Earnings Call Transcript - WSFS Q4 2020

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Bryn Mawr Bank Corporation's Fourth Quarter 2020 Earnings Conference Call. Please note, this event is being recorded. On the call today, we have Frank Leto, President and Chief Executive Officer; Mike Harrington, Chief Financial Officer; and Liam Brickley, Chief Credit Officer. Before we begin, please be advised that during this conference call, management may make forward-looking statements. Please refer to the disclaimer labeled forward-looking statements and Safe Harbor in the earnings release and presentation for more information regarding what constitutes a forward-looking statement. All forward-looking statements discussed during this call are based on management's current beliefs and assumptions and speak only as of the date and time they are made; the corporation does not undertake to update forward-looking statements. For a more complete discussion of the assumptions, risks, and uncertainties related to the business, you're encouraged to review the corporation's filings with the Securities and Exchange Commission located on their website at www.bmt.com. I would now like to turn the call over to Frank. Please go ahead.

Frank Leto, President and Chief Executive Officer

Thanks, Melissa. And I'd like to thank all of you for joining our call today. While 2020 was a year full of unimaginable challenges, it confirmed what we've always believed at Bryn Mawr Trust: we can survive and thrive in the most difficult circumstances. We all went through very difficult times in 2020 but I'm hopeful we're headed towards recovery, and that all of us will come together as a nation united in a common purpose to deal with all of the challenges of the current environment. At Bryn Mawr we focused our attention on our core strengths, providing exceptional service to our clients. Our past successes are indicative of our perseverance and the perseverance of our employees who not only met but have exceeded expectations time and time again. We look forward to better days ahead but acknowledge that these days may be preceded by more challenges, and therefore we continue to be prepared for such. We ended the year on a positive note reporting fourth quarter net income of $15.5 million or $0.78 diluted earnings per share. For the full year of 2020, we reported net income of $32.6 million or $1.63 diluted earnings per share. In a year in which we experienced unparalleled uncertainty around credit, liquidity, interest rates, the economy and our personal well-being, we're very pleased with our performance. While the loan portfolio shrunk modestly year-over-year due to lower demand in the marketplace coupled with a more conservative approach in light of economic uncertainty, our diversified business model proved its efficacy. Specifically, our wealth group set a new record high. At the end of 2020 assets under management grew to $19 billion under Jen Fox's leadership; this represents growth of 10% from the third quarter and 15% from the end of 2019. Nearly all of our wealth business lines grew quarter-over-quarter and year-over-year. Our Bryn Mawr Trust, a Company of Delaware Group, has done particularly well, increasing assets under management by over 26% from last year. This again speaks to the importance of our diversified businesses in times such as we're experiencing. Other core fundamentals at Bryn Mawr remained strong; capital and liquidity have grown throughout 2020, credit quality continues to improve, and we completed several initiatives as discussed earlier this year. As Liam will discuss in more detail momentarily, loan deferrals were just above 2% at the end of the year from a peak of over 20% in June, and I'm proud of our credit team's work in helping our clients through this pandemic. One initiative I'd like to highlight includes the ongoing investments in technology; investments in periods past allowed the majority of our employees to quickly and effectively transition to a remote working environment. Because of the success of our remote working environment, we've made the decision to make working from home permanent, and subsequently exited a substantial portion of our office space in Bryn Mawr. Further ongoing reviews of our branch locations and customer behavior led to the announcement of the additional planned branch closures expected in April. We remain committed to the ongoing review of our branch networks, but have elected to take a measured approach to ensure we align our physical distribution in a way that is consistent with our customers' needs post-pandemic. That said, the likely outcome of this alignment will be fewer branches over the next few years. Heading into 2021 we're cautiously optimistic as it pertains to the general economy and our ability to grow organically. Another example of our focus towards organic growth is the announced hiring of George Robostello, who will serve as our Managing Director of Commercial Banking in the Southern New Jersey market. South Jersey is a natural extension of our current markets and George will work to accelerate our commercial client acquisition in this region. While we believe uncertainties will persist, we have positioned ourselves accordingly and identified opportunities within our market in order to drive shareholder returns. Our markets remain competitive from high levels of liquidity within the industry; however, we're confident in our team's ability to capture our market share with our one BMT approach. Finally, I'm proud to announce the Board of Directors approved a 27% share dividend; this marks our 10th consecutive year of a full-year dividend with an increase. I'd like to now turn over the call to Mike to discuss the fourth quarter results. Mike?

Mike Harrington, Chief Financial Officer

Thank you, Frank, and good morning, everyone. As Frank noted for the fourth quarter 2020, we posted a GAAP income of $15.5 million or $0.78 per diluted share. The fourth quarter included several non-recurring items that nearly offset one another. These non-recurring items related to the downsizing of our real estate portfolio that you may recall included the sale of one back office building and the early lease termination of two back office buildings. The savings related to the closures will begin to be realized in the first quarter of 2021. For the fourth quarter, net interest income was flat. A lack of loan growth coupled with a stable net interest margin contributed to this outcome. While we continue to see pressure on loan yields we were able to offset these lower yields by reducing rates paid on deposits. Related to the provision for credit losses, improvements to the current and forward-looking economic conditions, specifically Pennsylvania unemployment, led to the release of the allowance for credit losses during the quarter of $1.2 million. Non-interest income was up 4% quarter-over-quarter; this was primarily a result of the sale of the building as discussed a moment ago. Nonetheless, during the fourth quarter and throughout 2020, our fee income held up extremely well with wealth of particular note, as overall revenue was up almost 8% relative to the same quarter last year. Non-interest expenses increased 10% during the quarter. The increase was primarily a result of expenses related to the downsizing of the bank's facilities portfolio, incentives related to sales activity in the wealth division, and an increase in our deferred compensation liability; a function of the strong gains in the stock market during the quarter. Expenses would have been essentially flat quarter-over-quarter if not for these three items. Further, a portion of the incentives paid during the fourth quarter relates to revenue that will be recognized in 2021. Turning to the full year results, net interest income for the full year 2020 decreased 3% due to the significant drop in yields that impacted both our loan portfolio and deposit pricing. This can be seen in our tax equivalent net interest margin which decreased 39 basis points during the year. Provision for credit losses nearly increased fourfold from 2019; the primary driver of the increase was the adoption of CECL coupled with deterioration in the economy related to the pandemic following our day one adjustment. Non-interest income year-over-year was nearly flat and held up very well in light of the pandemic. As Frank discussed, the wealth division had a great year in terms of assets under management growth and year-over-year revenue growth which was over 5% when adjusted to exclude the mitigation payment related to the unwinding of the mutual fund. A particular note is that our Trust business grew assets 26% and revenue by 29% year-over-year. Non-interest expenses decreased 3% from 2019. As some of you may recall, last year we mentioned we were taking a more diligent and proactive approach towards expense control even prior to the pandemic. When the pandemic hit, we accelerated several of our expense savings initiatives; the result of these initiatives help support our ongoing investment in technology while allowing us to keep expenses essentially flat versus the same quarter last year when adjusted for the cost of downsizing our facilities portfolio in this quarter. At the end of 2020 our balance sheet was positioned to handle the challenges and opportunities headed into 2021; we have ample liquidity and a strong capital position. As depicted on Slide 7, asset quality has improved after the deterioration earlier in the pandemic. We have seen the vast majority of our asset quality indicators improve and stabilize from the high points, and as we sit here today, we are confident with the level of our allowance for credit losses. Looking ahead, we anticipate continued uncertainty and the potential for ongoing volatility as it pertains to the overall economy and markets. As for the net interest margin, we believe it could come under renewed pressure if the overabundance of liquidity in the marketplace causes additional compression of loan spreads. As a potential counter to the net interest margin pressure, if the yield curve can hold on to its recent steepening, we could see modest improvement in the margin. Regarding loan growth, there are still great uncertainties as it relates to the direction of the economy; areas like the speed of the vaccine rollout, government stimulus, and the resumption of pre-pandemic economic activity are variables that will influence demand for credit. Given these unknowns loan growth is likely to be muted in the first half of the year and rebound thereafter. Similar to the past year, we remain committed to thoughtful expense control. We will continue to execute our technology plan and hire talent to expand our business. That said, given the actions we took in 2020, we expect expense growth to be minimal in 2021. With that, I'll turn it over to Liam to discuss credit.

Liam Brickley, Chief Credit Officer

Thanks, Mike. The overall loan portfolio saw a slight shift in composition during the third quarter. We experienced solid growth in the commercial real estate segment, specifically the non-owner occupied segment, offset by decreases in our residential, construction and commercial C&I business. Looking closer, as on Slide 10; some of the main real estate segments within the portfolios which we consider more susceptible in the current environment, we saw stabilized to improving conditions and outlooks from our clients. We worked very closely with our clients and there has been a growing positive sentiment around the future operating environment, and the ability to manage through the uncertainties going into the first half of 2021. While we believe it will still take some time to fully rebound from the difficulties of 2020, we are noticing improving client confidence since the last quarter. We recorded a modest reduction in hotel exposure at year-end; a substantial number of borrowers in this sector went into the crisis with modest leverage and have fared better than expected. Overall, our commercial real estate portfolio remains strong with solid underlying fundamentals, including stable loan-to-values. Moving to Slide 11, we're pleased to report deferrals declined to approximately 2% of the total portfolio at year-end; this is significantly lower than the approximately 21% high point at the end of the second quarter of 2020. Our largest loan segment which is our CRE non-owner occupied decreased from a high of 28% in June to 4% at year-end. We saw a significant decrease of deferrals in the CRE owner occupied portfolio from a high of 29% down to 2% at year-end. The hard work of the team working closely alongside our clients yields confidence in the interim. During the fourth quarter, overall criticized loans decreased. There has been substantial reduction in classified loans as we successfully reduced our exposure or exited several transactions. This was partially offset by net new downgrades to the special mention category for a number of clients whose business models such as commercial real estate operators in the retail space and outpatient surgical centers have been impacted by COVID. Despite the increase in special mention credits, the reduction in NPA and classified exposure is a positive sign. However, it remains too early to tell if this is the beginning of a trend. We will have a clearer view of the new normal trading conditions as the COVID vaccine rolls out over the next few quarters. If economic conditions continue to improve, along with an increase to our customer sentiment, we would expect that these portfolios could show further improvement. Slide 12 and 13 provide a more granular view of our deferral history and future expectations as of 12/31/20. As we see on Slide 12, a portion of the CRE Non-owner occupied concentrated in hospitality and restaurant borrowers continued deferments into this year. The vast majority, approximately 87%, of these commercial deferrals are currently on an interest-only payment schedule. The deferred loans were expected to return to regular principal and interest schedules in the second quarter of 2021. We remain committed to working alongside COVID-impacted clients to assist where prudent and necessary. Slide 13 details the breakout between first, second and third term deferrals. As seen in the slide the third deferrals are continuing into 2021 and are expected to reduce to near zero in the second half of the year. Slide 14 breaks out deferral information for our largest loan segment, the CRE-Non-owner occupied segment. As mentioned a moment ago, this segment represents the bulk of the third-time deferrals. But we are confident that the majority of these borrowers will resume full payments later this year. As Frank and Mike touched on the 2021 outlook earlier, I wanted to add a few comments. After working with many of our customers during the pandemic over the last 10 months, we have managed through a wide range of unknowns and uncertainties, some of which persist to this day. We all have considered worst case scenarios at one point or another. But at the end of the day, we relied on our sound underwriting practice, experience and patience to overcome these obstacles. From where we were at the middle of 2014 to now I can say the customer sentiment has improved, and there is improving clarity and enhanced confidence with respect to the prospects of a continuing economic recovery. If we continue on the path of improving economic conditions, I believe our credit quality measures will improve and the prospect for loan growth will as well. With that, we'll turn the call back to Frank.

Frank Leto, President and Chief Executive Officer

Thanks, Liam. And with that the operator will open up the line to questions please.

Operator, Operator

The first question today comes from Casey Whitman, Piper Sandler. Please go ahead.

Casey Whitman, Analyst, Piper Sandler

Good morning. So congrats on the success in the wealth businesses last year. So just wondering, it's been a while since you did any acquisitions in the wealth space. So I was just curious as to what your team's appetite was for wealth acquisitions this year?

Frank Leto, President and Chief Executive Officer

Casey, I think we're always looking at things and opportunities. Nothing's come across that has made sense for us. Just generally the RIA acquisitions, acquisitions that banks have done if you look around the country, they haven't all been that successful. I think probably our most successful acquisitions in the past have been of trust companies that have similar structure and model to what we've had. So, you know, we don't need to stretch. We're not trying to take any unnecessary risk with these types of acquisitions because we've had such success with the organic growth. I think we'll continue to look at opportunities as they develop, and if there's something that makes sense and is strategic to what we're doing, we’ll obviously execute on it. But for the time being, we’ll continue our focus on organic growth.

Casey Whitman, Analyst, Piper Sandler

Makes sense. I guess while we're on the topic, any updated thoughts on just how you're looking at bank M&A this year as well?

Frank Leto, President and Chief Executive Officer

Pretty much ditto as wealth and RIA. I mean, we haven't seen anything really that is strategic for us. And you know, that really is going to that wouldn't be franchise-dilutive, for example, or that would really be additive in our markets. So, again, we've been spending the last couple of years building up the infrastructure for growth, building up technology for growth, putting really, I think, one of the best teams in community banking in place. And I think that'll continue to be our focus as we go forward unless something pops up that makes sense for us to jump into. I mean, our market pretty well. There's a lot of opportunity here on the organic side. So we think we can keep that growth trajectory going once this pandemic settles down, we'll keep it going in the right direction.

Casey Whitman, Analyst, Piper Sandler

Understood, makes sense. Thanks. I'll just ask one more, maybe on the margin where we saw it, I appreciate the outlook you gave, just wondering if you could give us some details on where new production yields are coming in relative to the portfolio yield and just whether there's still any pressure there if the gap has narrowed enough?

Mike Harrington, Chief Financial Officer

Yes, I'll take that Casey, good morning. New yields are coming on lower than, I'd say on average, the actual yield. But they're pretty close to one another. So the overall yield in the book is about 389-390 basis points and new business is probably coming on just below that at this point. What I alluded to in the prepared commentary is that there's so much liquidity out there, and then there's not as much demand for credit. So those two things are working against each other to potentially drive spreads lower. But the good news is the curve steepened a little bit. So that might offset some of that downside pressure on the new yields.

Casey Whitman, Analyst, Piper Sandler

Thank you.

Operator, Operator

The next question today comes from Michael Perito of KBW. Please go ahead.

Michael Perito, Analyst, KBW

Hey, guys, good morning. Thanks for the color on the call and on the outlook for 2021. I had a question on expenses. I want to go a little bit more clarification on Slide 8, you guys mentioned that expense growth is expected to be minimal versus prior year. If I'm looking at the prior year, I have a core number of about $141 million for 2020. I'm just curious, is that how you're thinking about the number for 2020 when you talk about minimal growth or are there some of those items in the fourth quarter that you alluded to in your prepared remarks, Mike?

Mike Harrington, Chief Financial Officer

I tried to keep it simple and just use the GAAP numbers. So I think we're just trying to hold it flat relative to the actual reported number, not try to do all the ins and outs. It's too complicated to explain and dissect. So we're just, I think, normalized the number for Q4 in particular, just because there was a lot of expense related to that. So to normalize the number for Q4 would have taken a number down to about $35 million. And then we just expect that number to kind of hold on a relative basis going forward. That should be pretty close to the run rate.

Michael Perito, Analyst, KBW

Got it, okay. I mean, you guys are on the technology side - right. But you mean when you say minimal versus prior year, it sounds more so like that fourth quarter run rate you guys are hoping that will hold and but there could be some upward pressure to it, depending on the pace of your investments and your growth.

Mike Harrington, Chief Financial Officer

Yes, I mean, so the occupancy expense coming down will be lower year over year; that money's getting redeployed into technology and people basically. But again, we'd expect the expense growth number to be very minimal, so very low single digits or zero, if not zero.

Michael Perito, Analyst, KBW

That's helpful. Thanks. And then Mike or Frank, I was wondering if you guys could maybe walk us through a little bit the updated technology roadmap for the next year or two as you guys see it. I mean, I know you guys are pretty advanced in your rollout of nCino across the platform at this point, just curious if there's any other specifics that you can share that you think could be impactful and we should be mindful of as we move in 2021 here?

Frank Leto, President and Chief Executive Officer

Sure. Well, nCino really is, I think the story for the first half of this year for sure. We've launched three modules of nCino between the end of '19 through '20. And the commercial piece, which is the largest piece, and probably the most complicated of all, is we're in the throes of right now; we should be done, hopefully close to the end of the second quarter—that's the goal. So, I don't want to say we're not doing anything in the interim. But that is really the prime focus for everybody to get that completed and start to get the efficiencies of a system like that. We're also in the midst of a technology transformation internally. Hopefully maybe next quarter we'll have Adam on the call, and he can give you a little bit more color like he did at our last Investor Day, but we're moving a lot of our technology into the cloud, getting out of managing hardware, literally getting out of that. So that's a big focus going forward. Some of our subsidiaries are looking at platform changes, and some upgrades and additions to their platforms. And as always, Adam has done a really nice job of putting together a plan for us over the next two to three years. So there'll be continued investment and upgrades in our technology, hopefully resulting in continued efficiencies. And I think part of what you're hearing from Mike is just keeping expenses flat; one of the reasons we're able to do that is because of what we've invested in over the last couple of years. And I think everything we do going forward is with an eye towards that kind of efficiency built in.

Michael Perito, Analyst, KBW

That's helpful. Thanks, Frank. And that it does. Thank you. And then just lastly, you know, as we just a little bit of a two-part question here, but it sounds like the credit environment is fairly stable, and the optimism of the client is improving, although you guys are still remaining a little cautious. We'll see what the stimulus and the vaccine looks like. But for the most part it seems fair to think that, certainly provision expense in 2021 will be lower than what it was in 2020. But as I think about profitability overall, is there room with that expense outlook that you laid out to improve the pre-provision earnings profile of the bank in 2021, or does a low rate environment make that challenging and likely more of a 2022 event when we get some steepness at that point, any color on how you think about that over the next 12 months or so?

Mike Harrington, Chief Financial Officer

So I'll take that. I think the idea around holding expenses flat is a function of just the pressure on the earning side of the house and growing that year over year. As we mentioned, I think loan growth probably loads on the back end of the year. So you end up with a modest increase in average balances year over year, and then you get the full effect of the decrease in the margin from the prior year. We're going to endeavor to grow fee income to offset some of that. That leaves you with the situation where it's difficult until we see average longer-term rates materialize on the balance sheet and that really pushes some of the recovery into 2022.

Frank Leto, President and Chief Executive Officer

So what we're hearing with respect to the vaccine will come into play. We're just trying to be cautious about how we look at the environment, really prior to getting back to some kind of a normalized life that we're going to lead.

Michael Perito, Analyst, KBW

Yes, makes sense. And I got one more follow up because you brought something up, Mike, I just want to clarify you know, if I look at the overall asset base today, right, there's still probably like, year on year up maybe $300 million to $400 million with some of the liquidity that came in from PPP. At this point, is it still safe to assume near term that a lot of that liquidity and that balance sheet size is probably going to stick around or do you see any thoughts around kind of liquidity normalizing from some of your customer base?

Mike Harrington, Chief Financial Officer

We haven't seen it normalize yet. In fact, at the end of the year, we sort of saw liquidity wash into the bank, and some of that's called back out. But we don't feel like there's going to be a big change in the liquidity profile. And again, that goes back to one of the constraints we believe in terms of loan growth, especially in the first half as there's so much liquidity that is waiting for the uptick to use that liquidity and then, subsequent to that, when will credit demand return to where it was pre-pandemic. But no real change. I think we're still going to see us sitting on a decent amount of excess liquidity. When I say that the balance sheet will be liquid from a deposit standpoint, we're trying to run that out where we can where it doesn't make sense to hold it in overnights. We've also done some things in the investment portfolio to try to get some of those dollars invested with a little better yields and then some overnight cash being successful there. And we've also put on about $100 million of asset-backed and structured positions, CLOs and some subordinated debt to supplement the lack of loan growth.

Michael Perito, Analyst, KBW

Really helpful. Thank you, guys. Appreciate the update and stay well.

Operator, Operator

The next question comes from Erik Zwick of Boenning and Scattergood. Please go ahead.

Erik Zwick, Analyst, Boenning and Scattergood

Hey, good morning, guys. I just wanted to start on non-interest income and the capital markets revenue specifically that obviously varies from quarter to quarter based on certain activity. If I looked at it from a full year perspective, about $9.5 million in 2020, any thoughts on how that trends going forward here in 2021?

Mike Harrington, Chief Financial Officer

I think that number is a good way to think about it, Erik. We're going to have volatility. A lot of that revenue is dependent on when we close loan sales or other capital markets transactions. Some of what we might have expected in Q4 rolled into Q1 of this year. But that $9.5 to $10 million number we think is a reasonable run rate on a go-forward basis for 2021.

Erik Zwick, Analyst, Boenning and Scattergood

Got it, and then switching gears to the newly authorized round of PPP. Just curious, how much demand are you seeing? How active do you intend to be? And do you anticipate selling again, as you did the first time around?

Frank Leto, President and Chief Executive Officer

Anecdotally, we're not seeing nearly as much demand as we saw the first time through. We've had some requests, but we are not going to participate in round two. We sold the portfolio to a very large servicer of loans and we worked out an arrangement where we're referring our customers to them. At the end of the day, there's so much operational risk for a bank like Bryn Mawr which is not an SBA shop and doesn't have an extra 100 people in the loan operations group to manage the credits. Forgiveness has taken a lot longer. So there is still a process you have to go through with those loans. I think it served us really well to exit the portfolio back in June, because we've been able to devote really 100% of our attention to the customers, which is what we wanted to do. That's how we got our deferrals down. We want to be there going forward for the customers and for their needs into '21 and '22.

Erik Zwick, Analyst, Boenning and Scattergood

Got it. Thanks. Yes, I agree, you guys had good foresight to anticipate some of the difficulties in the extension and the whole process. And then last—

Mike Harrington, Chief Financial Officer

Just to add to Frank, it's really the first week that it's been open. We will be getting a report—we actually get a report later today to see what's coming into our partner, the company we've partnered with that will be handling second-round applications. We will send those to that partner company and we will share some of the revenue related to those requests as they come in. But we haven't gotten any data yet; we'll actually get that later today on the first report.

Erik Zwick, Analyst, Boenning and Scattergood

Yes, great. Look forward to that. And then last one for me pivoting off the expense discussion—Mike, you mentioned that any of the savings that you generate from the branch closures will likely be reinvested in tech and talent. On that front in terms of talent you guys have previously talked about wanting to add to the ranks of the commercial lenders, and it sounds like you have done so recently with the addition of the new director in southern New Jersey. How do you think about the rest of 2021? What is the market like out there? Are there specific individuals that you target or just look for opportunities to arise naturally over time?

Mike Harrington, Chief Financial Officer

I think it's all of the above, Erik. We obviously know some key players in the marketplace and always try to keep the channel communication open with them. Opportunities pop up, referrals come through; we get wind of somebody moving on or unhappy. We'll try to take advantage of those. And it's not just on commercial lending. In our wealth group we're always looking for lift-out opportunities—talent anywhere that makes sense and really fits with our culture at the bank. So it's a broad approach across the entire enterprise, not just commercial lending.

Erik Zwick, Analyst, Boenning and Scattergood

I appreciate the color there. Thanks for taking my questions this morning.

Operator, Operator

The next question comes from Matthew Breese of Stephens Inc. Please go ahead.

Matthew Breese, Analyst, Stephens Inc.

Good morning. A few questions. Sorry to go back to expenses. I just got a little bit confused there. On the one hand, like you said, hold the full year GAAP number trying to target that flat. But then I also heard you talk about the core 4Q number $35 million. Can you just clarify for me what the base is?

Mike Harrington, Chief Financial Officer

Just use 2020 as your flat number. The GAAP number was $142 million.

Matthew Breese, Analyst, Stephens Inc.

Okay, thank you. And then along growth, I know it's been a challenge. I was hoping you could talk a little bit about the interplay between originations and payoffs and what the pipeline looks like.

Mike Harrington, Chief Financial Officer

The pipeline is building; some of the activity, as I noted earlier, related to capital markets, we expected might have closed in Q4 and moved into Q1. We had a board meeting yesterday and approved a bunch of credit on the construction side. So there's activity. Again, we think growth will be muted in the first half and then potentially pick up in the second half.

Matthew Breese, Analyst, Stephens Inc.

All right. And then turning to BMT Delaware, a lot of growth there, seems like it's doing quite well. Can you give an update in terms of where AUM actually stands today? I was also curious in terms of business-line efficiency and how the pipeline for new business looks, given the new administration?

Frank Leto, President and Chief Executive Officer

I don't know that we're putting out mid-quarter updates on AUM but it continues to grow; we finished the year extraordinarily well. It was really an extraordinary year for BMT Delaware. That momentum has carried into the first part of this month and it appears to continue forward. I think we'll see as tax policy develops, we're likely to see more opportunity, which usually happens. We saw a lot of that build up at the end of last year. But our business is broad and not just driven by tax law changes; a large part is fundamental estate planning that people execute on. I think there's still great opportunity and growth potential in that business. We have an exceptional team down there and consistently hear from our clients the strength of our service. I expect the momentum to continue through most of this year.

Mike Harrington, Chief Financial Officer

The business was about $11 billion at the end of the year, just under that. As Frank noted, the momentum in the business especially at the end of the year is notable. Regarding the incentives we discussed, a lot were related to new business that was being written at Bryn Mawr Trust of Delaware all the way up till December 31; it's one of the things that sets us apart is we stay open and continue to do business right up till the end of the year and it really benefited us.

Liam Brickley, Chief Credit Officer

Actually, Bob was—Club Bob actually closed early on New Year's Eve about 8:30, New Year's Eve evening, literally. So that's just speaks to the level of service and to why I think this becomes a choice for a lot of our referral sources.

Matthew Breese, Analyst, Stephens Inc.

I appreciate that. Next one, in the deck there is mention of the share repurchase authorization. Can you talk a little bit about willingness or ability or what are the circumstances where you would repurchase?

Mike Harrington, Chief Financial Officer

We paused repurchases when the pandemic hit. That pause is over now. We have authorization from our board; there's about $700,000 of share authorization remaining on the original authorization. We also have a lot of cash at the holding company—we're sitting on over $400 million of cash—so we'll definitely be evaluating opportunities to potentially buy our stock back in the future.

Matthew Breese, Analyst, Stephens Inc.

Okay. And just the last one for me in regards to the new Regional President in South Jersey. Could you frame for us what specific markets within South Jersey you're looking to target? And what business lines—CRE, C&I, a little bit of both—will you focus on?

Frank Leto, President and Chief Executive Officer

With George, his background is in C&I, so that will obviously be his sweet spot. But as he builds his team, there are many opportunities on the CRE front; it's really an extension of the Philadelphia market. There's a lot of opportunity in South Jersey as a natural outgrowth of what Kevin has been doing for us, with his ties up in Princeton and Central New Jersey. So I think you'll see a broad base of business coming out of George and his team.

Matthew Breese, Analyst, Stephens Inc.

That's all I had. Thank you so much for taking my questions.

Operator, Operator

The next question comes from Christopher Marinac of Janney Montgomery Scott. Please go ahead.

Christopher Marinac, Analyst, Janney Montgomery Scott

Hey, thanks. Good morning. I wanted to circle back on criticized and classified assets. We saw some movement in the retail area and a little bit in hospitality; I was curious what the path to further upgrades or downgrades looks like over the next couple of quarters?

Frank Leto, President and Chief Executive Officer

Liam?

Liam Brickley, Chief Credit Officer

We review our criticized and classified book in detail monthly; our last review was actually yesterday. The ultimate trajectory is tied to the pace of economic recovery and the vaccine rollout. Right now, folks are stable; we're not looking at a lot of businesses burning through cash. The triggers for upgrades will be a return to normalized trading activities. All things being equal, it looks like a reasonable upward trajectory if economic conditions hold and public health initiatives progress in a meaningful way in the Q2/Q3 timeframe.

Christopher Marinac, Analyst, Janney Montgomery Scott

Okay, great. That's helpful. And then just to follow up on utilization data you've shared the last couple of quarters. How does the decline we've seen in utilization compare back 10-12 years ago during the last crisis? Is it normal to see this or is it somewhat unusual?

Liam Brickley, Chief Credit Officer

The last crisis was fundamentally different; it was driven by an imbalance of speculative real estate that came crashing down. This recession is driven by the COVID impact and business managers are prudently holding cash to weather the storm. That's driving utilization declines. HELOC usage is typically a confidence issue; people haven't been using HELOCs aggressively and a lot has been refinanced into long-term 30-year paper because the market provided that opportunity. Comparing this recession with 10 years ago is largely apples and oranges; the comparisons don't tell us as much.

Christopher Marinac, Analyst, Janney Montgomery Scott

Got it. Appreciate the background and comparison. Thanks very much, guys.

Operator, Operator

The next question comes from Bernard Horn of Polaris Capital Markets. Please go ahead.

Bernard Horn, Analyst, Polaris Capital Markets

Good morning. I had a forward-looking question with respect to commercial real estate. With companies talking about reducing office space by 25% or so, do you have any early signals or anecdotal evidence from clients that suggest they are preparing for less real estate? If vacancy rates go up in your portfolio and rents get ratcheted down, even with low LTVs that could create pressure. Any color?

Frank Leto, President and Chief Executive Officer

Let Liam start and I'll add to it.

Liam Brickley, Chief Credit Officer

First and foremost, all real estate is local and we benefit from operating in a market that was not overbuilt going into the crisis. Supply and demand were reasonably balanced in Southeastern Pennsylvania and South Jersey. We have not heard much about large rent reductions from our office customers, but it's still early and leases roll off on long-term schedules. Longer term there are puts and takes: social distancing might require more space per employee in the near term but the total number of employees in a building could reduce over time. Where that settles is uncertain. In the hospitality space, leisure-oriented travel should bounce back relatively strongly as the public health situation improves; properties dependent on business travel probably have a longer road to recovery as corporate travel budgets evolve. It's very property- and sponsor-specific, but we're cautiously optimistic the portfolio will trade modestly off the bottom and remain in reasonable shape.

Frank Leto, President and Chief Executive Officer

Anecdotally, I've heard operators discussing repurposing space—looking at alternative uses for office space, such as residential conversions or other repurposing ideas. Those conversations are happening, but we don't yet have specific evidence in our portfolio showing a meaningful shift.

Bernard Horn, Analyst, Polaris Capital Markets

Okay, thanks very much.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Frank Leto for any closing remarks.

Frank Leto, President and Chief Executive Officer

Well, after a very difficult year, I think we're happy to have that one behind us, we're looking forward to 2021. Again, we thank our shareholders for your confidence in us, and thank everybody else on the call for your interest in Bryn Mawr Trust. Talk to you soon.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.