with that, um, is in our, in our risk weighted asset. Uh, it's at 250% risk weight. So we get a benefit there, um, you know, and it it also depends on the balance sheet growth that you're going to have

Speaker Change: You'll see that Capital uh, impacted more or less depending on those factors.

Speaker Change: I appreciate the commentary. Thank you.

Thanks very much.

And our final question comes from the line of Carrie mup with KBW.

Uh, this is Charlie on for Kali. Thanks for the question.

Speaker Change: Hi Charlie. Um, in terms of expenses, it seemed like more of a run. Rateable quarter. Is that kind of still hold true? I know last quarter was a little low, um, and then you had the cash connector recovery. Maybe you could update us on the details of that process and then more broadly just how you're thinking about expenses going forward.

Sure so um let me start with cash connect. So uh, in cash, connect. You're right. We had a 1.6 million. 1-time Insurance Recovery in this quarter.

Speaker Change: Uh, the vast majority of that recovery relates to the client termination, that that you may remember that we had in the fourth quarter of last year. So I think it's a very positive sign. You know that we were able to have that recovery and and as part of our normal course of business, you know we tend to be able to recover most of our losses in that business.

So, I think that's, you know, that's a validation of of the way that we've been running that franchise. Um, so that, you know, that that was a 1-time benefit. Um, inexpensive. Um, I would say, other than that, uh, this is, you know, this is a good run rateable quarter for us. The first quarter had timing benefits and, and again, had a about a 4 million dollar 1-time, um, related to our incentive compensation true-ups. But, but this, um, you know, this is a good quarter for us, you'll see us continue to invest in the business and continue to grow, um, uh, continue to grow,

Both from a technology perspective, we'll continue to invest. We'll continue to invest in Talent. Um, so you'll continue to see us grow but, but, you know, at a moderate level from here, but this is a good run rate quarter.

Speaker Change: You know, and I would say Charlie the way we generally think about expenses as we as we've said before is we're we're managing the business not just for the short term but we're managing this business for growth. And so um as we see disruptions in the market opportunities to acquire Talent, particularly in wealth, in our Commercial Business, where we've recently, you know, hired a number of relationship managers, you know, we'll definitely lean in and continue to do that. Um,

And so, so sometimes that creates timing mismatches between expenses and revenue. But but you know we think that's the right decision for the franchise and we'll we'll definitely continue to do that.

Speaker Change: That's great. Thank you. And then in terms of cash, connect more broadly, I know. Last quarter, you mentioned some, some price increases that could drive some

Speaker Change: Some better profitability but offsetting like softer volumes.

Um and then lower rates are also a factor just wondering kind of like net net. If you're seeing progress, um and driving profit margins in cash connect,

Speaker Change: Yeah. Yeah, we are, we are, um, if you, uh, if you strip out that 1.6 million 1-time benefit this quarter, you can see that our, our pre-tax margin, our net income would be up a little bit versus the prior quarter and our margin would be up a little bit. When you look at the year you know cash connects margin if you normalize out the client termination last year in the fourth quarter, our margin would have been in the mid single digits and will be towards the higher single digits, you know this year.

Speaker Change: Um, you know, we're both 8% and our goal is to push that into the teams.

Speaker Change: Um, and so, you know, like you said, the focus is really we're we're we're implementing pricing increases.

Speaker Change: Uh, some of that has already been implemented. There's more to come uh, from that. So we expect about a million dollar pre-tax benefit this year from that. And there's more to come. Um, interest rates, you know, as you know, also help profitability. Uh, we get about 300,400,000 of of pre-tax benefit for every every rate cut

Um but you know, the headwind in that business has been some of the client the client terminations, um, some of the events that have happened and, and some volumes.

Speaker Change: Of that industry consolidates a bit. But, you know, we still think we, again, the goal is to drive profit margin. We still feel good about that and from a market share perspective, we still think, you know, we we can still extract growth. Um, it's not a fast growing industry, but we still think there's growth there that we, that we can go after.

Speaker Change: I understood, that's great. And then finally, for me, just circling back to the margin Outlook. Um, you guys raised it in the back, half of the year just wondering kind of looking out further, um, into 2026. If you expect to have like some of the same Tailwind, um, with the deposit repricing, and the beta, is there, if it's a little more pressure, just your thoughts like, looking out further at the margin. Thank you.

So, uh, you know, we we again our goal is to continue to perform, you know, at the top, uh, at the top. Uh, quintile relative to our peers. That's what we continue to drive to our goal is to continue to push that Roa up. We will have, you know, some temporary impacts from interest rate cuts. Um, but you know, we'll, we'll look to mitigate that. And, and we think that, we expect to continue to grow our fee businesses, which are very creative to Roa

Speaker Change: And so I, you know, our goal is definitely to continue to drive them margin up.

Speaker Change: Okay, thank you. I'll step back.

Thanks Roland.

David Burke: Thank you, and with no further questions in queue. I will turn the conference back over to you David.

David Burke: Okay, great. Um, thank you very much, everyone. We uh we appreciate your time, enjoying the call and if you have any specific follow-up questions,

David Burke: Feel free to reach out to Andrew and me and and have a great day and a weekend.

David Burke: Everybody, thank you.

Bye, bye.

David Burke: What's today's conference? You may now disconnect