Ladies and gentlemen, thank you for standing by and welcome to WSFS Financial Corporation 4th Quarter 2021 Earnings Conference Call. At this time, all participants are on a 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 star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to turn the conference over to your speaker for today, Dominic Canuso, Chief Financial Officer. You may begin.
Thank you, Towanda, 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. Before we begin with our 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 included 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. With that read, I will pass the call over to Rodger Levenson.
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 EPS of $5.63, and a core ROA of 1.80%. 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.
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. In addition to our financial performance, WSFS exited 2021 with very positive momentum, driven in large part by our prior franchise investments. First, while loan growth continues to be impacted by significant excess customer liquidity, commercial loan fundings and pipeline continued to grow in the 4th 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. Second, deposit growth continued in the 4th 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. 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. 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 continued to improve with significant reductions in problem loans, non-performing assets, and net charge-offs. 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. I will now turn it back to Dominic for the 2022 outlook.
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. 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. 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 runoff in our acquired residential mortgage portfolios.
With a 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. 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. 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 costs. 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.
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 excess liquidity environment persists. Full year net interest margin is anticipated in the 3.15%-3.20% range, with margin expansion throughout the year supported by loan growth and three assumed interest rate increases of 25 basis points each. Our NIM outlook assumes seven to 11 basis points benefit of purchase accounting accretion and a 35-45 basis point of negative impact from excess liquidity.
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. 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. 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 a stable economic outlook.
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. We are on track to meet or exceed the 65% 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. 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 will be around 1.10%, with performance improvement expected throughout the year and a 4Q ROA around 1.20%. We will now open the line to answer any questions you may have.
Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Erik Zwick with Boenning & Scattergood. Your line is open.
Thanks. Good afternoon, everyone.
Hey, Erik.
Wondering if I could first start with just the interest rate sensitivity. You mentioned obviously within your assumptions for the year, you're assuming a 3 Fed funds rate increases throughout the year. Just curious how your asset sensitivity may have changed with Bryn Mawr now with that transaction closed. Additionally, what are you assuming as far as deposit beta assumptions in that model? Just kind of curious if you think the real world betas in this cycle will be similar to what you're using in the model.
Sure. Thanks, Erik. We are asset sensitive as laid out on our slide 35 of our investor presentation. However, I caveat that is the legacy risk at year-end 12/31. Currently, our variable book is about 52% of total loans. With the close of BMT, we anticipate that to be in the high 50s, so we would increase in asset sensitivity. The three rate increases assumed this year have approximately a six basis point impact on NIM with an exit impact of about 12 basis points.
Thank you.
Deposit rate, assumed, is close to zero given the extremely low interest rates and our experience that there's typically a 6-12-month lag in deposit betas after the first interest rate increase.
That's great. Thanks. Turning towards the expectations for loan growth in the year. Within that slide you mentioned reduction in loan payoff levels throughout the year. Just curious, you know, about your confidence in that occurring. Are you already seeing pay down slow down with some of the increases in rates we've seen at this point?
Erik , this is Steve Clark. You know, this is our view that we believe with a rising rate environment, you know, 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. Our forecast is less payoff activity during 2022 than prior years.
Got it. Thanks for the clarification there. Last one for me. Just sticking to the loans. Within the 22 outlook, you talk about the mid to high single digit growth excluding the residential mortgage portfolio. Just curious, are you guys aiming to keep the residential mortgage portfolio flat, or do you think it will decline throughout the year? What are your expectations with regard there?
Sure. This is Dominic again. We would expect that to run off commensurate with the interest rate environment and the refinance conditions. It is expected to run off with a headwind of about 1%-1.5% impact to our net growth rate.
Got it.
Sorry, Erik, are you still there? Towanda, maybe he got disconnected. If we could continue with additional questions.
This is Rodger Levenson. For those of you still, if you're on the call, we're just trying to connect with the operator. I'm not sure what happened here. We'll be connecting shortly.
Our next question comes from Frank Schiraldi from Piper Sandler. Your line is now open.
Just curious on what the modeling implies for, or assumes for, security purchases increases the securities book in 2022.
Sure, Frank, this is Dominic. You know, the recent interest rate that we've been acquiring is in the high 1.70s, 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. Where we landed the year at about 1.70% yield on that portfolio, we do anticipate to continue for the foreseeable future.
Okay. In terms of size, of the securities book over the year?
Yeah, we would expect it to grow about 5% from where we ended the year, so $200 million more as we complete our current round of excess liquidity deployment. Then any remaining incremental purchases would be a function of the macroeconomic equity environment.
Got you. In terms of the guide on the wealth management side, think of the mid- to high-single digits. Does that factor in the recent equity market sell-off? How do we think about that factoring into growth, especially now that you have a more of an actively managed portfolio?
Hey, Frank, this is Art Bacci. Thanks for the question. Let me just step back a second. I mean, I'm still expecting mid- to higher single-digit growth in our core business. If you look at our wealth business, we really have three sources of fee income. One is driven by our account-based fees that tends to come from our corporate trust area and some of our directed trusts. We have AUM-based fees, and then we have transaction-based fees. We serve as assignment agent for some high-yield deals, and there was a lot of trading in those positions in the 4th quarter. If you look at the volatility, you know, for the 3rd quarter of 2021, we saw a 50% increase in assignment fees.
That declined by about 25% in Q3, and we saw a 40% increase in Q4. It's very volatile. When you kind of strip out that transaction activity, we're still looking at high single digit growth in our core wealth business.
Okay. Does that, you know, look at what happened in January in the markets? I just don't know how impactful, you know, market moves are to at least the actively managed portfolio.
We really bill in arrears. Our 4th quarter AUM was up about 5%, combined BMT and WSFS. That would indicate to me about a 5% revenue growth, all else being equal. Going into Q1, we have modeled an assumption that the markets, our portfolios would be up probably 4%-6% this year. You know, the volatility you're seeing right now, we saw it in the 4th quarter of 2018. We saw it in the first half of 2020. That's to be expected, but that doesn't mean the market, you know, for the full year will be negative. We still expect positive returns this year.
Sure. Okay. Just lastly, if I could, in terms of the double-digit consumer growth, how much does Upstart play into that? You know, is it the majority of growth? You know, what sort of yields, average yields are you getting there?
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 line of credit lines are still headwinds. The basic answer is Upstart and Spring will be a lot of it.
Yield?
The yield is in the mid sevens on Upstart.
Got you.
Frank, just to clarify, that's a bottom line NIM. The growth yield on those products are 12%-13%.
I'm sorry. Say that. The loan yield is 12%-13%?
Correct.
Okay.
The growth. Yeah.
That's Upstart as opposed to obviously that's not Spring EQ, that's Upstart yields.
Correct.
Correct.
Okay. Thank you.
Thank you. Our next question comes from the line of Michael Perito with KBW. Your line is open, sir.
Hello. Can you guys hear me?
Yeah, Michael. We got you, Mike.
Great. Sorry. Thanks for taking my questions. I had a couple places I wanted to touch on. Just number one, 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. Just generally speaking also on top of that, you know, what the kind of hiring pipeline in that greater Philadelphia market looks like, which is something I think you guys had some nice momentum on leading into that transaction.
Yeah. Thanks for the question, Mike. I think on the customer side, things are going really well. We really haven't seen any attrition, you know, to any degree at all on both the consumer, commercial and wealth, you know, businesses. There's been a few folks in the wealth and 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, you know, backfilled. Looking out in terms of, you know, future ads, particularly on, you know, commercial RMs.
I think we're cycling into that point in the year, particularly as you get past, you know, bonus time and others, that those conversations, you know, will heat up again. They've been happening kind of informally up till now. You know, as we said when we made the announcement, I think, you know, 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. You know, we'll continue to look to, you know, invest in bringing talent, you know, over to the extent that we think it can be additive to what we already have.
Great. Thank you. Then, I'm curious, just kind of a two-part question. You know, I was looking at the slide 17 you guys put in the deck about some of the strategic partnerships. I guess, you know, number one, you know, with Bryn Mawr now in the fold, you know, how do you guys see kind of the mix of business unfolding? You know, I think after the Beneficial deal, there were some conversations around, you know, remixing the loan book back closer to where, you know, legacy WSFS was. Obviously Beneficial took down your fee contribution as well. You know, Bryn Mawr, you know, not so much. 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.
Also just as we look at this, you know, kind of secondarily to that, at this strategic partnership slide here, you know, where does this go? I mean, is this you know, at this point kind of done for the near term. Is there more stuff in the pipeline that you guys are looking at along these lines? Would love some color there.
I'll start and anybody else from the team can jump in. Just kind of starting with the last piece and then circling back. I think, you know, for a long time, partnerships have been, you know, an important part of our business model. Our company has a long history of, you know, connecting with entrepreneurial folks if it can be additive to us serving our customers. What you see on that chart are the recent results of that, and I think that will continue to play out. There's really nothing imminent, you know, on that front, although a number of those things I would just remind you, Mike, are still in very, you know, very early stages and for example, cred.ai, you know, is just starting to launch, you know, their platform.
I think that will continue to be a, you know, a big part of our business, I think particularly on the consumer side. You know, I think partnerships will, like Upstart, will continue to be a, you know, a significant part of how we serve our customers. In terms of the overall, you know, 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, you know, with the growth opportunity we have there. You know, I think the consumer bank, with the lift from the partnerships, you know, will continue to be an important part of the business model as well.
I don't think it's a dramatic shift in our business mix, but I clearly see, you know, wealth and commercial, you know, being the primary growth vehicles.
That's helpful, Rodger. Thanks. Is there any loss, anything material loss-wise related to SoFi with them being approved for a bank charter on the fee or deposit side?
No. We're totally out of that relationship. We actually sold our equity stake earlier in 2021, so there's no financial impact to the SoFi partnership at this point.
Got it. Thanks. Just lastly for me on the buyback. Curious if you guys can just give us a comment on where, you know, the pro forma capital ratio shook out when you closed on the first relative to what you expected and just any general thoughts. I mean, I saw you guys said in the release you plan to resume buybacks, but just some additional color there would be great.
Sure. Thanks. This is Dominic. How you doing? We have not fully closed the books obviously on day one, and we'll provide significant information with regard to the 1st quarter close and day one marks. At this point in time, the pro forma capital is meaningfully favorable to the transaction announcement information along with our regulatory application. We continue to be in a highly excess capital position. As we've stated in the materials, we do anticipate with the closure of the BMT transaction to resume share repurchases. As we've stated before, our capital philosophy is to return a minimum 25% of annual core earnings split relatively equally between our dividend and share repurchases regardless of price, and then incremental share repurchases depending upon the stock price and the IRR that we would achieve through those share repurchases.
I would note that we did pause early last year with the announcement of 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.
Got it. That is very helpful. Thank you. Thank you, guys.
Thanks, Mike.
Thank you. Our next question comes from the line of Russell Gunther with D.A. Davidson. Your line is open.
Hey, good afternoon, guys.
Hey, Russell.
Just a quick follow-up on the recruitment line of questioning earlier, the RM ads that are, you know, seasonally starting to happen. Is that targeted at all in footprint or are there adjacent or new markets you guys would look to employ that strategy in as well?
Hey, Russell. It's Rodger. It's really primarily in footprint. You know, we would consider and we've had some conversations with some folks in adjacent footprints nearby, you know, geographies. The primary focus, as we've talked about, is really on the market opportunity in our geographic region, which as you know is very large from both a geography and a business count standpoint.
Yeah. Well, plenty of opportunity. Understood. Okay. Thank you, Rodger. Back to the guide on fees. You guys mentioned reduction in overdraft fees. Just curious if you could provide any additional color in terms of what's planned there and potential revenue at risk, any additional color.
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. At this point, the amount of overdraft revenue is not really significant for us. I would say that, you know, we're talking like $1 million in further reduction with this latest move. We'll continue to look at it, but it's really very immaterial to our fee revenue.
Very helpful. Thank you. Just a last question for me is on the expense side of things. The guidance talks about, you know, 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.
Sure, Russell, this is Dominic . We do provide information on our delivery transformation initiative in 2018. We communicated both the $13.2 million net investment in 2021, along with a slight step up and increase into 2022, primarily just from timing of some initiatives going into next year. We continue to focus on a holistic approach to serving our customer, an omni-channel experience, and a technology stack that provides flexibility outside of our core systems to bring in new partnerships as we've talked about to also create operational efficiencies in the back office and across the organization, you know, from our lenders to our data analytics.
Next year we'll be very much focused on rolling out our Salesforce CRM platform to ensure that we have a one voice approach to all the products and services we offer. We're also launching next gen sales and service, which includes online, an improved online account opening experience, where currently, you know, our most recent launch, customer can open up a deposit account in as little as two minutes, which is a significant reduction in prior processes. We'll continue to roll out those capabilities and enhancements throughout the year.
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-$15 million over the past couple of years something we should think about going forward in terms of what you have planned?
I'll jump in, Russell, it's Rodger. I think it's hard to predict. I think there's a certain amount of this that's gonna be ongoing, but to forecast out beyond the current year is something we're gonna have to see based on our assessment of what we need for our customers and what the current landscape is. I would say we're talking about these levels, but you know, any one particular year is kind of hard to forecast at this point. I do think, though, we are also at an inflection point on this whole project. You know, we've been at it now for over three years. We've made a tremendous amount of investments in you know, in talent and process.
As Dominic mentioned, you know, more of that is showing in some of our customer-facing applications that we're working on, you know, this year, and I think that will continue to be the focus. 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 of the wealth business and the e-expansion in some of our partnerships and other things. We'll just have to continue to evaluate, you know, how that will drive where we want to invest those dollars, you know, moving forward.
Understood. I really appreciate it, guys. That's it for me.
Thank you.
Thank you.
Our next question comes from the line of David Bishop with Seaport Research Partners. Your line is open.
Yeah, good afternoon. Just most of the questions have been asked and answered. Maybe Dominic, remind us maybe, post-close with the Venmo transaction, these sort of balance sheet restructurings of security repositioning or pay down of borrowings or cash and maybe your view of excess liquidity, exiting for you. Thanks.
Sure. First, I'll start off with our kind of directional loan-to-deposit as we ended the year with a loan-to-deposit ratio of 60%. Because of the excess liquidity and really strong customer deposits across all of our business, we believe that was, you know, significantly low. BMT did bring a loan-to-deposit ratio more in the 80s. Naturally, just combining those lessens that excess liquidity impact overall on the balance sheet to our net interest margin, you know, given the outlook that we've provided. You know, we are restructuring our investment portfolio to be commensurate with our strategy. Much of that was actually executed in the 4th quarter in anticipation of the close on the first. The ending balance sheet is relatively consistent with where it'll land.
Throughout 2022, we will evaluate primarily the trust preferred and some sub debt that are higher interest rates that we would likely call. 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 provided.
Okay, great. I apologize if I missed this in the slide deck, but C&I loan uses, I don't know if you have an update this quarter versus last, just to share with where that levels out.
Yeah, David, Steve Clark again. We actually in the 4th quarter saw an uptick in commercial line of credit utilization, ticked up from 33% to 35.8% in the 4th quarter from the 3rd quarter. That meant about $55 million in balances. 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-mid 40s as a percent.
Okay, thank you.
Thank you. Our next question comes from the line of Brody Preston with Stephens Inc. Your line is open.
Hey, good afternoon, everyone.
Hey, Brody.
Hey, 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 results in more questions for me. I guess on the buyback. I maybe I'll try it a different way. I know that the commitment is to return at least 25% of capital every year. If I look back at like 2019, you know, y'all were trading at a similar level to where you are now. You know, the forward ROTCE outlooks were pretty similar for the bank as to where they are now on average throughout 2019. You know, you're in a more favorable liquidity and capital position, you know, today than you were back then, and you bought back 7% of shares in 2019 throughout the year.
Just in terms of a thought process perspective, would it be unfair to say, you know, if I look at where the stock's trading, look at what the, you know, 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 BMT's closed?
Yeah. This is Rodger again, just to remind you, Brody, and you hit on all the key points. Yeah, we've been very disciplined for a long period of time on these non-routine buybacks with the model that we have that, you know, we target an 18%, you know, IRR. The calculation of that IRR is driven by the increase in the EPS. The EPS accretion offset by the tangible book value dilution and obviously, you know, stock price driven on that. 2019, it was very favorable in terms of where our share price was in the 4th quarter of 2019, and that is why we moved quickly, you know, on the amount that we bought back in that quarter.
I think, you know, we're at levels at this point with, you know, the share price, which are getting close to it being attractive for us. As you can see, we're still at this point, you know, fairly fully valued. We'll just have to monitor and see how that plays out. 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 in that model or other things we have learned is a bad strategy. We're gonna stick with our model. To the extent that the market moves to a direction that makes that favorable at 18%, or better, we will be very aggressive.
Understood. Thanks for that. Maybe just on the loan portfolio real quick. You know, I saw that you put the $908 million of the variable loans are at floors. Do you happen to know how many hikes it would take for that 908 to come off of floor levels?
Brody, this is Dominic. It's about 2-3 rate increases on average because of the blended rate that's involved in the book. For that portion, you know, the 3 rate increases we assume start to benefit towards the later half of the year.
Got it. Thank you for that. I noticed that y'all put some good market share color in terms of you know what you've gained in the ABS market. I guess I'm a little bit more curious about the economics of that business. You know how does that work in terms of fee generation? Is that more transactional in nature you know like you were talking about earlier? Is that where you first started the relationship with Upstart?
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, you know, it's really two components. What we call our global capital markets that really deals more with distressed debt, venture trustee, administrative agent. That's where we get more of the transaction fees. Our core corporate trust, where we're serving as trust fees for indentured, you know, for securitizations, namely RMBS and consumer loans, tend to be a per account fee that we earn every year. That's just been truly growth of the business as well as the industry just growing with all the refinancings and home purchases. Yeah, we've brought in, you know, a new business development person last year who's really introduced some new relationships to us.
Honestly, the profitability just like we do on the bank side, we're pretty disciplined and, you know, our margins there are about 50%, if not better in some cases. It's a very attractive business for us. It's been a rapid growth business. You know, even if the markets were to slow down on securitization, I think we could hopefully offset some of that with market share gain. We still have a long way to go before we catch up to number three.
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, you know, for it's got three other kind of partner banks, at least in the securitization business that two of them are willing to, you know, they go down to a min FICO of 300, whereas the other one keeps it at a min FICO of 680. I want to just get a sense for what your credit box looks like. I'm assuming it's closer to the 680, just given the yields that you mentioned.
Yeah-
This is, this is Rick-
Go ahead, Dominic. Go ahead.
Sure. Sorry. Thanks, Rick. I 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 are commensurate with what we'd do ourselves using their proprietary underlying models. So far to date, the average FICO of what we've been generating is about 700 ±. You know, we go a little bit below that, but primarily, you know, north of prime.
Rick, anything to add?
Thank you.
Yeah. Yeah. I was just getting quick color as to that we have picked them because they have a track record of performing better at all the different FICOs. While we're focused on those ones that Dominic just talked about, we expect, you know, to do better than the market on that. 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.
Got it. Okay. Then maybe just shifting gears to the runoff portfolio. I know it's a smaller portion, and I'm sure that there's some offsets with LendKey as well that'll be positive for you here. But when the moratorium, you know, 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 to kind of refi and run off at a faster pace, you know, going forward?
It's hard to tell, Brody. I, you know, for a long time that portfolio for Beneficial, you know, has attrited at kind of normal amortization. We don't really see that, you know, changing dramatically, and certainly nothing to the magnitude that it would move the needle on our loan portfolio.
Got it. Then for the runoff, have y'all gone through a similar analysis for the Bryn Mawr loans at this point? If so, could you help us kind of ring fence the size of the runoff portfolio from BMCC that'll be getting added?
Yeah. I would just say at a high level, Brody, there's really only the residential mortgage portfolio that will be run off, you know, from Bryn Mawr. Their commercial book, because of where they were in their evolution, is very different from Beneficial. As you can see as outlined in the materials, we've essentially completed the runoff of those Beneficial runoff portfolios down to very small levels. It's just really the student and the resi mortgage. The resi mortgages that will come over with Bryn Mawr will be part of that portfolio.
As Dominic said, you know, the attrition of those portfolios will be, you know, very dependent upon what's going on with the rate environment and, you know, the refi activity obviously counterbalanced by, you know, new home sales and things like that.
Got it. Last one for me. The core loan yields, ex-PPP PAA, inflected higher, this quarter. I wanted to ask, was there anything specific that drove that?
No, it was 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. It was really split across all three drivers.
All right. Great. Well, thank you very much for taking my questions, everyone. I appreciate it.
All right, Brody. Thank you.
Thank you. As a reminder, ladies and gentlemen, that's star one to ask a question. 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.
Actually, I think Dominic's gonna take it, to take it away. Thanks, Dominic.
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.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.