Provident Financial Services Inc (PFS) 2021 Q2 法說會逐字稿

Good morning, and welcome to the Provident Financial Services Second Quarter Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to John Kuntz, 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 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?

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 remain 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 payoffs 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. 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 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, 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 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. 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.

Our primary noninterest 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 continued execution on our regulatory, risk and control framework.

With that, I will let 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 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 -- 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 or 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 remained 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 in noninterest-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 amongst 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 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 $44.8 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. Pretax 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 to quarterly -- to a quarterly record $112 million, and operating expenses declined by $2 million.

Our net interest margin comprised 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 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 noninterest-bearing deposits, our total cost of deposits fell to 26 basis points this quarter from 30 basis points in the trailing quarter. Average noninterest-bearing deposits increased from $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 broker 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 noninterest-bearing deposit growth. The pull-through adjusted loan pipeline at June 30 increased $250 million from 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 the 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 in 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. Nonperforming assets decreased to 62 basis points of total assets from 65 basis points at March 31. Including 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 31. All commercial loans in deferral are paying interest. Noninterest income was stable versus the trailing quarter at $21 million as increased loan prepayment fees and growth in wealth management and insurance agency income were offset by decreased bank loan life insurance income and reductions in net profits on loan-level swaps and gains on loan sales.

Excluding provisions for credit losses on 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% for the second quarter of 2021 from 56.19% in the trailing quarter and 57.35% 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, and we'd be happy to respond to questions.

(Operator Instructions) And the first question will be from Michael Perito with KBW.

I wanted 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 was some good optimism around the wealth and insurance kind of growth trajectory. Obviously, a strong quarter and first half of the year. I was just curious if you can 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's still some room for growth on those items off of the kind of elevated Q2 revenue run rates? Or just any more specific thoughts there?

Yes. I'll start with the insurance. I think as we mentioned on prior calls that we're expecting at 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 growth number that we talk about that 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 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 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.

Yes, I can add 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 the SB One, but 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, yes, we did benefit from market appreciation, AUMs up to about $4.1 billion, but the fee rate is maintaining at about 78 basis points. 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, we're seeing more crossover among the disciplines that are within the bank.

Exactly. And back to the last point on the insurance, which is a good indicator for me is that it's how the business is growing. We're seeing new business to the bank, new customers, new business and the retention levels are quite high. They're in the 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's share of the commission. So hopefully, that answers your question.

Yes. It's great color. 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.

Yes. The only hit is we do have Durbin taking effect on July 1. So when I break it down...

(inaudible) actually have that in here. Yes. Correct.

We had about $4.1 million in card 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 is 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'll drop to about $3.8 million. So Durbin hit, I guess -- in short, it takes us from about $6 million in '21 to $3 million -- $3.8 million in 2022 is what we expect to see.

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 billion, 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's room for that to compress?

No, I think we will deploy that liquidity. I'd say this 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 remix that to more loans over time. We pick 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's room for some pickup.

And then just my last question and then on that point, just you guys mentioned the pipeline, how should we think about net growth from 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 or any thoughts there?

Yes, 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 at current estimate.

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

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?

Well, certainly, investors moving on and becoming maybe part of Citizens when that happens. And 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 banks. So we might have opportunity there.

And obviously, as they're putting things together, we will see that disruption probably work to our benefit. But again, we don't wish anything bad. 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 -- maybe one less term sheet.

Okay. And then I think you've mentioned somewhere 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?

Well, I'll start and then Tony can dive in. I think we have a couple on the slate already with 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 8 to 10 over the next couple of years. We, obviously, look at everything and we are even rationalizing the network for the last 15 years. Certainly, COVID and doing remote has accelerated that likely. Tony, do you want to give some more context there?

Yes. 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 is 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 go and look at all the dynamics in that picture as well. But certainly, it's not going to be to grow the network, it's going to be to shrink the network.

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

Yes. 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.

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 of some comments on that.

Sure. I will take that first part. Mark, as you know, the RIA space has 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 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, do you want to talk about the insurance space?

Sure. 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 has 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.

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

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

And then it looked like deposit costs 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?

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 1 that will give us about $3 million in savings annualized. Some of the borrowing portfolio is maturing that 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 at a current rate of about 109 blended. That, on a new rate basis, would be about 36 basis points. So there's still some room there on the liability side as well.

I agree.

And the next question is from Russell Gunther with D.A. Davidson.

I just wanted to talk more on -- just on the expense side of things. You guys have kept it in a pretty tight range the last couple of quarters. You mentioned some pending branch consolidation near term with longer-term plans. 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?

I mean I think the run rate for the back half of the year is going to stay pretty consistent, 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 a greater ability to pull through more revenue So I think that money will get spent regardless. But hopefully, we get positive operating leverage to 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 today? And what's a particular interest from a business model and geographic perspective?

Chris, do you want to take that first?

I'll start. Sure. Well, again, Russell, as you know, we -- no stone left unturned. We certainly look at all opportunities as 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 be contiguous or within 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 and make sure that 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's a lot of consolidation going on, and we'd love 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.

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

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. That's down from $4 million in the trailing quarter. The remaining fees on deferral at June 30 were $5.7 million.

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 if it's broad-based?

Sure. Looking through, Russell -- I'm sorry, Steve, a little bit further. It's about $1.1 million if you adjusted for pull-through expectations. The composition is about $391 million in CRE. It's like about $500 million in commercial lending -- $607 million in 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, it was up pretty dramatically. We had payoffs of almost $620 million. It was about $390 million last quarter.

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

Yes.

Yes, that is a good number. And have you guys given out your line utilization rate in the past? And if you have, 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. All right. And just on -- you mentioned about -- just on the pricing structure. Can you just give us some color on what you're seeing in terms of pricing and structure pressures?

Yes. I think the -- 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 handle has been broken quite substantially. We're seeing deals done in the 250 range with longer terms, going out 10 years for 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 going so high. So I think that's where we're seeing most on the structures, the high leverage, no PGEs, et cetera. And the terms are, as I defined earlier. Hopefully, that answers it.

Yes. 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 the pricing and the structure is going to continue and perhaps even get more aggressive?

My opinion is, well, it's hard to prognosticate that. 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 pulled through and 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's what will give us that growth that we projected.

Yes. There's some thoughts, Steve, that maybe some of the activity we saw in the first half was driven by pent-up demand on sellers' parts through the pandemic that we're looking to exit, whether it's a sale of a property or a sale of a business. And some of that was able to be realized in the first part of this year, and hopefully, that will abate.

So Steve, the other part is, I should have been clear on the prepayments. You probably saw at least 1/3 of all those prepayments were what I would call natural, right, where you're selling the underlying asset. And so we hope that those customers, the relationships -- those funds are sitting in the bank until they make a reinvestment at which point we'll make another loan to them. So again, that's the only dampening thing that happened in our loan book is the heightened prepayments.

No, this is really good color, guys. And then just last one from 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 legit 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?

Yes. 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 related to COVID.

(Operator Instructions) The next question will come from Erik Zwick with Boenning and Scattergood.

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, maybe certainly not to the same magnitude that we saw them 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?

Yes, I think, that's a reasonable expectation, Erik, and trying to guess 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 on 1/1 of '20, we had 86 basis points of coverage. We're currently at 88 if you exclude the PPP loans. There's about $309 million in PPP loans remaining in portfolio.

And any thoughts on just how -- 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'd be around the 86 basis point level.

Perfect. 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 today, that's the primary use of capital. Just remind us your thoughts around the dividend and opportunity for share buybacks as well.

On the share buyback side of things, we try to stay fairly disciplined on price and earn back to tangible book dilution. So generally speaking, I mean, we have some models that help us in that regard. But generally speaking, 1.2x tangible book sort of sets the level that we're most comfortable at. We can 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 that's the right thing to do. But generally, 1.2x tangible is about the level we buy back 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 -- potential impact of the Delta variant and what things looked like in the back half of the year before we consider an increase to the regular quarterly cash dividend.

Next question is from Jake Civiello with Janney.

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?

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

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 continue positive results, especially the second half of 2021, and thank you for your confidence in PFS. We hope you have a great weekend. Thank you.

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.