WSFS Financial Corporation

Good day and welcome to the WSFS Financial Corporation fourth quarter 2025 earnings call. All participants are in a listen-only mode. After the speaker's remarks, we'll conduct a question and answer session. To ask a question at this time, you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I'd now like to turn the call over to your host for today, Mr. David Berg, Chief Financial Officer. Sure, you may begin.

Great, thank you very much and good afternoon everyone and thank you for joining our 4th quarter 2025 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 website with me on this call a Roger Levinson, chairman, president and CEO and our chief operating officer. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information of 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 the 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. I will now turn to our financial results. Our businesses continue to perform very well in the quarter, providing strong momentum moving into 2026. For the fourth quarter, WSFIS delivered a core earnings per share of $1.43, a core ROA of 1.42%, and core return on tangible common equity of 18%, which are all up meaningfully on a year-over-year basis. These results closed out a successful 2025 that included a full-year core EPS of $5.21, core ROA of 1.39%, and core return and tangible common equity of 18%. Our 4Q core EPS is up 29% over the prior year, and our 2025 full-year EPS increased 19% over the prior year. These core results for the fourth quarter exclude several non-core items which resulted in a $5 million impact to net income, as well as a $0.09 impact to EPS in the quarter. These items are outlined on page five of the supplement. Net interest margin was 3.83% for the quarter, down eight basis points link quarter, driven by the rate cuts and a one-time interest recovery last quarter, which accounted for four basis points of the decline. Importantly, our NIM is up three basis points year over year, while absorbing 75 basis points of interest rate cuts since the fourth quarter of 2024. We continue to successfully reprice our deposits, and our exit deposit data for December was 43%. Core fee revenue increased 2% link quarter and 8% year-over-year, driven by double-digit growth in wealth and trust, capital markets, and home lending. Our wealth and trust business continues to perform very well and grew 13% year-over-year, with 29% growth in WSFIS Institutional Services and 24% growth in BMT of Delaware. For the full year 2025, WSFIS Institutional Services was the fourth most active U.S. asset-backed and mortgage-backed securities trustee with nearly 12% market share, moving up two spots in the rankings relative to 2024. Total gross loans grew 2% link quarter or 9% annualized, driven by broad-based growth across our businesses. In commercial, growth was led by CNI, which delivered growth of 4% link quarter or 15% annualized. And overall, we saw the largest quarterly fundings in over two years. Our residential mortgage and WSFIS originated consumer loans continued to build on their strong momentum and grew 5% link quarter. Total client deposits increased 2% link quarter or 10% annualized with growth across trust, private banking, and consumer. Importantly, our non-interest bearing deposits grew 6% link quarter and now represent 32% of our total client deposits. Turning to asset quality, we saw meaningful improvement across our problem assets due to favorable net migration and payoffs and ended the year at the lowest level in over two years. Non-performing assets were essentially flat compared to the prior quarter and ended the year down approximately 40% compared to year-end 24. Delinquencies increased 46 basis points linked quarter due to several previously identified non-performing and problem assets moving to delinquent status in the quarter. 14 basis points of this increase was driven by non-performing loans. The remainder is primarily comprised of two office loans and one multifamily condo loan in our footprint. One of the office loans was already resolved in January, while the other is a medical office expected to be sold in the first half of 26, which would result in a full repayment of our loan. We continue to work with the borrower on the remaining loan and believe we're well-secured. Net charge-offs increased 16 basis points to 46 basis points of average loans, primarily due to the partial charge-off of a non-performing land development loan. Net charge-offs were 40 basis points for the year, excluding upstart, which is on the midpoint of our prior outlook. During the fourth quarter, WSFIS returned $119 million of capital, including buybacks of $109 million, or 3.7% of our outstanding shares. This took our total buybacks for the year to $288 million, representing over 9% of our outstanding shares. On slide 15 of the supplement, we provided our 2026 outlook, which assumes a continued stable economy and three 25 basis point rate cuts throughout the year in March, July, and December. Overall, we expect to deliver another year of high performance and growth, with a full year core ROA of approximately 1.40%, and double-digit growth in core EPS. As a reminder, we intend to maintain an elevated level of buybacks in line with our previously communicated glide path towards our capital target of 12%, while retaining discretion to adjust the pace of buybacks based on the macro environment, business performance, and potential investment opportunities. We expect mid-single-digit loan growth overall with low single-digit growth in our consumer portfolio where we expect continued momentum in residential mortgage and other real estate secured consumer loans, partially offset by the continued runoff of our Spring EQ partnership portfolio. Building on our strong momentum in deposits in 2025, we expect continued broad-based deposit growth across our businesses in 26. Our outlook calls for deposit growth in the mid-single digits from 4Q levels. Our outlook for NIM is approximately 3.80 for the year. which incorporates the impact of the three additional interest rate cuts I mentioned. We continue to focus on deposit repricing opportunities while growing our portfolio and expect to maintain an interest-bearing deposit beta of low to mid 40s throughout the year. While the path and timing of future rate cuts remains uncertain, it's important to note that the impact of additional rate cuts on our financial results will not be linear as we continue to manage our margins through several levers, including deposit repricing actions, our hedge program, and the securities portfolio strategy. We continue to see momentum and growth opportunities in our fee businesses, which contribute approximately a third of our total revenue. Our overall fee revenue will grow mid-single digits, excluding Cash Connect. Wealth and Trust is expected to continue their strong momentum and again grow double digits in 2026. Cash Connect revenue is expected to decline due to interest rates, but will be more than offset in expenses. Our focus in Cash Connect continues to be on driving the profit margin which has increased meaningfully in 2025. Our outlook for net charge-offs is 35 to 45 basis points of average loans for the year, consistent with our 2025 results. While we have seen strong improvement of problem loans and non-performing assets, commercial loan losses may remain uneven. Our outlook calls for an efficiency ratio in the high 50s for the year. We plan to maintain strong expense discipline, but we'll continue to leverage opportunities to invest in the franchise, which coupled with normal seasonality may result in some variances quarter to quarter. We're excited about the future and remain committed to delivering high performance. Thank you, and we will now open the line for questions.

As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Manuel Navas from Piper Sandler. Please go ahead. Your line is open.