WSFS Financial Corporation (NASDAQ:WSFS) Q4 2023 Earnings Call Transcript
WSFS Financial Corporation (NASDAQ:WSFS) Q4 2023 Earnings Call Transcript January 26, 2024
WSFS Financial Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the WSFS Financial Corporation Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn the call over to your host for today, Mr. Art Bacci, Interim Chief Financial Officer. Sir, you may begin.
Art Bacci: Thank you. Good afternoon, and thank you again for joining our fourth quarter 2023 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 company website. With me on this call are Rodger Levenson, Chairman, President, and CEO; Steve Clark, Chief Commercial Banking Officer; and Shari Kruzinski, Chief Consumer Banking Officer. Before I turn the call over to Roger for his remarks on the quarter, I would like to read out 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, the 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 during today's call are subject to the safe harbor statement. I will now turn the call over to Roger.
Rodger Levenson: Thank you, Art, and everyone else, for joining us on the call today. WSFS performed very well in the fourth quarter, as we continued to demonstrate the strength and diversity of our business model. These results capped a successful 2023 with full year core earnings per share of $4.55, core return on tangible common equity of 22.48%, and a core return on assets of 1.38%. Each of these metrics exceeded 2022 levels. Highlights for the quarter and full year included: Customer deposit growth of 3% linked quarter or 13% annualized. Growth occurred across our Wealth and Trust, Commercial and Consumer businesses. Deposit mix remained strong with 31% of average deposits in non-interest demand accounts. Loan growth of 1% linked quarter or 3% annualized.
Full year customer deposit and loan growth of 2% and 7%, respectively, with the year-end loan-to-deposit ratio of 77%. Core net interest margin of 3.99% for the quarter, with interest-bearing deposit beta at 44%. Core fee revenue growth of 6% linked quarter. Growth was driven by Wealth and Trust, Cash Connect, and Capital Markets businesses. Full year core fee revenue growth of 10% and core fee revenue ratio of 30.4% in the fourth quarter. The core efficiency ratio was 54.5% for the quarter, which included several favorable one-time adjustments of approximately $4 million for estimated incentive and employee benefit accruals. Excluding these adjustments, the core efficiency ratio would have been 56.2%. Asset quality remained stable. Net charge-offs and problem loans were essentially flat to Q3, and NPAs ticked up 8 basis points.
The balance sheet remains strong with ACL coverage of 1.35% and all capital ratios significantly above well-capitalized levels. In summary, our franchise growth was facilitated by the continued optimization of our investments and highly unique competitive market position. We enter 2024 with strong momentum and look forward to continuing to execute on our 2022 to 2024 strategic plan. I will now turn it back to Art for commentary on our 2024 outlook and to facilitate Q&A.
Art Bacci: Thank you, Rodger. I will now cover our outlook for 2024. Looking forward to 2024, we expect a full year core return on assets of around 1.20%. Our outlook assumes no interest rate cuts in 2024. This assumption is a different approach from our prior periods, whereby we tied our interest rate outlook to the forward curve. Our analysis demonstrates the forward curve has been a [poor] (ph) indicator of actual interest rate changes. Additionally, recent economic data along with comments from the Federal Reserve and European Central Bank officials have combined to temper market expectations for lower interest rates. We have also assessed our outlook assuming three interest rate cuts totaling 75 basis points, all in the second half of 2024.
The impact potentially reduces our net interest margin by approximately 15 basis points in 2024. Further information on our interest rate sensitivity is provided on Slide 10 of the supplement. WSFS' diverse business model provides management with multiple strategies to achieve our previously communicated goal of top-quartile performance. Our favorable market position, a loan-to-deposit ratio of 77%, and consistent cash flows from our securities portfolio enable us to opportunistically fund relationship-based loans in our markets. Our multiple sources of core deposits provide us with favorable deposit cost and funding mix, further contributing to our top-tier net interest margin. Fee income contributes almost one-third of our total revenue. Our fee-based businesses continue to be increasingly integrated with our overall business model and all have significant growth opportunities, because of joint relationships with our commercial and consumer customers, industry consolidation, and potential non-bank M&A activity.
I will also point out that gradual declining interest rates potentially enhance our financial results and capital positions than better equity and fixed income market performance, increased mortgage and asset securitization transactions, and higher market valuations of our investment portfolio and tangible book value as demonstrated during the fourth quarter. Net charge-offs are expected to be between 50 basis points and 60 basis points of average loans for the year, primarily driven by Upstart and NewLane, as well as continued normalization of credit trends. Overall, our portfolio credit metrics were stable this quarter, and our ACL coverage ratio is 1.35% of total loans and leases. Excluding the held to maturity securities and including acquisition credit marks, the ACL ratio stands at 1.64% of loans and leases.
Further information on our ACL ratio is included on Slide 13 of the supplement. Finally, our strong capital position and earnings enable us to absorb unfavorable developments in the economy, to continue to invest in our franchise, capitalize on market opportunities, and to take steps to further enhance shareholder returns. Thank you, and we will now open the line for questions.
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