WSFS Financial Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Wilmington Savings Fund Society Financial Corporation second quarter earnings call. 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, Mandeep, 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 of 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 quota, 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 second 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. We are pleased with the solid performance in the second quarter across all our businesses demonstrated by growth in loans, deposits, and fee revenue. Combined with strong NIM, capital and liquidity levels and stable credit performance, we remain well positioned to compete in the current economic environment. After sharing some details on the quarter, I will provide an update to our full year outlook as we typically do with our second quarter earnings release. Second quarter results included core EPS of $1.16 per share. which is a 14% increase over prior quarter and year-over-year, core ROA of 1.41%, which is up 14 basis points over prior quarter and year-over-year, and core PPNR as a percentage of assets, which declined slightly to 2.2%. In the quarter, loans grew $197 million, or nearly 6.5% annualized. CNI led almost half of the volume growth, followed by CRE, as construction loans converted to commercial mortgages. On an annualized basis, consumer partnerships Spring and Q continued moderated growth at 27%. Residential mortgage grew 23% from our competitive arm products, and new lane leasing grew 9%. Deposits grew $380 million, or 10% annualized, primarily from our wealth and capital markets trust businesses. While trust deposits can sometimes be short-term in nature, they are typically no or low-cost deposits and demonstrate the diversity of the overall deposit franchise. Non-interest-bearing deposit mix was 34%, and the loan-to-deposit ratio held flat from prior quarter at 75%. Net interest margin was 4.11%, with loan yields of 6.79%, and total deposit costs of 1.16%. Interest-bearing deposit betas ended the quarter at 35% through the cycle. While up 7 percentage points in the quarter, the pace of beta slowed after increasing 13 percentage points in the first quarter. Core fee revenue was up 6% or $3.7 million over prior quarter and up 4% year-over-year when normalizing for the sale of BMT insurance advisors that occurred at the end of 2Q 2022. Growth in the quarter was from Cash Connect, wealth, and core banking fees. The core fee revenue ratio increased to 27% even as our NIM held above 4%. The core efficiency ratio was 55.5%. When excluding growth in Cash Connect funding cost, which is more than offset in fee revenue, and normalizing the first quarter NIE for one-timers that were discussed last quarter, costs were higher 2%, primarily driven by merit increases that occurred late in the first quarter, along with some continued investment in technology enhancements. Asset quality remains relatively stable in the quarter. Problem assets increased slightly and remain at levels consistent with the average over the last year. Delinquencies improved to 59 basis points and non-performing assets held flat at historically low levels of 16 basis points. Net charge-offs increased slightly to $13 million. Recent net charge off levels are attributable to growth in the new lane leasing portfolio and the maturation of upstart vintages. Losses from these portfolios are expected to stabilize at these levels, are consistent with our underwriting and profitability expectations, and have been provided for. As such, and consistent with the stable leading credit indicators across the other portfolios, the ACL increased slightly by $2.7 million. The ACL coverage ratio remained flat at 1.28% and 4.9% when including the estimated remaining credit marks on the acquired loan portfolio. Access to liquidity remained significant, and capital levels remained well above well capitalized. When reducing capital levels by the effective AOCI, which includes the full impact of the HTM portfolio, all regulatory bank ratios remain well capitalized. We have updated our full year outlook for our key metrics, which can be found on slide 13 of our supplement. Our outlook reflects one 25 basis point rate increase in July, followed by flat rates for the remainder of the year, and a mild recession to begin in the second half of the year. Our full-year core PPNR is expected near 2.10%, with a full-year core ROA around 1.25%. Overall, our performance in the quarter demonstrated the resiliency and potential of our fee revenue businesses, the benefits of our diversified deposit base, and the strength of the balance sheet. We are well positioned to continue to execute on our strategic plan and serve our markets as the largest locally headquartered community bank and trust company in the greater Philadelphia and Delaware region. We will now open the line to answer any questions you may have.

The floor is now open for your questions. To ask a question this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star one again. We'll now take a moment to compile our roster. Our first question comes from the line of Frank Shraldi from Piper Sandler. Please go ahead.