WSFS Financial's Q1 2025: Unpacking Key Contradictions in Expenses, Deposit Betas, and Loan Growth

Expense run rate, deposit beta expectations and NIM impact, NIM hedge program and impact on rate cuts, deposit beta expectations, and commercial loan pipeline and growth expectations are the key contradictions discussed in WSFS Financial's latest 2025Q1 earnings call.



Strong Financial Performance in Q1 2025:
- WSFS reported a core earnings per share of $1.13 and a core ROA of 1.29% in Q1 2025, with significant improvements from the previous quarter in various financial metrics.
- The improvement in core earnings and ROA was driven by a core net interest margin expansion, reduction in total funding costs, and strong fee revenue growth in segments like Wealth and Trust.

Net Interest Margin Expansion:
- The company's core net interest margin expanded by 8 basis points to 3.88%, reflecting a reduction in total funding costs.
- This was attributed to a 12 basis points reduction in total deposit costs from repricing actions and the redemption of higher-priced sub debt, which positively impacted funding costs.

Deposit Beta and Capital Management:
- WSFS achieved an interest-bearing deposit beta of 38%, surpassing its target of 40%, and is further pursuing higher deposit beta to drive additional upside.
- The company announced a new capital philosophy targeting a common equity Tier 1 (CET1) ratio of 12% in the medium term, indicating a balance between capital returns and future investment opportunities.

Capital Returns and Dividend Increase:
- WSFS returned $62.6 million in capital during Q1, including $53.8 million in buybacks and $8.8 million in dividends, representing over 55% of the total buybacks completed in 2024.
- The company also announced a 13% increase in the quarterly dividend, highlighting confidence in its financial performance and capital position.

Loan Portfolio and Credit Quality:
- Gross loans decreased less than 1% linked quarter, with commercial loans remaining flat. A $15.9 million charge-off of a non-performing office-related C&I loan accounted for higher credit costs.
- Excluding this loan, net charge-offs were low, indicating general stability in the loan portfolio, supported by declines in loss trends in specific sectors like Upstart and NewLane.