Q1 2020 Earnings Call
Thursday
Good morning, welcome to Pacific Premier Bancorp first quarter 2020 conference call while participants will be in listen-only mode. Should you need assistance, please single a conference specialist by pressing the star key followed by zero after today's presentation will be an opportunity to ask question to ask a question. You may press * then 1 on your touchtone phone to withdraw a question, please press * then two, please note that this event is being recorded. I would now like to turn the conference over to Steve Gardner, please go ahead.
Thanks.
2K. Good morning, everyone. I appreciate you joining us today. As you are all aware earlier this morning. We released our earnings report for the first quarter of 2012. We have also published an updated investor presentation that we will be speaking to today. If you have not done so already we would encourage you to visit our investor relations website to download a copy of the presentation. It contains a great deal of additional disclosures and information around our response just covid-19. Our approach to Cecil various loan portfolio metrics of Select outside classes are pending Opus Bank acquisition. That's how we are well-positioned to manage through this crisis and the intensifying downturn in the economy.
In terms of our call today, Ron and I will walk through the presentation and then we will open up the call to questions.
I know that in our earnings release and investor presentation that we have our Safe Harbor statement relative to forward-looking comments, which have been expanded and I would encourage all of you to read through those carefully particularly in light of the current covid-19 pandemic and how it may impact our business Financial condition and results of operations. I'm going to start on slide four of the presentation.
Clearly the covid-19 crisis has brought about extraordinary change to all of our lives and as intern but unprecedented levels of stress off our employees clients communities and our country as a whole.
In the face of enormous operational challenges. I am extremely proud of the way. Our organization has responded. It speaks to the high quality of employees managers and leaders who have joined Pacific Premier through our many Acquisitions those who we have recruited and those who have been part of our team for many many years.
And on behalf of our board of directors. I want to extend our thanks to each and every one of our employees all of whom Rose to the challenge. They diligently step. Working late nights early mornings weekends and through holidays all in an effort to help each other our clients and the communities we sure managed through and unprecedented. And our country's history.
As the covid-19 threat rapidly increased our Advanced Planning by our business continuity and pandemic preparedness team served our employees and clients. Well the banks leadership team acted with a sense of urgency and was able to quickly and effectively execute on multiple initiatives designed to protect the health and safety of our employees and clients while adjusting our operations to ensure a high level of client service was maintained.
We were able.
To seamlessly transition 737 employees or nearly three-quarters of our staff with the ability to work remotely. We also adjusted to schedule branches and various protocols despite the challenges from the covid-19 pandemic. We do not expect any delays in the Opus Bank acquisition. We may remain on track to close on June one subject to the receipt of requisite shareholder approvals and customary closing conditions.
It's been an incredible amount of work in a very short period of time and I want to thank both the Pacific Premier and Opus Bank teams for their outstanding efforts and collaborative approach during an extremely difficult time seeing the teams come together. So quickly reinforces, one of the key principles of the transaction. The combined institution will be stronger than either firm is on its own.
I want to spend a couple of minutes discussing what we see moving forward. We ultimately do not know how this crisis will end or how long it will continue to impact individuals and businesses throughout our country.
As I noted in our earnings release, we believe we are in the early stages of a recession and already tens of millions of our fellow Americans woke up filed for unemployment benefits and businesses across the country have temporarily closed.
The path reopening our economy and the speed with which it will lead to increased hiring and economic recovery are uncertain and the resultant risks or unpredictable.
Equally unpredictable is the positive impact that the unparalleled level of monetary and fiscal support from the Federal Reserve and the federal government may have on the economy.
in this environment, we believe that it is prudent to prepare for and operate the institution with the expectation that the recession could last for a sustained period and the subsequent economic recovery may be tempered this perspective will inform our decision-making in the short-term and will position us further enhance franchise value and allow us to play offense when opportunities arise
In terms of our loan portfolio active portfolio management is a core component of our credit Administration protocols page. Nineteen crisis has unfolded we began to intensify our Outreach to clients.
just in
Fluted efforts to assess the impact on at-risk segments evaluate the businesses and individuals from covid-19 and begin strategizing best solutions to help clients through this crisis, which initially involved assessing government support programs such as the s p a payment protection plan off.
Over the years we've been committed to building and maintaining a resilient balance sheet and an organizational structure to support the company's growth are strong capital and liquidity positions together with our solid pre-tax provision income or evidence of this commitment by entering into these uncertain times from a position of strength. We feel we are well-situated to managing institution through a variety of outcomes.
Turning to slide five. I want to discuss some of the things we are doing to support our clients through this crisis mode for deposit customers. We have waved a variety of fees and increase daily cash withdrawal limits on itms and debit cards off experienced SBA lender. We were able to quickly establish a process for accepting applications for the PPP. We made a strategic decision early on to be an active participant in the program as we firmly believed. It was the right thing to do by our clients.
We processed enclosed approximately 2090 PPP loans representing $809 million dollars during the first round of the demand for the program has been overwhelming and we have another approximately 1736 request in our queue.
These requests are from existing clients that were not able to get through the SBA portal prior to the first round of funds being exhausted.
We're working on those applications as we speak and are hopeful to close a significant portion. If not all of these through the second round of funding.
For those of you who have followed the company and know our approach to managing credit risk. We typically do not do loan modifications or loan workouts long as the crisis unfolded. We understood that approach would need to change.
We took time to understand the legislative Regulatory and accounting pronouncements and the implications prior to implementing our covid-19 loan application program. Although we have processed only a few modifications at this point. We believe we have developed a prudent process and criteria for doing something when warranted.
We identified three categories of clients consumers small businesses and Commercial clients.
For the first two categories experiencing stress consumers and small businesses with loans under $250,000. We will grant 90-day bank loan deferrals upon request in aggregate. These customers do not represent a large dollar portion of our loan portfolio.
For commercial borrowers we have asked them to make the April payment and have indicated that together. Excuse me over the coming months. We would be a Thursday you waiting their individual situations and seeking out the best way to bridge the gap to reopening the economy.
We are discussing with our clients how the covid-19 pandemic has impacted their business cash flows better understanding how they are operating in this environment and the plans they have for moving forward. We are communicating at each situation will be reviewed on a case-by-case basis and that the solution would be a combination of help from us help from them in terms of additional resources and potentially help from the government relief programs.
Additionally, we are sharing our expectation that their full banking relationship needs to be with Pacific Premier so that we can better help them in the future months at this point. Although we have only processed a few covid-19 related modifications we expect to do more as we move through the second quarter off. We are still assessing the number of clients impacted and the scope of the impact but we estimate that up to 15 to 20% of our total loan portfolio could receive some form of covid-19 related modifications in the months to come though that range certainly can change in either direction depending upon how the economy progress is turning to slide six.
I want to discuss our approach to managing our balance sheet over the past couple of years.
Well, the emergence of a global pandemic to this extent has little presidents and is truly a Black Swan event recessions are not
they are a normal part of the business cycle and we have been expressing Our concern about the length of the economic expansion for the past two years.
Ever since we completed the Grand Point acquisition in mid 2018 consistent with what we said publicly we have become more cautious regarding Loan Production month and have grown our balance sheet at a more moderate Pace. We have always operated the company with a discipline risk management framework and if and still am a strong credit culture throughout the organization, but over the past two years we felt the environment warranted warranted further caution.
in addition to
Regularly, reassessing our underwriting standards and making sure that we focused on lower-risk borrowers that also brought deposit relationships to the bank. We have been proactive in moving week or credits off the balance sheet for the past several years. We were able to actually credits that we felt had the potential for deterioration in a weakening economy. We did this through a number of steps including loan sales and encouraging borrowers to seek refinancing Elsewhere for all of these reasons are risk management framework the conservative approach to growth and our proactive portfolio management. We believe that we are well-positioned to manage through this challenging.
Turning to slide seven.
You can see the strength of our Capital ratios have both the holding company and Bank levels.
Capital Management has always been a key area of focus for the company's board and management and in light of the economic impact of the pandemic much of which remains unknown. We have suspended our stock repurchase program to further strengthen our Capital ratios.
We have significant excess capital and coupled with our pretax pre-provision income. We believe this puts us in a position of strength and as such I have not made any changes to our dividend policy at this time given the environment in which we find ourselves today. We believe we can continue to pay our dividends. Well being a source of strength to our employees our clients and the communities we serve.
That said prudent Capital Management and capital stress-testing have been and will continue to be an intrical part of our approach to strategic planning and I'm Susan making at this point. I'm going to turn the call over to Ron to provide some additional details on our financials Ron.
Thanks, Steve and good morning.
I'll start on slide 8 with a quick overview of our first-quarter financial results.
Nope that I will highlight a few non-gaap measures in my discussion. We have included a gap reconciliation in the appendix for your reference.
We generated net income of 25.7 million dollars or $0.43 per diluted share. This includes a twenty five point five million dollar day to reserve bill reflects our implementation of Cecil and the deterioration in the economic forecasts due to the impact of covid-19.
From a core operating standpoint. It was another strong quarter despite the challenging environment with our core net interest margin at 4.08% and our efficiency ratio at 52.6%
We executed well on a number of key priorities including reducing our cost of the deposits by 10 basis points and effectively managing. Our non-interest expense came in at sixty four point nine million dollars excluding merger-related costs.
We had solid deposit growth in the first quarter and with loans fairly flat in terms of net growth our loan-to-deposit ratio fell to 96.3% off as of March 31st.
Our ethic quality profile remains strong across all metrics net charge-offs for the quarter or two basis points of net loans and six basis points on an annualized basis.
Non-performing loans ended the quarter at .24% and delinquencies at 3% as of March 31st.
Finally r a c l was at 1.32% of loans held for investment as of March 31st and our combined ratio, including the fair value discount ended the quarter at 1.73%
Why nine illustrates the strength of our business with our core net interest margin and operating leverage driving strong earnings in capital generation as highlighted by our tax provision income to average assets of 2%
Why 10 highlights our core net interest margin, which we have been able to effectively manage with a within a fairly tight range through a volatile risk environment over the 6th last six to eight quarters.
This has been accomplished through discipline pricing on loans and deposits in both rising and falling rate environments long a trademark of the company.
As I mentioned earlier, we have been successful growing deposits while managing through the varied interest rate Cycles. Notably as Illustrated on slide. Eleven argh did not sacrifice. Our high-quality deposit base is not maturity deposits remained at 88% of total deposits and non-interest bearing deposits remained at 43%
We believe these top quartile numbers reflect the strength of our client relationship based business model.
Y-12 highlights are strong liquidity position with the balance sheet principally funded by core deposits and significant cash and marketable securities of 1.9 billion.
in addition
We have over two point five billion dollars in additional funding capacity primarily through the fhlb.
Turning now to slide 13 which summarizes our Cecil adoption in q1.
The key takeaways here are the 115 million dollars of on-balance-sheet credit Reserves at 1.32% of total loans held for investment. This translates wage over a 200% increase in our allowance for loan loss compared to December 31st. And when combined with the fair value discounts provides 1.73% of total loss option for our loans helper investment over seven times our current level of npls.
Highlighted on slide 14 are the key drivers and model assumptions for our current expected credit loss reserves including the economic forecast assumptions, which evolved into tears it further following the end of the quarter.
Are de one reserving of sixty four million dollars was driven principally by the life of loan construct and are acquired loan portfolios, which did not have a meaningful allowable under the prior accounting treatment.
Not surprising our day to reserves were almost entirely driven by the deterioration and the economic forecasts using the Moody's waited critical pandemic forecast.
We subsequently benchmarked our initial day to results with the updated Moody's pandemic Baseline forecast which showed further deterioration in GDP and unemployment.
This gave rise to an additional six million dollars in qualitative Reserves.
Notably, we saw the asset-quality profile of our loan portfolio actually improved slightly on March 31st. Largely based upon the mix of the portfolio relative to the prior quarter.
However, based on the depth and duration of the recession we could see expected credit loss reserve requirement to increase leading to higher provisioning though the timing and magnitude of any increases are unpredictable at this time.
At this point I'm going to turn the call back to Steve.
Great. Thank you. Ron on slides 15 through 23. We have provided a significant amount of quantitative and qualitative detail about our loan portfolio various categories of loans and specific asset classes.
In the interest of time. I am not going to speak to each slide instead. I want to highlight key Concepts and information about our credit risk management framework month or strong credit culture has been a foundational underpinning of the organization since I joined the bank over twenty years ago credit quality is Paramount and is not compromised for growth. Our Focus has been and always will be on global cash flow underwriting of borrowers their businesses and off real estate holdings aside from construction loans. Our approach utilizes actual results and does not rely on improving or projected cash flows.
We make Limited.
Policy exceptions and the majority of our loans require personal guarantees and or our full or partial recourse to the guarantors.
Our loan portfolio is Diversified and granular across a number of attributes loan amounts an average loan-to-value ratios are relatively low-wage. Well debt service coverage ratios are strong reflective of our long-standing discipline when it comes to the extension of credit.
We focus on specific outside classes wherein we understand the inherent risks, which allow us to structure for and price those risks appropriately-named importantly. We have no shared National credits and leveraged loans total. Just twelve point nine million dollars at quarter-end.
Overall, our loan portfolio is prudently underwritten actively managed and diversified across industry sectors by entering into these uncertain times from a position of strength. We feel we are well prepared to proactively manage the institution through the credit challenges to come.
Turning to slide twenty-four. We summarize C and I and construction line utilization rates. We have not seen any excessive draws on Commercial lines and we are monitoring line utilization closely for any signs of deviation from normal activity.
Both long categories have been relatively stable for the past several quarters. Although we have seen some increase between the end of 2019 and the close of the first quarter.
Notably outstanding loan commitments came down in the first quarter in both categories and my lines of credit have already begun to decline and currently stuck up 47.2%
It's like 25 and 26. We summarized asset-quality ratios at the end of the first quarter. Most Trends were relatively stable and remain at Lowell, MA.
Turning two slides 28 through 32. We provide an update on the Opus Bank acquisition as I mentioned earlier. We remain on track and expect a closed position on June one with the system conversion scheduled for the weekend of October 10th and 11th.
We have been in regular communication with Opus monitoring their liquidity deposit flows loan performance line, utilizations and overall operations Thursday. We have been aligned in terms of our approach towards integration and light of the changes to each bank's operations resulting from covid-19.
As as we talked about when we announced this deal the Strategic and economic rationale is and remains extremely compelling.
S lights twenty-nine through Thirty to show the increase scale and larger presence in attractive Western us markets the improved loan diversification and the strong fee income sources will strengthen our franchise and enhance our ability to create shareholder value in the future.
Importantly this combination will provide us with more opportunities to positively impact on earnings including lowering deposit costs and managing expenses pistols.
Furthermore given the dramatic change in the economic environment since announcement we will be thoroughly reviewing the fair value marks. We had previously projected with the low interest rate environment impacting all banks being able to realize the synergies from this combination will be a key driver of our pretax pre-provision income over the coming quarters.
Turning to slide thirty-four. I want to wrap up with a few thoughts about the DNA of our organization. It starts with our culture.
For Pacific Premier, our success attributes are the pillars of how we operate the company and how we articulate our culture.
It's about having the right people with the right attitude understanding that hard work and good intentions are important but results are how we are all measured.
Being transparent and accountable for your actions over communicating both internally and externally.
Knowing we always have room to improve.
Doing things the right way.
And making fundamentally sound decisions with a sense of urgency.
When tested during challenging times, we rely on the culture we have built to execute perform and deliver for our clients or colleagues and our shareholders.
On Slide Five we summarize our ESG efforts With Our Roots as a community bank. We take Our obligation to support our communities serious life.
In 2019, we donated nearly three million dollars to local charities and supported their efforts with more than 5,000 volunteer hours across the company our employees work with more than three hundred Community organizations in a variety of capacities from being on boards to providing financial and technical assistance to promoting Community Development missions.
We are.
So proud of the work we do to give back to our communities and being a model corporate citizen.
Finally slide thirty-six. We summarize the reasons we believe we are well-positioned to manage through this crisis.
We never deviated from our discipline credit culture or are fundamentally sound risk management framework are strong Capital ratios in quarter earnings will allow us to continue to support our employees clients communities and all of our stakeholders because of the strength of our franchise. We are well positioned to take advantage of opportunities that emerge from this crisis whether that means adding new clients or executing on strategic transactions that building you for our owners.
Lastly let me again thank all of our employees for the incredible hard work and dedication to each other and their clients. I am truly took it to work with an incredibly talented team and I look forward to a brighter future for all of us.
With that we would be happy to answer any questions that you may have K. Could you please explain to the callers how to get into the queue?
Yes, we will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using the speaker phone, please pick up your handset before pressing the key to withdraw your question, please press start then to at this time. We will pause momentarily to assemble our roster month.
Our first question is from Gary Connor from d a Davidson. Go ahead.
Thanks. Good morning, guys. Hi Gary. Hey a couple of questions. So on slide fourteen were you talked about this useful model assumptions and the potential for a higher wage at June Thirty? I assume that that comment was specific just to the Legacy portfolio and and irrespective of the of the opploans coming on the balance sheet. Is that accurate wage. That's correct.
Okay, I just want to confirm that so then as it relates to to OPB if you were to take the kind of loan segment ACL that you have in your Cecil methodologies relay that with their loan mix that would suggest a 1.05% HCL at Opus Which is higher than what their numbers were as of March 31st. Can you talk a little bit about kind of how you're thinking about, you know, the hcl's relates to those loans that come over.
Hi.
Well, well first we're will need to revisit all of the fair value marks that we had originally estimated and I downloaded to that in my prepared comments to given how quickly the economy has transformed Gary month. It is hard to say Obviously as as you and others are aware. One of the unique aspects of the Cecil framework is the fact that month in conjunction with fair value accounting we will take those marks and and and we will then Place reserves on top of those loans off and in the reserving level and where are ACL ends up will be a a result of a number of factors in particular wage.
How the economy transitions here in the coming months, so it's it's very difficult to say just given the level of uncertainty.
I appreciate that and then with regards to the PPP tell us what the expected weighted average fee is on the loans that you've approved or have in the pipeline. Also how you anticipate funding the lines. Yeah issue. We're still working through that as I said, we have a 2090 loans that we had already processed under the first round of the government funding and a name were are working right now. In fact, we had folks working all night and and put a big dent in the remaining 1736 loans off. So we'll see you when everything shakes out where the where the fees are and in in have that information at the end of the the quarter here as far as Thursday.
The funding we have plenty of excess liquidity on the balance sheet today. We have plenty of contingent liquidity as well. We are still thinking about whether or not we hold those loans on the balance sheet, whether we sell those loans into a secondary Market, assuming one forms and develops, or if I could Avail ourselves of the federal reserve's funding for liquidity facility and pledged those loans to them. We'd expect to make a decision here before the quarter end on it.
Okay. Thanks a lot for the additional detail on the loan portfolios and the slide back. It was awful.
Our next question is from Matthew Clark from Piper. Jaffray. Go ahead. Good morning.
Run any updated thoughts on the on the cornea my Outlook when you put the two Banks together on a full quarter basis, you know come.
Three Q is that 360 365 still a good level based on what you've seen and how things that transpired to date. Yeah, you know how long can you know mirrored and and everything else that's been going on. So we haven't really refreshed our view on that. So so at this juncture, I would say no real change there. Of course, it will be impacted, you know, when we get to the final fair value marks and and the the PCD loans that we carve out, but at this point no update that number.
okay, and then just on the
the loan growth Outlook the overall balance sheet growth Outlook sounds like you know, you're tightening standards to some degree in this environment. Can you give us a sense of loss, you know where you're tightening standards the most and you know, whether or not we should expect the balance sheet to hold relatively flat here for the foreseeable future until the economy kind of fully reopens or or or potentially shrink.
Hard to say Matt it just the level of uncertainty. It's just too difficult to say and and and really as we think about it long as we're moving through this quarter. We really think about it on a a combined basis with Opus, you know at this point I'd say it's challenging to understand and with any level of certainty the cash flows for any asset class. You name it. I'd say the future cash flows are difficult to forecast and and so that informs our our viewpoint, but that would we would expect that to 2012 over time and we would get better visibility as we moved through the months and quarters ahead and that will certainly inform how much in the way of loan. No.
We put on the books we would also expect and we've seen it as far that the prepayment speeds will slow down pretty substantively as well. Okay, and I know it was only one new non-performer in the franchise lending portfolio. But can you just give us some color on the concept there the the situation in Iraq to potential resolution that that was something that came about in the in the fourth quarter and and just continue to progress. We have two very strong guarantors on that on that loan and will be pursuing all of our options on collections just as we do on any credit.
okay, and just on the the high-risk exposures, you know, that's defined by Moody's have you you know overlaid your your nieces codes on on those categories and I know you there's a ton of detail on the deck and we can isolate exposures but I don't want to over estimate, you know, the potential exposures are at risk because there could be some, you know grocery stores and cbs's Walgreens and stuff and get it in some of those numbers that are obviously doing well right now, but any sense for you know over laying off that again that criteria that Moody's use uses
You know, I I think that's that's difficult to say, I mean other than maybe just a a few segments. I don't know what asset class is about under stress at the current moment other than the the couple that you mentioned and and maybe Amazon and delivery with that being said, I think that we've been impressed in as we've initiated our conversations with clients and and how business owners seek to adapt to the current in environment and and will understand better here again as we move through the corridor and get better visibility.
Okay, and then just one housekeeping item how much did prepay fees contribute to the margin this quarter?
They weren't they weren't materially different from fact. I think they were flat to to the last quarter. So it wasn't a material difference. I want to see it was somewhere in the eight nine basis points off math.
Great. Thank you.
Our next question is from David from Raymond James. Go ahead. Hey. Hey, good morning. Everybody morning David. I just wanted to start on the Opus deal, you know given the the current environment change that we've seen. Does that change your operating strategy at a high level for the bank whether that be you know a slow down and some of the Strategic run off that you might have expected or maybe accelerating some other items that you had thought about or even creating potential additional opportunities.
I think we are rethinking all of those things you have to in in this environment, whether it's on the expense front page, you're managing the portfolios how you're managing your your footprint and various other channel how you're going to be how we'd be looking at opportunities, although right. Now we are very much focused on getting Opus closed converting their systems fully integrating those teams and then I'll looking potentially it opportunities as the environment further develop choice.
Okay.
And then just on the commentary on expected Reserve build in your legacy portfolio. I guess where do you see based on the economic assumptions that you put in and I know it's still early a lot of things can happen for quarter-inch, but I guess just that a high-level. How do you think about Reserve build near-term? And then what segments do you think might need more reserved build than others?
Well, there's the fact is is that this is an event point in time. That way we have never been at and gone through as a country. You could certainly look conceivably at the cumulative loss rates during the financial crisis and the ensuing Great Recession as as potentially a benchmark, but at the same time the speed and the magnitude of the response from the federal government and the Federal Reserve. May I again the Outlook very uncertain to know how all of this plays out. So in in Thursday,
Environment and I had given some perspective on our approach to running the business going forward. Get a simple sense more reserves are better than less but we have a very fundamentally sound process that is centered on data that goes back a number of years. It is a sophisticated model. We will continue to look at what that produces will look at stresses around that and we will be reserving appropriately.
different perspectives here
All right. Thanks everybody.
Our next question is from Jackie Bolen from KBW. Go ahead.
Hi, good morning morning. Jackie participating. No other than I believe they've offered to potentially a work maybe with a third-party to assist them.
Okay, so so it's a third party. It's not they're not referring customers to you.
There may be one or two in there that we've had but the demand has been very strong and we're trying to serve our existing clients first.
Okay. Okay understood just wanted to clarify in that and then when one quick housekeeping one for me before I move into another item the do you have the exact same benefits in the quarter rod?
The death benefit plus or minus 10. Okay. Thank you. I appreciate it off and then you know just thinking about as we go forward, you know, and you've alluded to this throughout your remarks, but you've been preparing for this recession for quite some time. Now off, you know, you've given tremendous look into your loan portfolio just through the slide decks and everything else as we move through this and as you think about ways in which you know cash flow has obviously become increasingly difficult. What are you looking for to provide Clarity in terms of cash flow? Is it the return of you off at the end of the stay-at-home orders? Is it more wanting to see how business is perform once those stay-at-home orders are lifted just how you're thinking about that.
We're thinking about it Jackie on on a case-by-case basis because every business owner every operator page does approaches the business in a different fashion and and given the the diversity in our portfolio across various industry sectors asset classes. It's really gotta be on a an individual basis. So we'll be having conversations. I seen the cash flows what what are the future prospects look like? So I think there are just a number of factors, but it is is very early in this process.
Okay, okay, and then just one last one in terms of and I realize that you're evaluating fair value marks on the balance sheet related to the acquisition. Does that home for for cost savings and CDI assumptions? Is there any update that you can provide us on that or is that under evaluation as well?
Well with respect to the CDI that that'll certainly change with the rate environment, which is you know, now a hundred and fifty basis points lower so that that'll be impacted for certain age. You know, I think it's a cost-savings involves. Well, we'll figure that out. But at this juncture, I don't know that we've we've changed our point of view on that. Yeah, I you know, we're we're I think we're what we announced were very comfortable with at the same time. We and all businesses operate in a dynamic environment and and we will adapt to that environment quickly and and manage all aspects of the business including the expense side. We believe very effectively
Okay. Thank you for the added color. I appreciate it. Sure.
again, if you have a question, please press * then 1
our next question is from Tyler Stanford from Stevens. Go ahead. Hey, good morning guys. Good morning, Tyler. Hey nice page and thanks again for all the added information in the deck this quarter. I've just got a couple of clarification questions. First on on credit is is the $19 million dollars of birth 90 plus days past due is that number included within the 20 point six million of npls that you disclose or or the two it is included. Okay. Yeah. Okay. Yeah. Thanks. Thanks for clarifying that and then on the 35.9 million fair value mark on acquire loans Ron. Do you know how much of that is rate versus wage?
No not I don't have that number with me here Tyler. Is it fair that a portion of that though is rate-related wage. And as I just want to make sure I'm kind of thinking about this correctly in a in a postseason World on slide thirteen that if a portion of that is rate related not all of that would be there for them as absorb option on the 1.73 allowance plus fair value Mark coverage. It is fair to say that that in a in the postseason world that Willa Cather into income. That is correct. But at the same time depending upon what happened with that individual credit, it certainly could double that that entire amount could be there for loss absorption say conceivably if we were to sell the loan or two or some other or or something else happened off.
To that that loan but but you're right there is a there is a a differential we could get you that number. It's pretty minor we believe that's that's very helpful. Thanks Mom. And then just lastly for me. I may have missed this in in one of the earlier questions or prepared remarks, but did you disclose how much of the the franchise Finance portfolio is currently deferred at this point. None of its deferred great. Thank you so much. That's it for me. Let me just clarify though Tyler we expect there's we we've done very little way of modifications. The reason is we wanted we don't have a history of doing modifications or workouts. That's not the way we could credit but we we recognized early on in this environment that that this was something unique and that we had to rethink our approach and yep.
His charge we took the time to understand the legislative impacts the regulatory pronouncements the accounting of viewpoint. We wanted to make sure that that we read through and understood that material had discussions with others and then developed a comprehensive. Well thought-out approach life and then began training all of our folks on how they should approach it and I summarized it in my prepared remarks and I think it's it's summarized again in the slide deck off and then it is on a case-by-case basis. We certainly know that a business owners from across the Spectrum have been impacted franchisee is certainly however, given the unique aspect that our loan portfolio the vast majority of it is Quick Service restaurants or fast food job.
92% of which
Have drive-thrus and or offer take-out pickup and delivery options. They most businesses Cashflow have been impacted but we are believe that over time that that the that business segment will wage benefit from both the fact that it is one of the lowest price points on the scale of of dining and in food service off of the franchisors have already offered up various methods of support either through rent abatement royalties, even some offering cash loans to franchisees, but all of that being said, we do expect to do modifications for for a number of those climb.
And at the same time we've had clients who called us and told us initially may have called in and said hey, I think I'm going to need some help and have called us back and said, you know, I've rethought it we don't need help and we we appreciate the relationship. So, you know, we'll have better clarity as as we have more extensive conversations with with with some of the franchisees. And as well as the the rest of the clients who who may need support and and we're going to approach this with the fact that that we have the capital and the liquidity to help them. But at the same time we expect that it is their business that they will be providing help in the form of additional resources and the like as well, that's great color Steve. I appreciate that and I think that modification procedures make a lot of sense. Let me ask you age.
Why do you have handy how many of those franchise finance a borrower's actually did make their April payments as as you kind of mentioned earlier that that was part of your life kind of negotiation tactics with with those before you put them on a on a modification status. We we we don't we do know that we don't that's not something we would would disclose a kid tell you and because various their their payment dates could have various times and then some do it at the last day of the grace period and the like roughly about 40% of the franchisees Avail themselves of the PPP program or or had to have applications in that we'd expect a process.
Okay, very helpful.
Thanks so much sure thing.
At this time, there's no more questions. So we're concluding the question-and-answer session. I would now like to turn the conference back over to Steve Gardner for closing remarks.
Thank you Kate. And then you ever you want again for joining us today? If you have additional questions, please don't hesitate to give either Ron or myself a call. We would be happy to to chat with you anytime.