WSFS Financial Q4 2024 Earnings Call Transcript

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January 28, 2025
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Operator

you for standing by. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to the WSFS Financial Corporation 4th Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After today's presentation, there will be an opportunity to ask I'd now like to turn the call over to David Burke, Chief Financial Officer.

Operator

Sir, you may begin.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Right. Thank you, Janine, and good afternoon, everyone, and thank you for joining our Q4 2024 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 website. With me on this call are Roger Levinson, Chairman, President and CEO and Art Bacci, Chief Operating Officer. Prior to reviewing our financial results, I would like to read our Safe Harbor statement.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Our discussion today will include information about 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 ks 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. I will now turn to our financial results. Our businesses continue to perform very well in the quarter, providing us with strong momentum moving into 2025.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

4Q results included a core earnings per share of $1.11 core return on assets of 1.24% and core return on tangible common equity of 16.55%. These results capped a successful 2024 with full year core earnings per share of $4.39 core return on assets of 1.26 percent and core return on tangible common equity of 17.83%. Our results for the quarter included the termination of a relationship with a long standing cash connect client as a result of adverse events in the client's overall business portfolio. This termination resulted in a negative 4,700,000 pretax impact to our financials, with a 2,800,000 impact to core fee revenue and a 1,900,000 impact to core non interest expense. This event is an isolated incident that does not have a broader bearing on the cash connect business.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

The team acted proactively to protect our interests and we will be working to recover this loss through insurance and other avenues where appropriate. Despite the cash connect event, WSFS delivered year over year core fee revenue growth of 7% in 4Q, powered by the Wealth and Trust business, which delivered a record fee quarter of $40,000,000 on double digit growth. For the full year 2024, the company achieved core fee growth of 19% relative to the prior year. Core net interest margin was 3.80% for the quarter, up 2 basis points linked quarter despite the interest rate cuts that we experienced in 4Q 2024. We actively managed our deposit repricing and achieved an interest bearing deposit beta of 26% for the quarter with an exit beta as of the end of December of 35%.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Customer deposits grew 4% linked quarter, driven by broad based growth across the Wealth and Trust, consumer and commercial business lines. Non interest bearing deposits grew 6% linked quarter and comprised 31% of average deposits in 4Q. Loans declined 1% linked quarter, driven by higher seasonal payoffs and business sales. On a year over year basis, loans grew 3% with mid single digit growth in C and I and commercial mortgage. We continue to have a strong originations pipeline, while our business sales present important opportunities for our wealth business to expand client relationships.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

We finished the year with a loan to deposit ratio of 77%, providing ample balance sheet flexibility and capacity to fund future growth. Our total net credit costs of $8,700,000 decreased by $11,400,000 from the prior quarter. This decrease reflects improvements in early stage metrics of problem assets and delinquencies as well as lower net charge offs. Excluding our Upstart portfolio, which is in runoff, we recorded net charge offs of 20 basis points for the quarter and 27 basis points for the year. Non performing assets increased quarter over quarter due to the migration of one relationship with 2 loans, but we believe these loans are well collateralized based on current valuations.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Our ACL coverage at the end of the year remains at 1.48%. On the last page of the supplement, we provided our outlook for 2025, which assumes 1 25 basis point rate cut in June. Overall, we expect to deliver another year of high performance and growth with a full year core return on assets of approximately 1.25%. We expect mid single digit loan growth in our commercial portfolio and flat growth in our consumer portfolio. Our consumer portfolio will be impacted by the runoff of our UPSTART and Spring EQ partnership portfolios, which will be offset by WSFS originated loan growth.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

We expect continued broad based deposit growth across our businesses in 2025, building on our recent momentum. Our outlook is for deposit growth in the low single digits from our very strong levels in 4Q. Our outlook for net interest margin is approximately 3.80 for the year, consistent with the level in 4Q, and this incorporates an additional interest rate cut in June. We will continue to focus on deposit repricing opportunities and expect to finish the year with an interest bearing deposit beta of approximately 40%. We continue to see strong momentum and growth opportunities in our fee businesses, which contribute almost a third of our total revenue.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

We expect our Wealth and Trust business to grow double digits as we capitalize on talent additions and technology investments made in 2024. Our overall fee revenue will grow mid single digits as Cash Connect revenues are expected to decline as a result of the interest rate reductions. As a reminder, this revenue decline is more than offset in Cash Connect's funding costs, resulting in a higher profit margin for the business in 2025. Net charge offs are expected to be between 35 to 45 basis points of average loans for the year as the industry continues to see the normalization of credit. Our commercial portfolio continues to perform well, but losses may remain uneven in 2025.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

We expect net charge offs associated with Upstart to continue to decline as the portfolio runs off. And lastly, we will continue to leverage opportunities to invest in the franchise, while prudently managing our expense base. While we may have fluctuations on our efficiency ratio quarter to quarter, our outlook for the full year is for an efficiency ratio of 60%. We're excited about the future and remain very committed to delivering high performance. Thank you.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And we will now open the line for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Russell Donker from Stephens. Please go ahead.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Hey, good afternoon guys.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Hey Russell.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Hey Russell.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

I wanted to start on the expense outlook. Appreciate the efficiency guide for the year. Could you give some thought to us around how you're thinking about dollar expenses? How that 4Q would kind of shake out as a run rate? I hear you lumpy quarter on quarter.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

But sort of what's embedded in the top line guide provided earlier? And

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

as a bit of a follow-up, just what type

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

of margin of ARR are you assuming on the efficiency guide? I think for the past year, we were maybe 90 bps above the plus or minus range.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes. Thanks, Russell. So let me talk about 4Q a little bit. And 4Q, as you alluded to, was a little bit of a noisy quarter. We obviously had the cash connect one timer, the $1,900,000 one timer.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Also when you look at a year over year basis, we had increases in cash connect related to interest rate increases, which are offset in revenue. So those are purely variable expenses that flow through the expense line related to rates that are offset in revenue. So if you normalize those two things out, our expenses for the year were up about 15%. And the majority of that, a large part of that was in salaries and benefits and there are really 2 main drivers for that. I would say one is at the end of the year in Q4, we always true up our incentive compensation to the actual performance that we had in the year.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

So that was part of it. And the second part is the investment that we're making in the business in terms of headcount. And so when you look at our heads, we added about 80 FTE year over year, about 2 thirds of that went into 3 areas, wealth, commercial and technology. And these are the areas that we continue to invest in. And when you look at our fee growth, particularly on the wealth side, the double digit growth that we're expecting this year and next year, I think those are that's a manifestation of the investments that we're making.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And I think we're in a fortunate position to be the platform of choice for many people. And in fact, there are 2 teams of advisors recently joined us from competitors just in the last few months as evidence of this. And we continue to see a lot of interest both on the commercial side and the wealth side of people joining our team. So that's a little bit of color on the quarter. In terms of the guide, I would say, obviously, the efficiency ratio can move around a little bit quarter over quarter and it also moves around a little bit because of rate impact in the revenue side.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

So I think this is a goal for the year and we may deviate from that quarter over quarter, but that's something that we're focused on managing. And with our goal of keeping efficiency generally flat, you can that basically implies a revenue growth and expense growth that's kind of parallel, so you can model it that way.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

But I would

David Burg
David Burg
Executive VP & CFO at WSFS Financial

say that's a role of philosophy. We're going to continue to invest. We'll continue to be opportunistic. We think it's the right long term trade off and decision, but we are focused on managing the expenses appropriately.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

I appreciate it, David. Thanks for the color there. And then as it relates to Cash Connect, can you talk about any potential levers you guys have yet to pull that could improve overall profitability in general sort of agnostic of what short rates do?

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes,

David Burg
David Burg
Executive VP & CFO at WSFS Financial

as you said, obviously, interest rates are going to impact the business, but important to remember that in a as interest rates have declined, that should be accretive to our profit margins. Even though you're going to see an impact on the top line and the fee line, that's more than offset on expenses. But beyond that, we are focused on driving the profit margin of the business up. And that's a combination of growth. It's a combination of its growth, it's optimizing our cash logistics and making sure that we minimize non interest earning cash.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And the third one, an important one is pricing. As we've consolidated market share following the USB client acquisitions that we've made, we do feel we have an opportunity for pricing leverage and that's something that we're going to deploy. So our goal is to definitely drive the profit margin up next year from where it is this year.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Got it. Okay, helpful. Thank you. And then just one last one for me guys in terms of how we should think about the overall size of the securities portfolio by the end of the year, if you're still kind of targeting roughly 20% of average assets ultimately and maybe when we might get there?

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes. So on the securities portfolio, it's about 22% of assets right now. You're right, we're targeting somewhere around the 20 mark, maybe a little bit lower. The security portfolio is about $4,500,000,000 It throws off about $500,000,000 of cash per year in principal as well as interest, so that $500,000,000 a year. Most of that is going to be redeployed into growth in the business.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

But we may we will look to probably redeploy a little bit of that into the securities portfolio. So net net, we do expect to come down, even though some of the we will add to our securities portfolio a little bit. But net net, it will be down.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Okay. Thanks very much for taking my questions.

Russell Gunther
Managing Director & Equity Research Analyst at Stephens Inc

Thank you.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Thanks Russell.

Operator

Thank you. Our next question comes from the line of Frank Schiraldi from Piper Sandler. Please go ahead.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Just wondering on as I look at or think about capital, your current capital levels on a regulatory basis, any color on where those could trend to in either the short term or the medium term? Obviously, you've got you've been buying back stock and you have more firepower there. But also just thinking about other potential uses of capital and your interest level in additional M and A at this point? Thanks.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes. Maybe I'll start off on the capital and I'll turn it to Roger to talk about M and A. But, Frank, on the capital side, so we have a philosophy as you know that we return about 35% of our net income every year. And that's about 15% in terms of dividend and the rest in terms of buyback. When you look at last year, we actually did about 50%, which was about 35% of that in buyback and about 50% in dividends.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And so and the way we look at that is we look at the opportunities that we have to deploy cash to deploy capital, excuse me, in the business versus where we're trading and the ability to buy back stock. And we kind of always balance that equation and we take a hard look at that and we're constantly thinking through that balance. So I think next year just as we did more this year, I think we will expect to do that again next year and it's an equation that we're continuously looking at and revisiting. I would say the other point I would make is that over the last couple of years, we held a little bit more capital because of volatility in macro environment, credit, interest rates. And so we still think it's prudent to hold a little bit more now.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

But again, we're definitely taking a hard look at buybacks and we continue to be disciplined, but it's something we're focused on continuing to make sure that we're carefully manage that and return as much as we can.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Yes. Frank, it's Roger. I would just add as it relates to our appetite for M and A. We just completed our next strategic plan, 2025, 2017 strategic plan. And the focus is really continuing to optimize this very unique market position that we have across all of our businesses and to really optimize that investment.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

That being said, as David outlined, we continue to invest in the franchise and we would look to invest in both the fee businesses and the banking side if it was something that could be accretive to those activities. I will say that like any investment that we make, the bar is pretty high because any decision to deploy capital in those kinds of investments is a decision to not deploy it in the ordinary course of business. So we're open to looking at that, but we feel very confident that we can continue to achieve the kind of results that we have provided and what we've outlined in the outlook without having to do anything of any significant magnitude, but always open to opportunities that would strengthen the franchise.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. Great. And then just a couple of quick ones on sort of modeling, more modeling related. The really strong deposit growth in the quarter, I know sometimes you can have some customer inflows that large customer inflows that are more temporary in nature. Anything that you see coming back out in terms of just sizing in terms of coming out in 1Q?

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Or is this a pretty good run rate all else considered?

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes, Frank. I think you're right. I think we will have a little bit of that. When we look at like you said, I think we had very strong growth in the quarter, quarter over quarter, but also year over year importantly, so even when you normalize for that seasonality. But for example, if you look at last year and the growth that we had, we also had a strong Q4 last year, probably about half of that came out in the Q1 and then we built on that.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

But so I think we would expect kind of a similar pattern this year. And that's why maybe you see the low single digit growth in deposits off of that high point in 4Q. But I think importantly, when you look at our balances on average year over year, which kind of normalizes out for some of these things, we're still up 6% overall on average year over year. And I would say even more importantly, we're up 7% when you look at the non interest bearing deposits. And the non interest bearing deposit growth was really across all businesses, across consumer, across commercial and across wealth and trust.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And that's really, I would say, reflects the kind of the core fee relationships, the core fee operating business that we do with our clients. So I think the deposit story is a very strong one. Yes, there's seasonality there, but I think any way you look at it quarter over quarter, year over year, I think net net, we have solid growth.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. No, that's great. And then just quickly, lastly, I think when you guys talk about the Cash Connect business, this one partnership that was terminated, I think the numbers you're giving are one time in nature, one time impacts. Is there just trying to size it, am I missing, is there a number you can provide? Is it not meaningful in terms of the quarterly impact from just the lack of this customer being a partner anymore?

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes. I would say, Frank, there are

David Burg
David Burg
Executive VP & CFO at WSFS Financial

a few moving pieces there when you think about Cash Connect for 2025. One is this client, 2 is the interest rate impact and 3 are the levers that I previously discussed around pricing optimization and growth in the business. And so when you net all of those things, we expect the top line revenue to be down somewhat, but that's more than offsetting expenses. And so when you net all of those things, including the absence of this client, we still expect our profit margin to increase from the mid single digits to kind of the high single digits next year. So that's really how we look at the business and that's how we're driving the business.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. Just in terms of the specific fee from the absence of this one customer is just something you guys aren't disclosing or is it just not meaningful

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

or both?

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

We can't really don't want to get too much into specific client revenue. But again, I think I would focus on the bottom line, the profit margin and run rating this quarter a little bit.

Frank Schiraldi
Frank Schiraldi
Managing Director at Piper Sandler Companies

Okay. All right, great. Thank you.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Thank you very much.

Operator

Thank you. Our next question comes from the line of Kelly Motta from KBW. Please go ahead.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Hi, thanks for the question. Maybe just one more quick question on this Cash Connect business. Just from a high level, it sounds like what happened with this client is somewhat idiosyncratic. What are the risks of this business? Is it mostly just mismanagement or potential a fraud risk or theft?

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

I'm just trying to understand what the risks are here beyond, moves in interest rates. Maybe I'll start with that.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Yes. So just to circle back to the particular situation, Cai. And as it's outlined in the materials, the business owner had financial stress in related enterprises that we felt elevated the risk profile of our relationship. And that's what led to the termination of that relationship. More broadly, I think the risk as you think about the business here is we're managing and keeping track of large amount of cash throughout the system and making sure that we have all the proper controls in place to manage and track that, which is obviously a lot of systems that have been built up over the 25 years or so that we've been in business.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

And I would say as a general statement, all of those controls worked in this particular situation to our satisfaction. There are some loose ends that we're still working on as reflected in those charges and we have some avenues to pursue on that. But that's the biggest risk in this business. And I would say as a general statement, I think the way we mitigate those risks and manage them demonstrated very well in the ultimate outcome of that situation.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it. That's really helpful. And I appreciate all the color on kind of the investments you've made and talent you've brought on and kind of how you're managing expenses commensurate with revenue growth. Just wondering, as we look ahead, how much when you're managing your expenses, are there still rooms for additional efficiencies? And that would be perhaps if revenues came in lighter or more challenged be the areas in which you could potentially get greater savings or would the plug here mostly be a toggle in your recruiting efforts?

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

I'd

David Burg
David Burg
Executive VP & CFO at WSFS Financial

say, Kelly, it's a combination. I think, for example, again, one of the things that drove our expenses this time was when the Q4 typically is a true up in our incentive accrual, which is very numeric and really relates to the company performance. So that's something that is clearly variable and something that is directly related to where ROAs are and where the company performance is. I think that's one thing. The second thing is that as we've made investments in headcount, particularly when we talk about advisors, relationship managers, as you may know, the expenses of course start day 1, but because of contractual limitations, the revenue really doesn't start flowing materially until the 2nd year.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And so there's a little bit of a mismatch there's a little bit of a timing mismatch between when the expenses and that revenue. But that's why we feel optimistic about continuing that double digit trajectory. It's on the back of these investments. And I would say the third thing is we have made we had some major technology investments this year, including upgrading our trust accounting system, which was one of the final kind of integration pieces from our acquisitions. And so that drove when you look at the full year, that was really more of a Q3, but when you look at the full year, that also was a lever.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

So I do think we have levers and it's something again that we manage we take a very hard look at.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Yes. Kelly, it's Rod. Just to give a little bit of historical context. I think if you followed us over a period of time, our efficiency ratio has tended to be a little bit higher than some of our peers. We have dipped into the 50% the mid-50s and high-50s periodically.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

We've kind of hovered around 60% as a more of a long term sustainable level. And a big part of that is because the businesses that we're in are service driven businesses and we think and fee businesses, which carry a little bit higher expense load to them. So that's why we talk about the efficiency ratio being around that 60%. That is our long term goal. Obviously, we always look at opportunities to become more efficient.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

You saw this quarter, we moved some owned real estate to held for sale. We're taking advantage hopefully of some opportunities in the marketplace to address some potential expense savings there. So we're looking at it that way, but there shouldn't be an expectation that we're going to drop somewhere below that kind of historical level because I think our mix of businesses and our service based model dictates a little bit higher efficiency ratio.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Understood. That's super helpful context. Maybe last question from me. I think this is the 2nd quarter where you had an uptick in NPAs this quarter. I believe the presentation calls out land and multifamily construction.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Can you provide us some color on the migration that occurred this quarter and your process of work out of some of these larger migrations over the past back half of last year?

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Yes. So I would say that really it was only one credit of any size that moved to NPA and it was that relationship. So 2 loans right around $20,000,000 each as we outlined in the materials, a land loan, industrial land loan in Central Jersey area and then another multifamily construction loan more in North Jersey. To a large sponsor that has run into some challenges in his global cash flow. We feel, as David said, we're very well secured and we're working through that.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Similarly, I would say the other situations that we've had that migrated over the course of last year into NPA, I think we continue to work on those in a very constructive way. As we've talked about with our borrowers, we hope to see some resolution in the near future. And obviously, all of that was incorporated into where we've landed on the ACL going forward.

Kelly Motta
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Kelly, I would just add that a vast majority of our loans are with recourse as well. So we have we actively manage that. We have different tools. And so that's why you don't necessarily have the NPAs that turn into losses.

Operator

Our last question comes from the line of Manuel Neves from D. A. Davidson. Please go ahead.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

Hey, good afternoon. Hey, Manuel.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

Could you go into a little

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

bit more detail on the loan growth outlook and the mix for it? Discuss pipelines and kind of what keeps consumer flat? What parts are going to make up for the upstart runoff? Let's start with that.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Sure. Sure. Sure. So, yes, so I think when you look at the loan growth outlook, you really as you alluded to, you have to break it down between the consumer and the commercial businesses. When you look at the consumer, we have 2 partnership portfolios that we'll be running off.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

1 is Upstart, which right now is about $140,000,000 as of the end of the year. It runs off about $25,000,000 a quarter. So really by the end of the year, this portfolio will be kind of negligible by the end of this year. The other runoff portfolio is $1,000,000,000 and that portfolio runs off the Spring EQ portfolio. And that portfolio, the runoff is a little bit subject to interest rates, but with prepayments.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

But generally, it runs off about $10,000,000 to $15,000,000 per month. So this quarter, I think we had about $44,000,000 was the runoff in that portfolio. So those are kind of the decliners. Offsetting that, we are we're definitely focused and have had success in growing our WSFS originated loans. And those are a combination of residential mortgage loans, which had nice growth this quarter as well as other consumer portfolios that we have and primarily kind of HELOC portfolios that again that we had nice growth this quarter.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

So I think the combination of doing more on the mortgage side, which we feel we can do, as well as some of our real estate some of our other smaller portfolios, I think largely is going to offset this growth to keep consumer flat. So that's kind of the consumer story. On the commercial story, we had if you look at our we had larger payoffs this quarter due to seasonality, which always happens in the Q4, but I think particularly in this quarter, we had some business sales, which accounted for about 25% of the payoffs. But generally, when you look at our the origination side of the equation or the pipeline, it's still solid and we still we feel good about it. We feel good about the momentum.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And so I think commercial is going to continue to deliver mid single digit growth. So when you put all of that together, you get to maybe a 3.5%, 4% growth between the 2. And that's how it shakes out.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

I appreciate that color. Does the resi mortgage origination or the HELOC origination, does that add household? Is it like kind of deeper relationships with folks you already have on the wealth management side? That was part of the thought process with Upstart and Spring e Q is that you could add households. And I'm just wondering if you're finding new ways to do that.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

Just any color on some of that would be helpful.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes. I think the residential mortgage, it's a combination. I think it's a business that we have capability and that we originate ourselves. We think that there's and we obviously try to lend from a relationship perspective. So that can be an input influx of new clients that then we try to expand into deposit accounts, but also is important source of cross sell from a wealth business as well, both ways.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

So I think that is an entry point for new clients as well as also an area where we can expand relationships for clients that come in through other channels like wealth. Manuel, I'd also remind you, this is Art. We have originated both mortgage loans for clients or prospects as well as non clients and we have the flexibility for the non client relationships to be able to sell those loans into the secondary market and book a gain. So it's a combination of sales and then where those relationships are there, we'd rather keep it on the books rather than expose that client to a competitor.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

I appreciate that. With that kind of blended overall loan growth rate of 3.5% to 4%, a lot of that's covered with securities cash flows that could potentially leave you with a lot more capital build. You talked about having a similar level of buyback activity to last year. Could it meaningfully increase?

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

Yes. I think, Manuel, we kind of touched on this before. Yes, we can fund the loan growth with the securities. There may be some excess and we're certainly generating capital and that will all be included in our ongoing analysis of the capital return philosophy that we've talked about a fair bit.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Yes. And then, well, I would add that one of the things that I mean, in this particular quarter, in the beginning of the quarter, we paid off our BTFE facility. We basically paid it off in cash, driven by the liquidity generation that we had in the business. So that's also been accretive to our net interest margin. So I think we look at kind of all of those levers and opportunities to deploy liquidity.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

And as Roger said, we'll continue to evaluate buybacks for sure.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

Is there any further takeaways on the strategic plan, but the new 3 year plan just kind of obviously it comes across with the near term outlook for this year. But can you is there anything else you can discuss on kind of what the focus is on that 3 year strategic plan?

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

I think first of all, the plan is consistent with the process that we've gone through before. It's every 3 years. It's a combination of management working with the Board. And I would tell you that it's very consistent with what you've been hearing us talk about. It's to continue to optimize the prior investments that we've made in the franchise and continue to lean into those areas across all of our business lines.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

As you've heard us talk about, we have a very unique market position in one of the most favorable markets in the country, where really all the large players are much, much larger institutions where this market is just one small piece of their franchise. This is our where our franchise is. And we think there's opportunities for growth to take market share, for us to get more of a share of wallet with our customers and to continue to grow through some of the investments that we've made. And that's really the focus of the plan, and it's consistent with our long term goal of delivering sustainable long term high performance as you've seen demonstrated over the last several years. We will invest in all of that.

Rodger Levenson
Rodger Levenson
Chairman, President & CEO at WSFS Financial

That could be similar to what you saw in 2024 with adding talent and we would be open to investments of a little bit larger size as well. But as I said, I think the bar for those will be high because we really want to have our the organization focused on optimizing what's right in front of us and what's very unique and different.

Manuel Navas
MD & Senior Research Analyst at D.A. Davidson

I appreciate the commentary. Thank you.

Operator

Thank you. And with no further questions in queue, I would now like to turn the conference back over to Mr. Dennis.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Okay. Thank you everyone for joining today's call. If you have any specific questions, please feel free to reach out to Andrew or me. Roger, Art and I will be attending conferences and investor meetings throughout the quarter and we look forward to meeting with many of you. Have a great day.

David Burg
David Burg
Executive VP & CFO at WSFS Financial

Thank you.

Operator

That concludes our conference call for today. You may now disconnect.

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Key Takeaways

  • WSFS reported a core EPS of $1.11 in 4Q24 with a 1.24% return on assets and a 16.55% return on tangible common equity, capping a full-year core EPS of $4.39, ROA of 1.26%, and ROTCE of 17.83%.
  • Core fee revenue grew 7% year-over-year in 4Q—led by a record $40 million quarter in Wealth & Trust—despite a one-time $4.7 million pretax impact from terminating a high-risk cash-connect client.
  • Net interest margin rose to 3.80% (up 2 basis points QoQ) amid rate cuts, while deposits grew 4% linked quarter (non-interest bearing +6%) and loans were up 3% YoY, leaving a 77% loan-to-deposit ratio.
  • Total net credit costs fell to $8.7 million, with net charge-offs of 20 bps excluding the Upstart runoff, a slight rise in NPAs from one well-collateralized relationship, and allowance coverage at 1.48%.
  • The 2025 outlook assumes a 25 bp rate cut in June and targets a core ROA of ~1.25%, mid single-digit commercial loan growth, flat consumer loans offset by origination, low single-digit deposit growth, NIM ~3.80%, mid-single-digit fee growth, and a 60% efficiency ratio.
AI Generated. May Contain Errors.
Earnings Conference Call
WSFS Financial Q4 2024
00:00 / 00:00

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