WSFS Financial Corporation (NASDAQ:WSFS) Q4 2021 Earnings Conference Call January 25, 2022 1:00 PM ET

Company Participants

Dominic Canuso - Chief Financial Officer
Rodger Levenson - Chairman, President and Chief Executive Officer
Steve Clark - Executive Vice President and Chief Commercial Banking Officer
Art Bacci - Chief Wealth Officer
Rick Wright - Chief Retail Banking Officer

Conference Call Participants

Erik Zwick - Boenning & Scattergood
Frank Schiraldi - Piper Sandler
Michael Perito - KBW
Russell Gunther - D.A. Davidson
David Bishop - Seaport Research Partners
Brody Preston - Stephens Inc.

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Operator

00:04 Ladies and gentlemen, thank you for standing by, and welcome to WSFS Financial Corporation Fourth Quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

00:32 I would now like to turn the conference over to your speaker for today, Dominic Canuso, Chief Financial Officer. You may begin.

Dominic Canuso

00:39 Thank you, [Wanda] [ph], and thanks to all of you for taking the time to participate on our call today. With me on this call are Rodger Levenson, Chairman, President, and CEO; Art Bacci, Chief Wealth Officer; Steve Clark, Chief Commercial Banking Officer; and Rick Wright, Chief Retail Banking Officer.

00:59 Before we begin with remarks, 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.

01:45 With that read, I will pass the call over to Rodger Levenson.

Rodger Levenson

01:51 Thanks Dominic. Considering the unique nature of the timing of the Bryn Mawr Trust close on January 1, I will provide a few summary thoughts on 2021. After my remarks, Dominic will be providing a detailed overview of the 2022 outlook, which includes the full-year of the combined companies. 2021 was a strategically important year for WSFS. Our financial results were very strong with full-year core earnings per share of $5.63 and a core ROA of 1.80%.

02:29 In conjunction with the improving economy, we experienced a release of approximately 117 million of the credit loss reserves from the COVID-related build in 2020. Excluding the impact of the reserve release, the full-year core PPNR was $236 million or 1.58% of average assets.

02:53 As detailed in the earnings release and investor presentation, the primary drivers between reported and core results were corporate development and restructuring expenses related to BMT and the impact of the litigation settlement recovery, which occurred at the end of the year.

03:12 In addition to our financial performance, WSFS exited 2021 with very positive momentum driven in large part by our prior franchise investments.

03:22 First, while loan growth continues to be impacted by significant excess customer liquidity, commercial loan fundings and pipeline continue to grow in the fourth quarter exceeding pre-COVID levels. The upstart consumer loan partnership has performed above our original plans and NewLane leasing had its strongest quarter in its early history.

03:46 Second, deposit growth continued in the fourth quarter, mostly from our corporate trust business in Wealth Management almost all of which is non-interest bearing. It is important to note that 54% of our customer deposits are from commercial, small business, and wealth segments.

04:07 Overall, our balance sheet remains asset sensitive and combined with our liquidity, we are very well positioned for rising rates and our ability to fund future loan growth.

04:18 Next, both Wealth Management and Cash Connect ended the year strong, continuing to underscore the strength and diversity of our fee-based businesses. Also, consistent with the reserve release in the quarter, credit metrics continue to improve with significant reductions in problem loans non-performing assets and net charge-offs.

04:42 Overall, these metrics are at or near where the portfolio stood at the end of 2019, prior to COVID. Finally, and importantly, we closed BMT right after the end of the year. As we said at the announcement, this combination significantly strengthens our business model, builds on prior franchise investments, and enhances our unique competitive positioning as the largest locally headquartered bank and wealth management franchise in the Greater Philadelphia and Delaware region.

05:15 I will now turn it back to Dominic for the 2022 outlook.

Dominic Canuso

05:21 Thanks, Rodger. We head into 2022 with significant opportunities as a combined organization with over $20 billion in assets and $58 billion of AUA and AUM. We anticipate our performance to improve throughout the year as we capitalize on our unique presence in our markets, execute on revenue synergies, and achieve cost synergies from our combination with Bryn Mawr Trust.

05:51 On Slides 5 and 6 of the Investor presentation, which is available in the Investor Relations section of our website, we lay out our expectations and outlook for 2022, which I will walk through now.

06:05 The growth rates in our outlook are based off the combined pro forma year-end 2021 estimates presented on Slide 5. Net loan growth is expected to be in the mid-to-high single digits, excluding run-off in our acquired residential mortgage portfolios.

06:26 With the combined 102 lenders, across C&I, CRE, small business and private banking, commercial loan growth is targeted in the mid-single digits. This is supplemented by double-digit growth rates in NewLane, our small ticket leasing business; and our consumer partnership portfolio, which includes the recent successful launch of our upstart lending product.

06:53 These growth rates assume a reduction in commercial loan payoffs, resulting from the excess liquidity given the anticipated rising rate environment. Deposits are expected to remain relatively flat throughout the year.

07:08 Our elevated and robust deposit levels supported by our relationship based strategy are generated from across all our primary lines of business, while providing historically low funding cost. Our expectations are subject to the somewhat unpredictable nature of the current macro excess liquidity environment, which we assume continues at elevated levels through 2022.

07:36 Consistent with our strategy over the past two years, we continue to deploy our significant excess liquidity methodically into our investment portfolio, generating yield and earnings, while maintaining a shorter duration and providing ample liquidity for future net loan growth or reinvestment at higher interest rates if the access liquidity environment persists.

08:00 Full-year net interest margin is anticipated in the 3.15% to 3.20% range. With margin expansion throughout the year, supported by loan growth and three assumed interest rate increases of 25 basis points each.

08:18 Our NIM outlook assumes 7 basis point to 11 basis point benefit of purchase accounting accretion and the 35 basis point to 45 basis point of negative impact from excess liquidity.

08:34 Fee revenue growth is expected in the mid-single-digits, including a reduction in deposit overdraft fees, the impact of Durbin on Bryn Mawr’s legacy interchange income, and the loss of PPP fee income in 2021.

08:51 Excluding these impacts, fee revenue is expected to grow mid-to-high single digits, driven by double-digit growth in cash connect, mid-to-high single digit growth in trust and wealth, and meaningful growth from synergies from BMT’s capital markets platform, particularly in a rising rate environment. This results in a core fee income ratio in the low to mid-30s.

09:19 Provision costs are expected to be between $15 million and $25 million, excluding the initial ACL impact attributable to BMT. Provision costs are driven by assumed net loan growth, continued strong portfolio credit metrics and the stable economic outlook.

09:40 An efficiency ratio in the low 60s is driven by the assumptions previously mentioned, our continued investment in talent, and our delivery transformation initiative, along with the phasing of the BMT cost synergies beginning with the bank conversion in late 1Q.

09:59 We are on track to meet or exceed the [65%] [ph] of the target annual cost savings identified with BMT with 100% of the targeted cost savings achieved by early 2023. As cost synergies are realized, the 4Q efficiency ratio is expected to be in the high-50s.

10:23 And consistent with 2021, our tax rate is expected to be around 24%. Based on anticipated performance and driven by our momentum and strategic opportunities, previously mentioned, ROA for the year would be around 1.10%, with performance improvement expected throughout the year, and a 4Q ROA around 1.20%.

10:51 We will now open the line to answer any questions you may have.

Question-and-Answer Session

Operator

10:56 Thank you. [Operator Instructions] Our first question comes from the line of Erik Zwick with Boenning & Scattergood. Your line is open.

Erik Zwick

11:20 Thanks. Good afternoon, everyone.

Dominic Canuso

11:23 Hey, Erik.

Erik Zwick

11:25 Wondered if I could first start with the interest rate sensitivity, you mentioned obviously within your assumptions for the year, you're assuming a three fed funds rate increases throughout the year. Just curious how you're asset sensitivity may have changed with Bryn Mawr now – with that transaction closed and additionally, what are you assuming as far as deposit beta assumptions in that model, and just kind of curious if you think the real world betas is in the cycle will be similar to what you're using in the model?

Dominic Canuso

12:00 Sure. Thanks, Erik. So, we are asset sensitive, as laid out on Slide 35 of our investor presentation. However, I'd caveat that that is the legacy WSFS at year-end 12/31. Currently, our [variable buck] [ph] is about 52% of total loans. With the close of BMT, we anticipate that to be in the high-50, so we would increase in asset sensitivity.

12:28 The three rate increases assumed this year have approximately a 6 basis point impact on NIM with an exit impact of about 12 basis points. The [deposit rate] [ph] assumed is close to 0 given the extremely low interest rates and are experience that there's typically a 6 month to 12 month lag in deposit betas after the first interest rate increase.

Erik Zwick

12:58 That's great. Thanks. And then turning towards the expectations for loan growth in the year within that slide, you mentioned some confidence and mentioned reduction in loan payoff levels throughout the year, just curious about your confidence in that occurring or are you already seeing pay down slowdown with some of the increases in rates you've seen at this point?

Steve Clark

13:20 Erik, this is Steve Clark. So, this is our view that we believe with a rising rate environment, some of the payoffs we've experienced this past year and this past quarter will be behind us. Many of our CRE borrowers have found the permanent market and have locked in rates with the threat of increasing rates. So, our forecast is less payoff activity during 2022 than prior years.

Erik Zwick

13:52 Got it. Thanks for the clarification there. And last one for me, just sticking to the loans, within the 2022 outlook, you talk about the mid-to-high single-digit growth, excluding the residential mortgage portfolio. So, just curious are you guys aiming to keep the residential mortgage portfolio flat, or do you think it will decline throughout the year or what are your expectations with regard there?

Dominic Canuso

14:14 Sure. This is Dominic again. We would expect that to run-off commensurate with the interest rate environment and the refinance conditions. So, what – is it expected to run-off with a headwind of about 1% and 1.5% impact to our net growth rate.

14:34 Sorry, Erik, are you still there? Wanda, maybe he got disconnected. If we could continue with additional questions.

Rodger Levenson

15:24 This is Rodger Levenson, and for those of you still – if you are on the call, we're just trying of connect with the operator, not sure what happened. We'll be connecting shortly.

[Technical Difficulty]

Operator

16:21 And our next question comes from Frank Schiraldi from Piper Sandler. Your line is now open.

Frank Schiraldi

16:30 Just curious on what the modeling implies for – assumes for securities purchases increases the securities book in 2022?

Dominic Canuso

16:46 Sure, Frank. This is Dominic. The recent interest rate that we've been acquiring is in high 170s and we would anticipate that to increase with the expansion of the 5 and 10 year. However, the runoff legacy investments could be comparable to that rate as they were purchased at a higher interest rate environment. So, where we landed the year about 170 yield on that portfolio, we do anticipate to continue for the foreseeable future.

Frank Schiraldi

17:20 Okay. And in terms of size, [indiscernible] over the year?

Dominic Canuso

17:27 Yes, we would expect it to grow about 5% from where we ended the year. So, a couple of 100 million more as we complete our current round of excess liquidity deployment. Any remaining incremental purchases would be a function of the macro-economic [liquidity] [ph] environment.

Frank Schiraldi

17:49 Got you. And then in terms of the guide on the wealth management side, I think it's a mid to high single digits, does that factor in the recent equity markets sell-off and then how do we think about that factoring into growth, especially now that you have a more of an actively managed portfolio?

Art Bacci

18:14 Hey, Frank this is Art Bacci. Thanks for the question. Let me – just stepping back a second, I mean, I'm still expecting more higher single-digit growth in our core business, but if you look at our wealth business really have three sources of fee income. One is driven by our account base fees that tends to come from our corporate trust area and some of our directed trust.

18:37 We have AUM base fees and then we have transaction base fees. So, we serve as assignment agent for some high yield deals and there was a lot of trading in those positions in the fourth quarter. And if you look at the volatility, it was third quarter of this 2021, we saw 50% increase in the assignment fees that declined by about 25% in Q3.

19:02 And we saw a 40% increase in Q4. So, it's very volatile. So, when you kind of strip out that transaction activity, we're still looking at high-single-digit growth in our core wealth business.

Frank Schiraldi

19:16 Okay. And then does that, does that look at what happened in January in the markets? I just don't know how impactful market moves are to the – at least the actively managed portfolio?

Art Bacci

19:28 We really do [indiscernible] our fourth quarter AUM was up about a combined BMT and [WSFS was about] [ph] 5%, so that would indicate to me about a 5% revenue growth, all else being equal going to Q1. We have modeled an assumption that the markets, our portfolios would be up probably 4% to 6% this year.

19:52 The volatility you're seeing right now, we saw it in the fourth quarter of 2018, we saw it in the first half of 2020, that's to be expected, but that doesn't mean the market for the full-year will be negative and we still expect positive returns this year.

Frank Schiraldi

20:09 Sure, okay. And then just lastly, if I could, in terms of the double-digit consumer growth, how much does Upstart play into that and is it the majority of growth? And what sort of yields, average yields are you getting out there?

Rick Wright

20:29 This is Rick Wright. On the Upstart side, I'd say we're just starting to grow that. Although it's been a fairly substantial front-end effort on that, I would say that Spring EQ and Upstart together will account for a significant amount of that growth. We're doing a lot of production in the other areas, but the runoff, the pay downs, the use of the credit lines are still headwinds. So, the basic answers is, Upstart and Spring will be a lot of it.

21:04 The yield is in the mid-7 on Upstart.

Frank Schiraldi

21:10 Got you.

Dominic Canuso

21:12 Frank, just to clarify, that's a bottom line NIM. The gross yield on those products are 12% to 13%.

Frank Schiraldi

21:22 I'm sorry. So, the loan yield is 12% to 13%?

Dominic Canuso

21:26 Correct.

Frank Schiraldi

21:27 Okay. [Technical Difficulty] Upstart as opposed obviously, that's not Spring EQ, that's Upstart yields?

Dominic Canuso

21:34 Correct.

Frank Schiraldi

21:35 Okay. Thank you.

Operator

21:39 Thank you. Our next question comes from the line of Michael Perito with KBW. Your line is open sir.

Michael Perito

21:53 Hello. Can you guys hear me?

Dominic Canuso

21:56 Yeah, we got you Mike.

Michael Perito

21:57 Sorry. Thanks for taking my questions. I had a couple places I want to touch on, just Number 1, on the Bryn Mawr side, Rodger, I was curious if you could just provide some updated commentary around, kind of key employee and customer retention with the transaction now closed, and just generally speaking, also on top of that, what the kind of the hiring pipe line and that Greater Philadelphia market looks like, which is something I think you guys have some nice momentum on leading into that transaction?

Dominic Canuso

22:28 Yes, thanks for the question Mike. I think on the customer side, things are going really, really well. And we really haven't seen any attrition to any degree at all on both the consumer, commercial, and wealth businesses. There's been a few folks in the wealth than the commercial side that have left. I'd say, it's all RMS and customer facing folks, I'd say it's all very manageable and to be expected when you go through a combination like this and a number of the positions have already been [back filled] [ph].

23:00 And looking out in terms of future ads, particularly on [commercial OEMs] [ph], I think we're cycling into that point in the year, particularly as you get past bonus time and others that those conversations will heat up again.

23:15 They've been having kind of informal – happening kind of informally up to now. And as we said, when we made the announcement, I think Bryn Mawr only makes us a more attractive landing spot, particularly for somebody who's at a larger bank and isn't happy for whatever reason. So, we'll continue to look to invest in bringing talent over to the extent that we think it can be additive to what we've already have.

Michael Perito

23:44 Great. Thank you. And then, curious just kind of a two part question, I was looking at the Slide 17 you guys put in the deck about some of the strategic partnerships. And I guess, your number one, you know with Bryn Mawr now in the fold, how do you guys see kind of the mix of business unfolding? I think after the beneficial deal, there were some conversations around remixing the loan book back closer to where legacy WSFS was, and obviously beneficial took down your fee contribution as well. You know, Bryn Mawr, not so much, but just kind of curious if you can give a broader outlook in terms of how you see kind of your mix of business developing over the next handful of years? And then, also just as we look at this, kind of secondarily to that at this strategic partnership slide here, where does this go? I mean, is this – at this point, kind of done for the near term, is there more stuff than the pipeline that you guys are looking at along these lines? Would love some color there?

Rodger Levenson

24:46 So, I'll start and then anybody else from the team can jump in. Just kind of starting with the last piece and circling back. So, I think for a long time partnerships have been an important part of our business model, our company has a long history of connecting with entrepreneurial folks if it can be additive to us serving our customers and what you see on that chart are the recent results of that, and I think that will continue to play out.

25:11 There's really nothing imminent on that front, although a number of those things, I would just remind you Mike are still in very early stages, and for example, cred.ai, is just starting to launch their platform. So, I think that will continue to be a big part of our business. I think particularly on the consumer side, I think partnerships will – like Upstart will continue to be a significant part of how we serve our customers.

25:40 And in terms of the overall business mix, I think what you're going to see is, obviously wealth becomes a much bigger part of our business to almost 50% of our fee-based revenue going forward. We still think there's a tremendous opportunity in the commercial space. With the growth opportunity we have there, and I think the consumer bank with a lift from the partnerships will continue to be an important part of the business model as well.

26:10 So, I don't think it's a dramatic shift in our business mix, but I clearly see wealth and commercial being the primary growth vehicles.

Michael Perito

26:23 That’s helpful, Rodger. Thanks. Is there any loss, anything material loss-wise related to so far with them being approved for bank charter on the [fee deposit] [ph] side?

Rodger Levenson

26:33 No. We're totally out of that relationship. And we actually sold our equity stake earlier in 2021. So, there's no financial impact to the [indiscernible] partnership at this point.

Michael Perito

26:43 Got it. Thanks. And then just lastly for me on the buyback, curious if you guys can just give us a comment of where, you know the pro forma capital ratio shook out when you closed on the first relative what you expected and just any general thoughts and as you guys said in the release, you'd plan to resume buybacks, but just some additional color there would be great?

Dominic Canuso

27:02 Sure. This is Dominic. How are you doing? We have not fully closed the books obviously on Day 1 and will provide significant information with regard to the first quarter close and Day 1 marks, but at this point in time, the pro forma capital does meaningfully favorable to the transaction announcement information along with our regulatory applications. So, we continue to be a highly excess capital position. As we stated in the materials, we do anticipate with the closure of the BMT transaction to resume share repurchases.

27:40 As we've stated before, capital philosophy is to return a minimum 25% of annual core earnings relatively equally between our dividend and share repurchases, regardless of price and then incremental share repurchases depending on the stock price and the IRR that we would achieve through those share repurchases.

28:01 I would note that we did pause early last year with the announcement at BMT, so we have both the 2021 and 2022 routine share repurchases ahead of us, which is around $60 million and regardless of price and then incremental to that, would be dependent on the stock price.

Michael Perito

28:24 Got it. That is very helpful. Thank you. Than you, guys.

Dominic Canuso

28:30 Thanks Mike.

Operator

28:31 Thank you. Our next question comes from the line of Russell Gunther with D.A. Davidson. Your line is open.

Russell Gunther

28:38 Hey, good afternoon guys.

Rodger Levenson

28:40 Hey, Russell.

Russell Gunther

28:42 Just a quick follow-up on the recruitment line of questioning earlier, the RM ads that are seasonally starting to happen, is that target at all in footprint or are there adjacent or new markets you guys would look to employ that strategy in as well?

Rodger Levenson

29:00 Hey, Russell, it's Rodger. So, it's really primarily in footprint. We would consider and we've had some conversations with some folks in adjacent footprints nearby geographies, but the primary focuses we've talked about is really on the market opportunity in our geographic region, which as you know is very large, from both the geography and a business count standpoint.

Russell Gunther

29:27 Yes. There’s plenty of opportunities. Understood. Okay. Thank you, Rodger. And then back to the guide on fees, you guys mentioned reduction in overdraft fees. So, just curious if you could provide any additional color in terms of what's planned there and potential revenue at risk? Any additional thought?

Rick Wright

29:47 Yeah, this is Rick Wright again. I would tell you that over the last several years, we've made incremental decisions to make that a little more customer friendly as we've gone along. And at this point, the amount of overdraft revenue is not really significant for us and I would say that we're talking like a million odd dollars in further reduction with this latest move. So, we'll continue to look at it, but it's really very immaterial to our fee revenue.

30:22 Very helpful. Thank you. And then just the last question for me is on the expense side of things. The guidance talks about the continued delivery transformation investments, could you just give us an update in terms of where that stands and any color on how that impacts the expense base for 2022 and beyond? Thank you guys.

Dominic Canuso

30:45 Sure Russell, this Dominic. So, we do provide information on our delivery transformation [mentioned on Slide 18] [ph], and we communicated by both the 13.3 million net investment in 2021 along with a slight step-up in increase [into 2022] [ph], primarily just from timing of some initiatives going into next year.

31:08 We continue to focus on our holistic approach to serving our customer, an omni-channel experience, and a technology stacks that provides flexibility outside of our core systems to bring in new partnerships as we've talked about, but also to create operational efficiencies in the back office and across the organization from our lenders to our data analytics.

31:35 Next year we'll be very much focused on rolling out our sales force CRM platform to ensure that we have a one-witnessed approach to all the products and services we offer where also launching next gen sales and service, which includes online – an improved online account opening experience where currently our most recent launch customer can open up a deposit account in as little as 2 minutes, which is a significant reduction in prior processes, and we'll continue to roll-out those capabilities and enhancements throughout the year.

Russell Gunther

32:12 That's really helpful Dominic. Thank you. Just one quick follow-up, is the bulk of that investment then behind you guys after this year or is this sort of $13 million to $15 million over the past couple of years something we should think about going forward in terms of what you have planned?

Rodger Levenson

32:33 So, I’ll jump in Russell, it's Rodger. So, I think it's hard to predict. I think there's a certain amount of this that's going to be ongoing, but to forecast out beyond the current year is, something we're going to have to see based on our assessment of what we need for our customers and what the current landscape is. So, I would say, we're talking about these levels, but any one particular year, it's kind it's, kind of hard to forecast at this point.

33:02 I do think that we are also at an inflection point on this whole project. We've been added now for over three years. We've made a tremendous amount of investments in talent and process. As Dominic mentioned, more of that is showing in some of our customer facing applications that we're working on this year and I think that will continue to be the focus, but if you think about when we started that project from where we're at today, we're a very different company, particularly in the size of the wealth business and the expansion in some of our partnerships and other things. And we'll just have to continue to evaluate how that will drive where we want to invest those dollars moving forward.

Russell Gunther

33:45 Understood. I really appreciate it guys. That's for me.

Dominic Canuso

33:48 Thank you.

Operator

33:50 Thank you. Our next question comes from the line of David Bishop with Seaport Research Partners. Your line is open.

David Bishop

33:58 Yeah. Good afternoon, just a – most of my questions have been asked and answered, but maybe Dominic would remind us maybe close to those with more transaction and these sort of balance sheet restructurings, security repositioning or for pay down of borrowings or cash and maybe your view of excess liquidity exiting the year? Thanks.

Dominic Canuso

34:18 Sure. First, I'll start off with our, kind of directional loan to deposit as we ended the year with a loan deposit ratio of 60% because of the excess liquidity and really strong customer deposits across all of our business. We believe that was significantly low. BMT did bring a loan deposit ratio more in the 80. So, naturally just combining those that lessens that excess liquidity impact overall on the balance sheet to our net interest margin, given the outlook that we've provided. We are restructuring their investment portfolio to be commensurate with our strategy.

35:02 Much of that was actually executed in the fourth quarter in anticipation of the close on the first. So, the ending balance sheet is relatively consistent with where it'll land. Throughout 2022, we will evaluate primarily the [trust preferreds] [ph] and some sub-debt that are higher interest rates that we would likely call and we communicated at the time of the combination that there would be some of that activity that would continue to support an improved margin that is included in our net interest margin outlook that we've provided.

David Bishop

35:36 Okay, great. And I apologize if I missed this in the slide deck, but C&I [indiscernible] uses, I don't know if you have an update this quarter versus last just [Technical Difficulty] curious [whether that’s helpful now] [ph]? Thanks.

Steve Clark

35:49 David, Steve Clark, again. So, we actually in the fourth quarter saw an uptick in commercial line of credit utilization picked up from 33% to 35.8% in the fourth quarter from the third quarter. So, that meant about $55 million in balances. And we're hopeful as the liquidity runs off, that utilization rate will continue to trend back to our historical norms, which had been in the low-40s to mid-40s as a percent.

David Bishop

36:28 Great. Thank you.

Operator

36:30 Thank you. Our next question comes from the line of Brody Preston with Stephens Inc. Your line is open.

Brody Preston

36:38 Hi, good afternoon everyone.

Dominic Canuso

36:40 Hey, Brody.

Brody Preston

36:43 So, I've got a handful of questions. I'll try to get through them quickly. You guys just put a lot of great info in the deck, which kind of results in more questions from me, but I guess, on the buyback front, maybe I'll try it a different way. I know the commitment is to return at least 25% of capital every year, but if I look back at like 2019, you know, you all were trading at a similar level to where you are now. You know, the forward [indiscernible] outlooks were pretty similar for the bank as to where they are now on average throughout of 2019, and you're in a more favorable liquidity and capital position today than you were back then and you bought back 7% of shares in 2019 throughout the year. And so, just in terms of a thought process perspective, would it be unfair to say, if I look at where the stock is trading, look at what the IRR is and the profitability of the bank, would you at least be open to taking a similar approach as you did back in 2019, now that Bryn Mawr is closed?

Rodger Levenson

37:43 Yeah. This is Rodger again. Just to remind you, Brody, and you hit on all the key points, but we've been very disciplined for a long period of time on these non-routine buybacks with a model that we have that we target an 18% IRR, and the calculation of that IRR is driven by the increase in the EPS, the EPS accretion offset by that tangible book value dilution and obviously, stock price driven on that.

38:14 2019, it was very favorable, in terms of where our share price was in the fourth quarter of 2019, and that is why we moved quickly on the amount that we bought back in that quarter. I think we're at levels at this point with the share price, which are getting close to it being attractive for us, but as you can see, we're still at this point fairly fully valued. And so, we'll just have to monitor and see how that plays out.

38:43 I think as I said, being disciplined and waiting for that time that it works from the IRR and not convincing yourself to move more quickly by changing some of the inputs and that model or other things, we have learned is a bad strategy. So, we're going to stick with our model and to the extent the market moves to a direction that makes that favorable at 18% or better, we will be very aggressive.

Brody Preston

39:09 Understood. Thank you for that. Maybe just on the loan portfolio, real quick, I saw that you put the 908 million of the variable loans are at [floors] [ph]. Do you happen to know how many hikes it would take for that 908 to come off of lower levels?

Dominic Canuso

39:29 Hey Brody, this is Dominic. It's about 2 to 3 rate increases on average because of the blended rate that's involved with book. So, for that portion, the 3 rate increases we have seen start to benefit towards the latter half of the year.

Brody Preston

39:44 Got it. Thank you for that. And then I noticed that you all put some good market share color in terms of what you've gained in the ABS market, and so, I guess, I'm a little bit more curious about the economics of that business. How does that work in terms of fee generation, is that more transactional in nature like you're talking about earlier? And is that where you first started the relationship with Upstart?

Art Bacci

40:19 Brody, this is Art Bacci. The corporate trust business really has no relationship to Upstart, and we can talk about that. The corporate trust business is really two components. What we call our global capital markets that really deals more with the stress debt [indiscernible] trust, the administrative agent. That's where we get more of the transaction fees.

40:42 Our core corporate trust where we're serving as trustee for securitizations, namely [RMBS] [ph], consumer loans tend to be a per account fee that we earn every year and that's just been truly growth of the business, as well as the industry just growing with all the re-financings and home purchases [Multiple Speakers].

41:08 And yeah, and we've brought in a new business development person last year, who's really introduced some new relationships to us. And honestly, the profitability we – just like we do on the bank side, we're pretty disciplined and in our margins there about 50%, if not better in some cases.

41:25 So, it's a very attractive business for us. It's been a rapid growth business. And even if the markets were to slow down on securitization, I think we can hopefully offset some of that with market share gain. We still have a long way to go before we catch up to number three.

Brody Preston

41:41 Got it. Okay. Maybe just on the Upstart relationship, real quick. Appreciate the commentary on yields, Dominic. I just want to get a sense for what the credit box for you all will be for – it's got three other kind of partner banks at least in the securitization business, you know two of them are willing to, you know, they go down [indiscernible] 300, whereas the other one keeps it at a [mid-FICO at 6.80] [ph]. So, wanted to just get a sense for what your credit box looks like. I'm assuming it's closer to the [6.80] [ph] just given the yield that you mentioned?

Rick Wright

42:17 Yes. This this is Rick – go ahead, Dominic. Go ahead.

Dominic Canuso

42:21 Sure. I just wanted to – sorry, thanks, Rick. Just wanted to clarify, part of the reason we selected Upstart was to be able to overlay our underwriting strategy, our geography and our volume levers. So, the quality and the underwriting scores on these customers or commensurate with what this would do ourselves using their proprietary underline models.

42:49 So far to date, the average FICO what we've been generating is about 700, plus or minus and we go a little bit below that, but primarily north of [[near prime] [ph].

Brody Preston

43:04 Thank you.

Rick Wright

43:05 Yeah, I would just give real quick color at that. We have picked them because they have a track record of performing better at all the different FICOs and while we're focused on those ones that Dominic just talked about, we expect to do better than the market on that. And it is all in footprint. Those customers are all put in our automated marketing platform and we're marketing to them. So, we see this as a real opportunity for us.

Brody Preston

43:35 Got it. Okay. And then maybe just shifting gears to the run-off portfolio, I know it's a smaller portion, and I'm sure that there's some offsets with LendKey as well that will be positive for you here, but when the moratorium, if it ends in May, I guess, if it doesn't get extended, would you expect the 109 million in student loans from beneficial that you have? Would you expect those to kind of refi and run off at a faster pace going forward?

Dominic Canuso

44:07 It's hard to tell, Brody, but for a long time, that portfolio for beneficial has [traded at] [ph] kind of normal amortization. We don't really see that changing dramatically and certainly nothing to the magnitude that would move the needle on our loan portfolio.

Brody Preston

44:27 Got it. And then for the runoff, have you all gone through a similar analysis for the Bryn Mawr loans at this point? And if so, could you help us kind of ring fence the size of the runoff portfolio from BMTC [indiscernible] added?

Dominic Canuso

44:45 Yeah. So, I would just say at a high level Brody. There's really only the residential mortgage portfolio that will be runoff from Bryn Mawr. Their a commercial book because of where they were in their evolution was very different from beneficial and as you can see as outlined in the materials, we've essentially completed the runoff of those beneficial runoff portfolios down to very, very small level.

45:10 So, it's just really the student and the resi-mortgage. So the resi-mortgage is that we’ll come over with them, with Bryn Mawr will be part of that portfolio, and as Dominic said, the attrition of those portfolios will be very dependent upon what's going on with the rate environment, and the refi activity obviously counter balanced by new home sales and things like that.

Brody Preston

45:36 Got it. And then last one for me, the core loan yields, the ex-PPP, PAA, inflected higher this quarter, and so, I wanted to ask was there anything specific that drove that?

Dominic Canuso

45:51 No, it's really driven by a combination of continued deployment of the excess liquidity. Some loan improvement, however that was supported by some loan payoff fees and then a slight tick down in our cost of funds coming down. So, it was really split across all three drivers.

Brody Preston

46:09 All alright, great. Well thank you very much for taking my questions everyone. I appreciate it.

Dominic Canuso

46:13 Alright, Brody. Thank you.

Operator

46:16 Thank you. [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to Rodger Levenson for closing remarks.

Rodger Levenson

46:35 Actually, I think Dominic is going to take it away. Thanks, Dominic.

Dominic Canuso

46:40 Sure. Thank you everyone for joining the call today. Rodger and I will be attending conferences and Investor meetings throughout the quarter. We look forward to meeting with many of you then. If you have any questions, don't hesitate to reach out. Thanks for joining. Have a good day.

Operator

46:56 Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.