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Brookline Bancorp Inc (NASDAQ:BRKL)
Q2 2020 Earnings Call
Jul 23, 2020, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Brookline Bancorp Incorporated Q2 2020 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference call over to Ms. Marissa Martin of Brookline Bancorp. Ms. Martin, the floor is yours, ma'am.

Marissa Martin -- Associate General Counsel

Thank you, Mike and good afternoon, everyone. Yesterday, we issued our earnings release and presentation which is available on the Investor Relations page of our website, brooklinebancorp.com and has been filed with the SEC. This afternoon's call will be hosted by Brookline Bancorp's executive team, Paul A. Perrault and Carl M. Carlson.

Before we begin, please note, this presentation is being done from several different locations. So if there is a delay or technical problem. We appreciate your patience and understanding. This call may also contain forward-looking statements with respect to the financial condition, results of operation and business of Brookline Bancorp. Please refer to page 2 of our earnings presentation for our forward-looking statement disclaimer. Also please refer to our other filings with the Securities and Exchange Commission which contain risk factors that could cause actual results to differ materially from these forward-looking statements.

Any references made during this presentation to non-GAAP measures are only made to assist you in understanding Brookline Bancorp's results and performance trends and should not be relied on as financial measures of actual results or future predictions. For a comparison and reconciliation to GAAP earnings, please see our earnings release.

If you can join us on page 3 of the earnings presentation, I'm pleased to introduce Brookline Bancorp's President and CEO, Paul Perrault.

Paul A. Perrault -- President and Chief Executive Officer

Thanks, Marissa and good afternoon, all. I am cautiously optimistic the positive trends we are seeing related to the pandemic in Massachusetts, Rhode Island and New York will continue. In both Massachusetts and Rhode Island, most areas are in phase 3 of the reopening process and every day economic activity seems to be slowly recovering. The health and safety of our employees and their families is our priority. And we continue to employ our work from home and bank by appointment protocols.

We continue to see traffic increases in our branches and offices, while maintaining our bank by appointment strategy, limiting the number of people in the branch at any one time for the safety of our employees as well as customers. And this has been well received by customers. At our headquarters here in Boston, as well as our operation centers approximately 70% of the Company's non-retail employees continue to work remotely minimizing potential exposure and ensuring social distancing. Our bankers were quite busy in the second quarter providing PPP loans and loan payment deferrals.

As we enter the third quarter, I'm happy to report those attentions will now be focused on returning most of the phase 1 customers to paying status and assisting PPP customers through the SBA loan forgiveness process when it is available. We will continue to work with a small segment of our customers who are still facing financial challenges related to that shutdown and may require additional loan payment deferrals, which we refer to as phase 2. By the way, I want to publicly recognize our amazing employees who have been incredible supporting our customers as well as each other.

We had a solid quarter of earnings of $19.6 million or $0.25 per share, driven by a lower provision for loan loss as we continue to build on the substantial reserve position, we had established in the first quarter. I'm also pleased to report, the Board approved another $0.115 dividend to stockholders and that will be paid in August.

I will now turn you over to Carl, who will review the Company's second quarter results.

Carl M. Carlson -- Chief Financial Officer

Thank you, Paul. On slide 4, we've provided summary income statements for the quarter, prior quarter and prior year. We recognized net income of $19.6 million compared to a loss of $17.3 million in Q1, driven by stable revenues, lower expenses and a lower provision for credit losses. Revenues were relatively flat for the quarter as net interest income increased and fee income declined. We track debit card usage and interchange income on a weekly basis as compared with the same period in the prior year. Initially, we saw a very sharp drop off of over 40% as a pandemic hit and businesses shut down.

Weekly activity has steadily improved and is now nearly flat with last year. Fees related to customer back to back interest rate swaps were also significantly lower as commercial real estate originations declined sharply. Operating costs were lower due to seasonality. The First Ipswich Bank consolidation and deferred costs associated with PPP loan originations. This was offset by higher FDIC insurance expense as credits were exhausted during Q1. Our pre-tax pre-provision net revenue improved $1.1 million from Q1 and $400,000 from last year. We continue to build our reserve for loan losses with provision for credit losses of $5.3 million. After taxes, we earned $19.6 million or $0.25 per share.

As illustrated on page 5, net interest income increased $2.6 million driven by average earning asset growth of $870 million as our net interest margin compressed 22 basis points. The yield on the loan portfolio declined 46 basis points as the full impact of the decline in market rates in Q1 was realized as well as the continued decline in LIBOR rates during Q2. Overall, our cost of interest bearing liabilities declined 38 basis points, which consisted of 33 basis point decline in the cost of interest bearing deposits and a 74 basis points decline in the cost of borrowings.

If you could follow me to slide 6, you can reference our comparative summary balance sheet. In the second quarter, the Company grew -- grew to $9.1 billion in assets. We had loan growth of $585 million, and deposits grew $550 million. The allowance for loan losses also grew $7 million, and represents 175 basis points of loans excluding PPP loans. We also shifted some of our on-balance sheet liquidity from cash to securities as we continue to ensure our prudent position in this environment to meet the financial needs of our clients.

Slide 7 reflects the growth and composition of our significant loan and deposit categories. The second quarter was driven by our efforts to help customers participate in the SBA paycheck protection program. Of the $585 million in loan growth, $566 million was a result of PPP. We also had $76 million of growth in the commercial real estate and $31 million in equipment finance, offset by declines in C&I and consumer loans. Deposit growth was also largely driven by the funding of the PPP loans into customer accounts. We continue to see customer preferences shift from CDs to money markets due to the added flexibility and low interest rate environment.

If you follow me to slide 8, we have provided an update to our PPP participation. The company funded its first PPP loan on Friday, April 3rd. And at the end of June had nearly 3,000 loans totaling $566 million. We have collected $19.4 million in fees from the SBA, which net of origination costs will be recognized over the life of the loan. We do expect a large percentage of these loans to be forgiven under the program over the next few quarters, with the remaining portions of the loan paid over the original 24-month time.

On slide 9, we are providing insight into our loan payment deferment activity and expectations. We provided 90-day relief on loan payments for $1.2 billion or 16% of total loans as of June 30. Based on loan officer communications with borrowers, we expect 70% of these loans to return to payment status at the end of the initial deferral period, what we call, phase 1. We currently expect $335 million or 5% of our portfolio will seek an additional 90-day deferral as part of phase 2. We want to emphasize, these are estimates, which could materially change based on many factors. At this at this time, these short-term modifications have had no impact on our internal credit ratings related to these credits, our accrual of interest or accounting for these assets.

On slide 10, deferred payment informations provided by selected seven segments. Some of these segments are relatively more significant unique to us, such as apartments, Dunkin' Donuts, Laundry and Tow. More pandemic sensitive segments such as retail fitness and hotels provided separately. Many of you have followed us for years and no, we have not -- we are not active in the energy, airline, cruise line or syndicated lending.

Apartments are the largest component of our investment commercial real estate portfolio. There was a little need for initial difference and nearly all our clients which participated in phase 1 have indicated they will be returned to paying status at the end of the 90-day period. This is also true for our healthcare segment, while many of our Dunkin' Donuts clients requested deferrals, most will be returning to paying status at the end of phase 1.

Turning to our national equipment finance segments, Laundry and Tow, over half of our clients requested phase 1 deferrals with most indicating a return to payment status. 10% to 12% are currently expected to participate in phase 2. The pandemic sensitive areas of retail, fitness equipment, hotel and food will continue to need some level of assistance. Of the $878 million in these portfolios, we expect $202 million to participate in phase 2 at this time. The most impacted areas being hotel and our national fitness equipment business. I want to highlight again. These are well run businesses and we're all in good standing before the impact of the pandemic hit the economy.

As shown on slide 11, the Company continues to be very well capitalized exceeding all regulatory requirements as well as our own internal policies and operating targets. At June 30th we had a capital buffer of 2.6% or $184 million over regulatory well capitalized standards. Slide 12 provides a history of our regular dividend payout, which continued this quarter as the Board approved a quarterly dividend of $0.115 per share, which will paid on August 21 to stockholders of record on August 7. If our dividend remains constant for the remainder of the year, full year per share dividends would be $0.46, a 4.5% increase over 2019 and currently approximates a 4.8% yield.

This concludes my formal comments, and I'll turn it back to Paul.

Paul A. Perrault -- President and Chief Executive Officer

Thank you, Carl. And now, joining us for the question-and-answer session is Robert Rose, our Chief Credit Officer. We will now -- Mike, open it up for questions.

Questions and Answers:

Operator

All right. Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first question we have will come from Mark Fitzgibbon of Piper Sandler. Please go ahead, sir.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hi, everybody. Good afternoon.

Paul A. Perrault -- President and Chief Executive Officer

Hi, Mark.

Mark Fitzgibbon -- Piper Sandler -- Analyst

First question I had, I wondered if you could share with us some of the details on the $176 million of fitness credits on the, sort of the macro lease credit set to Bank of Rhode Island there. Could you give us some metrics on the portfolio?

Robert Rose -- Chief Credit Officer

Sure. Hi, Mark, Rob Rose. First off, I'd tell you that $175 million is the whole macro lease portfolio. The fitness, pure fitness is less than that, maybe $160 million, but it is -- it is comprised of about 30% planet fitness franchises and most of those in multiple store operators. About 50% of it comes from YMCAs, YWCAs, about 30% would come from homeowners associations, exercise facilities in business parks, office parks, office buildings and schools, with a little bit of Gold's Gyms thrown in 30%, the remainder 20% would be independent operators, one, two, three store operations.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay, great. And then secondly, I guess sort of a macro question Bob, of the $335 million loans that you're expecting will stay on deferral. Most of those in your estimation have the ability to return to full paying, say, at the end of the year or are some of these companies, you know it's hard to envision that they're going to get back to that place and therefore there is a very different conversation at the end of the year with them.

Robert Rose -- Chief Credit Officer

It's very early to answer that with precision. It is our expectation that the majority of them will be able to come back to full payment. As time passes, Mark these return to payment will sort of coagulate around certain industries. I can give you an example of one that may have difficulty coming back to a company that leases audio visual equipment into the meeting business, right? You go to a conference in Las Vegas, they might supply the AV stuff. You know, they are going to be the recipient of a main street loan, which gets them, maybe to the time when people are going to business meetings, but that's an example of one that may have difficulty coming back without the benefit of that stimulus money from the main street program, but it is only a handful at this time that have emerged as potentially having more serious trouble.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then lastly, on credit, are you seeing much of a difference in business conditions for commercial customers in say, Rhode Island versus Massachusetts?

Robert Rose -- Chief Credit Officer

No, I think both of them are states were early lock down and are both enjoying you know, moving from our phase 3s into phase 4s with very low infection hospitalization rates.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then Carl just a couple of financial questions, excluding the impact from PPP forgiveness on the margin. How are you thinking about the margins sort of over the back half of the year?

Carl M. Carlson -- Chief Financial Officer

So, we'll continue to see some pressure on the asset side, just as things reprice down, continuing to reprice down, but the liability side will reprice faster. So we do expect the margin to improve slightly going forward.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then cash balances came down a fair bit this quarter, should we expect those will also continue to come down and be redeployed into either securities or loans?

Carl M. Carlson -- Chief Financial Officer

I would say, modestly, I think we'll continue to bring slowly gradually bring the cash balances down, not -- perhaps not so much into loans or into securities. I don't expect loans to be real, growing robustly going forward unless the PPP -- yeah, I know that there's a talk of PPP too, I'm not sure how much that may impact us, but I think the general loan environment right now, I think is going to be very flat to down a bit.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then lastly, I saw you file the $200 million shelf yesterday, was that just sort of a refresh of the existing shelf?

Carl M. Carlson -- Chief Financial Officer

Exactly. That's just a refresh, there's no plans on doing anything at this time.

Paul A. Perrault -- President and Chief Executive Officer

Housekeeping.

Carl M. Carlson -- Chief Financial Officer

Yeah.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Great. Thank you.

Paul A. Perrault -- President and Chief Executive Officer

Thanks, Mark.

Operator

Next we have Dave Bishop of D.A. Davidson.

Paul A. Perrault -- President and Chief Executive Officer

Hi, Dave.

David Bishop -- D.A. Davidson -- Analyst

Hey, good afternoon, gentlemen. A quick question in terms of the outlook, you guys did a nice job sort of holding the line in terms of operating expenses in the phase of the margin compression here. How should we think about that trending into the second half of the year? It sounds like there could be some PPP program fees, remind me if those get netted against the fees through spread income? Or do they hit the operating expense launches sort of thoughts in terms of how that should trend moving forward?

Paul A. Perrault -- President and Chief Executive Officer

Well, we'll continue to see operating expenses to basically be flat going forward, if that's the question.

David Bishop -- D.A. Davidson -- Analyst

And that's not contemplating any sort of movement in terms of the branch footprint for such as of yet [Phonetic]?

Carl M. Carlson -- Chief Financial Officer

We did close one branch late in the quarter. Burlington branch will get a little bit of benefit from that, but just ongoing expenses, you know, slowly increases. I think that'll get eaten up by that. That's why I'm saying kind of in a flat environment for expenses at this time.

David Bishop -- D.A. Davidson -- Analyst

And I know there was a lot of questions I guess in the past call maybe just with what's happening with the exposure up there in terms of student housing in colleges and commercial real estate. It sounds like from what's happening in terms of the outlook from phase 2, at least in the apartment segment, not seeing too much pressure related to that thus far.

Robert Rose -- Chief Credit Officer

Well you know, you first asked about the student issue blended into another question, maybe you could repeat it. But we expect, from the reports coming out of the colleges, between 25% to 50% of the usual student population in Boston, Cambridge and Environs. And we probably have, we mentioned this on the last quarter's call, we did a little zip code run off in Rhode Island and in the Boston area. What kind of exposure we have where colleges are located? And it's about $220 million in apartments in those areas. That does not mean that every one of those is full of students.

It's a phenomenon when you reduce your student population like that, the other thing that's going along with it is they are reducing the number of kids that can be in dorm rooms. So, some landlords are reporting interest in kids and schools seeking to book rooms so they can put one kid to an apartment and a bathroom. So, the effect on apartments from the students is yet to be proven out, but perhaps not as negative as people anticipated. I can tell you the collection rates on apartments in both of our markets are running between 90% to 100% of expected collections.

David Bishop -- D.A. Davidson -- Analyst

Got it. That's good color. And then finally, Carl, just circling back to PPP fees, did any of those impact spread income this quarter? Did any of those get recognized this quarter? Or is that all going to be a second half 2021 event?

Carl M. Carlson -- Chief Financial Officer

No, of the fees, they're getting recognized on a monthly basis amortized into income through interest income. The forgiveness process has not begun yet, I think the SBA and Congress is still working through what they're actually going to come out with. And so, as that opens up or that gives some clarity happens there, as loans get forgiven, that -- and get paid. So, we have to wait for the SBA to pay us. That's when we maybe, will take that -- or we will take that fee income into earnings.

Paul A. Perrault -- President and Chief Executive Officer

Along with the deferred cost.

Carl M. Carlson -- Chief Financial Officer

Along with deferred cost.

David Bishop -- D.A. Davidson -- Analyst

Got it. Great. Thank you.

Operator

Next we have Collyn Gilbert of KBW.

Collyn Gilbert -- KBW -- Analyst

Thanks. Good afternoon, gentlemen.

Paul A. Perrault -- President and Chief Executive Officer

Hi, Collyn.

Collyn Gilbert -- KBW -- Analyst

Carl, if could just start, I was just drilling into the margin a little bit, I know you'd indicated excluding PPP that the bias is perhaps upward, but can you just give us a little bit more color in terms of what you're seeing on new loan origination yields and then where you're also adding new CDs kind of what the cost is with some of your new CDs at this point?

Carl M. Carlson -- Chief Financial Officer

So, on the new loans during the quarter, loan rates were at around 3.95% on a weighted average basis, 3.95% or so. And I think that's continuing. You know, we're starting to putting some floors in place and things of that nature with folks. So it's holding in that 3.9% to 4% rate and I think that's going to be consistent going forward. On the CD side, rates are just much lower, and we're actually not seeing a lot of CD activity in the book.

A lot of folks are opting out of our CD rates and preferring to go into money markets just seeing the differential between the two not being substantial enough for locking a rate, they prefer to have the flexibility of a money market account at this time. So that's why you're not seeing the rates or the yields on the CD book come down as much as you might have expected simply because, nothing's rolling over and what's in there in the book is at a higher rate.

Paul A. Perrault -- President and Chief Executive Officer

And certainly, there's nothing promotional in the CD business right now with all the liquidity around.

Carl M. Carlson -- Chief Financial Officer

Yeah.

Collyn Gilbert -- KBW -- Analyst

Okay, OK. Right, which I guess that -- OK, well, that makes sense because I was just looking at your CD rates and thinking that could be -- I would think it could be a lot lower, but that's just the timing of kind of the maturation schedule for when those start to roll over more than anything, right.

Paul A. Perrault -- President and Chief Executive Officer

Correct. That is the shrinking category.

Collyn Gilbert -- KBW -- Analyst

Yeah. Okay. Got it. Okay, good. And then just sort of tied into that in terms of the deposits that you saw PPP related, you know, I feel like we're kind of hearing mixed things from banks in terms of when those money is expected to be drawn down. Do you have a sense of, you know, how those deposit balances might run in this -- with the point being that, you know, some of these PPP borrowers are saying, this is a very low cost source of borrowing for us, and we're going to just maintain this level of liquidity. Do you have a sense of what your PPP customers are doing? Or how they're thinking about it?

Carl M. Carlson -- Chief Financial Officer

No, I can't give you any insight exactly on that. I know there are certain customers that need that money to just, you know, keep stay alive, and so those folks are using it, but it's getting offset by folks that are maintaining more additional liquidity. So, it's all across the board. So, it's really hard to give you a real answer on that.

Paul A. Perrault -- President and Chief Executive Officer

And it's almost 3,000 loans for us. So it's kind of difficult. They're all little pieces.

Collyn Gilbert -- KBW -- Analyst

Yeah, yeah. Okay. Okay. And then, just in terms of, and maybe this is for you, Bob, as we look at the provision this quarter, right, and obviously, the reserve came down, and you had indicated -- I guess just thinking about that the phase 2 deferrals, the $202 million and if we look at kind of those three heightened segments between retail CRE, the fitness equipment and hotel at like $198 million, I -- just trying to sort of reconcile maybe what you think the inherent risk truly is within that book? And how that qualitative risk may be played into the provisioning this quarter? Or just how you're looking at that?

Paul A. Perrault -- President and Chief Executive Officer

Well, first the allowance went up. Okay, I think you might have said that it went down if I heard you right, but it went up.

Collyn Gilbert -- KBW -- Analyst

Just for the reserve ratio, the reserve, just...

Carl M. Carlson -- Chief Financial Officer

Reserve ratio.

Paul A. Perrault -- President and Chief Executive Officer

The reserve to non-PPP loans, which I think, and I think all the analysts, as well as you have to be looking at that [Speech Overlap] right.

Collyn Gilbert -- KBW -- Analyst

Yeah, yeah, yeah.

Paul A. Perrault -- President and Chief Executive Officer

Because that did increase to $175 million of loans and that's a good increase over where we were before. And I think it's still substantially higher than most.

Collyn Gilbert -- KBW -- Analyst

Yeah.

Paul A. Perrault -- President and Chief Executive Officer

That don't have these types of. Okay, and Bob, would you take the latter part of that question about...

Robert Rose -- Chief Credit Officer

Yeah, I will. It's kind of like a two part answer. I think, first of all -- first of all, Collyn, the deferrals were like only one out of six major things we considered as we evaluated the proper level of provision and ending reserve for this quarter, but the way we look at those segments, if you were looking at Carl's slide, our slide on page 10, for example, the -- you know, we have a little residual left, if you think of them differently, about 22% of the deferrals in the eastern funding core portfolio as per second extensions as a little bit of color there.

Remember that the vast majority of this business is essential, meaning it's a laundromat and they do some Bodegas and a handful of other things, all essential businesses. And you know, they found that those customers, most of them have a proclivity to want to pay their loans off faster than the maturities, but in this environment, some of them said, what the heck, I'll take another 90 days just because I can, but we don't expect anything, but the weakest of the week to be hurt, in that portfolio, we think the rest of them will come back.

The tow business, same percentage, if you do that arithmetic, it's 21% of the deferrals and we simply need volume on the highways to pick up to where it was in this business and other essential part of life should return nicely. Regarding the fitness business, most of our segments that I mentioned are strong. The planet business well capitalized owners, multiple stores, everything is personally guaranteed and cross collateralized and the fellow who runs that, believes that is more likely that those people will consolidate operations and pay down loans rather than get stuck on something.

The part of that at the end of the day might be, might be too soon to tell, but the independence around one and two exercise places. So, we're looking at that. The hotels, you can understand why they get deferrals like that, but 50% of our hotels are in vacation sites, Martha's Vineyard, Block Island, the coast of Rhode Island, the coast of Connecticut, and those people are reporting near 100% bookings through their summer season, Provincetown.

It's the business ones that are a little weak, and virtually all of those are with very well-capitalized sponsors who have lots of flexibility and we're working with them to determine what we do. So, we are not terribly worried about any of these pieces asking for additional deferrals at this moment in time.

Collyn Gilbert -- KBW -- Analyst

Okay, that's right color. That's very helpful, Bob. Okay, thanks. That's all I had. Thank you.

Paul A. Perrault -- President and Chief Executive Officer

Thank you, Collyn.

Operator

[Operator Instructions] At this time we have Laurie Hunsicker of Compass Point.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah. Hi, thanks. Good afternoon and just wanted to follow-up, I know you give great color here on the LTVs, but specifically on the hotel book, do you have an [Speech Overlap].

Paul A. Perrault -- President and Chief Executive Officer

On what, Laurie?

Laurie Hunsicker -- Compass Point -- Analyst

On the hotel.

Paul A. Perrault -- President and Chief Executive Officer

On the hotel.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah, Bob you have a hotel [Indecipherable].

Robert Rose -- Chief Credit Officer

I'm sorry. What's the question?

Paul A. Perrault -- President and Chief Executive Officer

LTVs on the hotel business, generally.

Robert Rose -- Chief Credit Officer

You know, they're fairly modest in the 65 to 75 at the very top and those that are up there -- up at that higher end, Laurie, would be smaller projects like a B&B somewhere on buying individual. So, nothing way out there.

Laurie Hunsicker -- Compass Point -- Analyst

Okay, great. And then, just quick question, Carl for you on the $566 million of PPP loans, how much of that is under $150,000?

Carl M. Carlson -- Chief Financial Officer

That's a great question. A large part of it.

Paul A. Perrault -- President and Chief Executive Officer

Wasn't it like, 70%?

Carl M. Carlson -- Chief Financial Officer

I think the median loans, you know, we show average loans there, but the median loan, I think at Brookline is $75,000 and the median loan at Bank Rhode Island is $56,000. So, it's a -- and I might have those things backwards, but I think that's the numbers and so, most of the loans are very, very small.

Laurie Hunsicker -- Compass Point -- Analyst

Okay, perfect. Thank you so much.

Operator

Next we have William Wallace of Raymond James.

William Wallace -- Raymond James -- Analyst

Thanks for taking my call. Quick question on just big picture thoughts around the branch network, do you think that this new kind of adoption or accelerated adoption of digital channel could lead to faster or more branch consolidation opportunities?

Paul A. Perrault -- President and Chief Executive Officer

I think maybe a little bit, but that's something that will take time to really develop. I mean, we've been working with our branches as sales offices, where we can both meet customers and prospects, as well as go from there to meet them. Until the pandemic you might recall that this is a very congested area, and Providence is fairly congested too, not quite as bad, but there is sort of the idea that you need to be able to get out and about. And so we have never been a branch heavy situation, pretty well spread out. And so the traditional consolidation of branches is probably not in the cards for us, but here and there, depending on how the world develops and behaves, we would obviously take a hard look at where we're located.

William Wallace -- Raymond James -- Analyst

Okay, fair enough. And then on the flip side of that, are you -- are you considering whether you need to invest more on the technology side, on the digital offering side for your customer?

Paul A. Perrault -- President and Chief Executive Officer

I don't know that it's more William. I think it's just a continuing pacing, making sure that we include in our budgets the right kinds of technology projects, and we execute on them and keep going. It's not an event. It's a never ending process that we're on all the time.

William Wallace -- Raymond James -- Analyst

Okay, fair enough. And then Carl, just one kind of housekeeping question. Maybe to put a bow on the PPP discussion and I apologize if you gave this. I didn't see it. Can you share what the average PPP bonds were during the quarter and then what the NII contribution was?

Carl M. Carlson -- Chief Financial Officer

I honestly don't have a good -- a good number on what that average balance was for the quarter.

William Wallace -- Raymond James -- Analyst

Okay. Do you -- have you calculated what the NIM impact was or what the average yield was, net of the cost?

Carl M. Carlson -- Chief Financial Officer

The average yield on the book is around 2.35% to 2.40%.

William Wallace -- Raymond James -- Analyst

Right. And that's net of the cost, right?

Paul A. Perrault -- President and Chief Executive Officer

That's the yield.

Carl M. Carlson -- Chief Financial Officer

Yeah, that includes the amortization, the costs as well.

William Wallace -- Raymond James -- Analyst

Okay. Thank you.

Operator

And next we have a follow-up from Laurie Hunsicker of Compass Point.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah. Hi, thanks. Sorry, just two more quick questions Carl for you. I was looking for prepay fees and accretion income this quarter in the NII. Thanks. Or I can follow-up with you offline.

Carl M. Carlson -- Chief Financial Officer

No, no. So, the prepays were about $1.1 million. That's one pre-payments related to loan payments and deferred fees was 1 point -- or differed cost I would say it's $1.8 million.

Laurie Hunsicker -- Compass Point -- Analyst

All right. The pre-pay fees for $1.1 million and then did you have accretion income?

Carl M. Carlson -- Chief Financial Officer

No accretion income, just deferred costs. So that's -- so loan prepayment that's a benefit coming in. That was equal to about 5 basis points of our NIM and the deferred costs are all coming at a negative, that's $1.8 million or 8 basis point drag. So, the two of those together, three basis point drag on the co-ordinate. As far as accretion -- as far as the purchase account that's gone. That's done.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. Great. Thank you.

Carl M. Carlson -- Chief Financial Officer

Thanks.

Operator

Well at this time, we are showing no further questions. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Paul Perrault for any closing remarks. Sir.

Paul A. Perrault -- President and Chief Executive Officer

Thank you, Mike. And thank you all for joining us. And we look forward to talking with you again next quarter.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Marissa Martin -- Associate General Counsel

Paul A. Perrault -- President and Chief Executive Officer

Carl M. Carlson -- Chief Financial Officer

Robert Rose -- Chief Credit Officer

Mark Fitzgibbon -- Piper Sandler -- Analyst

David Bishop -- D.A. Davidson -- Analyst

Collyn Gilbert -- KBW -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

William Wallace -- Raymond James -- Analyst

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