Q2 2021 Provident Financial Services Inc Earnings Call
Good morning, and welcome to the Provident Financial services second quarter earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please.
So from a specialist by Christian Starkey, followed by zero.
After todays presentation, there will be and opportunity to ask questions to ask a question you may do so by pressing Star then 1 on the telephone keypad.
Please note this event is being recorded.
I would now like to turn the conference over to John Coops Chief.
Administrative officer. Please go ahead Sir.
Thank you Chad good morning, ladies and gentlemen, and thank you for joining us for our second quarter earnings call. Today's presenters are chairman and CEO, Chris Martin.
President and Chief operating Officer, Tony of Lab, as EDA, and senior Executive Vice President and Chief financial.
Okay, Tom Lyons before beginning their review of our financial results. We ask that you. Please take note of our standard caution as to any forward looking statements, which may be made during the course of today's call.
Our full disclaimers contained in this morning's earnings release, which has been posted to the Investor Relations page on.
The office the site Provident that bank now, it's my pleasure to introduce Chris Martin who will offer his perspective on our second quarter Chris.
Thank you John and good morning, everybody, we hope that you and your families are healthy.
Our second quarter results were solid and the trends remained generally positive.
<unk> operating earnings were strong with net interest income the highest it has ever been for Provident.
And in spite of strong loan originations loan portfolio growth was challenged in the quarter as payoffs continued to exceed our forecast.
The loan pipeline. However is the largest we have ever had and we anticipate stronger originations in.
And the second half of the year.
The economic outlook is promising assuming continued success against COVID-19, and our business clients are optimistic for the future.
Long term loan growth is highly correlated to economic growth and we believe economic conditions and our markets continue to improve and support and the expansionary.
Sectary.
Also a positive is the consumer and their personal savings position, which will continue to support solid consumer solid consumer spending and the future.
As businesses see demand increasing it as anticipated the credit line usage, which is currently on the low side will increase.
However, risks remain as interest rates have been volatile and the recent downward shift in rates is putting pressure on net interest income and margin.
Deposit growth continued to be strong with substantial increases in noninterest bearing deposits.
The growth and deposits improves our capacity to fund loan growth.
Growth and the second half of 2021.
And we are executing a disciplined approach to leveraging the excess liquidity on our balance sheet.
Initially and the investment portfolio to produce better returns and augment our margin.
The net interest margin reflected lower earning asset yields given the low rate environment.
And spread pressures from lending competition, although improved funding mix and better deposit pricing are helping to mitigate these factors.
Asset quality continued to improve during the quarter and loan payment deferrals are negligible.
All of our credit ratios and indicators are positive this quarter.
Yeah.
And our primary non interest revenue sources, namely Beacon Trust and SB 1 insurance.
We will continue to provide meaningful impact to lessen the pressure of being experienced in our spread business.
We expect most fee revenue categories to grow modestly for the remainder of 2021.
And we will continue our methodical.
<unk> approach to managing operating costs.
Our focus will be holding the line on expenses and creating operating efficiencies without sacrificing our commitment to technology enhancements to improve the customer experience and our competitive position.
And we believe we can further improve our returns to stockholders through a combination of.
Balance sheet growth active management of our margin continuing to rationalize our branch network and further leveraging operational efficiencies gained with the <unk> acquisition accompanied by continued execution on our regulatory risk and control framework.
With that I will ask Tony to add some more color.
Thanks, Chris and good morning, everyone.
Chris has given some highlights of our strong second quarter performance and Tom will give further details later in the presentation.
I would like to take a few moments and share some thoughts with you on market conditions business line performance and the areas of focus.
Based on the tenor of our conversations with customers increased activity and our key business lines and improve nonperforming assets and a reduction to and an immaterial amount.
And Covid related loan deferrals, we believe the economic outlook for the second half of 2021 is promising.
This supports.
Proved growth and continued strong profitability for the remainder of the calendar year.
Excluding PPP loans, our commercial lending group has paced at or better than plan with regard to production.
And the second quarter, we closed over $460 million of new loans and.
Kris of 57% from the prior quarter.
This solid production.
And part of it.
Was offset in part by a decline and line of credit utilization of approximately $161 million over the average for fiscal 2020.
In addition, there is significant excess liquidity.
Liquidity and the market as a result, the competition has been persistently more aggressive on pricing and structure.
We remain committed to maintaining our credit culture, and not sacrificing structure for quality for volume.
Which contributed to an increased level of prepayments and consequently, we saw a net decrease.
Commercial loan portfolio of about $45.49 million for the quarter.
Despite the competition, we are seeing good activity within our lending teams at quarter and our pipeline remains strong at approximately $1.7 billion.
However, we are seeing a decline and the average interest rate and the pipeline which cash.
And art add pressure to our net interest margin.
We expect a good pull through rate and our pipeline and if our prepayments normalize we should experienced solid growth for the remainder of the year low.
Many banks, we have seen strong growth and our deposits net.
Nevertheless, I would like to point out that the largest percentage of our growth is and noninterest.
Ken Mann deposits, which grew at an annualized rate of 17% and presently comprised 24% of our deposits. Our total cost of those deposits is about 26 basis points and is amongst the best and our peer group.
We continue to grow our fee revenue largely through Beacon Trust the SB 1 insurance.
Bearing the SB, 1 insurance had a strong second quarter with new business that resulted in a 60% increase from the same quarter last year Beacon Trust also had a very good quarter with assets under management, increasing approximately 24% annualized and revenue being up 32% over the same quarter last year.
Since both Beacon Trust and SB, 1 insurance continued to demonstrate value add to our clients and the bank and the integrate well with the other business lines and our organization.
Looking forward, our focus is to responsibly deploy our excess liquidity predominantly into our commercial lending book.
Continue to build our fee based businesses.
Year enhance the experience of our employee and customers and maintain operational efficiency. This will improve our earnings and total return to our shareholders.
With that I'll turn the call over to Tom for his comments on our financial performance, Tom. Thank you Tony and good morning, everyone.
Our net income for the quarter was $44.
<unk> and dollars were <unk> 58 per diluted share compared with $48.6 million or <unk> 63 per diluted share for the trailing quarter.
Earnings for the current quarter benefited from $8.7 million of net negative provisions for credit losses on loans and off balance sheet credit exposures, while the trailing quarter reflected negative provisions of $15.9.
<unk>.
Pre tax pre provision earnings were $51.4 million or an annualized 156% of average assets.
This is an improvement from $48.9 million or 152% of average assets and the trailing quarter as revenue increased the quarterly to a quarterly record $112 million and operating expense.
8 million declined by $2 million.
Our net interest margin compressed 6 basis points versus the trailing quarter.
Excess liquidity increased despite an increase in average investments as average loans decreased and average deposits grew.
Loan repayments remained elevated and included increased PPP loan forgiveness.
We expect.
Hence as deploying much of this excess liquidity into loans and securities and the near term to improve the earning asset yield and increased interest income.
We were able to reduce the cost of interest bearing liabilities by 5 basis points versus the trailing quarters for reductions in deposit costs.
Including noninterest bearing deposits, our total cost deposits fell to 26 basis points this quarter.
<unk> 30 basis points and the trailing quarter.
Average noninterest bearing deposits increased $100 million of and annualized 17% to $2.48 billion for 24% of total average deposits for the quarter.
Average borrowing levels decreased $146 million as we shifted funding to lower questing brokerage demand deposits.
From the spec to maintain a relatively stable net interest margin as we continue to deploy excess liquidity into loans and securities, while managing funding costs and emphasizing noninterest bearing deposit growth.
The pull through adjusted loan pipeline at June 30 increased to $150 million from the trailing quarter to a record $1.1 billion.
However, the pipeline.
Line rate decreased 35 basis points since last quarter to $3, 2.8%, reflecting the current competitive rate environment.
Our provision for credit losses on loans was the benefit of $10.7 million for the current quarter compared with the benefit of $15 million and the trailing quarter.
The current quarter benefit was attributable to $6 million of net recoveries on.
We use of charged off loans improved asset quality of favorable economic forecast and a decrease in loans outstanding.
Asset quality metrics, including COVID-19 related deferrals nonperforming loan levels early stage and total delinquencies and criticized and classified loans and all related ratios improved versus the trailing quarter.
We had annualized net recoveries as a percentage of average loans of 25 basis points this quarter compared with net charge offs of 4 basis points for the trailing quarter.
Nonperforming assets decreased to 62 basis points of total assets from 65 basis points at March 31.
Excluding PPP loans, the allowance represented 88 basis points of loans compared.
Paired with 92 basis points and the trailing quarter.
Loans granted short term COVID-19 related payment deferrals of decline from their peak of $1.3 billion to just over $7 million. This compares with $132 million at December 31, all.
And while commercial loans and deferral of our paying interest.
Noninterest income was stable.
Stable versus the trailing quarter of $21 million as increased loan prepayment fees and growth and wealth management insurance agency income were offset by decreased bank owned life insurance income and reductions in net profit on low level swaps and gains on loan sales.
Excluding provisions for credit losses on commitments to extend credit operating expenses were.
And I, just 184% of average assets for the current quarter, compared with 195% and the trailing quarter and $1, 86% for the second quarter of 2020.
The efficiency ratio improved to $54, 1 and 2% for the second quarter of 2021 from $56, 1, 9% and the trailing quarter and 57.
3.5% for the second quarter of 2020.
Our effective tax rate was 25, 4% versus 25, 1% for the trailing quarter and we are currently projecting an effective tax rate of approximately 25% for the remainder of 2021.
That concludes our prepared remarks, we'd be happy to respond to questions.
And annually.
We will now begin the question and answer session.
Ask the question you May Press Star then 1 on the touched on so if youre using a speakerphone. Please pick up your handset before pressing and the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Michael Perito with K BW. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Good morning.
I wanted to start I take the <unk>.
You guys made and the prepared remarks on the and.
And having the fee growth and the tough.
The environment is a really good 1 and and I wanted to kind of drill down on that for a second here I mean.
I think the last time, we spoke there were some good optimism around the wealth and insurance kind of growth trajectory.
The strong quarter and first half of the year I was just curious if you could maybe get a bit more specific on the outlook there I mean.
Margin and like the market continues to help on the wealth side with some organic growth behind it and then.
Tony You mentioned some of the insurance of organic growth, but just do you think that theres still some room for for growth on all of those items off of the kind of elevated Q2 revenue run rates or just any more specific thoughts there.
Yes, I will.
Start with the insurance.
And it seems I think.
As we mentioned on prior calls that we're expecting that 18% to 20% and George.
And he just continues to outpace we're seeing a lot of good synergies between the bank and insurance the commercial lending team has embraced a lot of the value add that they bring to the customers.
And so we're seeing a lot more referrals going in and Georgia still doing the things with his group that the.
Obviously, George runs the insurance and Theyre doing a lot of organic growth on the room around the bank.
And so my expectation is that he can maintain pace he will at a minimum at a minimum and this is that we will achieve that growth number.
So can you talk about 18 to 20, but.
And the dynamics I expect them to outpace that number and it might be material.
I think the challenge for US there will lie more on continuing to have the resources for George to keep pace with all the activity so I'm pretty upbeat on that same.
Same thing we're seeing on Beacon, we're seeing some some organic growth.
We're seeing some good synergies between <unk> and the business lines and they've got a really good integrated approach to the business.
And I expect it to and obviously market conditions.
And not collapsing I expect it to do well there as well I don't know Tom if you want add yes.
And I forget it a little.
For that we try to think particularly noteworthy and the insurance business debt. The second quarter is typically a little bit softer because of the contingency income we see flow through in Q1.
The new business origination was very strong and you saw the level of revenue there was maintained and and and significantly increase from last year granted last year. It was part of the SB 1 was pre acquisition, but if youre looking at the trajectory of the business overall.
To that and it's showing nice growth.
On the Beacon Trust side of things, obviously, yes, we did have we did benefit from market appreciation and AUM is up to about $4.1 billion.
But the fee rate is maintaining and about 78 basis points and we did have a net 13, new clients for the quarter of 44, new clients year over year and the average AUM.
Overall for up to $4.1 million. So we're seeing good organic growth there as Tony noted the seeing more crossover among of the disciplines that are within the bank exactly and back to your last point on the insurance, which is a good indicator for me.
Is that how the business is growing we're seeing new business for the bank new customers new business and the retention levels are quite high.
And for client and 95% range, which is pretty extraordinary for an insurance company like that right. So usually and the 85 to 90 is a good indicator that bodes well for <unk>.
For the business will be produced in prior years and now we're getting a larger lion's share of the commission so.
Hopefully that answers your question.
Yes.
And then now that's great color, thanks, and so I guess just to kind of close the loop on the the noninterest income side of it doesn't sound like you guys expect much of a step back from kind of of the run rate, we saw and the first half of the year as we move into the latter half.
Yes. The only hit is we do have durbin taken effect on July 1.
So 1.
And it took it down and as a reminder, I actually have that and here yeah correct alright.
We had about $4.1 million and card kind of revenue and in the first half of the year, you're going to see that drop to about $1.9 million and the second half. So the full year 'twenty, 1 will be about $6 million.
I guess the good news is we saw activity step up quite a lot so thats still.
Still pretty consistent with 2020 at $6.3 million.
But the expectation for full year 2022 is it will drop to about $3.8 million.
The Durbin hit the.
In short to take us from about $26 million and 21 to 3 million $3.8.002 million 22 is what we expect to see.
Got it.
And then on the.
Kind of of the balance sheet side.
I was just curious.
Tom maybe a question for you just can you help us with kind of of the near term size of of the earning asset base and it looked like the cash balances at the end of the quarter were pretty high.
Obviously, the loan pipeline and strong but my guess is the investment book could have some continued room for growth.
As I look at the average earning asset size of about.
12 of little over $12 billion today, I mean do you expect that's the kind of hold near terms.
And maybe with some of that cash going into the loans.
Or do you think there's room for that to compress.
No I think we will deploy that liquidity I would say this is probably between 202 hundred $25 million of excess liquidity and interest bearing cash right now we.
We expect to deploy that into the loan pipeline, which is quite strong at this point and with any remainder going to funds from additional.
Growth in the deposits and then hopefully remix that to more loans over time.
Pick up about 100 and.
5 basis points, just going into the kind of the investments that we've been taking on lately.
Versus the cash balance so there's room for some pickup.
And then just my last question and thanks, Tom for that.
And snap point, just you guys mentioned the pipeline.
How should we think about net growth and the back half of the year, though I mean, it sounds like based on what you are saying and some of your peers and the market that the payoffs are still potentially pretty high.
C&I activity, a little slow so I think.
Any more specific.
And then I'll talk some of it is for 5% annualized basis doable and the ballpark or do you think of it could be a little lower than that given of a more base case assumption around pay offs or any thoughts there.
Yes, youre pretty much right on with what we're thinking ex PPP forgiveness for the second half of the year, we're looking at about 4.6% annualized.
Pacific and the second half and current estimate on it.
Okay perfect guys. Thank you for taking my questions I appreciate it.
Thank you. Thank you.
The next question will be from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Hey, guys. Thanks for taking my question.
Good morning, John.
Growth and Chris.
Chris 1 of your main competitors was just block can you talk about some of the ways that you kind of plan to capitalize on that.
Oh certainly.
Investors.
Moving on to becoming and maybe part of Susan's when that happens and we already discussed that we obviously have the deep respect.
And for investors, we compete with them and a very simple fashion I would say and we've done some participations with them as we split out risk.
We see that obviously during any of these type of opportunities. There may be a couple of people that aren't going to stick around or maybe don't want to be with the larger bank. So we might have opportunity.
<unk>, there and obviously putting things together.
We will see the disruption probably worked to our benefit but again, we don't wish anything bad and we just wanted to operate so we're going to see we still see it as a net positive because of the approach that we do to the business and they've always been a very good competitor so that might make it leaves.
<unk> for for Us and others as we go forward and not having 1 maybe 1 less term sheet.
Okay. Thanks, and then.
I think you've mentioned somewhere either in the release are and your comments that.
You look to sort of consolidate more branches over time I think you've got just south of a 100, how many realistically do you think.
The easier to operate with over some period of how many branches might you consolidate.
And then Tony can dive in and I think we have a couple of and the slate already.
The consolidations.
Digital and the.
The approach to the customer.
<unk>.
Lot more handle the through online and the like so the.
There probably is another.
Probably 8 to 10 over the next couple of years, we obviously look at everything and we've been rationalizing the network for the 15 years.
Certainly COVID-19 and <unk>.
Doing remote accelerated debt likely.
Yeah.
Tony you want to give some more context here.
Yes.
And Mark I think I think Christmas.
Given some good guidance there I think we're looking at optimizing the network and.
And getting a greater span and.
The technology that we're putting in place.
A good aim for us for us to look.
<unk> out of $150 million per branch and that's the kind of how we look at it so consolidating around that to get to that endpoint and sort of our strategic viewpoint that doesn't mean.
And that we won't look at all of the dynamics and that picture as well.
But certainly it's not going to be to grow the network is going to be the shrink the network.
Look at it.
Mark I would just offer them and we do continuously monitor of profitability at the branch level and they are all contributing significantly and as.
And if theyre not as customer preferences change or demographics change within the region of our opportunity for consolidation provides of a chance to get more profitability without losing the customer base, we certainly take advantage of that and.
And the other thing you might see markers.
We are getting shrinking the larger branches and going to a smaller.
More compact cost effective so I think thats part of our thought process as well.
Okay, and then a couple of questions around the fee based businesses, we haven't seen sort of and insurance.
The wealth management deal from you guys and a little while.
Is that because of the pricing on those transactions just not.
Competitive where youre growing fast enough organically that you don't feel like you need deals and just be curious for some comments on that.
For sure.
Sure I will take that the first part.
Mark as.
And sort of low the RIAA spaces.
And very very lofty levels, there's a lot of money and a lot of the aggregators, adding things that.
Even though they may make some sense from the market <unk> the synergistic business perspective, the the.
And the earn back and the cost is just way too.
As you know and the other.
IRR too low for us to be involved but it's not like we have not been looking at a lot of.
The opportunities just the fact that most of them do not hit even the minimum of our hurdles. So we continue to look and.
Continuing to operate as if we can and that space.
And Tony you want to talk.
Talk about the insurance space.
Sure.
I think and both of those areas, where we're not we didn't.
Move away from the space I think we're actively looking and insurance, which historically hadn't played M&A hadn't played a key role I think now we'll look at M&A to expand.
And the footprint, which is much larger than the legacy so I think that debt.
As opportunities for us, there as well and and to attract and gain more talent to help support that business. So that even though they haven't been done it's not for not looking.
Okay, and then Tom just a couple of clarifications.
And Ed you expected the margin to be stable are you referring to the reported margin of the core margin.
The but they're both kind of tracking at the about the same pace Mark there both in about 6 basis points this quarter.
If I had the project I would say, they probably say stable to the maximum and I think 6 basis points of decline over the next 12.
Months of 3 to 6 maybe you see in terms of pressure over the course of the next year.
Okay, and then it looked like deposit cost came down like 4 of 5 basis points. This quarter are we getting close to the bottom do you think on a lot of these buckets.
We've been saying, we're close to the volume for a long time, but we always find a way to get a little bit more and there were some cuts that.
And when you place on July 1.
Give us about $3 million savings annualized some.
Some of the bar and portfolio is maturing debt was at somewhat higher rates as well. So I think in total I have $949 million of maturing Cds and borrowings over the next year and of current rate of about 109 blended.
And that on a new rate basis would be about 36 basis points. So.
There is still some room there on the on the liability side as well I agree.
Thank you.
Thank you.
And the next question is from Russell Gunther with D. A Davidson. Please go ahead.
Hey, good morning, guys I just wanted to muscle.
Morning, guys just on the expense side of things you guys have kept it in a pretty tight range last couple of quarters and you.
You mentioned some pending.
And as consolidation near term with longer term plan. So Tom and I was wondering if you could give us a sense for how the back half of the years.
It's shaping up and then longer term as you start thinking about 2022, and those additional branch consolidations and what type of kind of core expense rate.
Youre anticipating and.
Ability to achieve positive operating leverage.
I think the run rate for the back half of the year is going to stay pretty consistent and excluding.
The provision for credit losses on off balance sheet commitments of about $60 million to $61 million per quarter.
And actually going forward I don't know that wed see a dramatic decrease because I think we're going to take those expense savings and investing internally in processes that give us a greater ability to pull through more revenue. So I think that money will get spent regardless.
But hopefully we get positive operating leverage through revenue generation by investing that wisely.
Understood very helpful. And then just last kind of Big picture question I. Appreciate your comments on M&A within the fee verticals can you just give us a sense for your remaining appetite for depository M&A.
And a today and whats of particular interest from a business model and geographic perspective.
Chris do you want to pick up first of all start sure well again Russell as you know we.
No stone left unturned, we certainly look at.
All opportunities are.
If they make sense and I think it is the <unk>.
Diligence and.
And the level of.
I guess confidence and what we can do with the franchise, whether it be contiguous or.
Within market Theres not as many as there used to be that's for sure.
But I think for very disciplined and how we look at those and make sure of the.
The meet the hurdles and the really good use of of our capital level and for stockholders. So.
They are moving fast and furious and as we've seen there is a lot of consolidation going on and we'd like to say that we are a clear.
When it matters and so we will continue to look at deposits where institutions and the structure.
As long as they meet up with our culture, and our business lines and our approach.
Thank you guys I appreciate your thoughts and that's it for me.
Thank you.
And.
The next question is from Steven Duong with RBC capital markets. Please go ahead.
Hi, good morning, guys.
Good morning, good morning.
Tom maybe just.
On the PPP fees, how much did you realize in the quarter and how much do you have remaining.
In the quarter was $2.9 million, and that's down from $4 million and the trailing quarter the remaining fees on deferral.
At June 34 of $5.7 million.
Okay great.
And then if we can just on the the $1.7 billion pipeline can you just give us a sense of like where the.
The main growth is coming from more of its broad based.
Sure and looking through the Russell.
Steve a little bit further.
About $1.1 million, if you adjusted for pull through expectations.
The composition is about $3.91 and CRE.
Looks like about $500 million and commercial lending low 607 million and commercial lending all in.
That's the bulk of it.
Great.
And then.
This past quarter, obviously, there was a lot of prepayment activity I guess, maybe just for comparison purposes, how does that compare to say what you saw last quarter.
Prepayments this quarter.
Pretty dramatically I pay offs of 600 to almost $620 million it was about $390 million last quarter.
I think just from the commercial bank.
We saw a 70% increase just in the commercial yes.
Oh, Yeah that is a good number and have you guys.
And given out your line utilization rate and the past and and if you have of just curious what it is this quarter.
We have it's typically been around 40% I think the 12 months' average is down to 29, but at the end of the period I think it was 35%.
At June 30.
Okay got it.
Alright.
And just.
Just on you mentioned about just on the pricing and structure.
Can you just give us for some color on what youre seeing in terms of pricing and structure pressures.
I think the.
On the pricing side, we're seeing deals or at least the ones that werent.
And our and our prepayment, but also on the what we're seeing and the competition the.
The 3 handle has been broken quite substantially we're seeing deal done under the $2.50 range with with longer terms.
And going out 10 years.
Foreseeing I O deals out there for a very long period of time.
On structure, we're basically.
Alright, and more leverage zone than we.
We'd like to.
We believe the risk reward is on balance of at that point with the leverage going so high. So I think that's where we're seeing most of the structures of the left high leverage.
And <unk> et cetera, and the terms are as I defined earlier, hopefully that answers it.
No that's really helpful.
Helpful. I guess with all of this liquidity and the system and everything.
And everybody is looking for loan growth do you get a sense that this the.
The the pricing and the structure is going to continue and perhaps even get more aggressive.
My opinion is that while it's hard to prognosticate that.
And I see I see that the as I made my statement is it's persistent so it.
It might continue but I think.
And more aggressive on the relationship side getting the that's why hopefully that $1.7 billion pipeline.
Can get pull through and out of some stickiness.
Were also low we look at our own portfolio.
And how much more of those types of assets that can be prepaid away and thats slowing down a bit while it's hard to prognosticate prepayments.
And <unk>.
And our expectation is that they will diminish and the third and fourth quarter and hopefully that's what will give us that that growth that we projected and theres some for us Steve and maybe some.
And as Kevin you saw in the first half was driven by pent up demand on sellers parts of that through the pandemic that we're looking to exit whether it's the sale of a property or sale of the business for <unk> and.
And some of that was able to be realized from the first part of this year and hopefully that will abate.
Steve the other part is I should've been clearer on the prepayments you probably saw at least 1 third of all.
Of those prepayments were what I would call natural right, where you're selling the underlying asset and so we hope that those customers. The relationship those months that those ponds are sitting in the bank until they make a reimbursement of which point, we will make another loan to that so.
Again.
The fact, the only dampening thing that happened and our loan book as the heightened prepayments.
No. This is really good color guys and then just last 1 for me.
This is for you again Tony.
The SB 1 insurance.
You spoke about the 60% I believe year over year growth that you guys and have seen from last year.
I guess.
From a comp basis was the last year period depressed at all from Covid or was that just the legit comp and you guys are experiencing 6% year over year of growth and then maybe adding.
Adding on to that.
For those that are not familiar in the space can you give us a sense of the dynamic.
And that's going on in that space and how you guys are achieving this growth.
The growth growth in insurance.
I would imagine I don't have empirical evidence, but I would imagine that last year was moderately and somewhat affected by COVID-19 everything was.
But they still did quite well last year I think if I look at the year before I would have to go back and look at the data so.
I'm pretty confident that the growth rate and this quarter was a lot more to do with what they are doing now and if you want to adjust it cut it somewhat.
It's still 60.
Percentage versus the expectation of 18 to 20 right. So.
And I see more of the heightened activity some new accounts that we brought in that were really high commissions.
Attributed more to that than the delta between last year and this year related to Covid.
Got it and I appreciate it thank you.
And again, if you have a question. Please press Star then 1.
The next question will come from Erik Zwick with Boenning and Scattergood. Please go ahead.
Good morning, guys.
Good morning.
First question for me I guess looking at the allowance for credit.
Losses now standing at about 85 basis points is it fair to assume that as we think about the loan loss provision going forward unlikely to see.
The negative provisions, maybe certainly not to the same.
The magnitude that we saw him and the first part of the year and if so I guess that would mean that provisions would be driven more by.
<unk> of growth loan growth going for it and given the strong pipeline and then the commentary on the mix and the pipeline and predominantly commercial you know how at what rate are you reserving for new loan growth today.
Yeah, I think that's the regional reasonable expectation Erika and are trying to guess where the floor is on this and obviously, we let the Cecil model run it.
And what it looks like and the qualitative adjustments, but as the comparison when we adopted seasonal and 1 of <unk>, we had 86 basis points of coverage.
We're currently at 88, if you exclude the PPP loans is about $309 million and PPP loans remaining in the portfolio.
Thanks, Tom and and any thoughts of just how.
And at what rate, you're reserving for new loan growth today.
I think it would wind up being fairly consistent with the overall coverage. So I think it would be around the 86 basis point level.
Perfect. Thanks, and then just looking at the capital of its built nicely again following the you know the.
The acquisition of SB 1.
Certainly.
With the loan pipeline being strong day, that's the primary use of capital and just remind us your thoughts around the dividend and an opportunity for share buybacks as well.
On the share buyback side of things, we try to stay fairly disciplined on price and earn back of the tangible book dilution. So generally speaking and when we have some models that help us and.
In that regard, but generally speaking 1.2 times tangible book sort of sets the the.
And the level that we're most comfortable that we can and in extreme circumstances go higher than that if we think growth opportunities are limited or if we have a view into the future that that tells us thats the right thing to do but generally 1.2 times tangible is about the level we buyback at.
In terms of dividend.
In terms of the core dividend, we want to get through our strategic planning process and get a little more clarity on the impact of the potential impact of the Delta variant and what things look like and the back half of the year before we consider and increase to the regular quarterly cash dividend.
Great. Thanks for taking my questions today.
The next question.
From Jake <unk> with Janney. Please go ahead.
Hi, guys good morning.
Good morning, good morning.
Just 1 question for me your loan to deposit ratio of this quarter down to 90%, obviously some of the deposit growth trends or outside.
Outside of your control, but broadly speaking do you hope to operate at or near the current level or do you think over time, you gravitate more to 2.2 of line, where you were in the past.
Yes, we'd like to be more loan Dow Jason I mean, we were backup of I think 105, 106, I was perfectly comfortable with our liquidity position at those levels we have.
Very low time deposits and our book, we could certainly raise debt if we needed to.
And profitability is obviously much better if you more fully loaned out on the deposit side, so we'd love to get there.
<unk>.
Okay.
Okay, great. Thank you.
Thank you.
Thank you Jay.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Chris Martin for any closing remarks.
Well, we thank you for your time today, we look forward to continued positive results for the especially the second half of 2021 and thank you for your confidence in the PFS and we hope you are of great.
Weekend. Thank you.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Goodbye.
[music].
And.