Operator
(Operator Instructions)
Russel Gunther, Stephens.
Russell Gunther
Hey. Good afternoon, guys.
David Burg
Hey, Russell.
Rodger Levenson
Hey, Russell.
Russell Gunther
I wanted to start on the expense outlook. Appreciate the efficiency guide for the year. Could you give some thought to us around how you're thinking about dollar expenses? How that 4Q will shake out as a run, right?
I hear you're lumpy quarter on quarter but what's embedded in the top-line guide provided earlier?
And as a bit of a follow-up, just what type of margin of error are you assuming on the efficiency guide? I think for the past year, we were maybe 90 bps above the plus or minus range.
David Burg
Thanks, Russell.
So let me talk about 4Q a little bit. 4Q, as you alluded to, is a little bit of a noisy quarter. We obviously had the Cash Connect one-timer, the $1.9 million one-timer.
Also, when you look at a year-over-year basis, we had increases in Cash Connect related to interest rate increases, which are offset in revenue. So those are purely variable expenses that flow through the expense line related to rates that are offset in revenue.
So if you normalize those two things out, our expenses for the year were up about 15%. And the majority of that, a large part of that, was in salaries and benefits.
And there are really two main drivers for that. I would say one is at the end of the year, in the fourth quarter, we always true-up our incentive compensation to the actual performance that we had in the year. So that was part of it.
And the second part is the investment that we're making in the business in terms of headcount. And so when you look at our heads, we added about 80 FTE year over year, about two-thirds of that went into three areas: Wealth, Commercial, and Technology. And these are the areas that we continue to invest in. And when you look at our fee growth, particularly on the Wealth side, the double-digit growth that we're expecting this year or next year, I think that's a manifestation of the investments that we're making and I think we were in a fortunate position to be the platform of choice for many people.
And in fact, there are 22 teams of advisers who recently joined us from competitors, just in the last few months. It's evidence of this. And we continue to see a lot of interest, both on the Commercial side and the Wealth side of people joining our team. So that's a little bit of color on the quarter.
In terms of the guide, I would say, obviously, the efficiency ratio can move around a little bit quarter over quarter and it also moves around a little bit because of rate impact in the revenue side. So I think this is a goal for the year and we may deviate from that quarter over quarter.
But that's something that we're focused on managing. And with our goal of keeping efficiency generally flat - - can -- that basically implies a revenue growth and expense growth. That's kind of parallel so you can model it that way.
But I would say that that's a philosophy. We're going to continue to invest. We'll continue to be opportunistic. We think it's the right long-term trade-off and decision. But we're focused on managing the expenses appropriately.
Russell Gunther
I appreciate it, David. Thanks for the color there.
And then, as it relates to Cash Connect, can you talk about any potential levers you, guys, have yet to pull that could improve overall profitability in general? Sort of agnostic of what short-rates do?
David Burg
Absolutely. As you said, obviously, interest rates are going to impact the business but important to remember that as interest rates have declined, that should be accretive to profit margins. Even though you're going to see an impact on the top line and the fee line, that's more than offset on expenses.
But beyond that, we are focused on driving the profit margin of the business up and that's a combination of growth. It's a combination of its growth. It's optimizing our cash logistics and making sure that we minimize non-interest earning cash.
And the third one, an important one, is pricing. As we've consolidated market share following the USB client acquisitions that we've made, we do feel we have an opportunity for pricing leverage and that's something that we're going to deploy.
So our goal is to definitely drive the profit margin up next year from where it is this year.
Russell Gunther
Got it. Okay. Helpful. Thank you.
And then just one last one for me, guys, in terms of how we should think about the overall size of the securities portfolio by the end of the year, if you're still targeting roughly 20% of average assets, ultimately, and maybe when we might get there.
David Burg
So on the securities portfolio, it's about 22% of assets right now. You're right, we're targeting somewhere around the 20% mark, maybe a little bit lower.
The securities portfolio is about $4.5 billion. It throws off about $500 million of cash per year, in principle, as well as interest of about $500 million a year. Most of that is going to be redeployed into growth in the business.
But we will look to probably redeploy a little bit of that into the securities portfolio. So net, we do expect to come down even though we will add to our securities portfolio a little bit. But net, it will be down.
Russell Gunther
Okay Thanks very much for taking my questions.
David Burg
Thank you.
Rodger Levenson
Thanks, Russell.
Operator
Frank Schiraldi, Piper Sandler.
Frank Schiraldi
Just wondering on -- they look at or think about capital, your current capital levels, on a regulatory basis. Any color on where those could trend to in either the short term or the medium term?
Obviously, you've been buying back stock and you have more firepower there. But also, just thinking about other potential uses of capital and your interest level in additional M&A, at this point.
Thanks.
David Burg
Maybe I'll start off on the capital alternative. Rodger to talk about M&A.
But Frank, on the capital side, so we have a philosophy, as you know, that we return about 35% of our net income every year and that's about 15% in terms of dividend and the rest in terms of buyback.
When you look at last year, we actually did about 50%, which was about 35% of that in buyback and about 50% in dividends. And so the way we look at that is we look at the opportunities that we have to deploy cash to deploy capital, excuse me, in the business versus where we're trading and the ability to buy back stock.
And we always balance that equation and we take a hard look at that and we're constantly thinking through that balance. So I think, next year, just as we did more this year, we will expect to do that again next year.
And it's an equation that we're continuously looking at and revisiting. And I would say the other point I would make is that over the last couple of years, we held a little bit more capital because of volatility in macroenvironment, credit interest rates. And so we still think it's prudent to hold a little bit more now.
But again, we're definitely taking a hard look at buybacks and we continue to be disciplined. But it's something we're focused on continuing to make sure that we've carefully managed that and return as much as we can.
Rodger Levenson
Yes. Frank, it's Rodger.
I would just add, as it relates to our appetite for M&A, we just completed our next strategic plan -- '25, '26, '27 strategic plan. And the focus is really continuing to optimize this very unique market position that we have across all of our businesses and to really optimize that investment.
That being said, as David outlined, we continue to invest in the franchise and we would look to invest in both the fee businesses in the banking side. If it was something that could be accretive to those activities, I will say that like any investment that we make, the bar is pretty high because any decision to deploy capital in those kinds of investments is a decision to not deploy it in the ordinary course of business.
So we're open to looking at that but we feel very confident that we can continue to achieve the kind of results that we have provided and what we've outlined in the outlook, without having to do anything, of any significant magnitude, but always open to opportunities that would strengthen the franchise.
Frank Schiraldi
Okay, great.
And then just a couple of quick ones on more modeling related to the really strong deposit growth in the quarter. I know sometimes you can have some customer inflows -- that large customer inflows that are more temporary in nature.
Anything that you see coming back out in terms of just sizing, in terms of coming out in 1Q? Or is this a pretty good run, all considered?
David Burg
Yes, Frank. I think you're right. I think we will have a little bit of that when we look at -- like you said, I think we have very strong growth in the quarter over quarter, but also year over year, importantly.
So even when you normalize for that seasonality -- for example, if you look at last year and the growth that we had, we also had a strong fourth quarter last year, probably about half of that came out in the first quarter and then we built on that.
So I think we would expect kind of a similar pattern this year. And that's why maybe you see the low-single-digit growth in deposits off of that high point in 4Q. But I think, importantly, when you look at our balances on average year over year, which normalizes out for some of these things, we're still up 6% overall on average year over year.
And I would say, even more importantly, we're up 7% when you look at the non-interest bearing deposits. And the non-interest bearing deposit growth was really across all businesses, across Consumer, across Commercial, and across Wealth and Trust. That really, I would say, reflects the core fee relationships, the core fee operating business that we do with our clients.
So I think the deposit story is a very strong one. Yes, there's seasonality there. But I think any way you look at it: quarter over quarter, year over year, I think, net, we have solid growth.
Frank Schiraldi
Okay. No, that's great.
And then just quickly. Lastly, I think when you, guys, talk about the Cash Connect business -- this one partnership that was terminated -- I think the numbers you're giving are one-time in nature, one-time impact. Is there just trying to size it? Am I missing -- is there a number you can provide? Is it not meaningful in terms of the quarterly impact, from just the lack of this customer being a partner anymore?
David Burg
Yeah. I would say, Frank, that there are a few moving pieces there.
When you think about Cash Connect for 2025. One is this client, two is the interest rate impact, and three are the levers that I previously discussed around pricing optimization and growth in the business.
And so when you net all of those things, we expect the top-line revenue to be down somewhat. But that's more than offsetting expenses. And so when you net all of those things, including the absence of this client, we still expect our profit margin to increase from the mid-single digits to the high-single digits next year.
So that's really how we look at the business and that's how we're driving the business.
Frank Schiraldi
Okay. Just in terms of the specific fee from the absence of this one customer, is it just something you, guys, aren't disclosing? Or is it just not meaningful? Or both?
David Burg
Yeah. I don't want to get too much into specific client revenue. But again, I think I would focus on the bottom line, the profit margin, and run rating this quarter a little bit.
Frank Schiraldi
Okay. All right, great. Thank you.
David Burg
Thank you very much.
Operator
Kelly Motta, KBW.
Kelly Motta
Hi. Thanks for the question.
Maybe just one more quick question this Cash Connect business. Just from a high level, it sounds like what happened with this client is somewhat idiosyncratic.
What are the risks of this business? Is it mostly just mismanagement or potential fraud risk or theft? I'm just trying to understand what the risks are here, beyond moves in interest rates. Maybe I'll start with that.
Rodger Levenson
Yeah. So just to circle back to the particular situation, Kelly, as it's outlined in the materials, the business owner had financial stress and related enterprises that we felt elevated the risk profile of our relationship and that's what led to the termination of that relationship.
More broadly, I think the risk, as you think about the business here, is we're managing and keeping track a large amount of cash throughout the system and making sure that we have all the proper controls in place to manage and track that, which is, obviously, a lot of systems that have been built up over the 25 years or so that we've been in business.
And I would say, as a general statement, all of those controls work in this particular situation to our satisfaction. There are some loose ends that we're still working on, those are reflected in those charges and we have some avenues to pursue on that.
But that's the biggest risk in this business. And I would say, as a general statement, I think that the way we mitigate those risks and manage them, we demonstrated very well in the ultimate outcome of that situation.
Kelly Motta
Got it. That's really helpful. And I appreciate all the color on the investments you've made and talent you brought on and how you're managing expenses commensurate with revenue growth.
Just wondering, as we look ahead, how much -- when you're managing your expenses, are there still room for additional efficiencies? And that would be, perhaps, if revenue came in lighter, more challenge be in the areas in which you could potentially get greater savings? Or would the plug here mostly be a toggle in your recruiting efforts?
David Burg
I would say Kelly, it's a combination. I think, for example, again, one of the things that drove our expenses this time was when the fourth quarter, typically, is a true up in our incentive accrual, which is very numeric and really relates to the company performance. So that's something that is clearly variable and something that is directly related to where ROAs are and where the company performance is. I think that one thing.
The second thing is that as we've made investments in headcount, particularly when we talk about advisors, relationship managers. As you may know, the expenses, of course, start day one but because of contractual limitations, the revenue really doesn't start flowing materially until the second year. And so there's a little bit of a of a timing mismatch between when the expenses are and that revenue. But that's why we feel optimistic about continuing that double-digit trajectory on the back of these investments.
And I would say the third thing is we have had some major technology investments this year, including upgrading our Trust accounting system, which is one of the final integration pieces from our acquisitions. And so that drove, when you look at the full year, that was really more of a third quarter, but when you look at the full year, that also is a lever. So I do think we have levers and it's something, again, that we manage, we take a very hard look at.
Rodger Levenson
Yeah, Kelly, it's right.
Just to give a little bit of historical context, I think if you followed us over a period of time, our efficiency ratio has tended to be a little bit higher than some of our peers. We have dipped into the 50%s, the mid-F, and high-F, periodically.
We've kind of hovered around 60% as more of a long-term sustainable level. And a big part of that is because the businesses that we're in are service-driven businesses and fee businesses, which carry, a little bit, higher-expense load to them.
So that's why we talk about the efficiency ratio being around that 60%. That is our long-term goal. Obviously, we always look at opportunities to become more efficient. You saw this quarter, we moved some owned real estate to help sale. We're taking advantage of some opportunities in the marketplace to address some potential expense savings there.
So we're looking at it that way but there shouldn't be an expectation that we're going to drop somewhere below that historical level because, I think, our mix of businesses and our service-based model dictates a little bit higher efficiency ratio.
Kelly Motta
Understood. That's super helpful context.
And maybe the last question from me. I think this is the second quarter where you had an uptick in MP. This quarter, I believe, the presentation called out land multifamily construction.
Can you provide us some color on the migration that occurred this quarter and your process of work out of some of these larger migrations over the past back half of last year?
Rodger Levenson
Yes. So I would say that it was really only one credit of any size that moved to NPA. And it was that relationship.
So two loans right around $20 million each. As we outlined in the materials, an industrial land loan in Central Jersey area and then another multifamily construction loan, more in North Jersey, to a large sponsor that has run into some challenges in his global cash flow.
We feel, as David said, we're very well secured and we're working through that. Similarly, I would say the other situations that we've had that migrated over the course of last year, NPA, I think we continue to work on those in a very constructive way.
As we've talked about with our borrowers, we hope to see some resolution in the near future. And, obviously, all of that was incorporated into where we've landed on the ACL, going forward.
David Burg
Kelly, I would just add that a vast majority of our loans are with recourse as well. So we actively manage that. We have different tools. And so that's why you don't necessarily have the NPAs that turn into losses.
Kelly Motta
Awesome. Thank you so much.
David Burg
Thank you.
Operator
(Operator Instructions)
Manuel Navas, D.A. Davidson
Manuel Navas
Hey, good afternoon.
David Burg
Hey, Manuel.
Manuel Navas
Could you go into a little bit more detail on the loan growth outlook and the mix for it? Discuss pipelines and what keeps Consumer flat? What parts they're going to make up for the Upstart runoff?
David Burg
Sure. So I think when you look at the loan growth outlook, you really, as you alluded to, have to break it down between the Consumer and the Commercial businesses. When you look at the Consumer, we have two partnership portfolios that will be running off. One is Upstart which, right now, is about $140 million. As of the end of the year, it runs off about $25 million a quarter. So, really, by the end of the year, this portfolio will be negligible.
By the end of this year, the other runoff portfolio is a $1 billion. And that portfolio runs off the Spring EQ portfolio. And that portfolio, the runoff is a little bit subject to interest rates. But with prepayments, generally, it runs off about $10 million to $15 million per month. So this quarter, I think we had about $44 million -- was a runoff in that portfolio.
So those are the decliners, the offsetting that we're definitely focused and have had success in growing our WSFS-originated loans. And those are a combination of residential mortgage loans, which have nice growth this quarter, as well as other consumer portfolios that we have and primarily, the HELOC portfolios. Again, we had nice growth this quarter.
So I think the combination of doing more on the mortgage side, which we feel we can do, as well as some of our real estate, some of our other smaller portfolios, I think, largely is going to offset this growth to keep consumer flat. So that's the Consumer story.
On the Commercial story, we had, if you look at our -- we had larger payoffs this quarter due to seasonality, which always happens in the fourth quarter. But I think, particularly in this quarter, we have some business sales, which accounted for about 25% of the payoffs.
But, generally, when you look at the origination side of the equation of the pipeline, it's still solid and we still feel good about it. We feel good about the momentum and so I think Commercial is going to continue to deliver mid-single-digit growth. So when you put all of that together, you get to, maybe, a 3.5%, 4% growth between the two.
And that's how it shakes out.
Manuel Navas
I appreciate that color.
Does the resi mortgage origination or the HELOC origination -- does that add household? Is it like deeper relationships with folks you already have on the Wealth Management side?
That was part of the thought process with Upstart and Spring EQ -- that you could add households. And I'm just wondering if you're finding new ways to do that. Just any color on some of that would be helpful.
David Burg
Yeah. I think the residential mortgage, it's a combination. I think it's a business that we have capability and that we originate ourselves.
We think that there's -- and, we obviously try to lend, from a relationship perspective, so that can be an input influx of new clients and then we try to expand into deposit accounts. But there also is an important source of cross-sell from a Wealth business as well, both ways.
So I think that is an entry point for new clients as well as also an area where we can expand relationships for clients that come in through other channels like Wealth.
Arthur Bacci
Man, I'd also remind you this is we have originated both mortgage loans for clients or prospects as well as non-clients. And we have the flexibility for the non-client relationships to be able to sell those loans into the secondary market and book again.
So it's a combination of sales and then where those relationships are there. We'd rather keep it on the books rather than expose that client to a competitor.
Manuel Navas
But I appreciate that with that blended overall low growth rate of 3.5% to 4%, a lot of that covered with securities cash flows, that could potentially leave you with a lot more capital builds. You talked about having a similar level of buyback activity to last year. Could it be building increase?
Rodger Levenson
Yeah. I think, Manuel, we touched on this before. Yes, we can fund the long road with the securities that may -- there may be some excess and we're certainly generating capital and that will all be included in our ongoing analysis of the capital return philosophy that we've talked about a fair bit.
David Burg
Well, I would add that, one of the things, that in this particular quarter -- in the beginning of the quarter -- we paid off our BTF facility. We basically paid it off in cash, driven by the liquidity generation that we had in the business.
So that's also been accretive to our net interest margin. So I think we look at all of those levers and opportunities to deploy liquidity. And as Rodger said, we'll continue to evaluate buybacks for sure.
Manuel Navas
Is there any other further takeaways on the strategic plan?
But the new three-year plan just obviously comes across with the near-term outlook for this year. But can you -- is there anything else you can discuss? And what the focus is on that three-year strategic plan?
Rodger Levenson
I think, first of all, the plan is consistent with the process that we've gone through before every three years. It's a combination of management working with the Board. And I would tell you that it's very consistent with what you've been hearing us talk about. It's to continue to optimize the prior investments that we've made in the franchise and continue to lean into those areas across all of our business lines.
As you've heard us talk about, we have a very unique market position in one of the most favorable markets in the country, where, really, all the large players are much larger institutions. Whereas this, the market is just one small piece of their franchise. This is where our franchise is and we think there's opportunities for growth to take market share, for us to get more of a share of wallet with our customers, and to continue to grow through some of the investments that we've made.
And that's really the focus of the plan. And it's consistent with our long-term goal of delivering sustainable, long -term, high performance. As you've seen demonstrated over the last several years, we will invest in all of that.
That could be similar to what you saw in '24 with adding talent. And we would be open to investments of a little bit larger size, as well. But as I said, I think the bar for those will be high because we really want to have the organization focused on optimizing what's right in front of us and what's very unique and different.
Manuel Navas
I appreciate the commentary. Thank you.
Operator
Thank you. And with no further questions in queue, I would now like to turn the conference back over to WSFS.
David Burg
Okay. Thank you, everyone, for joining today's call.
If you have any specific questions, please feel free to reach out to Andrew or me. Rodger, Art, and I will be attending conferences and investor meetings throughout the quarter and we look forward to meeting with many of you.
Have a great day. Thank you.
Operator
That concludes our conference call for today. You may now disconnect.
