Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- WSFS Financial Corp (WSFS, Financial) reported a core EPS of $1.08 per share, demonstrating strong financial performance.
- Loans and deposits increased by 5% and 3% respectively on an annualized basis, indicating healthy growth.
- Core fee revenue rose by 5% quarter-over-quarter and 23% year-over-year, showcasing robust revenue generation.
- Successful completion of the trust accounting system conversion and upgraded client account portal positions WSFS for future growth.
- Total stockholders' equity increased by 8% linked quarter, reflecting strong market value increases and earnings.
Negative Points
- Net interest margin decreased by 7 basis points from the previous quarter, impacted by higher-priced deposits.
- Nonperforming assets increased by 12 basis points quarter-over-quarter, driven by two problem loans.
- Net charge-offs rose by 14 basis points quarter-over-quarter, primarily due to a write-down of a nonperforming loan.
- Core noninterest expense increased by 5% linked quarter, driven by unfunded loan commitment reserves and higher loan workout costs.
- Wealth management fee revenue declined by 3% linked quarter, despite a 12% increase over the previous year.
Q & A Highlights
Q: Can you explain the impact of the hedge program on the net interest margin (NIM) and what you expect per 25 basis point rate hike?
A: David Burg, CFO, explained that the NIM reduction of 7 basis points was due to a write-up of the investment portfolio, a tick-up in nonaccruals, and higher deposit costs. The hedge program, now completed at $1.5 billion, mitigates asset sensitivity. The hedges will reduce the impact of rate cuts on NIM, previously estimated at 5 basis points per 25 basis point cut.
Q: How do you see the fee revenue, particularly from credit, debit, and ATM fees, trending in the fourth quarter and into 2025?
A: David Burg noted that Cash Connect saw significant market share gains. The focus is now on optimizing the network to drive efficiency. While top-line revenue may decline due to lower interest rates, expenses will also decrease, potentially leading to higher profitability.
Q: What was the impact of Spring EQ revenue on fee income this quarter?
A: The Spring EQ sale resulted in an earn-out of about $2 million due to achieving origination volume targets. Future earn-outs depend on 2025 volumes, which are under discussion. No new originations are expected in the fourth quarter.
Q: How should we think about potential net charge-offs (NCOs) given the lumpiness from commercial charge-offs?
A: David Burg stated that the uptick in credit metrics was driven by a few problem loans, which were expected and monitored. The net charge-offs were primarily due to two commercial and industrial loans. The guidance for the full year has been reduced to the low end of the range as these were anticipated.
Q: What are your expectations for deposit betas on the way down, and what actions have you taken since the rate cuts?
A: David Burg mentioned proactive measures, including reducing CD pricing and shortening tenors. The interest-bearing beta was 51% on the way up, and they expect a beta in the high teens or 20% for the fourth quarter. Future betas will depend on the pace of rate cuts and market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
