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WSFS Financial Corp (NASDAQ:WSFS)
Q2 2019 Earnings Call
Jul 23, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the WSFS Financial Corporation Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I'd now like to introduce your host for today's conference Mr. Dominic Canuso, Chief Financial Officer. Sir, you may begin.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Thank you, Amanda. And thanks to all of you for taking the time to participate on our call today. With me on this call are Rodger Levenson, President and CEO; Art Bacci, Chief Wealth Officer; Steve Clark, Chief Commercial Banking Officer; and Rick Wright, Chief Retail Banking Officer.

Before Rodger begins with his 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 Report 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'll turn the discussion over to Rodger Levenson.

Rodger Levenson -- President and Chief Executive Officer

Thanks, Dominic, and thank you to everyone for joining us on the call today. In our first full quarter since the closing of the beneficial acquisition, we posted solid core operating performance with core earnings per share of $0.88; core ROA of 1.57%; and core return on tangible common equity of 16.09%. As year-over-year and linked quarter comparisons are impacted by the timing of the beneficial closing on March 1st, we have provided an earnings release supplement which is posted on our website. The supplement includes additional details on our financial performance, a reconciliation of GAAP to core results for key operating metrics, and an update to our full year 2019 outlook.

Our results included the impact of $13.6 million of total credit costs. As detailed in our previously released 8-K, the primary driver of credit costs related to two legacy which is existing non-performing C&I loans were episodic events occurred during the month of June, impacting our updated impairment analysis. Approximately 90% of the $13.2 million in net charge-offs recorded in the quarter were attributable to those -- these two loans.

Overall, our credit metrics remain stable and our exposure to the specific industries where the losses occurred is modest and manageable. As noted in the supplemental materials, we have updated our outlook for full year credit costs to $30 million to $35 million. Also during the quarter, we purchased 193,888 shares of our stock with the completion of a full quarter of operating results and continued strong capital levels, we have updated our 2019 capital plan. This includes increased buybacks in the second half of the year, utilizing the stronger than anticipated capital levels and excess liquidity from the beneficial combination. We intend to continue to be buyers of our stock at current or higher prices up to the remaining amount of our previously board approved share repurchase authorization program of just under 2.9 million shares.

In addition to our operating performance, we are looking forward to the final major milestone of the beneficial integration. Teams from throughout the company have worked diligently to position us for a successful systems integration and brand conversion for the weekend of August 24 and 25th. The entire company is looking forward to moving from integration, planning and implementation to the business execution and realization of the significant long-term opportunities of our combination with Beneficial. In summary, even with the elevated credit costs, we posted a solid quarter and first half of 2019 and remain well positioned to achieve our full-year goals, including a 1.50% ROA.

Now, I will turn it over to Dominic for additional commentary on our financial performance and full-year outlook.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Thanks, Rogder. Good afternoon, everyone. In our first full quarter of combined results, we made meaningful progress in the transition of our combined operating model across the organization. Core operating profit for the quarter demonstrated continued strength in our overall business performance and meaningful progress and momentum toward our long-term expense and close the combination with Beneficial. This quarter we recorded $15.8 million of restructuring and corporate development costs consistent with our originally modeled expectations. As a reminder, these costs are excluded from our core results.

In May, we began executing on our branch optimization plan with the sale of five outlying branches and $178 million in customer deposits, to The Bank of Princeton at a premium of 7.37%. This transaction premium was recognized in conjunction with the day one accounting of the transaction. 20 additional branches will be consolidated during the conversion weekend with the remaining five over the next year or so. Excluding the sale, customer deposits increased $91 million or 4% annualized for the quarter, and we expect to deliver on full-year expectations of flat to slightly decreasing growth.

In addition, we are making progress on our balance sheet migration toward additional relationship based, higher yielding C&I loans and returning the portfolio mix from the 38% of C&I at transaction closed toward the above 50% mix prior to the acquisition. Notably in the quarter, C&I grew $76 million or 9% annualized, coinciding with $47 million of purposeful run-off in our $1.27 billion non-strategic loan portfolio comprised of held for investment, residential mortgages, almost all acquired from beneficial along with student and auto loans also acquired from beneficial. This additional run-off combined with higher payoff in our CRE portfolio resulting from revising the current interest rate environment. Lands are full year expected loan growth in plus or minus 0% growth.

NIM for the quarter was a robust 4.68%, and when excluding 22 basis points of incremental accretion resulting from loan payoff above our originally modelled expectation. NIM was slightly above the range outlined on our first quarter earnings call. When excluding all of the beneficial purchased accounting accretion, net interest margin was at very healthy 4.09%. On a pro forma comparative basis, this was a resilient 11 basis point improvement year-over-year and a 5 basis point increase over prior quarter, both resulting from the successful balance sheet optimization, stronger loan yields and low deposit betas.

For the second half of 2019, we anticipate net interest margin to be in the range of 4.25% to 4.35%, including approximately 35 basis points of originally model purchase accounting accretion from Beneficial. This range includes a 50 basis point decrease in both prime and LIBOR by year-end, negatively affecting the second quarter range by 10 basis points.

Additional detail on actual and anticipated net interest margin are in the supplemental materials posted on our website. Core fee income increased 19% year-over-year with 7% organic growth, diversified across all major businesses, including traditional banking and wealth, with notable growth in mortgage banking and cash connect. The growth rate is anticipated to slow somewhat in the second half of the year, as we align pricing and features across our product as part of the integration strategy.

The core fee income ratio of 25.3% for the quarter should maintain in the 25% to 27% range for the second half of the year. As Roger mentioned, we continue to see positive and healthy leading indicators in the loan portfolio and as such see the staff of the year's total credit cost to be around 25 basis points of loans consistent with our original full year outlook. Non-interest expense of $92 million for the quarter, combined with strong net revenues, delivered a 55.7% core efficiency ratio, which is consistent with their first quarter result, demonstrating that we are on pace to deliver the proforma cost synergies ahead of our year one expectations of 50%. An on pace to deliver 90% of cost synergies by the calendar year 2020.

The full-year efficiency ratio for 2019 is expected to be around 57%, while the effective tax rate of 21.9% in the second quarter was favorably impacted by the higher stock based compensation activity, our full-year expectations for the effective tax rate continues to be in the 23% to 24% range consistent with our original outlook. While another expectedly noisy quarter consistent with Rodger's comments, we are pleased with both the results and the trajectory of the business and remain on track to deliver our full-year core ROA of 1.50%.

We are happy to answer any questions you may have at this time.

Questions and Answers:

Operator

[Operator Instruction] Our first question comes from the line of Austin Nicholas of Stephens. Your line is open.

Austin Nicholas -- Stephens Inc -- Analyst

Hey, guys, good afternoon.

Rodger Levenson -- President and Chief Executive Officer

Hey, Austin.

Austin Nicholas -- Stephens Inc -- Analyst

Hey, so I appreciate the updated NIM guidance in the supplement, I guess maybe -- could we maybe walk through the call at 15 basis points step down from the core 4.09% NIM that you reported this quarter to get down to the -- in the back half of the year and then maybe just some help on how we should think about the trajectory of that in terms of maybe where -- where we're exiting the year at?

Rodger Levenson -- President and Chief Executive Officer

Sure. Thank you, Austin. Yeah, as we mentioned in our conversation just now that we do anticipate the rate environment to negatively impact our rates for the second half of the year by 10 basis points. In addition, we do anticipate some additional deposit costs as we align our product pricing across our combined customer base. So it's primarily those two drivers that are resulting in the second half of the year being at 3.94% or in that range.

Austin Nicholas -- Stephens Inc -- Analyst

Okay, and would you -- I guess, would you anticipate more pressure in the third versus the fourth? I'm just trying to understand maybe, that -- the cadence of the step down, if it been in it -- and if you could make any comments on that?

Rodger Levenson -- President and Chief Executive Officer

Sure. I will just add some clarification, the 50 basis point decrease in the rate environment is expected with 25 basis points in the month of July at the end of the next Fed meeting and then another 25 basis point decrease in September as consistent with market expectations, they obviously that is all subject to data and further expectations, but you would anticipate because of that, that there would be some stepped down in the third quarter with additional step down in the fourth quarter.

Austin Nicholas -- Stephens Inc -- Analyst

Okay, that's helpful. And then maybe just on the fee income guide, can I confirm that the guidance is really using the -- call it $138 million core number from 2018. And then when we think about the 2019 number, well, we're backing out the beneficial fee income, which is amounting into something in that $14 million to $15 million range for the full year. It's not the way to think about the guide on the fee income.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

It is, so we are normalizing for the growth from beneficial when we talk about the income growth to be more organic based.

Austin Nicholas -- Stephens Inc -- Analyst

Okay. That's helpful. And then I guess maybe I appreciate the efficiency guide that you highlighted, but any commentary specifically just on how we should think about the run rate on the expenses in the third and fourth quarter?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure. I think obviously the first full quarter here in combination allows us to have a clear view of what the current base is. We do expect in the third quarter to begin seeing benefits from the post integration efforts, but clearly that would be only one month of benefit. Those will be offset somewhat by normal growth in the business and in particular investment in the fee revenue strategies that we anticipate over the longer term. And then that would have compound in the fourth quarter with a full quarter savings plus combination and post conversion, but again, offset by a continued investment in the business line.

Austin Nicholas -- Stephens Inc -- Analyst

Okay, that's helpful. And then maybe just one last one. I thought there was the -- these credit $20 million or so credit that moved to non-performer this quarter. Could you maybe speak a little bit about -- maybe if there is, what type of industry that was or any commentary you could give on that credit and maybe, its relationship to the bank and any help that we, just on kind of describing the credit that you could provide.

Rodger Levenson -- President and Chief Executive Officer

Sure, Austin, it's Rodger, so it's a locally based C&I credit, it's broadly in the healthcare space, generally describe it as a group of outpatient specialty hospital.

Austin Nicholas -- Stephens Inc -- Analyst

Got it. Okay, great. Appreciate the questions, guys.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Thank you, Austin.

Operator

Thank you. And our next question comes from the line of Michael Perito from KBW. Your line is open.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Hey, good afternoon, gentlemen. Thanks for taking my questions.

Rodger Levenson -- President and Chief Executive Officer

Hey Michael.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

I want to maybe just follow up on that last question. Obviously, the credit migrated in the quarter, but you provided the updated credit cost guidance for the year and it seemed fair to assume that you don't expect any real loss content to materialize from that. I was wondering if you could just provide some more specifics as to why, -- that's the case, whether, it's well collateralized or secured or just any other details there would be helpful.

Rodger Levenson -- President and Chief Executive Officer

Yeah. So it's Rod [Phonetic] again, as we -- we went through our normal impairment analysis, which evaluates obviously collateral and we feel that we have it appropriately reserved for where the situation stands at this point.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Got it. Okay, helpful, thank you. I also want to circle back toward the fee question really just a broader question Dominic, you made a couple comments about kind of aligning Beneficial with legacy WSFS on the fee and deposit pricing side. I was wondering if you could maybe provide a little bit more specifics there, I guess that's common in the deck, I didn't exactly follow about the fee income comment in the updated outlook slide that you guys put out on your supplement. Can you just try a little bit more specifics about what the drivers on both the fee and deposit pricing side are, that are kind of aligning, I guess, Beneficial and legacy WSFS?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure. Good question. So I would say there's really two major impacts on combining the products across our customer base and Beneficial customers. The first is on the deposit pricing as we look across our entire footprint, there will be a consolidation of products that result in some migration upwards and downwards on our deposit pricing. In the near-term, there will be some products that are kind of grandfathered but no longer offered and there would be associated promotional offerings to support through the transition.

On the fee income side as we align the products -- primarily we evaluated the posting order on our overdrafts and aligning those products will result in kind of a one-time step down on some of the product, the fees generated from those products.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Got it. But I mean, is it fair to say I mean, based on your commentary, I mean, you guys did, I think, in the second quarter here if we back out some of those gains, like $41 million of core non-interest income, but you still expect that based on your 25% to 27% of revenue comment to grow in the back half of the year, half of that figure. Correct ?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

We do. Yeah.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Okay. I was also wondering, I noticed the 150 basis point ROA comment in the earning supplement that you maintain that, greater than that for the year, but I was curious and I know it's kind of a big ask, but you guys provided further kind of profitability, clarity after you announce the deal but obviously the rate environment has changed dramatically, and I was wondering if you were willing to provide any updated thoughts about kind of where that 150 can move in the future, you know, with what we know now, based on the rate environment and what you know now also on the cost savings and everything else in front of you that you didn't necessarily have when you announced the deal over almost a year ago.

Rodger Levenson -- President and Chief Executive Officer

So, this is Rodger, Michael. I presume you're referring to the 160 that we had referred to for 2020 going forward?

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Correct. Yeah.

Rodger Levenson -- President and Chief Executive Officer

Yeah, so, obviously we've gone through our normal mid-year updating of our plan, we're starting to have a look into 2020. We think that is still, I mean, obviously we're a ways away from it. We think that is still achievable, considering everything that we've learned since then, but obviously it's contingent upon us on executing, particularly on the revenue side, and I would highlight as you know, we started out with a little bit smaller balance sheet than we had originally thought. But, we have a line of sought into that and obviously, we'll be spending a lot more time of that, very shortly here as we work to develop our 2020 plan.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Helpful, Rodger, thank you. And then just one -- last one, I'll step back, but just, I start to notice in the area some increased marketing around the transaction. I'm just curious or just some general comments about what the reception has been thus far and how has it met relative to your expectations and as we approach the conversion, do you feel good about kind of the brand marketing and cost that you put in -- and trying to create awareness around [Indecipherable] brand in Philadelphia?

Rodger Levenson -- President and Chief Executive Officer

Yeah, thanks for noticing that. And I would say the reception in the market has been extremely positive and I think this is really, at this point exceeded our expectations in terms of the buzz in the marketplace. And I would highlight that we're really kind of only halfway through that brand campaign, that will kick into high gear in the next few weeks leading up to the conversion with some television, advertisement and some increased radio and print and that will go straight through conversion and well into the third quarter. So, so far, we are very, very pleased with the brand campaign.

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Perfect. Thank you guys for taking all my questions, I appreciate it.

Rodger Levenson -- President and Chief Executive Officer

Hey, thanks.

Operator

Thank you. And our next question comes from the line of Russell Gunther of D.A. Davidson. Your line is now open.

Russell Gunther -- D.A. Davidson -- Analyst

Hey, good afternoon, guys.

Rodger Levenson -- President and Chief Executive Officer

Hey, Russell.

Russell Gunther -- D.A. Davidson -- Analyst

I wanted to get a sense, if you could share what your expectations are around the pace of -- a run off in those identified portfolios. Is this a steady type of cliff we could expect? Is there an appetite perhaps for a bulk loan sale? I'd just like to get your thoughts on that if I could.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure, Russell. It's Dominic, how are you doing?

Russell Gunther -- D.A. Davidson -- Analyst

Good. How are you?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

So on a run off portfolio clearly, these are non-strategic loans that we no longer originate, much of which is derived from the held for investment, residential mortgage portfolio that we had originally modeled. At the time, in a rising rate environment to run-off commensurately with the average life of those loans. Clearly with a decreasing rate environment, what we're seeing is an acceleration of pay-offs due to refinancing and we see that in our refi business ourselves that, year-over-year our refi originations on our fee based business is up 100%. So consistent with the rate environment, we would expect that this, the run-off pace in the second quarter to continue for that portfolio, for the foreseeable future.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. Great, I appreciate that.

Rodger Levenson -- President and Chief Executive Officer

So I would add to that, obviously, we consider all of our options I'd say at this point, particularly for that residential mortgage book, we don't see the need to do that, I would just highlight again that these mortgages, although they were primarily broker originated, are all within our footprint and we think these are great opportunities to engage with these customers and potentially get fuller relationships. So we have a plan in place that we are actively connecting with those customers and want to see how that progresses before we would make any decisions to do anything differently.

Russell Gunther -- D.A. Davidson -- Analyst

All right, thanks for that, Rodger. And just wanted to get your sense as to what's driving the expectation for flat core loan growth in the back half of the year. You guys said really strong C&I growth, and you can expect that to continue a bit as it just continued pay downs or maybe just share a little bit about what's handicapping the core commercial in the back half?

Steve Clark -- Executive Vice President and Chief Commercial Banking Officer

So Russell, Steve Clark here agree to first, the second quarter to first full quarter with Beneficial to C&I activity was very encouraging and our pipeline right now is strong we have about $150 million pipeline, 90-day weighted average and in addition to that, we have about $200 million of commitments that we closed in the first half of the year that have not funded so we do expect fundings over the next six months to 12 months under those previously low, -- previously closed commitments, but on the commercial side, there is pretty heavy refinance activity and there's three kind of portfolios that we view as non-core and these are participations purchased in multi-family, in broadly syndicated deals and in leverage loans these are all part of the legacy Beneficial portfolio. So we will allow those to run-off and we'll exit when appropriate. So that headwind on the commercial side that I just described kind of brings this thing, we think around flat for the year.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. That's very helpful color. I guess, last question for me would be if you could size up what that, the aggregate portfolio just mentioned on the commercial side, the legacy beneficial of the multi-family syndicated leverage loans. Just to give a sense for what that and would -- could look like.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

It is approximately $350 million in participation purchased multi-family and the broadly syndicated leverage loan transactions.

Russell Gunther -- D.A. Davidson -- Analyst

Okay. That's great. Thanks for taking my questions, guys. Appreciate the help. It is helpful.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Brody Preston of Piper Jaffray. Your line is open.

Brody Preston -- Piper Jaffray -- Analyst

Good afternoon, everyone. How are you?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Okay, Brody.

Brody Preston -- Piper Jaffray -- Analyst

Hey, just a quick question on the accretive yield. Wanted to know what the -- the all-in contribution from accretive yield was both from Beneficial and from past deals?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure, yeah. In this second quarter, given the larger balance sheet, now it's about three basis points. So, it's not meaningful, but absolutely contributes to the net interest margin, but as we've expected over the last few years since our previous purchases, that will continue to run-off toward zero.

Brody Preston -- Piper Jaffray -- Analyst

Okay. So, I guess for this quarter, the all-in accretion number was six -- it was closer to 62 basis points, and then the the legacy, I guess accretion was sort of whittled down to zero here over the next 18 months, 24 months, somewhere in there?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Correct.

Brody Preston -- Piper Jaffray -- Analyst

Okay, OK, great. And then with regard to the CRE prepaid that you highlighted in the press release, just want to get a sense for what the blended yield was on that -- on the stuff that refined away?

Steve Clark -- Executive Vice President and Chief Commercial Banking Officer

So, this is -- Brody, Steve Clark again. So I don't have the specific on that portfolio of the CRE portfolio, but it's kind of a blended yield on pay-off for the entire commercial portfolio, it was about 568 [Phonetic].

Brody Preston -- Piper Jaffray -- Analyst

Okay, OK and so, I guess, that's -- I guess relatively in line with what your loan yield was last quarter. So I guess, when I think about the pace of prepaid is moving forward, I know you highlighted the $350 million from that non-core commercial book. I guess what are you guys thinking about in terms of the pace of pay downs from this book moving forward?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

So we believe it in quarter [Phonetic] with the next three year, we don't expect it all to occur this year at all. We think as rates reset in our notes [Phonetic] the market is pricing much more aggressively and we'll see these loans refinancing out.

Brody Preston -- Piper Jaffray -- Analyst

Okay. And then could you give me a reminder as what percent of the, the total loan portfolio is tied to LIBOR and what percent is tied to prime?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure. I would say about 50% of it is variable and off that 60% is LIBOR and 40% is prime.

Brody Preston -- Piper Jaffray -- Analyst

Okay, great. Thank you very much for that. And then I guess just turning the securities book real quick, I know you've sort of releveraging some of that portfolio from the optimization strategy just wanted to get a sense for how much you have left, if any, in terms of, additional, I guess, outsized security purchases?

Rodger Levenson -- President and Chief Executive Officer

At this point, and as I apologize, if I missed the first part of the question.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Yeah, I can jump in we've completed the balance sheet optimization so we don't see any significant releveraging of this securities portfolio.

Rodger Levenson -- President and Chief Executive Officer

Yeah, at this point in time, at the end of June, we completed the rebalancing of the balance sheet and hit our internal targets of mix for investments securities.

Brody Preston -- Piper Jaffray -- Analyst

Okay, great. And then for expenses for the quarter. Do you have the number for what the full impact to the -- to the full quarter was from Beneficial to 2Q expenses?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

We do not have that explicitly.

Brody Preston -- Piper Jaffray -- Analyst

Okay. I guess, I'm just trying to, the expense number was pretty good this quarter, and so I wanted to maybe get a sense for a few -- you've sort of extracted some of the cost savings already?

Rodger Levenson -- President and Chief Executive Officer

So this is Rodger, again. I'll jump in, we will get you broadly the specific number, but I would tell you that as we said previously, the modelling and this is holding true for the cost savings, it 50% this year most of that will kick in -- in the third quarter with the brand and its systems integration, because that's when we will be closing 20 of the locations, as Dominic said, realizing those cost saves and then also the FTE impact kicks in during the third quarter as well. That's really where most of the savings come but we will -- we will get you some information with some of the specifics for this quarter.

Brody Preston -- Piper Jaffray -- Analyst

Okay, great. Thank you for that, Rodger. And then, I guess I just want to quickly turn to the provision. Was there a specific reserve attached to either of the two credits charged-off this quarter?

Rodger Levenson -- President and Chief Executive Officer

So there were reserves on both of those credits that were then charged-off for this quarter, correct.

Brody Preston -- Piper Jaffray -- Analyst

Okay. Do you happen to have the number?

Rodger Levenson -- President and Chief Executive Officer

Yeah, we don't provide specific numbers on specific credits, obviously, for customer and other confidentiality reasons.

Brody Preston -- Piper Jaffray -- Analyst

Okay, Okay. And then, I guess for -- I guess, as I just think about your specific reserves in relation to the $20.2 million C&I credit this quarter. I guess, could you give us a sense for, I guess, the trajectory of this -- of C&I specific reserves that we might see in the 10-Q?

Rodger Levenson -- President and Chief Executive Officer

So, I would say, again I can't -- I don't have that specific number off the top of my head, but we went through our normal impairment allowance. I don't think you're going to see some material change in the level of reserves for our broad C&I portfolio. We will get you a number also.

Brody Preston -- Piper Jaffray -- Analyst

Okay, thank you. And then quickly, last two for me, I know I'm taking up time, but with regard to Cash Connect, you guys have done a pretty good job managing the cash in non-owned ATMs now. Just want to get a sense, if there's a minimum level that you sort of identified that you need to run the business at its current size of the 28,900 ATMs and smart safes?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure, this is Dominic. I would say, we see it more as a portfolio mix that we're targeting and we're looking for one-third on balance sheet, two-thirds off balance sheet for the bailment business. In addition, though, as we look toward growing the smart safe business that will primarily be funded on balance sheet, but then to balance that as we look to offer our other fee based services for ATMs that we're not providing bailment that will balance that mix. So those are the targets we're looking for, you clearly see some progress made over the last quarter and last year, both driving bottom line growth and significant ROI improvement.

Brody Preston -- Piper Jaffray -- Analyst

Okay, great. And then on the Cash management that -- that seem to have a pretty good jump over the linked quarter. I just wanted to get a sense for what drove that. If that was, maybe signing on one or two large customers or just, you had pretty decent widespread adoption of smart safe this -- smart safe this quarter, was it that or was there anything seasonally driving it? Thank you.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Yeah, sure. And that's in that third group that I was speaking about, where we are providing reconciling and cash logistic services to customers, where we're not providing the bailment, but we're managing the program. So, you'll see that number hopefully continue to grow, but there was clearly a step up, as we've made some progress in offering those products and services to non-bailment customers.

Brody Preston -- Piper Jaffray -- Analyst

Okay, great. Thank you very much for taking all my questions.

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

No problem. Thank you, Brody.

Operator

Thank you. And our next question is on the line of Frank Schiraldi from Sandler O'Neill. Your line is now open.

Frank Schiraldi -- Sandler O'Neill & Partners -- Analyst

Good afternoon. Just a couple of questions left, just on the efficiency target for the year, the efficiency ratio, bringing that down from 58% got to 57%. Does that reflect an improvement of where you expect to end up down the road or is that just reflect, pulling out some expenses a bit earlier than you had anticipated?

Steve Clark -- Executive Vice President and Chief Commercial Banking Officer

Sure. I would say it's, it doesn't necessarily change expectations [Phonetic] with regard to the post Beneficial opportunities it's primarily in the year just tuning in on the performance. This is being delivered by the higher yields that we've seen in the portfolio offset by lower end, I should say the lower deposit betas and then some accelerated cost savings in the first half of the year before we hit the conversion weekend.

Frank Schiraldi -- Sandler O'Neill & Partners -- Analyst

Okay. And then just as far as the margin goes, I mean, kind of I feel like there's some moving parts, so a lot of moving parts but if I think about the back half of the year and where you guys have guided to, I assume there's some level of rate cut that's already coming in the NIM this quarter, just given sort of the front running we've seen from LIBOR. I'm just kind of wondering if you can break it down in terms of your thoughts on what it give 25 basis point rate cut kind of it does to the NIM, all else equal and if that slows over, the second into the third, as maybe, I don't know, you had fours or, on the deposit side, you can move deposit pricing lower more, on the second 25 bps or third 25 bps move just trying to get a sense as we look into 2020 as well of where we could see NIM move?

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Sure. Thanks, Frank, this is Dominic. First thing I would say is when you look at our interest rate sensitivity analysis at the end of the second quarter, it's pretty consistent where we were at the end of the first quarter post combination with Beneficial and with that our asset sensitivity has declined to more neutral. So it positions us well for their rate environment we're in for every 25 basis point change in a full-year basis.

Our net interest income would compress or expand by a 0.5% or $2.3 million on a full-year basis that would be linear up to 50 basis points or 75 basis points or 100 basis point increase given where rates are today, it flows when necessarily kick-in until really the first 100 basis point decrease.

Frank Schiraldi -- Sandler O'Neill & Partners -- Analyst

Got you, OK. Great. That's helpful. And then, just finally you may have touched on it already, but obviously had a pretty successful mix shift in the quarter, and two pieces to that, one was the significant pay downs you saw, but just on the C&I growth, is that sort of a, that high-single digit level, is that sort of thought of as sustainable here as we look into at least what the pipeline looks like in 3Q?

Steve Clark -- Executive Vice President and Chief Commercial Banking Officer

Frank, this is Steve again. I would say that's probably aggressive, I would say really, on the C&I side. We'd be very pleased with kind of low to mid. We think 9% for the quarter annualized was a little bit of an outliner.

Frank Schiraldi -- Sandler O'Neill & Partners -- Analyst

Okay. All right. Thanks, guys.

Steve Clark -- Executive Vice President and Chief Commercial Banking Officer

Thanks, Frank.

Operator

Thank you. And with no further questions in queue, I'd like to turn the conference back over to Mr. Rodger Levenson, for the closing remarks.

Rodger Levenson -- President and Chief Executive Officer

Thank you and thanks, everybody for participating on the call today. Dominic and I look forward to seeing many of you when we go back on the road in September. But as always, we're always available to address any other questions you have prior to then. Thanks, everybody again and have a good day.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Dominic C. Canuso -- Executive Vice President and Chief Financial Officer

Rodger Levenson -- President and Chief Executive Officer

Steve Clark -- Executive Vice President and Chief Commercial Banking Officer

Austin Nicholas -- Stephens Inc -- Analyst

Michael Perito -- Keefe, Bruyette & Woods Inc -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Brody Preston -- Piper Jaffray -- Analyst

Frank Schiraldi -- Sandler O'Neill & Partners -- Analyst

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