WSFS Financial Corp 2026 Q3 Earnings Call

Hello everyone. Thank you for joining us and welcome to WSFS Financial Corporation third quarter earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I'd now like to turn the call over to your host for today, Mr. David Burg, Chief Financial Officer. Sir, please go ahead. Thank you very much.

Good afternoon, and thank you for joining our third quarter 2026 earnings call. Our earnings release and earnings release supplement, which we'll refer to on today's call, can be found in the investor relations section of our company website. With me on this call is Rodger Levenson, Chairman, President, and CEO. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information about our management's view of 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 in our annual report on Form 10-K and our most recent quarterly report 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. During the third quarter, WSFS' performance continued to demonstrate the strength of our franchise and diverse business model. Results included a core EPS of $1.75, core ROA of 1.58%, and core return on tangible common equity of 20.7%, which are all above the prior quarter level. On a year-over-year basis, core PPNR increased 15% and core net income increased 14%, resulting in core EPS growth of 25%. Net interest margin expanded by one basis point linked quarter to 3.88%, reflecting the benefit of loan growth and higher investment securities yields, partially offset by a four basis point increase in client deposit costs. We exited the rate cycle with a cumulative interest-bearing deposit beta of 41% and experienced an 18% deposit beta in the September rate hike.

We continue to see deposit pricing pressure in the market and expect our beta to drift up over time. We expect to exit 2026 with an up-cycle beta of 35% across the September rate increase and another rate increase in December. Core fee revenue, which represents nearly a third of total revenue, declined 1% linked quarter and increased 3% year over year. The growth in our fee revenue was led by wealth and trust, which increased 30% year over year and now represents approximately 60% of our total fee revenue. Our wealth and trust business has delivered double-digit year-over-year growth for eight consecutive quarters, demonstrating our ability to generate growth through various interest rate and market environments. Wealth and trust growth was broad based with corporate trust, global capital markets, the Bryn Mawr Trust Company of Delaware, and private wealth all delivering double-digit growth year over year.

Within WSFS Institutional Services, corporate trust and global capital markets increased 45% and 48% year-over-year respectively, reflecting continued success in winning new mandates and capturing market share. Our personal trust business, the Bryn Mawr Trust Company of Delaware, grew 22% year-over-year, driven by continued new account growth, while private wealth increased 14% year-over-year, driven by higher AUM. Cash Connect fees declined year-over-year due to the impact of the 2025 interest rate cuts and lower volumes. The business delivered another quarter with a profit margin of 15%, which is up meaningfully from the prior year. Gross loans grew 1% linked quarter, or 5% annualized. Excluding the continued runoff of the Spring EQ portfolio, loans grew 2% linked quarter and 7% year-over-year.

In commercial, we continued to see momentum in C&I, which grew 1% linked quarter and is up 9% year-over-year. While C&I funding moderated from the elevated levels in recent quarters, client activity remains healthy and is supported by a solid pipeline. In consumer, home lending delivered another strong origination quarter despite the interest rate environment. Residential mortgage and home equity loans were up 6% linked quarter and 24% year-over-year. Client deposits declined 3% linked quarter, primarily reflecting the expected outflow of elevated transactional deposits at the end of the prior quarter within institutional services and commercial. Average deposits, which are a better measure of client activity, were up slightly linked quarter. On a year-over-year basis, average core deposits were up 10%, with average non-interest deposits growing 20%. Non-interest deposits now represent 35% of our total average deposits.

Core non-interest expenses decreased 3% linked quarter and were generally flat year-over-year as our efficiency ratio declined to 56.1%. While our expenses benefited from several non-recurring items this quarter, we continue to focus on expense discipline while investing in the franchise. Turning to asset quality. Most credit metrics remained stable, and we had a net recovery this quarter for the second time this year. Year-to-date, net charge-offs totaled 3 basis points of average gross loans. Delinquencies decreased 3% linked quarter and 11% year-over-year, reaching their lowest level in 2 years. Problem assets increased by $57.5 million or 12% linked quarter, primarily driven by several downgrades across multifamily, construction, and C&I. Despite the linked quarter increase, problem assets are down 16% compared to a year ago.

Non-performing assets were generally flat linked quarter as an increase from a student housing-related loan was offset by other payoffs. Our credit costs for the quarter included an $8 million specific reserve related to this loan. During the quarter, we continued to execute on our capital return framework, returning $70 million of capital to shareholders, including $60 million through share repurchases. Year-to-date, we have repurchased 5.6% of our outstanding shares and returned over 90% of net income to shareholders. We are pleased with these results and remain committed to delivering high performance. We will now open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Russell Gunther with Stephens. Russell, please go ahead. Thank you.

Hey, good afternoon, guys. Good afternoon, Russell.

Hey, David. I wanted to start, please, on the loan growth. You guys typically talk to a mid-single digit type of result, and that's what we saw this quarter. Just curious to get your sense for how you're thinking about the fourth quarter from both an order of magnitude and mix perspective. C&I seems like it's still tracking really well. Then David, for us, bigger picture with the recent backup in rates and anticipated future Fed hikes, is there an absolute level of rates where demand destruction occurs and your internal target of mid-single digits is at risk?

Yeah. Russell, I would say this quarter we, as you saw, continued to kind of maintain the performance, and we got growth out of the areas where we've gotten growth across over the last few quarters over the year. On the commercial side, we continue to see solid momentum within our C&I book, which is our primary area of focus. We continue to grow that portfolio. While fundings this quarter were a little bit weaker than what we saw in the first half of the year, the last couple of quarters, I would say they're back down to a more normalized level consistent with where activity has been over the last couple of years versus the first half of the year this year, which was exceptionally strong. I think this is a more normalized level, and I think where we would expect to be.

On the consumer side, as you know, our strategy has been to really focus on real estate secured lending, and our growth really has been coming from our mortgage portfolio and our home equity portfolio. Despite the high interest rate environment, we continue to see really good growth in that portfolio in our footprint this quarter. The pipeline there has been coming down because of the rate environment. Clearly with mortgages above 7%, that definitely has an impact on your origination demand. We don't expect to see the kind of growth that we've been seeing over the course of the year there going forward. But on a competitive basis, we still feel like we have a differentiated origination strategy, and we still feel good about our ability to compete and grow in this market. But most likely at a slower rate there.

Okay. Assuming helpful rates available.