WSFS Financial (WSFS) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The first quarter core PPNR percentage was 2.29% and core ROA was 1.27% [6] - Gross loans grew by $230 million in the quarter, with$ 155 million from commercial loans and $68 million from the Spring EQ consumer partnership [10] - The first quarter net interest margin was 4.25%, with loan yields increasing by 44 basis points to 6.42% [11] - Core fee revenue was$ 63.7 million, representing a 5% growth compared to the first quarter of 2022 [12] - The efficiency ratio for the quarter was 53.9%, indicating continued discipline in cost management [12] Business Line Data and Key Metrics Changes - Non-interest-bearing demand deposits comprised 33% of customer deposits, while no and low interest demand made up 53% [8] - Core fee revenue growth was 7% year-over-year when excluding fee income from BMT Insurance Advisors, which was sold in 2Q of 2022 [12] - Delinquencies increased by 32 basis points to 83 basis points of gross loans, primarily due to two C&I long-term problem loan relationships [14] Market Data and Key Metrics Changes - 73% of deposits are insured, with 64% FDIC insured and another 9% collateralized or otherwise protected [7] - The company utilized $1.1 billion of wholesale funding, which is only 6% of total balance sheet funding [8] - The ACL coverage ratio increased by 11 basis points to 1.28% [16] Company Strategy and Development Direction - The company remains focused on its relationship-based banking model and is well-positioned to continue executing its strategic plan objectives [17] - The management emphasized the importance of evaluating the macroeconomic and credit environment before making capital return decisions [22] - The company is open to both organic growth and potential acquisitions, while also considering share repurchases as excess capacity allows [22] Management Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty in the macroeconomic outlook and near-term market conditions but expressed confidence in the company's position [17] - The company plans to provide an update to its full-year outlook when reporting second-quarter earnings [16] - Management noted that deposit betas had increased to 28%, with potential for them to end in the mid to high 40s by the end of 2023 [18] Other Important Information - The company’s capital levels remain well above well-capitalized standards [9] - Problem assets continue to show positive trends post-COVID, with NPAs remaining stable at historical lows [14] - The investment portfolio is expected to cash flow at$ 50 million a month, which will fund some of the loan growth [25] Q&A Session Summary Question: Thoughts on deposit betas and industry trends - Management indicated that deposit betas increased to 28%, slightly higher than earlier expectations, with potential to reach mid to high 40s by year-end [18][19] Question: Non-interest-bearing deposit base and future trends - Management expects continued opportunities to grow the trust deposit business, though impacted by capital market flows [21] Question: Capital allocation strategy between organic growth and buybacks - Management stated that capital return decisions are based on the economic environment, with a focus on funding organic growth first [22] Question: Liquidity capacity and wholesale funding usage - Management confirmed a total capacity of $6.3 billion at FHLB, with expectations to utilize wholesale funding as needed based on loan growth [24][25] Question: Future provision levels and economic factors - Management noted that the ACL model has captured current economic uncertainty, with future provisions driven by net loan growth [27] Question: Charge-offs in consumer portfolios - Management clarified that charge-offs from the Upstart portfolio are expected to stabilize, with the focus on larger portfolios driving future charge-offs [29][30] Question: Securities portfolio repositioning - Management continues to evaluate the securities portfolio but is currently comfortable with its cash flow position [31] Question: Loan growth outlook and appetite - Management remains open for business, focusing on supporting existing customers while exploring new opportunities [34]