WSFS Financial Corporation
Q1 2021 Earnings Call Transcript

Published: 23 Apr 2021

[Operator:]

Thank you for standing by, and welcome to the WSFS Financial Corporation First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. I would now like to turn the call over to your host for today Mr. Dominic Canuso, Chief Financial Officer. Sir, you may begin.

[Dominic Canuso:]

Thank you, Michelle, and thanks to all of you for taking the time to participate on our call today. With me on this call are Rodger Levenson, Chairman, President and CEO; Art Bacci, Chief Wealth Officer; Steve Clark, Chief Commercial Banking Officer; and Rick Wright, Chief Retail Banking Officer. Before I begin with his remarks on the quarter, I would like to read our Safe Harbor statement. Our discussion today will include information about our 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 risk factors included in our Annual Report on Form 10-K 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 today are subject to the Safe Harbor statement.

[Operator:]

Our first question comes from Michael Perito with KBW.

[Michael Perito:]

Dominic, I want to stick on your last comment there and I realize it's a bit challenging. But on the liquidity side, right, I mean, I guess we'll have to obviously make some assumptions about when that flows out over the course of the year. But I guess, can you maybe give us a little bit more color on how you're thinking about deployment, assuming that the cash maybe sticks around for a couple quarters here? I mean, is there a point where you start putting into work in the investment book? I mean, obviously, loan growth is a little uncertain right now and even expand and provide there on the size of the balance sheet and liquidity appetite?

[Dominic Canuso:]

Sure, it's a great question. And we do anticipate for the excess liquidity to be around at least for a couple of quarters. And I mentioned in my comments that over the last few quarters, we've leveraged that excess liquidity to pay off wholesale funding and have increased our investment portfolio significantly. We will continue to evaluate and put that those dollars to use and while it is a drag to net interest margin, the opportunity from the incremental volume could generate some NII and offset any lagging growth in the total portfolio.

[Michael Perito:]

So it sounds like it's not unreasonable to think that, looking at the period end balance sheet, the cash balances were even higher than the average balance sheet would suggest, I mean, assuming that that liquidity stays in, it's not unreasonable to assume that you guys will continue to build the bond book here. Just given your loan growth commentary that you mentioned in your prepared remarks?

[Dominic Canuso:]

That is a good assumption.

[Michael Perito:]

Okay. And then, on the fee side, just was wondering, obviously some good momentum on a couple business lines here. Just curious if you could maybe give an update on the cash connect outlook for the balance of the year, but also, on the mortgage side? It has always been kind of a tight real estate market in your neck of the woods would be this there's still enough refi momentum here for that to remain elevated or any other thoughts that would be helpful?

[Dominic Canuso:]

Sure, good question. So we did see a decrease quarter-over-quarter and the fees from cash connect, even though both units served and total dollars managed increase. And that was primarily because of the seasonality slowdown in the first quarter and particularly harsh weather months in January and February across much of the country. But we do anticipate that the top-line growth will continue based on unit served and dollar served in the mid to high single digits. On the mortgage side, what we've seen in the first quarter's refi mix is still at 70% and still leading the volume. We do anticipate at some point in time, as the interest rates remain low that those that could have refinanced would have, but we haven't necessarily seen a significant slowdown as of yet.

[Michael Perito:]

Got it. And then, just some -- last question for me, I just apologize if I missed it in the prepared remarks or in the deck somewhere, but I was just looking for the quarter-to-date or the end of quarter modification or total deferral number. I was wondering if you have that and maybe just can parlay that into a quick comment about the directional here. I mean, you guys kind of stood by your provision costs. But, obviously, with the deferrals coming down from assuming they did and the economy kind of slowly chugging along here month-by-month. I mean, seems like that might be a little conservative. I was wondering if you had any updated thoughts.

[Steve Clark:]

Hey, Mike, this is Steve Clark, regarding the deferral question. Just about 1% of our total book remains in some form of modification. For the commercial book that represents $79 million and of that they are all paying interest. So, the deferrals we see no up tick. It's been very flat over the last two quarters and I feel pretty good about where we stand related to that.

[Operator:]

Our next question comes from Brody Preston with Stephens Bank.

[Brody Preston:]

First of all, I want to say thanks. Thanks for the earnings that you guys have revamped over the last couple of quarters and there's a lot of great detail in there. So it was nice to come through that last night when you dropped it. I did want to start by asking. And I might have missed it but do you have an average balance for the PPP loans for the core?

[Dominic Canuso:]

We do and we had shared in our materials, I think it's slide seven.

[Brody Preston:]

That's right, six.

[Dominic Canuso:]

Slide five, I apologize. And on there, you'll see that PPP loans ended at 527. And so low six hundreds for the quarter.

[Brody Preston:]

Okay. So just a simple average kind of gets you there.

[Dominic Canuso:]

Yes.

[Brody Preston:]

Okay. All right. And then, it was good to see the fee income. I think it's the first quarter since the beneficial deal, you guys are back above 30%. And that's what some of the headwinds on cash connect that you saw. But just as we think about mortgage kind of trending lower, I think you'd love this -- you'd love to have that mix kind of stay above 30%, as you lead into that Bryn Mawr deal. And so I guess what levers do we have to pull to keep that percentage above 30 in the short-term?

[Dominic Canuso:]

Sure. And yes, I think it's an important context to note that that is 30% in this interest rate environment, of course, and we'd love to be able to maintain that that level in a rising rate environment and would look to do that. And while there may be a slowdown in mortgage, we continue to see opportunities in both cash connect and wealth growth to offset that. And, obviously, with the pending combination with Bryn Mawr that would enhance the percentage as well.

[Brody Preston:]

Okay, got it. And then, just wanted to circle back on the growth commentary. So, I understand there's headwinds, but you did kind of stick to the mid single digit guide, x-PPP and the runoff portfolios. And so now that the runoff portfolios, at least in the commercial side are down, I think it was 55 million or so is what you called out on the deck is, is the growth to get to that guidance, more back half loaded? And what are the categories that you expect to drive that growth from here?

[Steve Clark:]

Hey, Brody. This is Steve Clark again. So, yes, we do remain comfortable in our expectations for the full year in terms of mid single digits. So, from our view, kind of back half second half of the year. Couple reasons for that, as we sit here today, our pipeline is as large as it's been since the fourth quarter of 2019. So, feeling optimistic there, we continue to receive and evaluate CRE requests and they are significant requests. We are pretty selective in that space and remain very disciplined regarding pricing and structure, but nonetheless, we have CRE opportunities. And then lastly, the CNI RMs that we added last October, November to the team, very pleased with the traction they're getting and expect them to continue to produce as we go through the second half of the year. As it relates to CNI growth, I would just add, certainly depending on the economy continuing to open up and really depending on our customers are sitting on so much liquidity, it's dependent on that being used. And then, as it relates to companies changing banks, where do they stand in their PPP forgiveness process because, that is a bit of a headwind. But generally, again, for the full year still mid single digit is attainable.

[Brody Preston:]

Okay. And what are the origination yields on new production averaging, Steve?

[Steve Clark:]

So new production for the quarter, and this is all loans over $250,000 was 3.67%. So, that really compares favorably to the fourth quarter, which was 3.28%. So, we've stated in the past, we're kind of shooting for that mid 3s and the first quarter, we were pleased with that in terms of the weighted average yield on new fundings.

[Brody Preston:]

Great, thank you for that. And Dominic, questions for you, the 17.5 million in net expected investment for this year tied to delivery transformation, I just wanted to ask how much of that was accomplished in the first quarter?

[Dominic Canuso:]

Yes, I would say I think it's about 3 million or so it will definitely ramp up as some of that is CapEx investment and would take -- come into the expense line through depreciation once those projects go live. But overall, the 17.5 million is consistent with what we laid out at the beginning of the year versus our expectation and consistent with the overall strategy we've discussed over the last few years.

[Brody Preston:]

Got it. And then, I do have a question on SBA, just with the relationship managers from 19 to 20 you added a couple. And I think the PPP experiences kind of bolstered everybody's feelings about maybe being able to take advantage of SBA. And so do you anticipate maybe building out this platform and being more, I guess, more involved in 7A lending moving forward, just given the fee income opportunities?

[Steve Clark:]

Brody, this is a Steve again. So, the SBA team has really, really gelled over the last year. So we did add three new associates in that space, two kind of in-market and one kind of a national franchise. And, we're seeing opportunity coming out of our business banking book on the commercial side, in addition to the SBA RMs that are focused in that space, companies that have struggled over the past year or certainly are candidates for SBA 7A refinancing. And, if we're effective in that, we have the gain on sale possibility. So, I think SBA for the bank is a growth segment. And Rick Wright may have additional comments there, but that's our view.

[Operator:]

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

[Dominic Canuso:]

Thank you all for participating today. Roger and I will be attending investor conference and events during the second quarter and look forward to meeting with many of you then. Have a good day.

[Operator:]

Ladies and gentlemen, that does conclude the conference. You may now disconnect. Everyone have a great day.