Pacific Premier Bancorp Inc
NASDAQ:PPBI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
20.83
29.94
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Pacific Premier Bancorp Inc
You don't have any saved screeners yet
Good day and welcome to the Pacific Premier Bancorp Third Quarter 2020 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Steve Gardner, Chairman and CEO. Please go ahead, sir.
Thank you, Chuck. Good morning, everyone. I appreciate you joining us today. As you are all aware, this morning we released our earnings report for the third quarter of 2020. We have also published an updated investor presentation that we will be speaking to today. If you have not done so already, we would encourage you to visit our Investor Relations website to access a copy of the presentation. It contains disclosures and information around our ongoing response to COVID-19 despite the dynamic nature of our organization and how we are well positioned too from a defensive posture to one of offence.
In terms of our call today, Ron and I will walk through the presentation and then we will open up the call to questions. I note that in our earnings release and investor presentation that we have our Safe Harbor statement relative to the forward-looking comments, and I would encourage all of you to read through those carefully, particularly in light of the COVID-19 pandemic, the uncertain economic outlook and how it may impact our business, financial condition and results of operations.
I want to start by recognizing and thanking everyone, of the talented and dedicated colleagues of mine, who comprise the Pacific Premier team. Through their commitment to each other, they are having a positive impact on the lives of tens of thousands of individuals throughout the communities we serve. The challenges brought on by the COVID-19 pandemic, has served to strengthen our collective resolve to continue to be a source of strength for all of our constituents.
I am going to begin on Slide 4 of the presentation with a summary of third quarter results. Overall, we delivered solid financial performance, while having another highly productive quarter as we continued to execute on our strategic priorities for managing through the pandemic, integrating the Opus acquisition and positioning the company well to enhance franchise value in the years ahead. We generated net income of $66.6 million or $0.70 per share, along with $98 million of pre-provision net revenue, which reflects our increased operating leverage, earnings power and the benefits derived from the sale of our SBA PPP loans. I have been impressed by how quickly the teams have integrated and are operating at a high level, particularly given the challenges presented by the pandemic. We completed the Opus systems conversion in early October and consolidated 20 branch locations during that same period. We have already exceeded the initial 25% cost savings estimates for the transaction, as our annualized non-interest expense run rate in the third quarter was less than our pre-merger estimates.
With the ongoing pandemic, we remain focused on credit trends, closely monitoring our clients’ business cash flows and proactively managing the associated risks. In general, we saw positive trends in asset quality this quarter with declines in non-performing assets and delinquent loans, along with significant reductions in deferrals as the vast majority of the loan modifications we made earlier this year have returned to making regularly scheduled payments.
During the quarter, we also sold approximately $100 million of lower rated C&I and commercial real estate loans that we felt had the potential for further deterioration. With the positive trends we saw in asset quality, our provision was relatively small compared to the second quarter. CECL has accelerated our reserve build and – combined with the fair value credit discounts on the Opus loan portfolio – it has put us in a strong position. We have built a fortress like balance sheet and maintained a high level of reserves and total loss absorbing capacity equal to 3% of our loan portfolio.
Another material event in the quarter was the sale of over $1 billion of PPP loans, which enabled us to accelerate our fee income recognition, while relieving our team from the burden of managing through the complex and ever changing forgiveness process. With this distraction eliminated, we spent the quarter rebuilding our loan pipelines. In the third quarter, while the pace and strength of the economy remained uncertain, we began to return to an offensive posture toward new business development. As we get more confident in the sustainability of the economic recovery, we expect loan production to grow from the levels we saw during the third quarter. Given the increase in our earnings power and overall risk profile, we have been able to increase the amount of capital that we are returning to shareholders. Our Board approved a 12% increase in our common stock dividend to $0.28 per share. With our strong capital and liquidity levels, we are well positioned to take advantage of any opportunities that may arise in this uncertain environment.
On Slide 5, we highlight key investment themes of the organization we have built over the years. Our financial performance has consistently placed us above our peers; and as such, positions us as one of the premier franchises in the Western U.S. We have always prided ourselves on being a high-performing institution that maintains strong internal controls and robust risk management practices. Our culture of continuous improvement and client-focused business model underpin our track record of creating shareholder value.
On Slide 6, we lay out the comparison to our Western bank peers on a number of important financial metrics. We’ve consistently delivered a superior level of performance and have achieved these results by maintaining a long-term perspective on what is in the best interest of all stakeholders, and we expect this will continue well into the future.
Slide 7 and 8 covers some of our key differentiators, the innovative manner in which we manage the company and our ability to leverage technology to better serve our clients. We were one of the first banks to implement the salesforce technology solution back in 2012. Early on, we realized the power and liability of the platform and began expanding its use beyond merely a CRM tool. Since that time, our program developers have continually enhanced and customized the system. Our investment in technology has positioned us well to handle the increased demand for digital banking solutions when the pandemic began earlier this year. We anticipate the pace of innovation in the financial services industry will only accelerate and our team is meeting the higher expectations of entrepreneurs and small businesses. Our technology solutions are enabling us to meet the more complex needs of larger commercial banking customers and driving gains in productivity. We believe the depth and breadth of our capabilities and innovative approach are a key competitive advantage.
Slide 9 highlights one of the important lines of business we acquired through the Opus acquisition, which has served to strengthen and diversify our fee income. Pacific Premier Trust is a leading IRA custodian for alternative investments. With over $15 billion in assets under custody, this business line generates approximately $28 million of fee income annually. We are excited about the meaningful opportunities to expand this business once we convert the existing trust platform, which will take place in the second quarter of 2021.
Slide 10 displays a timeline of the 11 acquisitions we have completed over the past 10 years. Our team has a well-developed playbook that covers the entire life cycle of acquisitions. With each transaction, we fully integrate the teams and processes into one unified culture. Following the integration, we look back and review our assumptions, approach, and execution, both quantitatively and qualitatively to learn how we can improve. We take that knowledge and apply it to subsequent transactions. We view our ability to successfully attract and acquire M&A partners has a core competency that ultimately results in expanding franchise value.
Slide 11 summarizes our capital strength of both the bank and holding company, with each of our regulatory ratios exceeding the well capitalized thresholds. Additionally, we highlight the consistent growth in our tangible book value over the past decade. The value we create is reflective of the disciplined approach we take toward acquisitions and organic growth while remaining focused on prudent capital management.
At this point, I am going to turn the call over to Ron to provide some additional details on our third quarter financial results. Ron?
Thanks, Steve, and good morning. I’ll pick up on Slide 13, which illustrates the strength of our core operating performance, now reflecting a full quarter’s impact of the Opus acquisition. Highlighted here on the strength of our strategic loan sales and cost savings achieved to-date, we delivered a 47.4% efficiency ratio and a pre-provision net revenue return on average assets of 1.92%. Both of these measures improved from the prior quarter, excluding the loan sales, highlighting the merits of the Opus transaction. Our strong pre-provision net revenue continued to generate significant capital to support both our growth and capital management initiatives.
Slide 14 provides a highlight – highlights the key components of our net interest margin. For the third quarter, we reported a net interest margin of 3.54% and a core net interest margin of 3.23%. As highlighted with our attribution waterfall chart, the largest drivers were the full quarter impact of the Opus acquisition and the deployment of excess liquidity from the sale of the PPP loans.
Slide 15 highlights our non-interest expense post acquisition. Our third quarter operating expense, excluding merger-related costs, extrapolates to $382 million annually; less than the $390 million expense run rate we estimated at the announcement of the transaction. We still have some temporary staff on the payroll as we wrap up our post-conversion activities.
On Slide 16 highlighted is our loss absorbing capacity of $409 million. This is comprised of our $282 million allowance for credit losses and the remaining fair value discount on our acquired loans. As highlighted, the ACL for loans held for investment remained flat from a dollars perspective, but increased to 2.10%. The key drivers of the ACL for the third quarter was the overall loan composition of the portfolio offset by slightly increasing impacts related to the economic forecasts and our credit quality profile.
As highlighted on Slide 17, our deposit cost has come down nicely this quarter to 20 basis points, driven by our deposit re-pricing actions. The deposit run off we experienced of approximately $650 million was both deliberate and expected, in particular with the higher cost money market accounts as well as retail and brokered CDs. Notably, each of these categories fell significantly in terms of the costs from the second quarter.
Lastly, turning to Slide 18, we summarized the composition of our investment securities portfolio. During the quarter, we increased our securities portfolio to $3.6 billion, redeploying excess liquidity. The increase was largely in AAA rated municipal and MBS securities. This brought down our securities portfolio yield and extended our duration. Our liquidity remains strong; and depending on our deposit trends and loan demand in future periods, we may expand or contract our securities portfolio.
At this point, I am going to turn the call back to Steve.
Thanks, Ron. Since the onset of the pandemic, we have provided extensive information, data and commentary on the metrics, quality and performance of our loan portfolio.
Now, I will brief you Slides 20 through 25, which provide an update on credit quality trends. We summarized the diversity and composition of the loan portfolio on Slide 20. Our concentration in multifamily loans has obviously increased with the Opus acquisition. Multifamily has historically been one of the best performing asset classes, owing in part to the housing shortage in the Western U.S. and in this uncertain environment, we remain comfortable with these loans. Multifamily will likely continue to make up a significant portion of our loan portfolio in the near-term. But over the medium to longer term, we expect to comprise a lower percentage of the total.
On Page 21, we provided an update on our COVID-19 temporary loan modifications. The majority of these loans have returned to regularly scheduled payments while extensions of previously modified loans and new modifications dropped to 1.8% of total loans.
Turning to Slide 22, we provide a detail around certain loan types that are perceived to be at greater risk from the impact of the pandemic. Our hotel loan portfolio continues to be under the greatest stress. However, some borrowers are indicating slightly improving operations under these challenging conditions. Pre-pandemic, these loans were prudently underwritten with relatively low loan to values and solid debt coverage ratios. Given that the portfolio is reasonably well seasoned, borrowers remain motivated to protect the substantial equity it built up over many years.
On Slide 23, we highlight our overall strong asset quality metrics. While classified loans have increased this quarter, given the economic environment and our proactive approach to identifying and addressing credit issues, it is not surprising. On Slides 24 and 25, we provide perspective on our long-standing track record of effectively managing credit risk. Over more than a decade, including the 2008 through 2012 credit cycle, we have consistently had credit losses and problem loans well below our peers. Our CRE concentrations have typically increased with each acquisition, but over time we reduce these concentrations through commercial banking focus.
Turning to Slide 27, we summarize the Pacific Premier culture that has been the foundation of our success. Through the years, our capabilities and level of sophistication has grown, but the foundation of our approach to the business remains steadfast.
On Slide 28, we highlight our commitment to corporate responsibility. We have a long track record of investing our time and capital to help strengthen our communities and support charitable organizations that foster diversity and economic inclusion.
We conclude with some thoughts beginning on Slide 29. As businesses and consumers continue to show resiliency in the face of the pandemic, we are seeing increased opportunities to expand existing relationships and develop new business. Additionally, it is clear that we are going to be in a low rate environment for an extended period of time, which will present challenges industrywide. COVID-19 has accelerated many large macro trends and we believe that is true for our industry as well. Consolidation has been ongoing for more than three decades, and we expect the trend to accelerate in the years to come. For many financial institutions, earnings growth will largely be dependent on improving efficiencies, particularly through increasing scale by partnering with other institutions. And we have consistently demonstrated our ability to execute on acquisitions. The value that we have created for the shareholders of the combined company has proven to be a key factor in helping us attract new merger partners over the years. We believe we are well positioned to capitalize on opportunities in the current environment, as well as to manage through these uncertain economic times. And on behalf of the Board of Directors, I want to once again express our appreciation to every member of our organization for their efforts in this challenging environment.
With that, we would be happy to answer any questions you may have. Chuck, please open up the call for questions.
Yes, sir. [Operator Instructions] And our first question will come from David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Good morning, David.
I just wanted to start on the loan sale and just get your thoughts on the strategy behind it. Was this more of a non-core portfolio or potential problem loans that you just wanted to get off the books? And as you look at the breakdown, it looks like it might have been a pool of non-owner occupied CRE, so just curious what was in that and any details you are going to provide on that? And I guess two, why it didn’t hit net charge-offs?
So, David, I think most folks are pretty familiar with the history of our strategy around either acquiring portfolios and selling portfolios and we have frequently done this over the years, typically following acquisitions. This was a group of C&I and CRE properties, a mix across the board of types in those two large broad categories. And we have done this over the years. If we see – as part of proactive portfolio management, if we see maybe degradation or concern in future cash flows, we will take the opportunity to sell these portfolios and that’s what we did here in the third quarter.
Our next question will come from Matthew Clark with Piper Sandler. Please go ahead.
Hey, good morning, all.
Good morning.
Just to follow on that first question, do you anticipate additional loan sales? And were those Opus credits?
They were a combination of credits from either we originated or may have been acquired from Opus or other institutions. It’s hard to say. We will see. Depending upon the cash flows, the characteristics of the individual loans, we are proactive in that regard. At the same time, we saw improving credit quality generally across the board other than the slight uptick in classified assets. But just given the environment, the worst recession that we have seen in our lifetime, in the second quarter, it’s not to be – it’s to be expected to a certain degree. So, we will see as we move forward. We are going to be proactive as we manage our credit risk in the portfolio. We think that’s the best way to do it allows us to focus on the vast majority of the existing clients that we have that are doing very well in this challenging environment.
Okay, great. And then just on loan growth in general, I think loans were down about $400 million ex the loan sale, ex-PPP. It sounds like they have come in from elevated pay off. How much of that was competitive, kind of, will you just, kind of, let the credits go? How much of that is just selling the businesses and projects being completed? And then just as a follow-on to that going on offense and kind of developing new business, how does the pipeline look at this stage maybe linked quarter with Opus and where you are seeing the greatest opportunities?
Sure. So, it was a combination of pay-downs, payoffs. Certainly, line utilization has been declining here since the mid part of the second quarter. I think you have to take a step back here and look that when – as the pandemic set in and the contraction began in earnest, we pulled back from – and we had Opus, we pulled Opus back once we closed that transaction. So, the pipeline was very low heading into the third quarter. As the teams came together, as we got better visibility around the portfolios of both companies, the modifications and the like, the conversations we were having with clients and as the teams fully integrated, that pipeline began to grow materially in the third quarter and we ended up in a very strong position here as we head into the fourth quarter and into 2021. The loan pipeline, it’s been fairly well diversified. A good chunk of multifamily has come in that we are seeing attractive risk-reward opportunities. Part of that is the long-standing relationships that some of the Opus folks have had and the ability to expand those relationships with some very strong individuals.
Okay. And then just on the cost saves, you mentioned I think you have got a lot of them out. But the conversion was in early October, which isn’t likely in the fourth quarter run rate. So, just wanted to get a sense for the amount of annualized cost saves left and any thoughts on kind of core expense run-rate?
Yes, I think we will have better visibility once we move through the fourth quarter here. But you are absolutely right the conversion did not take place till after the third quarter, that first weekend in October. We did consolidate 20 branches. As Ron mentioned, we do still have some temporary staff onboard and that we will be finalizing their projects and tasks here in the coming weeks and that those folks are slated to leave us. So, we will get some additional impact here in the fourth quarter. And as I said, we will – Ron and I will have better visibility as we get to the end of the quarter. Ron, is there anything that you would like to add in particular there around the expenses?
I think you summarized it very well, Steve. We will get clear visibility. I think that given the slate for which those folks are going to be exiting, we will probably have another partial quarter here exceed additional savings and then we will get – as I think you mentioned earlier – the first clear – our clean quarter, if you will, will be the first quarter from a net non-interest expense standpoint.
Okay. And last one from me just on potential share buyback, you have an authorization out there. I know it’s been on hold. Are you waiting for maybe a regulatory exam to get the green light or is there any expectation that you might revisit the share repurchase program?
Yes. So, we are not waiting for any green light from a regulatory standpoint. Certainly, it’s a $10 billion institution. We are under the continuous monitoring program that the regulators have in place. We have ongoing conversations with them. Capital management is certainly a key focus, and we – as you mentioned, Matt – we suspended that stock buyback program, and – toward the end of the first quarter, early part of the second quarter. And as we are getting better clarity and visibility here and I think that we all hope that we will have better visibility here in the coming weeks as to how the economy is going to perform and then how the outlook is for the company, that certainly that is something that we are going to be having further conversations about at the Board level.
Okay, thanks.
Our next question will come from Gary Tenner with D.A. Davidson. Please go ahead.
Good morning, guys.
Good morning, Gary.
Just a couple of questions left on my end. I noticed that the deposit spot rate at September 30 was a few basis points above the average. I am just wondering about any trends there? Was it more of a mix kind of at quarterend versus the average or what was the moving parts there?
Ron, you want to address that?
Sure. Sure, Gary. Yes, the 23 that is spotted at the end of the quarter, as we noted, obviously there is a dynamic situation in terms of the costs. The actual average cost excluding the benefit of the CD mark-to-market was closer to 25, 26 basis points for the quarter, and then the CD mark-to-market amortization benefit brings it down to 20. So, what you actually do see is a reduction in the average rate down to the 23 basis points at quarter end, so without the benefit of the CD mark-to-market amortization.
Okay, great. And then just secondly on the classified loans, only about 1% of the total, but just in terms of the kind of sequential quarter increase, any kind of commonalities within that move in terms of the underlying loans?
No, not really. There are certainly some that are in there that were pre-modified loans that we are not going to get an additional extension, and then just the normal course of going through the loan grading. As I said, our proactive approach towards managing a potential future credit issues, we are very proactive in that. So, it’s – I think to be expected to a certain extent, just given what we have seen here in the economy.
Okay, thank you. My other questions were answered.
Very good.
Our next question will come from Jackie Bohlen with KBW. Please go ahead.
Hey, guys. Good morning.
Good morning.
I had a question on Slide 16. Just looking at that $31 million impact to the ACL based on loan composition; how much of an effect did the loan sale have on that number in the quarter?
The $100 million of C&I and CRE loans?
Yes.
Not significant. This is you are looking at really the change from where the portfolio was at Q2 versus Q3. And as noted earlier, lower line utilization, pay downs and payoffs had an impact. Ron, do you have anything else that you want to add in particular there?
Sure. And I just want to make sure, Jackie, you are talking about the $31 million decrease in the ACL related to what we have categorized as loan composition, is that correct?
Yes, and maybe I am looking at the wrong category, but I was just trying see if there were any specific reserves that may have been released with the loan sale?
There were. Yes, there were. I don’t have the exact number here, but it was proportionately a little higher than obviously the 2%, if you will, relate it to the overall reserve. So – but that is included in that number, as well as the things that Steve mentioned, the runoff of the portfolio, the additional $400 million. But that did have an impact also on the – and is included in that $31 million.
Okay, thank you. And then just looking more broadly at expenses, I mean, you have done a fantastic job of pulling expenses out of the combined organization. And I am just curious exceeding those expectations even ahead of the conversion is tremendous. And I wanted to see, did you find costs that you were not expecting to have? Were there efficiencies to legacy Pacific Premier that maybe you picked up, if some of this is related to lower cost just due to less travel and everything from the pandemic? Just any color you have there would be great.
I think there is a multitude of factors that come into play. Certainly, the impact of the pandemic, broadly speaking, has allowed us to push down on costs in a variety of areas, and there is a number of other little items, and then really our proactive approach towards managing our expense base very closely. So, we were certainly pleased with where we came in at the end of the third quarter and looking forward to the benefits that we derive from the system conversion and the branch consolidation.
Okay. And then just one last one for me in terms of securities purchases, I am just looking for the timing of some of those and whether or not the full impact is reflected in the quarter’s investment yield or if there is going to be – understanding, obviously, that your liquidity position is going to fluctuate and there could be more purchases in the fourth quarter; but if that’s fully reflected in the third quarter yield or if there is going to be more pressure just from activity that’s already happened?
Ron, you want to go ahead and respond?
Sure, sure. There is a bulk of the – Jackie, the bulk of the purchases were done in the first half of the quarter, predominantly in the first two months. And so, the full effect, if you will, the full yield of that portfolio, I think is reflected in our third quarter numbers. If anything, we may see a little bit more lift, by maybe 5 basis points going forward.
Okay, great. Thank you.
Our next question will come from Tim Coffey with Janney. Please go ahead.
Good morning, gentlemen. Thanks for hosting this call. Ron, how should we think about the margin going forward? You have some really good details within the press release today, but it did look like that new production is coming on below the average of the portfolio.
Sure, Tim. Yes, obviously, the environment itself, loan demand, the pricing, the lower interest rate environment, all of that is having a pretty impactful on the new originations coming in the door. Obviously, the mix of business Steve mentioned earlier, the multifamily predominantly we saw here in the third quarter, so that’s also having an impact on the new yields coming on the books. I think we are going to continue to see that pressure now. Obviously, we have been able to, I think offset some of that with our deposit repricing, but we will see. We should start to see it settle down. We may see another 3, 5 basis points. But I don’t think it’s anything significant. Obviously, the big drivers this quarter, with the compression of the NIM and the core NIM, were obviously the full effect of Opus and the excess liquidity, both obviously are fully realized in this quarter. So, on a quarter-to-quarter comparison, I think you are going to see fairly decent stability.
Okay, thanks. And then, Steve, as you kind of look at the origination potential for the combined business, quarter-over-quarter, you had a good pickup in originations despite it not being the best of circumstances. Where do you see – I mean, where you think originations could be in a normalized environment for Pacific Premier?
Tim, it is a great question. It’s hard to know at this point. I think that as we move through the fourth quarter and some of these uncertainties that exist in the economy around the election, the therapeutics and vaccines– on the virus and how this all plays out, I think we will have some better visibility on what the demand is in the marketplace. I am certainly encouraged by some of the quality of folks that we brought over from Opus, certainly from the team that we have built and getting them to move back into an offensive posture. Our commercial bankers, I think that they are seeing increased level of conversations with existing clients as they are becoming more comfortable in operating in this environment and they are seeing opportunities, and then certainly new business development as well. So, I think as we move through the quarter again and we get through some of these things, we will certainly have better visibility and understanding on really what is the run rate on new production for the loan book.
Okay. And just kind of a follow-up on that, do you see borrowers sitting on the sidelines right now, kind of waiting to see where valuations, vaccines, things of that nature shake out?
I think you are seeing a spectrum. You are seeing more investors that – who moved to the sideline are starting to put capital back to work, certainly recognizing that as excess liquidity sits on the sideline earning very little and that they have got more comfortable with where the economy is headed in the short and medium term. They are putting money to work. You still have some folks who are on the sidelines, and then you have those folks who really look at this as – looked at it opportunistically to put money to work. So, I think it’s a spectrum. As we move through the quarter, people began to get certainly more comfortable. Obviously, we all expect GDP to bounce back here pretty significantly from Q3, and then we are all sitting here looking as we look forward, what is the impact of the election, what is the impact of the virus and the pandemic on the economy? But I think we have been very impressed with the resiliency of business owners, consumers. Their ability to adjust to the current environment has been very impressive.
Okay, alright. Those are my questions. Thank you very much.
Sure Tim.
Our next question will come from Andrew Terrell with Stephens. Please go ahead.
Hey, good morning, everyone.
Good morning.
I just wanted to start really quickly. I think we talked on the second quarter call about maybe expectations for additional talent investments in the back half of the year. Love to just get any color you could provide on success you had this quarter in hiring or how the pipeline maybe looks or shaping up going forward?
Yes, I think from the hiring standpoint, it’s really just refinements at this point where we can bring good talented individuals into the organization and it is something that is a part of our culture and ongoing, that recruiting aspect. But I don’t see any – we are not one to necessarily bring over teams per se. we are pretty comfortable with the team we have today, and they are functioning at a very high level.
Okay. Thank you. So, maybe Ron, could you give us an expectation for kind of purchase accounting accretion moving forward? Is this – the $12 million this quarter, is that kind of a good run rate, maybe modestly declining from here to think about?
I would say Andrew that that’s – I think declining from here modestly to your point, indeed 3, 4 basis points on a prospective basis, on a quarterly – from quarterly standpoint, that is probably reasonable, yes.
Got it. Okay. Thank you, guys, for taking my questions.
Sure thing.
[Operator Instructions] Our next question will come from David Feaster with Raymond James. Please go ahead.
Hey, sorry I had some technical issues due to user error over here. But I did have a couple of high level questions. Steve, you always got a good pulse on the broader landscape, so I just wanted to get your thoughts on some of the pending legislation, specifically Prop 15 and Prop 22. How do you think about the implications on the CRE in multifamily markets in California?
Well, I think that what we have seen is a long history in the great State of California of legislators trying to be helpful. And fortunately, the entrepreneurs and business people figure out what is the landscape, what are the rules, and make adjustments. And that is exactly what we will do along the way. We will see how this plays out. There is always, as I said, adjustments that folks make to find ways to be successful. Given the size of the state, that its economy is the sixth largest globally; the size of the population, 40 million folks; some of the university system, all the things that California benefits from, its location on the Pacific Rim and the like, those aren’t changing. Certainly, it makes the environment a bit more challenging. But entrepreneurs and investors are very creative and find ways to be successful in the state. There is just too much opportunity. So, we will see how it plays out.
Okay. And then just the timing of the Opus deal was just extremely pertinent. And I guess as you have gotten to dig into the combined franchise with the improved expense profile, the fee income contribution and just the organic growth potential of the combined institution, just as the economy improves, I guess how do you think about the earnings power of the combined franchise and have you kind of updated any target for ROA, return on tangible common that you might be willing to share with us?
We have not shared any specifics in that regard. But I think that as we look at the organization today, we have never been stronger or better positioned to take advantage of opportunities, and that is exactly what we intend to do. As I mentioned in my prepared remarks, this is a consolidating industry. It has been for 30 years. COVID has accelerated many large macro trends and we think consolidation in financial services is going to be one of those, and we expect to be active, and at the same time we as always will be disciplined. But we think that with where we are today, we are extremely well positioned.
Alright. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Steve Gardner, for any closing remarks. Please go ahead, sir.
Very good. Thank you again all for joining us. And if you have any additional questions, please do not hesitate to reach out to either Ron or myself. We would be happy to answer them. Thank you.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.