BankUnited (BKU) Q1 2020 Earnings Call Transcript

BankUnited (BKU 2.73%)
Q1 2020 Earnings Call
Apr 29, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BankUnited, Inc. first-quarter financial results conference call. [Operator instructions] Please be advised that today's conference may be recorded. [Operator instructions] I'd now like to hand the conference over to your host today, Ms.

Susan Greenfield. Please go ahead, ma'am.

Susan Greenfield -- Senior Vice President, Investor Relations

Thank you, Liz. Good morning and thank you for joining us today on our first-quarter results conference call. On the call this morning are Raj Singh, our chairman, president, and CEO; Leslie Lunak, our chief financial officer; and Tom Cornish, our chief operating officer. Before we start, I'd like to remind everyone that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance.

Any forward-looking statements made during this call are based on the historical performance of the company and its subsidiaries or on the company's current plans, estimates, and expectations. The inclusion of this forward-looking information should not be regarded as a representation by the company that the future plans, estimates or expectations contemplated by the company will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions, including, without limitations, those related to the company's operations, financial results, financial condition, business prospects, growth strategy and liquidity, including as impacted by the COVID-19 pandemic. The company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. Information on these factors can be found in the company's annual report on Form 10-K for the year ended December 31, 2019, and any subsequent quarterly reports on Form 10-Q for current report on Form 8-K, which are available at the SEC's website, www.sec.gov. With that, I'd like to turn the call over to Raj.

Raj Singh -- Chairman, President, and Chief Executive Officer

Thank you, Susan. We're coming to you in strange times. This is the first call that we've ever done where the management team is not together in one location. So Leslie and Tom are in Miami, I'm in New York, and we are doing this virtually.

Also, I've never done a conference call where we've had more than one or two pieces of paper in front of me with some bullet points on them. And today, Leslie has put in front of me a 27-page deck and talking points that are several pages long. So forgive me for all the shuffling that you might hear on the call. Let's do this.

Instead of jumping straight into the earnings for the quarter, I would like to take five minutes of your time to first talk about exactly -- give you kind of a state of the union for BankUnited. What is it that we've been doing over the last six to seven weeks as the situation has evolved? What are we prioritizing now and then give you just a lay of the land, and then we'll get into the numbers and discuss in detail what first quarter was like. So let me start by, first and foremost, giving a big shout out to the BankUnited team. Every person who comes here calls this home and works hard.

A crisis revealed the character of people. I think that is true, not just for people, but also reveals the true character of an organization. And I'm very proud to say that what I have seen over the last six or seven weeks, it really fills me with great pride that I'm leading this organization. People have come together, as help each other, work ungodly hours while they were under immense amount of personal distress.

So there are too many examples to get into, but I just want to give a big one shout out to everyone in the company, not just people working in PPP, on the branches or keeping our call centers up, but everyone, right down to the person who's making sandwiches in the cafeteria all the way to the last day when we shut down the cafeteria. So a big shout out and so, thank you. A big thank you. We have, as you can imagine, going through this early in March, we made our employees' wellbeing and safety our No.

1 priority. We enable 97%, as of now, 97% of our employees are working from home. And this is 97% of our nonbranch employees, of course. We have extended our paid time off policy.

We have increased our health benefits to cover any expense associated with this COVID. We have not furloughed any employees. I'm a very superstitious person, so it is -- I'd say this very carefully. We were recently awarded by South Florida Business Journal an award for being one of the healthiest employers in South Florida.

And I hope that we can claim this again next year. So far, we've had only one confirmed COVID case in the employee base. We do think there are a couple of others who will never get tested but have overcome COVID as well. It sounds like it, but only one confirmed COVID case, which is pretty good, given though what is going on.

When you take care of your employees, they in turn then take care of your customers. And if they take care of your customers, then that takes care of the company. That's sort of the chain that I follow. So quickly, let me tell you what we've been doing to support our customers.

The most obvious thing is offering the operational resilience that is needed at a time like this. We activated our business continuity plan. We beefed up all the back office IT infrastructure that is needed to run the company from afar with no really any significant operational issues on customer service disruptions. If you'd asked me this -- how I felt about our ability to do this in the first week of March when we were preparing to do this, I was pretty nervous, but I'm happy to say that everything has also gone without a glitch and the bank is working fine from an operational perspective.

Our employees, several hundreds of them, have worked tirelessly now for about three weeks to deliver the PPP program. We are also -- I think as of last night, are close to $700 million or maybe over $700 million in loans that we've done through the PPP program. And our estimates are that we've helped retain about 85,000 or 86,000 jobs in our footprint through this program. And we're not done.

There's more going through as we speak. The team has been working around the clock, and we will help a few hundred more small businesses before eventually the money runs out on the PPP. We have approved deferrals for many borrowers who have contacted us and asked for assistance because of pandemic. And equally importantly, we have honored all our commitments whether they were lines that we've had or a business that was in the pipeline where we had made a commitment to close in our loan.

We did not back away from anyone, and that is equally important. We have waived select fees, and we have also temporarily halted new residential foreclosure actions. By the way, while all this is happening, I just want to clarify, when I say 97% of the employees, nonbranch employees are working remotely, 76% of our branches are still open. They are open on a limited basis, of course, drive-throughs and appointment-only method, but they are open and we are serving clients.

The traffic, as you can imagine has gone down substantially. Also, we have -- from somewhere in the second week of March or mid-March, we have made sure that we have enough liquidity to take care of any client needs in case somebody would need it. We continue to hold an excessive amount of liquidity, but we now feel the time is right to start taking it down. I think beginning next week, we will take down this excess liquidity that we've been sitting on to serve our clients.

Now turning back internally, as you can well imagine, we are prioritizing the risk management and credit quality and credit quality risk management. We've identified portfolios and borrowers that we believe will be under an increased stress in the environment. I call these sort of the sort of the -- you're in direct line of fire-type of our portfolios. We have reached out to every single borrower in these segments, and we will talk in detail about what these segments are and how big they are.

But we have reached out to all borrowers in these segments. And in other segments, we have reached out to everyone over $5 million in exposure to understand this exactly what the impact will be to our balance sheet. While we always do stress testing sort of it's a routine business for us, in this environment, we have significantly enhanced these processes that you would expect us to. But through all of this, I -- it's important while you're managing a crisis, not to forget what the long-term plan is and to keep those long-term plan is and to keep those long-term strategic objectives in mind, and we're doing that while we're fighting the immediate economic crisis.

So again, so I think the biggest question here that you probably have is, what does it mean for our balance sheet, right? I will start by saying that our balance sheet is strong. I feel very good about our balance sheet, our capital levels, our liquidity levels. And you see at March 31, our regulatory ratio, no matter which you look at bank holding company, they're also insignificantly in excess of well-capitalized thresholds. We are committed to our dividend, which we very recently increased by 10%.

I think it was in the middle of February. We did, however, stopped our share buyback program. We were very -- we had an authorization from I guess -- I think it was the fourth quarter, it was authorized $150 million. We executed about $101 million, and we stopped that, and we're going to put it aside at least until the dust settles on the economy.

A question that we have seen a lot of other bank teams have been asked, who presented earnings in the last week or so, anticipating the same question, we did some analysis for you. By the way, there's a slide deck. Like I said, this time around, we've never had a slide in our calls, but at this time, we have provided a lot more disclosure and there's a 27-page slide deck. So from time to time, I will make references to certain slides.

I'm not going to flip every page, but I will make the references. So for example, right now, I'm talking about Page 4 in the slide deck, which then takes the DFAST severely adverse scenario for 2018 and 2020 and runs that on the March 31, 2020, portfolio to see what the losses would be. And by the way, not just 9 quarters of losses, but lifetime losses. DFAST is a nine-quarter exercise.

But with this, we've actually used lifetime losses. And we have used those, which we don't think are really relevant. But nevertheless, since that question will probably be asked, we did that analysis anyway. We use full 2018 and to 2020 DFAST severely adverse scenario, and said, OK, if -- what are the losses that are generated, and you can see them on Slide 4.

And if those were the -- channels were to be used now, would we still be well capitalized and the capital ratios hold up? And the answer is yes, they do. So quickly, one question so I don't forget again about liquidity, which is the next slide. We have tons of liquidity. We are -- we currently have over $8 billion, I think it's $8.5 billion of liquidity, safe liquidity available.

A lot of it is in cash. We will take some of the cash position down as we think things are settling down in the marketplace. But with that, let me switch over quickly and talk about the quarter. We reported a net loss of $31 million, $0.33 a share.

Not surprising. This is driven in the large part to the large provision that we do. The provision for this quarter was $125 million. This increased our credit losses to $251 million, which is 1.08%.

So we used to be, at December 31st, we were at $109 million or 47 basis points. On January 1st, under CECL, that number bumped up to $136 million or 59 basis points and now in the end of March, we were at 1.08% or $251 million. And that obviously was the biggest driver in the $31 million loss that we are posting this quarter. I will ask Leslie to give you some more detail around CECL and the assumptions that went into calculating that provision.

But I will say, before I hand it over to her, is that we believe this at March 31st, our reserve estimate is based on both data that is current and conservative at that quarter end. This reflects our best estimate of lifetime credit losses on the portfolio. In second quarter, we will go through the same exercise. There are three big areas, which will impact our CECL estimates for the next quarter, which is going to be an update of the macroeconomic outlook.

An update of our portfolio, especially our high-risk sectors. And also, our assessment of impact of government stimulus because we've seen more stimulus this time around than we've ever seen in the history of the Republic. So $2.5 trillion and counting in fiscal stimulus and God knows how much on the monetary side. But let me turn it over to Leslie, who can do a much better job of describing that's underlying CECL assumptions than I can.

Leslie Lunak -- Chief Financial Officer

Thanks, Raj. I'll try. So I'm going to refer you to Slide 8 in the supplemental deck that talks a little bit about our CECL methodology. Fundamentally, for the substantial majority of our portfolio segments, we're using econometric models that forecast PDs, LGDs and expected losses at the loan level for those are then aggregated by portfolio segment.

Our March 31st estimate was largely driven by the Moody's March mid-cycle pandemic baseline forecast that was issued on March 27. This forecast assumes an approximate 20% decline in GDP in Q2, unemployment reaching about 9% in Q2, the VIX approaching 60 and year-over-year decline in the S&P 500 approaching close to 30%. The forecast path assumes a recovery beginning in the second half of 2020, with unemployment levels remaining elevated into 2023. I know there's been a lot of focus on GDP and the current unemployment in all the discussions taking place around the CECL forecasts, and those are certainly important reference points.

But I do want to remind you that these are very complex models, and there are, in fact, hundreds, if not thousands, of national, regional and MSA-level economic variables and data points that inform our loss estimates. Some of the more impactful ones are listed on the right side of Slide 8 there for you. Another thing that I want to point out about our CECL estimate at 3/31, we did not make a qualitative overlay. We don't think our models really take into account fully the impact of all of the government assistance that's being provided to our clients, PPP, other deferral programs that we might have in place.

We did not make this qualitative overlay for that at March 31st. The reason we didn't is we just felt it was premature to really be able to dimension those things at March 31st. And as Raj pointed out, that's something we'll take into account when we consider our second quarter estimate. I want to refer you now to Slide 9.

And this --

Raj Singh -- Chairman, President, and Chief Executive Officer

Leslie, just one second. I just got a text from someone saying that the call cut off for about 20 seconds, and they couldn't hear you for the first 20 seconds. So you may want to just repeat what you said because I think those are important points because I want to make sure everyone gets those.

Leslie Lunak -- Chief Financial Officer

OK. So best to start on CECL. Maybe I'll do better this time. Hopefully, I won't contradict myself.

So again, I'm referring to Slide 8 in the deck about our CECL methodology. Fundamentally, for the substantial majority of our portfolio segments, we use econometric models that forecast PDs, LGDs, and expected losses at the loan level, which are then aggregated by portfolio segment. Our March 31st estimate was largely driven by Moody's March mid-cycle pandemic baseline forecast that was issued on March 27th. That forecast assumes an approximate 20% decline in GDP in Q2, unemployment reaching about 9% in Q2, the VIX approaching 60, and year-over-year decline in the S&P 500 approaching close to 30%.

The forecast pass assumes a good recovery beginning in the second half of 2020 with unemployment levels remaining elevated into 2023. And well, there's been a lot of focus on GDP and unemployment, and the discussions taking place around these CECL forecasts, and those are certainly important reference points, these are complex models, and there are, in fact, hundreds, if not thousands, of national, regional and MSA-level economic variables and data points that inform the loss estimates, and some of the more impactful ones of those are listed for you on Slide 8. I also want to mention briefly that we did not incorporate in our CECL estimates at 3/31 any significant qualitative overlay related to the impact of the government direct assistance, PPP, deferral programs that we may put in place. At 3/31, we felt we just didn't have enough data to properly dimension the impacts of those, so we did not reduce our reserve levels to take those into account.

And as Raj mentioned, that's something we'll be considering in more detail in Q2. And now I'll refer you back to the deck and look at Slide 9. And Slide 9 provides for you a visual picture of what changed our reserve form 12/31/19 to 3/31/20. We started at $108.7 million.

You can see here the $27.3 million impact of the initial implementation of CECL. The most significant driver of the increase in the reserve from January 1st after initial implementation to March 31st is not surprisingly, the change in the reasonable and supportable forecast, which increased the reserve by about $93 million. We've also taken an additional $16 million in specific reserves this quarter, the majority of this related to the franchise finance portfolio. While the credits that are driving these reserves had been identified as potential problem loans prior to the onset of COVID, we believe the underlying issues and amount of those reserves were certainly further aggregated by the COVID crisis and particularly as workout solutions have become more limited.

I want to reemphasize that we ended at -- for the quarter at 3/31/20 with a reserve of 1.08% of loans, and we certainly don't think that's outside in comparison to other banks whose results we've seen released. I want to take a minute and just focus you on Slide 10. And it gives you a distribution of the reserve by portfolio segment at March 31st. And you can see here that on a percentage basis, the franchise portfolio, not surprisingly, carries the highest reserve, followed by the C&I portfolio.

One more thing I want to touch on before I turn the call back over to Raj is a little bit more on the stress-testing results that we did that Raj mentioned at a high level a couple of minutes ago. And you can see the results of those on Slide 4 in the deck. And what we did here was we took our March 31, 2020, portfolio, and we ran that portfolio through both 2018 DFAST severely adverse scenario and the 2020 DFAST severely adverse scenario. In the table here showing you total lifetime, not nine-quarter, projected credit losses for our significant portfolio, C&I, CRE, BFG, residential under each of those scenarios as well as the bank's pro forma regulatory capital ratios.

Now those were calculated as if all incremental losses were applied to the March 31, 2020, our capital position. So they don't really take into account any PPNR that might offset losses over the course of the forecast horizon or any actions management might take to reduce risk weight -- risk-weighted assets during a period of stress, both of which would have been taken into account in a DFAST regulatory submission. So you can see that our reserves at March 31, 2020, stand at about 44% of severely adverse projected losses under 2018 DFAST and about 56% of some severely adverse projected losses under the 2020 DFAST severely adverse scenario. And you can see in the box there that all of our capital ratios that remain in excess of our well-capitalized threshold of under those distressed scenarios.

So with that, I will turn it back over to Raj to talk a little more about the quarterly results.

Raj Singh -- Chairman, President, and Chief Executive Officer

Yes. Thanks, Leslie. Let's talk PPNR, pre-provision pre-tax net revenue. It came in at $85 million this quarter, and that compares to $104 million last quarter.

So what was that delta of that $19 million? So, really three buckets. First, NII was down by $5 million. NII really is for two reasons; one, our margin contracted by 6 basis points from 2.41% to 2.35%. And the reason for that is asset yields came down faster.

Deposit pricing really wasn't changed much until pretty late in the quarter. You will see a very meaningful impact on deposit pricing going forward. But for this quarter, that the basis risk between these assets are priced and what things they're tied to versus deposits. There was that gap of a few weeks, which is what caused margin to come down.

Also, first quarter is not a very strong asset growth quarter for us. The nature of our business is first quarter tends to be our slowest quarter. So we didn't see that much in terms of asset growth. So you combine little-to-no asset growth.

And by the way, a lot of other banks are seeing asset growth coming from time draws. Our business is not built around that kind of business. And we did not get that benefit, and we did not see a lot of line growth. I don't think it's a benefit.

I think it's a good thing that we did not have that business but that creates little bit of asset growth and NIM that compressed 6 basis points leads to a $5 million reduction in NII. Also on fee income. Last quarter, we had $7.5 million or so of securities gains. Well, this quarter, we've had $3.5 million of securities losses.

So that's an $11 million-or-so swing in fee income. By the way, in the $3.5 million securities losses in this quarter, it includes a $5 million of unrealized losses on equity securities. We haven't sold them, but the accounting makes us take it through the P&L. And lastly for expenses, again, first-quarter expenses are always higher because you start to fight the cycle all over again.

HSA contributions, the 401(k) contribution, and all that stuff hits in the first quarter, so that is what drove expenses higher. If you compare it into expenses from a year ago, that's probably a better way to compare, and those expenses were obviously much lower. Our first quarter this year, it was much lower. So what does it really mean for next quarter? Well, for next quarter, we expect asset growth to pick up for no other reasons, and we're doing a lot of PPP loans.

We'll probably do some Main Street Lending loans. We expect margin to expand. Deposit prices have come down very, very aggressively, not just in the middle of this March, but also at the beginning of May. And that should feed into margin, and we are very positively biased toward our margin in the second quarter and beyond.

Expenses should come down as well because all that five-level stuff that I talked to you about will be behind us after the first quarter. And naturally, expenses will get better next quarter. So that's what all the guidance we'll be able to give you, but I do feel it's important to mention these things in some level of detail. I mentioned a little bit on PPP program.

So I think we could rename BankUnited for the month of April as Bank of PPP. That's like all we've been doing. To give you a little comparison, we have an SBA business where we probably do roughly about 200 units of business in a year. We are now in the process of trying to do over 3,000 loans through the SBA in less than a month or so.

It has -- has been a very large operational challenge that people across the company have been recruited to help in. And so far, we've already close to $700 million of loans that we've done and we're not done yet. We still have a few more that we will do over the course of today and tomorrow, or day after, until the money runs out. We're also now on a case-by-case basis providing deferrals to borrowers, who are being impacted by the pandemic, and that started somewhere in the middle of March.

Those requests have now tapered off somewhat in the last week to two weeks, and Tom can talk about that in a little more. But before that, Tom, why don't you spend a little time talking about loans and deposits? Just give a little more detail around that.

Tom Cornish -- Chief Operating Officer

Great. Thanks, Raj. Happy to. So let's start off with deposits, where we've continue to make good progress on our deposit growth initiatives.

As you can see, deposits grew for the quarter by $606 million, and just over 50% of that or $305 million was noninterest DDA, which now stands at the 18.4% of total deposits, compared to 15.9% a year ago. I guess, as we've talked in all of these calls, growing noninterest DDA is one of the most important things that we're trying to do in the bank right now. And unlike what some other banks have reported, most of this DDA growth was really core DDA growth. This wasn't related to draws on lines of credit.

And I'll go into a little bit more detail about that later. We've consistently been moving down deposit pricing as the Fed has reduced rates. The cost of total deposits declined by 12 basis points this quarter from 1.48% to 1.36%. Additional moves by the Fed in late March had minimal impact on our ability to move cost of funds down further in Q1.

But as Raj mentioned, you'll see that impact much larger in Q2. To give you a better idea of this, the spot rate on total interest-bearing deposits, including our certificates of deposit, declined by 36 basis points of December 31, 2019, to March 31, 2020, and then by another 27 basis points through April 17th of 2020. So a total of 63 basis points decline during that period of time. And if you go to Slide 7 in the deck, you'll get a little bit more information and detail on that.

On the loan side, Raj mentioned, loans that are relatively flat for the quarter with net growth of $29 million. There were some parts of the portfolio where we actually saw very good growth. The C&I business had total growth of $353 million, which was a good quarter for that segment. Mortgage warehouse outstandings have also increased by $84 million, but really offsetting that, our CRE book declined by $315 million, which is pretty much in line with what we expected, primarily driven by the continued decline in New York multi-family, which was $249 million.

And unlike a lot of banks, particularly some of the larger banks, we have not experienced any real growth in our line utilization since the onset of this crisis. The majority of our C&I growth, as I mentioned, was not the result of draws. Our utilization ratio, which we track consistently throughout this process really hasn't moved too much during this entire thing, only by a few percentage points through the total period of time. It has generally remained in line with our three-year averages with the exclusion of the mortgage warehouse business.

And so with that, I'll turn it over to Raj for some discussion on credit quality trends.

Raj Singh -- Chairman, President, and Chief Executive Officer

Thanks, Tom. I would like you to flip to Page 16. This is what I was talking about at the beginning of the call. These are the segments that we have sort of circled around and saying these are the portfolios that will have increased stress based on our estimation: this is retail in the CRE book; retail in the C&I book; the franchise finance that we've talked about to you in the last six months; hotels for obvious reasons, airlines, cruise lines and energy.

So in total, it's about 14% of our portfolio. What we're trying to show you here is what -- as of March, what part of these individual portfolios were past-weighted and what were classified, criticized and nonperforming. So now let me say something sort of which is obvious, but I'll mention it anyway. Just because we have highlighted these portfolios, I'm not trying to say that loans on these portfolios are going to go back.

We also expect the large portion of these loans will be just fine. Sponsors with deep pockets will be able to bear the brunt of the pain here. But in terms of monitoring, we are calling these sort of the ones what we will monitor on a heightened basis because we think these are in harms' way more than other parts of the portfolio. By the same logic let me say, it doesn't mean that anything that is outside of this portfolio is all fine.

We have to monitor everything because there will second, third, fourth quarter impacts in other parts of the business as well and we will monitor them, too. But this is where that the heightened monitoring will be. So it's too early to really see the impact of the COVID situation on risk rating migration. And you can see that, with the exception of franchise finance portfolio, substantially, most of these segments are past-rated at March 31st.

We did move a bunch in the franchise portfolio into those lower categories in the quarter. Let me talk a little bit about NPAs, a little bit of our course of actions and then charge-offs. NPAs -- of NPLs for this quarter, they were basically flat. NPAs were down a little bit, a couple of basis points.

NPLs were also down a few basis points from 88 basis points to 85 basis points. And just to remind you that these numbers in NPAs and NPLs, the way we report them included guarantee portion of nonaccrual SBA loans. So really just keep that in mind that the criticized classified this quarter went up by $269 million, $207 million of that $269 million was in the franchise portfolio. And 90% of that $207 million was really attributable to COVID as that kind of play itself out in the month of March.

Charge-offs were 13 basis points. They elevated from last quarter mostly because of one credit in BFG equipment where we took the charge-off, but we're already seeing recoveries from that situation this quarter. So more detailed metrics are toward the end of the slide deck, Page 22, 23, 24 and 25. So I will encourage you to spend some time on to those as well.

Tom, I mentioned these portfolios for heightened monitoring. So, why don't you spend a few minutes and just give them a little more -- with a little more detail?

Tom Cornish -- Chief Operating Officer

Sure. Thanks, Raj. So we'd refer you to Slide 14 in the deck, which provides some additional detail around the level of deferrals and segments. But through April 20, we have received request for deferrals from almost 800 commercial borrowers and approved modifications for about 500 of those borrowers, totaling a little over $2 billion.

We've also processed about $500 million in residential deferrals, excluding the Ginnie Mae that's early buyout portfolio, which would represent about 10% of that portfolio. These deferrals typically take the form of a 90-day principal and/or interest payment deferrals for commercial loans, and those payments are generally due at maturity. For residential borrowers, these payments are typically at the end of the deferral period consistent with deferral programs being offered by the GSEs. Now we'll obviously be reassessing each of these loans at the end of the 90 days and looking in making the best decisions we can at that point in time.

As you can see, the large amount of commercial deferrals is in the commercial real estate portfolio, particularly the hotel subsegment, where 90% of the borrowers, by dollars, have requested and been approved for deferrals, followed by the retail subsegment. We have also received a high level of deferral requests from borrowers in the franchise finance portfolio, as we've mentioned, where 74% of the borrowers have been approved for deferrals. On other C&I portfolio subsegments with this -- where we're seeing higher levels of deferral request include accommodation and food services, arts and entertainment and recreation and the retail trade. At this point, and as of today, modification requests appear to be slowing over the last 10 to 15 days.

Starting on Slide 17, we provide a little bit deeper dive into some of the higher-risk portfolios, subsegments that Raj has already mentioned. And in the retail segment, the CRE book contains no significant exposure to big box or large shopping malls. We estimate that about 60% of the CRE retail exposure is supported by businesses that we would categorize as essential or moderately essential and the remainder we would categorize as nonessential businesses. Within this segment, LTVs averaged 57.5%, and 84% of the total are below the 65% level.

Retail exposure in the C&I book is well diversified with the largest concentration of being to gas station and convenience store owner operators. I'll refer you to page -- on Slide 18, where you could see further breakdown of the franchise portfolio, which is a fairly diverse portfolio, both by some concept in geography. We saw over a $200 million increase in criticizing classified assets in this segment during the first quarter. Approximately 90% of these downgrades were directly related to the COVID-19 crisis.

I'll also mention that the current environment to fitness center -- and to fit this sector, which up until now, has been really the better-performing sector in this book, is coming under stress as most of these are now closed with the social distancing guidelines. Some of the restaurant concepts actually may fare better, particularly those with heavy drive through exposure and good digital strategies. On Slide 19, you can see that most of the hotel book represents well-known flags and is within our footprint. So to be clearly -- on revenues in this segment have declined dramatically with the social distancing measures and travel restrictions that are currently in place.

LTVs in this segment averaged 54% and 78% of this segment has LTVs under 65%. And finally, referring to Slide 20, our energy exposure, particularly in the loan portfolio, remains somewhat minimal. The majority of this exposure relates to railcars in our operating lease portfolio. So with that, I'll go back to Leslie for a little more detail on the quarter.

Leslie Lunak -- Chief Financial Officer

Thanks, Tom. I want to take a minute to discuss the unrealized losses on the securities portfolio that impacted other comprehensive income and our GAAP capital at March 31st. I'll remind you that these unrealized losses do not impact regulatory capital, and I'll be referring to Slides 26 and 27 in the deck for this part of the discussion. The available-for-sale securities portfolio was in a net unrealized loss position of $250 million at March 31st.

These unrealized losses were mainly attributable to market dislocation and widening spreads reflecting the reaction of the markets to the COVID crisis. As you can see on Slide 26, 90% of the available-for-sale portfolio is in governance, agencies or is now rated AAA. At March 31st, we stressed the entire nonagency portfolio at the individual security level, modeling collateral losses that we believe to be consistent with levels reflecting the trough of the 2008 global financial crisis. Based on that analysis, none of the securities in this portfolio are expected to take credit losses.

The majority of the unrealized losses, as you can see, are in the private label CMBS and CLO portfolios. On Slide 27, we show you the ratings distribution of these portfolio segments along with levels of credit enhancement compared to stress losses, illustrating the high credit quality of these bonds. We also priced the March 31 portfolio as of April 22, and you can see that our results of that on Slide 26. And although unrealized losses remain significant, you can see that valuations have started to come back and to recover some.

I also want to point out that none of our holdings have been downgraded since the onset of the COVID crisis. To Provide a little more color around the NIM. The NIM declined by 6 basis points this quarter from 2.41% to 2.35% compared to the immediately in the proceeding quarter. To get a little bit into the components of that, the yield on interest-earning assets declined by 18 basis points.

That reflects a decline of 9 basis points in the yield on loans and a 37-basis-point decline in the yield on investment securities. These declines related to, obviously, declines in benchmark interest rates and also reflect turnover of the portfolios at lower prevailing rates. The decline in the yield on securities reflects the very short duration of that portfolio and to an extent, increases in prepayment speeds, which contribute about 5 basis points to the decline. The cost of interest-bearing liabilities declined by 14 basis points quarter over quarter.

I'll remind you that reductions in deposit costs that we have done in response to the Fed-reducing rates in late March were not fully felt this quarter. A couple of items I want to mention that impacted noninterest income and noninterest expense for the quarter. Raj already pointed out the unrealized loss on marketable equity securities that negatively impacted noninterest income in this quarter. Our largest contributor of the $6.8 million decline in the other noninterest income line compared to the immediately preceding quarter was a reduction in income related to our customer swap program, and this was really attributable just to lower levels of activity in that space during the quarter.

Employee compensation in benefits actually increased by $3 million compared to immediately our preceding quarter. And as Raj pointed out, there are always seasonal items that impact comp in the first quarter. So, a better comparison might be to the first quarter of the prior year, and compensation expense declined by $6.3 million compared to the first quarter of 2019. And with that, I will turn it back over to Raj.

Raj Singh -- Chairman, President, and Chief Executive Officer

Thanks, Leslie. We'll try and wrap this up and open this up for Q&A. But let me say regarding guidance, we are withdrawing our guidance that we gave you at the last earnings call. We generally have a pretty good idea of what we're seeing in the business and the economies where we operate or we can look out about 6 months or so.

But at this time, it is very hard to look at a month or two. So to try and give you guidance at really an uncertain time, it's very hard. What we can say is we are -- you will see a growth in PPP loans. Like I said, -- rough, so somewhere in the $800 million number is what will people end up with.

Main Street Lending facility, we're still waiting a lot of details in that, but we hope to do some of those loans, but it's hard to tell you how much we will be able to do or what we would want to do. And even deposit growth can be hard to predict. But so -- our priority is the deposit side will maintain, which is grow DDA and bring down cost of funds. NIM will expand.

We feel fairly confident of that into this quarter. And in fact, I would even go as far to say that maybe for the full year, we'll be higher than what you saw for this quarter. That's our expectation. Any question that you asked about CECL, the only thing we can say about CECL is provisioning going forward in the second quarter as the rest of the year is that it will be very volatile.

Given the fact that the economic environment is extremely volatile. And very importantly, we have not lost sight. Once again, I will say, we've not lost sight of what we're trying to build in the long term. We actually are fighting in this healthcare crisis in the short term, but in the medium and long term, we're still focused on building what we set out to build.

So whether it's BankUnited 2.0 or all the other things that we're working on, they continue. Some of the initiatives around BankUnited 2.0, especially around revenue might get pushed out by a couple of months because it's new products that are being launched. It's going to be hard to try and launch them in the next couple of months when we are going through social distancing the way we are. But overall, the numbers don't change, and it just gets pushed out a little more.

And with that, we will turn it over to the operator to take some questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Jared Shaw with Wells Fargo Securities. Your line is now open.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Good morning.

Raj Singh -- Chairman, President, and Chief Executive Officer

Jared, how are you.

Leslie Lunak -- Chief Financial Officer

Morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

Thanks. Maybe just starting on the credit side. When you look at the franchise finance specifically, what percentage of those credits have some type of protection from PPP or anticipated too to have some protection from government stimulus?

Raj Singh -- Chairman, President, and Chief Executive Officer

Tom?

Tom Cornish -- Chief Operating Officer

Yes. Right now, we're -- obviously, we're still in the process of working through all of the loans that Raj just mentioned. A portion will -- it's difficult too until we finish processing all the loans to say the exact numbers, but we're certainly seeing a fairly high level either come through us or in many cases, the franchise credits are a little bit different than some of our normal credits and that this being part of the national group of client bases, many do not actually have -- they're in Utah or California or wherever they are. So we're the only PPP applications that we see who are the ones that actually -- applying through us, whereas the vast majority of them are applying through banks that might be community banks in their own local neighborhoods.

But I would say that we will probably see a very large percentage of them either apply and receive PPP assistance through us or through other banks that they bank within their communities.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. And then when you look at the growth in criticized loans, are you classifying any of the loans that are in deferral or if they go through the formal deferral applications then are they excluded from being classified at this point?

Leslie Lunak -- Chief Financial Officer

So, Jared, each time we processed one of these deferrals, we do review the risk rating of the loan. And so a number of the franchise loans that we spoke to that were downgraded this quarter were the subject of deferrals. That's not to say that every loan that receives a deferral will be downgraded. That's not the case, but we do review the risk rating every time we process one of these deferrals.

So you're seeing some of that reflected in those downgrades.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. OK. Thanks for the color. And then just along the --

Tom Cornish -- Chief Operating Officer

I'll also add, you see a broad difference in the performance across various concepts as well. They're all not exactly equal, depending on what type of concept it is and where the venue is.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. All right. Thanks. Just shifting a little bit.

Looking on the deposit growth, the strong DDA deposit growth you saw this quarter. Are you starting to hit the stride there and do you think that, that's going to be sustainable? And should we be looking at DDA as a percentage of total deposits continuing to March higher sort of all things being equal?

Raj Singh -- Chairman, President, and Chief Executive Officer

Yes. That's -- as I see the deposit numbers right now, I feel pretty good about DDA growth, though some of that we're seeing so far this month is probably PPP loans that we funded that are setting as DDA. But overall, the momentum in DDA growth continues, and that priority still remains a top priority.

Jared Shaw -- Wells Fargo Securities -- Analyst

OK. Thank you.

Operator

Our next question comes from Brady Gailey with KBW. Your line is now open.

Brady Gailey -- KBW -- Analyst

OK. Thanks. Good morning, guys.

Raj Singh -- Chairman, President, and Chief Executive Officer

Good morning.

Leslie Lunak -- Chief Financial Officer

Good morning, Brady.

Brady Gailey -- KBW -- Analyst

If you look at the activity under the SBA PPP, say, with Round 2 you do $800 million, I think most banks have seen fees off of that production of around 3% or a little under 3%. So, yes, 3% of $800 million, that's about $24 million. Is that the right way to think about the earnings potential from your involvement in PPP?

Raj Singh -- Chairman, President, and Chief Executive Officer

Leslie, you're turn.

Leslie Lunak -- Chief Financial Officer

Brady, one thing I'll remind you is that these fees are being deferred, just like any other loan origination fee and are being recognized over the term of some these loans. Obviously, to the extent that these loans are forgiven, the remaining unrecognized fee will get swept in through the margin at the time that the loan is forgiven. So it's hard to mention the time frame over which these fees are going to hit the P&L until we understand a little bit better when and so how many of these loans are going to be forgiven. But obviously, that 3% is probably in the range of what's average for this portfolio in the aggregate, but really the timing of income recognition is still pretty uncertain.

Raj Singh -- Chairman, President, and Chief Executive Officer

But, Brady, another thing that -- another data point I would give you is that the average ticket size that we're seeing is in the $260,000 to $270,000 range. I mean, it's -- we're still not done with the program, so it might move a little bit. But it's under $300,000 as the average. And then there's obviously a distribution from very, very small, $2,000, $3,000 loans to the much larger ones.

But the average is about $260,000 or $270,000 in that range.

Brady Gailey -- KBW -- Analyst

All right. That's helpful. And then I appreciate all the color on CECL. I know Moody's came out with their April baseline, which instead of having unemployment at 9%, I think it's up to a little over 12%.

I know some of the banks have been talking about what the April baseline impact could be to loan loss provision. Any idea just how much BankUnited's reserves would have to increase assuming the April baseline from Moody's?

Leslie Lunak -- Chief Financial Officer

So, Brady, what I can say about that is by June 30th, I don't know what the forecast is going to look like, but I'm pretty sure the April baseline is going to be in the garbage can. I don't know if it's going to be better or worse at June 30th than it is in April, but our second quarter provision and the reserve levels will be based on what these forecasts look like at the end of June, not what they look like on April 15th. We did not completely recalculate our provision based on that April 15th baseline. Obviously, if that holds, running that forecast through will result in an increase in reserves, as I mentioned earlier.

This impact of PPP, government stimulus, deferrals and whatnots will pull in the opposite direction. And so all I can say right now is that the number on our balance sheet at March 31, 2020, and is our best estimate of, at that date, of lifetime losses that's coming out off of that portfolio, and we will update the estimate in June based on what the world looks like at that -- to us at that time.

Brady Gailey -- KBW -- Analyst

And then lastly from me, Raj, you laid out BankUnited 2.0 before anybody even knew what the coronavirus is. We're in a different backdrop today with more earnings pressure than we thought evident by this quarter, but is there an opportunity to revisit BankUnited 2.0 on the expense side and potentially try to harvest some more expense saves out of the franchise in the future?

Raj Singh -- Chairman, President, and Chief Executive Officer

I think there will be. I don't think it is going to be this quarter. I think right now everyone -- when I think about the capacity of the bank, just the number that I gave you, we're trying to do 3,000 loans in a month when we usually do 200 in a year, tells you how much just physical work there is but this will stop. And as we get out onto the other side, we will look at everything and if there are opportunities, we will go ahead with them.

Absolutely.

Brady Gailey -- KBW -- Analyst

Great. Thanks, guys.

Operator

Our next question comes from Lana Chan with BMO Capital Markets. Your line is now open.

Lana Chan -- BMO Capital Markets -- Analyst

Hi. Thanks. Good morning. A Couple of questions. One on -- just on the expense side.

I guess, last quarter, you gave a guidance saying expenses could be pretty flat this year versus last year. And since expenses is one thing that you can control, is that still a reasonable estimate, Leslie?

Raj Singh -- Chairman, President, and Chief Executive Officer

Go ahead, Leslie.

Leslie Lunak -- Chief Financial Officer

Lana, I -- there's just a lot in the hopper right now and a lot of things going on. If I had to give my best guess right now, I would say they would be down. But I'm a little hesitant to quantify that very specifically because we're in such an unprecedented time. But if I had to get my best estimate, I would say they would be down somewhat from last year.

Lana Chan -- BMO Capital Markets -- Analyst

OK. Thank you. And the guidance around NIM for the second quarter, does that include the impact of the PPP loans, which are lower yielding?

Raj Singh -- Chairman, President, and Chief Executive Officer

Yes.

Leslie Lunak -- Chief Financial Officer

It does.

Lana Chan -- BMO Capital Markets -- Analyst

OK. And thirdly, I just wanted to really state the disclosure on the loan portfolios are, I think, one of the best that we've seen with banks so far this quarter so I really appreciate it. On the CRE side, if I look at the reserve allocated to CRE, it seems relatively low to me. And I know that you guys have had very low losses in that portfolio typically.

But if I look at where some of the potential COVID exposures are on the hotel CRE, retail CRE and how much has been deferred of those portfolios, I'm curious why the reserve allocated to CRE isn't higher at this point.

Leslie Lunak -- Chief Financial Officer

So I spent a lot of time looking into that question, Lana, I believe or not. The hotel portfolio did get penalized pretty significantly when we ran these models for this quarter as a part of that CRE. It's some of the other portfolios that are actually lower. But really, Lana, I would attribute that to the LTV cushion that we have throughout that portfolio and is probably what's driving those reserves to be a little bit lower than you might have just guessed.

But where -- we feel very confident and they're modeled at the loan level. We've dug in pretty deep. But I think the driver is that we have a pretty significant LTV cushion going in across this spectrum in that portfolio.

Lana Chan -- BMO Capital Markets -- Analyst

OK. Great. Thank you.

Operator

Our next question comes from Dave Bishop with D.A. Davidson. Your line is now open.

Dave Bishop -- D.A. Davidson -- Analyst

Yes. Good morning. Probably the same question in terms of the reserve, but maybe in the equipment finance portfolio. I think that, that actual reserve came down a bit. Just curious in terms of the methodology there and directionally why that fell as well.

Leslie Lunak -- Chief Financial Officer

So methodology is the same. We're running these at the loan level through these econometric models. I would say that's just reflective of the fact that for the most part, what's sitting in that portfolio are loans with some pretty strong borrowers and some pretty strong companies with stronger balance sheets.

Dave Bishop -- D.A. Davidson -- Analyst

Got it. And, Leslie, I think on the preamble you walked through -- and I might have missed the slide here, but the impact under the various DFAST scenarios. Is that broken out in one of the slides or -- I'm sorry, the --

Leslie Lunak -- Chief Financial Officer

Yes. It's on slide -- Yes, Dave. It's on Slide 4, and --

Dave Bishop -- D.A. Davidson -- Analyst

And I think you gave some other details that I could not get into. If you could just go over that again.

Leslie Lunak -- Chief Financial Officer

Yes. Slide 4 shows you that under the 2018 DFAST severely adverse projected lifetime losses would be $575 million, and our current reserve at $251 million now sits at 44% of that. I know that is a kind of a metric or a barometer that a lot of the analyst community is -- has been looking at this earnings season. The 2020 DFAST severely adverse losses are projected at $445 million, and our reserve sits at 56% of that.

I will say I understand why these people are looking at this metric because everybody's sort of searching for anything they can to try to provide a comparison from bank to bank. But I do want to emphasize that the purpose of CECL and the purpose of DFAST are very, very different. And these DFAST scenarios are not forecasts. They are really hypothetical scenarios that were designed by the Fed for stress testing purposes.

And so I don't know that there's really the comparison between DFAST losses and the losses that we actually expect to realize in the current environment. It's tenuous at best, but I can't -- I do understand why people want to look at this.

Dave Bishop -- D.A. Davidson -- Analyst

OK. Great. I appreciate that detail. And then, Raj, Leslie, Tom, it sounds like you guys have obviously a lot of confidence in directionally, in terms of the net interest margin, It sounds like on a core basis.

Just curious, you give some good color in terms of the deposit side, the funding side. On the asset side, just curious what you're seeing there. In fact, maybe a floor is taking hold. Why isn't there maybe a bigger impact in terms of the asset side from what's happening from the Fed rate cuts?

Raj Singh -- Chairman, President, and Chief Executive Officer

On the asset side, listen, spreads are wide, right? And based on which asset class, some have widened more than others. And -- but they're fluctuating quite a bit. What I am still nervous about is while the healthcare data is beginning to trend better, capital markets are beginning to trend better, VIX is also down, market is up, spreads are tightening a little bit in the fixed income market. I'm still not calling this that as that The Main Street recession is behind us or that we've bottomed out.

I drove this morning, and I took the long way down here just to see what it feels like. I think we're somewhere at the bottom, but we may be a few weeks away from it, a few days away from it. Things haven't opened up yet. So when it comes to doing more new business, we're going to be a little bit careful.

Obviously, right now, we're just doing PPP, but that's a different animal. We'll do Main Street Lending, which will also be a different animal. But just going out and saying, "OK, everything is fine. Let's pretend everything is OK and underwrite loans the way we were three months ago." I think that's a little too early.

We might be there next quarter, maybe sooner, but we're not there today. So we're not leaning into and taking risk and saying, "Let's grow the portfolio like nothing happened." It's hard to get an appraisal that it's hard. What we've -- and you can look at our cash flow of the business from last year. It means nothing to it right now.

So that's why we haven't said much about spreads. Of course, spreads are much wider, and across the board, we could do better business. I think when I think about the long-term aspects of what this recession does, it will cause a lot of harm. It will do a lot of damage to the economy to various businesses.

But here is the silver lining to a recession, which is once the recession is behind us, the new business cycle starts and the bank kind of business you can do is always done in the first two or three years of some next business cycle. The last three, four years, all of the things that we've been suffering from, irrational competition, tightening spreads, nonbank players, all of that stuff gets fixed in the post recession. But to get there, you have to first get through it. And I'm not willing to call it that it is behind us.

And I do -- I'm hoping that next quarter, when I talk to you guys, I'll be able to call it. But right now, we're still in the middle of this. And we need to see the economy open up. We need to see people get back to work.

We do need to see some social activity. Even if it's not anywhere near the levels, but we haven't yet -- we're in a very hands full of it -- so that's why we're a little bit careful in saying anything about this asset side.

Leslie Lunak -- Chief Financial Officer

Dave, I'll make one more comment on your -- back to your question about the NIM. As LIBOR came down ahead of Fed funds, we saw a lot of our assets repriced earlier in the first quarter. We saw very little impact of the work we did at the end of the quarter and into April and repricing deposits in the first-quarter NIM, and we expect the repricing down of deposits that we have been aggressively engaged in, in late March and the first half of April to have more of an impacted -- on the second quarter NIM. So then that also is part of the reason for our confidence for the -- is our expectation, I should say, that the NIM will probably expand in the second quarter.

Tom Cornish -- Chief Operating Officer

Dave, I would also add that when we look at the market today from a new business perspective, there's clearly plenty of spread in loans we don't want to make. We know there's a lot of that out there. What we're doing today beyond the PPP program tends to be new credit for existing clients that our long-tenured clients that have strong financial positions and are generally, in essential, related businesses. That's what we're seeing today.

But this is also a time, I think, to be, and as Raj said, be careful around credit quality and making sure that we're not straying into areas that could be problematic. But -- so as we see recovery, that will probably change a bit. But right now, our credit posture is fairly highly selective within our existing client base and within some essential businesses.

Dave Bishop -- D.A. Davidson -- Analyst

Got it. And then one final housekeeping question, maybe some guidance just in terms of the effective tax rate?

Leslie Lunak -- Chief Financial Officer

I think it's probably going to be relatively stable with what you saw this quarter. Somewhere around 23%. I don't think I'd see anything unusual coming in the effective tax rate.

Dave Bishop -- D.A. Davidson -- Analyst

OK. Great. Thanks, Leslie.

Leslie Lunak -- Chief Financial Officer

OK.

Operator

Our next question comes from Steven Alexopoulos with JP Morgan. Your line is now open.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Hey. Good morning, everybody.

Raj Singh -- Chairman, President, and Chief Executive Officer

Good morning.

Leslie Lunak -- Chief Financial Officer

Good morning, Steven.

Steven Alexopoulos -- J.P. Morgan -- Analyst

I wanted to start on the criticized and classified. If we look at the franchise finance loans, you guys reported a pretty sharp increase quarter over quarter. We've seen other banks report really a marginal increase. And I'm trying to understand, does your exposure more challenged than peers or do you just approach this differently in terms of the accounting for these loans?

Leslie Lunak -- Chief Financial Officer

I think we've pretty aggressively reviewed the risk rating of these loans this quarter as deferral requests came in. And we may or may not -- I don't know what other -- I can't speak to what other banks did, but we may or may not be a little bit of ahead of the game there in terms of some of the downgrades that we took this quarter as these deferral requests started coming in.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Yes. OK.

Raj Singh -- Chairman, President, and Chief Executive Officer

A lot of this happened literally at the very last week of the quarter, so --

Leslie Lunak -- Chief Financial Officer

Right.

Raj Singh -- Chairman, President, and Chief Executive Officer

If we had just waited a week, it would have fallen into April. But we were on this toward the end of March.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Yes. I think that's why some peers are saying they're not recording it in classified because of how late it happened, but it sounds like you were able to move that in for the quarter.

Raj Singh -- Chairman, President, and Chief Executive Officer

Yes, we were. Yes.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Yes. OK. And then the DFAST losses you're providing are helpful. If we were to use -- or you used the nine-quarter loss assumptions similar to other banks, would that materially change that estimate? No?

Leslie Lunak -- Chief Financial Officer

No. Materially -- I mean, certainly, whenever you run these, it's hard to say. I mean, you would certainly think at least more than half of the losses would probably emerge in the first nine quarters. But a lifetime loss, particularly for a portfolio that has a longer average life than that, so some of the CRE portfolios, some of the owner-occupied real estate, the BFG equipment.

So the ones with the longer average lives, it would be material. The C&I portfolio is probably not a material difference, for example, yes.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Yes. Yes, OK. And then if we look at the COVID-exposed loan segments, which you're calling on Slide 16, which is helpful, to the degree that some of these deferrals become defaults, where in that slide do you feel like you're most protected from a collateral view and which portfolios are most vulnerable?

Raj Singh -- Chairman, President, and Chief Executive Officer

I think the most of vulnerable is going to be franchise. And when it comes to CRE, whether it's hotels or retail or what have you, it depends on how valuations hold up. I mean, we feel pretty good from the starting point, right? These are very low LTVs. Our BFG business does not -- that's not a real estate business.

So that's where our biggest risk is. But anywhere in retail CRE or hotels, and we feel pretty good. Even cruise lines, we feel good because these are high-rated companies, despite the extremely larger stress they're going through, we feel OK. And for a Miami-based bank, you would have thought would have a lot more cruise line exposure.

And we just have never really liked that business that much, so we have a small amount. But I would say franchise is number one.

Steven Alexopoulos -- J.P. Morgan -- Analyst

OK.

Tom Cornish -- Chief Operating Officer

Also, Raj, I would add to some of the entities like cruise lines are companies that have significant access, as you've seen in the other capital markets and have been able to access those successfully over the last couple of weeks. So Raj is correct. Our exposure to that industry segment, and given where our headquarters is and where we see these ships passing very close to our offices and homes is relatively modest for our size of a bank. I would also say that there's a lot going on in the New York market as it relates to what's happening in rent abatement dialogue and with what the entire legislative market for multifamily.

So that's really one that we're continuing to watch very closely.

Leslie Lunak -- Chief Financial Officer

I also would add a couple of things to that. In the CRE portfolio, there is significant LTV cushion there, as you can see from the slide. But certainly, the duration of this, the crisis or recession or downturn will be a big factor that drives what ultimately happens to valuations here. If the economy opens up relatively soon and relatively quickly, I think it's reasonable to assume there'd be less impact to them if this has drawn out much longer.

So that's an uncertainty there. And then I will also mention on the airlines. Most of these airlines that are in -- exposed or we have either already received or expect to receive significant amounts of direct government assistance. Yes, so those are just some things.

Steven Alexopoulos -- J.P. Morgan -- Analyst

Yes. Thanks for all the color. And I just want to echo Lana's comments. You're really providing great color in the slides today, and it's very appreciated.

Thank you.

Leslie Lunak -- Chief Financial Officer

You're welcome. I'm glad it was useful.

Operator

Our next question comes from Steven Duong with RBC Capital. Your line is now open.

Leslie Lunak -- Chief Financial Officer

Good morning, Steven.

Steven Duong -- RBC Capital Markets -- Analyst

Hey. Good morning.

Raj Singh -- Chairman, President, and Chief Executive Officer

Good morning.

Tom Cornish -- Chief Operating Officer

Good morning.

Steven Duong -- RBC Capital Markets -- Analyst

So just a question on your stress test and for your PPNR, in your stress test, did that decline -- meaningfully declined at all during the stress period? And if so, how much by what percentage?

Leslie Lunak -- Chief Financial Officer

We did -- Yes, we did not. OK. Let me -- I'm glad you asked that question. It gives me an opportunity to clarify something.

So the way we did this, this -- as you know, we're no longer subject to DFAST. So we did not actually submit DFAST. The way we did this, we took the credit losses. And we said, "What are the credit losses?" We didn't give any impact to PPNR here.

So this is increased losses as if we don't have $1 of PPNR over this forecast horizon. We did not offset any of these credit losses with PPNR in this exercise. So it's a pretty severe or a punitive way of looking at this.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. So basically, your capital decline is not offset with any PPNR in your --

Leslie Lunak -- Chief Financial Officer

Not $1, correct. Yes. Not $1, correct.

Steven Duong -- RBC Capital Markets -- Analyst

OK, great. And then just a last question. Just on the restaurants, do you know how much has -- how much of the restaurants have drive-throughs?

Tom Cornish -- Chief Operating Officer

I don't know the exact percentage. And it's also not so much with your drive-throughs. That's an important component. But when you break down the composition, businesses that have high delivery models are the ones that are really performing well.

So if you look at like QSR magazine and if you look at Q1 and early April numbers for revenues, it's the digitally capable delivery models that are really doing well. The drive-through impact is clearly important that also tends to be how modern are these drive through facilities, if you have two drive through facilities and also it's venue, right? Heavily traveled highways is quite different than any QSR restaurant that may be on a side street or may not have quite the same location capabilities. So I would say, in the quick service space with a high percentage of them would have drive-throughs, but I think it's really just more the delivery model right now and the digital capability that is separating those that are actually reporting same-store sales increases and versus those that might be off 25% or 30%.

Steven Duong -- RBC Capital Markets -- Analyst

Great. Really appreciate the color and great job on the slides. Thank you.

Operator

Our next question comes from David Chiaverini with Wedbush Securities. Your line is now open.

David Chiaverini -- Wedbush Securities -- Analyst

Hi. Thanks. I had a follow-up question on the multifamily portfolio. So on Slide 13, it's showing how about two-thirds of your portfolio is rent regulated.

And I see how the LTV is -- it's pretty low at 56%. I was just curious, and it was alluded to earlier about how there's a lot of tenants with the rent strike going on. I was curious if you had an idea of how much even before COVID, leading into earlier this year, how much multifamily values -- building values have declined post the rent regulation law changes last year? Do you have a sense of that?

Tom Cornish -- Chief Operating Officer

That's difficult to tell. Conceptually, obviously, it has declined, but there had been so few actual sales in the market to be able to rely upon in terms of looking that values and even some of the ones that were sold, you're seeing a very, very wide variation in declines in values. And we also saw one that was in Queens that had a larger decline, but that property had certain characteristics to it that people in the market were following, and that made it less valuable, whereas you -- we saw declines of low-single digits for property that was well-located in the Manhattan Borough. So it was -- it's really -- there really has not been enough activity in the sales market from our perspective to be able to pinpoint.

Yes. This is what we think an average decline would just be from the rent regulation the passed the New York legislature in July of last year or late June.

David Chiaverini -- Wedbush Securities -- Analyst

In the 56% LTV, that's as of the time of the loan origination?

Leslie Lunak -- Chief Financial Officer

It's as of the most recent appraisal date that we have, which, in some cases, would be at origination. In some cases, it would be more recently, but it is whatever the most recent appraisal that we have on file is. So obviously, they aren't up-to-the-minute valuation, but it does give you some idea of how much cushion is there.

David Chiaverini -- Wedbush Securities -- Analyst

And how often do you guys do appraisals? Is it annually?

Leslie Lunak -- Chief Financial Officer

Not necessarily.

Tom Cornish -- Chief Operating Officer

Yes, we do an annual review of all loans. Those do not necessarily give us a full appraisal at that time, but we annually review everyone.

David Chiaverini -- Wedbush Securities -- Analyst

Great. And then shifting gears, you mentioned about how the DDA momentum is continuing into the second quarter. I was just curious, given the unique environment with COVID and everything that's going on, how have you been able to win new business given that backdrop?

Raj Singh -- Chairman, President, and Chief Executive Officer

I think right now, it's just a matter of converting the pipeline that we've had. If I think out further, let's say, four months, six months out, I do -- I think that's one of the challenges, I think, of all the companies into this space. If that social distancing is with us is here to stay for a long time, how will this change our selling processes, right? How does it change face-to-face selling, B2B sales? And how do you pitch to a client? And so what you're seeing right now is just the pipeline, which has been robust. And -- but if this is -- if we're not going to get them in place for another year, God forbid, then we will have to find a different way of getting in front of our clients.

If it's not industry conferences and other events, wining and dining. All B2B businesses, not just banks, but all our B2B businesses are going to have to rethink how they actually do in the sales part of their jobs.

Tom Cornish -- Chief Operating Officer

I would add to that, though. When we started voicing this, and Raj really laid it out as the No.1 objective for the organization, part of our success is just really shifting the priorities of industries we focus on. And I think a lot of the success is due to that as we think about who are our top-potential clients, what industry segments we want to develop, treasury management capability around where we're focusing over the last couple of years since we laid this out as our top priority. We really have executed well around those strategies within those very specific industries.

And I think we'll continue to do that. It will really be a challenge to do it in the future due to some of the things that Raj just mentioned. But this -- it isn't sort of like it's accidentally happened. It's been through -- a very well thought-out process of what to focus on and client -- and just the specific client relationships and specific client industries.

So we'll have to retool our tactical sales process, but I think the strategy is in place.

David Chiaverini -- Wedbush Securities -- Analyst

Thanks very much.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Singh for closing remarks.

Raj Singh -- Chairman, President, and Chief Executive Officer

Listen, guys. This has been a tough quarter. We are living through unprecedented times. The balance sheet, the company is strong.

We will do fine through this. We're -- like I said, we're not calling that we're on the other side of this. Hopefully, I can say that in the next call. But everyone in BankUnited is hard at work and trying to take care of our clients.

The relationships that you build during tough times are the ones last the longest. So I keep telling the salespeople, this is your opportunity to shine in these relationships. And what you do to help them through this time, they will remember this, and they'll be with the bank forever. And the last thing I will say is that while we are dealing with the crisis in hand, we are absolutely focused on the long-term as well, and we have the most focus on that.

So with that, I thank you, everyone, for [Audio gap]. I'll talk to you again in three months. Thanks. Bye.

Operator

[Operator signoff]

Duration: 79 minutes

Call participants:

Susan Greenfield -- Senior Vice President, Investor Relations

Raj Singh -- Chairman, President, and Chief Executive Officer

Leslie Lunak -- Chief Financial Officer

Tom Cornish -- Chief Operating Officer

Jared Shaw -- Wells Fargo Securities -- Analyst

Brady Gailey -- KBW -- Analyst

Lana Chan -- BMO Capital Markets -- Analyst

Dave Bishop -- D.A. Davidson -- Analyst

Steven Alexopoulos -- J.P. Morgan -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

David Chiaverini -- Wedbush Securities -- Analyst

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