WSFS Financial Corporation Q2 FY2025 earnings call

• Financial performance was strong with core metrics up from the first quarter.
• Core net interest margin expanded, driven by reduced funding costs partially offset by lower loan yields.
• Fee revenue grew broadly, with the wealth business performing well.
• Client deposits increased, with noninterest deposits showing significant growth.
• Loans had momentum in commercial and consumer segments.
• $87.3 million of capital returned in the second quarter, including $77.7 million in buybacks.
• Midyear outlook includes 225 basis point rate cuts, ROA outlook raised to ~1.30%, NIM outlook raised to ~3.85%, and focus on deposit repricing and fee business growth.
• Completed sale of Powdermill business and unwound wealth advisory partnership, creating strategic opportunities.
• Efficiency rate outlook remains unchanged at ~60%, and continue to execute buybacks towards CET1 capital target.

During the second quarter, WSFS had core earnings per share of $1.27, core return on assets of 1.3% and core return on tangible common equity of 18.03%. Core net interest margin expanded 1 basis point to 3.89%. Core fee revenue grew 9% quarter-over-quarter, with the wealth business growing 17% year-over-year, led by 39% growth in institutional services and 7% in the Bryn Mawr Trust Company of Delaware. Total client deposits increased 1% linked quarter and 5% year-over-year, with noninterest deposits growing 11% year-over-year and representing over 30% of total client deposits. Gross loans were generally flat quarter-over-quarter, but saw strong momentum in commercial fundings (C&I loan balances grew 2% linked quarter) and consumer business (residential mortgage grew 2% linked quarter and HELOCs grew 8% linked quarter). Total net credit costs were $14.3 million, net charge-offs were 30 basis points (14 basis points excluding Upstart), problem asset levels were stable, and NPAs declined to 51 basis points of total assets.

• Assume 225 basis point rate cuts for remainder of the year, 1 in September and 1 in December.
• Raise ROA outlook for the year to approximately 1.30%.
• Expect low single-digit growth in commercial portfolio and flat growth in consumer portfolio (excluding Upstart).
• Home Lending originations expected to offset runoff in Spring EQ partnership portfolio.
• Deposit outlook remains same with broad-based growth.
• Raise NIM outlook to approximately 3.85%, including additional rate cuts.
• Focus on deposit repricing and maintaining beta through rate cuts.
• Fee revenue expected to grow low single digits, with Wealth & Trust business aiming for double-digit growth.
• Net charge-offs expected between 35 to 45 basis points of average loans (excluding Upstart).
• Efficiency rate outlook unchanged at ~60%, continue to invest in franchise while managing expenses.
• Continue execute buybacks as part of multiyear glide path to CET1 capital target of 12%.

• Interest rate risk which could impact net interest margin.
• Economic uncertainties that may affect loan quality.
• Short-term revenue headwinds from business transactions like the sale of Powdermill and unwinding of wealth advisory partnership.
• Deposit cost management challenges that could affect profitability.
• Market competition that may impact business growth.

Q: Russell Gunther asked about loan growth expectations, commercial asset class, paydowns as headwinds, and sentiment from commercial borrowers.

A: David Burg and Rodger Levenson responded, stating focus on accretive loan growth, leaning into C&I, selective commercial real estate originations, and mild uptick in optimism from borrowers regarding tariffs.

Q: Manuel Navas inquired about NIM upside in the back half of the year and buyback pricing impact.

A: David Burg explained NIM outlook affected by interest rate cuts and Upstart portfolio runoff, and discussed buyback strategy considering price, AOCI, and balance sheet factors.

Q: Charlie on behalf of Kelly Motta asked about expenses, Cash Connect recovery, and future expense thinking.

A: David Burg mentioned $1.6 million onetime insurance recovery in Cash Connect, good run rate quarter, and continued investment in business with focus on growth and talent acquisition.