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Good day and thank you for standing by. Welcome to WSFS Financial Corporation third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded.
I would now like to turn the call over to Dominic Canuso, Chief Financial Officer. Please go ahead.
Thank you Charlie and thank to all of you for taking the time to participate on our call today. With me on this call are Rodger Levenson, Chairman, President, and CEO; Art Bacci, Chief Wealth Officer; Steve Clark, Chief Commercial Banking Officer; and Rick Wright, Chief Retail Banking Officer.
Before I begin with remarks on the quarter, I would like to read our safe harbor statement. Our discussion today will include information about our management's view of our future expectations, plans and prospects that constitute forward-looking statements. Actual results may differ materially from historical results or those indicated by these forward-looking statements due to risks and uncertainties, including but not limited to the risk factors indicated in our annual report on Form 10-K and our most recent quarterly reports on Form 10-Q, as well as other documents we periodically file with the Securities and Exchange Commission. All comments made during today's call are subject to the safe harbor statement.
Good afternoon everyone and thank you for joining us on the call. Our earnings release and investor presentation, which we will refer to on today's call can be found in the Investor Relations section of our company's website.
We had another solid quarter, consistent with the first half of the year, driven by our diversified business model and the strength of our strategic position in our marketplace. Local economic activity continued to rebound throughout the summer and into the fall across our footprint, bolstered by very positive sentiments from our customers, growth in our commercial loan pipeline, continued strength across our fee-based businesses and positive credit trends.
Highlighted on slide four of our investor presentation, third quarter core net income was $56.7 million, a $1.19 earnings per share and a 1.48% return on assets. Reported net income was $2.3 million lower than core results, primarily driven from corporate development costs related to the BMT combination and in line with original deal model expectations. Excess liquidity continues to have a significant influence on our near-term performance, including impacts on our net loan growth, deposit levels, growth in our treasury investment portfolio, and diluting NIM, PPNR as a percentage of assets and ROA.
As seen on slide five, net growth in loans in the quarter when excluding PPP and purposeful runoff portfolios, was down $80 million.
We had another strong quarter of new commercial loan growth originations near $400 million as seen on slide six. This is relatively consistent with 2Q, continuing our recovery nicely from prior year lows and almost fully back to pre-pandemic levels. And our loan generation should grow from those levels that we were before the full opportunities of beneficial -- the benefits from our investment in delivery transformation an additional strategic RM hires. However, existing commercial loan payoffs remain elevated in this environment, with heightened payoffs in construction and commercial mortgages, along with a reduction in our held-for-sale resi portfolio in the quarter.
Consumer loans grew 5% annualized in the quarter as we launched our new digital consumer lending product powered by Upstart. Our lending partnerships including Spring EQ, LendKey, cred.ai, and Upstart now account for almost $500 million in total consumer loans.
Customer deposits grew another $64 million in the quarter from seasonal growth in municipal and public-funded accounts. Customer deposits are now up 14% or $1.6 billion year-over-year and up 35% or $3.3 billion from March 2020 at the onset of the pandemic. This excess liquidity is the positive outcome from our strong response to our customers' PPP needs, our relationship-based business model, and the diversity of our deposit base with over 50% of deposits coming from commercial, small business, and wealth management.
Total deposit costs are now at a very low 10 basis points, and our loan to deposit ratio is at 63%, providing significant capacity for future low-cost loan growth. We have put this excess liquidity to good use by paying down over 90% of our wholesale funding over the past six quarters and over doubling our treasury investment portfolio from $2.1 billion at the beginning of 2020 or 17% of assets at the time to $4.3 billion currently which is 28% of assets. These additional investments are comprised of high quality, marketable, investment grade securities consistent with our overall investment portfolio strategy. In the quarter, excess liquidity, including the impacts of these incremental investments, reduces ROA by 23 basis points and net interest margin by 61 basis points.
We expect some additional treasury repurchases in 4Q to bring the investment portfolio asset mix into the low 30s as a percentage of assets, which will blend down to the mid 20% post BMT. We anticipate the impact on interest margin from excess liquidity to come down to approximately 50 basis point by the beginning of 2022 and down from there as excess liquidity runs down and the cash flows from the investment portfolio is consumed by net loan growth that we anticipate and are well positioned for.
Net interest margin in the quarter, detailed on slide six, is 3.05%, which includes 18 basis points of purchase accounting accretion and five basis points of PPP income, both more than offset by the 61 basis points of negative impact from excess liquidity. Excluding PAA, PPP, and excess liquidity, underlying NIM increased two basis points over prior quarter.
Third quarter fee revenue again demonstrated the strength and diversity of our fee products and services, especially in this lower interest rate environment. Core fee revenue was a healthy 30% of total revenue when excluding PPP and supported by 16% year-over-year growth in wealth management and 10% year-over-year growth from Cash Connect. These were offset by lower mortgage banking fees as the consumer refi market slowed from record highs in 2020.
As seen on slide nine and 29, overall credit quality continued to trend favorably following the peaks in late 2020. Criticized assets were down $93 million in the quarter to $532 million and down $233 million or 30% from the peak, and delinquencies were down to 0.57% of assets from the peak of 0.88% in late 2020. Combined with the continued positive economic outlook, the ACL declined $27.5 million to $104.9 million or 1.30% of assets, which is 1.58% when including estimated remaining credit marks from acquired portfolios.
We continue to generate significant capital through earnings and have a strong capital position heading into the combination with BMT with a TCE of 9.17% and bank CET1 ratio of 14.59%. Our Board of Directors approved a quarterly cash dividend of $0.13 per share of common stock, and no shares were purchased in the quarter as we have paused repurchases until the close of the BMT transaction. We are optimistic and excited about our future prospects given our unique, competitive, and strategic position in our markets, the strength of our national fee-based businesses along with the upcoming combination with BMT.
Regarding BMT, on July 21, the OCC, our primary regulator, approved the transaction. As we await final regulatory approval from the Federal Reserve in Washington, our highly engaged teams at BMT and WSFS continue to work together diligently preparing for a quick close of the transaction and the bank conversion and integration planned for early 2022.
Thank you and we will be happy to take your questions.
[Operator Instructions]. Your first question comes from the line of Michael Perito, KBW. Please go ahead.
Hi guys. Good afternoon. Thanks for taking my questions.
Hi Michael.
A few things I wanted to hit; first just on loan growth. I realize the environment and with the paydowns is a little uncertain, but you do have pretty good line of sight on kind of the planned runoffs and when that should run its course. And I guess just the simple question is, I mean when do you think it's going to start to get realistic to assume you guys can return to a net growth posture? I realize the origination side of that might be a little bit more complicated. Are we thinking like middle of next year or do you think post Bryn Mawr close, it could push it out further than that? Just curious if you will offer any color around that?
Michael, this is a Steve Clark speaking. So actually, the production side of our business, we feel really -- we are really pleased with production side, as Dominic mentioned, the fundings in the third quarter following a really strong second quarter. And we definitely are seeing increased activity since September, more opportunities coming our way. So, we feel good about our pipeline and production forecast. The commercial 90-day weighted pipeline is about $250 million. We have small business fourth quarter of another $30 million. I mean when you look at the combination of that along with our strategic partnerships on the consumer side and what NewLane Finance is generating, we feel that the production will be there. What we cannot control really is the payoff side. So, your question is really hard to answer, but we think we are really positioned well to take advantage of our current market position here in the Greater Philly area.
And Michael, this is Dominic. Just to add to that, pertaining to your question around the runoff portfolios. And we had mentioned this as of last quarter that really all of the commercial lending that we acquired from Beneficial that was non-relationship-based has pretty much run its course at this point. So we don't anticipate really a net impact further from that. What's really remaining is the residential mortgage, which will runoff based on its average 10-year life and the impacts from the resi mortgage.
On the net loan growth side, as Steve mentioned, lots of opportunities on commercial as we discussed both from the Beneficial integration that we really never took full opportunity of because of COVID the upcoming BMT opportunity, investments in delivery transformation, and successful hires over the last years. So, round that out with continued additions of strategic partnerships and products on the consumer side, including the Upstart product we just launched in the third quarter, along with opportunities we see in our NewLane leasing business. So, across all of our platforms, we see lots of positivity and activity from our customers and anticipate that to lead to net growth in the future.
Helpful. And the reason to phrase the question like that, alluding like two questions just around deployment post Bryn Mawr, right. Obviously, I think the expectation that you guys are guiding to is that the core portfolio to grow and with all the contributors that you guys just named, that seems very reasonable. But assuming that the net, there’s an overly robust for the next one, two, or three quarters, is it fair to assume that the buyback authorization will be used as it has been historically to deploy capital until there is growth that requires the excess capital?
Yes. Great question. As we have said, we have paused our share repurchase program and we are generating significant capital. We are pleased with the amount of capital that we have going into the combination. As we have done historically, when we look at excess liquidity, we look at the economic environment, our organic opportunities and inorganic opportunities, and we believe that we will be in a very strong position to reengage with share repurchases after the close and still have capital remaining for the investment on the organic side of the loan book.
Helpful. And then just last one for me, I mean we saw a bank merger that I think they had pushed back their closing date waiting for the Board of Governors from the Fed to give them the final spin off. You guys are still committed to – you still indicated that Q4 close was expected, but just curious, if there is any kind of insights or color or concern that that you could track (ph) as you wait for that final approval?
Hi Michael. It's Rodger. And the short answer to your question is no. We said early fourth quarter as we outlined in Dominic's comments, we are pleased that we received the OCC approval in mid-July. As it relates to our Fed approval, we understand that we have provided all the information that they need to vote on the application at some point, but as I am sure you have seen, there are others that the Fed is in the process of evaluating. So, they are just going through their process. We are respectful of that. And I think the important thing is, once we receive that we are ready to close immediately and most importantly the integration is going really, really well. The teams have come together well. We are moving full speed ahead and planning for the conversion to happen in early 2022 and continue to move in that direction.
Perfect. That's really helpful insights. Thank you guys for taking my questions. I appreciate it.
Thank Mike.
Your next question comes from the line of Erik Zwick with Boenning & Scattergood. Please go ahead.
Hi. Good afternoon guys.
Hi Erik.
Just to stick on the loan growth theme for a second. Dominic, in your comments you mentioned seeing some good growth in the commercial pipeline, I think Steve you added some commentary there. I wonder if you could add maybe just a little bit more color in terms of maybe types of industries that are supporting the growth and strength there as well as the average yields that you are seeing in the pipeline that you expect to bring on to the balance sheet at some point?
Yes. So, of our existing pipeline on the commercial side, about $174 million of that is C&I. So we are really pleased to see that versus about $77 million in CRE. So, as you know, our strategic focus continues to be C&I and that's where we are seeing really across a broad spectrum with no specific industry. On the CRE side, we still are seeing many opportunities in the multi-family space and in the residential development, sold units, some A&D work, but really all underwritten around takedown agreements with national builders.
So, there’s kind of the two sectors that we are seeing. On the yield side for the quarter, new loans originated and funded during the quarter had a yield of about 379 versus kind of payoffs in the quarter of 358. I think it's important to me year-to-date, those new funding yields have been about 365. So, we are targeting mid-threes versus payoffs that year-to-date actually have been higher, as you would expect of 393.
So Erik, this is Rodger. And just to add into some additional color and maybe reinforce a couple of points on the loan growth outlook. So as you heard from both Dominic and Steve that we are very fortunate that while staying consistent with our relationship-based strategy focus on this region, we have multiple levers to pull on the loan growth side and that were very optimistic about the combination with BMT. Offers were made to all of their lending team to come over with us. I think as I mentioned, there is a lot of good and positive momentum on the integration planning with those teams and having a bigger balance sheet and more robust product set, I think bodes well for growth from those folks.
And then just as a reminder, the 11 lenders that we have brought over, many of them were just crossing the one year anniversary in this quarter. And so their business is building and growing. And so I think all of that will help to contribute to the loan growth going forward.
That's great, I really appreciate the detail there. And with regard to the new Upstart partnership, any color you can provide in terms of what you expect for average loan size, credit risk profile and just kind of the growth outlook going forward?
Yes, sure. So obviously it's in the early stages. This is a primarily unsecured product and as we have seen as more of a debt consolidation, the yields are in the low double digits, so 12% to 14%. Average loan is about $15,000. All of this is within our footprint, utilizing our underwriting approach and strategy, applying Upstart's AI proprietary scoring system and all with the opportunity to build into further relationships beyond the loan into deposits, mortgage and deepening the relationship across WSFS.
Thanks Dominic. And just one last one for me, maybe for you again. Do you have the remaining for the PPP loans, the remaining fees as well as maybe your expectation for forgiveness timing?
Yes. So we anticipate almost all of the remaining PPP loans, $the 67 million at quarter-end to be forgiven or in process of forgiving. At this point in time, they will begin to accrue interest, but there could be maybe $5 million to $10 million that ultimately doesn't get forgiven and stays as loans. The impact going forward from the unaccretive fees will be nominal around one basis point beginning in the fourth quarter and going forward.
Okay. Thank you. That's all for me today. Thanks for taking all my questions.
Thanks Erik.
Thanks Erik
Your next question comes from the line of Russell Gunther with D.A. Davidson. Please go ahead.
Hi. Good afternoon guys.
Hi Russell.
I wanted to ask. I have always appreciated the slide five that tracks the loan growth moving pieces. Could you remind us, as the Beneficial commercial runoff is almost done, will there be any add to either commercial or resi runoff portfolios once the Bryn Mawr transaction is closed?
Sure. Yes, there will be some additional resi mortgage added to this runoff population as BMT continues to originate and hold assets versus our originate and sell. There is very small pockets, nominal amounts of C&I that we believe would be non-relationship-based or not on strategy, so probably $50 million to $100 million in that range.
Okay. Got it. Thanks Dominic. And then you guys commented about strategic RM hires. I think Rodger mentioned 11 just crossed the one year anniversary. If you could talk to any additional adds in the quarter where these guys are kind of coming from in terms of contributions across the loan portfolio and geographies and any planned additions?
So Russell, it's Rodger again. I just want to make clear, we hired 11, but many of those 11 were just crossing the one year anniversary, some have been here a little bit longer. But I think the broader point, what's really positive about this is, we are seeing this impact all of our businesses and all of our geography. So we have added people in C&I in the city of Philadelphia in the western suburbs in South Jersey and we continue to receive a lot of -- and we have also a hired folks in our private banking group. And we continue to receive a lot of inbound inquiries, particularly from RMs that are working at larger banks that either are going through some of their own changes or for some reason they feel like they don't have the ability to serve their customers in a way that they used to serve.
But I would tell you, our bar is pretty high. We clearly are only going to bring over people that we feel are consistent with our business model relationship-driven and that can bring a book of business because of the significant investment we already have. So we continue to have those conversations. We added another one this recent quarter and we will continue to talk to folks moving forward. But I would tell you and there is a slide in there that outlines the commercial business that we have. We have significant beat on the street in this region right now and I wouldn't expect that you would see a significant add to that going forward unless some very unique opportunity came about. Post-BMT, we just feel really good about the team that we have and the opportunity we have to grow the loan book.
I appreciate the color, Rodger. Thank you. And then just a final loan growth question. You guys mentioned total consumer loans about $500 million from your digital partnerships. Could you kind frame up what you think the aggregate growth rate could be from those partnerships going forward?
Yes. We do anticipate the opportunity to continue to grow those. We haven't necessarily communicated our 2022 plan and assumptions yet, which we will along with fourth quarter results in January. But we see tremendous opportunity to build relationships through those partners. Obviously, the Spring EQ product is a function of the mortgage market. LendKey, a function of the student lending. But we do see the opportunity with Upstart to see some incremental net growth to that population and then to continue to build those relationships from there.
Okay. Great. Thanks Dominic. And then just final question. Rodger, you mentioned expectations to kind of stick with the early next year conversion of Bryn Mawr. So I just want to make sure you guys are still comfortable with the timing and magnitude of cost savings there? And then as a follow-up, any color you can provide in terms of framing up where that expense run rate could shake out as cost saves are realized and franchise investment continues? Thank you.
Sure. This is Dominic. I will start on the cost saves. As part of the combination's modeling and as expectations, really that the bank conversion and integration starts off the phasing of the cost primarily with the branch closures and consolidations followed by some staff savings and ultimately technology saves. And those will occur throughout the year with the expectation by the end of the year we are hitting close to 100% of the anticipated cost saves that we communicated as part of that combination such that in 2023, we would have really the full impact of those saves.
And Russ, I would just add to that, that the confidence we have on the timing in addition to what's going on with the regulatory approval is, as you know what we have a playbook and that playbook has gotten better as we have gone through these combinations, including with Beneficial, which is actually a little bit larger in terms of size than Bryn Mawr is. And as I said, the teams have been working together really, really well now for you over eight months on planning for this. So sitting here today, we feel good about that timeline.
Thank you both for taking my questions.
Thank you.
Your next question comes from the line of Brody Preston with Stephens Inc. Please go ahead.
Hi. Good afternoon everyone.
Hi Brody.
Dominic, I just wanted to ask on the provision guidance, the negative $90 million to negative $100 million on the year. So year-to-date, you all are at negative $109 million on the loan loss provision. And so the guidance would seem to imply that excluding Bryn Mawr, you think you would return to a positive provision from here, which just given that you still 30 bips or so on an ex-PPP basis above your day one kind of CECL adjust reserve. Why is the guidance kind of indicating that you would see a positive provision in the fourth quarter here?
Sure. And thanks for question. The full year 2021 core outlook that we have laid out on slide 10 really is just communicating what we had presented as part of our mid-year update and we didn't want to take that out of the deck so that we are transparent around the full year expectations that we had communicated. Clearly, we are running ahead of that on the provision and favorably given the release in the third quarter. I think we are at the 130 basis point mark. It's unlikely that we would ever get back to the day one CECL adjust as the way the model works incorporating most recent behaviors and trends. But we would expect given where criticized and classified loans are that if there is continued reduction in that, there could be opportunity to release additional reserves. But ultimately anticipate with loan growth that we would build reserves in the future that correspond with the net growth rate.
Got it. Okay. Thank you for the clarification. And just on the criticized loans, just down in the deeper parts of the deck you have kind of outlined select portfolios. I just wanted to ask on the hotel and the foodservices, understand that those are challenged areas over the last 18 months or so. But as I think about a normalization of that criticized rate percentage, what do we need to see before those kind of normalize over the next couple years?
So, this is Steve again, Brody. On the hotel side, I just think we need to see continued improvement in occupancy and ADR. Our criticized in the hotel book, I think, peaked at around 50% of that book. It's down to 33% now. And we continue to see really, really strong performance on the leisure side of that business, about 35% of that book is leisure and in fact that the Jersey Shore and the Delaware beaches, the performance of those properties has exceeded 2019 in many cases significantly. I think what we need to see is continued improvement kind of in the business sect. Primarily the Philadelphia market, we do see improvements coming out of market data and out of our own customer data in occupancy and ADR. Certainly improved from 2020. But not back to 2019 or 2018. So we are just waiting to see if that continues.
On the foodservice side, I think we need to see, there is so much stimulus in those businesses. And many of those businesses are still sitting on significant stimulus money. I really think we need to see that spent and then how do these companies perform. So a little bit of wait and see, but as you can see by our credit stats, looking at delinquency and such, all those businesses continue to perform and pay.
Yes. Probably the other thing I would add on the hotel sector is, I am sure you saw in the release, we are very actively monitoring all of these portfolios, especially the hotel. And you might have seen that we did sell two loans related to one relationship in the hotel space because we felt that that particular borrower, which had been a classified asset for a while now, was very relatively weak global cash flow and concentrated in business travel. And we felt that that had a significant likelihood of going to NPA in the future, if there was a situation where the recovery didn't continue. And just based on the nature of the relationship with the borrower, we decided to sell those two loans. I would say, we sold them for north of $0.90 on the dollar and we will continue to monitor that portfolio very actively.
Thank you for that. I did see that, Rodger and you answered my question on what those note sales garnered. So I appreciate that. I also noted in the Cash Connect, you all called out some investments you made in personnel in armored carrier services. Given the successful growth of that business, were those investments done for growth purposes? Or was it for any other reason?
No, it's primarily timing, consistent with our strategy with the business. We continue to look for positive operating leverage and invest in technology, consistent with the overall delivery transformation strategy of the business to create back office efficiencies along with revenue opportunities. And at the end of the day, it's just somewhat of a timing play in the third quarter. But continue to anticipate strong ROAs and top and bottom line growth from that business going forward.
Got it. I just had a couple more. I am a pretty simple guy in my thought process and so I look at the channel strategy and digital adoption slide and I see that you all are consistently on the branch transactions hovering around two-thirds of what you had been doing. And so I guess the simple question would be, why couldn't you just close a third of your branches if transactions are down a third? Or should we expect some kind of larger kind of branch rationalization coming down the pike as you evaluate the 2022 plan here at the end of the year?
So Brody, I would just hark it back to the announcement when we made Bryn Mawr. Bryn Mawr gave us the opportunity to take a look at the combined retail footprint that we had of the two organizations coming together. And as you know, we announced a very significant reduction in locations as part of that, which really incorporated not just geographic overlap, but foot traffic and all of the metrics of performance of those locations. But we did say at that point that we were going to continue to evaluate and it's likely we will do more. It will just be in smaller pieces. And that process continues as we speak.
So net, net, just as a starting point, we said we would be back to legacy WSFS totals once we got through the first phase of that. So we are at 89 locations before the combination. Bryn Mawr brought over just over 40. We said we would get back to around 89 and then we would go from there but likely in pieces, a smaller pieces. But it's something we constantly evaluate. And it's also something that we look at the rollout of some of our investments in delivery transformation to make sure that we have the products that we feel can help those customers impacted by those closures to have a richer digital interaction with us.
I would probably just add.
Go ahead.
To evaluate the branch count, clearly transactions is part of as that has been the primary expectation in performance of our branch. But as the model shifts not only through the adoption of technology, these branches are as much sales centers. Our wealth business have folks there. Our small business utilize these offices for sales. So they are as much as sales center as they are transaction center and that's part of the view in which we take when we evaluate the consolidations.
Great. Thank you both for that detail. And my last one would be, one of the real success stories for you all and for Bryn Mawr for that matter has been the growth of the wealth platform .And so I guess I wanted to ask, what is driving the market share gains that you all are seeing on the trust and the bankruptcy side of the business? Is there anything specific to what you all are doing that is enabling you to take greater market share there every quarter?
Hi, Brody. This is Art. I appreciate the comment. We have seen very strong growth on the corporate trust side, probably less on the bankruptcy. Clearly there's not much activity going on there, but I had attributed to just we have brought on some new people in the business development side that have opened up some doors we didn't have before. So there's new relationships being formed. We have also formed some partnerships with firms like Portford and Intain where we are able to do some really interesting, implement some really interesting technology that automate some of the reporting a trust company has to do. And I think when we package that up, all the services that we are putting together and going to the marketplace is resonating well. And, as you noted, the market share growth, I think we went from 6% about a year ago to about 8% in the structured product market this year and we just continue to see a good inflow. And we are living in an environment right now where the securitization market still remains very strong.
Great. Thank you for answering my question. I appreciate you taking all my questions to you, guys.
Thank you.
Thanks, Brody.
[Operator Instructions]. Your next question comes from the line of David Bishop with Seaport Research. Please go ahead.
Yes. Thank you. Good afternoon gentlemen.
Hi David.
Most of my questions have been asked and answered. But I was wondering, I don't think I heard this earlier, but commercial line usage, just curious where was that this quarter versus last quarter or maybe the same time last year?
Yes. So David, Steve again. So actually in the quarter, the utilization rate for commercial lines went down to 33.3%. So that was down from 35.4% the prior quarter and that's about $35 million of outstanding balances being paid back. I don't have a year-over-year or quarter-to-quarter, but I can tell you from year end 2019, the utilization rate on commercial lines was 43.5% and compared to this quarter that represents about $219 million of balances paid back.
Yes. David, it's Rodger. I think if we look historically, kind of mid-40s is where we were operating, mid-40% utilization pre-pandemic, pretty consistently throughout various cycles. So moving back towards that would be an indication of where things stand in the economy.
Got it. That's good color. And maybe another way to ask in terms of the consumer lending segments. Maybe not so much the growth but as you look, I think you said it was at $500 million of loans. How big, I don't know if you thought it this way, but as a percentage of loans, just curious of how big you might see the partnerships getting? Thanks. That's all I had.
So I would just as broadly around consumer loans. We would like to have a nice mix on the balance sheet, around 20% consumer loans, 80% commercial loans over time. It's going to takes a little while for us to get there, particularly with the Bryn Mawr coming over. They add significant commercial loans and just as Dominic said, a modest resi mortgage portfolio. So that would be the, sort of if you wanted to think about how we think about things over time, kind of where we would want to get too. But we are also entering a new phase here with some of these partnerships that we think has great promise as Dominic said, not just from loan totals, but from a customer and relationship acquisition strategy. And so I think this will be something we will have to watch as we grow.
Great. Thank you.
Your next question comes from the line of Erik Zwick with Boenning & Scattergood. Please go ahead.
Hi. Just a quick follow-up for me and apologies if I missed the discussion earlier. Looking at the core net interest margin at 2.82% today and Dominic, your comments about putting some of the liquidity to work in 4Q into the investment securities portfolio. Is it right to infer then that 2.82% maybe a bottom for the core margin and we could see some expansion going forward?
Yes, I think that's fair to expect. We do anticipate the drag from excess liquidity, as I mentioned in my comments, to continue to come back down closer to 50 basis points by the beginning of next year. That will remain in that area until really the excess liquidity runs off or net loan growth consumes the cash flowing from that portfolio. And then at this point, it really comes down to the mix and the growth of the portfolio. We think between NewLane and Upstart and some of those products which have really nice yields relative to commercial, along with just where the pipeline is looking from a yield perspective that the core NIM there should expand from here.
Thanks Dominic. That's all from me.
And that concludes the question-and-answer session for today. I will now turn the call over back to Dominic Canuso for final comments.
Thank you all again for attending today. Rodger and I will be attending investor conferences and events during the fourth quarter and look forward to meeting with many of you then. Have a good weekend. Thank you.
Thank you.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.