Q3 2026 WSFS Financial Corp Earnings Call
Speaker #1: Order earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press *1 to raise your hand.
Speaker #1: To withdraw your question, press *1 again. I'd now like to turn the call over to your host for today, Mr. David Burg, Chief Financial Officer.
Speaker #1: Sir, please go ahead.
Speaker #2: Thank you very much. good afternoon, and thank you for joining our third-quarter 2026 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.
Speaker #2: With me on this call is Rodger Levenson, Chairman, President, and CEO. 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 in our annual report and Form 10-K, and our most recent quarterly report on Form 10-Q, as well as other documents we periodically file with the Securities and Exchange Commission.
Speaker #2: 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's performance continued to demonstrate the strength of our franchise in diverse business models.
Speaker #2: Results included a core EPS of $1.75, core ROA of 1.58%, and core return on tangible common equity of 20.7%, which are all above the prior quarter level.
Speaker #2: On a year-over-year basis, core PP&R increased 15%, and core net income increased 14%, resulting in core EPS growth of 25%. Net interest margin expanded by 1 basis point late quarter to 3.88%, reflecting the benefit of loan growth and higher investment securities yields partially offset by a 4 basis point increase in client deposit costs.
Speaker #2: We exited the rate cycle with a cumulative interest-bearing deposit beta of 41% and experienced an 18% deposit beta in the September rate hike. We continued to see deposit pricing pressure in the market and expect our beta to drift up over time.
Speaker #2: We expect to exit 2026 with an upcycled beta of 35% across the September rate increase and another rate increase in December. Core fee revenue, which represents nearly a third of total revenue, declined 1% late quarter and increased 3% year-over-year.
Speaker #2: The growth in our fee revenue was led by wealth and trust, which increased 30% year-over-year and now represents approximately 60% of our total fee revenue.
Speaker #2: Our wealth and trust business has delivered double-digit year-over-year growth for 8 consecutive quarters, demonstrating our ability to generate growth through various interest rate and market environments.
Speaker #2: Wealth and trust's growth was broad-based, with corporate trust, global capital markets, the Brimware Trust Company of Delaware, and private wealth all delivering double-digit growth year-over-year.
Speaker #1: Revenue.
Speaker #2: Declined 1% in Q1 and increased 3% year-over-year. The growth in our fee revenue was led by wealth and trust, which increased 30% year-over-year and now represents approximately 60% of our fee revenue.
Speaker #2: Within WSFS's institutional services, corporate trust and global capital markets increased 45% and 48% year-over-year, respectively, reflecting continued success in winning new mandates and capturing market share.
Speaker #2: Our Wealth and Trust business has delivered double-digit year-over-year growth for eight consecutive quarters, demonstrating our ability to generate growth through various interest rate and market environments.
Speaker #2: Our personal trust business, the Brimware Trust Company of Delaware, grew 22% year-over-year, driven by continued new account growth, while private wealth increased 14% year-over-year, driven by higher AUM.
Speaker #2: Wealth and trust’s growth was broad-based, with corporate trust, global capital markets, the Bryn Mawr Trust Company of Delaware, and private wealth all delivering double-digit growth year over year.
Speaker #2: Cash connect fees declined year-over-year due to the impact of the 2025 interest rate cuts and lower volumes, but the business delivered another quarter with a profit margin of 15%, which is up meaningfully from the prior year.
Speaker #2: Within WSFS Institutional Services, Corporate Trust and Global Capital Markets increased 45% and 48% year-over-year, respectively, reflecting continued success in winning new mandates and capturing market share.
Speaker #2: Gross loans grew 1% late quarter, or 5% annualized. Excluding the continued runoff of the spring EQ portfolio, loans grew 2% late quarter and 7% year-over-year.
Speaker #2: Our personal trust business, the Brimware Trust Company of Delaware, grew 22% year-over-year, driven by continued new account growth, while private wealth increased 14% year-over-year, driven by higher AUM.
Speaker #2: In commercial, we continued to see momentum in CNI, which grew 5% 1% late quarter and is up 9% year-over-year. While CNI fundings moderated from the elevated levels in recent quarters, client activity remains healthy and is supported by a solid pipeline.
Speaker #2: Cash Connect fees declined year-over-year due to the impact of the 2025 interest rate cuts and lower volumes, but the business delivered another quarter with a profit margin of 15%, which is up meaningfully from the prior year.
Speaker #2: In consumer, home lending delivered another strong origination quarter despite the interest rate environment. Residential mortgage and home equity loans were up 6% late quarter and 24% year-over-year.
Speaker #2: Gross loans grew 1% in Q1, or 5% annualized. Excluding the continued runoff of the SpringEQ portfolio, loans grew 2% in Q1 and 7% year-over-year. In commercial, we continued to see momentum in CNI, which grew 1% in Q1 and is up 9% year-over-year.
Speaker #2: Client deposits declined 3% late quarter, primarily reflecting the expected outflow of elevated transactional deposits at the end of the prior quarter with an institutional services and commercial.
Speaker #2: Average deposits, which are a better measure of client activity, were up slightly late quarter. On a year-over-year basis, average core deposits were up 10%, with average non-interest deposits growing 20%.
Speaker #2: While CNI fundings moderated from the elevated levels in recent quarters, client activity remains healthy and is supported by a solid pipeline. In Consumer, Home Lending delivered another strong origination quarter, despite the interest rate environment.
Speaker #2: Non-interest deposits now represent 35% of our total average deposits. Core non-interest expenses decreased 3% late quarter and were generally flat year-over-year, as our efficiency ratio declined to 56.1%.
Speaker #2: Residential mortgage and home equity loans were up 6% in Q1 and 24% year-over-year. Client deposits declined 3% in Q1, primarily reflecting the expected outflow of elevated transactional deposits at the end of the prior quarter within Institutional Services and Commercial.
Speaker #2: While our expenses benefited from several non-recurring items this quarter, we continued to focus on expense discipline while investing in the franchise. Turning to asset quality, most credit metrics remained stable, and we had a net recovery this quarter for the second time this year.
Speaker #2: Average deposits, which are a better measure of client activity, were up slightly in Q1. On a year-over-year basis, average core deposits were up 10%, with average non-interest deposits growing 20%.
Speaker #2: Year to date, net charge of total 3 basis points of average gross loans. Delinquencies decreased 3% late quarter and 11% year-over-year, reaching their lowest level in 2 years.
Speaker #2: Non-interest deposits now represent 35% of our total average deposits. Core non-interest expenses decreased 3% in Q1 and were generally flat year-over-year, as our efficiency ratio declined to 56.1%.
Speaker #2: Problem assets increased by 57.5 million, or 12% late quarter, primarily driven by several downgrades across multifamily, construction, and CNI. Despite the late quarter increase, problem assets are down 16% compared to a year ago.
Speaker #2: While our expenses benefited from several non-recurring items this quarter, we continue to focus on expense discipline while investing in the franchise. Turning to asset quality, most credit metrics remain stable, and we had a net recovery this quarter for the second time this year.
Speaker #2: Non-performing assets were generally flat late quarter as an increase from a student housing-related loan was offset by other payoffs. Our credit costs for the quarter, included an $8 million specific reserve, related to this loan.
Speaker #2: Year-to-date, net charge-offs totaled 3 basis points of average gross loans. Delinquencies decreased 3% in Q1 and 11% year-over-year, reaching their lowest level in two years.
Speaker #2: During the quarter, we continued to execute on our capital return framework, returning $70 million of capital to shareholders, including $60 million through share repurchases.
Speaker #2: Problem assets increased by $57.5 million, or 12% in Q1, primarily driven by several downgrades across multifamily, construction, and CNI. Despite the increase in delinquencies, problem assets are down 16% compared to a year ago.
Speaker #2: Year to date year to date, we have repurchased $5.6% of our outstanding shares, and returned over 90% of net income to shareholders. We're pleased with these results and remain committed to delivering high performance.
Speaker #2: Non-performing assets were generally flat in Q1, as an increase from a student housing-related loan was offset by other payoffs. Our credit costs for the quarter included an $8 million specific reserve related to this loan.
Speaker #2: We will now open the line for questions.
Speaker #2: During the quarter, we continued to execute on our capital return framework, returning $70 million of capital to shareholders, including $60 million through share repurchases.
Speaker #2: Year-to-date, we have repurchased 5.6% of our outstanding shares and returned over 90% of our income to shareholders. We're pleased with these results and remain committed to delivering high performance.
Speaker #1: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand.
Speaker #2: We will now open the line for questions.
Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.
Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Russell Gunther, with Stevens.
Speaker #3: We will now begin the question-and-answer session. If you would like to ask a question, please press star *1 to raise your hand. To withdraw your question, press star *1 again.
Speaker #1: Russell, please go ahead.
Speaker #2: Thank you. Hey, good afternoon, guys.
Speaker #3: Good afternoon, Russell.
Speaker #2: I wanted hey, David. I wanted to start, please, on the loan growth. You guys typically talk to a mid-single-digit type of result, and that's what we saw this quarter.
Speaker #3: We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.
Speaker #2: Just curious to get your sense for how you're thinking about the fourth quarter from both an order of magnitude and mixed perspective. CNI seems like it's still tracking really well.
Speaker #3: Please stand by while we compile the Q&A roster. Your first question comes from the line of Russell Gunther with Stevens. Russell, please go ahead.
Speaker #2: And then, David Press, bigger picture, with the recent backup and rates and anticipated future Fed hikes. Is there an absolute level of rates where demand destruction occurs and you're internal target of mid-single digits is at risk?
Speaker #2: Thank you. Hey, good afternoon, guys.
Speaker #4: Good afternoon, Russell.
Speaker #2: I wanted—hey David—I wanted to start, please, on the loan growth. You guys typically talk to a mid-single-digit type of result, and that's what we saw this quarter.
Speaker #3: Yeah. Russell, I would say this quarter we, as you saw, continued to kind of maintain the performance, and we got growth out of the areas where we've gotten growth across over the last few quarters, over the year.
Speaker #2: Just curious to get your sense for how you're thinking about the fourth quarter from both an order-of-magnitude and a mix perspective. CNI seems like it's still tracking really well.
Speaker #3: On the commercial side, we continue to see solid momentum within our CNI book, which is our primary area of focus. And we continue to grow that portfolio.
Speaker #2: And then, David, perhaps a bigger picture with the recent backup in rates and anticipated future Fed hikes. Is there an absolute level of rates where demand destruction occurs and your internal target of mid-single digits is at risk?
Speaker #3: While fundings this quarter were a little bit weaker than what we saw in the first half of the year, the last couple of quarters, I would say they're back down to a more normalized level consistent with where activity has been over the last couple of years.
Speaker #4: Yeah, Russell, I would say this quarter, as you saw, we continued to kind of maintain the performance, and we got growth out of the areas where we've gotten growth across over the last few quarters, over the year.
Speaker #3: Versus the first half of the year, this year, which was exceptionally strong. So I think this is a more normalized level. And I think where we would expect to be.
Speaker #4: On the commercial side, we continue to see solid momentum within our C&I book, which is our primary area of focus, and we continue to grow that portfolio.
Speaker #3: On the consumer side, as you know, our strategy has been to really focus on real estate secured lending. And our growth really has been coming from our mortgage portfolio and our home equity portfolio.
Speaker #4: While fundings this quarter were a little bit weaker than what we saw in the first half of the year, the last couple of quarters, I would say they're back down to a more normalized level, consistent with where activity has been over the last couple of years.
Speaker #3: And despite the high interest rate environment, we continue to see really good growth in that portfolio in our footprint this quarter. The pipeline there has been coming down because of the rate environment.
Speaker #4: Compared to the first half of the year, which was exceptionally strong, I think this is a more normalized level, and it's where we would expect to be.
Speaker #3: Clearly, with mortgages above 7%, that definitely has an impact on your origination demand. So I expect we don't expect to see the kind of growth that we've been seeing over the course of the year there, going forward.
Speaker #4: On the consumer side, as you know, our strategy has been to really focus on real estate-secured lending. And our growth really has been coming from our mortgage portfolio and our home equity portfolio.
Speaker #3: But on a competitive basis, we still feel like we have a differentiated origination strategy. And we still feel good about our ability to compete and grow in this market.
Speaker #4: And despite the high interest rate environment, we continue to see really good growth in that portfolio in our footprint this quarter. The pipeline there has been coming down because of the rate environment.
Speaker #3: But most likely at a slower rate there.
Speaker #2: Okay. And then yeah. Yeah. No, understood. Thank you. And then switching gears, to your deposit beta commentary. And the slide in the deck, so the 35% IB beta, where you'd expect to be in fourth quarter, that is a step down or a better result than the experience in the recent rate down cycle.
Speaker #4: Clearly, with mortgages above 7%, that definitely has an impact on your origination demand. So, I expect we won't see the kind of growth that we've been seeing over the course of the year there, going forward.
Speaker #4: But on a competitive basis, we still feel like we have a differentiated origination strategy, and we still feel good about our ability to compete and grow in this market.
Speaker #2: So I guess my question is, sort of through the cycle, with incremental hikes, would you expect to retrace to that 40%-ish level? Or given your kind of well-above-peer non-interest-bearing mix and below-peer loan-to-deposit ratio, would you expect to be able to outperform kind of prior cycle experience and this 35% is something we should contemplate as sustainable going forward?
Speaker #4: But most likely, at a slower rate there, assuming helpful rates there.
Speaker #2: And then—yeah. Yeah. No, understood. Thank you. And then, switching gears to your deposit beta commentary and the slide in the deck: so the 35% IB beta, where you'd expect to be in the fourth quarter, that is a step down or a better result than the experience in the recent rate down cycle.
Speaker #3: Yeah. So maybe just to provide a little bit more context, when we in the previous rate increasing cycle, our beta our cumulative beta at the end of that cycle was about 50%.
Speaker #2: So I guess my question is, sort of through the cycle, with incremental hikes, would you expect to retrace to that 40%-ish level? Or, given your kind of well-above-peer non-interest-bearing mix and below-peer loan-to-deposit ratio, would you expect to be able to outperform prior cycle experience and that 35% is something we should contemplate as sustainable going forward?
Speaker #3: Then as you indicated, on the down cycle, with the cuts that we had last year, we basically we were about low 40s. So 41%.
Speaker #3: And the 35% that we show here is we're assuming a December rate hike here. So there's a partial month. And the normalized beta always lags a little bit.
Speaker #4: Yeah, so maybe just to provide a little bit more context: in the previous rate-increasing cycle, our beta—our cumulative beta—at the end of that cycle was about 50%.
Speaker #3: I would expect we do see continued deposit pressure and competition in the market and pricing pressure. And really, we've been seeing that over the course of the year.
Speaker #3: And it's certainly continuing. So I would expect that our normalized beta would be about 45 to 50 percent through this increased cycle, which would be consistent with a prior increased cycle, maybe a little bit better.
Speaker #4: Then, as you indicated, on the down cycle with the cuts that we had last year, we were basically at low 40s—so 41%. And the 35% that we show here is assuming a December rate hike.
Speaker #3: But not a bit higher than 45.
Speaker #4: So there's a partial month, and the normalized beta always lags a little bit. I would expect—we do see continued deposit pressure and competition in the market, and pricing pressure.
Speaker #2: Okay. Thank you. For the clarification, I appreciate it, David. And then I guess just last one, quickly, if I could, in terms of cash connect, profit margin in that vertical, a really nicely, as you mentioned.
Speaker #4: And really, we've been seeing that over the course of the year, and it's certainly continuing. So I would expect that our normalized beta would be about 45% to 50% through this increased cycle, which would be consistent with a prior increased cycle—maybe a little bit better.
Speaker #2: Can you just remind us of the estimated impact to revenue in a rising rate environment, as well as the overall profitability profile of that vertical, as the Fed hikes?
Speaker #2: And is there anything strategically you could do to minimize kind of the negative impact of higher rates on the cash and transit?
Speaker #4: But not a bit higher than 45.
Speaker #2: Okay, thank you for the clarification. I appreciate it, David. And then I guess just last one quickly, if I could, in terms of Cash Connect—profit margin in that vertical improved really nicely, as you mentioned.
Speaker #3: Yeah. Yeah. So yeah, in terms of the numbers, when you think about so for a rate increase, of 25 basis points, we would have about a 2.7, 2.8 million dollar increase to fees over the course of a year.
Speaker #2: Can you just remind us of the estimated impact to revenue in a rising rate environment, as well as the overall profitability profile of that vertical as the Fed hikes?
Speaker #3: And a similar maybe, yeah, 2.5 million, call it, and a similar increase to expenses. Maybe a little bit more. So we would have a little bit of pressure margin, in a rising rate environment, because of the non-interest-earning cash that you mentioned.
Speaker #2: And is there anything strategically you could do to minimize kind of the negative impact of higher rates on the cash in transit?
Speaker #4: Yeah, so in terms of the numbers, when you think about—for a rate increase of 25 basis points, we would have about a $2.7 to $2.8 million increase to fees over the course of a year.
Speaker #3: But both would essentially go up about 2 and a half million over the course of a year. We've taken steps to really try to optimize in-transit cash, try to minimize non-interest-earning cash so that we can mitigate that impact.
Speaker #3: But the profitability impact would be several hundred thousand dollars per 25 basis point rate hike, over a year. So it's not it shouldn't be a significant impact.
Speaker #4: And a similar—maybe, yeah, $2.5 million, call it—and a similar increase to expenses, maybe a little bit more. So we would have a little bit of pressure on margin in a rising rate environment because of the non-interest-earning cash that you mentioned.
Speaker #3: And we'll look to offset it with other levers.
Speaker #2: Got it. All right. That's very helpful. Thank you guys for taking my question.
Speaker #4: But both would essentially go up by about $2.5 million over the course of a year. We've taken steps to really try to optimize in-transit cash, and to minimize non-interest-earning cash so that we can mitigate that impact.
Speaker #3: Thanks, Russell.
Speaker #1: Your next question comes from the line of Christopher Marinac. With green capital LLC. Christopher, please go ahead.
Speaker #4: Thanks. Good afternoon. I wanted to ask about the pace of deposits and how deposits will if they will track loans or if you think deposits could be faster as time passes this next several quarters.
Speaker #4: But the profitability impact would be several hundred thousand dollars per 25 basis point rate hike over a year, so it shouldn't be a significant impact.
Speaker #2: Okay.
Speaker #4: And we'll look to offset it with other levers.
Speaker #2: Got it. All right, that's very helpful. Thank you, guys, for taking my question.
Speaker #3: Yeah. Chris, so generally, I think that we think about it through the cycle is generally, deposits tracking loans are expectation is probably mid-single digits across both, generally.
Speaker #4: Thanks, Russell.
Speaker #3: Your next question comes from the line of Christopher Marinek with Green Capital LLC. Christopher, please go ahead.
Speaker #3: But we've seen in the last year is deposit growth outpacing loan growth. If you look at our loan growth has been mid-single digits, about 5%.
Speaker #1: Thanks. Good afternoon. I wanted to ask about the pace of deposits and how deposits will—if they will track loans, or if you think deposits could be faster as time passes over these next several quarters.
Speaker #3: Our deposit growth has been if you look at our core deposits, about 10% over the last year. We really had good momentum in a couple of businesses.
Speaker #3: Institutional services and commercial in institutional services, we had a growing market, and we were able to continue to take share. And that's an important driver of the growth.
Speaker #4: Yeah, Chris. So generally, I think that we think about it through the cycle as generally deposits tracking loans. Our expectation is probably mid-single digits across both, generally.
Speaker #3: But I think that's something that will normalize. And that's why we would say mid-single digit is kind of the right growth rate, probably.
Speaker #4: What we've seen in the last year is deposit growth outpacing loan growth. If you look at our loan growth, it has been mid-single digits, about 5%.
Speaker #4: And then in general, with interest rates, where they are, do you do more with the securities portfolio than you have here historically on more curious if this is just the relative attraction of rates makes you just be even more selective on the loan side and therefore do more elsewhere?
Speaker #4: Our deposit growth has been—if you look at our core deposits, about 10% over the last year. We really had good momentum in a couple of businesses.
Speaker #4: Institutional services and commercial. In institutional services, we had a growing market, and we were able to continue to take share. That's an important driver of the growth.
Speaker #3: Yeah. So on the securities portfolio, so before this year, for the last couple of years, we've been bringing down our portfolio. And running it down to about the low 20s percent of assets.
Speaker #4: But I think that's something that will normalize, and that's why we would say mid-single-digit is kind of the right growth rate, probably.
Speaker #3: When we got to this year, with and we got to that level especially with the rate increase that we've seen, we've started to reinvest proceeds.
Speaker #1: And then in general, with interest rates, where they are, do you do more with the securities portfolio than you have here historically on more curious if this is just the relative attraction of rates makes you just be even more selective on the loan side and therefore do more elsewhere?
Speaker #3: Principal and interest reinvestment into new securities and taking advantage of the higher yields. And that's why you've seen our portfolio yield kind of tick up over the last few quarters.
Speaker #4: Yeah. So, on the securities portfolio—before this year, for the last couple of years, we've been bringing down our portfolio and running it down to about the low 20s percent of assets.
Speaker #3: So that has been an opportunity and has been a contributor to our NIM. I think it will continue to do that. But we're not anticipating growing our securities portfolio much beyond the current level.
Speaker #4: When we got to this year—and we got to that level, especially with the rate increase that we've seen—we've started to reinvest proceeds.
Speaker #3: We want to keep it in the low 20s percent of assets, generally. When we that securities portfolio, we have we've, I think we've been disciplined in not doing any restructurings.
Speaker #4: Principal and interest reinvestment into new securities and taking advantage of the higher yields. And that's why you've seen our portfolio yield kind of tick up over the last few quarters.
Speaker #3: We've been taking advantage of the opportunity to reinvest at higher yields. That securities portfolio yields about 280 now. And whether we reinvest it in other securities, at around 5, or loans, at 6, or even higher, clearly, we have some NIM pickup from that.
Speaker #4: So that has been an opportunity and has been a contributor to our NIM. I think it will continue to do that, but we're not anticipating growing our securities portfolio much beyond the current level.
Speaker #3: Probably 4 to 5 basis points a year of NIM pickup. From the securities portfolio.
Speaker #4: We want to keep it in the low 20s percent of assets, generally. When we—that securities portfolio, as we have—we've, I think we've been disciplined in not doing any restructurings.
Speaker #4: Great. That's very helpful. Thank you for that. And just a last one for me is, if interest rates were to stay high for a while, would that have any impact on the capital target that I know is 12 on a medium term?
Speaker #4: We've been taking advantage of the opportunity to reinvest at higher yields. That securities portfolio yields about 2.80% now. And whether we reinvest it in other securities at around 5% or loans at 6% or even higher, clearly we have some NIM pickup from that.
Speaker #4: Just curious if that would change at all.
Speaker #3: Yeah. So yeah, when we generally, our target still remains 12 over the medium term. But as you were alluding to, it's not a one-dimensional target.
Speaker #4: Probably 4 to 5 basis points a year of NIM pickup from the securities portfolio.
Speaker #3: And we look at a couple of different factors. One of them, an important one, is interest rate volatility and our TC ratio. And so our TC our goal was, as we get to 12%, we continue to have runoff in our AOCI.
Speaker #1: Great, that's very helpful. Thank you for that. And just a last one from me: if interest rates were to stay high for a while, would that have any impact on the capital target—I know it is 12 on a medium term—just curious if that would change at all?
Speaker #3: And so we continue to have our TC ratio creep up as well. When interest rates increased, this quarter, we're definitely keeping an eye on that.
Speaker #4: Yeah. So yeah, when we—generally, our target still remains 12 over the medium term. But as you're alluding to, it's not a one-dimensional target, and we look at a couple of different factors.
Speaker #3: And so we decided to just reduce the pace of buybacks a little bit, there. So we did about 80% of our net income in terms of return to shareholders this quarter versus about 100% in the prior quarters.
Speaker #4: One of them, an important one, is interest rate volatility and our TCE ratio. So, our goal was, as we get to 12%, we continue to have runoff in our AOCI.
Speaker #3: So I'd say we just took our foot off the gas a little bit. And would likely stay there for this coming up quarter as well.
Speaker #4: And so, we continue to have our TCE ratio creep up as well. When interest rates increased this quarter, we're definitely keeping an eye on that.
Speaker #3: So it does have an impact. I think the trajectory Chris is still towards that 12%. In any given quarter, we may deviate. But the longer-term trajectory is still towards that 12%.
Speaker #4: And so we decided to just reduce the pace of buybacks a little bit there. So we did about 80% of our net income in terms of return to shareholders this quarter, versus about 100% in the prior quarters.
Speaker #4: Great, David. Thank you very much for taking our questions.
Speaker #3: Yeah. Thanks, Chris.
Speaker #1: Your next question comes from the line of Manuel Navas with Piper Sandler. Manuel, please go ahead.
Speaker #4: So I'd say we just took our foot off the gas a little bit, and would likely stay there for this coming quarter as well.
Speaker #5: Hey, good afternoon. How does the institutional services and trust business react to higher rates? Could that slow activity there or the market share gains more than offset that?
Speaker #4: So, it does have an impact. I think the trajectory, Chris, is still towards that 12%. In any given quarter, we may deviate, but the longer-term trajectory is still towards that 12%.
Speaker #5: And I'm just kind of wondering if that would have any impact on your non-interest-bearing deposits.
Speaker #3: Yeah. So Manuel, the generally, what we saw I'll talk about this quarter and then maybe going forward. But this quarter, we continue to see very healthy deal activity in that business.
Speaker #1: Great, David. Thank you very much for taking our questions.
Speaker #4: Yeah. Thanks, Chris.
Speaker #3: Your next question comes from the line of Manuel Navas with Piper Sandler. Manuel, please go ahead.
Speaker #3: Even though the end-of-period deposits, because of the transactional deposits that build up that we mentioned at the end of the second quarter, even though we did see that outflow, it's important to remember that that business has throughout the quarter on any given day, a lot of inflow and outflow just based on the transactional activity that happens.
Speaker #5: Hey, good afternoon. How does the institutional services and trust business react to higher rates? Could that slow activity there, or do the market share gains more than offset that?
Speaker #5: And I'm just kind of wondering if that would have any impact on your non-interest-bearing deposits.
Speaker #4: Yeah, so Manuel, generally what we saw—I'll talk about this quarter and then maybe going forward. But this quarter, we continued to see very healthy deal activity in that business.
Speaker #3: And so a point-to-point is not a great measure of activity. And that's why we kind of tend to look at averages. But when we look at when we look at market share we don't necessarily have leaked tables for the third quarter.
Speaker #3: But certainly, in the first half of the year, relative to prior year, we gained meaningful share when you look at fee growth quarter over quarter.
Speaker #4: Even though the end-of-period deposits, because of the transactional deposits that build up that we mentioned at the end of the second quarter—even though we did see that outflow—it's important to remember that that business has, throughout the quarter, on any given day, a lot of inflow and outflow just based on the transactional activity that happens.
Speaker #3: The fee growth in that business grew about 5%. When we look at the number of deals and the deal activity quarter over quarter, increased about 4%.
Speaker #3: So all of our indicators are pointing to the fact that we're continuing to perform well and continuing to compete well in that business. In terms of your question of just broader activity in that market, the securitization that kind of ABS and MBS market has consistently been very resilient.
Speaker #4: And so a point-to-point is not a great measure of activity. And that's why we kind of tend to look at averages. But when we look at—when we look at market share—we don't necessarily have leaked tables for the third quarter.
Speaker #4: But certainly in the first half of the year, relative to the prior year, we gained meaningful share when you look at fee growth quarter over quarter.
Speaker #3: It's a broad market. The market's grown through different rate environments. And so certainly, I think if rates stay higher for longer or go up, there may be asset classes there that where securitization activity is down maybe a little bit.
Speaker #4: The fee growth in that business grew about 5%. When we look at the number of deals and the deal activity, quarter over quarter, it increased about 4%.
Speaker #4: So all of our indicators are pointing to the fact that we're continuing to perform well and continuing to compete well in that business. In terms of your question about just broader activity in that market, the securitization, that kind of ABS and MBS market, has consistently been very resilient.
Speaker #3: But they're broad asset classes there. And we anticipate continued growth from that market. Maybe not at the levels that it's been growing. It's been growing at 20% a year for the last couple of years.
Speaker #3: So maybe not at those levels. But we would expect to continue growth in that market across asset classes.
Speaker #4: It's a broad market. The market's grown through different rate environments. And so, certainly, I think if rates stay higher for longer or go up, there may be asset classes where securitization activity is down maybe a little bit.
Speaker #5: Just a quick follow-up on that. Is the kind of the average non-interest-bearing deposit levels that have really had strong growth this year, is that pace of growth going to continue?
Speaker #4: But there are broad asset classes there, and we anticipate continued growth from that market—maybe not at the levels that it's been growing. It's been growing at 20% a year for the last couple of years.
Speaker #5: Is that was that related to certain types of transactions that maybe did more this year than other years in this business? Or is this now maybe a better trajectory for the non-interest-bearing mix because you're having so many market share gains in this business?
Speaker #4: So maybe not at those levels, but we would expect to continue growth in that market across asset classes.
Speaker #5: Just a quick follow-up on that. Is the kind of the average non-interest-bearing deposit levels that have really had strong growth this year, is that pace of growth going to continue?
Speaker #3: Yeah. I don't think so if you look at year over year, our non-interest-bearing deposits for the company grew 20%. And certainly, that's not a pace that I would expect to continue.
Speaker #3: Our goal is to, again, grow deposits mid-single digits. And for us to maintain and grow non-interest-bearing in the same at the same rate so that we overall maintain the composition of deposits that we have.
Speaker #5: Is that—was that related to certain types of transactions that maybe did more this year than other years in this business? Or is this now maybe a better trajectory for the non-interest-bearing mix because you're having so many market share gains in this business?
Speaker #3: The growth that we had was actually driven across businesses. We had growth, meaningful growth from institutional services. We also had growth in commercial. And we had some non-interest-bearing growth in our consumer business as well.
Speaker #4: Yeah, I don't think—so if you look at year over year, our non-interest-bearing deposits for the company grew 20%. And certainly, that's not a pace that I would expect to continue.
Speaker #3: So it wasn't a one-dimensional growth. But clearly, institutional services had a big impact. And those transactional deposits are non-interest-bearing. And as we continue to take share, we've had outsized growth.
Speaker #4: Our goal is to, again, grow deposits mid-single digits, and for us to maintain and grow non-interest-bearing at the same rate so that we overall maintain the composition of deposits that we have.
Speaker #3: But again, that's certainly would not expect the level that we've seen over the past year to continue.
Speaker #4: The growth that we had was actually driven across businesses. We had meaningful growth from institutional services; we also had growth in commercial. And we had some non-interest-bearing growth in our consumer business as well.
Speaker #5: Switching gears for a second, I appreciate the commentary. Switching gears, you indicated there's an exit September NIM of 389. That's broadly positive for the fourth quarter.
Speaker #4: So it wasn't a one-dimensional growth, but clearly, institutional services had a big impact. And those transactional deposits are non-interest-bearing. As we continue to take share, we've had outsized growth.
Speaker #5: Could you just kind of talk about expectations going forward? That NIM was for the whole month, right? So it doesn't even have much of the impact of the rate increase.
Speaker #5: Is that correct? And thoughts on what rate increases could do to the NIM going forward?
Speaker #4: But again, I certainly would not expect the level that we've seen over the past year to continue.
Speaker #3: Yep. Yep. So yeah, you're right. It's correct that that NIM is for the month. So it's got a partial month of a rate increase.
Speaker #5: Switching gears for a second—I appreciate the commentary. Switching gears, you indicated there's an exit September NIM of 3.89%. That's broadly positive for the fourth quarter.
Speaker #3: In terms of go forward NIM, generally, we remain asset-sensitive. Just as a reminder, as you know, we had a hedging program in place to mitigate interest rate impact on the way down.
Speaker #5: Could you just kind of talk about expectations going forward? That NIM was for the whole month, right? So it doesn't even have much of the impact of the rate increase.
Speaker #3: But the tool that we use for that program will really floor options. And the reason why we use that tool was to maintain our upside for if the rate cycle changed and for increasing rates.
Speaker #5: Is that correct? And any thoughts on what rate increases could do to the NIM going forward?
Speaker #4: Yep, yep. So yeah, you're right. It's correct that that NIM is for the month, so it's got a partial month of a rate increase.
Speaker #3: And so we feel good strategically about that decision. We remain asset-sensitive. I would say for every 25 basis point increase, we would have we would expect kind of a 2 to 3 basis point increase in our non-interest margin.
Speaker #4: In terms of go-forward NIM, generally, we remain asset sensitive. Just as a reminder, as you know, we had a hedging program in place to mitigate interest rate impact on the way down.
Speaker #3: But it's very dependent on the deposit beta. As you would expect. And as we're seeing more elevated deposit competition, it may put some pressure on that.
Speaker #4: And the tool that we use for that program was really floor options. The reason why we use that tool was to maintain our upside if the rate cycle changed and for increasing rates.
Speaker #3: Which we are seeing. So I think somewhere in the order of maybe 2 basis points is a good way to think about it. But we obviously want to make sure that we're growing market share; we're defending our turf.
Speaker #4: And so we feel good strategically about that decision. We remain asset-sensitive. I would say for every 25 basis point increase, we would expect kind of a 2 to 3 basis point increase in our non-interest margin.
Speaker #3: And so we will be competitive on deposit pricing to do that. And that may put some pressure on that upside.
Speaker #5: Thank you. I'll step back into the queue. I appreciate the commentary.
Speaker #4: But it's very dependent on the deposit data, as you would expect. And as we're seeing more elevated deposit competition, it may put some pressure on that.
Speaker #3: Thanks, Manuel.
Speaker #1: Your next question comes from the line of Kelly Motta with KBW. Kelly, please go ahead.
Speaker #4: Which we are seeing. So I think somewhere in the order of maybe 2 basis points is a good way to think about it. But we obviously want to make sure that we're growing market share and defending our turf.
Speaker #2: Hi. Thank you so much for the question. Maybe I'll stay on the topic of margin. As you said, you are tilted asset-sensitive. Just wondering with loan yields in the quarter at 626, I would think that new originations would be still overall accretive to the book as well.
Speaker #4: And so we will be competitive on deposit pricing to do that, and that may put some pressure on that upside.
Speaker #5: Thank you. I'll step back into the queue. I appreciate the commentary.
Speaker #4: Thanks, Manuel.
Speaker #3: Your next question comes from the line of Kelly Matta with KBW. Kelly, please go ahead.
Speaker #2: David, can you provide kind of what the yield on new loans was and how that's trended versus maybe the last quarter or year over year, thanks?
Speaker #2: Hi, thank you so much for the question. Maybe I'll stay on the topic of margin. As you said, you are tilted asset-sensitive. Just wondering, with loan yields in the quarter at 6.26%, I would think that new originations would still be overall accretive to the book as well.
Speaker #3: Yeah. I would say, Kelly, our yield on new loans I mean, generally, there's not a material pickup from so when you look at the fixed-rate loans that are maturing, there's not a material pickup on those.
Speaker #3: So I would say it's fairly neutral. But when you look at when you look at some of our new originations, clearly, when you look at mortgage, when you look at new lien, you look at small business, they are accretive.
Speaker #2: David, can you provide what the yield on new loans was, and how that trended versus maybe last quarter or year over year? Thanks.
Speaker #3: So it's a mix. It's a mix. And a variable rate loan, obviously, yep.
Speaker #4: Yeah, I would say, Kelly, our yield on new loans—generally, there's not a material pickup. So, when you look at the fixed-rate loans that are maturing, there's not a material pickup on those.
Speaker #2: Got it. That's helpful. And your credit sensitivity has come down after you've exited some of those higher charge-off portfolios that you've had. Obviously, with rates higher, though, maybe some deals aren't penciling or there could be some incremental headwinds for borrowers.
Speaker #4: So I would say it's fairly neutral. But when you look at when you look at some of our new originations, clearly, when you look at mortgage, when you look at new lien, you look at small business, they are accretive.
Speaker #2: I know it's early. Are you seeing anything, anything new to watch? I know you specifically called out the student portfolio housing credit that migrated.
Speaker #4: So it's a mix. It's a mix. And a variable rate loan, obviously, yep.
Speaker #2: Got it, that's helpful. And your credit sensitivity has come down after you've exited some of those higher charge-off portfolios that you've had. Obviously, with rates higher though, maybe some deals aren't penciling, or there could be some incremental headwinds for borrowers.
Speaker #2: But just interested to hear more high-level thoughts on that. Thank you.
Speaker #4: Hey, Kelly. It's Rodger. So the short answer to your question is we really haven't. But you recall we have been doing a process looking forward 24 months on all maturing CRE loans and resizing those at a 7.5% coupon.
Speaker #2: I know it's early. Are you seeing anything—anything new to watch? I know you specifically called out the student housing credit that migrated, but I'm just interested to hear more high-level thoughts on that.
Speaker #4: To see where there's potential areas of stress. And at this point, that process has not seen any kind of material impact. Hard to predict the future, especially with how high rates might go.
Speaker #2: Thank you.
Speaker #6: Hey, Kelly. It's Roger. So the short answer to your question is we really haven't. But, as you recall, we have been doing a process looking forward 24 months on all maturing CRE loans and resizing those at a 7.5% coupon.
Speaker #4: But at this point, we haven't seen anything and I would just say that one particular loan that went to NPA this quarter, I would call that very one-off in a small portfolio for us with some unique circumstances.
Speaker #2: Great. Thanks for the color, Rodger. I appreciate it. Last one for me. I know it's maybe it's best to address it as part of the three separate businesses.
Speaker #6: To see where there are potential areas of stress. At this point, that process has not seen any kind of material impact. It's hard to predict the future, especially with how high rates might go.
Speaker #2: But obviously, wealth and trust has just been a tremendous source of growth and contribution to profitability that you have. Obviously, double-digit pace. Just wondering as you look at your opportunity for further market share gains ahead, what do you think is a sustainable intermediate term pace of growth?
Speaker #6: But at this point, we haven't seen anything, and I would just say that one particular loan that went to NPA this quarter—I would call that very one-off, in a small portfolio for us, with some unique circumstances.
Speaker #2: Great, thanks for the color, Roger. I appreciate it. Last one for me—I know maybe it's best to address it as part of the three separate businesses.
Speaker #3: Our goal, Kelly, is to grow that business double digits. I think would not kind of expect 30% that we had this year to continue at that level.
Speaker #2: But obviously, Wealth and Trust has just been a tremendous source of growth and contribution to profitability that you have—obviously, a double-digit pace. Just wondering, as you look at your opportunity for further market share gains ahead, what do you think is a sustainable, intermediate-term pace of growth?
Speaker #3: But or this quarter, rather. But I think double-digit continues to be our goal. We've benefited from, I would say, we've benefited from good market trends and an ability to take some share on top of that.
Speaker #3: And that's been that's really been powering the growth. So when you think about institutional services and the securitization activity and the amount of capital that's being deployed into the capital markets, our ability to take advantage of that has been a big benefit.
Speaker #4: Our goal, Kelly, is to grow that business by double digits. I think we would not expect the 30% that we had this year to continue at that level.
Speaker #3: You think about our personal trust business and a lot of changes that are happening on the tax side between different states. And some of the political changes that have been happening there's been a lot of thought and a lot of movement from trusts into Delaware.
Speaker #4: But or this quarter, rather. But I think double-digit continues to be our goal. We've benefited from, I would say we've benefited from good market trends and an ability to take some share on top of that.
Speaker #4: And that's really been powering the growth. So, when you think about institutional services and the securitization activity, and the amount of capital that's being deployed into the capital markets, our ability to take advantage of that has been a big benefit.
Speaker #3: And so we've been able to take advantage of that. And again, we continue to take share because we're one of the leading players in doing that.
Speaker #3: So I think we've had some underlying tailwinds and we hope that continues. So we think there's runway. But double digits is our goal and a sustained period.
Speaker #4: When you think about our personal trust business, and a lot of changes that are happening on the tax side between different states, and some of the political changes that have been happening, there's been a lot of thought and a lot of movement from trusts into Delaware.
Speaker #3: Or a sustained period of time.
Speaker #2: Thank you so much. Nice quarter. I'll step back.
Speaker #3: Thanks, Kelly.
Speaker #1: Your next question comes from the line of Manuel Navas with Piper Sandler. Manuel, please go ahead.
Speaker #4: And so we've been able to take advantage of that. And again, we continue to take share because we're one of the leading players in doing that.
Speaker #5: Hey. Thanks for having me back. What drove the late quarter salary and other opex declines? And just kind of thinking of the pretty strong efficiency ratio this quarter, how much can that sustain?
Speaker #4: So, I think we've had some underlying tailwinds, and we hope that continues. We think there's runway. But double digits is our goal—and a sustained period.
Speaker #5: I think a positive expense story is relatively new to you. So I would love to kind of understand that more.
Speaker #4: Or a sustained period of time.
Speaker #2: Thank you so much. Nice quarter. I'll step back.
Speaker #4: Thanks, Kelly.
Speaker #3: Yeah. So when you look at salaries and benefits, that was really the quarter-over-quarter decline was related to medical expenses. We have some elevated more elevated medical expenses in the second quarter.
Speaker #3: Your next question comes from the line of Manuel Navas with Piper Sandler. Manuel, please go ahead.
Speaker #5: Hey, thanks for having me back. What drove the late-quarter salary and other OPEX declines? And just kind of thinking about the pretty strong inflation ratio this quarter, how much can that sustain?
Speaker #3: And so you saw that decline. More broadly, Manuel, I would say this quarter benefited from maybe two to three million of favorable non-recurring items.
Speaker #5: I think a positive expense story is relatively new to you, so I would love to kind of understand that more.
Speaker #3: But so maybe a run rate is a little bit higher than what you're seeing this quarter. But generally, our goal has been to continue to take down our efficiency ratio.
Speaker #4: Yeah, so when you look at salaries and benefits, that was really the quarter-over-quarter decline, which was related to medical expenses. We had some elevated, more elevated medical expenses in the second quarter.
Speaker #3: And that's both through growing the revenue as well as controlling the expense base. While continuing to invest in the business. And so we've been able to take it down from a little bit over 60% to now 56.
Speaker #4: And so you saw that decline. More broadly, Manuel, I would say this quarter benefited from maybe $2 to $3 million of favorable non-recurring items.
Speaker #3: And our goal is to continue to gradually bring it down. But I would say in a moderate way that allows us to invest in the business.
Speaker #4: So, maybe the run rate is a little bit higher than what you're seeing this quarter. But generally, our goal has been to continue to take down our efficiency ratio.
Speaker #5: All right. I appreciate that. Again, switching gears, any commentary around the targets put out last quarter? Credit and NIM seem to be trending better, for example.
Speaker #4: And that's both through growing the revenue as well as controlling the expense base, while continuing to invest in the business. And so we've been able to take it down from a little bit over 60% to now 56%.
Speaker #5: Your normal cadence is to update mid-year and end-of-year. But just kind of thoughts on a mid another mid-quarter update as they try for it.
Speaker #4: And our goal is to continue to gradually bring it down, but I would say in a moderate way that allows us to invest in the business.
Speaker #3: Yeah. No. Like you said, we typically don't update Outlook at this point. But if you just if you look at our credit trends and we've had two out of three quarters this year, we've had recoveries.
Speaker #5: All right, I appreciate that. Again, switching gears—any commentary around the targets put out last quarter? Credit and NIM seem to be trending better, for example.
Speaker #3: Certainly, we did not expect it. The environment continues to be strong. Our processes are good. There's not I think our expectation is that we would come in a bit better than our net charge-off guidance.
Speaker #5: Your normal cadence is to update mid-year and end-of-year, but just kind of thoughts on another mid-quarter update as they try for it.
Speaker #3: We're not seeing as Rodger mentioned, we're not seeing any major risks over the next few months. That we would expect us to deviate significantly to that older number.
Speaker #4: Yeah, no. Like you said, we typically don't update Outlook at this point. But if you just—if you look at our credit trends, we've had two out of three quarters this year where we've had recoveries.
Speaker #3: So I think our expectation is that we'll probably come in a little bit better on the credit side. Charge-offs.
Speaker #4: Certainly, we did not expect it. The environment continues to be strong. Our processes are good. There's not—I think our expectation is that we would come in a bit better than our net charge-off guidance.
Speaker #5: I appreciate it. Thank you for the questions.
Speaker #1: Your next question comes from the line of Janet Lee with TD Cohen. Janet, please go ahead.
Speaker #4: As Roger mentioned, we're not seeing any major risks over the next few months that we would expect to cause us to deviate significantly from that older number.
Speaker #2: Hello.
Speaker #4: Hey, Janet.
Speaker #2: For on the non-interest-bearing deposit, side, this quarter, it seems like the outflows were really concentrated in that what you identified as the non sorry, transactional outflows.
Speaker #4: So, I think our expectation is that we'll probably come in a little bit better on the credit side—charge-offs.
Speaker #5: I appreciate it. Thank you for the questions.
Speaker #3: Your next question comes from the line of Janet Lee with TD Cohen. Janet, please go ahead.
Speaker #2: Is there any sort of I guess it doesn't really have a seasonality component to it. Or is there any identifiable trend where you have visibility into where there could be transactional outflows?
Speaker #2: Hello.
Speaker #6: Hey, Janet.
Speaker #2: On the non-interest-bearing deposit side, this quarter, it seems like the outflows were really concentrated in what you identified as the non—sorry—transactional outflows.
Speaker #2: Just kind of trying to get a little more context around what that just entailed.
Speaker #3: Yeah. Yeah. Janet, the so this business, when you think about institutional services, it is a transaction-based business. And when you look across the quarter, there are meaningful flows that are coming in and out every day really depending on the timing of the deposits.
Speaker #2: Is there any sort of, I guess— it doesn't really have a seasonality component to it. Or is there any identifiable trend where you have visibility into where there could be transactional outflows?
Speaker #3: And so in the last quarter, we had that inflow at the end of the quarter to kind of coincide it with the end of the quarter.
Speaker #2: Just trying to get a little more context around what that just entailed.
Speaker #3: But really, the much more meaningful measure is the average and that's why I think that's a more meaningful measure of client activity. You're always going to have some volatility above that.
Speaker #4: Yeah. Yeah. Janet, the so this business, when you think about institutional services, it is a transaction-based business. And when you look across the quarter, there are meaningful flows that are coming in and out every day really depending on the timing of the deposits.
Speaker #3: But looking at the quarter-over-quarter and year-over-year growth in the average, is a far better measure of activity. So in terms of seasonality, I would say not really.
Speaker #3: Not really in that there. I think there are other places where there is some seasonality deposits. For example, in our commercial business, we tend to have municipal inflows in the third quarter.
Speaker #4: And so, in the last quarter, we had that inflow at the end of the quarter to kind of coincide with the end of the quarter.
Speaker #4: But really, the much more meaningful measure is the average. And that's why I think that's a more meaningful measure of client activity. You're always going to have some volatility above that.
Speaker #3: Which tend to come out in the fourth quarter. In consumer, we've seen some kind of build-up into the end of the year. So there are some seasonality effects that happen in other businesses.
Speaker #4: But looking at the quarter-over-quarter and year-over-year growth in the average is a far better measure of activity. So, in terms of seasonality, I would say not really.
Speaker #3: But within the institutional services, again, last year we had a little bit of a build-up into year-end. But it's not a pattern that I would count on.
Speaker #4: Not really in that area. I think there are other places where there is some seasonality in deposits. For example, in our commercial business, we tend to have municipal inflows in the third quarter.
Speaker #2: Okay. Got it. In terms of the lending environment, you've gave color on still solid momentum in CNI. But maybe a little weaker sentiment. Are you seeing your clients being a little bit more hesitant just given the rising rates?
Speaker #4: Which tend to come out in the fourth quarter. In consumer, we've seen some kind of build-up into the end of the year. So, there are some seasonality effects that happen in other businesses.
Speaker #4: But within the institutional services, again, last year we had a little bit of a build-up into year-end, but it's not a pattern that I would count on.
Speaker #2: Or is there a change in activity or sentiment you're seeing on either side of CNI? Or CRE? Where you may have a little bit more tempered growth outlook going forward?
Speaker #2: Okay, got it. In terms of the lending environment, you've given color on still solid momentum in CNI, but maybe a little weaker sentiment. Are you seeing your clients being a little bit more hesitant, just given the rising rates?
Speaker #2: Or?
Speaker #3: Yeah. So in kind of to put it in two parts. In CRE, Janet, there's definitely some projects that people are working on which are becoming harder to pencil out.
Speaker #3: To get to the debt service coverage. So I think that's something to watch. It's not been a huge driver of new originations. But it's definitely part of more of the flow that we hear being talked about.
Speaker #2: Or is there a change in activity or sentiment you're seeing on either side of CNI or CRE, where you may have a little bit more tempered growth outlook going forward?
Speaker #3: As well as maturing loans. And their ability to get refinanced. Whether it's with us or somebody else. On CNI, not aware of any conversations that I've had with clients or when we're out and about that the rate environment is changing their appetite to invest.
Speaker #4: Yeah, so, to put it in two parts: in CRE, Janet, there are definitely some projects that people are working on which are becoming harder to pencil out.
Speaker #4: To get to the debt service coverage, I think that's something to watch. It's not been a huge driver of new originations, but it's definitely part of more of the flow that we hear being talked about.
Speaker #3: I think they're being thoughtful about investment. But I wouldn't say there's a change in appetite. What I do think is occurring is there's a lot of competition out there.
Speaker #3: Especially for CNI. And so we would expect to see some potential pressure, particularly for existing clients who are being approached by other folks and as David said, we're going to defend our turf.
Speaker #4: As well as maturing loans and their ability to get refinanced, whether it's with us or somebody else. On CNI, I'm not aware of any conversations that I've had with clients or when we're out and about, that the rate environment is changing their appetite to invest.
Speaker #3: At this point, I would put that still in the characterization of kind of on the margin pretty modest. But it's definitely something we would we will continue to watch.
Speaker #4: I think they're being thoughtful about investment, but I wouldn't say there's a change in appetite. What I do think is occurring is that there's a lot of competition out there.
Speaker #3: Especially if for some reason, rates were to go a little bit higher than where they are today.
Speaker #4: Especially for CNI. And so we would expect to see some potential pressure, particularly for existing clients who are being approached by other folks. And, as David said, we're going to defend our turf.
Speaker #2: Got it. Thanks for the color. Maybe I missed it. You alluded to the double-digit wealth and sorry, investment management and fiduciary revenue. It seems like the double-digit is obviously in place for 2026.
Speaker #4: At this point, I would still put that in the characterization of being kind of on the margin—pretty modest. But it's definitely something we will continue to watch.
Speaker #2: What could derail that trajectory maybe beyond it? Do you think the sustainability of that you have a good line of sight into sustainability of that business being able to grow in the double-digit pace even in this current environment?
Speaker #4: Especially if, for some reason, rates were to go a little bit higher than where they are today.
Speaker #2: Got it. Thanks for the color. Maybe I missed it. You alluded to the double-digit wealth and, sorry, investment management and fiduciary revenue. It seems like the double-digit is obviously in place for 2026.
Speaker #2: Because it looks like a bulk of that is also market share gains. It looks like that was your message. But just wanted to hear it from you again.
Speaker #3: Yeah. So Janet, I think when you look at that business, it's important to just recognize that broadly speaking, about 70% of that business is not AUM-based.
Speaker #2: What could derail that trajectory, maybe beyond it? Do you think the sustainability of that—do you have a good line of sight into the sustainability of that business being able to grow at a double-digit pace, even in this current environment?
Speaker #3: And about 30% of that business is AUM-based. So on the 70% that is non-AUM-based, it really is transactional activity. It's not market-driven. But and there are different drivers in each of those businesses.
Speaker #2: Because it looks like a bulk of that is also market share gains. It looks like that was your message, but I just wanted to hear it from you again.
Speaker #3: And that's one of the benefits here is that since there are different underlying drivers, you have the capital markets and securitization markets on one side.
Speaker #4: Yeah, so Janet, I think when you look at that business, it's important to just recognize that, broadly speaking, about 70% of that business is not AUM-based.
Speaker #3: You have personal trust activity. Which is driven by policy and tax on the other side. And then you've got the AUM activity and the markets on the third side.
Speaker #4: And about 30% of that business is AUM-based. So, on the 70% that is non-AUM-based, there really is transactional activity; it's not market-driven. But there are different drivers in each of those businesses.
Speaker #3: So there are different drivers. And that's what gives us confidence that even if one of the engines is slowing down, we can pick up elsewhere.
Speaker #3: I think the important thing that we want to emphasize is, again, when you look at institutional services, which is about which is more than half of that business, half of the wealth and trust business, we are we're continuing to gain share in that business.
Speaker #4: And that's one of the benefits here, is that since there are different underlying drivers, you have the capital markets and securitization markets on one side.
Speaker #4: You have personal trust activity, which is driven by policy and tax. On the other side, you've got the AUM activity, and the markets on the third side.
Speaker #3: And you may have a slowdown in those markets. Certainly, if rates stay higher, securitization markets are not immune to that. And there will be some impact.
Speaker #4: So, there are different drivers, and that's what gives us confidence that even if one of the engines is slowing down, we can pick up elsewhere.
Speaker #3: But over the medium term, those markets are going to continue to grow. And we expect to continue to be able to perform well and pick up share in that market.
Speaker #4: I think the important thing that we want to emphasize is, again, when you look at institutional services, which is about which is more than half of that business, half of the wealth and trust business, we are we're continuing to gain share in that business.
Speaker #3: And that's when we look at when we look at our indicators such as deal activity, when we look at fees, and the things that we're participating in, we continue to see signs that are performance is strong despite some volatility in the deposit side and the market.
Speaker #4: And you may have a slowdown in those markets. Certainly, if rates stay higher, securitization markets are not immune to that, and there will be some impact.
Speaker #3: So I think it comes down to the diversity of businesses that we have there and the diversity of drivers underlying those businesses.
Speaker #4: But over the medium term, those markets are going to continue to grow, and we expect to continue to be able to perform well and pick up share in that market.
Speaker #2: Okay. Thank you so much for all the color.
Speaker #4: And that's when we look at our indicators, such as deal activity, when we look at fees and the things that we're participating in, we continue to see signs that our performance is strong, despite some volatility on the deposit side and in the market.
Speaker #1: Thank you. And with no further questions in the queue, I would like to turn the conference back over to David Burg.
Speaker #4: Okay. Thank you very much for joining our call today. If you have any specific follow-up questions, please reach out to Andrew at Investor Relations or me.
Speaker #4: So I think it comes down to the diversity of businesses that we have there, and the diversity of drivers underlying those businesses.
Speaker #4: And have a great day, everyone. Thank you.
Speaker #2: Okay, thank you so much for all the color.
Speaker #1: Thank you. And with no further questions in the queue, I would like to turn the conference back over to David Burg.
Speaker #4: Okay, thank you very much for joining our call today. If you have any specific follow-up questions, please reach out to Andrew at Investor Relations or to me.
Speaker #4: And have a great day, everyone. Thank you.
