WSFS Financial Corporation Q3 FY2025 earnings call

• Financial Strength: Core metrics and net interest margin improved, with fee revenue showing growth excluding certain items. Wealth and Trust performed well.
• Balance Sheet: Sale of Upstart portfolio and runoff in partnership portfolios impacted loans, but RWA didn't increase, keeping capital levels high.
• Capital Return: Returned $56.3 million in capital, including $46.8 million in buybacks, with intent to maintain elevated buybacks toward CET1 target.
• Business Segments: Wealth and Trust had diverse growth in institutional services and BMT of Delaware. Cash Connect showed improved profit margins. Home lending and commercial pipelines were strong.

During the third quarter, WSFS demonstrated strong financials. Core EPS was $1.40, core return on assets 1.48%, and core return on tangible common equity 18.7%, all up from the second quarter. Year-over-year, core net income increased 21%, core PPNR grew 6%, and core earnings per share increased 30%. Tangible book value per share rose 12%. Net interest margin expanded 2 basis points to 3.91% QoQ, driven by reduced funding costs and interest recovery from a nonperforming loan. Core fee revenue was flat QoQ but up 5% excluding strategic exits and Spring EQ earn-out, led by Capital Markets and Cash Connect. Wealth and Trust grew 13% YoY. Total client deposits increased 1% QoQ (commercial) and 5% YoY (across consumer, commercial, wealth, trust), with noninterest deposits up 12% YoY. Loans were down 1% QoQ due to loan portfolio sales and runoff, but residential mortgage and WSFS originated consumer loans grew 5% and 3% QoQ respectively. Asset quality improved with total net credit costs down $5.9 million QoQ, net charge-offs at 30 basis points (21% excluding NewLane), and NPAs/delinquencies declining.

• CET1 Target: Plan to continue buybacks at a clip ahead of recent years, aiming to reach medium-term CET1 target, assuming robust growth including organic and acquisitive growth.
• Loan Growth: Expected continued growth in Home Lending to offset Spring EQ runoff. Commercial pipeline strong at $300 million.
• Margin Management: Anticipated near-term margin pressure from rate cuts but expected mitigation via deposit repricing, hedging, new deposits, and securities portfolio rollover.

• Macro Volatility: Potential impact on asset quality and reserve levels due to economic uncertainty, rates, inflation, and labor weakness, requiring conservative reserve adjustments.
• Balance Sheet: Uncertainty in loan runoff from Spring EQ and other portfolios, potentially affecting loan growth and margin.

Q: Big picture on achieving CET1 target, organic vs acquisitive growth, buyback pace A: WSFS is buying back at a clip ahead of recent years, using ~100% of net income. Balance sheet dynamics (e.g., sale of Upstart portfolio) keep RWA low, capital levels high. Plan to continue buybacks, possibly accelerating, with focus on accretive business investments first.

Q: Asset quality reserve levels, sectors to watch A: Reserve levels conservatively adjusted for macro volatility. Asset quality strong in consumer, with commercial having some lumpy situations. Focus on resolving remaining NPAs, disciplined originations, proactive client engagement.

Q: Wealth and Trust growth, operating leverage A: Wealth and Trust has diverse growth in institutional services, BMT of Delaware, and private wealth. Higher profit margins due to operating leverage, scalable deposit base from trust business.

Q: Cash Connect, loan growth guidance, consumer partnership payments A: Cash Connect benefits from rate cuts (fee revenue reduction offset by expense reduction). Consumer loan growth from Home Lending offsets Spring EQ runoff. Commercial loan growth supported by strong pipeline, focus on accretive originations.

Q: Talent acquisition, margin management A: Focus on hiring relationship managers in commercial and wealth. Margin management involves deposit repricing, hedging, new deposits, and securities portfolio rollover to mitigate rate cut impact.