WSFS Financial Corporation
Q4 2014 Earnings Call Transcript

Published: 30 Jan 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the WSFS Financial Corporation Fourth Quarter and Full Year 2014 Earnings Conference Call. [Operator Instructions] I’d now like to turn the conference call to Mr. Steve Fowle, Chief Financial Officer. You may begin.

[Stephen Fowle:]

Thank you, Kevin. And thanks to all of you for taking time to participate on our call today. With me on this call are Mark Turner, President and CEO; Paul Geraghty, Chief Wealth Officer; Rodger Levenson, Chief Commercial Banking Officer; Rick Wright, Chief Retail Banking Officer; and Louis Geibel, Senior Vice President and Chief Trust Officer. The format of today’s call has been modified to allow us to provide the first in a series of topical discussions. Following our traditional earnings call comments and Q&A, we’ll provide a brief presentation and question-and-answer regarding the WSFS Wealth business. Mark will introduce this segment at the appropriate time. Before Mark begins with his opening remarks, I’d 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 recently quarterly reports on Form 10-Q, as well as other documents we periodically file with the Securities and Exchange Commission. With that read, I will turn the discussion over to Mark Turner.

[Mark Turner:]

Thanks, Steve, and thanks everyone for your time and attention today. We’re pleased to have reported net income of $12.7 million, or $1.32 per share for the fourth quarter of 2014. These results included approximately $0.11 of notable items detailed in the release for corporate development costs and a catch up adjustment for our post-retirement benefit plan obligation. Adjusting for these, more normalized earnings were $1.43 per share. Reported results for the full year 2014 were $5.78 per share, a healthy 14% increase over 2013 reported results. Both years included a number of positive and negative notable items like securities gains, non-routine reverse mortgage benefits and corporate development costs, but normalized results for 2014 were fundamentally very strong at near 1.1% return on assets and near 13% return on tangible common equity. And 2014 showed continued strong growth in revenue, profit and franchise value. Now I’ll return to commenting on results for the fourth quarter. Our results can be seasonal, some many of my comparisons would be to the most similar quarter which is the fourth quarter of last year. And while we happened to show particularly strong change in a linked quarter basis, I’ll point that out as well. Our core revenue was up 8% over this quarter last year. This reflected strong growth in both net interest income and fee revenue. Net interest income was up 11% over the same quarter 2013 and also up a healthy 4% in this quarter alone. Net interest income benefitted from the balances put along in the acquisition of the First National Bank of Wyoming, which closed in early September 2014 and by the continued good management of our balance sheet mix and a disciplined pricing of our loans and deposits. Organic loan growth this last quarter was muted by seasonal declines in construction lending and the purposeful continued run off of our longer-term lower rate residential mortgage portfolio done for fee income and risk management purposes. However, commercial C&I and real estate loans showed solid net growth of 5% annualized and would have been more than double that were not for the beneficial pay down of a number of problem loans in the quarter, which obviously helped credit costs and our pricing discipline on some larger credit opportunities. All of these factors and other helped to actually improve our loan yields in the quarter. Roger can address these dynamics more fully in the question and answer session. Deposit growth continues to be good and was also helped by the FNBW acquisition and some year-end trust deposit activity which is positive but temporary. Importantly, we grew our deposits while maintaining our pricing discipline, as we kept our cost of deposits flat over the last quarter and just minimally higher than this quarter last year. Both the lending and the funding dynamics contributed to a 5 basis point increase in margin percentage over the last quarter and a 10 basis point improvement in the margin over this time last year. These margin increases came despite strong headwinds of a flattening yield curve and stiff pricing competition. Service fee income was up in two of our three business segments. Our wealth business fee income in the quarter increased a remarkable 24% over this time last year. Given the size and growing strength of our wealth business, at the end of this call’s normal Q&A session, we will conduct a special presentation and time for Q&A related to that division led by our Chief Wealth Officer, Paul Geraghty. Cash Connect, our ATM services business, saw net fees grow 6% compared to this quarter last year. This is smaller growth percentage where we’re used to and was impacted by pricing pressures over the year as well as our exit earlier in 2014 from the Puerto Rico ATM servicing market where we were seeing too many losses from drafts which was driving up our insurance cost beyond what was reasonable. Despite that Cash Connect continues to grow nicely through winning new business, penetrating our customer base with additional value added logistical services, and the introduction of new products. Service fee income this quarter in our core banking segment was down year over year as retail service fees continued to be impacted by the fallout from card reaches at retailers, changing customer behavior around over drafts and trust specifically, a system changeover in our overdraft privilege program which saw us lose an estimated $400,000 this quarter in revenue before it was corrected in late December. Given that correction, we expect to quickly regain our run rate from that system hick up. Although with changing customer behavior and new regulations that maybe written, we expect overdraft program revenue to continue to erode over the long term. On the mortgage banking side, fees were a bit lower this quarter from seasonal slowness and a downward revaluation of servicing rights in an expected lower rate environment. However, these lower rates and a pick up in the local economy and housing activity has substantially improved our pipeline and we expect very nice growth in mortgage banking fees in the first quarter of 2015 and into the spring selling season. Rick can speak more to each of these retail fee dynamics in the Q&A session. For those building models, I’ll remind you that the first quarter of any year is typically our slowest for revenue and both margin and fees as a result of fewer days and seasonally lower transaction volumes. Turning to expenses, core expenses, that is excluding the notable items mentioned upfront, were up in the quarter by 9% year over year and 4% in this quarter alone. A big part of those increases came from our growth, including ongoing operating expense added from the integrated FNBW deal, as well as added sales personnel in commercial banking, wealth and Cash Connect to continue their growth trends. In addition, we’ve added operations and compliance personnel to be supportive of both our healthy growth and recent heightened regulatory expectations across the industry. Finally, professional fees were high in the quarter as a result of some short-lived projects, including consulting and legal fees on product development, negotiations to reduce our cost in the long term IT services contract, and the implementation of several internal compliance and infrastructure improvements. All else equal, we would expect professional fees to go down meaningfully next quarter. I also remind everyone that compensation cost tend to be seasonally high in the first quarter of any year because of annual raises, higher 401k employer match costs, and employer taxes [indiscernible] vacation time that gets relieved later in the year. Credit quality cost continued to be a bright spot for us. For the second quarter in a row, total credit costs, which include provision, OREO cost, workout and related costs, were very low, under $1 million. This reflects our good and improving credit quality. In this quarter alone we saw classified loans decrease by over $46 million or 29%, delinquencies decreased by $18 million or 50% and net charge-offs reduced to only $624,000 or a very modest 8 basis points annualized of total loans. Still we fairly and prudently kept our allowance for loan losses essentially flat this quarter and at a healthy 1.23% of total loans and 164% of non-accruing loans. And capital continues to grow to a 9% tangible common equity ratio now, despite a 25% increase in our dividend announced last quarter and the repurchase of 1.2% of our outstanding shares in this last quarter alone. We also had a continuing authorization to repurchase another almost 4% of our outstanding shares. As we enter 2015, we’re highly focused on our strategic plan goals, including becoming a sustainably high performing company, a vital measure of that is the core return on assets at least 1.20% by the fourth quarter of this year. We’re in the cusp of achieving that and 2015 will be a year of execution for us, while continuing our tradition of being responsive to opportunities to build long term franchise value. Thank you. And at this time, we’ll take your questions.

[Operator:]

[Operator Instructions] Our first question comes from Catherine Mealor with KBW.

[Catherine Mealor:]

Good afternoon, everyone.

[Mark Turner:]

Good afternoon, Catherine.

[Catherine Mealor:]

I think we can dig into the margin and the loan yields a little bit. I think you mentioned in the press release that 4 bps of that came from FNBW, but then you often mentioned that you saw some nice increase in our core loan yields quarter over quarter which may have driven some of that as well. Can you give us a sense as to how much of that increase in the margin and the loan yields as maybe kind of one-time and maybe some accretable yield and how much of it is more ongoing?

[Stephen Fowle:]

Yeah, Catherine, this is Steve. Accretable yield we saw in this quarter fully integrates the impact of First Wyoming and it is about a level that we expect going forward. So as you look at our yield and our loan yield, I’d expect that level to be about appropriate as we move forward through time. There was not a lot of noise otherwise with regards to prepayment penalties or any other items being brought into income. So net-net, we expect our margin in the next coming quarter or two, who knows after that, what happen when the Fed increases rates, we certainly have our models project for the quarter or two, we expect our margin to be about what it is this quarter.

[Catherine Mealor:]

Okay, great. That’s helpful. And then on the loan yields, you also mentioned in your prepared remarks that you saw increasing core loan yields this quarter. Rodger, can you talk a little bit about the pricing you’re seeing in the market?

[Rodger Levenson:]

Thanks. Hi Catherine, thank you. We clearly are seeing pricing pressure and I think as we talked about before that it’s certainly muted to a certain degree, our loan growth. I would say generally we’re continuing to put business on the books at about the same level that our yield has been, right around that 4.5% range across – when you combine all of our business lines. So while we’ve had decent growth, we clearly are seeing opportunities that are well below that and are obviously evaluating those opportunities in conjunction with our profitability model. But as an overall statement, I’d say we’re essentially putting on business at about that rate.

[Catherine Mealor:]

Okay. Given some of the pay downs you saw this quarter, do you still see a pipeline – what kind of loan growth should we envision going into 2015 assuming rate has stayed around the same level, you don’t see more pricing pressure than you do currently?

[Rodger Levenson:]

So our guidance for full year loan growth is in the mid to high single digits. We crossed the end of the year into January with a weighted average 90-day pipeline of $120 million, which as you recall has kind of the rate that we’ve been running at. We did have some unique things happen in the fourth quarter with the pay down of a few problem loans and then just more than normal activity on some larger pay downs as well. But our guidance for the full year would be mid to high single digits.

[Catherine Mealor:]

Okay, great. Thank you very much.

[Mark Turner:]

So I’d just append to that, we’re seeing a lot of closing of originations and not for those – and picking up new business. We’re not for the pay down of those problem loans which is obviously good things. And a couple of large loans which we lost on price closed in the quarter in commercial, C&I and real estate loans would have been over 10%. So we’re still seeing a lot of inflow and certainly we expect – the pipeline is good and we expect that to continue going into the next year.

[Operator:]

Our next question comes from Frank Schiraldi with Sandler.

[Frank Schiraldi:]

First I guess on expansions going forward and just big picture, if I leave out the first quarter which of course, Mark you noted is seasonally weaker, should we expect that trend in the efficiency ratio downward and if you could just remind us where you think a reasonable goal to get to in maybe the next 12 months or so?

[Stephen Fowle:]

Frank, this is Steve. You’re right about the first quarter, so thanks for including that in your comments. We do expect next year to be couple of points lower on efficiency ratio than this year, so I’d expect to see starting with a higher first quarter us trending down to the very low 60s at the end of the year.

[Mark Turner:]

So Frank to get to our strategic plan goal of 1.20% plus ROA about fourth quarter of this year on a core basis, that implies a number of things, all of which are levers that can change positively or negatively and still get there. But our core assumption is getting the efficiency ratio into the 61% to 62% range to get there.

[Frank Schiraldi:]

Got you, okay. And on that note, in the past you’ve talked about 1.2% ROA by the end of the year certainly and even throwing out, I think, if interest rates help out 1.3% ROA at the high end, I don’t think interest rates have really helped out. So just wanted to get your thoughts on what is an issue for you in terms of missing that 1.2% bogie, would it be a further flattened yield curve if short end rates go a bit higher later on in the year and the long end is anchored, would that potentially be an issue?

[Stephen Fowle:]

Yes, certainly. If the yield curve continues to flatten then that would have a negative impact on our margin beyond what we’ve said in our earlier comments by a couple of percentage points on the dollars in the margin is what we model. Not a huge impact, but certainly an impact.

[Frank Schiraldi:]

Sure. So I’m guessing you’ve included some wiggle room in there and so are you confident that you can still reach that 1.2% ROA in sort of a slightly more flattened yield curve environment?

[Stephen Fowle:]

Yes, we are. As I mentioned earlier, there’s lots of levers to pull and we’re constantly looking at what’s happening in the dynamics of our balance sheet and our revenue streams and making those adjustments as we need to. If things were to continue to flatten, we’d obviously have to look for other levers to make that up. But again, it’s not a significant hurt to us and I think we have enough there that we could comfortably pull other levers to get there. Having said that, as I mentioned many times talking to people, we’ve gone from, in a two-year period of time, 70 basis points ROA to about 1.1% as where we’re entering this year. And that’s a 40 basis point improvement. The last 10 basis points of our plan obviously is much harder than any other 10 basis points. So we still have a lot of work to do and there’s no guarantees. However, we’re starting from a good base and we have a lot of momentum and we’ve got good team and good opportunity to get there. This year is going to be about execution.

[Frank Schiraldi:]

Okay. And then just on the buyback front, you mentioned the 1% in the quarter, I believe part of that was the warrants repurchased. Is that a reasonable, given you got the 5% authorization, is that a reasonable assumption going forward of buybacks, 1% a quarter?

[Mark Turner:]

I’ll tell you that’s what we’ve budgeted and modeled, an even buyback over the course of this year. But we’re always opportunistic and if there was to be a sudden downdraft in the market and we saw our prospects still being good, would we pick up and accelerate that, of course. And on the other hand, if the market got very optimistic, would we slow it down, sure we could do that. Our expectation is kind of that will play out evenly over the rest of the year.

[Frank Schiraldi:]

Okay. And I guess just finally on, maybe you were going to make some more comments on it after, but on Cash Connect, do you still believe that sort of I think you had given low double digit run rate expectations for that business previously, I apologize if that’s incorrect, but I think that’s the number. If it is, is that still attainable or doable?

[Mark Turner:]

I’d say medium to long term, yes, that is with the products they have, with the growth they have both in their normal business and the new products in the pipeline and the existing products they have that still haven’t fully penetrated their existing customer base, I certainly expect them to get back to that level in the medium to long term, but it may take a couple of quarters to get there.

[Frank Schiraldi:]

Okay. Does that still reflect the exiting of the business down, I think you said in Puerto Rico, is that part of the drag going forward?

[Mark Turner:]

Yes, that has been a temporary drag and we’re going to have to rebuild that back in. But as I mentioned, they have the pipeline of new business, penetration into existing business and new products to get back there.

[Frank Schiraldi:]

Okay. All right, thank you.

[Operator:]

[Operator Instructions] And with no further questions in queue, I’d like to turn the conference back over to Mark Turner.

[Mark Turner:]

Great, thank you, Kevin. I appreciate that. Now, as we mentioned, I’d like to turn this over to Paul Geraghty. Paul is our Executive Vice President and Chief Wealth Officer, who’s been with us for little over three years now, to talk about – with Lou Geibel, Chief Trust Officer, they’re strong at growing businesses. And at the end, Paul and the team will take any questions you have on their presentation. And I’d say if you happen to have a question from the earlier presentation, we’d be happy to take that as well. Paul?

[Paul Geraghty:]

Thanks a lot, Mark, and thanks to all of you for taking your time to hear about our important and rapidly growing Wealth Management business. Wealth Management is a very substantial fee income business for WSFS, consistently generating approximately one quarter of the bank’s total core non-interest income. Revenue growth is significant over the past three years. Our fee-based revenue was $12.4 million in 2011. In 2014, it was $18.8 million, a compound annual growth rate of 15%. WSFS Wealth is comprised of four business lines, designed to achieve three objectives. The first objective is to grow from the core by managing the wealth of WSFS clients so that we aid them in meeting their financial objectives in anticipation of a life event, such as retirement, education and asset transfer. Our second objective is to enhance WSFS shareholder value by making the relationship between WSFS and the client multidimensional and therefore stickier. And finally, we want to use this business to originate new clients for the bank, generating profitable revenue for the sale of those products to people who are not currently with us and then converting them to full relationship customers. The first of our four businesses that I’d like to speak about today is WSFS Wealth Investments. This is the group of nine Series 7 licensed financial advisors, most of whom are based in our branches. They focus on helping our retail clients meet their financial objectives by delivering insurance and investment products. This is a critically important growth business for WSFS as we have over 92,000 retail households with whom the bank has tremendous brand equity. To more effectively capitalize on this market in 2015 and beyond, we recently took two major steps. We selected a new broker dealer with whom to partner, Commonwealth Financial Network, in order to broaden the product menu that we can offer to our clients. We also significantly expanded WSFS Brokerage business by hiring a well established local financial advisor to serve the affluent market segment. This advisor who joined us in the fourth quarter of 2014 immediately transitioned the majority of his clients to the new Commonwealth platform and he accounted for 3 points of the Wealth group’s 24% growth in fee income for the quarter. Next is our Private Banking business, which is an 11-year legacy business at WSFS that provides loan and deposit services to high net worth individuals and professional practices in Delaware and Southeastern Pennsylvania. In Private Banking, we emphasize a multi-faceted relationship in which all of the bank’s products are cross sold and we seek to provide planning so that we become true advisors to our clients. A key sub strategy at Private Banking is to work with the commercial division to meet their business owner’s household banking needs with special emphasis on clients who are expected to experience a future liquidity event. Cypress Capital Management is our registered investment advisor with $660 million under management. Cypress, founded in 1984 and acquired by WSFS in 2004, employs a balanced investment style that has achieved strong investment returns over many market cycles. Client and associate retention at WSFS has been exceptional and we have continued to reinforce the principles that are the foundation for that stability while actively working with private banking and commercial to cross sell Cypress to their clients. Our cross-selling has been consistently effective, particularly in 2014, responsible for 2 percentage point of the Wealth group’s total revenue growth. Finally, and most important, Christiana Trust. This is the division of WSFS Bank that provides trust and agency services to individuals, families and institutions. Founded in 1993, Christiana was acquired by WSFS in 2010 and quickly became a foundation piece of WSFS Wealth Management. Today, Christiana’s combined assets under management and administration is $8.8 billion. Now to provide an in depth overview of Christiana, I’d like to introduce Lou Geibel, WSFS’ Chief Trust Officer and the Manager of Christiana Trust. Lou has been in the fiduciary business for more than 20 years and has been a key part of Christiana for almost 18. Prior to his promotion in 2012, Lou was our Institutional Products Sales Manager and in both the sales role and as Chief Trust Officer, he has presided over strong, consistent, healthy growth at Christiana. Lou?

[Louis Geibel:]

Thanks, Paul. As Paul mentioned, Christiana Trust is a division of WSFS Bank and is the largest and fastest growing component of the Wealth Group. Christiana provides trust and agency services to individuals, families, institutions in the United States and very selectively abroad. Founded in 1993, Christiana Trust was established primarily to act as the trust operation for the private bank customers of Christiana Bank. Christiana has exhibited consistent record of success and growth in revenue and profits from our service offering. Our association with WSFS has coincided with remarkable success as fee-based revenue has increased from $7.8 million in 2011 to $12.8 million in 2014, for a combined compounded average growth rate of 18%. Our business strategy leverages niches identified in the marketplace. Our location provides favorable trust and tax help otherwise known as the Delaware Advantages, and allows residents and non-resident clients to benefit from asset protection trust, dynasty trust and our directed trust statute that allows for the separation of investment authority from fiduciary duties. Additionally, under the Trust Indenture Act if a debt issuer defaults, a financial institution cannot be a lender to the issuer and continue to represent bond holders as a trustee as this would be a conflict of interest. When this situation arises at large banks, Christiana benefits by becoming the successor trustee, assuming the role of the original trustee and thereby relieving the trustee of a conflict of interest. We have a highly leveraged sales model [indiscernible] of influence, many of whom we’ve had relationships for several years. Additionally, we generate leads internally from WSFS private banking and commercial banking groups. Christiana products array in two lines of business. First, we have the personal trust group, which provides fiduciary services to families and individuals. This business line primarily is a jurisdictional business that we market as the Delaware Advantage. Second, we have an institutional and corporate trust group, which includes bankruptcy administration and provides trust and agency services to institutional and corporate clients. The institutional business has some jurisdictional advantages to Delaware that is also driven by the conflict of interest in niche. Historically, personal trust has been our most significant business both in terms of revenue and profitability, with truly outside growth in 2012, as that year drew to a close due to concerns that the guest and state exemption amounts would revert to pre-Bush administration levels, we booked almost 3 years of trustee appointment. This generated record revenue growth and also provided the opportunity to further develop our infrastructure in both people and systems. Recognizing that personal trust growth would be reduced in subsequent years, we made a strategic decision to focus our business development efforts and to make a meaningful investment in our institutional and corporate trust group. We noticed that the capital markets were starting to heal from the great recession and that new players, issuers and center of influence were entering this space, presenting new business opportunities. We were correct, this expansion has been a significant contributor to our growth and that you’ve seen in 2013 and 2014. Specifically, our institutional and corporate trust group business contributed 12 percentage points of the Wealth group’s 24% growth of fee revenue in 2014. Also, in 2013, we took advantage of an opportunity to hire established professional staff to expand the bankruptcy administration business and leverage existing infrastructure. This was a strong source of growth in 2014 as a result of bankruptcies in the gaming and energy industries and was responsible for 7 percentage points of growth. Our strategic plan across all the business lines is to build an exceptional infrastructure both in systems and human capital lock steps with building the revenue stream. For example, in 2010, we had one attorney on staff at Christiana Trust. Today, we have six, arrayed across the trust department. Additionally, we have numerous other specialists and professionals who actively team with seasoned sales professionals to deliver stellar service to our centers of influence and their clients, many of whom have been with us for over 15 years. 2014 was an outstanding year for Christiana in all respects

[Operator:]

[Operator Instructions] Our first question comes from Frank Schiraldi with Sandler.

[Frank Schiraldi:]

Thanks for that. I think it was you Paul that mentioned at the beginning of your comments the compound annual growth rate Wealth Management has enjoyed over the last several years, is that a figure that you think is sustainable? What sort of drives that growth from here, is it partnership with more brokers, what drives the growth and keeps you in that double digit range?

[Paul Geraghty:]

Thanks for the question, Frank. I’ll start at the back. What’s driven the growth thus far has been a relationship rather than a product-driven strategy, where we’ve taken WSFS brand equity with its long term clients both in the commercial and retail space and done a much more effective job cross selling the wealth offerings to those clients. Additionally, as I mentioned in the retail brokerage space, we’ve been able to recruit new people to WSFS given the disruption in the market, that’s been very helpful in growing the revenue stream from a very low base. In terms of long term sustainability, I think, to a certain extent the capital markets drive Christiana’s growth in the corporate and institutional space and other aspects our business, the brokerage business is also affected by macroeconomic conditions and I prefer to say that I think what’s sustainable for the long term is low to mid teens growth, although we’re pretty aggressive and are always looking to add new businesses and the butcher the businesses we already have with star performers.

[Frank Schiraldi:]

Okay. And your comment on disruption in the market place, I think we all understand what that means in terms of the competitive landscape. And I’m wondering if that’s a tailwind that continues to play out or may that be waning at this point?

[Paul Geraghty:]

Without being specific about names, it’s interesting there were some disruption a few years ago that benefitted us, particularly in the ability to hire high quality people into our rapidly growing Christiana business as Lou mentioned. But also it’s interesting that I think decision-makers in distant cities sometimes make erratic decisions about their businesses here in Southeastern Pennsylvania and Delaware and some of their star performers look for opportunities to take care of their clients at different places. And with WSFS brand equity and our focus on customers, we benefitted from that. And I continue to hope that those people in those money-centered cities continue to make irrational decisions.

[Frank Schiraldi:]

And then just finally, I guess, certainly acquisitions have played a meaningful part in the expansion of the business. As you look out, it seems like you have plenty of organic opportunity, do you see acquisitions continuing to potentially be a meaningful factor in growth?

[Mark Turner:]

I’m sorry, Frank, is that a question for Paul or is that a question for the company as a whole?

[Frank Schiraldi:]

Well, that’s a question for, specifically on the Wealth Management.

[Paul Geraghty:]

First of all, Frank, I wanted to accentuate what you said about acquisitions in the past have been helpful and quite successful for WSFS in this space and particularly Lou’s leadership at Christiana has really given us a very strong tailwind in the growth of that business in diversified areas, such as the bankruptcy administration and the corporate and institutional side. I think for the more mainstream single-client focused Wealth Management businesses, I think there will be boutique acquisition opportunities for us, because I think the cost for marketing is rising for the independents. And there are some quality independents in our geographic market space that I think would like to be at a customer-focused house like WSFS. I think for some people the regulatory environment is becoming oppressively expensive, so being able to ride our scale is helpful With respect to acquisitions, we have a few broad principles and one of them is that we want to acquire talent that’s in for the long run. We want to acquire small practices and people where we buy the existing business and then give them the opportunity to share the upside with us by being committed for the long term. And we also feel strongly that we want to look at practices that are generally in our footprint and in a relatively close radius to where our customer base is so that we can easily leverage those people into cross selling meeting with the WSFS customer base. So acquisition is important, has to be on the right basis, has to be in the right businesses, and equally important, has to be in the right physical place.

[Frank Schiraldi:]

Okay, thank you. And then just back to more broad earnings, in earlier comments, Mark, I think you mentioned a systems issue that might have set you back $400,000 or so, if I heard that right, I just didn’t catch the whole comment. Could you just maybe some more color around that?

[Mark Turner:]

Sure, and I’ll have Rick augment my comments, he’s been much closer to it. We went from an outsourced system at the end of the third quarter, beginning of the fourth quarter, we went from an outsourced system for overdraft privilege program to taking it in house and frankly we didn’t handle that conversion very well. Probably it took us a month or two to figure out that we were not providing the same level of privilege to our customers as we had been providing and therefore we’re losing revenue. It took us a while to figure it out because at the same time we were seeing other trends that were interfering like debit card breaches at retailers in the area and slower pick up of debit card usage as people were getting new cards and just a continuing trend of people better managing their checkbook in reducing overdrafts. But once we figured it out, we corrected it in late December, our best estimate of what we lost by not having the same full overdrafts as we had been providing was about $400,000 in the quarter. And as I mentioned, we expect that starting in the first quarter of this year, we’ll get that run rate back. Obviously we’ll won’t get that revenue back, but we’ll hope to get that run rate back.

[Richard Wright:]

Just to add a little bit, that $400,000 was in lost revenue specific to that system glitch that we corrected in late December. We continue, of course, to see the fallout from the different fraud events and changes in customer behavior. So in the first quarter, we’re looking to be somewhere in the neighborhood of a couple of hundred thousand lower than the prior year first quarter, but over the course of the year, we think that we have other things in the pipeline, including a very aggressive cash management effort that is going to sort of make up for that change in behavior. So we’re looking overall for the year to be about where we were on those service charges.

[Frank Schiraldi:]

Okay. And that would be the positive service charge line specifically?

[Richard Wright:]

Right.

[Frank Schiraldi:]

Okay, great. Thank you.

[Mark Turner:]

Thank you. Good question. The other thing I would emphasize – I’d mention is and this is on the opposite, we had a particularly heavy quarter for professional fees in the fourth quarter, it was about $0.5 million or thereabouts and expenses related to consulting and legal costs and new product development and some service contracts and other internal projects. And as mentioned, all other things being equal, which I certainly can’t predict, we expect those costs would go away.

[Operator:]

[Operator Instructions] And with no further questions in the queue, I’d like to turn the call back over to Mark Turner.

[Mark Turner:]

Thank you all again very much. I hope you found this extended call helpful in your continuing understanding of WSFS, especially our WSFS Wealth business. Next quarter, we plan to have Tom Stevenson, our President of Cash Connect, present his business to you in a similar fashion. Have a great weekend everybody.

[Operator:]

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.