Q3 2025 WSFS Financial Corp Earnings Call
Speaker #1: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the WSFS Financial Corporation Q3 2025 Earnings Call.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the WSFS Financial Corporation third quarter earnings call. All lines have been placed on mute to prevent any background noise, and after the speakers' remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star then the number one on your telephone keypad. If you would like to withdraw your question at any time, please press star one again. Thank you. I'd now like to turn the call over to your host today, to Mr. David Burg, Chief Financial Officer. Sir, you may begin.
Speaker #1: Third quarter earnings call . All lines have been placed on mute to prevent any background noise . And after the speakers remarks , there will be a question and answer session .
Speaker #1: If you would like to ask a question at that time, please press star, then the number one on your telephone keypad.
Speaker #1: If you would like to withdraw your question at any time , please press star one . Again , thank you . I'd now like to turn the call over to your host today to Mr. David Berg , Chief Financial Officer .
Speaker #1: Sir, you may begin.
Speaker #2: Great . Thank you very much and good afternoon , everyone , and thank you for joining our third quarter 2020 earnings call . Our earnings release and earnings release supplement , which will refer to on today's call , can be found in the Investor Relations section of our company website .
David Burg: Great. Thank you very much, and good afternoon, everyone, and thank you for joining our third quarter 2025 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, and Art Bacci, Chief Operating Officer. Prior to reviewing our financial results, 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.
Speaker #2: With me on this call are Rodger Levenson, Chairman, President, and CEO, and our Chief Operating Officer. Prior to reviewing our financial results, I would like to read our Safe Harbor statement.
Speaker #2: 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 these forward looking statements , due to risks and uncertainties , including , but not limited to , the risk factors included in the Annual Report on Form 10-K and our most recent quarterly Reports on Form 10-q , as well as other documents .
David Burg: Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties, including, but not limited to, the risk factors included in our annual report in Form 10-K and our most recent quarterly reports on Form 10-Q, as well as other documents we periodically file with the SEC. All comments made during today's call are subject to the safe harbor statement. I will now turn to our financial results. During the third quarter, WSFS Financial Corporation continued to demonstrate the strength of our franchise and diverse business model. The company delivered a core EPS of $1.40, core return on assets of 1.40%, and core return on tangible common equity of 18.7%, which are all up versus the second quarter. On a year-over-year basis, core net income increased 21%, core pre-provision net revenue grew 6%, and core earnings per share increased 30%.
Speaker #2: We periodically file with the SEC. All comments made during today's call are subject to the Safe Harbor Statement. I will now turn to our financial results during the third quarter, which continued to demonstrate the strength of our franchise and diverse business model.
Speaker #2: The company delivered a core EPS of $1.40, a core return on assets of 1.48%, and a core return on tangible common equity of 18.7%, all of which are up versus the second quarter on a year-over-year basis.
Speaker #2: Core net income increased 21%. Core PPNR grew 6%, and core earnings per share increased 30%. In addition, our tangible book value per share increased by 12%.
David Burg: In addition, our tangible book value per share increased by 12%. Net interest margin expanded two basis points to 3.91% quarter over quarter. This reflects a reduction in total funding cost of two basis points with a deposit beta of 37%. Given the September rate cut, our exit beta for September is 43%, which reflects the repricing actions taken after the rate cut. Net interest margin for the quarter benefited from an interest recovery from a previously non-performing loan, which added about four basis points. Core fee revenue was flat quarter over quarter, as our results were impacted by two previously announced strategic exits in wealth and trust, as well as the Spring EQ earnout from last quarter. Excluding these items, core fee revenue grew 5% quarter over quarter, primarily driven by capital markets and Cash Connect.
Speaker #2: Net interest margin expanded two basis points to 3.91% quarter over quarter. This reflects a reduction in total funding costs of two basis points, with a deposit beta of 37%.
Speaker #2: Given the September rate cut, our exit beta for September is 43%, which reflects the repricing actions taken after the rate cut.
Speaker #2: Net interest margin for the quarter benefited from an interest recovery from a previously non-performing loan, which added about four basis points. Core fee revenue was flat quarter over quarter as our results were impacted by two previously announced strategic exits in wealth and trust.
Speaker #2: As well as the spring earnout from last quarter. Excluding these items, core revenue grew 5% quarter over quarter, primarily driven by Capital Markets and Cash Connect.
Speaker #2: Our wealth and trust business continues to perform very well and grew 13% year over year . Total client deposits increased 1% linked quarter , driven by commercial business on a year over year basis .
David Burg: Our wealth and trust business continues to perform very well and grew 13% year over year. Total client deposits increased 1% linked quarter, driven by commercial business. On a year-over-year basis, client deposits grew 5%, driven by growth across consumer, commercial, wealth, and trust. Importantly, non-interest deposits grew 12% year over year and continue to represent over 30% of our total client deposits. Loans were down 1% linked quarter, driven by the previously announced sale of the Upstart portfolio and continued runoff in our Spring EQ portfolio. Excluding these items, loans were generally flat this quarter, but we saw solid momentum in several areas. Our residential mortgage and WSFS-originated consumer loan portfolios both delivered strong growth with linked quarter increases of 5% and 3%, respectively. These results reflect the momentum of our home lending business, as well as the learnings attained from our partnership with Spring EQ.
Speaker #2: Client deposits grew 5% , driven by growth across consumer , commercial , wealth and trust . Importantly , noninterest deposits grew 12% year over year and continued to represent over 30% of our total client deposits .
Speaker #2: Loans were down 1% linked quarter, driven by the previously announced sale of the Upstart loan portfolio and continued runoff in our Spring EQT portfolio.
Speaker #2: Excluding these items , loans were generally flat this quarter , but we saw solid momentum in several areas . Our residential mortgage and whispers originated consumer loan portfolios , both delivered strong growth with linked quarter increases of 5% and 3% , respectively .
Speaker #2: These results reflect the momentum of our home lending business , as well as the learnings attained from our partnership with spring EQT . In commercial new fundings , this quarter were offset by lower line utilization and the payoff of problem loans , which supported improvements in our asset quality .
David Burg: In commercial, new fundings this quarter were offset by lower line utilization and the payoff of problem loans, which supported improvements in our asset quality. Importantly, our commercial pipeline remains strong across both CNI and commercial real estate, increasing to approximately $300 million. We saw a meaningful improvement across our asset quality metrics during the quarter. Total net credit costs were $8.4 million this quarter, down $5.9 million compared to the prior quarter. Net charge-offs were 30 basis points for the quarter and 21 basis points when excluding new lien. Importantly, we saw a decline in problem assets, delinquencies, and non-performing assets this quarter. NPAs declined by over 30% to 35 basis points, driven by two large payoffs with no additional losses, while delinquencies declined by 34%. In each of these areas, we are now at or below the lowest level in the past year.
Speaker #2: Importantly, our commercial pipeline remains strong across both CNI and commercial real estate, increasing to approximately $300 million. We saw meaningful improvement across our asset quality metrics during the quarter.
Speaker #2: Total net credit costs were $8.4 million this quarter, down $5.9 million compared to the prior quarter. Net charge-offs were 30 basis points for the quarter and 21 basis points when excluding new lane.
Speaker #2: Importantly , we saw a decline in problem assets , delinquencies and non-performing assets this quarter . NPAs declined by over 30% to 35 basis points , driven by two large payoffs with no additional losses , while delinquencies declined by 34% in each of these areas .
Speaker #2: We are now at or below the lowest level . In the past year . During the third quarter , whispers returned 56.3 million of capital , including buybacks of 46.8 million , or 1.5% of our outstanding shares .
David Burg: During the third quarter, WSFS returned $56.3 million of capital, including buybacks of $46.8 million or 1.5% of our outstanding shares. Year to date, we have repurchased 5.8% of our outstanding shares. Despite these higher levels of repurchase, our capital position remains very strong with a CET1 of 14.39%, well in excess of our medium-term operating target of 12%. We intend to maintain an elevated level of buybacks in line with our previously communicated glide path towards our capital target of 12%, while retaining discretion to adjust the pace of these buybacks based on the macro environment, our business performance, and potential investment opportunities. These results position us well to meet our previously announced full-year outlook, even with an additional October rate cut, which was not previously included in our assumptions.
Speaker #2: Year to date , we have repurchased 5.8% of our outstanding shares . Despite these higher levels of repurchase , our capital position remains very strong with a one of 14.39% well in excess of our medium term operating target of 12% .
Speaker #2: We intend to maintain an elevated level of buybacks in line with our previously communicated glide path towards our capital target of 12%, while retaining discretion to adjust the pace of these buybacks based on the macro environment.
Speaker #2: Our business performance and potential investment opportunities . These results position us well to meet our previously announced full year outlook . Even with an additional October rate cut , which was not previously included in our assumptions .
Speaker #2: While the path and timing of future rate cuts remains uncertain , it's important to note that the impacts of additional rate cuts on our financial results will not be linear as we continue to manage our margins through deposit repricing , our hedge program and securities portfolio strategy , as we have done in the past , we will provide a full year 26 outlook in January with the release of our fourth quarter 2020 financial results .
David Burg: While the path and timing of future rate cuts remain uncertain, it's important to note that the impacts of additional rate cuts on our financial results will not be linear as we continue to manage our margins through deposit repricing, our hedge program, and securities portfolio strategy. As we have done in the past, we will provide a full-year 2026 outlook in January with the release of our fourth quarter 2025 financial results. We remain excited about the future and committed to continuing to deliver high performance. Thank you, and we'll now open the line for questions.
Speaker #2: We remain excited about the future and committed to continuing to deliver high performance. Thank you, and we will now open the line for questions.
Speaker #1: Thank you . We will now begin the question and answer session . If you would like to ask a question , please press star one on your telephone keypad .
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Your first question comes from the line of Russell Gunther from Stephens. Your line's open.
Speaker #1: If you would like to withdraw your question . Again , press star one . Thank you . Your first question comes from the line of Russell Gunther from Stephens , Inc. your line is open .
Speaker #3: Hey. Good afternoon, guys.
Rodger Levenson: Hey, good afternoon, guys.
Speaker #2: Hey , Russell . Good afternoon .
David Burg: Hey, Russell, good afternoon.
Speaker #3: I wanted to start kind of at the bigger picture question , David . And you kind of touched on it towards the end of your prepared remarks , but that medium term target on Cet1 challenging to hit , given just how much money you guys make .
Rodger Levenson: I wanted to start kind of with the bigger picture question, David, and you kind of touched on it towards the end of your prepared remarks, but that medium-term target on CET1, challenging to hit given just how much money you guys make. It would be helpful to get a sense just kind of big picture in your mind, what's your base case scenario to achieving that target and sort of what does that assume for organic growth rates over the next couple of years, acquisitive growth via depositories or fee verticals? You mentioned potentially flexing the buyback at a more accelerated clip. Just your base case to get there would be helpful to start.
Speaker #3: So, it would be helpful to get a sense, just kind of big picture in your mind. What's your base case scenario to achieving that target, and sort of what does that assume for organic growth rates over the next couple of years?
Speaker #3: Acquisitive growth , be it depositories or fee verticals . And then you mentioned potentially flexing the buyback at a at a more accelerated clip .
Speaker #3: Just your base case to get there would be helpful to start. Yeah.
Speaker #2: Yeah , absolutely . Russell . So yeah . Look , as you've seen this year we are buying back at a clip that's significantly ahead of both the last couple of years .
David Burg: Yeah, absolutely, Russell. As you've seen this year, we are buying back at a clip that's significantly ahead of both the last couple of years. We're buying back at approximately 100% of our net income. Given some of the balance sheet dynamics, the sale of the Upstart portfolio, for example, the runoff in some of the partnership portfolios, our RWA has not increased, and therefore our capital levels, despite these buybacks, are still very high and actually increased since the beginning of the year. That's the dynamic, and as well as the profitability levels that you mentioned, we do generate a lot of capital.
Speaker #2: You know we're buying back approximately 100% of our net income . Given some of the balance sheet dynamics , the sale of of the upstart portfolio , for example , you know , the run off in in some of the partnership portfolios , our has not increased .
Speaker #2: And therefore our capital levels , despite these buybacks , are capital levels are still very high . And actually increased since the beginning of the year .
Speaker #2: So , you know , that's the dynamic . And as well as the profitability levels that you mentioned , we do generate a lot of capital .
Speaker #2: So I think that if you look forward , you know , even with a , you know , a robust growth rate in our balance sheet , we still have a lot of dry powder to execute the buybacks at or above the level of 100% of our net income for for a couple of years , for 2 to 3 years .
David Burg: I think that if you look forward, even with a robust growth rate on our balance sheet, we still have a lot of dry powder to execute the buybacks at or above the level of 100% of our net income for a couple of years, for two to three years. That's really the strategic intention that we have. Depending on what happens with the balance sheet, we may accelerate that path. I can completely see us leaning in more and doing even an excess of our net income on the buyback side. Obviously, as you said, we look at, we continuously evaluate different investment opportunities. The first priority and the preference is always to invest the capital in the business where those accretive opportunities exist. After that, we would look to return.
Speaker #2: And so that's , you know , that's really the strategic intention that we have . And depending on what happens with the balance sheet , you know , we may accelerate that path .
Speaker #2: So I can completely see us leaning in more and doing even in excess of our net income . On the buyback side . And obviously , you know , as you said , we look at we continuously evaluate different investment opportunities .
Speaker #2: You know, the first priority and the preference is always to invest the capital in the business where those accretive opportunities exist.
Speaker #2: But but after that , we you know , we would look to to return .
Speaker #3: Okay . Got it . Thank you . And then just second question for me . So asset quality resolution and trends were really constructive this quarter .
Rodger Levenson: Okay. Got it. Thank you. Just a second question for me. Asset quality resolution and trends were really constructive this quarter. You guys have a healthy reserve, and we just talked about the healthy CET1 for that matter. I guess how are you thinking about reserve levels here amid what is still a somewhat volatile macro? Could you share particular sectors of your loan portfolio where you continue to keep a closer incremental eye?
Speaker #3: You guys have a healthy reserve, and we just talked about the healthy CET1 for that matter. So I guess, how are you thinking about reserve levels here amid what is still a somewhat volatile macro?
Speaker #3: And then could you share, you know, particular sectors of your loan portfolio where you continue to keep a closer incremental eye?
Speaker #3: Yeah .
Speaker #2: I think on on asset quality generally , you know , as you've seen in our numbers , we have we have good momentum and good progress .
David Burg: Yeah, I think on asset quality, generally, as you've seen in our numbers, we have good momentum and good progress. I think I would say a couple of things. First and foremost, with respect to asset quality, one of the things that we try to do, obviously, is discipline originations. It starts there, and we try to have recourse for most of our lending, the vast majority of it, and those types of actions to make sure we have good underwriting. We also try to be proactive around engagement with clients should there be unexpected bumps and bruises. We have a very kind of long forward-looking pipeline. We stress our portfolio for higher rates. When there are issues, when we think there are issues at maturity, we try to engage very, very early and proactively with our clients.
Speaker #2: I think I would say a couple of things . I think first and foremost , with respect to asset quality , you know , one of the things that we try to do , obviously , is disciplined originations .
Speaker #2: It starts there . And we try to have recourse for most of our lending . Vast majority of it . And those type of actions to make sure we have good underwriting .
Speaker #2: And then we also try to be proactive around engagement with clients . Should things should should there be unexpected bumps and bruises ? We try , you know , we have a very kind of long forward looking pipeline .
Speaker #2: We stress our portfolio for higher rates and weather issues where we think there are issues at maturity. We try to engage very, very, very early and proactively with our clients.
Speaker #2: And , you know , and that's been the key to working through our pipeline and some of the , you know , some of the migration that you've seen in the favorable trends that you've seen .
David Burg: That's been the key to working through our pipeline and some of the migration that you've seen and the favorable trends that you've seen. I think commercial is always going to be lumpy, and there may be one or two uneven situations, but generally, we feel good about our portfolio, and we feel good about continuing to make progress on resolving and working through the remaining non-performing assets. The consumer asset quality has been very strong both within our home lending business and within the Spring EQ portfolio. We feel good about the trends, and we feel good about continuing to make progress. In terms of our reserve, I would say that when you look at the pure macro data that goes into the model, it would suggest that we have the capacity to release some reserves.
Speaker #2: And so , you know , I think , I think commercial is always going to be lumpy . And there may be , you know , 1 or 2 uneven situations , but generally we feel good about our portfolio and we feel good about continuing to make progress on the , on on resolving and working through the the remaining NPAs , the consumer , asset quality has been very strong , both within our home lending business and within the spring portfolio .
Speaker #2: So we feel good about the trends and we feel good about continuing to make progress in terms of our reserve . You know , I would say that we it's , you know , when you look at the the pure , when you look at the pure macro data that goes into the model , it would suggest that we have the capacity to release some reserves , but we have conservatively , you know , made some qualitative offsets where we see still potential volatility in the macro economy to keep that reserve where it is .
David Burg: We have conservatively made some qualitative offsets where we see still potential volatility in the macroeconomy to keep that reserve where it is. I think that's purely a function of all the volatility that we see with rates, potential inflation, some of the labor weakness, and us erring more on the conservative side. Hopefully, that covers the question, but please let me know if I missed something.
Speaker #2: So , you know , I think that's purely a function of of all the volatility that we see with rates . You know potential inflation .
Speaker #2: Some of the labor weakness and us being erring more on the conservative side. So, you know, hopefully that covers the question.
Speaker #2: But please let me know if I miss something.
Speaker #3: No that's that's perfect David . Thank you very much . And I'll step back . Thank you guys . Thanks , Russell .
Rodger Levenson: No, that's perfect, David. Thank you very much. I'll step back. Thank you, guys.
David Burg: Thanks, Russell.
Speaker #1: Your next question comes from the line of Kelly Motta from KBW. Your line is open.
Operator: Your next question comes from the line of Kelly Motta from KBW. Your line is open.
Speaker #2: Hi , Kelly .
David Burg: Hi, Kelly.
Speaker #1: Your next question comes from the line of Christopher Marinette from Janney Montgomery Scott.
Operator: Your next question comes from the line of Christopher Marinac from Janney Montgomery Scott.
Speaker #4: Hey. Good afternoon. Thank you for hosting us today. I wanted to dig in further to the wealth and trust business lines and just understand a little bit more about the future growth in terms of new accounts being opened versus just doing more business with existing accounts.
David Burg: Hey, good afternoon. Thank you for hosting us today. I wanted to dig in further to the wealth and trust business lines and just understand a little bit more about the future growth in terms of new accounts being opened versus just doing more business with existing accounts. I know you called a little bit of that out on the Bryn Mawr Trust, but I wanted to do more on the other pieces.
Speaker #4: I know you called a little bit of that out on the Bryn Mawr Trust, but I wanted to do more on the other pieces.
Speaker #2: Sure . And hi , Chris , thanks for the question . So as you know , our wealth business is a pretty diverse business and the really three business lines within that business , there's the institutional services , there's the Bryn Mawr Trust of Delaware , and then the private wealth management and and also about 60% of the revenue in that business is really not AUM based revenue not tied to AUM , but really tied to new accounts and tied to transaction activity .
Rodger Levenson: Sure. Hi, Chris. Thanks for the question. As you know, our wealth business is a pretty diverse business, and there are really three business lines within that business. There's the institutional services, there's The Bryn Mawr Trust Company of Delaware, and then the private wealth management. Also, about 60% of the revenue in that business is really not AUM-based revenue, not tied to AUM, but really tied to new accounts and tied to transaction activity. We've seen the places where we've seen a lot of new activity growth, new clients, new accounts have been both on the institutional services side and The Bryn Mawr Trust Company of Delaware side. When you look at year over year, institutional services is up about 30% this quarter, and The Bryn Mawr Trust Company of Delaware is up about 20% this quarter. We're seeing growth in new accounts and transactions with existing clients.
Speaker #2: And so we've seen , you know , the places where we've seen a lot of new activity , growth , new clients , new accounts have been both on the institutional services side and the BMT of Delaware side .
Speaker #2: When you look at year-over-year institutional services, it is up about 30% this quarter. And when you look at BMT of Delaware, it is up about 20% this quarter.
Speaker #2: And so we're seeing growth in new accounts and transactions with existing clients. We're seeing a lot of activity there.
Rodger Levenson: We're seeing a lot of activity there.
Speaker #3: Chris, this is art.
Art Bacci: Chris, this is Art. I would tell you on a few things. I mean, the institutional services team just came back from the ABS East Conference in Miami this week, and they're jazzed. I mean, our reputation and our quality of service is really being recognized in the marketplace. There have been comments about deterioration in service with some other trustees. We are continuing to see a very robust pipeline with new clients and actually becoming the preferred provider for many clients. On the BMT of Delaware side, similar thing. We've seen a recent bank acquisition that one of the subsidiaries was a Delaware trust, and we're seeing clients starting to leave that and coming to us. We're seeing opportunities on the international side of that business. That team's really continuing to look to grow its business.
Speaker #5: I would tell you a few things. I mean, the institutional services team just came back from the ABS East Conference in Miami this week, and they're jazzed.
Speaker #5: I mean, our reputation and our quality of service are really being recognized in the marketplace. There have been comments about deterioration in service with some other trustees.
Speaker #5: And so, we are continuing to see a very robust pipeline with new clients. And actually, we are becoming the preferred provider for many clients on the BMT of Delaware side.
Speaker #5: Similar thing . We've seen a recent bank acquisition that one of the subsidiaries was a Delaware trust , and we're seeing clients starting to leave that and coming to us .
Speaker #5: We're seeing opportunities on the international side of that business, so that team is really continuing to look to grow its business.
Speaker #5: And then on the private wealth management side , you know , we've we kind of got past the Commonwealth divestiture . If you will .
Art Bacci: On the private wealth management side, we kind of got past the Commonwealth divestiture, if you will. The last two months have been net client cash flow positive, and we're starting to see very good referrals from commercial. We're also really honing in on COIs and really trying to focus on getting more business from some of our COIs. I think all in all, we have a really positive outlook going into 2026 with our wealth and trust businesses.
Speaker #5: And the last two months have been net client cash flow positive. We are starting to see very good referrals from commercial.
Speaker #5: We're also really honing in on Koi and really trying to focus on getting more business from some of our Koi. So I think all in all, we have a really positive outlook going into 2026 with our wealth.
Speaker #5: And trust businesses .
Speaker #4: Great . Thank you both for that . And I guess just to extend , you know , one more thought , you have operating leverage on all ends of the company , but is the operating leverage greater in the wealth space where you can create more earnings from that ?
David Burg: Great. Thank you both for that. Just to extend one more thought, you have operating leverage on all ends of the company, but is the operating leverage greater in the wealth space where you can create more earnings from that versus the bank operation? Yeah. I think one of the things that it goes to is the diversity of the business model. When you look at our profit margins in the wealth business, I would say they're higher than the traditional profit margins that you may see in other wealth businesses. It really goes to that model. We do have a lot of operating leverage and a lot of opportunity for scale there, for sure, particularly institutional services and BMT of Delaware. Yeah. I definitely would echo that comment.
Speaker #4: You know, versus the bank operation?
Speaker #2: Yeah , I think the , you know , one of the things that it goes to the diversity of the business model , you know , when you look at our profit margins and the wealth business , I would say they're they're higher than the traditional profit margins that you may see in other wealth businesses .
Speaker #2: And it's really it really goes to that model . We do have a lot of a lot of operating leverage , a lot of opportunity for scale there , for sure .
Speaker #2: You know , particularly institutional services and BMT of Delaware . Yeah . So , so I definitely I definitely would echo that that comment .
Speaker #5: And I think you can see it in our deposit base that comes out of the trust business, because that's large deposits. They're not using our branch network.
Art Bacci: You can see it in our deposit base that comes out of the trust business because it's large deposits. They're not using our branch network or ATMs. It's a very scalable business for us.
Speaker #5: They're not using ATMs. It's a very scalable business for us.
Speaker #4: Great. Thanks again for taking our calls today.
David Burg: Great. Thanks again for taking our calls today.
Speaker #2: Yeah. Thanks, Chris.
Rodger Levenson: Yeah, thanks, Chris.
Speaker #1: Your next question comes from the line of Janet Lee from TD Bank. Your line is open.
Operator: Your next question comes from the line of Janet Lee from TD Bank. Your line is open.
Speaker #6: Hello .
[Analyst]: Hello.
Speaker #2: Hey , Janet .
David Burg: Hi, Janet.
Speaker #6: Hi . On cash Connect business as rates . If rates were to come down , I would expect the revenue to get compressed .
[Analyst]: Hi. On Cash Connect business, as rates, if rates were to come down, I would expect the revenue to get compressed, but then I believe that the funding side of it could offset. In terms of the NII benefit coming from the Cash Connect, how do you guys forecast in terms of the potential financial benefit coming from Cash Connect increasing, or is it more compressed?
Speaker #6: But then I believe that the funding side of it could offset in terms of the NII benefit coming from the cash connect . How how how do you guys forecast in terms of the potential financial benefit coming from Cash Connect increasing , or is it more compressed ?
Speaker #2: Yeah , yeah . Janet , happy to to to answer that . So I would say a couple of things on cash Connect .
David Burg: Yeah, Janet, happy to answer that. I would say a couple of things on Cash Connect. One, I think the way you described it is exactly right. The Cash Connect revenue, the pricing is tied to interest rates. As interest rates come down, we would expect a reduction in our fee revenue in Cash Connect, but that would be more than offset in a reduction in expenses. Basically, from a profitability perspective, we do benefit from rates coming down. You can think of it as roughly for every 25 basis points, about a $300,000 kind of pre-tax profitability benefit.
Speaker #2: One, I think the way you described it is exactly right. The Cash Connect revenue, the pricing is tied to interest rates.
Speaker #2: And so, as interest rates come down, we would expect the reduction in our fee revenue and cash connect. But that would be more than offset by a reduction in expenses.
Speaker #2: And so basically, from a profitability perspective, we do benefit from rates coming down, and you can think of it as roughly for every 25 basis points, about $300,000 of pre-tax profitability benefit.
Speaker #2: So so that's , you know , as we've seen that play out over the last couple of cuts , and as we have the cuts , you know , September is really not in the numbers yet .
David Burg: That's, you know, as we've seen that play out over the last couple of cuts, and as we have the cuts, September is really not in the numbers yet, but as we have September, potentially the cut next week in December, all of those will flow into the beginning of next year. I would say that's one dynamic with Cash Connect, and we'll drive towards increasing profitability. The other thing, which is if you look at our segment reporting in Cash Connect, one of the things we've been talking about is increasing the profit margins in that business in general. That's not just because of rates, but also because of pricing leverage that we think we have in the market, given our market share. That's also on the expense and efficiency side. There are a few different levers to that. That's been playing out nicely so far.
Speaker #2: But as we have September, potentially the cut next week in December, you know all of those will flow into the beginning of next year.
Speaker #2: I would say that's one dynamic with Cash Connect and we'll we'll drive towards increasing profitability . The other thing , which is if you look at our segment reporting and Cash Connect , you know , one of the things we've been talking about is increasing the the profit margins in that business in general .
Speaker #2: And that's not just because of rates, but also because of pricing leverage that we think we have in the market, given our market share.
Speaker #2: That's also on the expense and efficiency side . So there are a few different levers to that . And and that's been you know , that's been playing out nicely so far .
Speaker #2: If you look at year over year , the profit margin in that business was about a little bit under 6% . And this year we're over 10% .
David Burg: If you look at year over year, the profit margin in that business was about a little bit under 6%. This year, we're over 10%. Last quarter, it's important to note that there was an insurance recovery last quarter, which, so the margins look a bit elevated. If you normalize for that, last quarter was about 8%. We went from kind of 6% to 8% to 10%, and that's the trajectory that we were looking for. We're executing against that strategy.
Speaker #2: Last quarter . It's important to note that there was an insurance recovery last quarter which which so the margins look a bit elevated .
Speaker #2: But if you normalize for that, last quarter was about 8%. So we went from kind of 6% to 8% to 10%.
Speaker #2: You know, in that trajectory that we were looking for. And so we're executing against that strategy.
Speaker #5: And Janet, just as a reminder, the way we account for the bailment business, the benefit that Dave is talking about won't necessarily flow through NII.
Art Bacci: Janet, just as a reminder, the way we account for the bail-out business, the benefit that David's talking about won't necessarily flow through NII. It's a combination of fee income and non-interest expense.
Speaker #5: It's a combination of fee income and noninterest expense.
Speaker #6: Thank you . And just on so you maintain your low single digit all guidance . So including the low single digit commercial loan growth for for the year so that includes the the problem loan payoff that you experienced in the quarter .
[Analyst]: Thank you. You maintain your low single-digit all guidance, including the low single-digit commercial loan growth for the year. That includes the problem loan payoff that you experienced in the quarter. Also, could you help us size the pace of the payoffs coming from the consumer partnership going forward? Should it decelerate from the current, like, $140 million levels? How should I think about the total impact of the payments and the trajectory there?
Speaker #6: And also could you help me help us size the or or size the pace of the payoffs coming from the consumer partnership going forward ?
Speaker #6: Should we decelerate from the current, like $140 million levels? How should I think about the total impact of the payments and the trajectory there?
Speaker #2: Yeah , yeah .
David Burg: Yeah. Yeah. Janet, let me take the consumer first, and then I'll circle back around to the commercial question. On the consumer side, we had two things happen this quarter, and it's important to separate them. One was we closed the sale of the Upstart portfolio. That was about $85 million that came off our balance sheet at the beginning of the quarter. As you know, that was a non-strategic portfolio that was in runoff. It had some elevated net charge-offs. We made the strategic decision to exit that portfolio, and we were also able to release some reserves based on that transaction. That's the Upstart portfolio. Beyond that, the remaining runoff that you see is really in the Spring EQ portfolio. That runoff for the quarter was about $50 million.
Speaker #3: So .
Speaker #2: Janet , let me let me take the consumer first and then I'll circle back around to the commercial question on the consumer side , we had two things happen this quarter .
Speaker #2: And it's important to separate them. One was we closed the sale of the Upstart portfolio, and that was about $85 million.
Speaker #2: That came off our balance sheet at the beginning of the quarter. As you know, that was a non-strategic portfolio that wasn't run off.
Speaker #2: It had some elevated net charge offs . And so , you know , we made the strategic decision to exit that portfolio . And we're also able to release some reserves based on that transaction .
Speaker #2: So that's the upstart portfolio . Beyond that , the the remaining run off that you see is really in the spring , EQ portfolio .
Speaker #2: And that run off for the quarter was about $50 million . And and so that's the pace more or less that that we would expect come to somewhere in the 15 to 17 million per month is what we would expect in that in that run off of spring , so we expect that to continue .
David Burg: That's the pace, more or less, that we would expect, coming somewhere in the $15 to $17 million per month is what we would expect in that runoff of Spring EQ. We expect that to continue. One of the areas where we've been leaning into and we think we have, we've had good momentum and we think we have continued momentum is in our home lending business, which is our mortgage business and our WSFS-originated consumer loans, which are primarily PLOC, loans, accredited installment loans. We've had really annualized double-digit growth for a few quarters there, and that's really more than offsetting the Spring EQ runoff that you see. We think positively about that growth continuing. We think we have some differentiated origination capabilities in that mortgage business. We've been growing our origination officers, and we feel good about leaning into that area.
Speaker #2: However , we , you know , one of the I think one of the areas where we've been leaning into and we think we have we've had good momentum and we think we have continued momentum is in our home lending business , which is our mortgage business and our originated consumer loans , which are primarily key lock lines of credit installment loans .
Speaker #2: And we've had really annualized double digit growth for a few quarters . There . And that's really more than offsetting kind of the spring Ek runoff that you see .
Speaker #2: So we think we have we think , you know , we think positively about that growth continuing . We think we have some differentiated origination capabilities in that mortgage business .
Speaker #2: We've been growing our origination officers . And so we feel , you know , we feel good about leaning into that to that area .
Speaker #2: So that's on the residential side . On the consumer side rather on the commercial side , you know , this quarter , as you said , this quarter was really impacted by a couple of things .
David Burg: That's on the residential side, on the consumer side. On the commercial side, this quarter, as you said, this quarter was really impacted by a couple of things. One was the payoff of the problem loans, which obviously is a good thing. We like to see that, and that supports our asset quality improvement. We also saw line utilization being down this quarter. That's kind of a bit of a volatile number. That moves up and down. Some of the economic uncertainty plays into that. Generally, that's just a function of business activity. Generally, if you kind of separate that, we feel we continue to feel good about our pipeline altogether across the board, including CNI. I would say we're focused on definitely making accretive and profitable originations. There's a lot of competition in CNI.
Speaker #2: One was the work , the payoff of the problem . Loans , which obviously , you know , is a good thing . We like to see that and that supports our asset quality improvement .
Speaker #2: We also saw line utilization being down this quarter. You know, that's kind of a bit of a volatile number that moves up and down.
Speaker #2: There's some you know , some of the economic uncertainty plays into that . But but generally that's just a function of of kind of business activity .
Speaker #2: But generally , you know , if you if you kind of separate that , you know , we feel we continue to feel good about our pipeline altogether across the board , including CNI , I would say , you know , we're focused on definitely making a creative and profitable originations .
Speaker #2: There's a lot of competition in CNI . We don't want to be the we're not the low price point in the market . We want to be very thoughtful about our profitability , want to be very thoughtful about underwriting .
David Burg: We don't want to be the low, we're not the low price point in the market. We want to be very thoughtful about our profitability. We want to be very thoughtful about underwriting. Having said that, we feel very good about our pipeline. Our pipeline now is at a higher level than it's been in a number of quarters at about $300 million in total. We feel good about our pipeline. I would also add that we're continuing to win talent in the market, which gives us a lot of confidence. For example, we recently announced a new Philadelphia Market President who was the Market President for one of the major super regional banks in the area for Philadelphia. I think winning talent like that gives us confidence, and I think demonstrates the confidence that others have in the franchise as well.
Speaker #2: But having said that , you know , we feel very good about our pipeline , our pipeline now is at a higher level than it's been in a number of quarters , at about 300 million in total .
Speaker #2: We feel good about our pipeline, and I would also add that we're continuing to win talent in the market, which gives us a lot of confidence.
Speaker #2: You know , for example , we had we we recently announced a new Philadelphia market president who was the market president for one of the major super regional banks in the area for Philadelphia .
Speaker #2: And so, I think winning talent like that gives us confidence and demonstrates the confidence that others have in the franchise as well.
Speaker #2: So , so yeah , we feel good about , you know , it's hard to predict quarter over quarter . But we feel good about being able to grow that business .
David Burg: We feel good about, you know, it's hard to predict quarter over quarter, but we feel good about being able to grow that business and continuing to lean in to CNI. That's really the relationship engine that we want to anchor to.
Speaker #2: And continuing to lean into CNI. And that's really the relationship engine that we want to anchor to.
Speaker #6: Thank you .
[Analyst]: Thank you.
Speaker #1: Your next question comes from the line of Kelly Motta from KBW. Your line is open.
Operator: Your next question comes from the line of Kelly Motta from KBW. Your line is open.
Speaker #7: Hey, good afternoon. Sorry about the technical difficulties, and thanks for the question.
[Analyst]: Hey, good afternoon. Sorry about the technical difficulties, and thanks for the question.
Speaker #2: Hey, Kelly. No problem.
Rodger Levenson: Hey, Kelly. No problem.
Speaker #7: Maybe just piggybacking where you left off last. You noted, you know, the recruitment of the Philly market president. Clearly, organic growth is a focus.
[Analyst]: Maybe just piggybacking where you left off last, you noted, you know, recruitment of a Philly market president. Clearly, organic growth is a focus. Where are there other areas where you're looking to add talent where you think there's room to bolster up either in terms of product line, wealth, or the core bank, or parts of the geography that look like attractive growth opportunities and places where you could add some folks?
Speaker #7: Where are there other areas where you're looking to to add talent , where you think , you know , there's there's room to bolster up either in terms of product line wealth or the core bank or parts of the geography that look like , you know , attractive growth opportunities and places where you could add add some folks .
Speaker #2: Yes . The answer is yes . So we're , you know , just like I mentioned , the commercial example , we have other , you know , other relationship managers joining the commercial team that continues to be an area that we're looking to continue to increase .
David Burg: Yes. The answer is yes. Just like I mentioned, the commercial example, we have other relationship managers joining the commercial team. That continues to be an area that we're looking to continue to increase. That is an area of focus, as well as the wealth business. That's been an area of focus all along. We've had some very successful liftouts of teams in the last 12 to 18 months there that are really starting to bear fruit and play out the thesis. That's another area where we're continuously looking at talent, both from a liftout perspective, as well as, you know, we look at potential RIA acquisitions that we've done in the past. We continuously evaluate talent across our footprint. We think we have a lot of opportunity there.
Speaker #2: And so that , you know , that is an area of focus as well as the wealth business , you know , that's been an area of focus along .
Speaker #2: We've had some very successful lift outs of teams in the last 12 to 18 months . There . That are that are really starting to bear fruit and play out the thesis .
Speaker #2: But but that's another area where we're continuously looking at talent , both from a lift that perspective as well as , you know , we look at , you know , potential RA acquisitions that we've done in the past .
Speaker #2: And so we continuously evaluate talent across our footprint . And we think we think we have a lot of a lot of opportunity there .
Speaker #2: And and , you know , and I mentioned earlier the referrals . But you know , that's something that we really think is there's a significant amount of opportunity in the referral pipelines across our businesses that's between wealth and commercial .
David Burg: Art mentioned earlier the referrals, but that's something that we really think there's a significant amount of opportunity in the referral pipelines across our businesses. That's between wealth and commercial. It's between small business. It's between our home lending business in each of those. There's really a lot of untapped potential there as well.
Speaker #2: It's between small business . It's between our home lending business . And each of those . So there's really , you know , a lot of untapped potential there as well .
Speaker #7: Got it . That's that's helpful . And then maybe turning back to the margin , I apologize if I , if I missed this , but you guys have done a really great job managing the margin , keeping an overall relatively level , high level margin and neutralizing some asset sensitivity .
[Analyst]: Got it. That's helpful. Maybe turning back from the margin, I apologize if I missed this, but you guys have done a really great job managing the margin, keeping an overall relatively high level of margin and neutralizing some asset sensitivity. If we get a couple of cuts here again this quarter, do you think you have enough flex in the deposit base to absorb some of that, or could there be some near-term pressure in that margin ahead? Thank you.
Speaker #7: If you get a couple of cuts here again this quarter, do you think you have enough flexibility in the deposit base to absorb some of that?
Speaker #7: Or could there be some near-term pressure in that margin ahead? Thank you.
Speaker #2: Yeah . Kelly happy to to go into work through that a little bit . So I think there's I'll give you a short term answer and a longer term answer from a short term answer .
David Burg: Yeah, Kelly, happy to go into work through that a little bit. I think there's, I'll give you a short-term answer and a longer-term answer. From a shorter-term answer, you know, we do have sensitivity in our net interest margin, as you mentioned. I would characterize that as about 3 basis points per 25 basis point rate cut. That's really the near-term impact. When you think about the net interest margin this quarter, we were at 3.91. We had the one interest recovery. If you kind of normalize for that, you know, we're in the high 3.80s. With a couple of few rate cuts that go into the fourth quarter, you know, we would tick down to maybe about 3.80, around kind of in that ballpark.
Speaker #2: You know we do have sensitivity in our net interest margin, as you mentioned. I would characterize that as about three basis points per 25 basis point rate cut.
Speaker #2: So that's really the near-term impact. So, when you think about the net interest margin this quarter, we were at 3.91. We had the one interest recovery.
Speaker #2: If you if you kind of normalize for that , you know , we're in the high three 80s . And so with a couple of a few rate cuts that go into the fourth quarter , you know , we would tick down to maybe about 380 around kind of in that ballpark .
Speaker #2: But I would say the longer-term answer is that we have a number of tools that we use to offset that sensitivity after the initial impact.
David Burg: I would say the longer-term answer is that we have a number of tools that we use to offset that sensitivity after the initial impact. The best evidence that I can give you of that is if you look at what's happened over the last year, where we've had, you know, as you know, 125 basis points of rate cuts, but our margins are up year over year over 10 basis points. That sensitivity that I mentioned of about 3 basis points per cut, you know, will go to 1 to 2 basis points as we are able to take the actions that we take. Those actions are, well, one is the deposit repricing that you mentioned.
Speaker #2: And , you know , the best evidence that I can give you of that is if you look at what's happened over the last year where we've had , you know , as , you know , 125 basis points of rate cuts , but our margins are up year over year , over ten basis points .
Speaker #2: And so that sensitivity that I mentioned of about three basis points per cut, you know, will go to one to two basis points as we are able to take the actions that we take. Those actions are, one is the deposit repricing that you mentioned.
Speaker #2: We continue to our exit beta for the quarter. The cut obviously happened at the end of September, but if you look at the exit data at the end of the month, it was about 43% in the low 40s.
David Burg: We continue to, our exit beta for the quarter, the cut obviously happened at the end of September, but if you look at the exit beta at the end of the month, it was about 43% in the low 40s. We're going to run, you know, a similar playbook for the other cuts, and we think that we can be kind of in that low 40 beta for each of the upcoming cuts. That's number one. Two is we have, as you know, the hedging program where we have floor options that mitigate and neutralize some of the asset sensitivity. We have about $850 million of those that are in the money right now. With the next rate cut, another $250 million would come in the money. If we have three more cuts, you would have the entire $1.5 billion program actually in the money.
Speaker #2: We're going to run , you know , a similar playbook for the other cuts . And we think that we can be kind of in that low 40 beta for each of the of the upcoming cuts .
Speaker #2: That's number one. Two is we have, as you know, the hedging program, where we have floor options that mitigate and neutralize some of the asset sensitivity.
Speaker #2: We have about 850 million of those of those that are in the money right now . And with the next rate , cut , another 250 million would come in the money .
Speaker #2: And if we have three more cuts , you would have the entire 1.5 billion program actually in the money . So so that would neutralize essentially 1.5 billion of variable rate loans and , you know , essentially neutralize that to to look like fixed .
David Burg: That would neutralize essentially $1.5 billion of variable rate loans and, you know, essentially neutralize that to look like fixed. That's, you know, that's something that we continue to deploy. We're going to continue to utilize that program throughout 2026. We're, you know, we're thoughtful about maturities there and making sure that, you know, that full $1.5 billion is going to be deployed. The third tool that we've been using is obviously new to the extent that we've been growing new deposits, and we're able to reinvest it. You think about a steeper yield curve going forward, and you're able to originate those deposits and the low-cost deposits that we've been able to have and then reinvest them at the higher yields. That, of course, takes some time to play out, but that's a big supporter of the net interest margin.
Speaker #2: So , so that's , you know , that's something that we continue to deploy , we're going to continue to utilize that program throughout 26 .
Speaker #2: We're you know , we're thoughtful about maturities there and making sure that , you know , that full 1.5 billion is going to be deployed .
Speaker #2: And the third thing , you know , I would say that that the third tool , actually two more things . The third tool that we've been using is obviously new to the extent that we've been growing new deposits and we're able to reinvest it .
Speaker #2: And you think about a steeper yield curve going forward, and you're able to originate those deposits in the low-cost deposits that we've been able to have.
Speaker #2: And then reinvest them at the higher yields . That , of course , takes some time to play out . But that's you know , that's a big supporter of the interest margin .
Speaker #2: And the last thing that I will call out is our securities portfolio. You know, as you know, our securities portfolio yields south of 2.5%.
David Burg: The last thing that I would call out is our securities portfolio. As you know, our securities portfolio yields south of 2.5%. It rolls off, and we have about $500 million of cash flow every year that comes off that securities portfolio that we then reinvest either into loans or potentially other securities. We reinvest it and we pick up a lot of yield. There's four to five basis points of annual yield pickup from that rollover. The combination of all of those things is what allowed us to really mitigate the impact more than what the kind of the paper math would suggest. We'll continue to lean in and deploy those tools.
Speaker #2: And it rolls off . You know , we have about 500 about 500 million of cash flow every year that comes off that security portfolio that then we reinvest either into loans or potentially other securities .
Speaker #2: We reinvested and we pick up , you know , we pick up a lot of yield . There's 4 to 5 basis points of annual yield pickup from that from that rollover .
Speaker #2: So the combination of all of those things , it's what allowed us to really mitigate the impact more than what , you know , the , the the kind of the paper math would suggest .
Speaker #2: And we'll continue to lean in and deploy those tools.
Speaker #7: Great. I really appreciate all the color on that. That's really helpful. And it would be helpful to go back to you just for one point of tying up the loose ends of clarification.
[Analyst]: Great. I really appreciate all the color on that. That's really helpful and will be helpful to go back to. Just one point of tying up the loose ends of clarification. Can you remind me how much floating rate loans you have and maybe index deposits just to help manage our margin with that component? Thank you.
Speaker #7: Just can you can you remind me how much floating rate loans you have and maybe index deposits ? Just just to help , you know , manage our margin with that component ?
Speaker #7: Thank you .
Speaker #2: Yeah . So our floating rate loans , you know , our floating rate loans are a little bit over 50% . And so our you know , our loan beta is about 50% .
David Burg: Yeah. Our floating rate loans are a little bit over 50%, and our loan beta is about 50%. When you incorporate the hedges, the loan beta drops to a little bit over 40%. That's really, when you think about our deposit beta in that range as well, that's how we try to neutralize the portfolio. That's how we think about it. On the deposit side, as you know, we have the CD book, which is the time maturities. Most of that CD book is in kind of the six-month with a little bit of 11 months, and that kind of matures on its cycle. The other deposits are mostly non-indexed. We have about $700 million to $800 million of kind of indexed deposits.
Speaker #2: But when you incorporate the hedges the loan beta drops to a little bit over 40% . So and that's really you know , and so when you think about our deposit beta in that , in that range as well , that's really that's how we try to neutralize the portfolio .
Speaker #2: That's how we think about it . So and on the deposit side . You know , we as you know , we have the CD book , which is the time maturities that most of that CD book is in , in kind of the six month with a little bit of 11 month .
Speaker #2: And so that , you know , that kind of matures on its cycle . The other deposits are mostly non-indexed . We have about about about 7 to 800 million of kind of indexed deposits .
Speaker #7: Thanks again for all that, David. That's helpful. I'll step back.
[Analyst]: Thanks again for all that, David. That's helpful. I'll step back.
Speaker #2: Sure .
David Burg: Sure.
Speaker #1: Thank you. With no further questions in queue, I would like to turn the conference back over to David Burg.
Operator: Thank you. With no further questions in queue, I would like to turn the conference back over to David Burg.
Speaker #2: Okay . Thank you very much , everyone , for joining the call today . If you have any specific follow up questions , please feel free to reach out to Investor Relations or me .
David Burg: Okay. Thank you very much, everyone, for joining the call today. If you have any specific follow-up questions, please feel free to reach out to Investor Relations or me. Have a great day.
Speaker #2: Have a great day .
Operator: This concludes today's conference call. You may now disconnect.