Peoples Bancorp Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 25, 2023

There are 10 speakers on the call.

Operator

Morning, and welcome to People's Bancorp Inc. Conference Call. My name is Kate, and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the 3 6 months ended June 30, 2023. Please be advised that all lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer period. This call is also being recorded. If you object to the recording, please disconnect at this time. Please be advised that the commentary in this call will contain projections or other forward looking statements regarding Peoples' Future financial performance or future events. These statements are based on management's current expectations.

Operator

The statements in this call, which are not historical facts, are forward looking statements and involve a number of risks and uncertainties detailed in Peoples Securities and Exchange Commission filings. Management believes the forward looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of Peoples business and operations. However, it is possible actual results may differ materially from these forward looking statements. Peoples disclaims any Responsibility to update these forward looking statements after this call, except as may be required by applicable legal requirements. People's Q2 2023 earnings release was issued this morning and is available at peoplesbancorp.com under Investor Relations.

Operator

A reconciliation of the non generally accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release. This call will include about 25 to 30 minutes of prepared commentary followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on peoplestand corp.com, in the Investor Relations section for 1 year. Participants in today's call will be Chuck Selereski, President and Chief Executive Officer Tyler Wilcox, Chief Operating Officer and Katie Bailey, Chief Financial Officer and Treasurer, and each will be available for questions following opening statements. Mr.

Operator

Sollaretsky, you may begin your conference.

Speaker 1

Thank you, Kate. Good morning, and thank you for joining our call today. Earlier this month, Peoples communicated my retirement in March of 2024 and Tyler Wilcox was announced as my successor. The Board completed a diligent succession process. Tyler has done admirably in increasingly complex roles.

Speaker 1

For the last 3 years, he has been running all of our businesses. I am fully confident he can take us to even greater height. Turning to our results, earnings were awesome for the quarter. They were impacted by one time Limestone acquisition related They were also impacted by the provision for credit losses to establish the allowance for the acquired loans from Limestone. Net income for the quarter totaled $21,100,000 and diluted earnings per share was $0.64 For the quarter, we recognized $10,700,000 in acquisition related expenses, Which reduced diluted EPS by $0.25 We anticipate an additional $4,000,000 to $5,000,000 in acquisition related During the Q3, when our conversion of the Limestone Systems is scheduled to take place.

Speaker 1

At the same time, we recorded higher provision for credit losses this quarter, specifically related to the Limestone merger. We established the allowance for credit losses for the acquired loans that were not considered purchase credit deteriorated. This additional provision totaled $10,000,000 which negatively impacted diluted earnings per share by $0.23 For the Q2, some highlights of our performance included net interest income of $12,000,000 or 16% compared to the linked Quarter. Fee based income growth of $1,600,000 or 8% compared to the linked quarter. Excluding non core expenses, our adjusted efficiency ratio was 53.3%, A reduction from 57.2 percent for the linked quarter.

Speaker 1

Also excluding non core expenses, we generated positive operating leverage Compared to the linked quarter, as total revenue growth outpaced total non interest expense growth. As it relates to our credit quality, our allowance for credit losses was 1.02% of total loans at quarter end. We had an increase in our allowance related to the loans acquired in the Limestone merger. The increase added Around $11,000,000 to the allowance this quarter. This was partially offset by reductions in the allowance from a release of Nearly $2,000,000 in individually analyzed loan reserves due to the related loans either being paid off We refreshed our loss drivers in our CECL model, which we last updated in 2021 and contributed to a $1,000,000 reduction in our allowance.

Speaker 1

We also had a $1,000,000 reduction in our allowance from improvements in the economic forecast. Non performing assets improved to 0.48 percent of total assets compared to 0.58% at March 31. At the same time, our non performing assets declined to 0.7% Of total loans in OREO at June 30 compared to 0.9% at the linked quarter end. The portion of our loan portfolio considered current at quarter end was 99%, an improvement from 98.8% at March 31. Our quarterly annualized net charge off rate was 9 basis points for the 2nd quarter, An improvement from 13 basis points for the Q1.

Speaker 1

Our gross charge offs were relatively similar between the periods, But we had a net recovery in commercial and industrial loans during the quarter. Our classified loans improved to 1.88% of total loans, While our criticized loans declined to 3.7% compared to the linked quarter. We are continuing To actively monitor commercial office space even though it is a very small portion of our loan portfolio. Our total outstanding balance was $120,000,000 at quarter end and represented 2% of our total loan portfolio. The top 10 borrowers represented 55% of the outstanding commercial office based Loan portfolio.

Speaker 1

These top borrowers averaged $7,100,000 in commitments and $6,600,000 in outstanding balances. Our concentration mix has shifted modestly since the acquisition of the Limestone loan portfolio. We have seen an increase in exposure within construction, Retail Facilities and Hospitality following the Limestone merger. Construction and Land Development has been an area of growth With $443,000,000 in outstanding balances on $775,000,000 in total commitments at quarter close. Land development remains a small percentage of the portfolio reported at $101,000,000 or 1.7 percent of total loans at quarter end.

Speaker 1

Multifamily balances have grown from $235,000,000 at the end of the first quarter to $406,000,000 at the end of the second quarter. At June 30, 21% of the total outstanding balances in our multifamily portfolio were located within Central Ohio. Our top 10 multifamily loans account for 26% of the funded multifamily portfolio. These projects are located within growth markets with strong metrics and notable guarantor support. We continue to see no major problems with our While there has been an occasional permitting or construction delay, these projects have largely been leasing up at the desired speeds With most of them at rents higher than projected in the initial pro form a.

Speaker 1

Hospitality balances increased From $125,000,000 to $201,000,000 for the 2nd quarter and compromised 3.36 percent of the total loan portfolio. The growth in balances was due to the Limestone merger. We do not plan to increase our hotel exposure As a percentage of total loans in a meaningful way and we'll continue to be highly selective within the industry. Our market diversification is now extended within the portfolio as these hotels are primarily located in metropolitan areas Driven by Columbus and Cincinnati and Ohio with additional exposure now in the Lexington and Louisville, Kentucky market. The top 10 borrowers represent 49% of the hospitality portfolio and the top 10 hospitality exposures Range from $8,000,000 to $14,000,000 in deal size.

Speaker 1

At quarter end, the weighted average loan to value of the hospitality Portfolio was 62%. Occupancy trends within the portfolio remain above its market competitors With trailing 12 and trailing 3 month occupancy reported at 76% 75% respectively. In addition, for the majority of the projects, we have notable sponsor support including liquidity and network. At quarter end, our loan balances included $1,100,000,000 related to loans acquired from Limestone. Excluding Limestone acquired balances, our organic loan portfolio grew 1 $146,000,000 or 12% annualized compared to the linked quarter.

Speaker 1

Growth was led by our construction loans, which were up $71,000,000 We also had increases in commercial and industrial loans, which grew $25,000,000 or 6% annualized. Our commercial real estate loans also increased $23,000,000 or 23% on an annualized basis. Compared to the linked quarter, lease balances grew $23,000,000 or 26% on an annualized basis. At quarter end, our commercial real estate loans comprised 35% of total loans, over a third of which were owner occupied, While consumer loans were 30%, commercial and industrial loans were 19%, specialty finance totaled 9% And construction loans was 7%. At June 30, 55% of our total loans was fixed rate And the remaining 45% at a variable rate.

Speaker 1

In this debut performance, I will now turn Call over to Tyler for further details about our quarter and the Limestone merger.

Speaker 2

Thanks Chuck. I appreciate the introduction and the time everyone has given to listen into our call. Our future is bright and I'm excited about the opportunity. I spent many years learning all aspects of our businesses, understanding our clients, associates and communities needs and what ultimately benefits our shareholders. We will continue to leverage our strengths into the future while focusing on our culture, relationships with clients, being a top employer and providing above average financial One of the most important aspects of our business is having a diversified revenue stream of which our fee based income is an integral part.

Speaker 2

Compared with to the linked quarter, our fee based income grew 8%. We more than offset the decline from the annual Performance based insurance commissions of $1,500,000 recognized during the Q1. The drivers of the increase compared to the linked quarter Higher electronic banking income and deposit account service charge income, which benefited from our Limestone merger along with increased trust and investment income. Compared to the prior year quarter, our fee based income was up 17% and on a year to date basis increased 11%. The growth was attributable to higher income in nearly all categories of fee based income, which also benefited from our Limestone merger and Vantage acquisition.

Speaker 2

Moving on to our deposit book, the higher rate environment continues to show the significant value of our deposit base. We are focused on maintaining low deposit costs, while also retaining as much of our deposit balances as possible. Compared to the linked quarter end, our total deposit balances grew $1,200,000,000 and was driven by the deposits acquired in the Limestone merger. Our total deposits excluding brokered CDs increased $885,000,000 mostly due to the Limestone merger. Excluding Limestone acquired deposits and brokered CDs, our total deposits declined $141,000,000 or 3% compared to the linked quarter end.

Speaker 2

This included our seasonal reduction in governmental deposits, which were down $50,000,000 or 6% compared to March 31. We had a decrease in non interest bearing deposits of $134,000,000 which was more than offset by an increase of $139,000,000 Additionally, savings and interest bearing demand accounts declined $60,000,000 $41,000,000 respectively. As we mentioned before, our deposits have been inflated in recent periods due to COVID, so some of this shift was expected. On a quarterly basis, excluding acquired deposits and brokered CDs, we have performed better in terms of deposit declines Compared to national trends in commercial bank deposits since the Q2 of 2022. At the same time, we have increased our deposit rates to be more competitive And retain deposit balances.

Speaker 2

Our demand deposits comprised 42% of total deposits At June 30 compared to 46% at March 31. At quarter end, our deposit composition included 78% In retail deposit balances, which is comprised of consumers and small businesses and 22% in commercial deposit balances. Our average customer deposit relationship was $29,000 at June 30. Moving on to our recent merger, we are benefiting from the impact of Limestone both financially and operationally. As of the close of business on April 30, we completed the merger The results we presented for the quarter are inclusive of Limestone.

Speaker 2

We will convert the Limestone core system to our system the 1st weekend in August. We have confidence that this will be a successful transition and will give additional functionality to our new clients. A little later on, Katie will provide more details regarding the As Chuck mentioned during our last call, we're working diligently to prepare to pass the $10,000,000,000 asset mark and are taking a disciplined approach. We realize that there are many areas that are impacted once this threshold is crossed, including regulatory and compliance. We have worked with specialists to address the changes needed to prepare for this transition.

Speaker 2

We have also put in place the technology, infrastructure and associates to make this a successful endeavor. We are adding new email, calendar and meeting software, which will give our associates some of the newest technology available. We are also working to implement a new customer relationship management software, which will link to our other systems and will enable a more seamless data driven approach with our clients and partners within our businesses. At the same time, we are focused on fully absorbing Limestone and we are in no hurry to grow through another bank acquisition. I look forward to the opportunity to lead our organization into the future.

Speaker 2

Constant improvement and learning is a part of our culture, which we will continue to stress in order to further improve our performance. I appreciate Chuck and his mentorship over the years and I'm excited about our continued success. And I'm grateful to the fine team of professionals like Katie that I will get to partner with. Next up is Katie who will cover additional financial metrics for the quarter.

Speaker 3

Thanks, Tyler. Our net interest income improved due to the Limestone merger, organic growth and increased market interest rates in recent periods. Compared to the linked quarter, net interest margin expanded 1 basis point to 4.54%. For the quarter, margin was positively impacted by accretion income from the Limestone merger, which offset declines related to the overall profile of Limestone, which we had anticipated would pull down our own margin. For comparison purposes, our margin for the Q1 of 2023 was 4 point 5.3%, while Limestone's was 3.58% for the same period.

Speaker 3

Accretion income, Net of amortization expense from acquisitions was $4,500,000 and added 24 basis points to net interest margin for the 2nd quarter. I would note that our accretion income recorded during this period is preliminary as we work to finalize our review and processes around our acquisition accounting. Also helping to improve our net interest margin were our loan yields, which improved 43 basis points compared to the linked quarter. We more than doubled our average brokered deposit balances, which negatively impacted our overall deposit costs. Broker deposits provided a lower funding cost than utilizing other funding sources.

Speaker 3

For the quarter, our total deposit costs was 87 basis points compared to 40 basis points for the linked quarter. Excluding broker deposits, our total deposit cost for the quarter was 63 basis points compared to 29 basis points for the linked Quarter. Compared to the prior year quarter, our net interest income grew 38%, while our net interest margin expanded 70 basis points. On a year to date basis, net interest income increased 36% and margin grew 90 basis points. Last quarter, we had mentioned that we anticipated our net interest margin for the full year of 2023 would be between 4.40% 4.60 percent, and we continue to expect to fall within that range.

Speaker 3

For the quarter, Our total non interest expense grew 25% compared to the linked quarter. But as Chuck mentioned, we recorded $10,700,000 in acquisition related expenses, which drove a majority of the increase. For the quarter, Total non interest expense included $5,400,000 in additional expense from the expanded Limestone footprint and operating costs. And when coupled with the acquisition related expenses made up the entire increase compared to the linked quarter. Compared to the prior year quarter, total non interest expense increased 42% and was 25% higher on a year to date basis.

Speaker 3

The comparison to these prior periods have been impacted by the acquisition related expenses, the Limestone merger and on a year to date basis, The Vantage Lease Acquisition. Our reported efficiency ratio was 62.7% for the quarter compared to 57.8 percent for the linked quarter. When adjusted for non core expenses, our efficiency ratio was 53.3% compared to 57.2 percent for the linked quarter. For the 1st 6 months of 2023, our reported ratio declined 2% compared to 2022, and on an adjusted basis, it declined 6%. As it relates to the Limestone merger, the transaction was valued at $178,000,000 This is $27,000,000 lower than we had modeled for the deal based on the change in the stock price.

Speaker 3

We recorded preliminary goodwill of $64,000,000 which is subject to further purchase accounting adjustments as we finalize our review procedures. The loan discount, which includes the component for credit and interest, was $9,000,000 higher due to the change in market interest rates since we announced the merger. Our core deposit intangible ended up being $5,000,000 lower than projected and was driven by reductions in deposit balances. The purchase credit deteriorated loans from had a preliminary allowance for credit losses of $1,000,000 This credit mark on PCB loans was $8,000,000 lower than we had As the PCB pool was relatively small. As it relates to the Limestone investment portfolio, We brought the entire portfolio into ours as available for sale, and the discount we recorded was $21,000,000 higher than we originally projected And was driven by the change in market interest rate.

Speaker 3

Limestone carried some investment securities that we do not typically investment invest in And they sold some of those securities pre merger, and we sold some additional securities shortly after the close date. Our discount on the trust preferred securities and subordinated debt acquired was $9,000,000 higher than projected, again due to the change in market interest rate. The combination of all of these differences contributed to the $24,000,000 reduction in goodwill compared to what we originally projected. Based on our preliminary analysis, our tangible book value earn back period improved from 2.8 years to 2.7 years. At quarter end, our investment securities portfolio declined to 21.3 percent of total assets compared to 24.6% at the linked quarter end.

Speaker 3

As it relates to our interest rate sensitivity, we continue to manage to a relatively neutral balance sheet position. We remain slightly asset sensitive, and we'll continue to monitor our balance sheet for opportunities to manage our interest rate risk exposure. Our capital levels continue to be well capitalized. We had some fluctuation in our capital ratios compared to the linked quarter end as a result of our Limestone merger. At quarter end, our common equity Tier 1 capital ratio was 11.4%.

Speaker 3

Our total risk based capital ratio was 12.9%, and our leverage ratio was 9.6%. For the quarter, our leverage ratio was inflated as we received the benefit of the equity issued in the numerator, but there was only a partial quarter of the Limestone acquired balances in our average assets for the denominator of this ratio. Our tangible equity to tangible assets ratio declined to 7.0% from 7.1% at the linked quarter end. We had anticipated this ratio would be negatively impacted by the Limestone merger. However, we expect this to be a short term impact.

Speaker 3

I will now turn the call back to Chuck for his final comments.

Speaker 1

Thank you, Katie. The Limestone merger positively impacted our results this quarter coupled with organic growth. We are pleased with our low adjusted efficiency ratio this quarter, which was 53.3%. Our net interest margin was stable at 4.54% compared to the linked quarter and the goodwill recorded from our Limestone merger was lower than we had anticipated, Which reduced the amount of the expected decline in our regulatory capital levels for the quarter. We are well positioned for the future.

Speaker 1

We have invested in our systems and our people as we are preparing to cost $10,000,000,000 in assets and we are improving efficiencies with the Limestone merger. We want to finish up this call with our guidance for the remainder of 2023. These projections include the impact of the Limestone merger, but exclude acquisition related expenses. During the rest of 2023, We expect our net interest income to continue to grow due to the impact of the Limestone merger as well as the benefits of a full year Higher market interest rates as our loans continue to reprice to higher rates. We continue to expect a slowdown in net margin expansion as we recognize the impact of Limestone for the remainder of the year coupled with increased funding costs.

Speaker 1

We expect some minor compression in margin through the last two quarters of the year. We still believe that net interest margin will be between 4.4% and 4.6% for the full year of 2023. This projection includes one additional rate increase during the remainder of the year and would improve slightly if there was a second and third increase. A potential variable impact to our anticipated margin is the recognition of accretion income from the Limestone merger, Which we are finalizing and could fluctuate based on activity for the rest of the year. Excluding the acquired Limestone loans, We believe our annual organic loan growth will be between 6% 8%.

Speaker 1

We expect fee based income percentage growth to be in the low to mid double digits compared to 2022. We are anticipating a 22% To 24% increase in our total non interest expense for 2023. Excluding acquisition related expenses Compared to the full year of 2022, which continues to assume we achieve our anticipated cost savings associated with the Limestone merger, We are anticipating between $4,000,000 $5,000,000 in remaining acquisition related expenses that we should record during the Q3. We believe these expenses will be minimal for the Q4. We still expect our efficiency ratio excluding one time expenses to be between 55% and 7% for the full year including Limestone.

Speaker 1

We expect our net charge off rate during 2023 Will be relatively consistent with 2022. Current course consensus estimates for 2023 diluted EPS It's $3.66 We expect to beat consensus estimates excluding acquisition related expenses And a one time provision for credit losses for the acquired Limestone loans. Based on our projections, we expect Diluted EPS for $20.24 to exceed $20.23 on a reported basis. We have a positive outlook for the remainder of the year as we plan to continue to reap the benefits from the Limestone merger. We also anticipate recognizing our 30 And in projected cost saves associated with the merger within the calendar year.

Speaker 1

We are also optimistic about the Product and service offerings our teams can provide to our new clients coupled with organic growth that we are projecting. Our footprint lends itself well to our growth. As many of our big four banks including Wells Fargo Chase, Bank of America and Citi do not have an extensive network within many of the communities we serve. If you look at the counties that are within a 90 minute drive from our headquarters in Marietta, there are approximately 600 bank branches. Of those 600 branches, the big four banks only have 26 and we have 51.

Speaker 1

Those counties generated 30% of our total revenue for the first half of twenty twenty three. We believe this leads opportunities to expand our business and offerings to new clients. We will continue to focus on developing these relationships And our teams will work together to make an extraordinary client experience. This concludes our commentary and we will open the call for questions. Once again, this is Chuck Selereski.

Speaker 1

And joining me for the Q and A session is Tyler Wilcox, Chief Operating Officer And Katie Bailey, our Chief Financial Officer. I will now turn the call back into the hands of our call facilitator. Thank you.

Operator

We will now begin the question and answer session. The first question is from Brendan Nosal of Piper Sandler. Please go ahead.

Speaker 4

Hey, good morning guys. Hope you're doing well.

Speaker 1

Good morning. Good morning.

Speaker 4

Maybe to start off here on the outlook for expenses, it came in a little better than I was looking for in the quarter, which is nice to see. And then Chuck, if I heard your guide correctly, I think you said 22% to 24% for the year ex merger costs. And I think the prior outlook was for a 21% increase. So just curious what the moving parts are that push that up just a little bit?

Speaker 3

Yes. I think it's investments in both people and technology as we proceed through the remainder of this year. We referenced some of those investments in the script And new system technology and client engagement system.

Speaker 4

Got it. Okay. And that's off of the 2022 reported cost base, correct?

Speaker 3

Yes.

Speaker 4

Okay. All right. And then one more for me before I step back. Just you guys offered some commentary on preparing internally for $10,000,000 in Just as you think about what you have done and what still needs to get done to get there, what inning of that preparation

Speaker 1

We're into mid to late innings. I think we're in pretty good shape. I also want to reiterate we're in no hurry to cross 10,000,000,000 We are in a hurry to get ready to cost $10,000,000,000 So I just want to make that distinction.

Speaker 4

Yes, that's helpful. Okay, thank you for taking the questions.

Speaker 1

Thank you.

Operator

The next question is from Daniel Tamayo of Raymond James. Please go ahead.

Speaker 5

Thanks guys. First congrats Chuck, on your retirement and to Tyler on your promotion.

Speaker 1

Thanks, Katie. Thank you.

Speaker 5

So I guess, first on the margin. I hear your comments Katie on, or I think it was Chuck who said that there's going to be more or there will be compression here going forward in the margin. I think we talked about last quarter the potential for a reset hire in the Q3 from the Limestone balance sheet as well as More accretion. So just as we think as kind of in terms of the timing of over the next couple of quarters of the margin, just curious if you could Walk us through the moving parts within the forecast for compression.

Speaker 3

Yes. Just going back to the commentary from the Q1, we had Put that Q2 might come in a lower little lower than that range of $440,000,000 to $460,000,000 with the thought there being We might still be working through the day 1 fair value related to the Limestone acquisition. So we weren't sure if we would have the accretion income, What you saw in the numbers that came through actuals for Q2, we had meaningful accretion. And so in light of that, The rebound that we had referenced being a possibility in the Q1 call to happen in the Q3, I don't think you would anymore because Q2 had accretion. And what we had said in the script this quarter related to Q3 as we continue to finalize those Fair value, Mark, there might be some minor adjustments, in those numbers as we work through that finalization, but I wouldn't expect a meaningful shift And accretion income between Q2 and Q3.

Speaker 1

And the guide was the 4.4% to 4.6% for the year. We don't see any dramatic change in the margin in the next couple of quarters.

Speaker 5

Okay. All right. That's helpful. And then on the loan growth side, So you talked about low to mid double digit loan growth, obviously, including limestone balances. So how should we think about How you're planning to fund that?

Speaker 5

Is there some kind of letting or using cash flows from securities In that, are you planning to let that draw down a little bit? And then within the deposit Growth, just curious on the expectation for brokered balances going forward.

Speaker 3

Yes. Just to go back So the 6% to 8% loan growth guidance that we referenced in the script here earlier today, that is as it relates to Kind of the core PIVO loans, it does not include the Limestone loans, in that 6% to 8% I would say as it relates to the funding of the loan growth for the back half of this year, I think it will be much of the same. You have seen Some reductions in the investment portfolio, both the PIVO and then through what we acquired from Limestone, I think you would expect some of that to continue, Like you mentioned, to use the cash flows off the investment book to fund the loan growth. I think on the deposit side, The story will likely remain similar with the exception of the governmental deposits generally increase as we proceed through the 3rd Quarter and hit another kind of high watermark at the end of September. So we expect some growth on the governmental deposits, but we would Continue to evaluate the use of brokered CDs as a funding mechanism, specifically as an alternative to an overnight source That we would otherwise use, which is generally FHLB.

Speaker 5

Okay. And just as a What were you putting on CDs and brokered in the second quarter? What rates?

Speaker 3

On brokered CDs, it was in the high 4s, low 5. And on Customer I think you're you're asking about customer deposits too on the CD side?

Speaker 5

Yes, yes, the retail stuff.

Speaker 3

Yes, they were in the mid-4s.

Speaker 5

Okay, great. Thanks for taking all my questions.

Speaker 3

Thank you.

Operator

The next question is from Tim Switzer of KBW. Please go ahead.

Speaker 6

Hey there, good morning. I'm on for Mike Perito. First off, Chuck, congrats On the upcoming retirement and to Tyler as well for the new role.

Speaker 1

Thank you. Thanks.

Speaker 6

I had a quick follow-up kind of on the last line of What were the blended loan yields at the end of the quarter just for like new originations?

Speaker 1

Yes. Just give me a second. I can get you some exact numbers assuming I can put my Hands on it, but they were higher than the originations, the Portfolio, the total was 8.2%, percent. I don't know if you had a particular product. Commercial was 7.14%, consumer On average, at least the indirect was 7.59%.

Speaker 1

Okay.

Speaker 6

Yes, that's helpful. That's great. Thank you. And then Just because so you kind of give us a good jumping off point for the NIM next quarter. We're going to have the 1st full quarter impact of Limestone.

Speaker 6

You have kind of like what the spot NIM was at the end of the quarter?

Speaker 3

It was pretty close to what Was reported for the quarter. Okay. I'll try to get back to you

Speaker 2

on the call.

Speaker 6

Okay. Not a significant change, it sounds like.

Speaker 3

No. And again, that was heavily influenced by the accretion.

Speaker 6

Right, right. I guess if you look at it ex the accretion, you guys reported about 4.32% core NIM. Was it still around there in June as well?

Speaker 1

Yes, it should be. Yes. Yes.

Speaker 6

Okay. That's great. And about your guys' comments about being open to another deal, but not looking for 1, but eventually wanting to cross The $10,000,000,000 asset threshold, is there anything specific you'd be looking for? Would you grow past Are you looking to acquire past the $10,000,000,000 even if it's a few years from now?

Speaker 1

We've looked at it a couple of different ways. There's 3 ways to do it. You can do a big deal, you can do a small deal or you can grow organically. And if you look at the results of those banks a couple of years after the fact, while this Prevailing Wisdom is doing a big deal is the way to go. 2, 3 years later, it doesn't really matter that much.

Speaker 1

So I think our focus is really to get us prepared as possible. Again, we're in no rush. We have a lot of room. We're at $8,800,000,000 We can continue to take down the investment portfolio. We will continue to grow organically.

Speaker 1

We continue to have conversations with institutions of all sizes. And as we get closer, we'll make the best strategic decision that is in front of us. And so maybe we have a whisker of a preference to do a large deal to shoot us over 10, But I wouldn't be crushed if we went organically and I wouldn't be crushed if we did a small deal.

Speaker 6

Okay. Yes, that makes sense. That's all for me. Thank you, guys.

Speaker 1

Thank you. Thank you.

Operator

The next question is from Nick Kucherel of Hovde Group. Please go ahead. Good morning, everyone. How are you? Good morning.

Operator

Good

Speaker 6

morning.

Speaker 7

On the increased organic loan growth guide, can you give us a sense of the opportunities that you're seeing that give you confidence in this deeper trajectory? Is it broad based demand Across your footprint or particular segments that are driving the improved guide?

Speaker 1

First off, the guide has been consistent at 6% to 8%. We didn't increase the guide. The actual quarter came in at 12%, which was higher than the guide. I think we're seeing good demand across our geography. We are benefiting from some Long approved multifamily construction projects that are funding that are growing.

Speaker 1

So we're seeing more outstanding that's helping us a little bit, but our indirect business continues to chug along. Our Specialty Finance businesses continue to chug along. It really is a portfolio play Both from the product lines and from the geography.

Speaker 7

Okay. That's helpful. And then just a question on the insurance business. It's a hard market, but your first half twenty twenty three results are up 13% relative to 2022. How much do you attribute to the environment?

Speaker 7

Or is it deepening relationships with your I

Speaker 1

think there's 3 pieces to it. A whisker of it is some year over year impact of some Very small acquisitions. Some of it is the hardening market and some of it is really an organizational wide focus On bringing the suite of products and services we have retirement plans, insurance, leasing, etcetera to our business customers.

Speaker 7

Great. Thank you for taking my questions.

Speaker 1

Thank you. Thank you, Mac.

Operator

The next question is from Terry McEvoy of Stephens. Please go ahead.

Speaker 8

Hi, good morning everyone. Hi,

Speaker 1

how are you doing?

Speaker 8

I'm doing great and congrats to both of you on the news from earlier this month. Congrats. Maybe I haven't crunched the numbers yet, but it looks like the percentage of revenue from insurance and trust and investment income On a relative basis, it's declined given some of the recent acquisitions either bank or the leasing company. What are your thoughts on acquiring some businesses to grow those revenue lines?

Speaker 1

First off, we love those businesses. We're committed to them. We continue to look for acquisition candidates in both businesses. Pretty consistently have been doing very small deals in the insurance space. We'd love to do more deals in the investment space.

Speaker 1

We would love those fee based businesses to be a higher percentage of total business. The increase in margin over the last 6 quarters has shrunk them on a relative basis, but hasn't shrunk our commitment to them.

Speaker 8

And then as a follow-up, on the commercial real estate portfolio, which is So over $2,000,000,000 today. Do you know how much of that matures over the next, call it, 6 to 12 months? And have you

Speaker 1

We're very comfortable with the ability of our borrowers to absorb the higher Rates, when these loans were underwritten, I can't tell you that we stressed them 5%, but we stressed them 3% And basically what we're lending to are proven developers, Sponsors with deep balance sheets. Katie, do you have a number or Jason, do you have a number on What matures in the next, I think it was my memory is $120,000,000 I got it that's right, not bad for 66 years of age Maturing this year and the number for next year was like 3 225 for next year.

Speaker 8

Great. Thanks for taking my questions.

Speaker 3

Thanks, Terry.

Speaker 1

Yes.

Operator

The next question is from Manuel Nieves of D. A. Davidson. Please go ahead.

Speaker 9

Hey, I just want to circle up on, did I hear right on the new loan yields at 8%, but commercial 7% and consumers around 7%. Was there a component I was missing there?

Speaker 1

Yes. The leasing businesses which helped increase it.

Speaker 9

Okay. So the overall is 8%, but the other components are a little bit lower. Perfect. And then roughly how much are you getting in securities cash flows Per month or per quarter?

Speaker 3

$15,000,000 to $20,000,000 per month.

Speaker 9

And it's really impressive, your pretty low deposit betas ex the broker deposits. Do you have an estimate there or just kind of it's pretty minimal so far, so you expect

Speaker 1

That's the value of the franchise. Our deposits, The places where we are, there was a comment in there about the absence of the large competitors. We have dominant market share in many small towns across places that most competitors have left And we're proud to provide service and reap the rewards in times like this.

Speaker 9

Yes. The branch stats of you're at 50 out of the 600 branches in your 90 minute drive from Marietta. Is that kind of like the core area you'd want to consider acquisitions? Is that kind of the target zone? Would that make sense to describe it as such?

Speaker 1

No, I would say the area for acquisitions is broader than that. We certainly would look at acquisitions in those areas. We'd have Opportunity for cost takeout, but we would like to do more in other places in Ohio. We Do more in Kentucky and West Virginia. We'd love to do more in the DC Baltimore Metropolitan Arria, I think someday we'll probably get into Southwestern Pennsylvania, which is real close to here.

Speaker 1

I mean Southwest Pennsylvania hour and a half to 2 hours. So we have lots of places that we can do deals. We just got to find the right partners with the right mix of business and the right philosophies.

Speaker 9

I appreciate that. Thank you and congrats on the different promotions and moving around that's Going on with the team, I really appreciate working with all of you guys, but I'm going to have you guys for a while longer, so that's good too.

Speaker 1

And you're going to have me for a while longer too.

Speaker 9

Yes, absolutely.

Speaker 1

Thank you. Thanks, Daniel.

Speaker 9

Thanks.

Operator

The next question is from Daniel Cardenas of Janney Montgomery Scott. Please go ahead.

Speaker 2

Hey, good morning guys.

Speaker 1

Hi, Dan. Hi, Dan.

Speaker 9

As we look at credit quality, can

Speaker 2

you maybe give us a little bit of color as to how watch list Trends are shaping up and if there's anything out there at the moment that's causing you any concern.

Speaker 1

It scares me to say, but I have very little concerns. It's almost eerily too good To be true, but we had really good, as indicated in the script, really good improvements during the quarter. You always have issues and things that you're working on, but I think we're optimistic on the vast majority of the stuff that we have. So We don't see any issues in the short term.

Speaker 2

So then as I think about provisioning for you guys on a go forward basis, mostly just to cover charge offs and expected growth, is that kind of the best way to be looking at it near term? Growth, is that kind of the best way to be looking at it near term?

Speaker 1

Yes, because Frickin' accountants designed that provision system that doesn't allow us to Put money away for a rainy day, but yes, I think you have it right. How do I do, Katie? Katie is going to be glad to get rid of me.

Speaker 2

And then on the tax side, what's Kind of a good run rate to use for you guys in the back half of the year.

Speaker 3

22.5%, 23% thereabouts, it's being driven up a little by Limestone in that acquisition.

Speaker 2

Okay. And then last question for me in terms of the deposits acquired with Limestone, what kind of runoff are you seeing? And is that within your projected expectations?

Speaker 1

So far, but it's really pretty short. We just closed May 1st, we convert, next the 1st weekend in August, and then they'll See our fees and see our systems, they really haven't seen any of the fees or people's bank stuff. So I I think that's in front of us to before we can give you a good answer.

Speaker 2

Fair enough. Fair enough. All right. That's all I have. Congrats Chuck and Tyler.

Operator

The next question is a follow-up from Brendan Nossel of Piper Sandler. Please go ahead.

Speaker 4

Hey guys, thanks for taking the follow-up. Just wanted to follow-up on the cost outlook. I think if I take the midpoint of the guide, it implies a $138,000,000 or so for expenses in the back half of the year or about $69,000,000 or so per quarter for each of the next two quarters. Just want to make sure that that is indeed how you're thinking about things. And if so, is any of that transitory as you prepare for $10,000,000,000 or is that More or less the new run rate going forward.

Speaker 3

Yes. That 69% is a little high, Brendan. I would say it's closer to the range of 66%, 8 in the coming quarters, 23. And again, I think some of that is the preparation to cross 10 and Like we mentioned, the investments in both people and systems and technology.

Speaker 4

Got it. Thank you for clarifying.

Speaker 3

Thank you.

Operator

At this time, there are no further Sir, do you have any closing remarks?

Speaker 1

Yes. I want to thank everyone for joining our call this morning. Please remember that our earnings release and a web

Operator

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

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Earnings Conference Call
Peoples Bancorp Q2 2023
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