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Bryn Mawr Bank Corp (BMTC)
Q1Â 2020 Earnings Call
Apr 21, 2020, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and welcome to the Bryn Mawr Bank Corporation First Quarter 2020 Earnings Call. [Operator Instructions]
At this time, I'd like to turn the conference call over to Mr. Mike Harrington, Chief Financial Officer. Mr Herrington, please go ahead.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Thank you, Jamie. Thanks everyone for joining us today. I hope you had a chance to review our most recent earnings release and presentation. Both of these documents are available on our website at bmc.com in the Investor Relations section. We will be referring to the presentation during the course of this conference call.
On the call with me today are Frank Leto, President and CEO; and Liam Brickley, Chief Credit Officer.
Before we begin, please be advised that during the course of this conference call management may make forward-looking statements, which are not based on historical facts. Please refer to the disclaimer labeled forward-looking statements and safe harbor in our earnings release and presentation for more information regarding what constitutes forward-looking statements. All forward-looking statements discussed in this earnings 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 our business, you're encouraged to review our filings with the Securities and Exchange Commission located on our website.
I would now like to turn the call over to Frank.
Frank Leto -- President and Chief Executive Officer
Thanks, Mike. And I'd like to thank all of you for joining our conference call today. So let's begin by addressing our response to the COVID-19 pandemic. In January when news began to surface of the virus the topic became a regular item of discussion internally. As potential impacts of the virus began to emerge, we declared the virus an incident and convened our Incident Assessment Team. That team assessed the situation within a few days, elevated the issue to our Crisis Management Team. Crisis Management Team, which is comprised of executives and members of our senior management across the organization and chaired by our Chief Risk Officer. Patrick Killeen. immediately convened an initiate -- initiated our business contingency plan, a component of which includes actions related to pandemics. While none of us could have predicted this exact scenario, we've routinely planned and prepared for a situation such as this.
Crisis Management Team was tasked with further assessing the situation and providing recommendations to executive management, in addition to following the playbook outlined in our pandemic plan. Among the many actions, two priorities included ensuring the safety of our employees and customers as well as testing and stressing our remote capabilities to handle additional users on our remote private network. As of today, nearly all of our back office support and many of our client-facing employees in lending, wealth and insurance groups are working from home. This comprises approximately 70% of our total workforce.
I want to emphasize the technology investments we've made and spoken about the past several years have allowed us to complete this transition seamlessly into a degree I never imagined. Other actions we've taken to date included closing all branch lobbies and reducing our branch hours of operations to further protect our clients and employees, and adding a virtual format capability to our annual meeting which can be in glass suite [Phonetic]. As things began to -- I'll put in quotes normalize in April, the Crisis Management Team continued to meet frequently to monitor and react to specific situations. While the risks in the current marketplace are vast and ever-changing, we believe our largest risks are in the operations, financial health, credit and reputation areas.
From an operational risk standpoint, business disruption, loss of personnel, third-party reliability, cyber security and the inability to meet our client and community needs are key focal points. Crisis Management Team works along -- works alongside the Executive Management Group to quickly and effectively respond to the hurdles we face. We have reallocated resources across the organization where necessary to meet increasing demand of our clients and communities. Managing financial risk starts well before the crisis. We have sound practices in place including frequent stress testing, implementing strategies to protect our margin and evaluating liquidity position -- our liquidity position on a daily basis. Our job now is to leverage our financial strength and skills to successfully navigate this unprecedented environment. We have to be keen on economic conditions, including interest rates of sensitivity, meeting our funding obligations and continuing to invest in opportunities to support the business.
Well, Liam Brickley, our Chief Credit Officer will discuss our credit profile momentarily, I will add that we have been very proactive with clients engaging their response to the market. We are aggressively monitoring high risk segments of our loan portfolio and acting where needed. Our 131 year reputation is one which we take great pride. Bryn Mawr Trust has helped and continues to help our clients and communities to build legacy in which we all share. Thanks we are at the forefront of this pandemic and we are working very hard to help those in need. Today we are working extensively to create managed solutions for our clients and communities.
One area of focus over the last few weeks has been the SBA's Paycheck Protection Program, as of the close Friday we received thousands of online request and over 1,600 applications were submitted. To date over 700 applications have been approved with SBA authorization for a total dollar amount over $220 million to be funded through the bank. Although the programs funding has been exhausted, we're proud of how our team pulled together to design and implement a process needed to handle this immense influx of activity, and we continue to process applications we received in case the program receives additional funding. More information on all of the relief programs are available -- can be found on our website or in our Investor presentation released yesterday. While each day brings new challenges and opportunities, we are confident in our organizations ability to come out the other side stronger than ever.
I'd like to now turn it over to Mike to discuss our first quarter results.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Thank you, Frank. For the first quarter of 2020 we posted a net loss of $11.2 million, negative $0.56 per diluted share. Main driver of the loss for the quarter was our implementation of CECL and the recording of the associated provision for credit losses that is reflective of the current economic conditions brought on by the COVID-19 pandemic. We are experiencing economic conditions unlike any we have ever seen and the future path of economic activity is highly uncertain. The credit loss modeling purposes historical data may not be relevant in calculating credit losses. For example, Pennsylvania unemployment, a key driver of losses in our allowance model is expected to exceed historical high shortly. Hence returning to normal levels is subject to a great degree of variability.
The management team, in the spirit of -- in the spirit of the accounting guidance described under CECL [Phonetic] made efforts to estimate the allowance by leveraging historical loss data and its correlation to economic data such as unemployment, in combination with our stress testing modeling and qualitative factors to arrive at assessment as of March 31, 2020. We believe our allowance as stated represents a reasonable estimate of future credit losses as of the reporting date. Acknowledging that the estimate will be subject to change as the path of economic activity comes clear.
Setting aside the provision expense discussion, our business activity was strong during the first quarter. We saw our net interest income increased by 1% from the fourth quarter as loan growth which increased 2.1% from the prior quarter and strategies we use to defend the margin, help mitigate the effect of lower interest rates. Our fee income continues to be a consistent source of earnings for the bank, that's fixed fee, wealth assets have grown over the years, moving the impact of the market sell-off late in the quarter. As anticipated, our non-interest expenses were flat quarter-over-quarter, despite the recording of a $3 million reserve for our unfunded loan commitments related to the change in the credit risk environment associated with the pandemic.
Our tax equivalent net interest margin increased from 3.36% to 3.38% quarter-over-quarter. This is a direct result of the strategies we applied to manage the margin, including the thoughtful reduction of cost paid on over $500 million of deposits and modifying pricing on loans to reflect the inherent risk of lending in this environment. We'd also positioned our borrowing portfolio to be more short-term with the majority and -- in the overnight market. We evaluate our liquidity position on a daily basis when we do all options successful to us frequently. The bank has significant liquidity available at the Federal Home Loan Bank and to a lesser degree with The Federal Reserve. We also have multiple options through other wholesale deposit channels. With the introduction of the Paycheck Protection Program, the Fed has made available an additional avenue for liquidity to support funding these loans. We expect to avail ourselves of the spending.
Our investment portfolio is also a source of liquidity and it's very liquid and high quality. Capital at both the Bank and the Corporation remains well above our internal targets on levels needed to be deemed well capitalized. We manage capital as another that contemplate various economic scenarios. Stress testing is a fundamental tool we utilize to understand the scope of our capital and liquidity positions under the most severe circumstances. And this modeling helps inform the amount of capital we hold along the times. This modeling will be put to the test as we are obviously living stress scenario. We might have a development surrounding COVID-19, we paused share buybacks in March. At that point we had repurchased 207,000 shares during the first quarter of 2020. As the environment evolves, we will revalue our capital and liquidity positions and decide on capital actions.
Regarding our shareholder dividend, we may have seen, we approved the $0.26 per share dividend yesterday. As you note on Slide 8, asset quality is fairly stable in the quarter with the exception of leases where we elected to charge-off all 60 plus day delinquent leases an anticipation of least credits -- in anticipation of lease credits we are experiencing -- experience distress in the current environment. Also depicted as the increasing provision costs related to adoption of CECL.
This slide depicts more detail with regards to the implementation in CECL and the changes in the allowance primarily [Phonetic] to loan side. As shown on the chart, the adoption to CECL on January 1, represented a modest increase in the allowance of only 14%. Subsequent to January 1, the future state of the economy can be much more tenuous, the emergence of the pandemic and this is reflected in the allowance calculation as of quarter-end. Also note the increase in reserve for unfunded commitment I noted earlier.
Before I turn it over to Liam, I wanted to note that we have withdrawn all guidance as it relates to our business sector for 2020 given the uncertainty of the current environment.
I will now pass it off to our Chief Credit Officer, Liam Brickley for a discussion of the Bank's loan portfolio.
Liam Brickley -- Senior Vice President, Chief Credit Officer
Thanks, Mike. Credit has always been a key focus as Bryn Mawr Trust regardless of the economic environment. The Bank has always had a reputation for being responsive, consistent and conservative as it relates to credit. Our team is currently spending considerable amount of time literally every day of the week, working with new and existing clients to help them during this uncertain period.
As outlined on Slide 10, our portfolio is diversified across both borrower and property types. We continue to actively review all areas of the credit portfolio with the focus on those segments that are more vulnerable to current market conditions. Specifically, we are actively working with clients in our commercial business and our commercial real estate non-owner occupied segment. We also have an outreach program for our consumer segment.
Further, the Bank has a lease portfolio that accounts for roughly 5% of total loans. While this segment is susceptible to downturns in the economy, it is diversified by borrower, industry and geography with borrowers in all 50 states and Washington DC. We do anticipate losses in this space given the economic conditions which is partially reflected in the provision for the quarter. We are working with clients across the retail, multifamily flex, office and hospitality spaces in our commercial real estate business. We have many long-term relationships with sponsors who are support of their projects through prior economic cycles. And it's worth noting that we are primarily a recourse lender.
As indicated on Slide 11, entering the crisis, the CRE portfolio will granular with reasonable LTVs across all property types. The Bank has a modest and granular exposure to vulnerable industries including restaurants, manufacturing and energy, and we do not anticipate significant losses in those areas. We have not seen a significant increase in the utilizations under our line of credit. From December 31 through March 31 our commercial line of credit usage increased by approximately 2% or $16 million. In response to the pandemic we've developed several relief programs to assist our clients through these hard times. The programs are consistent with the guidance issued by the Federal Reserve Bank and the Federal Accounting Standard report [Phonetic].
Participants in deferral programs come from our C&I, our small business and our commercial real estate portfolios. Commercial deferral decisions are made one client at a time based on the current conditions with the client and the impact of the virus on their business model. For commercial and small businesses our program offers a deferral of all payments or modification to an interest only structure for a period of three months. With a one-time bank option, which allows us to extend these deferrals for an additional three months if conditions prove that to be necessary. To date, we have over 240 commercial participants with a total loan balance of approximately $500 million taking advantage of these deferral programs.
For our consumer clients we offer a six month full payment holiday, consistent with various guidance statements by the Fed and Fannie Mae. To date, we have 140 consumer clients with total loan balance of $25 million, utilizing these short-term payment holidays. We are also actively engaged in the SBA Paycheck Protection Program as Frank detailed earlier. As Mike mentioned, we are living in an environment that none of us have seen in the past. However, our conservative nature over the years leading up to this pandemic has allowed us to be well positioned and mitigate future losses. We remain vigilant and confident in our management team and their experience in navigating through these uncertain economic environments.
And with that I will turn it back to Frank.
Frank Leto -- President and Chief Executive Officer
Thanks, Liam and thanks, Mike and thank you again. With that I think we'll open up the call to questions. So I'll turn it back to the operator.
Questions and Answers:
Operator
[Operator Instructions] And our first question today comes from Michael Perito from KBW. Please go ahead with your question.
Michael Perito -- KBW -- Analyst
Hey. Good morning guys. Thanks for hosting the call this quarter.
Liam Brickley -- Senior Vice President, Chief Credit Officer
Good morning, Mike.
Michael Perito -- KBW -- Analyst
I wanted to maybe start on the kind of the credit and provision discussion here and I realize it's a little difficult, but the dance we're trying to work with over here is figure out kind of relative credit exposures and the new slides are helpful, but I was wondering if maybe Mike or Liam you guys could break out a little bit more about some of the economic assumptions that drove, the large provision in the quarter that you guys are assuming, I think you mentioned in the prepared remarks, Mike, that you thought it was a reasonable assumption of how you see it today. I thought maybe, it'd be helpful to just kind of expand on some of those more specific assumptions, so we can kind of compare them to ours and our models and see how they could change going forward?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Sure. Why don't I start and then I'll -- if Liam wants to add anything just welcome to do that. The primary driver in our CECL model, the way it was build as Pennsylvania unemployment which is what I mentioned in my prepared remarks. And right now, Mike we're assuming that, that unemployment rate hits its max which is around 9% and that was achieved back in the last financial crisis. So we assume it trends up to about 9% almost immediately to the tune where they are now. And it stays there for a quarter, and then it starts to revert back to a long-term historical mean which just for ease of conversation is around 6%. So over the next six quarters we're assuming unemployment is 9% and then trending down to 6% and then that stays at 6% thereafter for modeling purposes. The -- and that's the model was built fundamentally build off of unemployment that was highest correlated back through economic factor that correlated to charge-offs and so that trajectory of unemployment then generates the charge-off figures that -- for the provision on the allowance figures that we're displaying here.
On the other thing we've baked into the model is we recognized that one of these pay holidays are in place. So it's not likely we're going to see a lot of charge-offs in the next few quarters because of these payment holidays. So some of the charge-off activity will also happens later so we factor that in as well from a cash flow perspective. And other than that I think that's really at the heart of what we're expecting right now at least which is factored into the model. Liam do you have anything that you want to add?
Liam Brickley -- Senior Vice President, Chief Credit Officer
The only other thing I would point out is in the development of our CECL modeling through the last crisis in the last 15 years. The requirements have fairly minimal losses in the C&I space and we use peer benchmarking data in building the model frankly, because we had inadequate beds to build any kind of replicable model. So that is another driver in some of the downside assumptions here.
Michael Perito -- KBW -- Analyst
That's helpful.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
That's also -- the leases were also built have some of that.
Michael Perito -- KBW -- Analyst
No, that makes sense. And that's helpful guys. I guess as a follow-up. So if we're trying to think about this may be oversimplification, but, so if the unemployment rate plays out as you guys have punched into the CECL model, how does the reserve then kind of stabilize in this level near term and then move down later depending on charge-offs? Obviously I know there's a wide range of possible outcomes, but if we just assume the assumptions you made today are correct, is that how you would expect it to react over the next year or so?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Well, I'll answer. I mean if what we had projected here from turns then to be reality then as the charge-offs work their way through the portfolio the amount of provision that was required on a go-forward basis would be less but there's so much -- Mike, there's so much variability related to that.
Michael Perito -- KBW -- Analyst
Yes. No. I know my...
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
The forward statement about it, because it's just impossible to know right now is my opinion. So this is what we wrestled with in coming up and landing where we did and I also probably should say two things we are still bullish on. My comments related to -- that I made my prepared comments is we also compare this result allowance to stress testing we do so, we do a lot of stress testing that's outside of this process. Compare those results. in what we're seeing here as just a check or a separate model and a third-party, not a third-party but just another view of this environment, and we also did a few overlays on some of the categories. So Liam mentioned some categories that we're focused on in the retail sector, of course, so we did add some qualitative adjustments to few of the sectors that you're seeing here on Slide 9 in order to account for the uncertainty related just to the credit profile. Some of these sectors on a go forward basis especially retail would be good example of that.
Michael Perito -- KBW -- Analyst
Okay. And then just one last question on the credit capex. Have you guys seen any real significant changes in kind of commercial or residential real estate values in your markets yet given everything going on, or is that not really materialized yet?
Liam Brickley -- Senior Vice President, Chief Credit Officer
It's too early to make an assessment there. Trading activity was very brisk up through the end of February. And then just when that stop. So the long-term implication on values in pricing is going to play out, but we have no empirical data at the point anything right now for price softness.
Michael Perito -- KBW -- Analyst
Okay. And then just switching gears, one last question for you, Mike, just on the margin. It was pretty resilient this quarter. Obviously, there was pretty dramatic move lower in short-term rates that occurred in the first quarter. I'm just curious if you had any kind of near-term thoughts on how that dynamic might play out presumably, as some of the liability repricing opportunities dwindles but there could be some perceived longer lags and asset pressures, although I know credit spreads haven't been horrible. So I'm just curious, maybe you can provide some updated commentary around margin given everything we saw at the end of the first quarter?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
On the asset side, I think, we're going to have the dynamic of the PPP loans and those being added to our balance sheet and it's what that actual yield ends up being will depend on the length of the asset -- length of the lives of those assets, which you determine how quickly they repay. I just -- the things you would maybe surprised about in your question was deposit funding we thought would fall further than it has, but I'm not sure many of you know on the call that LIBOR really hasn't moved down in lockstep, it actually widened out relative to fed funds. So we haven't seen kind of a wholesale market reprice as much as we may have expected and that's holding the positive pricing up maybe a little bit higher than we thought. So with that, with some -- if that would normalize, I think we might have some potential lower deposit cost, but right now, we're being as I said, very thoughtful about that because we obviously want to chase liquidity out of the institution right now. So the whole marketplace kind of still supporting us with a fairly high deposit cost higher than we would have expected could be decreasing the Fed funds rate.
Michael Perito -- KBW -- Analyst
Okay. Well, it's helpful guys. Again, thank you for hosting the call this quarter and I hope you and all your families and employees stay safe and talk more soon.
Frank Leto -- President and Chief Executive Officer
Likewise, thanks, Mike.
Operator
And our next question comes from Erik Zwick from Boenning & Scattergood. Please go ahead with your question.
Erik Zwick -- Boenning & Scattergood -- Analyat
Good morning, guys.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Good morning.
Frank Leto -- President and Chief Executive Officer
Good morning.
Erik Zwick -- Boenning & Scattergood -- Analyat
First, Mike, maybe if I can follow-up on the commentary you made about kind of your CECL model based off the Pennsylvania unemployment rate and mentioning that over time it trends down to kind of that 6% level, which is, as you see at a long-term average. I'm curious if that 6% was also what you're using and you say call it as of January 1 of this year, given that that's your view of the long-term average or were you was the starting point, at that point, kind of a more where it had been running and that's kind of 4.5% range as I kind of just look at some stats here?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Right. That's a good question, Erik. So, the -- yes, so the starting point was the current rate as of that point in time and then we held the model holds out for a number of quarters. And then the model begins to revert to the long-term average. So it's just how it was structured. So when we made our adjustment on January 1 to your point, that's what the unemployment path was at that point in time.
Erik Zwick -- Boenning & Scattergood -- Analyat
Okay. So like a 4.5% range, somewhere in that, so essentially by going -- you've kind of...
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Yes. It's I think it's 5.8% is the long-term average that will get you that number if you need it, but if it's something...
Erik Zwick -- Boenning & Scattergood -- Analyat
Okay. So you are -- anything like a long-term average as of January 1?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Right, exactly.
Erik Zwick -- Boenning & Scattergood -- Analyat
Got you. Okay.
Frank Leto -- President and Chief Executive Officer
We were starting it actual trending to the long term average.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
The current.
Erik Zwick -- Boenning & Scattergood -- Analyat
Okay, thanks for the clarity.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
As for reversion, so we are using a reversion methodology. So it starts with the current and reverts back to the main and it does that over a period of time that we select based on historic data around when employment reverts to its main. So we've done a study of employment there in Pennsylvania and then we -- it's factored into the model.
Erik Zwick -- Boenning & Scattergood -- Analyat
All right. That's helpful. Switching gears and looking kind of the wealth management revenue and trying to think about what that run rate could be going forward. With regard to, I think it's about approximately 40% of that wealth management AUM or fees are based on account market value. Are those fees calculated based on a period-end balance or an average for the quarter?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
The bulk of them, the majority are at the quarter-end. So the majority of the fees are a function of quarter-end. Although we do calculations intra-quarter, the bulk of it is quarter-end for the market-based AUM.
Erik Zwick -- Boenning & Scattergood -- Analyat
Okay. And then, in terms of the net interest margin, you mentioned kind of the impact from the participation in the SBA PPP program will depend on kind of the average life of those loans. For those that do meet the qualifications for being forgiven, will you record any accelerated fees, will that come through the margin as well?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Yeah, I'm assuming -- yes, right now, our expectation comes through the margin, so the fee that we collect will be treated like a FAS-91 fee and will accrete that as the loan is paying. And then when the loan pays off, a portion of that fee would be accreted income to the margin. So if these end being 90-day loans or 180-day loans as they -- as we present them for forgiveness or repayment, we'll record that fee.
Erik Zwick -- Boenning & Scattergood -- Analyat
Great. Thank you so much for taking my questions.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
I think we gave some statistics around that. So we're at about $6.5 million in fees. We haven't collected those fees just from the SBA, but that's what we expect to collect once the -- once we present that bill.
Erik Zwick -- Boenning & Scattergood -- Analyat
Great. Thank you.
Frank Leto -- President and Chief Executive Officer
Thanks, Eric.
Operator
And our next question comes from Joe Senza [Phonetic] from Hoppy Group. [Phonetic] Please go ahead with your question.
Joe Senza -- Hoppy Group -- Analyst
Good morning, everyone.
Frank Leto -- President and Chief Executive Officer
Good morning.
Joe Senza -- Hoppy Group -- Analyst
Just building on one of the prior questions, just to confirm Mike. So with the prior high in the Pennsylvania unemployment rate during the Great Recession, that drove your forecast and not any sort of official projections for Pennsylvania unemployment for this specific situation. Is that right?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Correct. Yes. And I think that number is 8.8%.
Joe Senza -- Hoppy Group -- Analyst
Okay. And then are there any projections, I guess, at this point for Pennsylvania unemployment from any other various local forecasters, someone you respect that you've seen at this point?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
We did not see -- we didn't -- no, there is -- we don't have any forecast from any of the government or agencies. The other information we looked at was just generally available forecast from like the Bloomberg consensus forecast. We looked at one of the big four accounting organization side of forecasts. We just look for that to say, hey, does this makes sense relative to what we're assuming for Pennsylvania. But to answer your specific questions, no, Joe.
Joe Senza -- Hoppy Group -- Analyst
Okay. And then, I guess on that same topic, Mike, some banks have given reserve projections or the additions to the reserve that would be required, if the macro situation were to worsen from here. So do you have some assumptions for expected reserve build, let's say, Pennsylvania unemployment or some projection that you would wrote that you think is reliable, goes to 15% or 20% or so?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Not -- no, not that we're prepared of providing, Joe. We have -- I mean, when we modeled this, we ran this model for weeks that give our team credit with, putting up the multiple -- some versions that we came up with, but the model -- as you get into -- I won't say this, we get into unemployment numbers that are in excess of anything that's ever been recorded. The least -- at least are the way our model -- system model starts to lose some of its value because it just -- it has trouble solving or the losses are going to experience as this has no reference point to call back on.
Joe Senza -- Hoppy Group -- Analyst
And what roughly percentage of the provision allocation would you say was driven by the unemployment projection that you used? Is it like 70% [Speech Overlap].
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Were the allowance [Indecipherable] right now. Yeah, I don't -- I'd say two-thirds of it land. Feel free to weigh and I think just thought.
Frank Leto -- President and Chief Executive Officer
Yeah, I think roughly two-thirds of the bump-up were directly correlated with the unemployment number. And it's actually possibly higher than that.
Joe Senza -- Hoppy Group -- Analyst
But you're saying Mike, if reliable forecasters in the past are 20% unemployment projection, do you take two-thirds of the provision that you allocated this quarter and kind of double it? I mean, like you said the model falls apart certain levels, is that...
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Yeah, I think, Joe, the -- one of the many wildcards, we don't know the impact of government programs that are being rolled out there. So one of the reasons we just tend to fall to -- I mean, Pennsylvania unemployment probably be in the teens, right. I mean, this state itself has, I think, the highest number of unemployment -- highest percentage of it is in workforce and platform employment, some statistic like that. So we would have just applied. We didn't just to fall to, OK, let's supply 18% unemployment rate and how that trend back down over however many quarters. The overlay report on it is no, let's just use the high, let's assume these government programs provide support from a credit perspective and see how that plays out. So that's why that's looking forward just so much uncertainty related to this. Generally, the situation -- that's the methodology we used is we're trying to factor in all the stimulus that's being provided and adjust for that the best we can.
Joe Senza -- Hoppy Group -- Analyst
Got you. Okay. And then, the near-term outlook for the wealth business. We've seen from your comments that may be the bulk of the hit you expect to take in that business overall, you maybe took in the first quarter or is that not fair to say?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Well, actually, the business itself performed really well in Q1, had net growth -- net client asset growth. So what back got swamped by the -- by just the general market downdraft, and that the impact on AUM. So the business activity was very good, and we are really pleased with that. So to the extent that we don't see the market move like a bit in the first quarter again, then we should see some stabilization of the fees there and then, we're also -- where normally this time, you're going to tax prep season. I think some of that -- those dollars might be pushed out into the future quarter. But I would think it would stabilize assuming we don't move a whole lot from where we were. At the end of March, I don't know exactly when the lows were, but we certainly bounced back from there as of the end of March.
Joe Senza -- Hoppy Group -- Analyst
Yeah. So, that's why we think maybe, it's the reverse this quarter where you get a market uptick on that 40% that's mark to account market value if the market increase holds and maybe if client activity declines a bit, it's kind of net-net, the same thing or is that too simplistic?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Well, we hope for the best that we don't test new lows. Yes, your logic is sound.
Joe Senza -- Hoppy Group -- Analyst
Okay. And then last one for me, what are the economic conditions that might lead you to reevaluate the dividend?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Well, we're just going to work on that. We're going to look at that every quarter. I mean, right now, we paid a dividend this quarter or comments around our capital and the adequacy of that. And we feel very good about the position we're in where we held the capital in normal times or times like this. So we've got a lot of cash at the holding company sitting on about 90 round numbers -- $90 million of cash. There's a lot of capacity to pay dividends. I think, though, my opinion that things deteriorate more than they already have from here than just something we're going to have to evaluate then, but Frank opine on that as well, of course.
Frank Leto -- President and Chief Executive Officer
I agree with Mike's comment. I think we just have to -- Firstly, we're just going to see how things play out at this point.
Joe Senza -- Hoppy Group -- Analyst
Got it. Thank you, guys.
Frank Leto -- President and Chief Executive Officer
Thanks.
Operator
[Operator Instructions] Our next question comes from Christopher Marinac from Janney Montgomery. Please go ahead with your question.
Christopher Marinac -- Janney Montgomery -- Analyst
Hey, thanks. Good morning. So a follow-up question, I guess.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Good morning.
Christopher Marinac -- Janney Montgomery -- Analyst
Given the charge-offs that you took on leasing in C&I, what does that portend in terms of where the classified and other risk grades go for those when we see that. And then, should you have less charge-offs next quarter, just given what you see now?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Liam, do you want to take that?
Liam Brickley -- Senior Vice President, Chief Credit Officer
Yeah. Sure. We are not anticipating a high volume of charge-offs in Q2 largely because the volume of clients experiencing distress and taking advantage of the payment holiday programs will potentially mask some underlying weakness. That's most notably true in that leasing portfolio. So we don't foresee a rapid change in the charge-off activity. And in terms of credit class, we went into the crisis in relatively good shape. We evaluate our larger clients on a consistent basis with a view toward both their cash flows and the underlying collateral value and will make real-time risk rating adjustments as the facts begin to present themselves. So right now, the credit class numbers are pretty consistent what they've been for the last several quarters with no significant migration, and we'll have to see about how the -- just economy impacts the client base and adjustments will be made based on the facts when they start to come in.
Christopher Marinac -- Janney Montgomery -- Analyst
Okay. So do you...
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Go ahead. Go ahead, Chris.
Christopher Marinac -- Janney Montgomery -- Analyst
I was just going to ask about do the downgrades drive further provision expense or some of that already factored into kind of what we've built here for 3/31?
Frank Leto -- President and Chief Executive Officer
I think it's fair to say that our -- the 3/31 adjustment takes into account or any anticipated downgrades in the next quarter or two.
Christopher Marinac -- Janney Montgomery -- Analyst
That's helpful. I'm sorry, Mike. You were starting to say.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
No. Just, I mean we -- the provision was a little bit higher because we are proactive with -- as Liam mentioned with as you noted on basis, so we just -- we wanted to get out ahead of that, knowing that by category and they weren't -- those leases, because they were already sort of chronically delinquent and qualified for a pay holiday, so we just wanted to get out ahead of that from a lease charge-off perspective. That's all I want to add.
Christopher Marinac -- Janney Montgomery -- Analyst
Okay. And then, do you have a sense of kind of deposit retention as you go through. I know you had some deposits that were supposed to leave during the quarter before the price has started?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Yeah, we had one large deposit, we knew it was going to roll out and that's really, if you look at our numbers at a high level, that was -- that's the variance otherwise deposit base is extremely stable. And as I noted, we're continuing to monitor the market. We are able to increase some things from a pricing standpoint, but we're being thoughtful about that and monitoring the competitive market. So we'll see that there is additional opportunities there, but it's not something we're trying to optimize price right now and we're more focused on liquidity and ensuring that we stay in a really strong liquidity position.
Christopher Marinac -- Janney Montgomery -- Analyst
Great. Thanks for taking our questions.
Operator
And our next question is a follow-up from Michael Perito from KBW. Please go with your question.
Michael Perito -- KBW -- Analyst
Hey guys. Just one quick follow-up. I wanted to ask about operating expenses going forward up, Frank, you made the comment in your prepared remarks that some technology stuff you guys done has already paid off and obviously, the expenses were fairly flat quarter-on-quarter and I think that was kind of in line with the plan that you guys laid out at your Investor Day. I'm just curious if you could provide us maybe with an update on the outlook on expenses, especially given kind of the rapidly changing revenue environment.
Frank Leto -- President and Chief Executive Officer
Mike, you want to -- let me say this Mike. I mean, this is Frank. I mean, obviously, you hit the nail on the head, Mike, in the sense that, that was a focus for the first quarter, focus for 2020 was leveling out that expense line after we had debt expense build with the hires we made in a couple of the -- in the technology investments, which I -- as I said earlier, paid off. It doesn't change that dramatically. And maybe, we shift and we have to focus. But I think it's going to take a little while for it to play out just touch of an impact, all this is going to have on the operating environment, our operating expenses for our facilities for a number of these areas. So, Mike, I don't if you want to add -- Mike Harrington, if you want to add something.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
No, I think that's exactly right. We will have to swing to where things go, Mike. In the quarter, I just -- I did note this in my prepared remarks and the operating expenses that would have been down a few million dollars, but embedded in that -- in those expense lines and the other line is the reserve we had -- we made a reserve for unfunded commitments, that was about $3 million. So if that wasn't there, it would have been down a couple of million dollars quarter-over-quarter.
Michael Perito -- KBW -- Analyst
There is some level of that every quarter though right or not, is there any sense you can give us to how elevated that was as we think going forward?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
That reserve?
Michael Perito -- KBW -- Analyst
Yeah.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
I mean -- yeah, normally that's only I would say a few hundred thousand dollars, don't quote me on that, but that's a very -- it's a very minor number. I mean [Speech Overlap].
Michael Perito -- KBW -- Analyst
So some $500,000 [Phonetic] on average?
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
I mean it was only as of December 31. So it's only $360,000 balance, that's on Slide 9, the slide that's up now. We move that up under CECL to $1.2 million and that number would have been I think fairly static. I would not -- there probably would have been hardly any additions to that, if it wasn't for the current -- this current environment we're operating in right now.
Michael Perito -- KBW -- Analyst
So there is at least a couple of million of the unfunded commitment build in the first quarter in the other expense line that most likely will not recur. I guess, obviously, you know it could change, but that fall. Okay. And then, generally speaking, you still feel pretty good about that -- yeah, go ahead.
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Sorry, Mike, to interrupt. I was just going to say basically on the rest outside of that, you still feel fairly reasonably confident that there is -- the investments you made put you in good position and there should be nothing in the pipe that really accelerates the expense growth meaningfully, outside of maybe COVID-19 items that could impact.
Frank Leto -- President and Chief Executive Officer
If we don't see anything at this point.
Michael Perito -- KBW -- Analyst
Yeah. Great. Thank you guys for taking additional question.
Frank Leto -- President and Chief Executive Officer
Sure. No problem.
Operator
And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.
Frank Leto -- President and Chief Executive Officer
This is Frank again and I just wanted to thank everybody for taking the time in this uncertain environment to listen to our conference call today. We hope everybody will be healthy and safe going forward. We look forward to talking to you all in the coming months. Thanks.
Operator
[Operator Closing Remarks]
Duration: 47 minutes
Call participants:
Michael W. Harrington -- Executive Vice President and Chief Financial Officer
Frank Leto -- President and Chief Executive Officer
Liam Brickley -- Senior Vice President, Chief Credit Officer
Michael Perito -- KBW -- Analyst
Erik Zwick -- Boenning & Scattergood -- Analyat
Joe Senza -- Hoppy Group -- Analyst
Christopher Marinac -- Janney Montgomery -- Analyst
