WSFS Financial Corp: Form 10-Q for the period ended Jun 30, 2025

OVERVIEW

WSFS Financial Corporation (WSFS, and together with its subsidiaries, the Company) is a savings and loan holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies in the United States (U.S.) continuously operating under the same name. With $20.8 billion in assets and $92.4 billion in assets under management (AUM) and assets under administration (AUA) at June 30, 2025, WSFS Bank is the oldest and largest locally-managed bank and wealth management franchise headquartered in the Greater Philadelphia and Delaware region. As a federal savings bank that was formerly chartered as a state mutual savings bank, WSFS Bank enjoys a broader scope of permissible activities than most other financial institutions. A fixture in the community, we have been in operation for more than 193 years. In addition to our focus on stellar client experience, we have continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution. Our mission and strategy is simple: “We Stand for Service.”

As of June 30, 2025, we had six consolidated subsidiaries: WSFS Bank, The Bryn Mawr Trust Company of Delaware (BMT-DE), Bryn Mawr Capital Management®, LLC (BMCM), WSFS Wealth Management, LLC, WSFS SPE Services, LLC, and 601 Perkasie, LLC. On July 1, 2025, BMCM was renamed to Bryn Mawr Trust Advisors (BMTA). The Company also has three unconsolidated subsidiaries: WSFS Capital Trust III, Royal Bancshares Capital Trust I, and Royal Bancshares Capital Trust II. WSFS Bank has two wholly-owned subsidiaries: Beneficial Equipment Finance Corporation (BEFC) and 1832 Holdings, Inc., and one majority-owned subsidiary, NewLane Finance Company (NewLane Finance®).

Our banking business had a total loan and lease portfolio of $12.6 billion as of June 30, 2025, which was funded primarily with deposits generated through commercial relationships and our consumer banking business. We have built a $9.8 billion commercial loan and lease portfolio by recruiting seasoned commercial lenders in our markets, offering a high level of service and flexibility, through acquisitions, and through our leasing business conducted by NewLane Finance®. NewLane Finance® originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories. We also offer a broad variety of consumer loan products and retail securities brokerage through our retail branches, in addition to mortgage and title services through our branches and WSFS Mortgage®, our mortgage banking business specializing in a variety of residential mortgage and refinancing solutions. In addition, NewLane Finance® offers captive insurance through its subsidiary, Prime Protect.

Our Cash Connect® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services through strategic partnerships with several of the largest networks, manufacturers and service providers in the ATM industry. Cash Connect® services non-bank and WSFS-branded ATMs and smart safes nationwide, and manages approximately $1.4 billion in total cash and services approximately 25,500 non-bank ATMs and 11,000 smart safes nationwide. Cash Connect® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, and deposit safe cash logistics. Cash Connect® also supports 582 owned or branded ATMs for WSFS Bank Clients, which is one of the largest branded ATM networks in our market.

Our Wealth and Trust business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate and institutional clients. Combined, these businesses had $92.4 billion of AUM and AUA at June 30, 2025.

Bryn Mawr Trust® is our predominant Private Wealth Management brand, providing advisory, investment management and trustee services to institutions, affluent and high-net-worth individuals. Private Wealth Management serves high-net-worth clients and institutions by providing trustee and advisory services, financial planning, customized investment strategies, brokerage products such as annuities and traditional banking services such as credit and deposit products tailored to its clientele. Private Wealth Management includes businesses that operate under the Bank’s charter, through a third-party broker/dealer and as a registered investment advisor (RIA). It generates revenue through a percentage fee based on account assets, fee-only arrangements, net interest income and other fee-only services such as estate administration, trust tax planning and custody.

BMT-DE provides personal trust and fiduciary services to families and individuals across the U.S. and internationally. WSFS Institutional Services® provides trustee, agency, bankruptcy administration, custodial and commercial domicile services to institutional, corporate clients and special purpose vehicles.

As of June 30, 2025, we service our clients primarily from 115 offices located in Pennsylvania (58), Delaware (39), New Jersey (14), Florida (2) Nevada (1) and Virginia (1), our ATM network, our website at www.wsfsbank.com (http://www.wsfsbank.com) and our mobile app.

Highlights and Other Notables Items for Three and Six Months Ended June 30, 2025

• Three Months Ended June 30, 2025
• EPS was $1.27 and ROA was 1.39%, compared to $1.16 and 1.34% for the three months ended June 30, 2024.
• Net interest margin of 3.89%, compared to 3.85% for the three months ended June 30, 2024, driven by deposit repricing actions and reduction in wholesale funding, partially offset by lower loan yields.
• The Wealth and Trust segment recognized noninterest income of $44.5 million, a 17% increase compared to the three months ended June 30, 2024.
• WSFS transferred the majority of its remaining unsecured consumer lending portfolio generated through our partnership with Upstart to loans held for sale. The loans were subsequently sold in July 2025 to accelerate the disposition of this runoff portfolio.
• During the quarter, WSFS recognized $2.3 million in revenue from our partnership with Spring EQ, LLC (Spring EQ) related to the annual earnout from the previously announced sale, recognized within Other income on the unaudited Consolidated Statements of Income.
• WSFS repurchased 1,556,199 shares of common stock under the Company's share repurchase programs at an average price of $49.93 per share, for an aggregate purchase price of approximately $77.7 million, and paid quarterly dividends of $9.6 million, for a total capital return of $87.3 million.
• The Bank and the Company continue to be well above well-capitalized across all measures of regulatory capital, with total common equity Tier 1 capital of 13.11% and 14.07%, respectively, and total risk-based capital of 14.35% and 15.86%, respectively.
• Six Months Ended June 30, 2025
• The Board of Directors approved a 13% increase in the quarterly cash dividend to $0.17 per share of common stock as well as an incremental share repurchase authorization of 10% of outstanding shares as of March 31, 2025.
• WSFS repurchased 2,583,413 shares of common stock under the Company's share repurchase programs at an average price of $50.90 per share, for an aggregate purchase price of approximately $131.5 million, and paid quarterly dividends of $18.4 million, for a total capital return of $149.9 million.
• The allowance for credit losses (ACL) on loans and leases decreased $9.0 million when compared to December 31, 2024, primarily due to impacts from the transfer of the majority of the Upstart portfolio to loans held for sale.
• WSFS completed the redemption of the $70.0 million of fixed-to-floating rate subordinated notes due 2027 (the 2027 Notes) acquired from Bryn Mawr Trust using our operating cash flows.

FINANCIAL CONDITION

Total assets decreased $51.0 million to $20.8 billion at June 30, 2025 compared to December 31, 2024. This decrease is primarily comprised of the following:

• Net loans and leases held for investment decreased $188.3 million, primarily due to decreases of $164.6 million in consumer loans, driven by the transfer of the majority of the Upstart portfolio to loans held for sale and the runoff of the Spring EQ portfolio, and $119.1 million in commercial mortgages primarily due to several large payoffs.
• Other assets decreased $98.7 million, primarily due to decreases of $40.0 million in deferred taxes primarily due to increased market values on available-for-sale investment securities, $29.6 million in derivatives from our Capital Markets business due to changes in fair value, $26.0 million from receivables due to the settlement timing of ACH payments, and $19.4 million in lease right of use asset due to lease remeasurement activity, partially offset by a $25.3 million increase due to additional lower income housing tax credit investments.
• Total investment securities decreased $36.7 million:
• Investment securities held-to-maturity decreased $20.8 million, primarily due to repayments, maturities and calls of $28.4 million, partially offset by $7.6 million of amortization of net unrealized losses on available-for-sale securities transferred to held-to-maturity.
• Investment securities available-for-sale decreased $15.9 million, primarily due to maturities and calls of $191.3 million, partially offset by increased market values of $122.0 million and purchases of $54.9 million.
• Goodwill and intangible assets decreased $10.6 million primarily due to scheduled amortization of intangible assets.
• Total cash and cash equivalents increased $176.7 million, primarily due to increased deposits and runoff in the investment securities portfolios.
• Loans held for sale increased $108.2 million primarily due to the transfer of the Upstart portfolio mentioned above.

Total liabilities decreased $143.9 million to $18.1 billion at June 30, 2025 compared to December 31, 2024. This decrease is primarily comprised of the following:

• Other liabilities decreased $146.3 million, primarily due to a decrease of $112.3 million in collateral held on derivatives and derivative liabilities and $26.7 million in our accrued expenses primarily related to incentive payments made in the first quarter..
• Senior and subordinated debt decreased $69.9 million due to the redemption of the 2027 Notes.
• Client deposits increased $91.7 million primarily due to growth in Trust deposits.

For further information, see "Notes to the Consolidated Financial Statements (Unaudited).

LIQUIDITY AND CAPITAL RESOURCES

Capital Resources

Stockholders’ equity of WSFS increased $93.0 million to $2.7 billion at June 30, 2025 compared to December 31, 2024. This increase was primarily due to $138.2 million of earnings and a decrease of $102.7 million in accumulated other comprehensive loss driven by market value increases on available-for-sale mortgage-backed securities, partially offset by $131.5 million from the repurchase of shares of common stock under our stock repurchase plan and the payment of dividends on our common stock of $18.4 million.

During the three months ended June 30, 2025, the Board of Directors approved a quarterly cash dividend of $0.17 per share of common stock. This dividend will be paid on August 22, 2025 to stockholders of record as of August 8, 2025.

Book value per share of common stock was $47.71 at June 30, 2025, an increase of $3.56 from $44.15 at December 31, 2024. Tangible book value per share of common stock (a non-GAAP financial measure) was $30.32 at June 30, 2025, an increase of $3.02 from $27.30 at December 31, 2024. We believe tangible book value per common share helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP measure should be considered in addition to results prepared in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP), and is not a substitute for, or superior to, GAAP results. For a reconciliation of tangible book value per common share to book value per share in accordance with GAAP, see "Reconciliation of Non-GAAP Measure to GAAP Measure."

The table below compares the Bank's and the Company’s consolidated capital position to the minimum regulatory requirements as of June 30, 2025:

(Dollars in thousands)

Under the prompt corrective action regime, regulators have established five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized. A depository institution’s capital tier depends on its capital levels in relation to various relevant capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions that are not classified as well-capitalized are subject to various restrictions, which may include restrictions on capital distributions, payment of management fees, acceptance of brokered deposits and other operating activities.

Regulatory capital requirements for the Bank and the Company include a minimum common equity Tier 1 capital ratio of 4.50% of risk-weighted assets, a Tier 1 capital ratio of 6.00% of risk-weighted assets, a minimum total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets. In order to avoid limits on capital distributions and discretionary bonus payments, the Bank and the Company must maintain a capital conservation buffer of 2.5% of common equity Tier 1 capital over each of the risk-based capital requirements. As of June 30, 2025, the Bank and the Company were in compliance with the regulatory capital requirements and met or exceeded the amounts required to be considered “well-capitalized” as defined in the regulations.

Not included in the Bank’s capital, WSFS separately held $382.3 million in cash to support share repurchases, potential dividends, acquisitions, strategic growth plans and other general corporate purposes.

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Liquidity

We manage our liquidity and funding needs through our Treasury function and our Asset/Liability Committee. We have a policy that separately addresses liquidity, and management monitors our adherence to policy limits. Also, liquidity risk management is a primary area of examination by the banking regulators.

Funding sources to support growth and meet our liquidity needs include cash from operations, commercial, consumer, wealth and trust deposits, loan repayments, FHLB borrowings, repurchase agreements, access to the Federal Reserve Discount Window, and access to the brokered deposit market as well as other wholesale funding avenues. In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration mortgage-backed securities, that provide a near-continuous source of cash flow to meet current cash needs, or can be sold to meet larger discrete needs for cash. We believe these sources are sufficient to meet our funding needs as well as maintain required and prudent levels of liquidity over the next twelve months and beyond.

As of June 30, 2025, the Company had $1.3 billion in cash, cash equivalents, and restricted cash. As of June 30, 2025, our estimated uninsured deposits were $6.6 billion, or 38% of total client deposits, and our estimated unprotected deposits (uninsured and uncollateralized) were $5.4 billion, or 31% of total client deposits.

As of June 30, 2025, the Company had a readily available, secured borrowing capacity of $5.6 billion from the FHLB and $2.4 billion through the Federal Reserve Discount Window. In addition, the Company had $1.0 billion in unpledged securities that could be used to support additional borrowings and $0.7 billion of cash deposited with the Federal Reserve Bank.

Our primary cash contractual obligations relate to operating leases, long-term debt, credit obligations, and data processing. At June 30, 2025, we had $179.7 million in total contractual payments for ongoing leases that have remaining lease terms of less than one year to 20 years, which includes renewal options that are exercised at our discretion. For additional information on our operating leases, see Note 8 to the unaudited Consolidated Financial Statements. At June 30, 2025, we had obligations for principal payments on long-term debt including $51.0 million of FHLB advances, $67.0 million for our trust preferred borrowings, due June 1, 2035, $23.9 million for our trust preferred borrowings, due December 15, 2034, and $150.0 million for our senior debt, due December 15, 2030. We are also contractually obligated to make interest payments on our long-term debt through their respective maturities.

Commitments to extend credit provide for financing on predetermined terms as long as the client continues to meet specific criteria. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At June 30, 2025, the Company had total commitments to extend credit, including cancellable commitments, of $4.2 billion, which are generally one year commitments.

NONPERFORMING ASSETS

Nonperforming assets include nonaccruing loans, OREO and restructured loans. Nonaccruing loans are those on which we no longer accrue interest. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal and interest. Past due loans are defined as loans contractually past due 90 days or more as to principal or interest payments but which remain in accrual status because they are considered well secured and in the process of collection.

The following table shows our nonperforming assets, past due loans, and troubled loans at the dates indicated:

(Dollars in thousands)

(1) Includes nonaccruing troubled loans and loans held for sale.

(2) Includes U.S. government guaranteed student loans with little risk of credit loss.

(3) Includes past due loans held for sale.

(4) Includes troubled loans held for sale.

(5) Reflects allowance for credit losses related to loans and leases over the amortized cost of the total portfolio.

(6) Total loans exclude loans held for sale and reverse mortgages.

(7) Includes loans held for sale.

(8) Excludes acquired purchase credit deteriorated loans.

Nonperforming assets decreased $21.2 million between December 31, 2024 and June 30, 2025. This decrease was primarily driven by the charge-off of an existing nonperforming C&I loan to a fund that is invested in office properties and the resolution of a C&I loan for a long-term care facility, partially offset by the migration of a land development loan. The ratio of nonperforming assets to total assets decreased from 0.61% at December 31, 2024 to 0.51% at June 30, 2025.

The following table summarizes the changes in nonperforming assets during the periods indicated:

(Dollars in thousands)

The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Problem loans are all criticized, classified and nonperforming loans and other real estate owned. Timely identification enables us to take appropriate action and accordingly, minimize losses. An asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets. In general, this system uses guidelines established by federal regulation.

INTEREST RATE SENSITIVITY

Our primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income and capital, while maximizing the yield/cost spread on our asset/liability structure. Interest rates are partly a function of decisions by the Federal Open Market Committee (FOMC) on the target range for the federal funds rate, and these decisions are sometimes difficult to anticipate. The FOMC lowered the federal funds target rate three times in 2024 for a total of 100 basis points after they increased the target rate four times in 2023 for a total of 100 basis points. In order to manage the risks associated with changes or possible changes in interest rates, we rely primarily on our asset/liability structure.

Our primary tool for achieving our asset/liability management strategies is to match maturities or repricing periods of interest rate-sensitive assets and liabilities to promote a favorable interest rate spread and mitigate exposure to fluctuations in interest rates. We regularly review our interest rate sensitivity and adjust the sensitivity within acceptable tolerance ranges. At June 30, 2025, interest-earning assets exceeded interest-bearing liabilities that mature or reprice within one year (interest-sensitive gap) by $941.6 million. Our interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window was 110.81% at June 30, 2025 compared with 105.28% at December 31, 2024. Likewise, the one-year interest-sensitive gap as a percentage of total assets was 4.54% at June 30, 2025 compared with 2.26% at December 31, 2024.

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk inherent in our lending, investing, and funding activities. To that end, we actively monitor and manage our interest rate risk exposure. One measure evaluates the impact of an immediate change in interest rates in 100 basis point increments on the economic value of equity ratio. The economic value of the equity ratio is defined as the economic value of the estimated cash flows from assets and liabilities as a percentage of economic value of cash flows from total assets.

The following table shows the estimated impact of immediate changes in interest rates on our net interest margin and economic value of equity ratio at the specified levels at June 30, 2025 and December 31, 2024:

(1) The percentage difference between net interest margin in a stable interest rate environment and net interest margin as projected under the various rate change environments.

(2) The economic value of equity ratio in a stable interest rate environment and the economic value of equity ratio as projected under the various rate change environments.

We also engage in other business activities that are sensitive to changes in interest rates. For example, mortgage banking revenues and expenses can fluctuate with changing interest rates. These fluctuations are difficult to model and estimate.

RESULTS OF OPERATIONS

Three months ended June 30, 2025: Net income attributable to WSFS for the three months ended June 30, 2025 was $72.3 million, compared to $69.3 million for the three months ended June 30, 2024.

• Net interest income increased $5.0 million driven by lower wholesale funding and deposit costs as well as higher cash balances from deposit growth, partially offset by lower loan yields. See “Net Interest Income” for further information.
• Our provision for credit losses decreased $7.2 million primarily due to a reduction in the allowance for credit losses upon transfer of Upstart loans to held for sale . See “Allowance for Credit Losses” for further information.
• Noninterest income decreased $3.6 million, driven by a decrease in Cash Connect®, a gain due to the reduction of our Visa B derivative liability established from our previous sale of 360,000 shares in the second quarter of 2020 recognized in 2024, and a decrease in capital markets income, partially offset by increases in Wealth and Trust fees and higher fee income on derivative collateral held. See “Noninterest Income” for further information.
• Noninterest expense increased $3.6 million, primarily due to higher salaries and benefits from talent additions in key business lines and performance-based increases, as well as increases in loan workout and other credit costs, and equipment expenses. The increase was partially offset by decrease in Cash Connect® external funding costs and one-time insurance recoveries at Cash Connect® primarily related to losses associated with a client termination in 4Q 2024. See “Noninterest Expense” for further information.
• Income tax provision increased $2.1 million, primarily due to certain tax credits in 2024. See "Income Taxes' for further information.

Six months ended June 30, 2025: Net income for the six months ended June 30, 2025 was $138.2 million, compared to $135.0 million for the six months ended June 30, 2024.

• Net interest income increased $5.0 million during the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily due to the reasons described above. See “Net Interest Income” for further information.
• Our provision for credit losses for the six months ended June 30, 2025 decreased $5.0 million compared to the six months ended June 30, 2024, due to the reasons described above. See “Allowance for Credit Losses” for further information.
• Noninterest income for the six months ended June 30, 2025 increased $1.5 million compared to the six months ended June 30, 2024, primarily due to increases from Wealth and Trust fee income and higher fee income on derivative collateral held, partially offset by declines in Cash Connect®, the gain related to our Visa B derivative liability in 2024 mentioned above, and capital markets income. See “Noninterest Income” for further information.
• Noninterest expense increased $6.3 million during the six months ended June 30, 2025 compared to the six months ended June 30, 2024, primarily due to higher salaries and benefits due to the reasons described above, loan workout costs, and equipment expenses. The increase was partially offset by decreases in other operating expense driven by lower Cash Connect® external funding costs. See “Noninterest Expense” for further information.
• Income tax provision for the six months ended June 30, 2025 increased $2.0 million compared to the six months ended June 30, 2024, primarily due to the reasons described above. See "Income Taxes' for further information.

Net Interest Income

The following tables provide information concerning the average balances, yields and rates on interest-earning assets and interest-bearing liabilities during the periods indicated:

(Dollars in thousands)

(1) Weighted average yields for tax-exempt securities and loans have been computed on a tax-equivalent basis.

(2) Average balances are net of unearned income and include nonperforming loans.

(3) Includes securities available-for-sale at fair value.

(4) Includes federal funds purchased.

(Dollars in thousands)

(1) Weighted average yields for tax-exempt securities and loans have been computed on a tax-equivalent basis.

(2) Average balances are net of unearned income and include nonperforming loans.

(3) Includes securities available-for-sale at fair value.

(4) Includes federal funds purchased.

Three months ended June 30, 2025: During the three months ended June 30, 2025, net interest income increased $5.0 million from the three months ended June 30, 2024 driven by lower wholesale funding and deposit costs as well as higher cash balances from deposit growth. This increase was partially offset by lower loan yields due to rate cuts in the second half of 2024. Net interest margin was 3.89% for the second quarter of 2025, a 4 basis point increase compared to 3.85% for the second quarter of 2024. The increase was primarily due to 41bps from lower wholesale funding and deposit costs, partially offset by 37bps of lower asset yields.

Six months ended June 30, 2025: During the six months ended June 30, 2025, net interest income increased $5.0 million from the six months ended June 30, 2024 due to the reasons noted above. Net interest margin was 3.88% for the six months ended June 30, 2025, a 3 basis point increase compared to 3.85% for the six months ended June 30, 2024. The increase was due to a 31 basis point increase from lower wholesale funding and deposit costs, partially offset by a 28 basis point decrease from our loan yields.

Allowance for Credit Losses

We maintain the allowance for credit losses at an appropriate level based on our assessment of estimable and expected losses related to various portfolios subject to credit risk. Our allowance for credit losses is based on our historical loss experience that includes the inherent risk of our loans and leases, HTM securities, and other account receivables, along with various other factors including but not limited to, collateral values, trends in asset quality, level of delinquent loans and concentrations, consideration of past events, current conditions, and reasonable and supportable forecasts. Further, regional and national economic forecasts are considered in our expected credit losses. Our evaluation is based on a review of the portfolio and requires significant, complex and difficult judgments.

During the three months ended June 30, 2025, we recorded a provision for credit losses of $12.6 million, a decrease of $7.2 million, compared to the provision for credit losses of $19.8 million for the three months ended June 30, 2024. This decrease was primarily due to a reduction in the allowance for credit losses upon transfer of Upstart loans to held for sale.

During the six months ended June 30, 2025, we recorded a provision for credit losses of $30.0 million, a decrease of $5.0 million, compared to the provision for credit losses of $35.0 million for the six months ended June 30, 2024. This decrease was primarily due to the reasons mentioned above.

The total allowance for credit losses decreased to $189.1 million at June 30, 2025 from $195.3 million at December 31, 2024 primarily due to the charge-off of a specific reserve on a commercial and industrial loan and the allowance release mentioned above, partially offset by additional reserve on accounts receivable for certain fee-based businesses. The ratio of allowance for credit losses to total loans and leases decreased to 1.43% at June 30, 2025 from 1.48% at December 31, 2024, due to a decrease of 11bps driven by the transfer of Upstart loans to held for sale and continued runoff of the portfolio, partially offset by a 6bps increase due to deterioration of the economic forecast.

The following tables detail the allocation of the ACL related to loans and leases and show our net charge-offs (recoveries) by portfolio category:

(Dollars in thousands)

(1) Excludes reverse mortgages.

(2) Includes home equity lines of credit, installment loans unsecured lines of credit and education loans.

(Dollars in thousands)

(1) Excludes reverse mortgages.

(2) Includes home equity lines of credit, installment loans unsecured lines of credit and education loans.

See Note 7 to the unaudited Consolidated Financial Statements and "Nonperforming Assets" above for further information.

Noninterest Income

Three months ended June 30, 2025: During the three months ended June 30, 2025, noninterest income was $88.0 million, a decrease of $3.6 million from $91.6 million during the three months ended June 30, 2024. The decrease was driven by a $6.7 million decline in Cash Connect®, primarily due to the lower rate environment and lower ATM bailment volume, a $3.4 million gain due to the reduction of our Visa B derivative liability established from our previous sale of 360,000 shares in 2Q 2020 recognized in 2024, and a $1.5 million decline in capital markets income, partially offset by a $6.3 million increase in Wealth and Trust fees and $1.7 million higher fee income on derivative collateral held.

Six months ended June 30, 2025: During the six months ended June 30, 2025, noninterest income was $168.9 million, an increase of $1.5 million from $167.5 million during the six months ended June 30, 2024. This increase was primarily driven by $12.7 million in Wealth and Trust fees and $2.4 million higher fee income on derivative collateral held, partially offset by declines of $8.6 million in the Cash Connect® segment for the reasons mentioned above, the $3.4 million gain related to our Visa B derivative liability in 2024 mentioned above, and $2.7 million in capital markets income.

For further information, see Note 3 to the unaudited Consolidated Financial Statements.

Noninterest Expense

Three months ended June 30, 2025: During the three months ended June 30, 2025, noninterest expense was $159.3 million, an increase of $3.6 million from $155.8 million for the three months ended June 30, 2024. The increase was primarily due to $5.9 million from salaries and benefits as a result of talent additions in key business areas and performance-based increases, $2.9 million related to loan workout and other credit costs, and $1.7 million from equipment expenses driven by technology costs, partially offset by a $5.1 million decrease in Cash Connect® external funding costs and $1.6 million of one-time insurance recoveries at Cash Connect® primarily related to losses associated with a client termination in 4Q 2024.

Six months ended June 30, 2025: During the six months ended June 30, 2025, noninterest expense was $311.1 million, an increase of $6.3 million from $304.8 million for the six months ended June 30, 2024. The increase was primarily due to $12.6 million in salaries and benefits due to the reasons mentioned above, $3.8 million from equipment expenses driven by technology costs, and $2.1 million related to loan workout costs, partially offset by a $12.9 million decrease in other operating expense driven by lower Cash Connect® external funding costs.

Income Taxes

We and our subsidiaries file a consolidated federal income tax return and separate state income tax returns. Income taxes are accounted for in accordance with ASC 740, Income Taxes, which requires the recording of deferred income taxes for tax consequences of temporary differences. We recorded income tax expense of $23.3 million and $44.4 million during the three and six months ended June 30, 2025, respectively, compared to income tax expense of $21.3 million and $42.5 million for the same periods in 2024. The increase for the three and six months ended June 30, 2025 compared to the same periods in 2024 was primarily due to certain tax credits in 2024.

Our effective tax rate was 24.4% and 24.3% for the three and six months ended June 30, 2025, respectively, compared to 23.5% and 23.9% for the three and six months ended June 30, 2024, respectively.

The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, federal low-income housing tax credits, solar tax credits, research and development tax credits, and excess tax benefits from recognized stock compensation. These tax benefits are offset by the tax effect of stock-based compensation expense related to incentive stock options, tax deficiencies from recognized stock compensation, and a provision for state income tax expense. We frequently analyze our projections of taxable income and make adjustments to our provision for income taxes accordingly.

RECONCILIATION OF NON-GAAP MEASURE TO GAAP MEASURE

The following table provides a reconciliation of tangible book value per share of common stock to book value per share of common stock, the most directly comparable GAAP financial measure. We believe this measure helps management and investors better understand and assess changes from period to period in stockholders’ equity exclusive of changes in intangible assets. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results.

(Dollars and share amounts in thousands, except per share amounts)

CRITICAL ACCOUNTING ESTIMATES

The preparation of the unaudited Consolidated Financial Statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those related to the allowance for credit losses, business combinations, deferred taxes, fair value measurements and goodwill and other intangible assets. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2025, it is possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates at June 30, 2025 did not significantly change from our critical accounting estimates at December 31, 2024, which are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS

Recent regulatory developments at June 30, 2025 did not significantly change from our recent regulatory developments at December 31, 2024, which are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, except as noted below.

One Big Beautiful Bill Act (OBBBA)

The OBBBA, enacted on July 4, 2025, in the U.S., permanently extends some provisions of the Tax Cuts and Jobs Act and restores favorable tax treatment for certain business provisions. The legislation has multiple effective dates and we are assessing its impact on the Company.

Genius Act

On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or the “GENIUS Act,” into law, establishing a federal licensing and supervisory framework for payment stablecoins and their issuers. The GENIUS Act may accelerate and increase the competition that non-traditional financial institutions pose to banks' payment services, but may also create opportunities for banks to hold stablecoin reserve assets, custody stablecoins, or issue stablecoins. Several key provisions of the GENIUS Act require federal regulatory agencies to adopt implementing regulations, and the Act will take effect the earlier of 18 months after its enactment or 120 days after the agencies issue final implementing regulations. The Company continues to assess the impact of the GENIUS Act as the stablecoin industry evolves.

Community Reinvestment Act (CRA)

On October 24, 2023, the Federal Reserve, FDIC, and OCC issued a final rule revising their framework for evaluating banks’ records of community reinvestment under the CRA. On July 16, 2025, the bank regulatory agencies issued a notice of proposed rulemaking to rescind the October 2023 final rule and restore the CRA framework that existed previously, which has remained in effect due to a preliminary injunction that stayed implementation of the October 2023 rule. The Bank received a rating of

“Satisfactory” in its most recent performance evaluation, which was conducted using the CRA framework that existed prior to the October 2023 final rule.

Brokered Deposits

On July 30, 2024, the FDIC issued a proposed rule that would revise the FDIC’s regulations governing the classification and treatment of brokered deposits. The proposed rule would have potentially required the Bank to classify a greater amount of its deposits obtained with the involvement of third parties as brokered deposits. On March 3, 2025, the FDIC withdrew this proposed rule.

Bank Merger Act

On September 17, 2024, the OCC finalized a new Policy Statement Regarding Statutory Factors Under the Bank Merger Act (the “Policy Statement”), which updated the factors the OCC would apply in evaluating a proposed bank merger transaction. The Policy Statement could have potentially made it more difficult and/or costly for us to obtain OCC approval for an acquisition or otherwise resulted in more onerous conditions in approval orders than the OCC had previously imposed. On May 8, 2025, the OCC rescinded the Policy Statement. The United States Department of Justice has left in place its 2023 Merger Guidelines as a framework to review bank mergers and has not reinstated the 1995 Bank Merger Guidelines that it previously applied to bank mergers and which the Federal Reserve and OCC continue to apply. Compared to the 1995 Bank Merger Guidelines, the 2023 Merger Guidelines set forth more stringent concentration limits and add several largely qualitative bases on which the DOJ may challenge a merger.

The information required by this Item is incorporated herein by reference to the information provided in Part I Item 2 (Interest Rate Sensitivity) of this Quarterly Report on Form-10-Q.

(a) Evaluation of disclosure controls and procedures. Based on their evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the three months ended June 30, 2025.

There have not been any material changes to the risk factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.