Q2 2020 Pacific Premier Bancorp Inc Earnings Call
Morning.
[laughter] Pacific Premier Bancorp second quarter, 2020, <unk> earnings Conference call.
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No. This is that just be recorded I would now like to turn the conference over to Steve Gardner Chairman and CEO. Please go ahead.
Thank you Kate good morning, everyone. I appreciate you joining us today as Youre all aware earlier. This morning, we released our earnings report for the second quarter of 2020.
We have also published an updated investor presentation that we will be speaking to today.
If you have not done show already we would encourage you to visit our Investor relations website to download a copy of the presentation.
Contains a great deal of additional disclosures and information around our ongoing response to the cobot 19 pandemic various loan portfolio metrics, some select asset classes.
The Opus Bank acquisition.
How we are well positioned to manage through this crisis in the downturn in the economy.
In terms of our call today, Ron and I will walk through the presentation and then we will open up the called the question.
I noted in our earnings release, and Investor presentation, We our safe Harbor statement relative to the forward looking comments.
Sure been expanded and I would encourage all of you to read through that was carefully particularly in light of the current pandemic and how it may impact our business financial condition and results of operations.
I'm going to start on slide four of the presentation.
Although it is not necessarily reflected in our headline results, we had extraordinarily productive quarter well dealing with the many challenges presented by the cobot 19 crisis.
And a very short period of time, we launched our S.P.A.P.P.P. program and funded more than a billion dollars and while.
Designed a slot loan modification program to assist our borrowers through the crisis.
Completed the largest acquisition in our history quickly executed on our first post merger integration plan.
Our team operates with a sense of urgency every day and they have repeatedly identified wage to overcome challenges and keep our operations running at a high level, while maintaining a superior level of service for our clients.
It's a testament to the strong culture, we have built the Pacific Premier that has enabled us to consistently be a high performing institution and create value for our shareholders.
On behalf of the board of directors I want to extend our appreciation to every member of our organization for rising to the occasion and selling during these unprecedented times.
Turning to our results for the quarter.
The provision for credit losses that we recorded which I'll speak more about later resulted in a net loss, but from the perspective, our core operating performance, we delivered a strong quarter with pre provision net revenue increasing to $60.6 million compared to 58.7 million last.
Last quarter.
With the closing of the Opus transaction and the impacted the P.P.P. program, we had tremendous growth in our balance sheet.
We realized strong deposit growth, which improved our on balance sheet liquidity and allowed us to push down or cost of funds well dropping our loan to deposit ratio to 89%.
Our 15 billion dollar loan portfolio provides scale and will help drive revenue in future periods.
We'll talk more about the portfolio in a few minutes.
From an asset quality perspective, we are seeing relatively good stability in the portfolio and our percentage of delinquent loans and nonperforming asset ratio both declined from the end of the prior quarter.
That being said, we're mindful of the uncertainty presented by the ongoing pandemic the shock to the economy and how businesses and consumers will be impacted when government support and stimulus programs wind down.
Importantly, we added significant reserves in the second quarter with respect to building our allowance for credit losses.
In addition, we saw the loan fair value credit marks increase that we had to estimated when we announced the opus transaction.
The increase in a mark reflective of the deteriorating economic environment.
As a result, when our Hcl and our aggregate loan fair value discounts are combined we now have a loss absorbing capacity representing more than 3% of our total loans, excluding the P.P.P. lungs.
With this level of watched capacity, we believe we have positioned the company well to handle a multitude of economic and credit scenarios that made ball.
Our proactive approach to managing the business and strength in our operations is also reflected in our capital management.
Given the environment, we felt it was prudent to access the capital markets to add both liquidity and tier two capital at the holding company by issuing a 150 million in subordinated debt.
And despite the net loss for the quarter or high capital levels and strong pre provision net revenue had it enabled us to declare and pay a 25 cents per share dividend in the third quarter.
On slide five we highlighted a number of key items.
Reported loss of $99 million was driven by 160 million noncash charge associated with the provision for loan losses, along with 39 billion of merger related costs.
Ron will review in more detail the unique intersection of seasonal and fair value accounting, which resulted in significantly higher reserves.
We have now entered into an agreement to sell our P.P.P. loans to a highly experienced non depository S.P.A. servicing for them.
This will have the effective accelerating our fee income recognition with an estimated net gain of approximately $19 million.
More importantly by selling the loans now we believe our team from the burden of managing the loan forgiveness process. So they can focus your attention on servicing existing clients and developing new business.
And our P.P.P. long clients will benefit from working with a firm that has the technology platform already in place to efficiently manage the loan forgiveness process.
With the closing of Opus, we're now more than 20 billion in assets and one of the largest and strongest commercial bank franchises in the western U.S.
We have a highly diverse business specs that enables us to provide a wide array of products and services.
Small and middle market businesses as well as corporate clients.
The foundation of our franchise is built on a strong culture of risk management.
Polit disciplined underwriting and a proactive approach to credit loss mitigation that has consistently do.
Consistently produced a superior level of asset quality.
Through acquisitions, and our consistent recruiting efforts, we have assembled a talented experienced management team that allows us to execute our business model at the highest levels.
Turning to slide six we highlight our approach to managing the balance sheet over the past couple of years. We grew concerned about the length of the economic expansion and began more selective became more selective in our loan production and actively managed our growth rates.
This is positioned us well as economic contraction began.
Our multifaceted approach to credit risk management and loss mitigation will serve us well and this uncertain environment.
With the Opus transaction, we have added significant scale, but we did it in a way that enabled us to effectively manage the level of risk we brought onto our balance sheet.
Turning to slide seven.
We provide an update on the opus integration.
Which is ahead of plan despite the challenges of working remotely.
The court system conversion for the bank is scheduled to occur in early October.
We've rebranded the PENSCO business to Pacific Premier Trust, and we will convert are likely to see system in the first half of next year.
This is a critical step, which will allow us to effectively build scale and command greater market share.
As our two teams have come together, we've added some exceptional management talent, who are now leading our commercial real estate retail banking trust and audit groups.
Importantly, the additions of both Dan Borderland and Mark movie on we're very impactful.
Two highly qualified executives how important leadership roles in years past at Opus prior to our acquisition.
This allowed us to quickly identify key managers and personnel throughout the Opus organization that we wanted to retain prior to closing and that's helped accelerate the integration process.
Turning to cost savings at the time of the deal announcement, we've had estimated we reduce its operating expense by 25%.
It doesn't have proved to be conservative and because we are in a different environment now it has allowed us to reevaluate key areas of our operations.
Office space needs and staffing levels.
As a result, we are executing ahead of plan and expect the cost savings to exceed our announced estimates.
We anticipate will consolidate 20 branches in early October in conjunction with the system conversion.
During our due diligence what are the key areas, we had identified to improve the franchise was our ability to reduce opus is costa deposits.
We were able to do that in June by repricing their deposits and reducing their wholesale funding.
As we move through the third quarter and with the system conversion and branch consolidation occurring in early October.
We do expect to see some run off of deposits.
Turning to slide eight we summarize the strength of the deposit franchise, we have built as a result of our relationship based business model.
<unk> percent of our total deposits are non maturity and 35% our noninterest bearing deposits.
Over the past year, as a result, and hard to pricing discipline and consistent focus on expanding client relationships and business development.
We've consistently reduce start deposit costs.
And the second quarter or average cost of deposits dropped to 32 basis points.
Slide nine highlights one of the most significant benefits of the Opus transaction you.
The improved diversification, we have in our business mix and the increase in our noninterest income.
With the contributions of Pacific Premier Trust and Commerce escrow. We project that are non interest income will triple and now represent more than 10% of our operating revenue.
Beyond the fee income.
These businesses also provide $1.7 billion and deposits at a cost of four basis points.
We saw only one month of contributions from these two business lines during the second quarter.
But we'll realize the full benefit to our revenues and cost of funds during the third quarter.
We believe both businesses have significant opportunities to grow and gain market share in the future.
As of now we're in the process of strengthening in all of the risk management and controls in these businesses to improve scalability and support their future growth.
In the second half of 2020, we will be investing in additional talent and business development resources that we expect will drive growth in these lines of business.
At this point I'm going to turn the call over to Ron to provide some additional details on our second quarter financials Ron.
Thanks, Steve and good morning.
I'll pick up on slide 11.
Which illustrates the strength of our core operating performance, which Steve spoke of earlier.
As highlighted.
We have consistently delivered and operating efficiency ratio in the low fiftys.
While continuing to grow revenues.
This quarter was no exception.
Our pre provision net revenue generates significant capital that supports both our growth and ability to prudently return capital to shareholders through our quarterly dividend, while providing a strong buffer against the economic weakness. We're currently seeing.
Slide 12 provide highlights of our net interest margin a key contributor to our pre provision net revenue.
For the second quarter.
Reported net interest margin decreased 45 basis points to 3.79% and our core net interest margin came in at 3.59%.
Decline of 49 basis points after adjusting for accretion.
As highlighted with our Reattribution waterfall chart.
We were able to significantly reduce our cost of deposits.
But it only partially offset the decline in our loan yields resulting from the reductions.
In the full quarters effect of the feds rate cuts in March and the inclusion of Opus is lower yielding loan portfolio.
Notably 75% of our loan portfolio is now either at their flow rates or fixed rate, which should help to limit future declines.
In the loan portfolio yields.
We had good success repricing our deposits.
As our cost came down 16 basis points in the quarter.
And we remain focused on driving deposit costs down further to offset the lower yielding earning assets.
Steve highlighted earlier, our loss absorption capacity exceeding 3% as noted on slide 13.
This is the combination of $282 million of allowance for credit losses, and another $144 million in loan fair value discount.
Totaling an aggregate of almost $427 million.
Relative to the end of the prior quarter, our allowance for credit losses increased by approximately $167 million to a total of 2.02% of total loans, excluding our PPP loads.
As we highlight here in the table on the right.
Approximately $97 million of the Hcl increase was attributable to the day one adjustment we made on the opus loan portfolio, including $21 million per purchase credit deteriorated or PCD loans.
Additionally, we added another $70 million in reserves for the second quarter.
As the Hcl table highlights we significantly raised our allowance coverage across the board and in some cases, we more than doubled our allowance coverage for a particular segment.
Of course.
The rapid deterioration in the economy in the second quarter, you see that $64 million of the Hcl increase was attributable to the economic forecast component of our seasonal model.
As noted on the top of the slide.
We used Moody's probability weighted June economic forecast.
That has Q2 as the trial for key economic metrics in our modeling.
Also noteworthy is the relatively benign impact of the asset quality profile of the portfolio in the second quarter.
We would anticipate this to have a potentially larger impact in the coming quarters.
Slide 14 highlight the significant excess capital we have built up at both the bank and holding company with each of our regulatory ratios significantly exceeding the well capitalized levels.
In June we issued $150 million worth of subordinated debt securities at the holding company as we sought to bolster our capital and take advantage of market conditions.
Importantly, this added significant liquidity to the holding company as well.
At this point I'm going to turn the call back to Steve Steve.
Great. Thanks, Ron.
On the next several slides were going to provide additional details on our loan portfolio and credit quality I.
I do not intend to its speak about each slide but we thought it is important to provide this level of detail.
On slide 16, we summarize the loan portfolio.
We are well diversified by geography industry and loan type and well collateralized with 75% of the portfolio secured by real estate.
Multifamily has historically been one of the safest asset classes, owing in part to the housing shortage in the Western US now represents the largest portion of our portfolio at 35%.
Slide 17 provides a summary of our cobot 19 temporary loan modification program.
We thought fully planned out our approach of working with customers and during the second quarter, we granted accommodations on a little more than $2.2 billion of loans, which represents about 15% of our portfolio.
Nearly 70% of the modifications expired in June and July and we've been reaching out to those borrowers as highlighted on slide 18.
Our portfolio managers have stayed in close contact with our clients since the pandemic began.
As borrowers approach the expiration of their loan modification period, we've had further discussions with them about their ability and intend to resume normal loan payments.
Through July 24, we contacted 930 clients, representing 91% to the loan modifications that were expiring in June and July.
87% of these borrowers have communicated they intend to resume the regularly scheduled payments.
For those borrowers who have indicated they are not able to resume regularly scheduled payments. We're now in the process of having additional discussions and determining an appropriate course of action.
Gary a we're seeing the greatest distress is within the hotel portfolio.
This is not a surprise given the significant impact the pandemic has had on the hospitality sector overall.
We have a number of portfolios where the need for an additional extension of the deferral is limited.
Our franchise portfolio is one of the strongest performing to date, we're in 95% of the borrowers we have contacted expect to resume their regularly scheduled payments at the end of their modification period.
Turning to slide 19, we've provided detail around certain loan types that are perceived to be at greater risk from the impact to covert 19.
Our approach towards credit risk management has served us well over the years and is one of the fundamental underpinnings of our organization.
Our credit teams have a long tenured history of effectively assessing and appropriately structuring for the risks in each of these portfolios.
The loans were prudently underwritten with loan to values at a relatively low.
Coverage ratios were strong pre pandemic and the portfolios are reasonably well seasoned.
We have significantly built up the reserves allocated to each of these portfolios and have an aggregate 3.7% of loss absorbing capacity on these loans segments.
On slide 23, 23, we've provided more detail around each of these portfolios, but any interest of time I'm not going to review each one individually.
On slide 24, and 25, we provide some perspective on our ability to manage risk in the portfolio, including RCR he concentration.
Sure Conservative approach to managing growth, we have historically reduced our CRM concentration over time, most notably following various acquisitions.
Over more than a decade, including the 2008 2012 credit cycle, we've consistently had credit losses in problem loans well below our peers.
Slide 26, and 27 provide our recent asset quality trends, which reflect relatively low levels of problem loans and good stability in the portfolio at the end of the second quarter.
I'm going to wrap up on slide 31, with some concluding thoughts.
In terms of the remainder of this year, our top priorities our refining the integration of the two teams.
Realizing the projected synergies for the Opus transaction.
Being laser focused on managing credit and proactively resolving problem loans that emerge.
In terms of loan growth, it's difficult to make projections with any degree of certainty.
We continue to focus on expanding existing client relationships.
And now that were done originating and servicing PPP loans. Our bankers are returning their focus on developing quality new relationships and our pipelines are slowly starting to rebuild.
We will continue to remain selective in what we choose you originate.
And it's more likely than not that we will end the year with relatively flat loans, excluding the impact of the PPP loans.
From a medium and long term perspective.
Our second quarter was really about positioning the company for success given the uncertain times, we are managing and.
Through the steps we've taken we believe we have the capital and earning sustainability to effectively manage any environment.
And if you if the economy recovers more quickly than anticipated.
We have the proven business development capabilities to enable us to take advantage of it.
And then any challenging time like yes, there will inevitably be opportunities created for strong institutions.
Whether that's the ability to take market share or pursue acquisitions that add scale and value to our franchise.
We believe that we put ourselves in a strong position to capitalize on those opportunities as they emerge and create additional value for our shareholders.
With that we'd be happy to answer any questions you might have.
Okay could you please explain to the colors how to get into the queue.
Yes, we will now begin the question and answer session to ask a question you May have press Star then one on your Touchtone phone.
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To withdraw your question. Please press Star then too we will not pause momentarily to assemble our roster.
Our first question is from Gary Tenner from D.A. Davidson go ahead.
Thanks, guys. Good morning, and thanks for all the additional color in the slide the this quarter.
Just wanted to us.
Couple questions first with regard to the deposit business is that came over with Opus The trust business and the escrow business I think when the deals announced their around $2 billion or so.
I think the number that you quoted so there was 1.7 billion. The ESFR numbers look what I was wondering if you could kind of talk about.
The changes maybe over the last several months there and given the environment, we're in and potential risk of commercial real estate transactions or broadly real estate transactions and maybe being delayed if theres any.
Kind of risk or concern about balances in the us reversal.
Yes, Hi, Gary.
I wouldn't call. It a concern I think it is just a reality of the environment that we had expected.
[music].
After the Lockdowns that deposits would decline I commerce asked grow to an extent and we've seen that are certainly commercial transactions.
Have slowed down the 10 31 exchange business.
Has slowed a little.
We'd expect that to continue in the short term.
But the medium and longer term.
We are very excited about the business and think that there is.
Significant opportunities to grow them.
We will likely be dislocations in as best as and.
We're well positioned to take advantage of those.
Okay, and then on PPP I know, it's going to be gone effectively within the next week or so you just give us the average PPP loans outstanding for the second quarter.
Ron I I want to say roughly around 365 million I mean, that's the average size, yes, I believe 1.2 billion.
The average for the quarter was 830 million.
Gary.
Okay, Great and then the origination.
Yes.
So eight already for the quarter and then just last question in terms of the branch consolidation with regard to opus.
Conversion.
Thats strikes me as being.
Higher than.
What was announced was it somewhere around six or seven branches that announcement or.
I'm just kind of curious about kind of the pretty what seems like a pretty significant differences at a outgrowth of kind of shutting some branches temporarily during the this this issue and.
Seeing that maybe you don't need as many as you thought or.
Maybe just talk though.
Sure.
We did announce.
The exact number of branches that we had planned to consolidate when we.
Announced the transaction.
We.
Had had planned around it we think that.
As we finalize the assessment on on each one of them in their markets the composition.
This is where we ended up but we didnt announce.
An exact number.
Okay, all right that's great. Thanks.
Our next question is from Matthew Clark from Piper Sandler go ahead.
Hi, good morning.
Morning.
First one just on your comments about loans being flat.
Year over year.
I would suggest we grow that 10% from here, excluding the PPP and opus.
But can you speak too I think you also mentioned that that the pipelines are slowly building, but can you speak to where you expect to see the growth to come from.
And.
With with loans being down this quarter X PPP and.
Opus because I know you had later production, but how much of that was related to that maybe some deliberate runoff, if any and whether or not that type of strategy might continue here.
Yeah. There there was in any deliberate runoff of any of the portfolios.
It was really a case that as.
Has the lockdowns occurred and in in March and and the pandemic impacting the economy, we had significantly slowed originations.
And frankly.
Subsequent notably reduced.
The pipelines that at that time.
I.
Really around the fact that the visibility into cash flows from.
Small and midsize businesses to commercial real estate.
Was very uncertain and and and as we move through the second quarter I think that all of us have on improved visibility there still remains a high level of uncertainty.
But as the two teams have come together, we think that there are good opportunities to originate loans in in all of the primary categories that that we do whether its multifamily CRT see an eye on business loans.
And across the board.
So there they are slowly building.
Yes, and we expect to.
The to build that pipeline and continue to originate loans here in the coming quarters.
And Matt This is Ron I would also add the.
A good portion of that.
That run off that you mentioned earlier came through a significantly lower line utilization about 40% of that run off came about as a result of the lower line. So the is Steve mentioned the combination of the the originations as well lower originations as well as lower line utilization contributed to that.
Got it and.
And then shifting to the core margin.
Your loan to deposit ratio was lower than where you typically like to run at 89%.
Can you.
Speak to your comfort level with the core NIM outlook, whether or not you could see a little bit of relief here in the short term.
As you work done this deposit costs in Austin deposits.
I I think that I'll speak to it broadly I'll, let Ron jump in with where we see the margin going forward.
Yes, obviously, there are a lot of moving pieces here.
We'll have the full impact of Opus here and in Q3, we do think that there is opportunity to push down on deposit costs.
At the same time, we do expect to see some deposit run off some higher cost deposits run off.
With.
Just generally as we we've reduced rates and then also with the branch consolidation.
So we'll see where this all plays out.
Over the next couple of quarters.
Ron do you want to speak to that.
The range on on maybe where we see that net interest margin the core margin.
Sure Steve.
As Matt is as Steve indicated lots of moving parts here of and of course than the new originations coming on the significance.
In terms of those rates in the mix.
But as we sit here today, you were probably looking at a core margin in that 330 ish kind of range.
When all is said and done but.
But it but again lots of a lots of variability so with all of the the impact shaking out here.
Okay and then.
Go ahead, I was just going to add that.
We've got.
Roughly about 75% of our portfolio is at either their floor rates are fixed rate. So there is limited our room for those yields to move down on the existing portfolio, but as Ron alluded to.
Certainly this rate environment, where we'll be originated credits on could could likely have any impact.
Okay, and then I think at the time of the the deal announcement is.
Spoke tour to achieving an efficiency ratio in the high Fortys, obviously rates have.
Changed dramatically since then.
You have any updated thoughts on to the efficiency ratio pro forma after you get the cost saves them.
On an excluding amortization.
Yes.
I think we'll have better visibility on into where we expect a run the business.
Again later in the second half of this year.
Okay. Thank you.
Our next question is from David Feaster from Raymond James Go ahead.
Hey, good morning, everybody.
Good morning, David.
Just kind of following up on on the the efficiency question I mean as I'm glad to hear about the additional cost synergies you have a test.
You have a an estimate for the timing of those cost savings obviously the conversions in October.
And then just curious on maybe expectations for pro forma expenses going forward.
Once everything has been realized.
I I think.
We will have most of the cost savings and expenses realized by the end of the year.
Again as you mentioned that the conversion is an important marker. That's at the same time that we do the branch consolidations saw.
But I would expect bye.
2021, we'll we'll have a.
Fairly clean run rate as it.
Goes with expenses.
Ron any details it's like to add.
I think Steve you said it well the next large.
Chunk of cost saves as Steve indicated will come post conversion.
So we need to get through that so part of the quarter, probably the month of December we'll see some will give us some clarity on the run rate, but but really the full full quarters effect will be in the first quarter 2021.
Okay. Okay.
Okay. So I would just kind of that upper ninetys realm is probably good run rate still.
Yes, probably yes, probably right in that range 90, 590, 798 somewhere in that range I would say, David as we leg into.
Back in the second half of the year.
Okay, and then I appreciate all the detail on re deferral rates in the early reads. Obviously, it's good and it's not surprising that hotels are really needing re deferrals I guess.
How do you think about.
Though the ones that haven't.
[music].
You haven't spoken to yet and how many of those 13.5% has actually been granted did you adjust any risk ratings for those loans that might expect additional relief and then I guess, what sort of additional concessions are you going to require.
In these conversations.
So we're still in the process of assessing the any of those that need.
Additional assistance both from how we approach at the classification on it.
On those loans.
As far as additional concessions. It's it's on a case by case basis, we analyze it looking at the total relationship that the client has a with the bank.
Additional resources that they may have.
And.
Just a number of factors come into play here as we look at these but again, it's on a case by case basis.
Okay.
And then I guess, you know as it and you kind of touched on it briefly I mean, the heavy lifting with reserves is obviously done.
Total loss absorbing capacity that 3%, it's massive but I mean as these might trigger additional potential risk rating downgrades I mean, it sounds like there might be some additional reserve builds in the back half of the year or.
How do you how do you think about that.
Well I the way, we think about it is that there are certainly that the asset quality classification component.
Of the reserves relatively small here in in Q2, and we had a very sizeable reserve in round numbers 85 million.
On the day or rather 97 million on day one.
Opus reserves.
And then a large chunk 64 million.
Because of the economic forecast, we all know not that that the second quarter.
Has significantly impacted by the walk downs.
We've got.
At least all the forecast that I have read on seems to indicate that the second quarter was the ptwop.
This cycle, we'll see how that plays out, but assuming those things hold on reserve levels.
I would expect to be much less going forward I think you're right in your assessment.
David.
But these are.
Unprecedented times as folks have discussed.
Yes understood. Thank you.
Again, if you have a question. Please press Star then one our next question is from Jackie Bohlen from Kate Beebe Debbie you go ahead.
Hi, good morning.
Good morning, Jackie.
Well that's on the loan sale in the quarter. The net loss on that was that driven by interest rates or credit.
Those were that was under our strategy of of managing credit risk and in the portfolio.
And and so those that was the primary driver I Wouldnt say rate driven.
Okay and.
Folio did that come out of if youre disclosing that.
At the variety of different loan types.
In in.
CRT CDAI, Ron do you have that detail there in front of Q.
I don't have the detail, Steve, but but you're absolutely right. It was a variety of.
Of.
C and I see Ari.
Predominantly.
Okay that sounds like it was a couple of loans. It wasn't just one large loud.
Oh, yes, correct. It was a number of loans.
Okay and is it fair to assume that as we move through the cycle and you see the.
It seems more advantageous to sell it rather than to work it out yourself could we see more of this in the future.
Oh that historically, you've seen us hub do this we think this is an arrow in our quiver to manage.
Asset quality and credit risk.
And so we'll continue.
To utilize it where appropriate we again, we make that decision on a on a case by case basis on each credit what we believed to the risk exposure is both in those short term and the medium term as we look at these.
Okay.
Thanks, that's helpful and.
The deposit rates that you lowered for opus with that done right at close on without done later in the quarter.
Right that well.
They were implemented we closed on June one I don't think that they were in a fact until.
A few several days after that so pretty late in the quarter.
Okay. So it is it fair to assume then that in terms of any runoff you might expect from some of the yen.
Higher cost accounts that you haven't really seen not effect, yet and that would be more threeq or fourq you.
The fact that so yes, that's our expectation.
Okay.
And I apologize if I missed this did you provide the spot rate on deposits at 630.
I feel or leave we.
We did it in the spot rate is is noted in the earnings release.
Yes, you actually it's a 0.34% as of June Thirtyth.
On the deposits.
Thank you and I apologize for missing that.
Not a problem.
And that is a function Jackie that is fun talking in part of of when some of those odd.
Repricing of deposits occurred.
Okay. So that that was my sense is that that 34 basis points that include the reduction that youve dead towards the end of the quarter.
Yes.
Okay. Okay.
And just one last one from me into the utilization understanding that you know it obviously dropped a lot in the quarter, but theres moving parts here given that you added opus is portfolio as well with any of that related to lower utilization that may have come over from open meeting.
Was it more a function of the numerator and the equation the denominator or was it both that impacted at.
It was it was really both both the numerator and denominator.
Opus did bring over.
It increased our our lines.
And then we.
Utilization rates as well.
Okay.
Okay, great. Thank you.
Our next question is from pet.
Coffey from Janey go ahead.
Thanks warrants seaborne Ron.
Hi, Tim.
Steve can you.
Very little color on the our approach to consolidate into 20 branches is there sort of geography, if you're looking at as it related to the deposit costs of the individual branches I mean, what kind of color can you provide there.
Sure, it's a combination of factors.
It's a looking at what is the size of the branch its proximity to other locations and frankly, we're agnostic to whether it was an opus or up PPP branch ppb branch prior to the closing.
We're looking at what is that the best utilization of the space. The location are the composition of that deposit mix. All of those are factors and then certainly what we've learned.
As we adjusted branch out orders in response to keeping our employees safe.
In connection with the pandemic.
Okay.
Thats helpful. Thank you.
And then the.
What does your appetite for additional multifamily loans within the portfolio.
With the combination of the two businesses pretty healthy amount.
35, 37% of the total portfolio do you see that percentage growing.
I don't necessarily see the percentage growing as as we we know.
This is an asset class that has historically performed exceedingly well with very low loss rates for those that have underwritten it.
Prudently.
But that being said, we don't see it.
Growing on a percentage basis necessarily but we will be originating.
Certainly a good deal of of multifamily.
At a minimum just to keep buddies percentage levels, Oh reasonably close to two where they are and as we continue to grow.
Okay.
That's helpful too. Thank you.
And then sorry, if I Miss this but.
Windows the sale of your Pvp loans closed.
We expect it by July 30 Onest.
All right those are all my questions. Thank you very much.
Very good.
Our next question is some Matthew Clark from Piper Sandler go ahead.
Hey, just nesby a related question with the rushed to qualify for the six months of.
Relief or.
Support.
You anticipate having an active gain on sale quarter in Threeq you here on the ASP front.
We have not been a a reach in 18.
Much in a way of asked BA.
Certainly where we concluded on originating SBK PPP loans up back in.
June when we funded.
The last few loans in the in the second round.
So we would not expect much in the way of gain other than.
What we plan on on the selling the.
PPP loans here.
Okay. Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Steve Gardner for closing remarks.
Very good thank you Kate and thank you everyone for joining US today. If you have any additional questions. Please don't hesitate to reach out to Ron or myself. Thank you.
The conference has now concluded.
Thank you for attending today's presentation you may now disconnect.