Peoples Bancorp Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 21, 2025
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Operator

Good morning, and welcome to Peoples Bancorp Inc. Conference Call. My name is Nick, and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31, 2024. 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 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 fact, are forward looking statements and involve a number of risks and uncertainties detailed in Peoples Securities and Exchange Commission's 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. Peoples' Q4 2024 earnings release and earnings conference call presentation were issued this morning and are 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 20 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 peoplesbancorp.com in the Investor Relations section for 1 year. Participants in today's call will be Tyler Wilcox, President and Chief Executive Officer and Katie Bailey, Chief Financial Officer and Treasurer, and each will be available for questions following opening statements. Mr.

Operator

Wilcox, you may begin your conference.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you, Nick. Good morning, everyone, and thank you for joining our call today. Our 4th quarter diluted earnings per share was $0.76 and was $3.31 for the full year of 2024. As we look at 2024, I want to note some key takeaways. Our net interest income improved 3% compared to 2023 and our net interest margin continued to outperform most in our industry at 4.21%.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Fee based income grew 10%. Our efficiency ratio stood at 58%. Our book value per share improved 5% to $31.26 while our tangible book value per share grew 10% to $19.94 We had a favorable shift in the mix of our loan portfolio as our commercial and industrial loans grew relative to our commercial real estate portfolio. Our commercial and industrial loans increased $163,000,000 growing from 19% to 21% of our portfolio as commercial real estate loans declined from 36% to 34% from 2024 to 2023. Our loan to deposits ratio declined to 84% compared to 86% at December 31, 2023.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Our criticized loans improved to 25% of our total risk based capital at year end compared to 27% for 2023 demonstrating the stability of our commercial loan portfolio. We had deposit balance growth of $443,000,000 or 6% compared to 2023. Our tangible equity to tangible assets ratio improved to 8.01% at year end compared to 7.33 percent for 2023 and we continue to beat consensus diluted EPS estimates, which were $0.75 for the 4th quarter and $3.30 for the full year of 20 24. As far as our credit quality at year end, our overall allowance for credit losses was 1% of total loans. Our provision for credit losses declined for the 4th quarter as we had a reduction in individually analyzed loan reserves, which was partially offset by charge offs for the Q4.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Our annualized net charge off rate was 61 basis points for the quarter compared to 38 basis points for the linked quarter. This was driven by our leasing charge offs, which comprised 49 basis points of the quarterly rate. For the full year, our net charge off rate was 37 basis points compared to 15 basis points for 2023. Our leasing business drove 22 basis points of the annual rate for 2024. We have provided guidance in the previous two quarters regarding the elevated charge offs in our small ticket leasing business and last quarter guided to an anticipated peak of these charge offs in the Q4.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We took an aggressive approach with these credits during the Q4, which drove the higher net charge off rates as collection strategies brought some of the charge offs forward into the Q4. While improvements from the Q4 peak are expected, we anticipate a gradual decline towards our expected charge off rate of 4% to 5%. We had reserves established on many of these credits during the previous quarters, which reduced the impact provision for credit losses during the Q4. To provide some perspective on our small ticket leasing, over the 2 year period prior to 2024, net charge offs within the portfolio went from around 1.5% to our current rate of 6.7%. Historical net charge off rate the average historical net charge off rate for small ticket leasing was around 4.5% prior to our ownership.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Going forward, our strategy with this business continues to be to seek origination yields between 18% 20% with net charge offs in the 4% to 5% range. We expect that the adjustments we have made in origination and credit focus are returning us to the average historical net charge off levels. For more information on our small ticket leasing business, please refer to our accompanying slides.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Our non

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

performing assets declined $21,000,000 and were 0.53 percent of total assets at year end. We noted last quarter during our call that we had administrative past due lease accounts and premium finance accounts for which we were awaiting expected proceeds from carriers on canceled policies. The majority of those cleared up in the Q4 and our non performing asset levels were back in a normal range at year end. Ritocis and classified loans were relatively similar to levels at the end of the Q3. Our delinquency approved compared to the linked quarter end as the portion of our loan portfolio considered current at year end was 98.7% compared to 98.5% at September 30.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

As it relates to our loan portfolio concentrations, we had no material changes during the Q4. Our total investment commercial real estate exposure at year end was 36% of the $4,600,000,000 in our commercial loan portfolio and declined to 183% of our total risk based capital. We continue to be pleased with our multifamily portfolio metrics, which declined to $562,000,000 or 8% of total loans at year end. These loans are focused on quality metropolitan areas that are within our core markets. Collectively, these metropolitan areas experienced average annualized rental rate growth of 3.1%, job growth of 1.25%, median household income growth of 3.1% and population growth of 0.93%.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We continue to have minimal exposure in specific lending concentrations including land development, which comprised 1.4% of total loan balances at year end, office at 1.7% and hospitality at 2.7%. As far as loan balances, we had 5% annualized loan growth during the Q4. Our commercial and industrial loans were up over $97,000,000 while our residential real estate loans were up $57,000,000 compared to the linked quarter end. Our commercial real estate balances declined $24,000,000 which was the result of payoffs and sales within the portfolio, which outpaced new loan growth. Our lease balances declined at $26,000,000 due to lower originations during the quarter, coupled with charge offs in our small ticket leasing business.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

At quarter end, our commercial real estate loans comprised 34% of total loans, nearly 40% of which were owner occupied, while the remainder were investment real estate. At year end, 47% of our total loans were fixed rate with the remaining 53% at a variable rate. I will now turn the call over to Katie for a discussion of our financial performance.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thanks, Tyler. For the 4th quarter, net interest income declined 3% compared to the linked quarter and was driven by lower accretion income. Net interest margin was 4.15% compared to 4.27% for the 3rd quarter. The compression in net interest margin was driven by lower accretion income, which totaled $4,900,000 and added 23 basis points to margin for the 4th quarter compared to $8,100,000 and 39 basis points for the linked quarter. On a core basis, excluding the impact of accretion to the 3rd and 4th quarters, we had net interest margin expansion of 4 basis points.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

During the 4th quarter, we were able to reduce our interest bearing deposit costs by 6 basis points as we saw lower rates on all of our deposit categories during the quarter. We also fully paid off our borrowings from the bank term funding program, which contributed to the reduction in our short term borrowing costs. For the full year, net interest income increased 3%, while net interest margin declined 34 basis points. As we have mentioned previously, our decline in net interest margin compared to 2023 was mostly due to the timing of our deposit cost increases occurring slower than the repricing of our loans to higher rates. From an interest rate risk perspective, we are in a generally neutral position.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Our net interest income profile is robust and is relatively insensitive to changes in interest rates. Moving on to our fee based income. We had growth of 5% compared to the linked quarter. This increase was driven by higher commercial loan swap fees, which were up nearly $1,000,000 and was partially offset by declines in mortgage banking income. For the full year, fee based income grew 10% and was the result of improved lease, trust and investment and insurance income as well as the full year impact of the Limestone merger.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

During the Q4, we recognized a $1,200,000 loss on an other real estate owned property, which is included in our non performing assets. This loss was recognized based on a recent appraisal received regarding the property value. As it relates to our net interest expenses, we had an increase of 7% compared to the linked quarter. The majority of this increase was in other noninterest expenses due to higher noncore expenses coupled with reductions in corporate expense recognized last quarter. For the full year, non interest expense was up 3% as we experienced higher operating costs from the additional footprint from Limestone, which was partially offset by lower acquisition related expenses during 2024.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

For the Q4, our reported efficiency ratio was 59.6% and was up compared to 55.1% for the linked quarter. Our improvement in fee based income for the quarter was outpaced by lower net interest income and increased non interest expense resulting in a higher efficiency ratio compared to the linked quarter. For the full year, our reported efficiency ratio was 58%, an improvement compared to 58.7% for 2023 due to lower acquisition related costs in 2024. Looking at our balance sheet at year end, our loan to deposit ratio was flat compared to the linked quarter end and stood at 84% for both periods. We had growth in our investment portfolio during the quarter as we locked in some higher yields and longer durations, putting those investments into our held to maturity securities.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

As noted in our accompanying slides, we had growth in our deposits during the quarter, which were up $112,000,000 compared to September 30. Our non interest bearing deposits grew considerably, while our interest bearing transaction accounts also increased. At the same time, our governmental deposits declined compared to September 30. As we have noted previously, these deposits are seasonally higher during the 1st and third quarter of each year. Our retail CDs grew compared to the linked quarter end, while our brokered CDs also increased as part of our funding strategy.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

As we have mentioned before, we view brokered CDs as an additional funding source and they have been available at a rate lower than FHLB advances in recent periods. We expect our deposit costs to continue to decline as they did for the Q4. Our CD specials at year end 2024 were around 4% compared to between 4.75% and 5.25% at year end 2023. While the Fed funds rate increased 4.25 percent from the Q4 of 2021 through year end 2024, our deposit rates only increased 1.8% over the same time period. Our demand deposits as a percent of total deposits were 34% at quarter end and were consistent with the linked quarter end.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Our non interest bearing deposits grew to 20% of total deposits at quarter end compared to 19% for the linked quarter end. At year end, our deposit composition was 79% in retail deposit balances, which included small businesses and 21% in commercial deposit balances. Our average retail client deposit relationship was $26,000 at quarter end, while our median was around $2,500 Moving on to our capital position. Most of our capital ratios improved compared to the linked quarter and benefited from earnings outpacing dividends. Our tangible equity to tangible assets ratio declined to 8% compared to 8.3% at September 30 and was due to increases in our accumulated other comprehensive losses related to our available for sale investment securities.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Our book value and tangible book value continue to improve and were up 5% and 10%, respectively, compared to December 31, 2023. While managing our capital levels, we continue to provide a high yield return to our shareholders with a current dividend yield of 5.11%. Finally, I will turn the call over to Tyler for his closing comments.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you, Katie. As we move into 2025, I'd like to reflect on some of our achievements during 2024. We continue to be recognized as a top employer by many publications, allowing us to attract and retain top talent. We contributed to our communities in meaningful ways, including donations, volunteering and through our scholarship programs. These activities are key to our market presence and competitiveness within our markets.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We continue to leverage the investments we have made to prepare to surpass $10,000,000,000 in assets. We were recognized as being in the top 15% of banks nationally in the Small Business Administration 7 approved loans. We are reiterating our guidance for the full year of 2025, which excludes non core expenses. We expect to have positive operating leverage for 2025 compared to 2024. We expect to have improvement in our return on average assets for 2025 compared to 2024.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Assuming an additional 50 point basis assuming an additional 50 basis point reduction in rates from the Federal Reserve during 2025 spread over the 1st 9 months of the year, we anticipate a stabilization in our net interest margin of between 4% and 4.2%. In our projections for 2025, each 25 basis point reduction in rates results in a nominal impact of 1 or 2 basis points to net interest margin. We believe our fee based income growth will be in the mid to high single digit percentages compared to 2024. We expect quarterly total non interest expense to be between $69,000,000 $71,000,000 for the second, third and fourth quarters of 2025 with the Q1 of 2025 being higher due to the annual expenses we typically recognize during the Q1 of each year. We believe our loan growth will be between 4% 6% compared to 2024.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We anticipate provision for credit losses to be similar to our 2024 quarterly run rate for 2025. We also expect our net charge off rate for the full year of 2025 to be modestly lower than the rate experienced for the full year of 2024. This concludes our commentary and we will open the call for questions. Once again, this is Tyler Wilcox And joining me for the Q and A session is Katie Bailey, our Chief Financial Officer. I will now turn the call back into the hands of our call facilitator.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you.

Operator

Thank you. We will now begin the question and answer session. And our first question today will come from Brendan Nosal with Hovde Group. Please go ahead.

Brendan Nosal
Director, Equity Research at Hovde Group

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

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Hey, Brendan. Good to hear from you.

Brendan Nosal
Director, Equity Research at Hovde Group

Maybe just

Brendan Nosal
Director, Equity Research at Hovde Group

to start off on loan growth. I was just kind of curious what was the driver of the divergence between end of period and average for the quarter? I mean, it seemed like the period end number was quite healthy, but the average was down a bit. I'm just kind of curious, is that timing or were there payoffs earlier in the quarter that dragged down the average? Any color there would be helpful.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Brendan, just so I understand your question, kind of relative to the 1st three quarters, is that what you're asking or?

Brendan Nosal
Director, Equity Research at Hovde Group

I mean, I guess if I look at average loans, they were down a couple percent annualized for the quarter, whereas end of period was up 5% or 6% annualized for the quarter.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Got it. Yes, I think it was timing and December production was just a lot of our borrowers getting their deals done in December, mostly a timing issue. But I would say demand continues to be strong across all of our portfolios as well.

Brendan Nosal
Director, Equity Research at Hovde Group

Okay,

Brendan Nosal
Director, Equity Research at Hovde Group

great. And maybe turning to the deposit base. I get that you guys have a much more retail oriented base than others, But just kind of curious how long you think it takes for you to get more beta out of that deposit base and kind of the timing on that to squeeze more of that 100 basis points out of the Fed onto your own pricing?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. I mean, I think we started a little ahead of the fed cutting in September and we have been actively managing it through the cycle of the Q4, and we'll continue to do so into the Q1 even if no rate cuts are experienced in the Q1.

Brendan Nosal
Director, Equity Research at Hovde Group

Okay. Perfect. Maybe one last one for me. Just on asset quality broadly and I guess outside of the leasing book. I mean, numbers outside of leasing look really, really solid.

Brendan Nosal
Director, Equity Research at Hovde Group

So just curious what you're seeing more broadly on both commercial and consumer credit trends?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. Thanks for the question, Brendan. A couple of thoughts. I agree with you. The asset quality overall in the kind of 97% of that portfolio is incredibly strong.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We saw as we said last quarter, we saw kind of a reduction to norms in non performing assets and the delinquency rates are positive trend. The criticized classified as a percentage of capital is down. And the full contribution for the year in the commercial book was at 2 basis points of charge offs. We expect that credit quality to continue both because of the kind of diversity of the loan portfolio and the quality of our execution from a credit monitoring standpoint. And in consumer, we've talked this year about consumer being kind of elevated from a slightly from an incidence of charge offs and in the indirect portfolio and then also from a value of each individual charge off.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We've seen a 4 month trend of decline there in the charge off rates. So the 4th quarter charge off rate came down about 30 basis points in the indirect portfolio. And just generally, the overall borrowing profile on the commercial side is deploying those low cost deposits into quality markets as we mentioned. And so we feel a high degree of confidence in the overall portfolio.

Brendan Nosal
Director, Equity Research at Hovde Group

All right, fantastic. Thank you for taking the questions.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thank you.

Operator

And

Operator

your next question today will come from Tim Switzer with KBW. Please go ahead.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

Hey, good morning. Thank you for taking my question.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

No problem. Great to hear from you, Tim.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

Good to hear from you guys.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

My first question is on with the 53% of loans that you guys set are variable rate, can you remind us, is that all repricing quarterly or does some of that have a bit of a longer lag?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Most of it is monthly, with a portion of it quarterly and a very small portion later than that, but majority is monthly.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

Okay, that's great. And then off setting that, given you guys are pretty rate neutral, can you review what your shorter term funding sources are, particularly like on the deposit side? I know you have some CDs that are maturing over the course of the year that are probably helping us back.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Right. Well, I'd say our retail CD book is pretty short in nature. I'd say generally less than a year. Broker deposits, again, as we stated in the call, we use those. But again, keep those relatively short 3, 6, 9 months tenors, generally speaking.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

And then our primary source is an overnight funding source through the FHLB.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. I got you. And could you guys

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

have been talking about deposits a

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

little bit already, but could you provide some details on maybe like the customer response to you lowering deposit rates fairly broadly across your different sources there? And do you expect that to change at all with how Fed rate expectations have come up a little bit?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. I mean, I think we've started lowering our special rate CD prices in lockstep with the Fed. I mean, again, we were a little ahead of it and we've been we haven't gotten quite all of it out of it just based on the repricing term of those. But we're still seeing some growth in that line item as you saw in the quarterly results. We haven't seen a big reaction from a customer attrition we haven't seen a big reaction from a customer

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

attrition perspective. I think we're

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

still keeping it fairly competitive within the markets that we serve.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

And yes, although we're largely retail focused there, we saw some healthy growth, for example, in commercial. So keeping up as well, so keeping up with the competition, the results kind of speak for themselves in terms of how the clients are reacting.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. Yes, that makes sense. And the last question for me, it might be a little early for the change in administration occurring yesterday.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

There's a lot of different puts and takes on kind of the macro outlook and the impact of tariffs and where rates will go. Are you seeing that result in any caution from some of your C and I borrowers at all or maybe even the other direction, certain industries where they're a little bit more bullish? Has it impacted like your loan pipeline in any way?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. I would as you say, there are some puts and takes.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We certainly have some C and I focused clients that may be impacted by tariffs. But overall, I would say, if you look at some of the national data and it certainly tracks with what we are hearing collectively from our clients is there's a high degree of business optimism. I believe there was a huge spike in the kind of small business optimism index in the last few days. And I think that's generally reflected throughout our markets. And so cautious optimism is how I would phrase it.

Tim Switzer
Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)

Okay, great. Thank you, guys.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thank you, Tim.

Operator

And your next question today will come from Terry McEvoy with Stephens. Please go ahead.

Terry Mcevoy
Managing Director at Stephens Inc

Thanks.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Good morning, Terry.

Terry Mcevoy
Managing Director at Stephens Inc

Good morning, Katie. Just to maybe just start with a couple of small questions from the quarter. Could you just expand on the acquisition related expense?

Terry Mcevoy
Managing Director at Stephens Inc

I mean, Limestone closed almost 2 years ago. I was curious to see that pop up. And then just the swap fees, which you called out in the press, how much were those in the quarter? And is that taken into consideration in your 2025 outlook?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. So as it relates to the acquisition cost that is related to a legal contingency that represents the anticipated settlement of a lawsuit that we inherited with the Limestone acquisition. And then as it relates to the commercial loan swap fees, that was about $1,200,000 for the quarter compared to about $200,000 in the Q3. Again, that's all customer demand, and we've seen spikes like that in other times. I would say we don't necessarily anticipate each quarter in 2025 to be at the $1,000,000 range, but we think that the year might land somewhere around that.

Terry Mcevoy
Managing Director at Stephens Inc

And then a follow-up, maybe could you just the C and I growth was nice to see any specific markets or industries that contributed to the quarterly growth? And then what type of headwind do you expect from kind of CRE pay downs in 2025? And will you continue to manage down the leasing portfolio or Northstar?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. Let me take those sequentially.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

So on the C and I growth, I would say it was broad based across all of our markets and no particular area that stands out, which is kind of what we like. Your second question was are these compound questions?

Terry Mcevoy
Managing Director at Stephens Inc

I'm slow The CRE pay downs and runoff of leasing.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

So CRE pay downs, we have about $350,000,000 of CRE maturing in 2025. Obviously, we've kind of done a deep dive into that.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

As we talked about on previous calls, pay down activity has been heavier this year than it has been previously, particularly driven not just by permanent financing, but by sales. But the sales market is very strong. And I think it's also a testament to the quality of the markets that we're in that the sales demand is high as investors look to purchase particularly those multifamily projects. And then your question about Northstar Leasing or excuse me, small ticket leasing was what remind me?

Terry Mcevoy
Managing Director at Stephens Inc

Will you continue to manage down that portfolio?

Terry Mcevoy
Managing Director at Stephens Inc

I believe in the past you've talked about shrinking it and we did see some runoff in the Q4.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. At year end that stood at about 191,000,000 that will likely decline notwithstanding we expect originations to pick up a little bit. And just to give you a little bit of color on that for overall, we believe the worst is behind us. As we clean up the portfolio, there's still some work to do.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

So we're not returning just for clarity, we went from 1.5% charge offs to over 6%, over 6% is too high, but under 4% is probably too low from a historical perspective and we look to ramp back down over the year closer to that 4% net charge offs. So that will continue a little bit of pressure on that portfolio size, while originations we hope will pick up.

Terry Mcevoy
Managing Director at Stephens Inc

Thanks for all the insight. Appreciate it.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thanks, Jerry.

Operator

Your next question today will come from Daniel Tamayo with Raymond James. Please go ahead.

Daniel Tamayo
Daniel Tamayo
Vice President at Raymond James Financial

Thank you. Good morning, everyone.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Good

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

morning, Danny.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Good morning.

Daniel Tamayo
Daniel Tamayo
Vice President at Raymond James Financial

You guys have talked about this already, but maybe just a little bit more specifically, Katie, on the margin guidance, given the neutral balance sheet sensitivity. And it seems like the goalpost of the $4,000,000 to $4,200,000,000 be driven by deposit repricing and payoffs perhaps. Curious if that's kind of how you're thinking about it as well. And if so, is there like a range of betas on the way down that you think kind of fit those goalposts? Or just curious kind of how you were thinking about it in the budgeting process?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. So just to be clear, the $4,000,000 $420,000,000 does include accretion income, as it has historically for us. And as we've guided to in the past, we would anticipate that on a quarter the first half of the year somewhere around 15 to 20 basis points, getting somewhere closer to and probably staying within that range for the full year, just slightly moving down that range as we proceed through the year. And again, to your point, I think we will some of that is the insight we have into that is the deposit beta as we do expect to continue to see some reduction in those price or that cost for us, as we said, as we proceed through the Q1 even if there are no Fed rate cuts in the first half of the year. Again, we were as a reminder and as we said in the call, we were slow to raise deposit rates.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

So you're seeing some of that. It's a little bit of a lag to what the loan pricing has done over the Fed cycle. So we're back on track to come down, but it's just slower than because we were still rising, I guess, when the Fed started cutting.

Daniel Tamayo
Daniel Tamayo
Vice President at Raymond James Financial

Got it. Thanks for that color. And then maybe just kind of high level thought on credit. You sounded pretty bullish relative to where you've been. You've got the leasing book being cleaned up.

Daniel Tamayo
Daniel Tamayo
Vice President at Raymond James Financial

I mean, if you had to say there's one area that you think is the biggest risk to guidance in 2025 from a credit perspective, is it just kind of a longer tail on that leasing portfolio? You think it's now kind of moved beyond that and more focused on the typical commercial and consumer portfolios?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. I think from a credit perspective, Danny, it depends on what rates and inflation do that is probably one of the catalysts for the increase that we saw in the small ticket leasing because that's particularly has a little bit more of a concentration in startups and businesses that are a little bit more vulnerable. Look, I think we will always have kind of the few ups and downs on the criticized and classified. And as you saw this year, 1 quarter up, 1 quarter down, but relatively stable and consistent. And that's kind of what we expect at this point.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

So overall, just I think it's a high quality diversified loan portfolio. And notwithstanding the small ticket leasing is that ramps down towards the more realistically expected credit losses. I have a high degree of confidence in the overall portfolio.

Daniel Tamayo
Daniel Tamayo
Vice President at Raymond James Financial

Terrific. All right. Well, thanks for taking my questions, Tyler and Katy.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thanks, Danny.

Operator

And your next question today will come from Nathan Race with Piper Sandler. Please go ahead.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Hey, Tyler and Katie. Thanks for

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

taking the question.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Staying warm these days.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thanks, Frank.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Question just on kind of the trajectory for loan yields going forward within the context of the guidance you provided going forward. Assuming the Fed is on hold at least over the next quarter or 2, just curious what you guys are seeing on terms of new loan pricing perhaps on a weighted average basis these days?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. On a blended basis, we ended the year at make sure I get the number right, 7.14 percent yield across the entire portfolio, including loans and leases. Commercial has been positive up there at about 7.71 for the full year average. And our specialty finance businesses drive that a little bit higher and our consumer is a little bit lower. So we expect yields to remain strong, but we are also not following any competition when it goes into terms or rates that don't kind of comport with our expectations for the business.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

And I think you'll see consistency there.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Okay, great. And just going back to credit, I appreciate the guidance around provisioning at a similar level relative to last year. And it sounds like as you described charge offs, particularly in the leasing segment peaked in the Q4. So just curious if you guys have any kind of goalpost in mind in terms of where you want to see the reserve get back up to maybe by the end of this year relative to loans?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. I mean, I think the 1% one handle, I think is a good place being an audited institution. But I think where we are now is reasonable and we might take up a few basis points. But I think historically we've played in that 1 to 1.1, 1.25. And so I would expect we would stay within that range for 25.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. Assuming the forecast continues kind of as is from an economic perspective, Our provision has some factors in it relative to unemployment and so forth that can drive the formulaic results. But I think it's been consistent over the years as Katy mentioned.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Got it. Just a housekeeping question on the accretion income expectations for this year. Katy, any thoughts on what we can expect maybe in terms of accretion income in 2025?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. From a basis point perspective, I think we will be in that 15% to 20%. We'll start the year at the high end of that and then the year at the low end of that. That's assuming kind of a normal expectation for payoffs. But I'd say $10,000,000 to $15,000,000 in accretion income for $25,000,000 is probably in the range of expectation.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Got you. One last one for me. Just be curious to hear if you guys are seeing any increased or feeling any increased optimism on the M and A front in light of everything that's unfold over the last 90 days or so. And just curious what you're seeing in terms of the number of partners you're talking to and just the overall magnitude of some of those conversations?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. Nate, thank you. As there's I think there's a lot of conversations going on as you know about us that we are very active in the space talking to potential partners and that continues to be the case. I would say that there's optimism out there. The discussions I have is that there's a lot of optimism among the larger regionals that they may see a window and we would be poised just as an aside to take advantage of the combinations of larger banks that often causes customer or client disruption and community disruption that we're well poised to take advantage of and to recruit talent.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

But that wasn't really your question. So I would say, yes, a lot of active conversations. We're optimistic. But we continue to kind of preach for ourselves and to potential partners that strategic patience. We have a mild preference still for the kind of larger deal to take us over 10 and we've kind of been active in passing on opportunities that don't fit strategically or from a size perspective and we'll continue to do that.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

But if the right opportunity comes along, soon we'll take it and if it doesn't come along in any immediate timeline, we'll be fine because we have headroom. So we remain kind of poised to be opportunistic is what I would say.

Nathan Race
Nathan Race
Director, Senior Research Analyst at Piper Sandler Companies

Okay, great color. I appreciate it. Thank you.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thank you, Nate.

Operator

And your next question today will come from Manuel Neves with D. A. Davidson. Please go ahead.

Manuel Navas
Senior Research Analyst at D.A. Davidson

Hey, good morning. Just more big picture.

Manuel Navas
Senior Research Analyst at D.A. Davidson

What do you see as

Manuel Navas
Senior Research Analyst at D.A. Davidson

the biggest wildcard to that positive operating leverage target for next year, positively or negatively?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

The potential for size loan growth is a possibility and that would certainly drive some positive result for us. I feel positive about kind of our expense control going into the next year. So I don't see that as a real potential risk.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

No. I mean, I think we feel good about our deposit base. We think that's one of the attractive features of this institution. Rate environment, again, we said we're relatively asset neutral or neutral to interest rates, but we'll see what happens from

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

the

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Fed perspective. I think right now it's different than where we were 6 months ago. So it's likely to change. But I think we feel good about where we sit today. But that's just something out of our control that we'll continue to monitor and manage.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes. I think the threats are more external. Were there be a recession or economic downturn or persistent inflation, those types of things that would drive economic activity. That's maybe where the wildcard risks lie.

Manuel Navas
Senior Research Analyst at D.A. Davidson

Okay. That's more exogenous. I appreciate that. Can you dive in a little bit more into the DDA trends you had? I don't think it's come up just how strong the non interest bearing growth was.

Manuel Navas
Senior Research Analyst at D.A. Davidson

What kind of drove that? Is it just because C and I was up at the same time? Any more color on that in general?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. I mean, I think we have continued as an institution to encourage the sales force to not only look for the loans, but also to actively engage their client in the deposit conversation too. And I think we're engage their client in the deposit conversation too. And I think we're seeing that benefit come through in the deposit base. And that holds true for the retail franchise as well as the commercial part of the business.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

So I think that's what you're seeing come through, in the growth in the Q4.

Manuel Navas
Senior Research Analyst at D.A. Davidson

And that growth so you're saying that some of that growth was retail DDA as well as like operating accounts?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Correct.

Manuel Navas
Senior Research Analyst at D.A. Davidson

Awesome. And if you're getting that 4% to 6% loan growth, do you kind of expect deposits to keep up? Or will there be a little bit of a tick higher in the loan to deposit ratio?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

I think we saw 6% deposit growth in 20 4. I think that beat our expectations a little bit. I think generally speaking, we expect deposit growth of 2% to 3% a year. So I'd expect we would see some borrowings put on to help potentially with the loan growth.

Manuel Navas
Senior Research Analyst at D.A. Davidson

Okay. That's helpful. Thank you. I appreciate the comment Dave.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thank you,

Operator

And your next question today will come from Daniel Cardenas with Janney Montgomery Scott. Please go ahead.

Daniel Cardenas
Director at Janney Montgomery Scott

Good morning, guys.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Hi, Dan.

Daniel Cardenas
Director at Janney Montgomery Scott

Most of my questions have been asked and answered, but just maybe a little bit of cleanup. As I look at the charge off levels in the Q4, how much of that was covered by specific reserves versus what was taken in the quarter in terms of provisions?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes, about $3,000,000 was covered with specific reserves that we had up at 9:30 that were then charged off in the Q4.

Daniel Cardenas
Director at Janney Montgomery Scott

And those are all related to the leasing portfolio?

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Correct.

Daniel Cardenas
Director at Janney Montgomery Scott

And how difficult would it be to kind of build that back up? I know you kind of said that you want your reserve to loan level maybe a little bit higher than where it is at 1%. But do you kind of envision do you envision a scenario where we can see that maybe closer to 110 by the end of the year?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

I would say no, Dan. I'd say we put up very specific reserves putting on some qualitative factors relative to specifically the small ticket leasing. And our analysis thus far has been what enabled us to be able to be predictive on the Q4 and where we think we're going in the subsequent quarters. So I think we have a high degree of confidence in our kind of internal analysis of that book and our expectation of how the charge offs will potentially cascade throughout the year. And I think Q4 really proved that out.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Yes. And I would just add that we have been, in my opinion, reserving for the small ticket leasing at historic levels throughout the process. So again, we elevated that with some specific reserves at Q3 and earlier in the year. So I don't expect a big increase related to the small ticket leasing in the reserve as we go forward. I think we would we've been carrying it in that 4% to 5% historic rate, which we quoted in the release.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Again, another factor that plays into the reserve as you're well aware under CECL is the economic forecast. So that looks, in my opinion, pretty good right now. To the extent that moves meaningfully against us, that reserve ratio could sway meaningfully in the quarter that that happens. But I don't have any reason to believe that will happen in 2025, but again, it's kind of data dependent.

Daniel Cardenas
Director at Janney Montgomery Scott

Got it. Got it. Okay. And then just in terms of talent acquisitions, as you noted, I mean, there have been a bit of a pickup in the M and A activity here recently. Have you seen that kind of result into additional discussion with teams or individuals in markets that you're either in or want to be in?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Yes, Dan, I would say less with teams. We've historically not done kind of major lift outs, but we are as active on the talent acquisition front as we are on the general acquisition front. And I would say, for example, in the past few quarters, we've added 9 additional commercial bankers across kind of what we view as our core footprints of Ohio and particularly in Kentucky and Southern Ohio kind of in the Cincinnati, basically the Columbus to Louisville corridor, if you want to call it that, and optimistic about kind of their future production, which is kind of baked into our 2025 numbers. So yes, we will and we will continue to be opportunistic with those hires. We're also investing in our leasing businesses.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

We're investing in all of our lending businesses indirect to expand that network as well. And so we are kind of all in on Talend acquisition and we'll continue to be because that ultimately drives our results.

Daniel Cardenas
Director at Janney Montgomery Scott

Got it. That makes sense. All right, great. That's all I have for right now. Thank you, guys.

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

Thank you, Dan.

Katie Bailey
Katie Bailey
EVP, CFO & Treasurer at Peoples Bancorp

Thank you, Dan.

Operator

At this

Operator

time, there are no further questions. Sir, do you have any closing remarks?

Tyler Wilcox
Tyler Wilcox
President& CEO at Peoples Bancorp

I am disappointed that none of the analysts were interested in my opinion on the Buckeye's result. But with that, I'll say I want to thank everyone for joining our call this morning. Please remember that our earnings release and a webcast of this call, including our earnings conference call presentation will be archived at peoplesbancorp.com under the Investor Relations section. Thank you for your time and have a great day.

Operator

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

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Earnings Conference Call
Peoples Bancorp Q4 2024
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