WSFS Financial Corporation

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the WSFS Financial Corporation first quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star. followed by the number one on your telephone keypad. I'd now like to turn the call over to your host for today, Mr. Dominic Canuso, Chief Financial Officer. Sir, you may begin.

Thank you, Brent, and thanks to all of you for taking the time to participate on our call today. With me on this call are Roger Levinson, Chairman, President, and CEO, Art Bacci, Chief Wealth Officer, Steve Clark, Chief Commercial Banking Officer, and Sherry Krasinski, Chief Consumer Banking Officer. Before I begin with remarks on the quarter, I would like to read our safe harbor statement. Our discussion today will include information about our management's view of our 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 our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q, as well as other documents we periodically file with the Securities and Exchange Commission. All comments made during today's call are subject to the Safe Harbor Statement. Good afternoon and thank you again for joining our first quarter 2023 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's website. The strength of the WSFIS franchise was demonstrated in this unique quarter. As a result of our relationship-based banking model, concentration risk management, and diversified fee revenues, first quarter core PPNR percent was 2.29%. and core ROA was 1.27%. Given the significant noise and disruption throughout the industry during the quarter, I will first share details and perspectives on the strength and composition of our customer deposit base, liquidity capacity, and capital position, followed by additional details on our financial performance in the quarter. Shown on slide four, our customer deposit franchise is very diversified with significant deposits from our consumer branch network, commercial, small business, trust, and wealth lines of business, with a bank average balance per account of $33,000. We also have granular concentrations with no more than 5% of deposits sourced from any one industry. 73% of our deposits are insured and protected with 64% FDIC insured and another 9% collateralized or otherwise protected. Non-interest bearing demand deposits comprise 33% of customer deposits with no and low interest demand making up 53%. From year end 2022 through March 8th, deposits were flat and declined 1% in the full quarter. Presented on slide eight, At quarter end, we utilized $1.1 billion of wholesale funding, which is only 6% of total balance sheet funding and 13% of totally readily available funding, leaving $7.9 billion of readily available and secured borrowing capacity. This capacity equates to 50% of customer deposits and almost double uninsured and unprotected deposits. Capital levels remain well above well capitalized. Illustrated on slide 12, we provide details of our investment portfolio and capital levels. When reducing capital by the effective AOCI, which includes the full impact of the HTM portfolio, all regulatory bank ratios remain above well capitalized. Detailed on slide five, gross loans grew $230 million in the quarter with $155 million from commercial and $68 million from our Spring EQ consumer partnership. Our consumer loan growth moderated in the quarter as the Upstart portfolio was flat at $237 million, or 2% of total gross loans. Our commercial loan composition is highly diversified in both the CNI and owner-occupied portfolio, and the CRE investor and construction portfolio, as seen on page 6. The first quarter net interest margin was 4.25%, with loan yields increasing 44 basis points to 6.42%, as more than 50% of total loans are variable. The interest-bearing deposit beta increased to 28%, resulting in total deposit costs of 80 basis points in the quarter, with no and low interest demand deposit cost of 23 basis points. With over 25 discrete fee lines of businesses or products, core fee revenue was $63.7 million, with 5% growth versus the first quarter of 2022, with a core fee revenue ratio of 25.8%. Wealth management contributed just under 50% of total core fees. Excluding fee income from BMT Insurance Advisors, which was sold in 2Q of 2022, the year-over-year fee growth was 7%. The core efficiency ratio in the quarter was 53.9%, demonstrating continued discipline in cost management. Expenses in the quarter included a $2.3 million benefit for a couple non-reoccurring items in salary and benefits. When excluding these items, the efficiency ratio would be approximately 55%. Overall asset quality remained relatively stable as shown on slides 10 and 11. Problem assets continued the post-COVID positive trends, and NPAs remained stable and at historical lows. Delinquencies increased 32 basis points to 83 basis points of gross loans, primarily due to two CNI long-term problem loan relationships, with one of these relationships still accruing. Although these relationships pertain to long-term care facilities, our overall long-term care portfolio is approximately $130 million in total outstandings, or 1% of gross loans. In the quarter, net charge-offs increased to 40 basis points of average gross loans driven by slightly higher commercial portfolio charge-offs, normal maturation of both new lane leasing and the upstart portfolio, along with lower recoveries in the quarter. Provision in the quarter was $29 million, which includes a $17.3 million increase in the ACL due to economic forecast and uncertainty along with new loan originations and other credit trends in the portfolio. The ACL coverage ratio increased 11 basis points to 1.28% and is 1.50% when including estimated remaining credit marks on the acquired portfolio. Clearly, there are rapidly changing dynamics in our industry impacting the financial results, and this uncertainty is expected to continue. As we typically do each year, we will provide an update to our full year outlook when we report our second quarter earnings. In summary, overall we had a solid performance in the quarter with a strong ending balance sheet. And while uncertainty remains in the macroeconomic outlook and near-term market conditions, WSFIS is well positioned to continue to focus and execute on our strategic plan objectives and to serve our current customers

communities we will now open the line to answer any questions you may have at this time if you'd like to ask a question press star followed by the number one on your telephone keypad if you would like to withdraw your question again press star one your first question is from the line of Frank Chiraldi with Piper Sandler your line is open