Prepared remarks
I would 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, and good afternoon, everyone. Thank you for joining our second quarter 2026 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 is Rodger Levenson, Chairman, President, and Chief Executive Officer. Prior to reviewing our financial results, I would like to read our safe harbor statement. Our discussion today will include information about management's views or future expectations, plans, and prospects. That constitutes 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 reports on Form 10-Q, as well as other documents we may 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 second quarter, WSFS' performance continued to demonstrate the strength of our franchise and diverse business model. Results included core earnings per share of $1.66, core ROA of 1.55%, and core return on tangible common equity of 20.2%, which are all above the first quarter levels when you exclude the previously disclosed loan recovery. On a year-over-year basis, core net income increased 19% and core PPNR increased 10%, resulting in core earnings per share growth of 31% and tangible book value per share growth of 13%. Core results for the quarter exclude a $1.8 million decrease to net income and a $0.03 reduction to EPS, primarily related to the write down of an equity investment as well as the previously disclosed gain from the sale of our credit card portfolio. Net interest margin expanded 4 basis points linked quarter to 3.87%, driven by a 4 basis point reduction in our client deposit costs as well as higher investment securities yields. Our interest-bearing deposit beta remained at 46%. Core fee revenue, which represents nearly one-third of total revenue, grew 2% linked quarter and 5% year-over-year. The growth across our fee businesses was led by Wealth and Trust, which grew 17% year-over-year. Within Institutional Services, Corporate Trust and Global Capital Markets were up 28% and 58% year-over-year, respectively, as we continue to win new mandates and capture market share. For the first half of 2026, WSFS was ranked as the third most active ABS and MBS trustee based on deal count, increasing our market share to 14% from 11.7% in 2025. Our personal trust business, The Bryn Mawr Trust Company of Delaware, also delivered strong year-over-year growth of 20% driven by continued new account growth. Outside of wealth, our capital markets business within the commercial division also delivered strong double-digit growth both linked quarter and year-over-year. Cash Connect fees declined year-over-year due to the impact of interest rate cuts and lower volumes, but the business delivered a higher profit margin of 15% for the second quarter in a row. Client deposits increased 3% linked quarter driven by growth in Institutional Services and Commercial. On a year-over-year basis, our client deposits were up 11%. Importantly, noninterest-bearing deposits were up 10% linked quarter and now represent 37% of total client deposits, up from 31% a year ago. While we continue to see some elevated quarter-end activity by clients, we are seeing strong deposit growth momentum as evidenced by increases in both end-of-period and average deposits, which also grew 3% linked quarter and 8% year-over-year. Gross loans were up 1% linked quarter or 5% annualized. In Commercial, we continue to see strong momentum in C&I, which grew 2% linked quarter or 8% annualized. In Consumer, home lending generated strong growth with residential mortgage and WSFS home equity loans up 10% linked quarter and 23% year-over-year. Turning to asset quality, we continued the recent trend of improvements across our key metrics, including leading indicators. Problem assets decreased 6% linked quarter due to several commercial payoffs and are now down 31% year-over-year. Delinquencies are down 5% linked quarter and nearly 40% year-over-year, with accruing delinquencies of $26 million as of quarter end. Nonperforming assets are down 8% linked quarter and nearly 25% year-over-year. In addition, net charge-offs were $7.1 million, or 21 basis points of average loans for the quarter. When you exclude the impact of the prior quarter loan recovery, net charge-offs decreased $5.1 million quarter-over-quarter driven by lower commercial charge-offs. During the quarter, we continued to execute on our capital return framework, returning $77 million of capital, including $66 million of buybacks. Year to date, we repurchased over 4% of our outstanding shares and returned approximately 100% of net income to shareholders. On the last page of the earnings supplement, we provided our updated 2026 outlook, which now assumes no Fed funds rate changes for the rest of the year. Our updated full-year outlook reflects improvements across most metrics. Notably, we are increasing our ROA outlook for the year to 1.50% with potential upside from there, as we continue to drive high performance and growth. We also raised our deposit growth rate from mid- to high-single digits. While our results reflect some elevated quarter-end transactional activity, we continue to see strong deposit growth momentum across Institutional Services and Commercial. Our NIM outlook has improved to approximately 3.85% reflecting the updated rate forecast and momentum across deposits and loans. We continue to see elevated deposit competition which may impact deposit pricing going forward. We raised our outlook for fee revenue excluding Cash Connect to mid-to-high single digits as we continue to see strong momentum and future growth opportunities in our fee businesses, particularly Wealth and Trust where we continue to capture market share within Institutional Services and Bryn Mawr Trust Company of Delaware. Net charge-offs are now expected to be between 15 to 25 basis points of average loans for the year, a decrease from our previous outlook which reflects the strong asset quality results we saw in the quarter and recent momentum across key leading indicators. Consistent with our first quarter update, this outlook includes the previously disclosed recovery in 1Q. Our commercial portfolio continues to perform well, but losses may be uneven. Our outlook for efficiency remains unchanged. We plan to maintain strong expense discipline and will continue to leverage opportunities to invest in the franchise, which coupled with normal seasonality may result in some variances quarter-to-quarter. We are pleased with these results and remain committed to delivering high performance. And we will now open the line for questions.
Questions and answers
We will now begin the question-and-answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 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 Elliott Gunther with Stephens. Your line is open. Please go ahead.
Yes. Thank you. Good afternoon. I wanted to begin on the revised margin guide. It looks like it implies relative stability in the back half of the year. We are getting towards the end of earnings this week, and a lot of the commentary so far is focused on margin headwinds for the industry — tighter spreads, higher deposit costs. But when I look at your liquidity profile in terms of the below-peer loan-to-deposit ratio, a lot of securities cash flow that can be reinvested, and a better-than-peer noninterest-bearing mix that is growing, I think you would be better able to defend against competitive pressures on the liability side. How are you thinking about the trajectory of deposit cost from here as what is reflected in the margin guide and as we think about 2027?
Happy to address that. You are right that we have had success in bringing down our deposit costs so far. We have a good liquidity profile, and in fact, we let some of our higher-cost deposits run off in the first half of the year, as you can see in some of our CD runoffs. Because of our liquidity position, we were able to do that. At the same time, there are two factors to consider. First, we have been seeing more deposit competition in the market throughout the first half of the year, and that has built up over the last six months. To give you one example, our largest CD product was a six-month 3% CD, and we found ourselves on the low end of market pricing. It is very easy in the market to get over 4% for 12 months. We want to make sure that we remain competitive even though we do not necessarily need the liquidity today. We want to continue to grow our clients, defend our market share, and capture more share. So we may need to increase rates in certain products to grow in some areas and be competitive. That does put some pressure on our deposit costs going forward. But we expect NIM to be stable, and we expect to be able to manage that. There could be some upward pressure on deposit costs.
Got it. Thank you for your thoughts there. And then switching gears to expenses, I appreciate the reiterated high-fifties efficiency guide. As it relates to dollar noninterest expense and seasonal dynamics, could you level set us in terms of how Q2 may compare to where Q3 is headed? Within that high-fifties target, is there a plus or minus to that? You were at about 59.3% last year. Is that a result you might be able to outperform?
In terms of expenses, this quarter our expenses were up about 4% year-over-year, which is a reasonable growth rate. The majority of our quarter-over-quarter expense increase was driven by variable and revenue-driven expenses, a direct result of outperformance on the top line, although we did have some nonrecurring items that we outlined in our press release. Generally, expenses could be at this level or maybe a little bit lower going forward. A big part of the expense is revenue-driven, so to the extent we continue to outperform on the fee side and on the top line, that will drive additional expenses. You cannot disassociate the revenue from the expenses. We were over 59% last year; we've been at about 58% for the last two quarters. We are comfortable in the range we are at, and over time our goal is to continue to tick that down. We have a number of expense initiatives ongoing. Part of our strategy around expenses has been exiting non-core businesses that were not central to our strategy, which has been an important driver. We have optimized our real estate portfolio and have initiatives around vendor costs. Overall, we will continue to invest in the business while maintaining discipline, and we expect to remain around this efficiency level.
Okay. That makes a ton of sense. Thank you, David. And then one last for me: the 1.50 plus ROA target — what are the biggest deltas to achieving that?
We put the plus there because we would like to come in a little bit better than 1.50%, not materially better. Continued outperformance in fees and continued deposit growth would push us higher. But it's a competitive environment, and sustaining the deposit growth we've seen may be difficult. That is where some of the upside and downside come in.
Okay. Wonderful. Thank you for taking my questions.
Thanks, Russell.
Your next question comes from the line of Kelly Motta with KBW. Your line is open. Please go ahead.
Hi. This is Megan Lynch on for Kelly Motta. Thanks for taking my question. Loan growth was very solid this quarter and you are expecting this growth to continue. Can you speak a bit to how pricing is coming in with competition and whether this competition is pressuring your prices at all?
Sure. I'll split the discussion between Commercial and Consumer. On the Commercial side, our core strategy is to grow our C&I business. That business drives relationships and is an important contributor to our deposits and noninterest-bearing deposits. C&I has always been competitive and continues to be as others try to penetrate the space. We are not the low-cost provider; we separate ourselves based on our service model — responsiveness and relationships. We need to be competitive on pricing, but our differentiation is service. We want to grow in a reasonable, accretive way, and our goal is to continue to grow C&I at mid-single digits through the cycle. On the Consumer side, we have focused on areas where we have a differentiated value proposition. We sold the Upstart portfolio last year and our credit card portfolio this year to focus on residential lending. In residential lending, we have a differentiated product and service model. Pricing in residential real estate has become more challenging due to the move in rates that we've seen, so that is a market dynamic overall.
Thank you. That was very helpful. Switching to credit, you saw some improvement this quarter and the trends seem solid. What are you seeing more broadly, and is there any area you are watching in the portfolio?
We had good credit performance this quarter. We take a very proactive approach to credit, spending a lot of time to get out in front of potential issues and work with clients to resolve them. There are always individual challenges with particular clients or situations, but there is not a systemic red flag or a pattern across asset classes. Office continues to be a challenging market and we try to be very selective there. Generally, nothing new in terms of red flags across our portfolio.
Awesome. Thank you. That is it from me.
Thank you.
Your next question comes from the line of Manuel Navas with Piper Sandler. Your line is open. Please go ahead.
Hey. Good afternoon. Could you add more color on the OpEx discussion? You said there could be some potential variability and it sounded like there could be a downward trajectory. What are some of the projects and items that add variability within OpEx? Is it just variable compensation supporting revenues?
Part of our cost base is variable, so whenever we have revenue outperformance we will see additional expenses. That includes incentive compensation, which was a meaningful part this quarter. We also have transaction expenses—for example, in Cash Connect and in our trust businesses—so a portion of revenue will result in higher expenses. At the same time, we continue to work our core expense base down and offset general rising costs, inflation, and healthcare expenses. We have ongoing initiatives: exiting businesses that are not central to our strategy, optimizing real estate, and vendor cost initiatives. Those are offsetting natural increases and are how we achieved around 4% year-over-year expense growth. But revenue will drive some expense with it.
Manuel, I would add that where variability could come into play is healthcare costs, which remain a big topic and a potential pressure point despite our efforts to manage them. Also, like many banks, we periodically see spikes in fraud from different events. While we are in a good place overall, those two areas—healthcare and fraud—are where some elevated costs could occur unexpectedly.
I appreciate that. Shifting to loan growth: a little more on the guide for the back half of the year at mid-single digits. What are the main drivers and what are you seeing in the marketplace from your borrowers in terms of sentiment, pipelines, and things like that?
I have been out a fair bit over the last several weeks and would characterize client sentiment as very good. Clients are dealing with some cost headwinds, but many have adapted to geopolitical uncertainty and energy volatility. That translates into businesses feeling pretty good and investing, which should be good for us on the C&I side. We are seeing pipeline opportunities. In our marketplace, particularly as you move up the curve into medium-sized businesses and the lower end of the middle market, we compete against much larger institutions. Our service proposition plays very well with those clients. Growing with our clients and taking market share are the two drivers of loan growth for the rest of the year.
On the consumer side, a large part of our growth this quarter came from home lending. We had a strong pipeline into the spring selling season and benefited from earlier rate moves. Now we are reaching a slower part of the season and rates have ticked up, so the pipeline has come down a bit. I would not expect the same level of home lending growth to continue, but we still expect to perform well there.
Appreciate that. On deposits—really strong first half of the year and a big part of the higher guide—are the discussions around NIM and deposit competition because some noninterest-bearing balances could flow out? In other words, how sticky is the noninterest-bearing growth? How much are you preparing for some outflows if any? Talk about the non-transactional side a little bit and how it impacts deposit cost.
When thinking about our noninterest-bearing balances, those deposits are spread across Commercial, Consumer, and Institutional Services. Within Institutional Services, two businesses are key contributors: Corporate Trust, which focuses on ABS and MBS markets, and Global Capital Markets, which focuses on bankruptcy, distressed debt, high-yield debt, and corporate issuance. In this quarter, roughly 80% of noninterest-bearing growth was within Institutional Services, split across those businesses, and 20% was Commercial. The competition we are seeing is primarily in the consumer space and in Commercial; that may impact both noninterest-bearing growth and pricing going forward. On the trust side, we benefited from a very strong market and captured share, but those are transactional activities and we would not expect this level of growth necessarily to continue indefinitely.
I appreciate that. One more on capital return: strong buyback activity. Is there a point where you become more price-sensitive, or do you still have so much capital return capacity? How do buybacks stack against other opportunities to deploy capital—organic growth, M&A, etc.? Any updated thoughts?
Our first priority is always to invest in the business, which we believe is the best return for shareholders. We have given a capital target and currently believe we have excess capital. Since we rolled out the enhanced capital return framework at the beginning of last year, we've been returning about 100% of net income and have bought back about 14% of our shares since then. Over time, I expect that trend to continue, though any given quarter we may deviate depending on internal opportunities and the environment. We consider interest rate volatility, our securities portfolio, and multiple factors when deciding quarterly buybacks. Over a multi-quarter period, we would like to be in the 100% capital return posture, but we will remain flexible and evaluate other opportunities.
So are you referring to M&A and those kinds of things?
Yes.
If we find opportunities that could be additive and accretive to our current strategic plan we would absolutely consider them across the franchise, whether in fee businesses like wealth or on the banking side. The bar is high on the banking side given the organic opportunity in our footprint. If an opportunity is truly accretive to what we have going on organically, we will act. Our priority remains organic investment where appropriate, but we will pursue attractive M&A if it makes strategic sense and is accretive.
I really appreciate the commentary. Thank you so much.
Thanks, Manuel.
Your next question comes from the line of Christopher Marinac with Brean Capital, LLC. Your line is open. Please go ahead.
Good afternoon. I wanted to ask about the percentage of fee income to the overall business. Would you expect this to rise further into 2027 and 2028? And does a higher fee-income mix give even more flexibility on loan growth in terms of being more selective?
We have been able to grow both loans and fee revenue, which is why that ratio has been generally consistent. Wealth and Trust has been a fast grower, but that has been offset somewhat by Cash Connect because of interest rate impacts on that top line. In a steady-state environment, fees would probably grow slightly faster all else being equal, but we do not manage to a particular ratio. We are focused on growing both and having positive top-line growth overall.
Back to being selective on borrowers: is that helping on deposits? Is the deposit gathering success a function of focusing on the best customers who have funding?
When we look at lending opportunities, the relationship is important and the deposits those clients bring are significant. We invest management bandwidth in those relationships. Commercial real estate tends to be more transactional and we continue to invest in it, but ideally we pursue broader relationships that span deposits, wealth, and treasury services. Bringing the full firm to bear is one of our value propositions.
We do not manage by seeking the single highest-deposit clients. We take a relationship-return view on all commercial relationships and look at the total business we can get. In C&I, you typically get operating accounts which bring significant deposits and other lines of business. As long as the relationship crosses our accretion threshold at loan pricing, we pursue it. That is how we are selective on clients: we evaluate the whole relationship rather than focusing purely on deposits.
Okay. Thank you for clarifying. On capital goals, is there a time frame to reach CET1 towards 12%?
No particular time frame. Looking at this quarter alone, we were down about 15 basis points. By simple math on CET1, that implies perhaps two-and-a-half to three years to reach 12% if trends were linear, so it is a multi-year trajectory. We also focus on tangible common equity and consider the securities portfolio's impact on capital. We will continue with a measured approach and about 100% capital return target but remain flexible quarter-to-quarter.
Is AOCI runoff lumpy in the next year or two or pretty gradual?
I would not say it is lumpy. About 95% of our portfolio is invested in agency MBS with no credit risk. AOCI has moved around as rates moved but it is down materially from post-COVID levels and should continue to decline gradually.
Got it. Thank you for taking the questions today.
Thank you, Christopher. Appreciate it.
Your next question comes from the line of Janet Lee with TD Cowen. Your line is open. Please go ahead.
Good afternoon.
Hi, Janet.
On Institutional Services, a big portion of growth is coming from market share gains specifically on the Corporate Trust side, but you've also benefited from secular tailwinds from private capital securitization. Can you provide context on whether the strength there industry-wide is persisting or if there is any change that should be considered when forecasting Investment Management or Wealth and Trust revenues?
When you think about Institutional Services, consider both Corporate Trust and Global Capital Markets. Both were important contributors to noninterest-bearing growth and fee revenue this quarter. The ABS and MBS market has continued to grow; in the first half of 2026, the market grew and we increased our share. That market has been growing in the range of 20% to 30% and we've been growing on top of that. When you can take share in a rapidly growing market, it's very accretive. Differentiating factors for us include having balance sheet strength like larger players while being more nimble and offering a strong service model. Our ability to move quickly and innovate with clients has allowed us to take share. Reputation matters a lot in this market; the better we do, the more we win. I would not necessarily extrapolate this precise pace of growth indefinitely, but we continue to believe in our ability to win share across asset classes and play different roles.
Thank you. Going back to noninterest-bearing deposits — very impressive growth again this quarter. In terms of your 3.85% net interest margin guidance, are you contemplating further growth in noninterest-bearing deposits? What level of NIB as a percentage of total deposits is assumed in your guidance?
If we could keep NIB at this quarter's level it would be great, but I'm not sure we can sustain 37%. Historically we have run in the low 30s; mid-30s would be a good level to maintain. As we grow deposits, we want to maintain that level. One thing to consider is that when noninterest-bearing deposits are invested in cash at today's rates, it is not necessarily accretive to NIM — it can be a push. The upside to NIM will be driven by our ability to grow loans and invest those noninterest-bearing deposits at yields higher than cash.
Makes sense. Thank you.
Thank you.
With no further questions in the queue, I would like to turn the call back over to David Burg.
Okay. Thank you very much. Appreciate you joining the call today. If you have any specific follow-up questions, please reach out to Andrew in Investor Relations or me. Have a great day and a great weekend. This concludes today's call.
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