WSFS FINANCIAL CORP Q4 FY2024 earnings call

Prior to reviewing financial results, a safe harbor statement was read. The businesses performed well in 4Q, with core earnings per share at $1.11. The termination of a Cash Connect client had a negative $4.7 million pre-tax impact. Despite this, core fee revenue grew 7% y-o-y in 4Q, powered by Wealth & Trust's record $40 million fee quarter. Core net interest margin was 3.80% in 4Q, up 2 basis points linked quarter. Customer deposits grew 4% linked quarter, and loans declined 1% linked quarter but grew 3% y-o-y. Total net credit costs decreased q-o-q. The company has a philosophy of returning ~35% of net income, balancing buybacks and dividends, and is focused on investing in the business while managing expenses.

In the fourth quarter of 2024, WSFS Financial Corporation's core earnings per share were $1.11, core return on assets was 1.24%, and core return on tangible common equity was 16.55%. For the full year 2024, core earnings per share were $4.39, core return on assets was 1.26%, and core return on tangible common equity was 17.83%. Core fee revenue in 4Q 2024 grew 7% year-over-year, with the Wealth & Trust business delivering a record fee quarter of $40 million with double-digit growth. Full-year 2024 core fee growth was 19% relative to the prior year. Core net interest margin was 3.80% for the quarter, up 2 basis points linked quarter. Customer deposits grew 4% linked quarter, with noninterest-bearing deposits up 6% linked quarter and comprising 31% of average deposits in 4Q. Loans declined 1% linked quarter but grew 3% year-over-year, with mid-single-digit growth in C&I and commercial mortgage. Total net credit costs were $8.7 million, decreasing by $11.4 million from the prior quarter, with net charge-offs excluding Upstart runoff at 20 basis points for the quarter and 27 basis points for the year. Nonperforming assets increased quarter-over-quarter but loans were well collateralized, and ACL coverage remained at 1.48% at year-end.

For 2025, the company expects core return on assets of approximately 1.25%. It anticipates mid-single-digit loan growth in the Commercial portfolio and flat growth in the Consumer portfolio (offset by WSFS originated loans). Deposit growth is expected to be low-single-digits from strong 4Q levels. Net interest margin is expected to be approximately 3.80% for the year, incorporating an additional interest rate cut in June. Fee revenue is expected to grow mid-single-digits, with Cash Connect revenue decline offset by funding cost savings. Net charge-offs are expected to be between 35 basis points to 45 basis points of average loans. The efficiency ratio outlook for the full year is 60%.

The termination of a Cash Connect client resulted in a $4.7 million pre-tax financial impact, an isolated incident. There are risks associated with managing large amounts of cash in the Cash Connect business, but controls are in place. Nonperforming assets increased quarter-over-quarter due to one relationship, but loans are well collateralized based on current valuations.

Q: Expense outlook and efficiency guide A: 4Q expenses were impacted by incentive true-up and headcount investment. The efficiency ratio goal is 60%, balancing revenue and expense growth.

Q: Cash Connect profitability levers A: Focus on growth, optimizing cash logistics, and pricing leverage post-USB client acquisitions.

Q: Capital and M&A A: Return ~35% of net income, balancing buybacks and business investments, with a high bar for accretive M&A.

Q: Deposit growth seasonality A: Seasonality expected, but net-net solid growth with 6% average year-over-year growth and 7% noninterest-bearing deposit growth.

Q: Cash Connect business risks A: Risk of managing large cash flows, but controls in place, and the situation was resolved with proper management.

Q: Loan growth and consumer flat A: Consumer flat due to runoff of Upstart and Spring EQ, offset by WSFS originated loans. Commercial has mid-single-digit growth.

Q: Strategic plan focus A: Optimizing market position, investing in the franchise, and growing share of wallet with customers.