Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WSFS Financial Corp reported core earnings per share of $1.08, core return on assets of 1.25%, and core return on tangible common equity of 18.83%.
- Core fee revenue increased by 13% quarter-over-quarter and 28% year-over-year, driven by growth across all major fee businesses.
- Wealth management fee revenue grew 14% quarter-over-quarter and 16% year-over-year, with strong results in institutional services and Bryn Mawr Trust Company of Delaware.
- Cash Connect added nearly 8,000 service non-bank ATMs since Q3 2023, increasing its ROA to 1.72% in Q2.
- WSFS Financial Corp returned $48.7 million to shareholders in Q2, including $9 million in dividends and $39.7 million in stock buybacks.
Negative Points
- Problem loans increased due to downgrades of three C&I loans, impacting asset quality.
- Net charge-offs for the quarter were 44 basis points, with potential weakness in a small group of problem loans.
- Deposit growth is projected to be flat year-over-year due to competitive pressures and seasonality.
- Interest-bearing deposit beta is expected to be higher than previously communicated, at less than 55%, due to competitive marketplace pricing.
- The loan-to-deposit ratio is forecasted to end the year at 83%, indicating potential challenges in maintaining balanced growth.
Q & A Highlights
WSFS Financial Corp (WSFS, Financial) Q2 2024 Earnings Call Highlights
Q: Can you provide an outlook on fee income, particularly development fees, for the rest of the year?
A: Fee income remains strong across divisions. Mortgage and capital markets are seeing good activity, though summer months may slow down. Wealth management has a strong pipeline, and Cash Connect's growth will normalize after onboarding new ATMs.
Q: What drove the increase in salary and benefits expenses this quarter, and what are the expectations for the rest of the year?
A: The increase is partly due to a reversal of incentives in Q1 and merit increases processed late in Q1. Cash Connect's external funding also contributed. Expect a higher run rate on incentive accruals in H2 due to above-target performance.
Q: How should we think about Cash Connect expenses and funding mix going forward?
A: Expect a slight decrease in expenses as we target 75% external funding and 25% internal. This will also impact ROA, which should drop from $170 million in Q2 to around $130-$140 million.
Q: What are the expectations for net charge-offs in the second half of the year?
A: We saw an increase in problem loans, and the outlook reflects potential losses depending on how these situations resolve.
Q: How would a potential September rate cut impact the net interest margin (NIM)?
A: A late-year rate cut would likely reduce NIM by about 5 basis points, translating to a 1.5% impact on net interest income (NII) on a full-year basis.
Q: What factors are driving the 55% deposit beta expectation?
A: Competitive pressures and the repricing of CDs at higher rates are key factors. About 65-70% of money market accounts are exception-priced, reacting to the competitive environment.
Q: How does the company view stock buybacks in the context of maintaining high ROE?
A: The philosophy remains to return 35% of net income through dividends and buybacks. Incremental buybacks will depend on financial results, economic conditions, and achieving a 16% IRR.
Q: Can you provide more color on the increase in reserves, particularly for investor CRE?
A: The increase is due to a 24-month roll-forward analysis of maturing CRE loans, reflecting potential weaknesses. This is a modest reserve build, primarily in the office sector.
Q: With revised deposit growth guidance being flat, how should we think about the balance sheet and margin guide?
A: The balance sheet should remain steady, with no material changes in size. Elevated deposits at the end of 2023 have been deployed, impacting NII but not NIM.
Q: Are there any changes in the commercial loan pipeline based on rate forecasts?
A: The 90-day weighted average pipeline is down, reflecting strong closings in H1. However, significant opportunities remain, supporting mid-single-digit loan growth for the full year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
