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WSFS Financial Corp (NASDAQ:WSFS)
Q4 2019 Earnings Call
Jan 22, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the WSFS Financial Corporation Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the call over to your host for today, Mr. Dominic Canuso, Chief Financial Officer. Sir, you may begin.

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

Thank you, Valerie, 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; and Lisa Brubaker, Chief Technology 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 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'll return -- I'll turn the discussion over to Rodger Levenson.

Rodger Levenson -- Chairman, President and Chief Executive Officer

Thanks, Dominic, and thank you to everyone for joining us on the call. Consistent with our historical practice, our comments today will be a little longer than usual as they include our outlook for 2020. For your reference, we have also provided additional information on the fourth quarter, full-year 2019 and 2020 outlook in the earnings supplement posted on our website. I will briefly touch on Q4 and full-year 2019 results and then turn the call over to Dominic to walk through the details of the 2020 outlook. As always upon the conclusion of our prepared remarks, our team will be happy to answer any questions that you may have.

We are very pleased to report that Q4 2019 was another strong quarter for WSFS, with core earnings per share of $0.96 and core ROA of 1.63%. Our results in the quarter were driven by solid revenue generation in both our spread and fee businesses, combined with disciplined non-interest expense management. Highlights also included a 40% reduction in our non-performing loans resulting from the positive resolution of our largest NPL. This performance in the fourth quarter contributed to full-year 2019 results of a core earnings per share of $3.74 and a core ROA of 1.61%.

As outlined in pages 10 and 11 of the earnings supplement, our results for the year exceeded our original expectations and reflected strong operating performance, combined with the successful integration of Beneficial. One of our key strategic objectives related to Beneficial is the repositioning of the loan portfolio mix. Specifically, we identified approximately $1.6 billion of non-relationship, lower-yielding portfolios, including approximately $1.1 billion of residential mortgages that we plan to run off and replace with higher-yielding and relationship-driven C&I loans. The declining interest rate environment in the second half of the year accelerated this planned run off and was reflected in our 2019 loan growth. It also contributed to our full-year net interest margin of 4.44%, which included 45 basis points of Beneficial-related purchase loan accretion. While the timing of the loan attrition and accretion was different than anticipated, it is consistent with our strategic plan.

Total deposits grew [Phonetic] for the year, when excluding the impact of the sale of five New Jersey branches to the Bank of Princeton. This included a 4% increase in core deposits and minimal post conversion deposit attrition. Organic core fee income growth of 5% for the year was led by strong mortgage banking and wealth management revenue, offset by a modest decline in our traditional banking fees. Our core efficiency ratio of 56.2% reflected achieving higher-than-modeled cost savings from Beneficial, ongoing expense management and higher revenue. Credit costs were modestly over our original expectations at $29.2 million or 35 basis points of loans. This was directly attributable to two specific episodic loan impairments in the second quarter, which accounted for over 75% of our net charge-offs of the year.

Finally, as a result of our strong capital position and current share price, we were able to repurchase just over 2.1 million shares of WSFS stock at an average price of $42.83 during the course of the year. Having completed the integration of Beneficial and achieving or exceeding our plans for 2019, we move into 2020 uniquely positioned as the only locally headquartered bank in the Greater Philadelphia and Delaware region with the size, scale and product offering, combined with WSFS stellar service to compete with our big bank competitors in this market. We look forward to executing the second year of our strategic plan.

I will now hand it over to Dominic to provide additional information on our 2020 outlook.

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

Thanks, Roger. Good afternoon everyone, and happy New Year. We are excited to turn the page to the second year of our three-year strategic plan, which is focused on transformation and delivering on the opportunities in the Greater Philadelphia and Delaware marketplace resulting from the successful close conversion and integration of Beneficial. Our 2020 outlook that we will walk through today and outlined in the supplemental materials posted on our website is based on performance expectations consistent with our original Beneficial acquisition pro forma and our three-year strategic plan as we continue to see opportunities consistent with or better than original expectations. These performance expectations build on our strong 2019 financial and operating results, and incorporate the opportunities we see in our pipelines, existing relationship opportunity and revenue synergy business cases.

Highlights for our outlook include the following. Loan growth is expected in the low-to-mid single-digit percentage points, driven by mid-to-high single-digit organic growth offset by purposeful runoff of non-strategic, non-relationship portfolios. Deposits are expected to grow in the mid-single digit, including mid-to-high single-digit core deposit growth, offset somewhat with modest post conversion and branch consolidation attrition and purposeful runoff of higher cost CD. A net interest margin in the range of 4.10% to 4.15%. This includes 125 basis points Fed rate decrease midyear, 30 basis points of modeled Beneficial accretion and 5 basis points to 10 basis points of incremental Beneficial accretion based on the pace of attrition in the run-off portfolios, given the current rate environment.

Core fee income is assumed to grow in the low-single digits. This lower than historical growth rate is impacted by three key factors; one, Durbin's effect on debit interchange rates beginning in July 2020, which alone reduces the fee growth by 4 percentage points; two, the full-year impact of conversion-related product mapping that occurred late in the third quarter of 2019; and three, the interest rate environments impact on Cash Connect's bailment fees, which is fully offset by lower funding costs. Excluding these near-term headwinds, fee income would have grown in the high-single digits, driven by double-digit growth in both wealth and mortgage businesses.

Core efficiency ratio is expected to be approximately 59%. This includes fully achieving the 90% of integration cost savings, consistent with the original year two projection in the Beneficial deal model. It also includes the first full year of our Delivery Transformation investment. When normalizing for the interest rate environment versus our original strategic plan, the efficiency ratio would be approximately 55%.

Credit costs are forecasted to be approximately 26 basis points of loans or $20 million to $24 million on a full-year basis after the adoption of CECL. That amount is the amount that runs through the P&L in 2020 after the day one increase in ACL, which is taken directly through the balance sheet. Our current estimate of the day one impact from our CECL adoption is approximately a $30 million to $40 million increase in reserves from our 2019 year-end position, resulting in an ACL coverage ratio between 90 basis points and 100 basis points of loans. Addressed in the supplemental materials on Slide 8, this increase is primarily driven by the mix of our organic and acquired portfolios plus our asset class mix, driven by historical loss experiences and weighted average life of each portfolio.

We continue to finalize and validate our assumptions and model outputs, and will provide additional information in our upcoming 10-K filing. The outlook includes a core effective tax rate of approximately 24%, consistent with our strategic plan, which is a slight increase from 2019 due to lower expected stock-based compensation activity.

Consistent with our strategic plan theme of transformation, we are excited to enter our first full year of Delivery Transformation and to meaningfully progress our efforts in melding our physical and digital delivery channels, consistent with our brand and mission. In 2019, working with our strategic partner, we focused on refining the Delivery Transformation program, resulting in our commitment to increase our initial incremental investments and to accelerate our timeline from five years to three years. This increase on acceleration is based on the continued rapid evolution of technology in our banking industry, along with the opportunity to more quickly enhance our customer experience and accelerate operational efficiencies and ROI. We have provided additional context in the supplemental materials on slides 6 and 7, including a list of specific initiatives across three major areas of customer acquisition, customer experience and IT infrastructure.

Finally, some comments on capital management. It is our long-standing practice to return at least 25% of annual net income to shareholders through a combination of a purposely low dividend and routine share buybacks regardless of price. When we are in a position of excess capital, and our share price is such that buying incremental shares as an IRR of over 18%, we will engage in incremental buyback. Given our strong excess capital position and our current share price, consistent with both the third and fourth quarter of 2019, we intend to be aggressive buyers of our stock in the foreseeable future, even at levels moderately above the current market price. Overall, we expect to achieve a full-year core ROA of approximately 1.44%, and achieve our strategic planned objectives in 2020.

When excluding the significantly lower interest rate environment versus expectations 18 months ago, specifically, base rates that are 150 basis points lower, our outlook performance is slightly favorable to our original strategic planned estimate. As always, we are focused on and expect to deliver sustainable high performance, defined as top quintile ROA in our peer group.

Thank you for joining us on this call today. We will now open up the line, and our team is happy to answer any questions you may have. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Frank Schiraldi of Piper Sandler. Your line is open.

Frank Schiraldi -- Piper Sandler -- Analyst

Hey, guys. Good afternoon.

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

Hi, Frank.

Frank Schiraldi -- Piper Sandler -- Analyst

Just to start with, Dominic, I might have missed -- I'm not sure if you gave it. You talked about accelerating the tech spend to three years versus the five years, but did you give a total dollar amount over those three years?

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

I did not, and good question. So historically, in our previous conversations, we've discussed an incremental investment of $32.5 million. As we've talked about increasing this investment, as you'll see in our material, we lay out the gross investment in 2020 of just over $15 million. We would expect to invest at that pace over the next few years, but with anything over a three-year plan, we will continue to evaluate.

Frank Schiraldi -- Piper Sandler -- Analyst

Got you. And I mean, I guess, is it reasonable to think about net expenses being the same level as well per year?

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

On a net -- those would actually increase as portions of each year spend is in capex, and as they begin to amortize the net cost would increase, but that net cost would be offset by cumulative gains in revenues associated with the benefits of the investment along with operational efficiencies in other back-office expenses.

Frank Schiraldi -- Piper Sandler -- Analyst

Got you. Okay. And then, the 1.44% ROA that you cite for 2020, does that include buyback activity?

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

It does.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay.

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

[Speech Overlap] food buyback activity consistent with recent share repurchases.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. But correct me if I'm wrong. The original guidance didn't have significantly high -- I mean, I think it had your standard return of whatever it is 25% in terms of buyback activity baked in, if I think about the 1.61% [Phonetic] you guys have given originally.

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

Correct. It would have been closer to our minimum level of capital returns.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Now -- and then, as we think about buybacks, you certainly -- you talked about the IRR being attractive and you guys even after CECL have plenty of excess capital. Should we think about incremental buyback as being up to returns of 100% of earnings or should we think of capital return in the near term could be -- could exceed the earnings?

Rodger Levenson -- Chairman, President and Chief Executive Officer

So Frank, this is Rodger. I think the way I would look at it is, certainly, we intend to continue around the pace that you've seen in that second -- excuse me, the third and fourth quarter this year, and we're clearly generating enough capital to support that. But as always, we will evaluate that with other uses of the capital, the current economic environment, credit environment, etc. So I think it's a fair statement to say that we're certainly generating enough capital to support the current pace, and then depending upon those factors and where our share price and other things, we could increase that amount.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. And so you have, I guess, $1 million -- 1 million shares left. I would imagine now the Fed changes rules, there is no issue to reauthorizing at some point this year.

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

Yeah. So our normal cycle, Frank, is we do our capital planning with our Board in the first quarter. When we address all capital issues as part of that process, we'll evaluate a new share repurchase authorization and would expect to move forward on that if we go through that cycle.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay, and then just finally on the purchase accounting accretion, if you could just remind us, I think it's a small number, but if there is any purchase accounting accretion in the margin excluding the Beneficial deal? And then just the timing of that purchase accounting accretion, is it -- I know you talked about the numbers for 2020 you lay out in your slide deck. Is that pretty -- spread pretty evenly throughout the year or does that start to ramp down at some point?

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

Sure. So to your first question, there is about 2 basis points to 3 basis points of legacy acquisitions, purchasing accounting accretion before Beneficial. And then to your question regarding the 30 basis point to 40 basis point of purchase loan accretion from Beneficial in 2020, it would likely pace down throughout the year and average that amount. But [Speech Overlap] contingent upon kind of payoffs from a quarter-to-quarter basis.

Frank Schiraldi -- Piper Sandler -- Analyst

Right. I mean -- yeah, I guess, the incremental accretion is going to be more volatile. But if we think about the model, is it a pretty shallow slope in terms of quarter-over-quarter? How much would roll off?

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

It is a shallow slope in 2020.

Frank Schiraldi -- Piper Sandler -- Analyst

Okay. Great. Thank you.

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

Thanks, Frank.

Operator

Thank you. Our next question comes from Michael Perito of KBW. Your line is open.

Michael Perito -- KBW -- Analyst

Hey. Good afternoon. Happy New Year, guys.

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

Hey, Michael.

Michael Perito -- KBW -- Analyst

I want to just clarify -- so I mean -- did I hear you guys right just on the share repurchase topic. So the expectation at least for the next couple of quarters, obviously, anything beyond that is a little difficult to comment on. But for the next couple of quarters is to, kind of, stay at the pace that you were at in the fourth quarter, and then to, kind of, just constantly evaluate it moving forward what the pressures capital is?

Rodger Levenson -- Chairman, President and Chief Executive Officer

Yeah, that's correct.

Michael Perito -- KBW -- Analyst

Okay. And I was wondering if you guys could expand a little bit more -- I appreciate all the information on both the outlook and, kind of, the Delivery Transformation that you guys put in the earnings supplement. But I was wondering if you could maybe expand a little bit more on the decision making process around accelerating some of those expenses? Face value, it seems -- the timing seems a little interesting just given the rate environment is more challenging to kind of ratchet up the expenses. But I'm sure there is reason for that. And I was wondering if you could just kind of expand on that dynamic a little bit for us?

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

Yeah, sure. First, I would say, and at least we will cover most of the questions. But as is our historical practice when we make incremental investments, we look for the longer-term opportunity and along with this in Delivery Transformation we see the opportunity to accelerate not only the investment but the delivery of the opportunities and benefits from that investment.

I'll pass it over to Lisa to talk about our framework of decision making.

Lisa Brubaker -- Executive Vice President and Chief Technology Officer

All right, thanks, Dominic, and hello, Michael. So...

Michael Perito -- KBW -- Analyst

Hi, Lisa. Thank you.

Lisa Brubaker -- Executive Vice President and Chief Technology Officer

Hi. Just to kind of underscore what Dominic has said. As we look across the landscape, and I think everybody is saying that the pace of technology is moving very quickly and we want to be in a position, obviously, that we can continue to respond and innovate and provide what our customers are looking for. And so, as we were looking at the timeline for delivering across all of the projects in our road map, it makes sense for us to be able to tackle that now so we can pull the benefits forward and be able to deliver on those three areas that we talked about in the supplemental materials, particularly, around customer acquisition and experience.

So the thought process is really -- organizationally, we felt the time was right. We have our expanded market now. We've got customers to serve and others to attract, and we're ready to execute, and that was really behind the decision.

Rodger Levenson -- Chairman, President and Chief Executive Officer

Hey, Michael, this is Rodger. I do want to make that point clear though. Our decision to accelerate the investment was exactly as Lisa and Dominic described. It was not influenced at all about the current interest rate environment or 2020 outlook. I think when we originally came up with that assessment in the summer of 2018 as you know, the world was a very different place and we did not have anywhere near the amount of knowledge about the Beneficial customer base or the broader market that we operate in now. And working with our partner, we made the decision to accelerate it along the lines of what Lisa just referred to as opposed to an assessment of the more macro financial environment.

Michael Perito -- KBW -- Analyst

Got it. And I think I remember when you guys first laid out the plan, the comment was that, "This wasn't a catch-up. This was to keep you, kind of, at the forefront from a technology perspective relative to your competitors." Is it fair to say that that's -- is that still the case? But -- has maybe some of your competitors accelerated more rapidly than you thought with kind of making you pull forward? Or does that dynamic change at all or just any other thoughts on that aspect of it?

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

No. I know the dynamic hasn't changed at all. I just would refer back to what I just said, the world has changed dramatically in the last 18 months. And this acceleration is required to make sure that we're keeping up with the changes that we're seeing from competition in the external environment.

Michael Perito -- KBW -- Analyst

Got it. Okay. Thank you for giving me some thoughts on that. And then just lastly, I want to just ask on loan growth. I mean, it sounds like you guys are a little bit more optimistic about turning positive growth in 2020. I guess, is that a fair takeaway from your prepared remarks? And if so, I mean, does the growth that you've laid out in your 2020 outlook, is that balanced or do you think out of the gates here in the early part of the year that the run off could still be more material to kind of a net growth with a stronger back half of the year? Just any initial thoughts as you see the pipeline and the run off and how that could play out?

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

Hi Michael. This is Steve Clark. We do think for the full year low-to-mid single-digit loan growth, and that is including the identified run-off portfolios. But absent those, we are looking at mid-to-single digit growth excluding those portfolios -- mid-to-high single-digit growth. And we think that will be driven in our plan by C&I [Phonetic] and leasing from our new leasing company that we acquired with Beneficial and a little bit of consumer on the Spring EQ and student lending front.

Michael Perito -- KBW -- Analyst

All right. Maybe just asking the question a little differently. As you look at just the run off, which you guys have planned, is there any material difference between kind of run-off per quarter of next year? Not looking for as a growth number per quarter, but just to try and get a sense of -- in the first half of the year, net growth might be a little slower than the back half, because the run off slows down as the year progresses or anything of that nature?

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

Yeah. So we did not model the year that way. We kind of model that consistently -- consistent run off through the year. But it's certainly could be lumpy quarter-to-quarter depending on what happened.

Michael Perito -- KBW -- Analyst

Got it. Okay. Thank you guys for those clarifications. Appreciate the time.

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

Thank you, Michael.

Operator

Thank you. Our next question comes from Erik Zwick of Boenning. Your line is open.

Erik Zwick -- Boenning -- Analyst

Good afternoon.

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

Hey, Eric.

Erik Zwick -- Boenning -- Analyst

Maybe if I can start with the net interest margin, and looking at Slide 11 for 2020, the net interest margin, excluding the Beneficial accretion, target of 3.75%. Can you just maybe give me a little color in terms of where that, kind of, starts the year and how you expect it to trend throughout the year to kind of reach that 3.75% average?

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

Sure. And just for everybody's reference, as we're speaking to Page 11 in the supplemental material. So in the bullet point below, you'll see that the fourth quarter core net interest margin was a 3.88%, that included some outsized, kind of, payoff amounts and some income from purchase -- from the NPL. So when you normalize that, it would be in the low 3.80s. And then as the year plays out, as it takes some time for the deposit betas to catch up and then playing out the rate environment with assumed cuts in the middle of the year, it would phase down throughout the year.

Erik Zwick -- Boenning -- Analyst

Thanks. And so kind of it trends down throughout the year, and do you see stabilization at some point in that or does it continue to trend down toward even through the fourth quarter?

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

No, we would see stabilization after the rate cut and then stabilization to upside as portfolio remix is toward the C&I relationship higher yielding loan.

Erik Zwick -- Boenning -- Analyst

Great. And then switching to the non-interest income. In terms of the impact from Durbin, once it's effective in July, can you remind me of the dollar impact of your interchange revenue that will be impacted?

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

Yeah, so historically when we communicated the impact, we have said on a full-year basis, going over $10 billion would be about $11 million net impact to the bottom line, including about $0.5 million of costs and about $10.5 million of lower interchange. We're seeing a number about 25% higher than that as we see the mix of our debit interchange coming more from Signature, which will take a larger kind of negative hit when Durbin takes effect.

Erik Zwick -- Boenning -- Analyst

Okay. Thanks. So just kind of some quick numbers. Somewhere around that maybe $4.5 million net impact per quarter starting in 3Q? How far [Phonetic], kind of, 25% to the original $11 million estimate?

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

Yeah. So it would be a little lower than that, I would say around $3 million $4 million.

Erik Zwick -- Boenning -- Analyst

Okay. Great. Thank you. And then in terms of the credit cost outlook for 2020, that $20 million to $24 million, are you able to break that down in terms of what you expect in terms of provision versus loan workout costs and any other expenses?

Rodger Levenson -- Chairman, President and Chief Executive Officer

Yeah. So this is Rodger. Almost the entire amount is provision. I think the numbers break out -- let me just flip to the page, and I give it to you here. Sorry. I think it's provision is right around that $17 million or so -- $17 million to $20 million with the delta being the -- on total credit costs.

Erik Zwick -- Boenning -- Analyst

Great. I appreciate that. And then just one last one from me. In terms of the branch in Hockessin that experienced the fire, do you have an estimate for when that branch location might open again?

Rodger Levenson -- Chairman, President and Chief Executive Officer

We don't. That's something that we're currently analyzing. Probably, we'll have more information later in the month.

Erik Zwick -- Boenning -- Analyst

Okay. Thank you for taking my questions.

Rodger Levenson -- Chairman, President and Chief Executive Officer

[Speech Overlap] I would add is, there is significant structural damage, and if we decide to go further with that, and we're talking about at least nine months.

Erik Zwick -- Boenning -- Analyst

Got you. Thanks. I love the data [Phonetic] [0:30:31.1], a mile away, so that I like to see it almost every day. Thanks for taking my questions.

Rodger Levenson -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Russell Gunther of D.A. Davidson. Your line is open.

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

Hey, good afternoon, guys.

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

Good afternoon.

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

So a question regarding, Rodger, your comments about evaluating other uses of capital once we get through the next couple of quarters with buybacks, I believe the current three-year plan was internally focused and that M&A was not something that you would consider. Is that correct and is that still the case?

Rodger Levenson -- Chairman, President and Chief Executive Officer

Yeah. So we believe strongly that we have a very unique organic growth opportunity with our positioning in this much bigger market. And that's really the focus and how the three-year strategic plan was contemplated as it relates to traditional bank M&A. We have said that we would consider some smaller M&A in our fee-based businesses, particularly, the wealth management space. But I think from an overall capital management perspective, that's the way you should be thinking about us.

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

Got it. Okay. And then along those lines, Rodger, if you could just remind us of, sort of, the capital threshold be at TCE in terms of what you would consider your internal targets, so helping us get a sense for what is also excess?

Rodger Levenson -- Chairman, President and Chief Executive Officer

So our optimal TCE ratio over this cycle would be somewhere between 7% and 8%. And as we've talked about -- that's been stress tested multiple times, including our own experience going through the deep recession. We're clearly significantly higher than that, more than we thought we would be because we landed with better capital after the closing of Beneficial. So I think that provides us a lot of flexibility, whether it's to use it in buybacks or deployment of capital As we see fit, or if there things were to change in the economy that we would have a buffer there as well. So we just look at it at this point as it gives us significant optionality.

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

Right. Yeah -- no, very clear there. And so, I guess then, in terms of timing to work that capital ratio back down to your optimal levels with depository deal kind of off the table near-term. And getting back to that original question of paying out over 100% of earnings, why would we not see that in the back half of this year?

Rodger Levenson -- Chairman, President and Chief Executive Officer

Yeah. Well, obviously, I think it's dependent upon share price and it's dependent upon other factors as we see either opportunities to invest in the business organically or to invest in some fee-based acquisitions or other things. My comment on the pace of the buybacks is, I would expect the current pace to continue, but that we certainly will evaluate based upon all those factors and increase in that buyback activity and that would all be factored into our regular capital planning, which as I said, we go through in the first quarter of each year.

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

Okay. Great. Thanks for that. And then switching gears to the margin, the 4.10% to 4.15% for this year that contemplates a June cut, could you quantify what that cut would mean within that range from a basis point perspective, please?

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

Yeah, sure. So given the timing of it and the presumed data that we've seen more -- in the more recent rising rate environment about -- of about 25%, we would expect that impact to be relatively small about $2 million or a couple of basis points.

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

Okay. Got it. Thanks, Dominic. And then, just circling back to the expense conversation, particularly, the discussion around the accelerated expenses, could you quantify what if anything that impacted or impacts your 2020 efficiency guide and the decision to do that?

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

Sure. It does somewhat by 1 percentage point or so. But it is included in the outlook that we provided, and we would expect when you normalize our fourth quarter cost that you'd see some modest growth throughout the year, primarily, driven from growth and investment in the business and delivery trend rate.

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

Okay. And then to follow that, I mean, with that 59% guide, could you help us with what you would consider to be kind of a core growth rate for the Company from there -- from a percentage basis? Or to even potentially simplify it further given all of the moving pieces for an absolute dollar expense base for 2020 and 2021.

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

Yeah, so we typically don't provide that level of detail. What I would say is, if you think about kind of the assumptions underlying the 2020 outlook around underlying loan and deposit growth, the expectation that our fee income would outpace that growth and our ability to scale the business, I think it would be fair to expect 10% plus growth thereafter on a bottom line basis. But again that's just slags of those performance metrics drawn out. We typically don't provide details at that level.

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

Okay. Thank you guys. That's it for me.

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

Thanks, Russell.

Operator

Thank you. [Operator Instructions] We have a question from Brody Preston of Stephens, Inc. Your line is open.

Brody Preston -- Stephens, Inc. -- Analyst

Good afternoon, everyone. How are you?

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

Okay, Brody.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. So I just want to, just real quick, just sticking with the Delivery Transformation, just reading the headline on that slide, so it's $15 million of capex this year, right, Dominic? And $9.7 million of expenses being added to the run rate this year and then it's $8.2 million of revenue synergies, is that correct?

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

So let me clarify it. It's a gross investment of $15.2 million, which includes about $6 million of capex. And then when you begin to amortize that you would have a net expense of $9.7 million, that is offset by $1.5 million of revenue lift. So the $8.2 million is the net expense offset by the revenue.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. So it's just in terms of like, for our model, the $1.5 million gets added to revenue, to fee income and then $9.7 million gets added to expenses for the run rate for 2020, and then $6 million is depreciated or amortized over like a five-year basis or something like that?

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

That is correct. So a couple of finer points on that. The depreciation would be between three years and five years depending on the project, and the $1.5 million is spread between our fee income and our margin as we leverage increased pipeline generating more deposit and loan growth as well.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. All right. Thank you very much for the clarification. I appreciate that. One ticky-tack, one on the margin for me. So it's 2 bps to 3 bps of accretion ex-Beneficial, and it looked like it was 47 basis points all in from Beneficial. So it's about 49 basis points to 50 basis points of accretion all in. Is that correct?

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

I'm sorry, which period are you speaking to?

Brody Preston -- Stephens, Inc. -- Analyst

For 4Q. Sorry about that.

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

So -- and if you could repeat those numbers by the way?

Brody Preston -- Stephens, Inc. -- Analyst

Yeah. So it's -- you said it was 2 bps to 3 bps ex-Beneficial of accretion in the fourth quarter. And then it looked like it was about 47 basis points of accretion from Beneficial in the quarter. So all in, like 49 basis points to 50 basis points?

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

That is correct. Thank you.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. Great. Thank you. And then the ROA guidance of 1.44%, does that include any other fee income or revenue synergies beyond what you outlined on that Delivery Transformation slide?

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

It does. In fact, it incorporates the Beneficial business cases that we've been speaking to for the last year and a half, which is the investment in the fee income opportunities that we saw -- that we have in our legacy footprint that we can leverage across our larger customer base and larger geographic footprint, specifically, mortgage fee income, our credit card, SBA and wealth.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. And if I remember correctly, that was about 6 basis points additive to the ROA in the original plan. Is that correct?

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

That is correct.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. All right. Great. Thank you. The C&I recovery that you had this quarter, the $1.3 million, was that tied at all to the healthcare loan or the refinery loan charged off in 2Q?

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

No, Brody, that was a much older legacy different unrelated credit.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. I guess, there was a headline, the refinery sold for the top bid, so I guess I'm just trying to drill down in terms of a potential recovery moving forward tied to that refinery loan. So if you have any color there it would be appreciated.

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

So obviously, we're part of that bankruptcy process. We are closely watching that process and evaluating our options. But just beyond that, there's really nothing to report at this point.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. All right. Thank you. And the NPL that moved off the books this quarter, was that -- that was the $20 million sort of local healthcare facility that you guys also spoke about on the 2Q call?

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

That's correct.

Brody Preston -- Stephens, Inc. -- Analyst

Okay. Great. And then just talking more the -- so NewLane, I know it's a small portion of the book right now, but it continues to grow at a pretty healthy clip. So I just wanted to -- I was just wondering if you could give us a sense as to what the average ticket size is there and what the typical customer looks like, and the duration and yield on those lines?

Rodger Levenson -- Chairman, President and Chief Executive Officer

So I'll just give you the broad overview, Brody. It is a national small ticket to think kind of $10,000 to $20,000 vendor-driven leasing business that is sourced through direct channels and broker relationships. So it's all across the country small ticket, vendor-driven leasing. And it's performing very, very well. And according to plan, we're very, very pleased with that. We see lots of opportunity there. This is a little bit behind the original plan, but it's really starting to hit an inflection point and take off. And we see really nice synergy with our commercial business in our C&I and small business teams as well.

Dominic can give you a little bit of color on the yields in that business. It's, obviously, significantly higher than our normal commercial book.

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

Yeah, so just to supplement, while the loan are generally typically average what Rodger had mentioned they can range from anything on the 5,000 a level on the low side to significantly higher depending on the customer, the quality and the product, etc. We are generating yields in the high-single digits to the mid-teens depending on the credit risk on product in general terms. But these are typically three year to five year duration contracts.

Brody Preston -- Stephens, Inc. -- Analyst

Okay, great. I appreciate that color. And then one last one. The amount -- the CD book, the higher cost CD book that you have pegged for run off, the cross customer time deposits and brokered time deposits you grew by 2% -- 2% to 2.5% this quarter. So I just wanted to get a sense for what the amount is that you pegged for runoff for that higher cost CD book, sort of, what the average cost is there and whether or not it would be evenly run off or if it would be front-loaded and then -- beginning in 2020?

Rodger Levenson -- Chairman, President and Chief Executive Officer

Yeah, I would say it's relatively even from quarter-to-quarter, but if you think about a year, year and a half ago, we are generating 18-month duration. So longer terms. higher yielding and as some of those rates churn will be reducing those back to more rack rate and that will create some attrition. We don't typically disclose that level of detail, but nonetheless it would run off in an amount that would reduce our growth rate by 1% or 2%.

Brody Preston -- Stephens, Inc. -- Analyst

All right. Great. Thank you everyone for the time. I appreciate it.

Operator

Thank you. And with no further questions in queue, I'd like to turn the call back over to Mr. Rodger Levenson. Sir?

Rodger Levenson -- Chairman, President and Chief Executive Officer

Thank you, everyone. Thanks again for everybody [Technical Issues] on the call today. Dominic and I look forward to seeing many of you when we go back out on the Road in the coming weeks. We are also happy to address any other that you may have prior to then. Thanks again and have a good day.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

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

Rodger Levenson -- Chairman, President and Chief Executive Officer

Lisa Brubaker -- Executive Vice President and Chief Technology Officer

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

Frank Schiraldi -- Piper Sandler -- Analyst

Michael Perito -- KBW -- Analyst

Erik Zwick -- Boenning -- Analyst

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

Brody Preston -- Stephens, Inc. -- Analyst

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