Provident Financial Services, inc (PFS) Q4 2021 Earnings Call Transcript

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Provident Financial Services, inc (PFS -2.25%)
Q4 2021 Earnings Call
Jul 30, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Provident Financial Services Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to John Kuntz, Chief Administrative Officer. Please go ahead, sir.

John Kuntz -- Chief Administrative Officer

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 Labozzetta; and Senior Executive Vice President and Chief Financial Officer, 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 disclaimer is contained in this morning's earnings release which has been posted to the Investor Relations page on our website, provident.bank.

Now, it's my pleasure to introduce Chris Martin, who will offer his perspective on our second quarter. Chris?

Christopher Martin -- Chairman and Chief Executive Officer

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. 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 sales continued to exceed our forecast.

The loan pipeline however is the largest we have ever had. And we anticipate stronger originations in the second half of the year. 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 in our markets continue to improve and support an expansionary trajectory.

Also a positive is the consumer and their personal savings position, which will continue to support solid consumer spending in the future. As businesses see demand increasing, it is anticipated that credit line usage, which is currently on the low side will increase.

However, risk 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 non-interest bearing deposits. The growth in deposits improves our capacity to fund loan growth in the second half of 2021. We are executing a disciplined approach to leveraging the excess liquidity on our balance sheet. Initially, in 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. As the quality continued to improve during the quarter and loan payment deferrals are negligible, all of our credit ratios and indicators are positive this quarter.

Our primary non-interest revenue sources namely Beacon Trust and SB One insurance will continue to provide meaningful impact to lessen the pressure 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 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.

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 SB One acquisition accompanied by a continued execution on our regulatory, risk and controlled framework.

With that, I will ask Tony to add some more color.

Anthony J. Labozzetta -- President And Chief Operating Officer

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 in our key business lines and improved nonperforming assets and a reduction to an immaterial amount in COVID-related loan deferrals, we believe the economic outlook for the second half of 2021 is promising. This supports improved 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 planned with regard to production. In the second quarter, we closed over $460 million of new loans, an increase of 57% from the prior quarter. This solid production in part, it was offset in part by a decline in line of credit utilization of approximately $161 million over the average for fiscal 2020.

In addition, there is significant excess liquidity in 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 of quality for volume, which contributed to an increased level of prepayments.

Consequently, we saw a net decrease in our commercial loan portfolio of about $49 million for the quarter. Despite the competition, we are seeing good activity within our lending teams. At quarter end, our pipeline remains strong at approximately $1.7 billion. However, we are seeing a decline in the average interest rate in the pipeline, which can add pressure to our net interest margin.

We expect a good pull-through rate in our pipeline. And if our prepayments normalize, we should experience solid growth for the remainder of the year. Like many banks, we have seen strong growth in our deposits. Nevertheless, I'd like to point out that the largest percentage of our growth is a non-interest-bearing demand 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 among the best in our peer group.

We continue to grow our fee revenue, largely through Beacon Trust and SB One Insurance. SB One 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.

Both Beacon Trust and SB One Insurance continue to demonstrate value add to our clients and the bank and they integrate well with the other business lines in 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, enhance the experience of our employees 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?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Thank you, Tony, and good morning, everyone. Our net income for the quarter was $44.8 million or $0.58 per diluted share compared with $48.6 million or $0.63 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 million. Pre-tax pre-provision earnings were $51.4 million or an annualized 1.56% of average assets. This is an improvement from $48.9 million or 1.52% of average assets in the trailing quarter as revenue increased quarterly -- to a quarterly record $112 million and operating expenses 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 in average deposits group. Loan repayments remained elevated and included increased PPP loan forgiveness. We expect to deploy much of this excess liquidity into loans and securities in 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 quarter through reductions in deposit costs. Including non-interest bearing deposits, our total cost deposits fell to 26 basis points this quarter from 30 basis points in the trailing quarter. Average non-interest bearing deposits increased to $100 million or an annualized 17% to $2.48 billion, or 24% of total average deposits for the quarter.

Average borrowing levels decreased $146 million as we shifted funding to lower costing brokered demand deposits. We expect 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 non-interest bearing deposit growth. The pull-through adjusted loan pipeline at June 30th increased $250 million in the trailing quarter to a record $1.1 billion.

However, the pipeline rate decreased 35 basis points since last quarter to 3.28% reflecting the current competitive rate environment. Our provision for credit losses on loans was a benefit of $10.7 million for the current quarter compared with a benefit of $15 million in the trailing quarter. The current quarter benefit was attributable to $6 million of net recoveries on previously charged off loans, improved asset quality, a 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 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. Non-performing assets decreased to 62 basis points of total assets from 65 basis points at March 31st. Excluding PPP loans, the allowance represented 88 basis points of loans compared with 92 basis points in the trailing quarter.

Loans granted short term COVID-19 related payment deferrals have declined from their peak of $1.3 billion to just over $7 million. This compares with $132 million at December 31st. All commercial loans in deferral are paying interest. Non-interest income was stable versus the trailing quarter at $21 million, as increased loan prepayment fees and growth in wealth management insurance agency income were offset by decreased bank-owned life insurance income and reductions in net profits on loan level swaps and gains on loan sales.

Excluding provisions for credit losses and commitments to extend credit, operating expenses were an annualized 1.84% of average assets for the current quarter compared to 1.95% in the trailing quarter and 1.86% for the second quarter of 2020. The efficiency ratio improved to 54.12% in the second quarter of 2021 from 56.19% in the trailing quarter and 57.35% in 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.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And the first question will be from Michael Perito with KBW. Please go ahead.

Michael Perito -- KBW -- Analyst

Hey, good morning guys. Thanks for taking my questions. I want to start, I think the point you guys made in the prepared remarks on the -- on having the fee growth in the tough margin environment is a really good one. 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, obviously a strong quarter and first half of the year. Just curious if you could maybe get a bit more specific on the outlook there.

I mean it seems 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 organic growth. But just, do you think that there is still some room for growth on those items of the kind of elevated Q2 revenue run-rates or just any more specific thoughts there.

Anthony J. Labozzetta -- President And Chief Operating Officer

Yeah. I'll start with the insurance. I think as we mentioned on prior calls that we're expecting that 18% to 20%. And George, 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. So you're seeing a lot more referrals going in. George is still doing the things with his group that obviously George runs the insurance and they're doing a lot of organic growth on their own around the bank. So my expectation is that he can maintain pace. He will at a minimum, at a minimum. And this is -- we'll achieve that that growth number that we talk about 18% to 20%. But seeing the dynamics, I expect them to outpace that number, and it might be material. I think the challenge for us there will rely more on continuing to have the resources for George to keep pace with all the activity. So I'm pretty upbeat on that. Same thing we're seeing on Beacon. We're seeing some organic growth. We're seeing some good synergies between Beacon and the business lines. They got a really good integrated approach to the business. So I expect it to obviously market conditions not collapsing. I expect it to do well there as well.

I don't know, Tom if you want to add anything?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah. I can to a little bit to that. But I think particularly noteworthy in the insurance business that the second quarter is typically a little bit softer because of the contingency income we see flow through in Q1. New business origination was very strong and you saw the level of revenue there was maintained and significantly increased from last year.

Granted, last year it was part of SB One, it was pre-acquisition. But if you're looking at the trajectory of the business overall, it's showing nice growth. On the Beacon Trust side of things, obviously, yeah, we did benefit from market appreciation AUMs up to about $4.1 billion. But the fee rate is maintaining at about 78 basis points. And we did have a net 13 new clients for the quarter, 44 new clients year-over-year and the average AUM per client is up to $4.1 million. So we're seeing good organic growth there. As Tony noted, they have seen more crossover among the disciplines that are within the bank.

Anthony J. Labozzetta -- President And Chief Operating Officer

Exactly. And back to your last point on the insurance, which is a good indicator for me is that, it's how the business has grown. We're seeing new business to the bank. New customers, new business and the retention levels are quite high, they're in that 95% range, which is pretty extraordinary for an insurance company like that, right? So usually in the 85% to 90% is a good indicator. That bodes well for the business we produced in prior years and now we're getting a larger lion share of the commission. So hopefully that answers your question?

Michael Perito -- KBW -- Analyst

Yeah, it does. It's great color. Thanks. And so, I guess just to kind of close the loop on the noninterest income side. It doesn't sound like you guys expect much of a step back from kind of the run-rate we saw in the first half of the year as we move into the latter half?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah. The only hit as we do have Durbin taken effect on July 1. So, when you look at down...

Michael Perito -- KBW -- Analyst

And please remainder actually I have that in here, yeah, correct. All right.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

We had about $4.1 million in kind of revenue in the first half of the year. We're going to see that drop to about $1.9 million in the second half. So the full-year '21 will be about $6 million. I guess the good news as we saw activity step-up quite a lot. So that's 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.

Michael Perito -- KBW -- Analyst

Got it. Okay.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Durbin here I guess is the -- in short to take us from about $6 million in '21 to $3 million, $3.8 million in 2022 is what we expect that to see.

Michael Perito -- KBW -- Analyst

Got it. And then, on the kind of the balance sheet side, just curious, Tom, maybe a question for you. Just can you help us with kind of the near-term size of the earning asset base.

I mean it looked like the cash balances at the end of the quarter were pretty high. Obviously, the loan pipeline is strong. But my guess is the investment book could have some continued room for growth. I mean, just as I look at the average earning asset size of about 12, little over $12 billion today. I mean, do you expect that to kind of hold near term maybe with some of that cash going in loans and securities, or do you think there is room for that to compress?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

I think we will deploy that liquidity. I'd say there is probably between $200 million

And $225 million of excess liquidity in interest-bearing cash right now. We expect to deploy that into the loan pipeline, which is quite strong at this point. With any remainder going to fund some additional growth in deposits and then hopefully we mix that two more loans over time. We picked up about 105 basis points just going into the kind of investments that we've been taking on lately versus the cash balance. So there is room for some pickup.

Michael Perito -- KBW -- Analyst

And then, just my last question and thanks Tom for that. And then, on that point, as you guys mentioned the pipeline, how should we think about net growth in the back half of the year though? I mean it sounds like based on what you're saying and some of your peers in the market that payoffs are still potentially pretty high C&I activity a little slow.

So I think, any more specific thoughts. I mean is 4%-5% annualized basis doable in the ballpark or do you think it could be a little lower than that, given a more base case assumption around payoffs, any thoughts there.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah. You're 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 growth in the second half and current estimate.

Michael Perito -- KBW -- Analyst

Okay. Perfect, guys. Well, thank you for taking my questions. I appreciate it.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Anthony J. Labozzetta -- President And Chief Operating Officer

Thank you.

Operator

The next question will be from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Hey, guys. Thanks for taking my question. Chris, one of your main competitors was just bought. Can you talk about some of the ways that you kind of plan to capitalize on that?

Christopher Martin -- Chairman and Chief Executive Officer

Well, certainly investors moving on and becoming maybe part of seasons when that happens, we already discussed that. We obviously have a deep respect for investors. We compete with them in a very civil 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 there. And obviously, they're putting things together. We will see that disruption probably work to our benefit, but again we don't wish anything there. 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 a little easier for us and others as we go forward, not having, one may be one less term sheet.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. Thanks. And then, I think you mentioned some or either in the release or in your comments that you look to sort of consolidate more branches over time. I think you've got just south of 100. How many realistically, do you think you could operate with over some period, how many branches might you consolidate?

Christopher Martin -- Chairman and Chief Executive Officer

Well, I'll start and then Tony can dive in. I think we have a couple of on the slate already the consolidations as digital. And our approach to the customer is a lot more handled through online and the like. So there probably is another I think probably eight to 10 over the next couple of years.

We obviously look at everything. And we've been rationalizing the network from last 15 years. Certainly COVID and doing remote has accelerated that likely. Tony, you want to give some more context there?

Anthony J. Labozzetta -- President And Chief Operating Officer

Yeah. Mark, I think Chris has given some good guidance there. I think we're looking at optimizing the network and getting a greater span with the technology that we're putting in place, a good aim for us just to look at about $150 million per branch and that's kind of how we look at it.

So consolidating around that to get to that endpoint is sort of our strategic viewpoint. That doesn't mean that we won't look at other dynamics in that picture as well. But certainly, it's not going to be to grow, the network is going to be the shrink the network.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah. And Mark, I would just add to that and we do continuously monitor profitability at the branch level. And they were all contributing significantly and as they're not as customer preferences changed or demographics changed within a region or opportunity for consolidation provides us a chance to get more profitability without losing the customer base, we certainly take advantage of that.

Anthony J. Labozzetta -- President And Chief Operating Officer

Yeah. And the other thing you might see Mark is getting -- shrinking the larger branches and going to a smaller more compact cost-effective. So I think that's part of our thought process as well.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then, a couple of questions around the fee-based businesses. We haven't seen sort of an insurance or wealth management deal from you guys in a little while. Is that because the pricing on those transactions just not competitive or you're growing fast enough organically that you don't feel like you need deals.

I'd just be curious as some comments on that.

Christopher Martin -- Chairman and Chief Executive Officer

Sure. I will take that first part. Mark, as you know the RIA spaces gotten 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 a market and-or the synergistic business perspective, the earn back and the cost is just way too high and the IRR is too low for us to be involved.

It's not like we have not been looking at a lot of opportunities. Just the fact that most of them do not hit even the minimum of our hurdles. So we continue to look and continue to operate as if we can in that space. And Tony, you want to talk about the insurance space?

Anthony J. Labozzetta -- President And Chief Operating Officer

Mark, I think in both of those areas we're not, we didn't move away from the space. I think we're actively looking 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 in the footprint, which is much larger than the legacy. So I think that as opportunities for us there as well 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.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then, Tom, just a couple of clarifications. When you said you expected the margin to be stickful, are you referring to the reported margin or the core margin?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

They're both kind of tracking, it's about the same pace Mark. They're both in about 6 basis points this quarter. If I had to project, I'd say they probably stay stable to at a maximum I think 6 basis points of decline over the next 12 months, or 3 to 6 maybe you see in terms of pressure over the course of the next year.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Okay. And then, it looked like deposit cost came down like 4 or 5 basis points this quarter. Are we getting close to the bottom do you think on a lot of these buckets?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

We've been saying, we're close to the bottom for a long time, but we always find a way to get a little bit more. There were some cuts that were put in place on July 1st, that will give us about $3 million in savings annualized. Some of the borrowing portfolio is maturing, that was it somewhat higher rates as well.

So I think in total, I have $949 million of maturing CDs and borrowings over the next year, at a current rate of about 1.09 blended. That on a new rate basis would be about 36 basis points. So there is still some room there on liability side as well.

Anthony J. Labozzetta -- President And Chief Operating Officer

I agree.

Mark Fitzgibbon -- Piper Sandler -- Analyst

Thank you.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

And the next question is from Russell Gunther with DA Davidson. Please go ahead.

Russell Gunther -- D.A. Davidson -- Analyst

Hey, good morning guys.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Good morning, Russel.

Russell Gunther -- D.A. Davidson -- Analyst

I just wanted to -- good morning, guys. Just on the expense side of things, you guys have kept it in a pretty tight range last couple of quarters. You mentioned some pending branch consolidation near-term, longer-term plan. So Tom, I was wondering if you could give us a sense for how the back half of the year is shaping up?

And then, longer term, as you start thinking about 2022 and those additional branch consolidations, what type of kind of core expense rate you're anticipating and an ability to achieve positive operating leverage?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

I mean, I think the run-rate for the back half of the year is going to stay pretty consistent. And excluding the provisions for credit losses on off balance sheet commitments about $60 million to $61 million a quarter and actually going forward.

I don't know that we'd see a dramatic decrease, because I think we're going to take those expense savings and invest them internally in processes that give us 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.

Russell Gunther -- D.A. Davidson -- Analyst

Understood, very helpful. And then, just last I've got a big picture question, I appreciate your comments on M&A within the fee verticals. Could you just give us a sense for your remaining appetite for depository M&A today and what's the particular interest from a business model and geographic perspective?

Anthony J. Labozzetta -- President And Chief Operating Officer

Chris, you want to take that first?

Christopher Martin -- Chairman and Chief Executive Officer

I'll start, sure. Well, again, Russell, as you know, we -- no stone left unturned. We certainly look at all opportunities if they make sense. And I think there's the diligence and the level of, I guess confidence in what we can do with a franchise, whether it'd be contiguous or with end market. There's not as many as they used to be, that's for sure.

But I think we're very disciplined in how we look at those to make sure they meet the hurdles and a really good use of our capital level and for stockholders. So as they are moving fast and furious and as we've seen, there is a lot of consolidation going on. And we like to say that we are a player when it matters. And so, we will continue to look at depository institutions and the structure as long as they meet up with our culture and our business lines and our approach.

Russell Gunther -- D.A. Davidson -- Analyst

Thank you guys. I appreciate your thoughts and that's it for me.

Christopher Martin -- Chairman and Chief Executive Officer

Thank you.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Russ, thanks.

Operator

The next question is from Steven Duong with RBC Capital Markets. Please go ahead.

Steven Duong -- RBC Capital Markets -- Analyst

Hi, good morning guys.

Anthony J. Labozzetta -- President And Chief Operating Officer

Good morning.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

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, it was $2.9 million and that's down from $4 million in the trailing quarter. The remaining fees on deferral at June 30th were $5.7 million.

Steven Duong -- RBC Capital Markets -- Analyst

Okay, great. And then, if we can just on the $1.7 billion pipeline, can you just give us a sense of like where that main growth is coming from, or that's broad based?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

And I'm looking through Russell, I'm sorry, Steve, a little bit further. It's about $1.1 million if you adjust it for pull-through expectations. The composition is about 3.91 and CRE, it's like about $500 million in commercial lending, now $607 million in commercial lending all in, that's the bulk of it.

Steven Duong -- RBC Capital Markets -- Analyst

Great. And then, this past quarter, obviously, there's a lot of prepayment activity. I guess maybe just for comparison purposes, how does that compare to say what you saw last quarter?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Prepayments this quarter is up pretty dramatically, we've got pay-offs of $612 million, almost $620 million. It was about $390 million last quarter.

Christopher Martin -- Chairman and Chief Executive Officer

I think just in the commercial bank you might, you probably saw a 70% increase just in the commercial.

Steven Duong -- RBC Capital Markets -- Analyst

Yeah, that is a good number. And have you guys given out your line utilization rate in the past. And if you have, I was just curious what it is this quarter?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

We have, it's typically been around 40%. I think the 12-month average is down to 29%, but at the end of the period I think it was 35% at June 30th.

Steven Duong -- RBC Capital Markets -- Analyst

Okay, got it. All right. And just on, you mentioned about, just on the pricing and structure. Can you just give us some color on what you're seeing in terms of pricing and structure pressures?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah. I think on the pricing side, we're seeing deals at least the ones that were in our prepayment but also on what we're seeing in the competition. The 3 handles has been broken quite substantially. We're seeing deals done in the 250 range with longer terms.

Going out 10 years that we're seeing IO deals out there for a very long period of time. On structure, we're basically seeing more leverage than we like to -- we believe the risk reward is on balance at that point with the leverage goal is so high. So I think that's where we're seeing most on the structure is the high leverage. No PGEs, et cetera and the terms are as I defined earlier, hopefully that answers it?

Steven Duong -- RBC Capital Markets -- Analyst

Yeah, that's really helpful. I guess with all this liquidity in the system and everybody is looking for loan growth, do you get a sense that this -- the pricing and the structure is going to continue and perhaps even get more aggressive?

Anthony J. Labozzetta -- President And Chief Operating Officer

My opinion is while it's hard to prognosticate that. I see. I see that as I made, my statement is it's persistent. So it might continue. But I think we're getting more aggressive on the relationship side, getting that's why hopefully that $1.7 billion pipeline can get pull through and we have some stickiness. We're also -- we look at our own portfolio and see how much more of those types of assets that can be prepaid away and that's slowing down a bit.

While it's hard to prognosticate prepayments, our expectation is that they will diminish in the third and fourth quarter. And hopefully that that's what will give us that that growth that we projected.

Christopher Martin -- Chairman and Chief Executive Officer

And there is some thought Steve, there maybe some of that activity. You saw in the first half was driven by pent up demand on sellers parts through the pandemic hit. We're looking to exit, whether it's a sale of a property or sale of the business. And some of that was able to be realized in the first part of this year and hopefully that will be.

Anthony J. Labozzetta -- President And Chief Operating Officer

So Steve, the other part is up. I should have been clearer on the prepayments. You probably saw at least one third of all those prepayments were what I would call natural, right, where you're selling the underlying asset. And so, we hope that goes customers, the relationship with -- those funds are sitting in the bank until they make a reimbursement at which point we'll make another loan to them. So again that's like the only dampening thing that happened in our loan book is the heightened prepayments.

Steven Duong -- RBC Capital Markets -- Analyst

Now, this is really good color guys. And then, just last one for me. Maybe this is for you again Tony. On the SB One insurance, you spoke about the 60% I believe year-over-year growth that you guys have seen from last year.

I guess just from a comp basis, was the last year period depressed at all from COVID or was that just a rigid comp and you guys are experiencing 6% year-over-year growth.

And then, maybe adding on to that. For those that are not familiar in this space, can you give us a sense of the dynamics that's going on in that space? And how you guys are achieving this growth?

Anthony J. Labozzetta -- President And Chief Operating Officer

The growth in insurance, well, it's, I would imagine, I don't have empirical evidence. But I would imagine that last year was moderately somewhat affected by COVID 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 in this quarter was a lot more to do with what they're doing now.

And if you want to adjust it, cut it somewhat. It's still 60% versus the expectation of 18% to 20%, right. So I see more of the heightened activity, some new accounts that we brought in that were really high commissions.

I attribute it more to that than the delta between last year and this year is related to COVID.

Steven Duong -- RBC Capital Markets -- Analyst

Got it. Appreciate it. Thank you. [Operator Instructions] The next question will be come from Erik Zwick with Boenning and Scattergood. Please go ahead.

Erik Zwick -- Boenning and Scattergood -- Analyst

Good morning, guys.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Good morning.

Erik Zwick -- Boenning and Scattergood -- Analyst

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 negative provisions, may be certainly not to the same magnitude that we saw in the first part of the year? And if so, I guess that would mean that provisions would be driven more by growth, loan growth going forward and given the strong pipeline. And then the commentary on the mix in the pipeline, predominantly commercial. How -- at what rate are you reserving for new loan growth today?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah. I think that's a reasonable expectation Erik and trying to get to where the floor is on this. Obviously, we let the CECL model run it and see what it looks like in the qualitative adjustments.

But as a comparison when we adopted CECL 120, we had 86 basis points of coverage. We're currently at $88 million if you exclude the PPP loans, its about $309 million in PPP loans remaining in portfolio.

Erik Zwick -- Boenning and Scattergood -- Analyst

Thanks. I mean, and then you also just how -- at what rate you're reserving for new loan growth today?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

I think it would wind up being fairly consistent with the overall coverage. So I think it'd be around the 86 basis point level.

Erik Zwick -- Boenning and Scattergood -- Analyst

Perfect, thanks. And then, just looking at the capital, it's built nicely again following the acquisition of SB One. Certainly, with the loan pipeline being strong pay, that's the primary use of capital. Just remind us what are your thoughts around that the dividend and an opportunity for our share buybacks as well?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

On the share buyback side of things, we try to stay fairly disciplined on price and earned back to tangible book dilution. So generally speaking, I mean, we have some models that help us in that regard. But generally speaking, 1.2 times tangible book sort of sets the level that we're most comfortable that. We came in extreme circumstances go higher than that. If we think growth opportunities are limited or if we have a view into the future, that tells us, that's the right thing to do. But generally 1.2 times tangible is about the level we buyback at.

In terms of dividend, I think, 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 in the back half of the year before we consider an increase to the regular quarterly cash dividend.

Erik Zwick -- Boenning and Scattergood -- Analyst

Great, thanks for taking my questions today.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

The next question is from Jake Civiello with Janney. Please go ahead.

Jake Civiello -- Janney -- Analyst

Hi guys, good morning.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Good morning.

Anthony J. Labozzetta -- President And Chief Operating Officer

Good morning.

Jake Civiello -- Janney -- Analyst

Just one question for me. Your loan to deposit ratio this quarter down to 90%. Obviously some of the deposit growth trends are 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 a line where you were in the past?

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Yeah, we'd like to be more loan down Jake. I mean, we were back up I think 105-106. I was perfectly comfortable with our liquidity position at those levels. We have very low time deposits in our book. We could certainly raise that if we needed to. Profitability is obviously much better if you more fully loan down on the deposit side. So we'd love to get there.

Jake Civiello -- Janney -- Analyst

Okay, great. Thank you.

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Thank you.

Operator

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.

Christopher Martin -- Chairman and Chief Executive Officer

Well, we thank you for your time today. We look forward to continued positive results for especially the second half of 2021. And thank you for your confidence in PFS. We hope you have a great weekend. Thank you.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

John Kuntz -- Chief Administrative Officer

Christopher Martin -- Chairman and Chief Executive Officer

Anthony J. Labozzetta -- President And Chief Operating Officer

Thomas M. Lyons -- Senior Executive Vice President and Chief Financial Officer

Michael Perito -- KBW -- Analyst

Mark Fitzgibbon -- Piper Sandler -- Analyst

Russell Gunther -- D.A. Davidson -- Analyst

Steven Duong -- RBC Capital Markets -- Analyst

Erik Zwick -- Boenning and Scattergood -- Analyst

Jake Civiello -- Janney -- Analyst

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