Ladies and gentlemen, thank you for standing by, welcome to WSFS Financial Corporation second quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star then the one key on your touchtone telephone. Please be advised that today's conference is being recorded. If you require operator assistance, please press star then zero. I would now like to turn the call over to your host for today, Mr. Dominic Canuso, Chief Financial Officer. Sir, you may begin. Thank you, Livia. With me on this call are Rodger Levenson, Chairman, President, and CEO, Arthur Bacci, Chief Wealth Officer, Steve Clark, Chief Commercial Banking Officer, and Rick Wright, Chief Retail Banking Officer. Before I begin with 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, the risk factors indicated 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. Good afternoon, everyone, and thank you for joining us on the call today. Our earnings release and investor presentation, which we will refer to on today's call, can be found in the investor relations section of our company's website. We continue to see positive signs of recovery and reopening of local economies across our region, which is demonstrated in our customers' and clients' sentiments, consumer spending trends, loan growth, and credit quality metrics. WSFS had another strong quarter, rounding out a robust first half of 2021, demonstrating the strength and diversity of the franchise and the stability of our performance through various economic and rate environments. Highlighted on slide four of our investor presentation, second quarter reported net income is $95.7 million, a $2.01 earnings per share, and a 2.60% ROA. Reported and core performance were comparable this quarter as a large one-time gain was offset by a few non-core expenses as laid out in the earnings materials. The significant excess liquidity environment continues to have an impact on the balance sheet, as seen on slides five and 25. Loans grew 2% annualized versus prior quarter when excluding PPP and purposeful runoff portfolios. Growth was primarily in commercial lending from higher new loan originations and line utilization, and from our NewLane leasing business. Loans at NewLane are up 37% year-over-year and are just under $300 million in total loans. Customer deposits grew $445 million, or 15% annualized in the quarter, primarily from trust relationships and commercial customers. Versus prior year, customer deposits have increased $1.9 billion or 17%. Total customer deposit costs are at historic lows of 11 basis points, as low and no-cost checking and savings accounts represent 70% of customer deposits with a weighted average cost of only 3 basis points. Net interest margin in the quarter, detailed on slide six, is 3.23%, which includes 24 basis points of purchase accounting accretion and 8 basis points of PPP income, both more than offset by 50 basis points of negative impact from excess liquidity. Pressure from excess liquidity is expected to persist throughout 2021 and into 2022, particularly given our broad-based strong customer deposit relationships across commercial, small business, consumer, and trust and wealth. Second quarter fee revenue again demonstrated the strength and diversity of our fee products and services and franchise value, especially in this lower interest rate environment. Core fee revenue was a healthy 30% of revenue when excluding PPP and supported by 7% year-over-year core fee growth. When excluding the impacts from the Durbin Amendment, year-over-year core fees grew 16%, driven by a 41% increase in wealth management fees, supported by a record $26.7 billion of AUA and AUM, along with a 24% increase from Cash Connect. This was offset by reduced mortgage banking fees from the recent slowdown in refi volume and housing market supply shortages. The core efficiency ratio increased to 60.7%, resulting from lower PPP, lower purchase accounting accretion, and lower mortgage banking revenue, all in line with our expectations for the year. We continue to be disciplined in our expense management with investments focused in franchise growth and delivery transformation. Regarding our ACL and provision. In the second quarter of 2020, at the onset of COVID, we were very proactive in evaluating the portfolios believed to be most vulnerable to the emerging economic stress. As a result of this process, ACL reserves built with the anticipation of potential losses in these portfolios. Fortunately, due to the impact of PPP, additional government stimulus, loan modifications, and the strength of our borrowers, these portfolios performed much better than expected. Combined with the improving economic environment, these factors led to a meaningful reduction in problem loans and the reserve released this quarter. Shown on slide eight, ACL at quarter end was $132.4 million, with an ACL coverage ratio of 1.63%, excluding PPP, and 1.93% when including the remaining credit mark on acquired portfolios. The ACL now stands $100 million or 1.11 percentage points less than the peak in the third quarter of 2020 as all credit metrics continue to improve and trend toward pre-COVID lows, with continued low loss content across the portfolio. Potential modest reserve releases in the second half of the year will be dependent upon continued improvement in the credit performance in the portfolio and economic outlook, and offset by loan growth. We continue to generate significant capital through earnings and have a strong capital position heading into the anticipated combination with BMT. TCE increased 55 basis points in the quarter to 9.13%, and the bank CET1 ratio improved 101 basis points to 14.21%. The board of directors approved a quarterly cash dividend of $0.13 per share of common stock, no shares were purchased in the quarter as we have paused repurchases until the close of the BMT transaction. Our original outlook for 2021, on slide 10, anticipated a gradual and uneven economic recovery, which has played out in the first half of the year, we are pleased with the continued strong operational and financial performance delivered in this environment. The gradual and uneven pace of recovery continues to be our expectation for the remainder of 2021. While excess liquidity may impact loan growth in the short term, through our diversified business model and disciplined expense management, we anticipate our full year results to be consistent with our original 2021 plan for PPNR as a percentage of assets in the range of 1.5%-1.6%. We are optimistic and excited about our future prospects given our unique competitive and strategic position in our markets, the strength of our national fee-based businesses, along with the upcoming combination with BMT. Regarding BMT, on June 10th, both WSFS and Bryn Mawr stockholders approved the merger of Bryn Mawr into WSFS at a special meeting of stockholders for each company. We are also excited to share that this week we received OCC approval for the combination. Our highly engaged teams at Bryn Mawr and WSFS are actively working together, designing and implementing our conversion and integration plans as the transaction is anticipated to close early fourth quarter of the year, pending receipt of the remaining required regulatory approvals. The bank conversion, including bank branding and branch consolidation, is planned for early first quarter 2022. Thank you, and we will be happy to take your questions. Ladies and gentlemen, to ask a question at this time, please press the star and the one key on your touchtone telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question coming from the line of Michael Perito with KBW. You may now ask. Hey, good afternoon, guys. Thanks for taking my question. Hey, Mike. I wanted to start on the growth piece of it. It seems like you obviously have a really strong C&I franchise in your core markets. It seems like other areas, like some of your consumer partnerships and NewLane Finance and some of the equipment financing are seeing better growth. I guess part of that's because of having a little bit more geographic diversification. I was just curious if you could maybe update us on how you kind of view that element of your loan portfolio today and do you kind of see yourself exploring more of those opportunities in the future to try and enhance growth outside of the Metro Philadelphia, Wilmington area? Sure. Good question. A lot there, but I'll start off. We do see strength in the commercial loans. Obviously, as we've mentioned, excess liquidity continues to play into the loan demand in our markets. Particularly, we continue to be disciplined in our pricing and terms, which results in the loan growth you're seeing here. On the consumer side, we do have various partnerships and avenues generating the appropriate products and services for our customers including partnership with Spring EQ, which is secondary market mobile-based lending. We have LendKey generating student lending, and we're just launching a new product in the third quarter here, which is unsecured lending with Upstart, which we anticipate to add to the loan growth in the second half of the year. Yeah, if I could just add on that, Mike, just some historical context. Obviously, this is Rodger. Obviously, we're a regionally focused, commercial-driven C&I bank. I would think that we've always liked to have some diversity in our loan book. We've kind of targeted that we'd like to have at least 20% of our loans consumer loans. That may go a little below or a little above, depending upon where things are at. With our investments that we've made in the franchise here locally, I would expect that the majority of our growth over time will come from local-based lending, with C&I being the leading category for us in the commercial area. Obviously, that's a little bit challenged right now because of, as Dominic said, the unevenness of the recovery and overall conservatism by a lot of our borrowers. I think we've demonstrated over time the value of those relationships, and I think it's important to point out that many of those relationships are the drivers of some of the deposit growth that we've seen, which I think, again, just solidifies the premise of the strategy around full relationships. Got it. Very helpful. Just two more I wanted to hit on real quick. Both yourselves and BMT had really strong quarters growing the wealth management AUM and revenues, and obviously, I think when you guys announced the deal, that was a pretty important element of the pro forma franchise. I'm just curious if you have I know you have the broader fee income guide, but I was just curious if you have any more general outlook comments about combining the two wealth platforms and the type of growth that you think you could achieve once that happens. This is Rodger again. I'll start now and let Arthur give you a little bit more specificity. I would just tell you that everything that we thought coming into the discussions through our due diligence and since then about the wealth opportunity has been confirmed. We think there's a significant opportunity with our combined franchise. The integration process is going very well. The teams have come together. The leadership under Arthur and Jen Fox from BMT has really started to put together a very significant integration plan, and it's being very well received by our customers and in the marketplace. I think everybody recognizes the value of the combined wealth businesses, and we see as much, if not more potential than when we did the original modeling. I'll throw it over to Arthur for any kind of specific color. Yes. Thanks, Rodger. Mike, this is Arthur. Yeah, I'd add maybe three points to that. One is, as Jen and I have worked through the integration and getting to know each other, and we look at each other's strategic plan, we laugh a little bit and that it's almost like we were looking over each other's shoulders as we were preparing our plans independently. We're finding the businesses are very complementary, and the teams are realizing that and seeing the potential that's coming out of this, and they're all very excited. That leads us to believe that this is going to be a great combination. Secondly, Rick, Steve, and I have been working over the last two years to really make sure the retail commercial wealth businesses are going to market on a more holistic basis, and we're seeing a lot of good interaction between RRAs and our advisors. We have, in some cases, commercial relationships where the owners are selling the business, and we're getting good referrals. While we may not get the loan growth, we're certainly getting the fee benefit from that. We're seeing the same thing on the retail side with all the excess liquidity and people looking for other places to invest the business. Thirdly, our corporate trust business is really hitting on all cylinders, and partly due to just the market securitization activity is very high. Secondly, our team, with the addition of a new business development officer, has made inroads into new relationships. That's really helping, and we see a pipeline that continues to be very robust on that front. Helpful color. Thanks. Lastly from me, I'll kick it to someone else. Rodger, this is probably a quick answer. I want to confirm. Is it fair for us to assume that once the Bryn Mawr Trust deal closes, that your approach to capital deployment will probably mirror what you guys did leading into the announcement as it regards to share purchase appetite and kind of the steady dividend payouts? Yes. There will be no change to our long-term capital philosophy and strategy. Obviously, it's just paused because of where we're at in the combination. Appreciate it. Thank you, guys. Thank you, Mike. Our next question coming from the line of Erik Zwick with Boenning & Scattergood. Your line is open. Good afternoon, everyone. Are you able to hear me? Yep. Hey, Erik. Hey. Wanted to first start with thinking about the outlook for loan growth going forward. Curious if you could provide an update on just where the pipeline stands today relative to maybe three months ago, and also kind of how the average yield is trending at this point. Yeah, Erik. Steve Clark. The pipeline is fairly consistent with what it has been over the past quarter or so. Our 90-day weighted average pipeline for commercial is around $235 million. That remains strong and as high as it's been since the fourth quarter of 2019. So Despite the headwinds, we are getting opportunities across our C&I and CRE businesses and feel good about it. Regarding yields, new loans booked greater than $250,000 for the second quarter, the weighted average yield was 3.52. We target that mid-threes, feel good about that. That compares to 3.67 in the first quarter, but fairly consistent. Yeah. This is Rodger, if I could just add to that. Our commercial loan fundings were up in the second quarter, just, I think, a little bit under $450 million. It's just a challenge right now, candidly, to stay in front of the payoffs for all the reasons that we've talked about. We feel good about the momentum. It's just the churn has been a little greater than we had anticipated, and that's really what you see reflected in the outlook for the second half of the year. That's a good color. I appreciate it, guys. Switching gears to credit. If I look back to the press release from the seco nd quarter of last year, the hotel portfolio had $247 million of loans that received, I think, risk rating downgrades. In this quarter, Q2 2021, the press release indicated that total problem assets declined by about $100 million or so, mainly due to the hotel portfolio. Just curious, as you look at it today, what is the percentage of those original loans that were downgraded that have yet to be upgraded and what are you seeing within those? Any commonalities from geography or hotel type or occupancy or what are you still kind of watching and maybe gives you some concern today? Yeah. Steve again. Last year, of our hotel book, which was about $540 million, we did downgrade and criticize a little over 50% of that book. We thought that was the correct action at that time. As you've read, we've seen improvement there, and we have upgraded some of that exposure here in the second quarter. The percent of criticized assets in the hotel book has been reduced down to 39%. All of those borrowers are paying. All but $44 million are paying their original contractual payments. The remaining $44 million, which represents four or five properties, are paying interest only. The book really has held up and rebounded from where we thought we were back in the second quarter of last year. Occupancies continue to kind of trend upward. About a third of our book is leisure. At the Jersey Shore or Delaware beaches you cannot get a room this time of year at those locations. Very strong occupancy at the leisure hotel. The business travel is coming back. Occupancies have continued to increase. I don't have specifics, but I can share anecdotally, one borrower that we spoke to just this week has 15 properties, all business-focused, and his current occupancies are approaching 70%. Anecdotally, that's one example of just the positive trend we're seeing kind of across that entire portfolio. Thanks, Steve. Just last one from me, then I'll jump off. Dominic, in your prepared comments, you mentioned that you expect the excess liquidity and the drag on the margin to persist into 2022. As you look at all of the deposits that have come in from the stimulus efforts across both your commercial and consumer customers, how do you guys try and look at it and figure out what might be kind of sticky and then ultimately be long-term core deposits and what might flow out the door at some point and relieve some of the pressure on the margin? Sure. It's a great question. I think it first stems from the fact that we focus on relationship-based banking, and I would just add to your list the trust and wealth deposits continue to grow as well and really leads to our outsized and lower loan-to-deposit ratio in the mid-60s. It's really partnering with them, speaking to them, understanding their demands. I think it will trend probably consistently with the overall growth in the economy, GDP, and the impact it's having on prices and spending overall. We do anticipate with the continued growth, and there's even more stimulus that could be on its way, that we're really focused on utilizing it appropriately. We paid off $100 million of our senior debt in the past quarter. We've paid off a half a billion dollars of wholesale funding over the last year, and we've doubled our investment portfolio and staying within our kind of risk tolerance and liquidity expectations. We'll look to do that incrementally over the next quarter. Then really, once we close on BMT, optimize the combined balance sheet with the ability to flex back down if we see the excess liquidity run off. Thanks for taking my questions today. Thank you. Ladies and gentlemen, as a reminder, to ask a question, you're going to press the star then the 1 key on your touchtone telephone. Our next question coming from the line of Brody Preston with Stephens. Your line is open. Hey, good afternoon, everyone. Hi, Brody. Hey, I got a question for you just regarding the runoff portfolio. I'll speak for myself and say that it's a little challenging to model the runoff portfolio on a quarter-to-quarter basis, particularly the residential side. I know you got Bryn Mawr coming up in the beginning of the fourth quarter here. Has there been any thought given to potentially selling the residential runoff portfolio and I guess maybe cleaning things up on the loan side just a little bit faster than letting it just run off, so that way you can kind of maybe reset and at that point with the deal closing, maybe you could use some of that capital to buy back a bigger slug of shares to plug the earnings hole? I'm just trying to think about the puts and the takes of pursuing a strategy like that. Yeah. Appreciate that. I'll address the resi mortgage specifically. I think as you know, Brody, these runoff portfolios all really originate, with the exception of residential mortgage, from the Beneficial transaction. We thought initially it would take about four years for that stuff to attrite off. It's happened sooner, right around three years by the time at the end of this year, primarily because of the rate environment. Really when you look at it, the commercial portfolios will have run off by the end of the year, and there's a very small student loan portfolio left. We don't see any addition to the commercial runoff portfolios from BMT. What will be left is the residential mortgage book. This strategy for us predated Beneficial. Most of these mortgages are either relationships today or potential for relationships because a significant portion are originated through our retail network or our mortgage loan officers who operate within this region. We want to use the opportunity to see if we can enhance those relationships over time. Really the "runoff" going forward, including what'll come over from BMT is really just a normal amortization of letting it attrite off. We would expect that since we've kind of gone through this period where the rates dropped significantly, we wouldn't expect to see as much refi activity although there will be some. I think that will flatten out and be of a normal sort of portfolio mortgage duration attrition rate. Again, we want to focus on seeing if we can grow those relationships. I wouldn't expect in the near term a wholesale transaction as it relates to our resi mortgage portfolio. Got it. Thank you for that. Maybe just as a follow-up to that, I'm assuming that the residential mortgages that you've tagged as runoff are kind of single relationship. They've just got their mortgage with you. I guess what products are you trying to cross-sell them into, and I guess what have you been most successful with so far in terms of customers that might have been designated as a runoff loan originally and you've converted them maybe to a more full relationship? Yeah. The large percentage of the resi mortgages that came over from Beneficial were, I would call sort of single service relationships. They were originated primarily through broker and builder arrangements, and they were never actively engaged with. We've undertaken an effort to make those fuller relationships. We've had a team of people who have been in contact with these customers to not only hopefully capture a refinance opportunity, but also traditional banking products because these are all located here in our geographic footprint. The remainder of it is we operate as you know, an originate and sell model. In many cases, these loans that are sitting here that are attriting off are already part of significant relationships, including referrals that come out of our private bank, our commercial group, as well as the broader retail network. Got it. Thank you for that color, Rodger. I appreciate it. I guess just maybe switching gears, Dominic, there's another quarter of significant liquidity growth despite the significant securities build you have. Just with the buybacks being in suspension for another quarter and the loan growth guidance coming down a little bit, are you expecting for that liquidity to just kind of hang around? Are there any sort of near-term deployment opportunities from here that we should be thinking about? Sure. As I just mentioned, we have optimized a significant amount of the excess liquidity over the last year, including the June payoff of the $100 million senior debt and the doubling of the investment portfolio over the last year. We would look to continue to do that, and we're doing it with an eye towards the BMT transaction and the post combination balance sheet optimization. We do see the opportunity to continue to increase the size of the investment portfolio that works within our framework of acceptable investments, the low risk, moderate yield, and providing the cash flow liquidity that we expect from the portfolio. You'd likely see that continue to increase in the second half of the year. Got it. One of the slides that stood out to me in the deck was the digital slide. Given the sustained shift you all have seen in the digital channels for customer interaction. Just wanted to get an update on how your view may have been shaped over the last year or so on the branch network. Do you see the digital channel as an additional sort of customer acquisition tool, or do you think it's becoming more of an alternative to physical locations at this point? This is Rick. I think what we're seeing is there's obviously a more rapid adoption of the digital products and services that we have. We're never going to be a digital-first company. We think the relationships are important, and we're going to do everything to try to humanize the digital touch. That's what we're doing in our delivery transformation effort, and we hope to see more of that hit the market over the next year. All right, great. Last one for me. I'm sorry if I missed it in the deck, Dominic, but could you remind us what% of the loan portfolio is floating rate? If there are any floors in place, what% of the loan portfolio is at or below floor levels? Sure. We're running about 50/50 between variable and fixed. That we would look to continue to increase the variable portion of that portfolio as we talked about with the runoff of the resi mortgage portfolio and continue to grow the relationship based C&I lending. Brody, this is Steve. About a third of that variable rate book have floors in the notes. All of our new originations over the past year and a half have floors, either 0% LIBOR floors or a floor of 3% when we can get it. Got it. Steve, do you happen to know what% of that is currently at or below floor levels? I think we'd have to get back to you with an exact answer. My guess is $200 million at most. Okay. All right. Thank you very much, everyone. I appreciate you taking my questions. Thank you. Next question coming from the line of Russell Gunther with D.A. Davidson. You want to speak please. Hey, this is Manuel Navas on for Russell. Hello. Hey. Just wanted to check in on this. With the efficiency ratio target of low 60s, what expense run rate should we expect to help achieve that? Sure. Yeah. We do anticipate, as I've mentioned, to continue our expense discipline in this environment and monitor the growth rate of the portfolio. We will continue to invest in our delivery transformation efforts as we've laid out in our materials and in franchise growth, particularly in wealth and Cash Connect. We would continue to see some step up in the run rate of absolute dollar costs from the second quarter into the second half of the year, but would look to maintain positive operating leverage and ensure that revenues are growing faster than the expense growth rate. Thank you. You got all the rest of my questions. Thank you very much. Okay. Thank you very much. Thank you. I see no further questions in queue. I would like to turn the conference back over to Mr. Canuso. Thank you for participating on the call today. Rodger and I will be attending investor conferences and events throughout the third quarter, and we look forward to meeting with many of you then. Enjoy the summer. Thank you. Thanks everybody. Ladies and gentlemen, that's the call conference for today. Thank you for your participation. You may now disconnect.