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Sandy Spring Bancorp Inc (NASDAQ:SASR)
Q1 2020 Earnings Call
Apr 23, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Sandy Spring Bancorp First Quarter Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Dan Schrider. Please go ahead.

Daniel J. Schrider -- President and Chief Executive Officer

Thank you, Grant and good afternoon, everyone. Thank you for joining us for our conference call to discuss Sandy Spring Bancorp's performance for the first quarter 2020 and to bring you up to date on our response to in the impact from COVID-19. This is Dan Schrider speaking, and I'm joined here at our headquarters for the first time in a few weeks by my colleagues, Phil Mantua, our Chief Financial Officer; and Aaron Kaslow, General Counsel for Sandy Spring Bancorp.

Today's call is open to all investors, analysts and the media and there will be a live webcast and a replay of the call later on our website. But before we get started covering the highlights from the quarter and taking your questions, Aaron will give the customary Safe Harbor statement.

Aaron M. Kaslow -- Executive Vice President, General Counsel and Secretary

Thank you, Dan. Good afternoon, everyone. Sandy Spring Bancorp will make forward-looking statements in this webcast that are subject to risks and uncertainties. These forward-looking statements include statements of goals, intentions, earnings and other expectations, estimates of risks and future costs and benefits, assessments of probable loan and lease losses, assessments of market risk and statements of the ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties, because they are based upon or affected by management's estimates and projections of future interest rates, market behavior, other economic conditions, future laws and regulations and a variety of other matters, including the impact of the COVID-19 pandemic, which by their very nature are subject to significant uncertainties. Because of these uncertainties, Sandy Spring Bancorp's actual -- future results may differ materially from those indicated. In addition, the Company's past results of operations do not necessarily indicate its future results.

Daniel J. Schrider -- President and Chief Executive Officer

Thank you, Aaron. I'm pleased to be on the line with you today to discuss our first quarter results. But first off, I hope that, we find you and your loved ones are healthy and that you're managing well during this unprecedented time that we're all facing. As we stated in today's press release, we came into 2020 in the position of great strength. We've completed another record year and we're preparing to expand our market presence and close the strategic acquisitions of Rembert Pendleton Jackson as well as Revere Bank. As it is well known to all of you, the global health crisis and the economic events that began to unfold late in the first quarter quickly took center stage and required swift action.

But despite these significant disruptions though we still completed both transactions as planned, closing RPJ on February 2nd and Revere Bank on April 1st. We implemented our business continuity plans and continue to serve our clients during what continues to be an extraordinary time. We do remain on track for a full conversion of Revere systems this August. We know that this is a critical time for us to come together as a Company and we remain focused on building stronger communities, driving sustainable growth and taking care of our employees and clients. I will discuss our COVID-19 response a little later in the call and talk through the supplemental materials that we issued this morning, but I will first start by going over our first quarter results.

Net income for the first quarter of 2020 was $10 million or $0.28 per diluted share compared to net income of $30.3 million or $0.85 per diluted share for the first quarter of 2019, and the net income of $28.5 million or $0.80 per diluted share for the fourth quarter of 2019. Earnings for the current quarter were negatively impacted by the provision for credit losses of $24.5 million. While we could have delayed the adoption of CECL under the CARES Act we elected to move forward with the implementation as planned. A little later in our call, Phil will touch on CECL in more detail.

On the balance sheet, total loans and deposits grew by 2% and 6% respectively compared to the prior year and our loan to deposit ratio ended the quarter at 102% compared to 104% at the end of the fourth quarter. Within our deposit portfolio, non-interest bearing deposits grew 7% compared to the first quarter of 2019 and 2.5% since the linked fourth quarter. Our significance is the fact that for the first time since the Fed began cutting rates last summer, deposits repriced faster than loans as deposit costs were down 12 basis points versus loan yields that contracted only 8 basis points. We continue to focus attention on deposit pricing as we plan to aggressively decrease rates aligned with market trends, and our promotional pricing has already been reduced to levels we believe reflect the current competitive environment.

Given the current environment is likely that deposit growth will be limited to new relationship sourced through our online account opening portal and the expansion of existing commercial and retail relationships, both of which we've experienced and social distancing was put into place. On the funding side, we anticipate utilizing the Fed Paycheck Protection Program liquidity facility as the primary funding source for our PPP lending activity and we'll utilize our vast sources of additional liquidity should need to raise throughout the year. We are in a very solid position from a liquidity perspective.

Our outlook entering the year was for solid quarter of commercial loan demand, and we put some strong numbers up that speak to the momentum we had coming into the year. Our commercial loan production for the first quarter increased $167 million to $351 million or 88% compared to the first quarter of 2019 representing our best first quarter. Non-interest income was $18.2 million for the first quarter of 2020 compared to $17 million for the first quarter of 2019. The current quarter included $200,000 in securities gains and the prior year quarter included $600,000 in life insurance mortality proceeds. Exclusive of these factors, the growth in non-interest income for the quarter was 10% or $1.6 million compared to the prior-year quarter. And this was driven by the 33% increase in wealth management income as a result of the acquisition of RPJ.

Headquartered in Falls Church, Virginia, RPJ has helped us enhance our market presence, diversify our sources of non-interest income and deepen our capacity in the wealth space. As a community bank in the Greater Washington region, we're committed to providing financial services to individuals, families and businesses at every stage of life. For our ability to continue to grow in the wealth sector and attract top talent in the market is a testament to the fact that our approach works, and our clients do value the service.

On the mortgage banking side, production in the first quarter was $315 million representing a 108% increase compared to the same quarter last year. Refinance activity accounted for $132 million of overall mortgage production, which is a 270% increase compared to the same quarter last year. As for what we're seeing today, application activity has declined from the elevated levels seen in March. Purchase activity is continuing at a modest level within our footprint and refinance demand remains strong. When social distancing policy begins to be relaxed, we expect purchase activity to rebound due to the pent-up demand. Conditions are likely to remain generally favorable from mortgage production throughout the remainder of 2020 with tightening credit standards acting as a modest headwind relative to pre-pandemic levels.

Mortgage banking income for the first quarter was negatively impacted by illiquid secondary market conditions and widening primary to secondary market spreads at quarter end. These conditions were the result of MBS market volatility, investor capacity constraints and the collapse in the value of mortgage servicing rights do that broad mortgage forbearance provisions that were included in the CARES Act. Federal Reserve asset purchases have stabilized the MBS markets, and as a result, we are seeing improved secondary market conditions so far in April. Investor capacity constraints and depressed mortgage servicing valuations continue to be headwinds, but they are showing early signs of easing up, net interest income for the first quarter of 2020 decreased 4% compared to the first quarter of 2019, reflecting the impact of declining interest rates over the preceding 12 months.

The net interest margin declined to 3.29% for the first quarter of 2020 compared to 3.6% for the first quarter of 2019. And the effect of lower rates continue to be realized in deposit pricing, and as we integrate Revere into our balance sheet, we would expect our margin to remain in the 3.25% to 3.30% range inclusive of Revere.

On non-interest expense side, expenses increased 8% to $47.7 million for the first quarter of 2020 compared to $44.2 million in the first quarter of 2019. Excluding $1.5 million in merger and acquisition expenses this year, non-interest expense for the quarter increased 5%. This is primarily due to increases in compensation expenses as well as commission for higher levels of mortgage loan originations. We also incurred additional monthly cost -- operating cost with the acquisition of RPJ back in February. The non-GAAP efficiency ratio was 54.76% for the current quarter as compared to 51.44% for the first quarter of 2019 and 51.98% for the fourth quarter of 2019. The increase in the efficiency ratio from the first quarter of last year to the current year, was a result of the rate of growth in non-interest expense, outpacing the growth in net revenues as a result of mortgage -- margin compression during the same time period.

From a credit perspective, non-performing loans totaled $54 million compared to $41.3 million at December 31st, 2019. The growth in non-performing loans is due to the new accounting standard for expected credit losses, as $13.1 million of previously disclosed and accounted for purchased credit impaired loans are now designated as non-accrual loans under the new standard's guidance. As of March 31st, our overall credit portfolio remained strong as new loans placed on non-accrual during the current quarter amounted to $2.4 million compared to $6.2 million for the prior year quarter and $5.4 million for the fourth quarter of 2019.

As we move through the uncertainty of COVID-19 and its impact on the economy, we will continue to work closely with our clients and manage through what is likely to be a challenging credit environment. During the first quarter, the Company completed its stock repurchase program, purchasing a total of 1.5 million shares for a total of $50 million at an average price of $33.58 per share.

Tangible book value remained stable at $21.09 per share at March 31st compared to $21.05 at March 31, 2019. After the completion of the stock repurchase program, an increase in the quarterly dividend of $0.30 per share in the second quarter of 2019 and the addition of $35 million in goodwill and intangible assets.

The Company had a total risk-based capital ratio of 14.09%, a common tier 1 risk-based capital ratio of 10.23%, a tier 1 risk-based capital ratio of 10.23% and a tier 1 leverage ratio of 8.78%. As I mentioned earlier, we elected to proceed with the adoption of CECL on January 1st resulting in initial increase to the allowance for credit losses of $5.7 million, exclusive of the $2.8 million reclassification to the allowance for credit losses related to the acquired credit impaired loans, the impact to retained earnings at transition date was only $2.2 million.

As mentioned, the provision for credit losses was $24.5 million for the first quarter of 2020 compared to a credit of $100,000 for the first quarter of 2019 and a charge of $1.7 million for the first quarter of 2019. The impact of the negative economic projections as a result of COVID-19 accounted for most of the first quarter provision. Excluding the effect of the significant deterioration in the economic outlook late in the first quarter, the provision for credit losses, which was projected to have been approximately $4.1 million.

I'm want to transition now to -- direct your attention to the supplemental materials that we released this morning in conjunction with with our earnings release. I'm going to cover several pages of that deck and Phil Mantua is going to comment on our CECL adoption as well as our current capital position. I'm going to walk through a number of slides, I'll reference the page numbers as I do. And just make some general comments on the first view and then drive -- drive into some of the credit related material to help you understand a little more of where we stand as we work through this COVID situation.

On slide 3, like many companies, we did took all the actions, than a lot did in terms of spending business related travel in-person meetings the close branches, lobbies to public access with the exception of private appointments, we actually consolidated branches that did not include drive-throughs which has a number of 13 branches. And I'm really pleased with the fact that we were able to transition approximately 85% of our non-branch personnel to teleworking. That has been a very meaningful number for us, and we continue to serve our clients without hesitation or without disruption.

On slide 4 you can see on the outside of -- on the onset of the crisis, we established personal leave, which will continue to evaluate, we provided two weeks of paid time off for those that were unable to work for reasons related to COVID-19 and we also put into place an appreciation bonus for branch personnel or other members of our staff who were not able to work remotely. And then we continue to actively redeploy employees where we need to. In some cases, that's in the mortgage area, consumer lending, our client service center or call center and those that can help out in the PPP loan process as well. We are routinely communicating throughout the Company and keep people up to speed on what's going on.

On slide 5 from a client outreach perspective we want a special web page to provide the latest updates and resources for our clients to understand what's available to them not only from the bank, but in terms of federal lead programs as well as state relief programs. We are working with clients, as you might imagine on a case by case basis to help them through this difficulty and we have many of our bankers working with clients to help them understand our programs available through, Maryland, Virginia, DC and the Paycheck Protection Program which I'll hit on here in the next slide. In the bottom of the slide and we commented on this in the press release, a number of different things that we're doing to help clients in the area of fee waivers.

Slide 6, we hit some of the statistics, these are as of April 15th in terms of our activity with the Paycheck Protection Program, by the time funding ran out we had received over 4,500 applications for over $1 billion in requests. As of this date we have 28 -- over 2,800 loans that have been registered with the SBA and we're in the process of documenting and funding those with over $900 million that will go to businesses that with an estimated employee base of about 8,000.

In addition to the PPP, we've also provided a number of deferrals or interest-only deferrals for clients. Again, this is as of April 15th and does include our new colleagues from Revere Bank and our new clients from Revere Bank. So we have received to date as of April 15th over 2,000 requests. We've modified 912 commercial accounts and 79 consumer accounts for a balance of $845 million. And as you'll see in the next slide, there is more, more to do as it relates to the requests. And then a number of waivers in terms of late charges for both commercial and retail clients. So I'm going to transition to some specific portfolio data to hopefully inform you with a little more detail on certain segments of our credit portfolio as we move through the pandemic.

On slide 7, it's a busy chart there is positive really elements of information here for you. The top left is a loan composition just to show the diversity in the portfolio, this includes pro forma Revere, but as of 3/31 in terms of that loan composition. If you slide down the page to the bottom left quadrant, it's just to give you a snapshot through April 16th again combined Company in terms of utilization trends. Just going back to December and through month by month through the first quarter and you can see there's pretty stable utilization both in the commercial space as well as home equity loans. So we have not seen what some may have anticipated a significant drawdowns of existing lines of credit, which I think is a good sign.

Moving across the page to the top right. These are the balances in certain segments of our portfolio. Again combined portfolio of Revere Sandy Spring and then the, quantifying the modification requests by portfolio. And you can see the percentage of the portfolio. So as of 4/16, we had $1.761 billion of modification request. You can see on the prior page as of that same date we had processed $850 million of those requests. And then the bottom right is this, speaks to delinquency trend that we see in commercial consumer and mortgage and no real material movements in obviously falling off, what you see in the decline there is once -- once a credit is deferred, then they are no longer counted in the delinquencies -- delinquency percentage which is why you see a follow-up.

Slide 8 is -- and the next several slides really pull the part of a handful of portfolio is it may be in interest to you there certainly are of us as we work with our clients. This is the commercial real estate retail portfolio for the combined Company. Again, pro forma as of April 1st. We got nearly $1 billion portfolio representing 13.75% of commercial loans. The good news is the average size is $2.6 million. From an underwriting perspective, these are really good numbers and these do -- these next two bullet points, the weighted average loan to value and debt service coverage reflect the Sandy Spring portfolio we have not pulled together that Revere portfolio into that assessment. We don't expect it to be materially different. But solid underwriting, in-market retail, neighborhood centers.

You can see at the bottom of slide 8, I need to make a note of correction, we refiled this deck, I believe your debt might be the 26% of the outstanding balances have requested a deferral or interest only. That number is actually 32% and then a slight number of those have been approved for PPP loans.

Office, very similar information, nearly 9% of commercial loans. Again, small average size of slightly over $2 million, very strong metrics in the loan to values and debt service coverage just revealing some of the flexibility that these borrowers have in a difficult market, again in market and on the same correction, it's 16% of outstanding balances of requested deferrals or interest only as opposed to 12% I believe the earlier deck showed. And then modest, very minimal involvement in the PPP program.

And then the the multi-family on slide 10 same information just north of 6% of commercial loans again, a very low average loan size, very good and LTVs and coverages again end market minimal outside of our primary footprint and that number of outstanding balances requesting deferrals is 21% compared to what was reported earlier in '18 at 18%. And then the last, the last couple of specific slides are around hospitality, our hotel portfolio, a $376 million or 5% of commercial loans. Again, average size is just under $5 million, 59% weighted loan to value and this obviously more participation in the PPP program, where 77% have requested deferrals and about $7 million of PPP loans associated with our hotel portfolio.

And then lastly is restaurants with $151 million in outstandings or 2% of commercial loans. Average loan size is slightly over $0.5 million, 70% real estate secured, 56% weighted average loan to value, line usages in line with overall commercial and significant participation as you might imagine in the paycheck protection program of $65 million from north of 220 client relationships in that space.

So I hope that information is helpful. These are the portfolios that we have geared in on and are focusing a great deal of attention in helping our clients through the cycle. And with that I'm going to pause and turn it over to Phil and let him talk about CECL and capital.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

All right. Thank you, Dan. Good afternoon, everyone, I hope we find everyone well here this afternoon to those on the call. As Dave just mentioned. Now I'm going to take the next few minutes to provide some additional details related to our CECL -- CECL driven allowance for credit losses here in the first quarter and for the first time has been adopted. Pick up on slide 13 here we had, we would refer to as a waterfall type presentation on our allowance build for the first quarter of '20. And as you can see the major component in the build is due to the change in the economic forecast, which is highly dependent on a number of key macroeconomic variables, but that will be outlining on the next slide.

If you go to slide 14, we can talk about some of the methodology assumptions. And our CECL methodology uses a Moody's based forecast which is developing a local MSA that was released in this case by in early April. But affected were conditions that were in place at the end of the first quarter. This baseline forecast integrate the effects of COVID-19 and portrays a peak unemployment rate for our market here of about 5.4% in the second quarter of this year. That's followed by food recovery in the second half of the year and into 2021 with an employment rate that settles in around 4.7% range throughout next year. This local forecast is based on a broader Moody's economic -- national economic forecast that includes an overall national projection for the unemployment rates that peak at actually 8.7%, in that same second quarter of this year and then be maintained at a level of 6% through 2021. In determining our reasonable and supportable forecast period for purposes of this particular application we chose to shorten the time horizon from two years to one to reflect the uncertainty in the long-term outlook that we have at this time. We did perform calculations of the results using both the one year and the two year forecast period, but we then quickly deemed that the difference in the two results was considered to be immaterial. So we chose to move forward with the one-year, supportable forecast period. Because of the aforementioned uncertainty, we also chose to not take into consideration any potential mitigating factors that would be based on what could be perceived as a positive outcome or impact of government programs such as the PPP and others. We just felt that this was the most -- most comfortably that this was the best and most conservative stance that we could take in this regard. If you then look at the slide15, we provided some additional granularity in this case. related to the reserve build but depicted by portfolio where you can see the most significant amount of reserve increase is in the commercial business portfolio, which I assume will not be a big surprise to most where we added $13.3 million in additional reserves above the level based on our January 1 initial adoption amount. Finally, as it relates to our capital position on Slide 16, we provided you with the recent five quarter trend of our prudent capital ratios with some brief explanations below regarding the movement in the ratios over the last three quarters. We do feel confident that our capital position is strong and we are really glad that we bolstered this position with our $175 million sub debt raise during the fourth quarter of last year. I'll also note that although not depicted on the slide, we also have recently reported some stress test analysis against our capital position where we constructed a baseline and a severe forecast scenario utilizing the same Moody's baseline forecast incorporated in our CECL calculations and a COVID based with refer S4 economy in a severe case. Having done so, we continue to be confident that we have the capital to carry us through this ongoing situation. With that Dan, I'll turn it back over to you.

Daniel J. Schrider -- President and Chief Executive Officer

Thank you, Phil. Just before we move to your questions, I'd like to take a moment to express my sincere appreciation to all of our employees Sandy Spring Bank, RPJ and our new colleagues from Revere. The way that our people have come together while working remotely to take care of our clients and each other has been nothing short of remarkable. And I know that our clients are grateful for all we've done to keep everyone safe and to help them through these uncertain times. Our clients need and advocate now more than ever and I can't thank my team enough for being there. With that, we'll conclude my comments and move to your questions. So Grant, we will take the first question. If we could please state who you are and what company you're with. So we know with whom we're speaking.

Questions and Answers:

Operator

We will now begin the question-and-answer session.

[Operator Instructions]

Our first question will come from Steve Comery with G.Research. Please go ahead.

Steve Comery -- G.Research -- Analyst

This is Steve Comery. I want to start off, I really appreciate the composition and CECL disclosures, those were very helpful just kind of going through the portfolio and then kind of the CECL seasonal adjustments. I was wondering though if anything -- if there's anything you guys can say about what has changed in the way you're looking at the reserve or the potential losses since 3.31 [Phonetic], obviously we've gotten some additional data since then.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Steve this is Phil. I know that we have have really gotten a whole lot of additional information relative to do what's going on in our own portfolio at this point to make any further kind of judgments on changes we might make to the reserve.

Daniel J. Schrider -- President and Chief Executive Officer

The economic forecasts used actually was generated by Moody's at the with the very end of the quarter.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

In fact in that regard kid of background, we probably went through four or five different iterations of the forecast throughout the quarter and we were deciding how we were going to initially implement CECL to then land on the one that was most recent. But I think I mentioned in my comments that they finally published after the end of the quarter.

Steve Comery -- G.Research -- Analyst

Okay, fair enough. Okay, so I'll switch to Revere then. Basically you guys are going to the full quarter of Revere in Q2. Maybe you can help us sort of think about the puts and takes on NII and where we should look for a starting point there?

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes, Steve. this is Phil again. I think in Dan's initial comments he suggested that we would, we are looking at a range of the margin going forward in that 3.25% to 3.30% range, that is inclusive of what our thoughts are on the combined balance sheet between our two companies, one of the things that we'll probably know or could probably make some adjustment to that would be where we ultimately land related to the marks on their balance sheet which I think we would believe are going to be somewhat different than what we initially thought they would be back in September for two obvious reasons, one being the change in the interest rate environment and the impact on the interest rate mark which we expect to be larger I would say than what we had initially assumed. And then of course the change in the credit marks that are related to the approach, so looking at things in a very different economic environment. Now some of that may offset each other to some degree, depending on how that plays out. But that would be the only other thing that we would take into consideration in further adjusting that kind of margin outlook for the remainder of the year. But what Dan suggested does include the combined balance sheet.

Steve Comery -- G.Research -- Analyst

Okay. And then one more if I may. So, noninterest deposits, looks like they were down on an average basis, but up pretty materially on a period-end basis. I'm wondering if you guys could provide any insight as to, like how you expect to see those balances behave going forward?

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes Steve, this is Phil again. I think the biggest driver in that kind of period end build up in those, the demand deposit balances was the typical kind of In month and in quarter seasonality related to our title company businesses. So, I would say other than that you effectively because of the average is, look to see that the DDA balances were effectively flat I would say quarter over quarter at this particular point. Given the current situation with the ability for business development that's in the market, I'm not sure we would be looking for tremendous amount of growth in the DDA base nor we would probably looking for other than existing existing clients adding to their position, so to speak, either in the commercial or in the retail area, both the FDA as well as some as well as interest bearing. We've taken a steps on the, on the rate side in the line this were to try to mirror what happens in terms of the moves that the Fed made and so we could try to preserve the margins as much as possible which has probably put us more in the middle of the pack in this market today for pricing as opposed to for fairly long period of time we have positioned ourselves in the top third of of rate payers, even though I think a lot of our competitors will probably come back to where we are eventually, given the protracted amount of time, we expect rates to be at kind in these kind of historic lows.

Daniel J. Schrider -- President and Chief Executive Officer

And Steve, Dan. The only other comment I'll make is on a temporary basis, we'll see a significant amount of DDA increase by virtue of the PPP program.That's how we're funding everything into into DDA accounts, but timing will determine whether that's seen at quarter ends or anything like that. but certainly within the quarter.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes, which Steve also kind of reminds me that within that margin kind of guidance I am not taking anything related to the PPP program in consideration and looking at that range. And I think we know by nature that could end up being fairly kind of a lumpy result in the quarter to quarter basis just because of the great build up and then potential for giving us all within a couple month period.

Steve Comery -- G.Research -- Analyst

Okay, thank you.

Operator

Our next question will come from Catherine Mealor with KBW. Please go ahead.

Catherine Mealor -- KBW -- Analyst

Thanks, good afternoon. I also want to thank you for all this disclosure, it was really helpful and a lot more than what we're seeing from everyone. So great job there. Thank you. And I wanted to start what's is the follow-up on the PPP program and just timing of when you think those fees will head. How should we kind of think about maybe what percentage you're expecting or modeling to be forgiven. And then how much you think is at the end of the second quarter versus third?

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes Catherine, this is Phil. Our current view toward the program and the potential forgiveness levels, are, we've been kind of estimating somewhere in the 25%, maybe 30% range that may not be forgiven and that may be somewhat high, but that's kind of what we are operating under. And I think we're also expecting that the fees related to this would be amortized across the spectrum of the maturity of the loans and then would be brought back according to those that would be prepaid at that point of forgiveness. So that's kind of like comment maybe about the margin is that's truly the way to handle. We'll probably come back through I think interest income pretty big flip into the margin in that given given part of the quarter. But right now, that's about the best that we are kind of operating under because really don't know where -- how much of it would be truly forgiven. But that's kind of what we're working with at this point.

Catherine Mealor -- KBW -- Analyst

Got it. That's helpful.

Daniel J. Schrider -- President and Chief Executive Officer

Yes, in terms of timing of funding that first that first round of PPP, are fundings, we'll need to all be done or out by believe is the 23rd or 24th. So it's all -- that funding will come back. It's a little bit uncertain as to exactly how those fees are going to get paid.

Catherine Mealor -- KBW -- Analyst

Makes sense, OK, and then that is of Revere mark is as you're thinking about the purchase accounting markets for this quarter, can you factor in the impact from COVID-19 and increase your credit mark and how, I guess we went into the steel thinking it was going to be about, I think it is about 3% dilutive to book. So, with the higher mark, how are you kind of think you about maybe a range of what [Indecipherable] should look like.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes Catherine I think first part of your question, initially related to the impact of COVID I think have to clearly come through tinto the mark. I think it will also therefore impact the day two double-count that we all are fond of. And I think that that number depending on in that regard, how many of the loans again, given the current environment are going to be carved out to be PCD versus not as opposed to what we thought before I'd imagine that number the PCD component will probably be larger than before. So day two number in one way could be smaller because of the population of loans that are going to be provisioned against right away would be smaller, but at the same time some of that's going to be offset by the sheer calculation based under a different, very different economic environment. I mean, I guess we started looking through trying to trying to get a handle on what those reserve numbers again through their portfolio are. I mean our best estimate right now and this again it doesn't try delineate how much is in PCD versus not would be if you're just looking to reserve against their entire portfolio, we might be adding somewhere between $30 million, $35 million of reserve. That's probably right at the moment probably it's probably the best I could give you in that regard.

Catherine Mealor -- KBW -- Analyst

And included in that is both the PCD piece and the and the non-PCD piece that will be kind of twice.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes exactly, yeah, just because right now we are still not sure how much is going to fall into ebucket per se is, you're looking at it from a broader overall level of reserve against it, that's our best estimate at this point.

Catherine Mealor -- KBW -- Analyst

Okay. That's super helpful. Okay, thank you. And then my last question is just in the slide deck, you talked about two -- I guess on page you have the EUR845 million of payment deferrals and then there is $1.7 million [Phonetic] that I guess [Indecipherable] have been approved $1.7 million have been requested. So are these -- can we continue to talk about the difference and do you think these are payment deferrals that you think will be granted over the next couple of weeks? And then, if that's the case, how does that impact your reserving as you I guess really the question is as loan deferrals continue to increase, how does that play into your your incremental reserve over the next couple of quarters? Thanks.

Daniel J. Schrider -- President and Chief Executive Officer

Catherine, Dan. The difference -- you hit it, the difference in those two numbers is the request versus those that have been granted and that the delta there, which is what $900 million or so is in some form of process and it hasn't been determined whether those will be, those modifications will be granted or not. In many cases, they will but I don't think that at this point, there has been a determination as to how those modification assets or modified assets are going to be treated differently within our reserve calculation. I think it's just a matter of digging into those from a credit by credit basis and determine what do they look like coming out on the other side. So I think there is more work to be done there in terms of the overall reserve related impacts.

Catherine Mealor -- KBW -- Analyst

Okay, that's helpful. Great, thank you.

Daniel J. Schrider -- President and Chief Executive Officer

Thanks Catherine.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Thank you Catherine.

Operator

[Operator Instructions]

Our next question will come from Eric Zwick with Boenning & Scattergood. Please go ahead.

Eric Zwick -- Boenning & Scattergood -- Analyst

Good afternoon, guys.

Daniel J. Schrider -- President and Chief Executive Officer

Hey Eric.

Eric Zwick -- Boenning & Scattergood -- Analyst

Maybe first I'll just start with a follow-up on that last question. I'm curious if the pace of deferral request that you're seeing has changed, was there -- has it sped up or kind of remained constant over that period or has it kind of tailed off in recent days or weeks?

Daniel J. Schrider -- President and Chief Executive Officer

So I think obviously there was probably on the front end a lot of immediate activity. But since that time, it's been pretty stable. And I think a lot of clients have been, as you might imagine, working on making sure they're getting their place in line on the PPP program while at the same time working through the deferral process. But it's been a pretty stable process of request.

Eric Zwick -- Boenning & Scattergood -- Analyst

Thanks. And that's maybe a good segue to kind of the PPP programs you had, about 4,500 applications, 2,800 approved. So what's the status of the remaining 1,700 or any of those not submitted for any reason or are you just waiting for the second round of funding or do you continue to accept those applications today?

Daniel J. Schrider -- President and Chief Executive Officer

Yes, I'll give you a little more color there. We've got right around 150 folks dedicated to the PPP program and they did really herculean type of effort to get those through the process that we did. The only reason why we didn't do more is the funding ran out. And so we've prepared and geared up so that when hopefully, I don't know maybe the house is already active but if the next phase gets approved, we will work diligently to get these remaining applications through as well as consider additional applications that may come in through our portal. But it's really all just about -- all about funding running out.

Eric Zwick -- Boenning & Scattergood -- Analyst

That makes sense. Do you have any confidence or insight into whether kind of the remaining applications you have that there will be enough funding to meet all of those requests?

Daniel J. Schrider -- President and Chief Executive Officer

That's a great question. This is -- our sense is that many banks across the country have probably spent the last week gearing up for Phase 2 and that is making sure that the many applications that they were unable to get through. So our guess is that this next phase, the money is probably going to go much faster than the first because we spent a few days, everybody kind of gearing up with what seemed like daily changes to what the SBA expected. So if they don't change the program and it's the same application, then it's probably going to go pretty fast. So we're hopeful that those remaining applications in terms of dollars are not as significant as the front-end is the best we can to quantify that at this point, but -- so there should be adequate resources, it's just a matter of how quickly they get eaten up.

Eric Zwick -- Boenning & Scattergood -- Analyst

Understood. And then moving to the tax rate, is there any additional benefit remaining due to that Cares Act provision or would you expect the effective tax rate in 2Q to kind of go back to about 24.5% level?

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yes Eric, this is Phil. I would expect this tax rate to go back to a more normalized level from this point forward.

Eric Zwick -- Boenning & Scattergood -- Analyst

Okay and then just a last one from me, trying to think about the run rate of the wealth management line going forward. The 1Q result had that the two months of RPJ in there, so another month to put in. But maybe just a reminder, in terms of how many of the assets under management you have are -- the fees are based off the market value levels and whether that's on average value or a period-end level and just kind of thinking about the trajectory of that line item going forward?

Daniel J. Schrider -- President and Chief Executive Officer

Yes, I'm looking for my AUM at the end of the quarter. I believe. Eric, I think the AUM declined from quarter to quarter from somewhere around $4.7 billion to about $4.05 billion. So just in terms of the marketing implications $657 [Phonetic] million decline in the balance and an offsetting decline in the revenues of about $800,000. And that's netting out -- that's true netting decline front relative to market value for the most part, outside of the additional revenues that were added to RPJ.

Eric Zwick -- Boenning & Scattergood -- Analyst

Okay. So, most of that decline is reflected in those numbers. So obviously it's tough to know where equity market guys go from here, but if it were to stay flat, you should have another month of RPJ and there so potentially it at least kind of flat, maybe up if the market stays where it is obviously that's the big question.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Yeah, I think that's a reasonable way to look at it as you say, not really knowing exactly what else could potentially happen to those value, I think that's a reasonable way to look at it.

Eric Zwick -- Boenning & Scattergood -- Analyst

Excellent. Well, thank you for taking my questions today guys.

Daniel J. Schrider -- President and Chief Executive Officer

Thanks Eric.

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Alright Eric, thank you.

Operator

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

Daniel J. Schrider -- President and Chief Executive Officer

Thank you, Grant, and thanks everyone for participating with our call today. We welcome your feedback on these calls, so please email your comments to ir@sandyspringbank.com. But most importantly, we continue to hope that you stay safe and healthy as we move through this difficult season of time. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Daniel J. Schrider -- President and Chief Executive Officer

Aaron M. Kaslow -- Executive Vice President, General Counsel and Secretary

Philip J. Mantua -- Executive Vice President And Chief Financial Officer of Bancorp And Bank

Steve Comery -- G.Research -- Analyst

Catherine Mealor -- KBW -- Analyst

Eric Zwick -- Boenning & Scattergood -- Analyst

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