Q4 2020 Peoples Bancorp Inc Earnings Call
Good morning, and welcome to Peoples Bancorp, Inc. Conference call. My name is Sarah and I'll be your conference facilitator.
Today's call will cover a discussion on the results of operations for the quarterly period and annual period ended December 31 2020.
Please be advised that all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer period.
If you would like to ask a question. During this time simply press Star then one on your telephone keypad and questions will be taken in the order they are received.
If he would like to withdraw your question. Please press Star then two.
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.
The statements in this call, which are not historical fact are forward looking statements and involve a number of risk and uncertainties detailed in Peoples' Securities and Exchange Commission filings.
These include but are not limited to.
The ever changing effects of the COVID-19 pandemic on the economic and market conditions.
And on our customers.
Counterparties employees and third party service providers.
As well as the effects of various responses of governmental and non-governmental authorities to the COVID-19 pandemic.
Changes in net interest rate environment due to economic conditions related to the COVID-19, pandemic or other factors and or the fiscal and monetary policy measures undertaken which may adversely impact interest rates the interest rate yield curve interest margin loan demand and interest rate sensitivity.
The success impact and timing of the implementation of peoples business strategies and peoples ability to manage strategic initiatives, including the expansion of commercial and consumer lending activities in light of the continuing continuing impact of the COVID-19 pandemic on cause customers up.
<unk> and financial condition.
The competitive nature of the financial services industry.
Impact of assumptions estimates and inputs used within models, which may vary materially from actual outcomes, including the connection with the current expected credit loss model or seasonal model.
The discontinuation of the London Interbank offered rate LIBOR and other reference rates, which May result in increased expenses on litigation and adversely impact the effectiveness of hedging strategies.
Uncertainty regarding the nature timing cost and effect of federal and state banking insurance and tax legislative or regulatory changes or actions.
And changes in accounting standards policies estimates or procedures.
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.
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 fourth quarter 2020 earnings release was issued this morning and is available at peoples Bancorp Dot com under Investor Relations.
A reconciliation of the non generally accepted accounting principles or GAAP financial measures discussed during this call to the most direct directly comparable GAAP financial measures is included at the end of the earnings release.
This call will include about 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 peoples Bancorp Dot com in the Investor Relations section for one year.
Participants on today's call will be Chuck.
Trucks, you lose the ski President and Chief Executive Officer, and Kelly, Katy Bailey, Chief Financial Officer, and Treasurer, and each will be available for questions. Following opening statements. Mr. Solar Whiskey you may begin your conference.
Thank you Sir.
Happy new year, and thanks for taking the time to be with US This morning.
The year 2020 ended much differently than it began.
Business like many businesses was heavily impacted by COVID-19, pandemic and the way in which we function and provider services has changed dramatically over the past 12 months.
At this time, our lobbies have been accessed by our clients as appointment only albeit against became virtual portion of our associates have been working from home and to only coming into the office periodically.
While the pandemic continues to have an astonishing impact on our industry. We have been adept at modifying our practices in adapting to a new situation that arises.
Paycheck protection program from the small business administration, which we offered loans to small businesses resulted in our associates working night and day to process applications on <unk>.
Those teams continue to have meaningful conversations with customers, we remain determined to deliver on our high quality services to whatever means necessary.
Earlier. This morning, we reported record quarterly net income looking to our results we reported diluted EPS of $1 five in the fourth quarter compared to 51 cents on the linked quarter and 72 cents for the fourth quarter of 2019.
Full year, we reported diluted EPS of $1 73, compared to $2 63 for 2019.
During the fourth quarter, we recognized certain noncore transactions, which included severance and COVID-19 related expenses, which negatively impacted diluted EPS by <unk> <unk> and <unk> respectively.
<unk> from the sale of restricted class B visa stock and low income housing talk.
Low income housing tax credit investments, which positively impacted EPS by <unk>, <unk> and <unk>, respectively.
The full year of 2020 on non core transactions included.
Acquisition related costs, which reduced EPS by <unk> <unk>.
Covid related expenses, which decreased EPS by <unk>.
Severance expenses pension settlement charges and income tax expense true up from prior years.
Each of which negatively impacted EPS by four cents and proceeds from the sale of restricted class B visa stock, which positively impacted EPS by three cents.
As it relates to our reported performance we generated positive operating leverage for the full year of 2020 compared to 2019.
It means that we grew our revenues at a faster rate than our expenses compared to the prior year when.
When adjusted for non core expenses, we did not achieve positive operating leverage compared to 2019 because of the decline in net interest income due to the low rate environment.
For the fourth quarter of 2020 compared to the fourth quarter of 2019, we did have positive operating leverage when adjusted for non core expenses as.
As far as our involvement in the SBA Paycheck protection program. We received some proceeds from the payoffs of loans, but given by the FDA during the fourth quarter.
At the end of December our PPP loan balances have declined by $94 million on 20% from September 32020.
During the fourth quarter, we recognized $3 7 million of interest income on the amortization of the net deferral of loan fees and costs from the PPP loans.
At the end of December we had $7 9 million of remaining net deferred loan fees and costs, which will be recognized as income through the respective maturity, but the loans or the forgiveness by the SBA.
We continue to have opportunities to introduce our PPP clients to our other lines of business to determine additional products and services that align with their needs.
At December 31, 2020, we had new deposit accounts totaling nearly $50 million and $35 million of loans associated with these PPP clients. We have also added approximately $250000 of annual fee income from PPP clients.
Regarding our provision for credit losses, we recognized a recovery of provision for credit losses of $7 3 million during the fourth quarter, our provision for credit losses totaled $26 3 million for 2020.
A reduction in the provision of credit losses compared to the linked quarter reflected the most recent Moody's economic forecast utilized on our seasonal model at the end of December which had improved compared to the economic forecast at the end of September.
Compared to the economic forecasts from September <unk>.
<unk> forecast for the next four quarters included an improvement of <unk>.
Approximately 2% in U S unemployment, approximately 4% in Ohio, unemployment and approximately 3% in Ohio GDP.
Meanwhile, compared to the full year of 2019, our provision for credit losses increased significantly.
This increase reflected the utilization of the CSO model, which is driven by forward looking expected losses and largely based on economic forecasts from Moody's that deteriorated due to the pandemic.
On the first half of 'twenty two.
During the first half from 2020, the increase in allowance for credit losses has been driven by economic forecasts from Moody's that showed high rates of unemployment, which improved in the latter half of the year to.
To the extent economic factors from Moody's continued to improve which include unemployment and GDP rates and the credit quality metrics remain strong we would anticipate having additional releases of provision in future periods.
Regarding loan modifications at the end of December the balance of loans on Covid related modifications totaled $22 million, representing less than three fourths of 1% of our outstanding loan balances last quarter, we mentioned that the level of modifications with increased compared to September as we were processed.
From the additional requests for payment relief at that time the.
The breakdown on the outstanding loans on payment deferral plans as of December 31, 2020 include $5 million and consumer loans and $17 million in commercial loans.
At this point the vast majority of our Covid related deferrals are paying on time.
Of the commercial loans onto an active payment relief plan almost two thirds were with customers operating in the lodging sector. The other borrowers with active loan modifications operating in industries of transportation, childcare amusement and recreation and restaurants and breweries while we.
We're processing additional requests for payment relief, we expect the aggregate COVID-19 related loan modifications to increase slightly at the end of the first quarter to comprise around 1% to 2% per outstanding loan balances.
The anticipated increase is being driven by additional relief on the lodging and commercial real estate portfolio, primarily relating to three clients.
Lodging industry has been heavily impacted by the pandemic resulted in clients requesting additional deferments for more than six months.
Our total expenses, our total exposure to the lodging industry with $81 7 million at the end of December which excludes $2 million of PPP loans to date, we have provided payment relief to 80% of our lodging portfolio.
Only two customers main on active deferments, given the stress in the industry, we anticipate additional clients will seek payment relief in the coming quarter.
This portfolio consists primarily of 13 properties with an average loan to value of 64%.
These properties are flagged, meaning they are part of a national franchise two of the properties that are not flag consists of cabin rentals, which are performed relatively well during the past eight months.
<unk> two our liquidity is strong on half of the properties within the lodging portfolio.
Additionally, the top three relationships within the portfolio accounted for 69% of the total exposure.
These relationships are also supported by guarantor strength and by an SBA guarantee approximately $10 million of exposure under these relationships remains advance.
As the project is on hold due to Covid, we have one criticize relationship and one classified relationship on this portfolio, which we're performing at a satisfactory level prior to Covid.
Two relationships account for an aggregate of $10 7 million or 13% of the lodging portfolio, excluding PPP loans.
The pandemic has further stressed overall cash flow of these specific operators, which led to the downgrades, we do Matt.
At the pace any losses on our lodging portfolio through the first half of 2021 given.
Given the extension on PDR relief, we will work with our borrowers as much as possible on to stabilize the occupancy and cash flows return exclude.
Excluding 55 billion of PPP loans, our exposure to restaurants was $171 million at December 31, 2020, which included $137 million to Mcdonald's franchisees.
Excluding PPP loans are loans to operators of non Mcdonald franchise restaurants accounted for $34 million of our total rest of our portfolio exposure at December 31, 2020 in total this portfolio accounted for $8 million of the 114 million.
And total deferments to restaurant operators that we have provided during the pandemic.
Non Mcdonald's franchise restaurants include $5 million on loans with a government guarantee enhancement.
These specific clients benefited from the cares act as funds as funding was used to support the customer principal and interest payments for an aggregate of six months during the year.
We provided over $27 million in PPP loans to these non Mcdonald's franchise restaurants.
At December 31, 2020, we had two loans remaining on active deferment with $1 5 million in outstanding balances.
With the passage of the value.
Validated Appropriations act of 2021 eligible borrowers under the SBA loans will receive an additional three months of funding for loan payments beginning with the February 2021 payment.
Hi at high impact industries, such as restaurants will be eligible for an additional five months. After the three month payment period, and while we have anticipated increase of our delinquencies related to the pandemic, we continue to see a stabilized delinquency rate at.
At the end of December at 98, 9% of our total loan portfolio was considered current compared to 98, 6% at December 31, 2019 during the fourth quarter. We also saw improvements of our nonperforming assets, which declined one 5 billion from the end of September.
On a quarterly annualized net charge off rate was 10 basis points compared to eight basis points for the linked quarter and 16 basis points for the fourth quarter of 2019.
We recognized a $508000 recovery on a previous charged off commercial relationship during the fourth quarter of 2020.
Our net charge off rate for the full year of 2020 was five basis points compared to four basis points for 2019.
Compared to the end of September our classified loans declined $3 5 million.
This decline was driven by the upgrade of three commercial relationships totaling $5 4 million coupled with the pay off on the amortization of other classified loans.
This improvement was partially offset by the downgrade of one commercial relationship with an aggregate balance of $4 5 million that was downgraded from special mention to substandard during the quarter.
Our criticized loans increased $3 4 million, which was mostly due to the downgrade of two larger commercial relationships totaling $8 million.
These downgrades were partially offset by payoffs of amortization of other criticized loans during the quarter.
All of the downgraded relationships I mentioned book Covid related or total COVID-19 related downgrades that occurred during the quarter with $12 4 million.
As it relates to our loan portfolio, our loan balances declined 2% from September 32020.
Decline was related entirely to the forgiveness of our PPP loans, which were down 20%. This.
This was partially offset by higher commercial real estate loans, which grew 7% annualized and our premium finance loans, which were up 41% annualized compared to the linked quarter end.
Excluding PPP loans, our loan growth was 3% annualized compared to the end of September.
As we expected our consumer indirect loans grew at a slower pace during the fourth quarter than in prior quarters, which was impacted by seasonality from a commercial loan perspective 2020 with one of our best production years. However.
However, this growth was muted by our COO.
Clients low utilization rate of commercial lines of credit, which resulted in 68 million dollar decline in commercial line of credit balances compared to December 31, two.
2019.
At December 31, 2020, our clients commercial line of credit utilization rate was 39% compared to 55, 2% at the end of 2019 at.
At the same time, we grew our commitment on the commercial lines of credit by over 100 million from December 31 2019.
We are currently participating in the latest round of PPP as of Friday, we have over 500 applications for over $80 million on potential loans. Our participation in the program has allowed us to grow our loan balances and future income related to fees, which have been beneficial as the loans are forgiven.
I will now turn the call over to Katy for additional details about our financial performance.
Thank you Chuck our results for the quarter improves as the benefit of the recovery of provision for credit losses impacted many of our performance metrics.
Our quarterly return on average assets and return on average stockholders equity.
Proved and were higher than the linked quarter and prior year quarter.
Compared to 2019. These annual ratio declined mostly due to the provision for credit losses recorded during the first half of 2020.
Our pretax pre provision ROA increased from the linked quarter.
Compared to the prior year quarter and full year of 2019 this ratio declined.
The decreases were driven by the sustained impact of the low interest rate environment on our net interest income during 2020.
The reported efficiency ratio improves compared to the linked quarter.
Higher than the prior year quarter.
The reported efficiency ratio also improved compared to the full year of 2019.
The increase compared to the prior year quarter was largely due to a decline in net interest income.
On with increased data processing and software costs and higher FDIC insurance expense.
The increase in FDIC insurance expense reflected the fact that credits had been received during 2019, which continued into early 2020, and then ran out.
The impact of the PPP loan balances on our leverage ratio also increased our FDIC assessments during 2020.
Well, we can reduce our FDIC assessment for the P. P. P loans by pledging them to the PPP lending facility, we have chosen not to utilize this type of funding source as we have other lower cost funding available.
The adjusted efficiency ratio, which excludes non core expenses declined compared to the linked quarter and prior year quarter.
These improvements were driven by lower core noninterest expense compared to prior periods.
The adjusted efficiency ratio increased for the full year of 2020 compared to 2019, which was mostly due to the decline in net interest income compared to the prior year.
Net interest income decreased 2% compared to the linked quarter and prior year quarter.
Net interest margin was stable compared to the linked quarter, but declined 43 basis points.
Compared to the prior year quarter.
Compared to the linked quarter, we had additional fee income of $1 $8 million recognized related to the PPP loans that were forgiven during the quarter.
This benefited our commercial loan yields which were up 81 basis points from the linked quarter.
The reduction on our net interest margin compared to the prior year quarter was mostly due to an increase in amortization within our investment securities portfolio.
This was driven by prepayments along with a decline on accretion income net of amortization expense from acquisition.
During the fourth quarter, we took action to reduce our exposure to the increased prepayment speeds.
As a result, we sold several investment securities to mitigate future high premium amortization, which resulted in a net loss of $751000 on investment securities recorded during the quarter.
October and November prepayments speeds on investment Securities continued to increase relative to prior months, while December slowed somewhat compared to prior months.
For the fourth quarter of 2020, we had premium amortization of $4 9 million compared to $4 6 million for the linked quarter and $3 4 million for the prior year quarter.
Compared to the full year of 2019, net interest income decreased $1 9 million or 1%, which reflected the repricing most repricing of most of our variable rate loans within the portfolio.
This decline included the $10 $7 million benefit from the income recorded on the P. P. P loans originated during 2020.
Compared to 2019, we have cut our interest expense by 38 per cent as we have been proactive in reducing our deposit pricing on monitoring our borrowing cost.
At the same time net interest margin declined 45 basis points as loan yields have been impacted by the low rate environment, well investment yields have declined due to prepayments.
For 2020, PPP loans added $10 7 million of net interest income and two basis points to net interest margin.
At the same time premium finance loans added $2 9 million to non interest income and two basis points to net interest margin.
We continue to closely watch our deposit costs, which were 29 basis points for the fourth quarter compared to 66 basis points for the prior year quarter.
Accretion income net of amortization expense declined during the quarter to $207000 and totaled $2 8 million for the full year.
Our accretion income has been impacted by residential real estate loan portfolios, we have been purchasing for which we have been paying a premium and are now seeing some of those loans pay off in recent months.
Accretion income added two basis points to net interest margin for the quarter and seven basis points for the full year of 2020.
Fee based income, which is noninterest income excluding gains and losses grew 3% compared to the linked quarter and was flat compared to the prior year quarter.
Gross compared to the linked quarter was mostly due to the sale of restricted class B visa stock, which resulted in $680000 of other income.
We also had proceeds from low income housing tax credit investments of $334000 in the fourth quarter of 2020.
Compared to the linked quarter, we had growth in swap fee income Trust and investment income and deposit account service charges, which were more than offset by lower mortgage banking mortgage banking and insurance income.
The decline in insurance income reflected the impact of the additional $591000 of insurance income recorded during the third quarter due to the timing of the recognition of revenue related to contracts.
Compared to the fourth quarter of 2019, our fee based income experienced growth provided by mortgage banking and trust and investment income.
This was coupled with the risk the restricted class B visa stock sale, improving other noninterest income.
Nearly offsetting these improvements were declines in all other categories. Many of which were a result of the pandemic.
Compared to the full year of 2019 fee based income decreased 1%.
We had significant growth in mortgage banking income, which was up 50 per cent compared to the prior year due to the low rate low interest rate environment.
Also had increases in electronic banking and trust and investment income compared to 2019.
More than offsetting these increases were reductions in deposit account service charges, which were heavily impacted by the pandemic PPP proceeds and fiscal stimulus.
Along with lower insurance swap fee and bank on life insurance income.
The higher bank on life insurance income during 2019 was due to 420 $482000 of death benefit proceeds received during that year.
E based income improved to 34% of total revenue for the fourth quarter compared to 32% per the linked quarter and 33% for the prior year quarter.
Compared to 2019 E based income was stable at 32% of total revenue per both periods.
Total noninterest expense declined 3% compared to the linked quarter and was down 1% compared to the prior year quarter.
We incurred severance expenses of $771000 on the fourth quarter, which as we mentioned last quarter, we will give us some cost savings going forward.
Contributing to the reduction from the linked quarter, where declines in salaries and employee benefit costs, net occupancy and equipment and electronic banking expenses.
Compared to the prior year quarter, our total noninterest expense was impacted by lower other non interest expense, which was driven by decreases in travel and entertainment expenses and supply.
Also had declines and other loan expenses professional fees and net occupancy and equipment expense.
These declines were partially offset by higher FDIC insurance expense, which was impacted by credits that had been utilized during 2019 and were fully used by early 2020.
Compared to the prior year quarter, we also had increased data processing and software expenses.
These additional costs were related to the implementation of new software along with an increase on our core processing card.
Total noninterest expense declined 3% compared to the full year of 2019.
This was mostly due to the non core expenses recorded during 'twenty 2019 related to the acquisition of first Rustenburg.
The reduction in acquisition related expenses in 2020 was however, partially offset by an increase in other non core expenses recorded during 2020.
Excluding non core expenses total noninterest expenses relatively flat compared to 2019.
Core deposits, which excludes CD balances grew 2% compared to the linked quarter and.
We continue to see increases in savings and interest bearing demand noninterest bearing demand and money market accounts.
This growth has been beneficial as these are relative these are all relatively low cost deposit sources.
Our deposit balances continue to be impacted by the pandemic as our clients are maintaining higher than normal balances.
Demand deposits grew to 43% of total deposits at quarter end, an increase from 42% at September 32020, and 40% at December 31 2019.
During the fourth quarter, we repurchased another $4 $3 million of shares as our stock price remains relatively low.
We continue to maintain capital levels that are above well capitalized and believe in strong returns for our shareholders.
Well, we have made nearly $30 million on share repurchases. This year, we are prudent in our approach and will not sacrifice the strength of our capital position to continue buying shares.
As far as any other any future repurchase plans, we are closely monitoring on stressing our capital levels as we have done previously to determine the most appropriate action.
As it relates to seasonal.
Our allowance for credit losses stood at 148% of total loans at December 31, 2020.
This is a reduction compared to $1 67 at September 30th as the economic forecast had improved.
Our allowance for credit losses declined 13% compared to the linked quarter end.
Our allowance for credit losses, as a percentage of total loans was negatively impacted by 18 basis points at December 31, 2020, due to the P. P. P loans, which no allowance for credit losses is recorded as a result of the full guaranteed by the SBA.
Our allowance for credit losses, as a percent of loans doubled compared to December 31, 2019, as we implemented the Cecil mono 30, twenty-twenty, coupled with the impact of the pandemic on the underlying assumptions.
I will now turn the call back to Chuck for his final comments. Thanks Katy.
Our growth highlights from 2020 include loan growth of 18% compared to December 31, 2019, which was mostly due to our participation in the PPP as well as our premium finance acquisition we.
We had significant growth in our low cost core deposits, which were up 27% compared to the end of 2019.
Cut on deposit cost and half of 2020 to 36 basis points compared to full year of 2019 on <unk>.
Tangible book value per share increased to $19 99 assets.
731, 2020 compared to $19 34 at.
Tempur 30th 2020.
Core noninterest expense was down 3% compared to both the linked quarter and the prior year quarter and was flat to 2020 compared to the full year of 2019.
Our fourth quarter of 2020 was the best quarter of the year from pretax pre provision net revenue.
Our ending household count for 2020 increased compared to the end of 2019, and our credit quality metrics remained stable and our debt.
Quincy, we improved compared to the end of 2019.
Looking forward to 2021, we typically have higher expenses during the first quarter of each year.
Just wanted to remind everyone that this is usual and expected as we recognize additional costs related to employee contributions to health savings accounts.
<unk> based compensation expense for certain employees.
Payroll taxes and annual Merit increases as I mentioned during the last quarterly call, we were expecting low single digit loan growth for 2021.
Currently our first quarter numbers for loan growth are looking strong on loan growth in future periods will be contingent upon continued economic improvement we.
We have been happy to have made a positive impact on our communities. During the pandemic. Our foundation gave out $750000, which was a record to local communities. In addition, our associates donated $116000 to support food banks within our footprint to assist in Hungary.
<unk>.
This concludes on commentary and we will be open and we will open the call for questions. Once again. This is Chuck <unk> and joining me for the Q&A session is Katie Bailey, our Chief Financial Officer, I will now turn the call back into the hands of our call facilitator. Thank you.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing issue.
Withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Scott Cyphers with Piper Sandler. Please go ahead.
Good morning, guys. Thanks for taking the question.
Hey, Scott, Hey, Hey.
I guess the first question is just on PPP on how you would see a debt forgiveness.
Trending from here.
And is that an in truckload you have the low single digit.
Loan growth expectation does maybe if you can just remind us or clarify does that include or exclude what happens with PPP forgiveness. Please.
Yes, it excludes PPP.
So we had about 2021% of the PPP.
Forgiven by December 31st I think we're sitting here right now it's about 31% given I think of the first batch, which I think for US. It was like 480 odd million I think we will get most of that in the first and second quarter of this year as for the new PPP program.
You know, it's hard to say, what the forgiveness timing on that.
It will be but hopefully in this calendar year.
Okay, perfect and then just to be clear Kitty and the when you talk about.
The $3 $7 million.
You can come on deferred loan fees and costs.
Just so I'm clear since there theres a lot of different descriptions of the PPP.
Fees the garage, that's the debt $3 7 million, that's the accelerated fee.
Accelerated origination.
Origination fee recognition is that correct most of it yes, the rest of debt piece that were amortizing over the roughly two years.
Yep Okay.
Alright, perfect. Thank you very much. Thank you. Thank you.
Our next question comes from Michael Perito with K B W. Please go ahead.
Hey, good morning tell Katie how are you guys.
Doing good on my mind Mike.
Good. Thanks, I had a couple questions I was hoping to address Charles I wanted to start on on the credit and moving more of a big picture question for you than anything specific to people, but you know I should think about the year, but it was pretty wild card I mean, you guys.
Sitting here today, the reserves double what it was coming out of 2019, yet your non performers were basically flat your charge off from flat on obviously you were deferrals were almost nothing in and it's hard to imagine that that's the case.
Given all the uncertainty throughout the year, but I guess, where do we go from here do you think truck I mean, obviously this was going to be a little bit of a hard year with seasonal adoption, even ex the pandemic from a modeling perspective, but any kind of general thoughts on how you view the reserve for your loan portfolio and a seasonal environment going forward.
Uh huh.
Yeah. So if you go back and look at what we did with C. So and if you look at the adjustment we made in January I think that reflected on our belief in what we thought was in the.
And the total portfolio, so I mean I.
There's tens of millions of dollars close on.
Extra reserves.
And there, which is I guess the way to say I have a lot of faith in the portfolio.
I don't think we're going to see.
See the charge offs as I understand it is over the life of loan as opposed to it make specific year, but I am very optimistic.
Bringing money back in to income is dependent on the Moody's economic forecast.
More so than anything else so.
I'll leave it to the economist.
Predict what's going to happen, but as far as the portfolio of them.
We're very happy I Love, the fact that it's very diversified.
And.
You know I'm, not saying on purpose, but I'm, saying that we have a lot of pride in it.
Is it fair that's helpful. Thank you is it fair to you know on me if I look back I mean, you guys were running interest maybe added just under 80 basis points for the few years heading into the pandemic.
It is it is it still a fair assumption to think that under Cecil that number.
Get back to that type of steady state benign environment would still kind of structurally be higher than what it was under the old methodology or or is that not necessarily the case.
No it should be higher than it was under the old methodology.
Thanks to keep more on reserves.
And Mike I would just remind you that the pre C. So the number I believe you quoted would have excluded those are loans that we have acquired through acquisition and we would've probably been closer to the 1%. If you had included those loans.
True thank you.
Helpful and then I wanted to ask about.
Positive operating leverage for 2021 truck any any high level thoughts about kind of what what the hope is you guys can do there and I guess is it fair to think that as long as rates from near zero.
Hold on the efficiency ratio flattish year in 2021 would be a win and then obviously if rates move higher there would be leverage on top of that.
Hold on the efficiency rate flat would be I think a huge win for any bank in this.
Environment.
You know we have I was happy to seize on fourth quarter results with a positive operating leverage relative to the linked quarter in the prior year.
Water.
We continue.
Made some announcements last quarter about efficiencies and we continue to look internally for.
For efficiencies.
Certainly some loan growth would help us I think we're going to need some of that help to get to positive operating leverage.
Okay, and then just lastly, do you mind updating us on the.
The capital priorities for 2021, I mean, it seems like.
There's quite a bit of room for further bank consolidations certainly in the Ohio.
Obviously, it looks like there's quite a bit of room, just any updated thoughts there and then could you remind us to what your appetite is to outside of kind of whole bank, whether it's more kind of specialty niche lending team lift outs or acquisitions, just just any update there would be helpful.
While we remain optimistic on acquisitions.
We would like to buy banks.
Footprint and even some contiguous.
We'd love to buy a leasing company.
Been pretty consistent on that for a period of time, we have not done team lift outs.
I've always had a philosophical issue with team lift out somehow I don't want the bottom half of the teams. In fact, you can get the top half of it seems like.
Like it.
Hey.
But that might be more on my problem and so if there was an opportunity for us to do something like that.
Potentially.
On a number of towns we would consider it.
As far as the capital as far as the capital or you'll have.
We remain committed to the dividend.
And Oh.
Hope to be able to increase the dividend in the future and as it relates to stock buybacks, we bought back shares every quarter.
In <unk>.
<unk> 'twenty I think we were one of the few banks, who can say that and increase the dividend in the same year, but we look at the buyback as.
You know as we look at acquisitions and we look at the earn back on that and I think that we will see less buyback activity in 'twenty one than we did in 'twenty. So you can go back to writing me for not buying shares at higher prices.
[laughter].
No I mean, I'd be hopefully right I mean, there's some tier 2020, and I think you're probably.
Honestly I can't really think of any other bank on the top of my head the ball back on four and raised the dividend and share, but you know certainly was a year, where there's a little bit more internally folks I mean, it sounds like moving into next year. Your hope would be that capital would be more for external growth opportunities, whether that be low growth or M&A or leasing acquisitions or you know whatever the opportunities that come.
On your way I mean is that it seems like the environment will be more accommodating to those those aspiration is that fair that's fair.
Okay well.
Thank you guys. Appreciate it thank you Mike B well.
Our next question comes from Steve Moss with B Riley Securities. Please go ahead.
Good morning, everybody. This is day schwartzman on for Steve.
I'm, just going to sit in and ask questions on his behalf today How's everybody doing.
Perfect.
Awesome. So my first question here is how.
How do we how should we approach anticipating the size and the yields on the securities book going forward.
Any sort of color on loan pricing would be appreciated.
So on the investment portfolio I think it was lower.
Year end, we would look to put some of that excess liquidity to work in the first part of the year.
I think that was the first part of your question I think you can expect from increase in the investment securities at the relative size.
And in terms of loans.
Loan yields.
It's competitive we hope to see a little bit of expansion, but I'm not super optimistic.
Okay got you Yeah, that's super helpful.
Also on fee income I'm seeing that insurance is down year over year on sort of curious what are the drivers looking like there and what are you guys seeing in the market.
Well first off I think Youll see insurance income go up this year I think the market has significantly.
Hardened.
We had we had some issues.
With account retention.
Last year that we hope not to see Europe.
Experience again.
And there was.
It wasn't quite the premium increases.
That we had hoped for so but we are I think youll see solid.
You know low to mid single digit growth there this year.
Awesome. Thanks for the color on and last question.
Where should we sort of try to protect you guys out in terms of tax for 2021, what do you what are you guys.
And in terms of tax.
Yeah, I think and then 19 on a half range thereabouts, it's probably again.
You tell us what our friends in Washington, They're Gonna do yes, that's assuming no tax law change of course, but.
Yeah.
I'll try to talk to buy it.
Thanks, Good luck.
Thank you guys for taking my questions Hey, Thank you.
Our next question comes from Russell Gunther with D. A Davidson. Please go ahead.
Hey, good morning, guys. Good morning, good morning.
I appreciate all the color in terms of the dynamics for the net interest margin in the quarter I was hoping you could share your thoughts on where you would expect the core margin to be for 2021, maybe parsing out you know purchase accounting accretion and PPP fees.
Yeah, I think we would expect to get back to the third quarter level over the course of the next two quarters, which was in the roughly $3 10 range.
But again, it will take a quarter or two to get back there and again, that's you know assuming some the speeds on the investment portfolio zone.
So new they get faster.
And then when you kind of see the December trend continue as opposed to the October and November trend.
Okay got it I appreciate that and then kind of within that 310 core range on whether you guys expect for the premium finance yield going forward.
Yeah, but you are on that.
Premium finance who'll run somewhere around six maybe a shy sort of the six per cent range.
Okay great.
And then switching gears to the organic growth guide you gave a low single digits am I you know I know premium finance is an area that you would expect to continue to grow but any other thoughts on the mix in terms of continued organic growth into 'twenty one.
On our indirect business has been growing strong and continues to go strong I think you'll see some good growth there.
As we stated in the script the production in commercial last year was extraordinary.
Going against the lower line utilization.
We're very optimistic on the first quarter.
And.
That first quarter optimism is based on what we hope to see in commercial.
So yeah, we'll reassess.
I've got to be careful here, because without giving guidance at this time, but we'll we'll reassess where we are at the end of the first quarter and hopefully we can be a little bit more optimistic on loan growth.
Got it okay, great well. Thank you both that was it for me.
Thank you.
Okay, and if you'd like to ask a question. Please press Star then one on you touched on from.
Our next question comes from Jordan with Winter industry. Please go ahead.
Hi, This is changed some from Jordan.
We are asked to get a copy of your company's culture books on you.
You were very kind to send us a loss on that along to us as well as a very nice handwritten note. So thank you for that.
In the book.
The competency model section.
We presented a lot of things that you want your people all of your peoples. This wasn't the executive section.
You present, a lot of things you want them to be able to do.
And some of those things seem really hard.
For example makes good decisions regardless of how much time it takes.
I can't do that.
I can anticipate future consequences trends accurately that's hard and quickly grass.
On the underlying structure of anything.
I'm not sure anyone on Earth.
So my question is to what extent is this section aspirational.
And to what extent do you actually expect this of all your 500 employees.
Well it's aspirational.
You know if you put it in sports terms was a pretty Crappy College basketball player and you know you tried to shoot past triple rebound in defense.
And.
Everybody has a five on a five point scale on all of those are going to be the Michael Jordan and Lebron James Our company is based on the belief that all of US trying to be better next quarter than we were this quarter and it's in that spirit that that's given as a picture of where people can aspire to get to.
The rest of the book is that all sort of aspirational or is it more like this is what we expect on a day to day.
It's a combination of different things if you had the opportunity.
Two two.
To go through it we talk about mission and values, we talked about how we wanted to treat one another.
Talk about what the keys to our success on.
And that's kind of.
You know what we are you know what.
We try to do so.
So.
I don't know if there's something specific in there that you wanted to talk about.
I don't know that debt.
That answers my question. Thank you. Thank you.
Our next question is a follow up from Scott Cyphers from Piper Sandler. Please go ahead.
Hey, guys. Thanks for taking the follow up.
Chuck just curious on to extend your you're comfortable offering it maybe thoughts on where you would see.
Net charge offs for the full year you know it's been just such an enormous roller coaster ride over the past several months.
From so kind of a nightmare of shot in the spring and summer to know what looks very very benign do you think you can keep charge offs flat year over year in 'twenty, one or how are you thinking about that dynamic and then additionally, what's what's your best guess as to when we would see a little more loss emergence.
Well I think loss emergence may be.
Pushed out further if there is another round of stimulus.
So we've got to keep that in mind.
Yeah, I think debt.
I don't think we'll see any more charge offs in the first half of this year than we have in the first half from 'twenty one.
On average than we saw in full year 2020.
As far as the second half of the year I think a lot of that depends on.
The vaccination and the progress, but I'm optimistic you know the regulators I think have been.
Very prudent and.
Allowing us to.
You know mark everything to TD are hell and back end.
So I think it's the regulatory.
The environment stays the same.
We begin to get there.
Things are under control with vaccinations in.
I'm optimistic that it won't be much worse than this year I mean, do I think that I think personally I think all of US last 10 years that we've all enjoyed with virtually no charge offs.
Yeah, that's not consistent with the prior 30 years of you know.
On my career, so I think we've been living in a little bit of Nevada.
So I wouldn't be surprised to see charge offs returned to what I would think of it as more normal on the 20 to 30 basis points range, but I don't think youll see that in the first half of the year and I'm not saying, you'll see it from the second half of the year I'm, just saying I don't have a lot of visibility.
Yeah Yeah.
Understood. Thank you very much I appreciate the color. Thank you.
Our next question comes from Joseph <unk> with Boenning. Please go ahead.
Good morning, everyone.
Hi, Joe.
Alright.
Quick clarification question on the loan growth guidance for 2021 that is on an ex PPP basis correct, yes, Sir.
Okay, and the second round of PPP, you mentioned $80 million of apps.
So far you did over $450 million for the first round I'm, you know where do you think the second round shakes out.
Just a just a wild guess I would have no way of knowing but I'd say somewhere between 202 hundred $50 million.
You got to remember that people could only get $2 million as a Max last time. It was 10 and they have to have a.
Quarter, where they've had a loss there's a couple of more constrained so or was down 25%. There's a couple of more constraints that weren't in place last time.
So it will be less for sure.
Got it.
And then you can do that we could see some further reserve releases here I'm not sure. If that's going on the first half per second half of this year allow us loans, 148%.
Where do you see the allowance to loans say at the end of 'twenty, 'twenty, one or even longer term in this.
Just kind of a new world and with <unk> et cetera.
Well you tell me, what the Moody's economic forecast would be.
And I'll tell you what the reserves will be.
I don't know what it gets down to it but I think it can go low with them. What it is I guess is what I would say.
I think it would be easier I hope.
I'm anxious to see all banks adopt Cecil so we can get better comparative non.
On the numbers, but.
But we feel pretty good about where we are and the only thing I would add there. Joe is just the factor of the P. P. P loans into that the ratio that you're describing and then.
That they're reducing that ratio today by nature of not having on associated reserve on them.
Yes. My question more is when we get through all the PPP noise.
Is is is 150 the right number is one on a quarter the right number.
Any thoughts I guess.
Yeah.
Put it this way I think your average bracketed pretty well I don't think 150 is the right number but.
It's probably a little bit lower but we'll see.
Great.
Okay.
At this time there are no further questions. Sir do you have any closing remarks.
Yes, I want to thank everyone for participating please remember that our earnings release and a webcast of this call will be archived at peoples Bancorp Dot com under the Investor Relations section again, I want to wish everyone. Good health. Thank you for your time and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.