Q2 2023 Peoples Bancorp Inc Earnings Call
Good morning, and welcome to Peoples Bancorp, Inc. 's Conference call. My name is Kate and I will be your conference facilitator today's call will cover a discussion of the results of operations for the three and six months ended June 30th 2023.
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 questions will be taken in the order. They are we see if you would like to withdraw from the question queue. Please press star.
Then to 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 and statements in this call, which are not historical facts are forward looking statements and involve a number of risks and uncertainty.
These detailed in peoples Securities and Exchange Commission filings.
Management believes the forward looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of peoples business and operations. However, it is possible actual results may differ materially from these forward looking statements.
Peoples disclaims any responsibility responsibility to update these forward looking statements. After this call except as may be required by applicable legal requirements.
Peoples second quarter 2023 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 directly comparable GAAP financial measures is included at the end.
The earnings release. This call will include about 25 to 30 minutes of prepared commentary followed by a question and answer period, which I will facilitate.
An archived webcast of this call will be available on peoples Bancorp Dot com in the Investor Relations section for one year.
Participants in today's call will be Chuck seller, Rusty President and Chief Executive Officer, Tyler Wilcox, Chief operating Officer, and Katie Bailey, Chief Financial Officer, and Treasurer, and each will be available for questions. Following opening statements. Mr. Tholen Rusty you may begin your conference.
Thank you Kate good morning, and thank you for joining our call today earlier. This month peoples communicated my retirement in March of 'twenty, 'twenty, four and Tyler Wilcox was announced as my successor.
<unk> completed a diligent succession process.
<unk> has done admirably and increasingly complex role.
In the last three years, it's been running all of our businesses.
I'm fully confident he can take us to even greater heights.
Turning to our results earnings will awesome for the quarter. They were impacted by one time limestone acquisition related expenses. They were also impacted by the provision for credit losses to establish the allowance for the acquired loans from limestone.
Net income for the quarter totaled $21 1 million and diluted earnings per share was 64 cents.
For the quarter, we recognized $10 7 million in acquisition related expenses.
Reduced diluted EPS by <unk> 25 that we.
It's a paid an additional four to 5 million in acquisition related expenses during the third quarter when our conversion of the limestone system is scheduled to take place.
At the same time, we recorded higher provision for credit losses, this quarter, specifically related to the limestone merger.
We established the allowance for credit losses for the acquired loans that were not considered purchase credit deteriorated. This additional provision totaled $10 million, which negatively impacted diluted earnings per share by 23 cents.
For the second quarter. Some highlights of our performance included net interest income of $12 million or 16% compared to the linked quarter.
Fee based income growth of $1 6 million or 8% compared to the linked quarter.
Excluding noncore expenses, our adjusted efficiency ratio was 53, 3% a reduction from 57, 2% for the linked quarter.
Also excluding noncore expenses, we generated positive operating leverage compared to the linked quarter as total revenue growth pace.
Total noninterest expense growth.
As it relates to our credit quality, our allowance for credit losses was one point or 2% of total loans at quarter end.
We had an increase in our allowance related to the loans acquired in the limestone merger.
The increase added around $11 million to the allowance this quarter.
This was partially offset by reductions in the allowance from a.
A release of nearly 2 million and individually analysed loan reserves due to the related loans, either being paid off or no longer meeting the criteria to be individually analyzed.
We refreshed our loss drivers in our CSO model, which will last up stated in 2021 and contributed to a 1 million dollar reduction in our allowance.
We also had a 1 million dollar reduction in our allowance from improvements in the economic forecast.
Nonperforming assets improved to point or 8% of total assets compared to 0.58%.
At March 31st at.
At the same time, our nonperforming assets declined to <unk>, 7% of total loans in Oreo at June 30th compared to 0.9% at the linked quarter end.
The portion of our loan portfolio considered current at quarter end with 99% an improvement from 98, 8% at March 31st.
Our quarterly annualized net charge off rate was nine basis points for the second quarter, an improvement from 13 basis points for the first quarter.
Our gross charge offs were relatively similar between the periods.
But we had a net recovery in commercial and industrial loans during the quarter.
Classified loans improved to 1.88% of total loans, while our criticized loans declined to three 7% compared to the linked quarter.
We are continuing to actively monitor commercial office space, even though it is a very small portion of our loan portfolio.
Total outstanding balance was 120 million at quarter end and represented 2% of our total loan portfolio.
Top 10 borrowers represented 55% of the outstanding commercial office space.
Loan portfolio.
Top borrowers averaged $7 1 million in commitments and $6 6 million in outstanding balances.
Our concentration mix has shifted modestly since the acquisition of the limestone loan portfolio.
We have seen an increase in exposure within construction retail facilities and hospitality following the limestone merger.
Construction and land development has been an area of growth with $443 million and outstanding balances on 775 million in total commitments at quarter close.
Land development remains a small percentage of the portfolio, we bought it at $101 million or one 7% of total loans at quarter end.
Multifamily balances have grown from $235 million at the end of the first quarter to $406 million at the end of the second quarter.
At June 30th 21% of the total outstanding balances in our multifamily portfolio well located within central Ohio.
Top 10 multifamily loans account for 26% of the funded multifamily portfolio.
These projects are located within growth markets with strong metrics and notable guarantor support.
We continue to see no major problems with our construction projects, while there has been an occasional permitting or construction delay. These projects have largely been leasing up but the desired speed with most of them at rents higher than projected in the initial pro forma.
Hospitality balances increased from 125 million to 201 million for the second quarter and compromise 3.36% of the total loan portfolio.
The growth in balances was due to the limestone merger, we do not plan to increase our hotel exposure as a percentage of total loans in a meaningful way and will continue to be highly selective within the industry.
Our market diversification is now extended within the portfolio. As these hotels are primarily located in metropolitan areas, driven by Columbus, and Cincinnati in Ohio with additional exposure now in the Lexington, and Louisville, Kentucky market.
The top 10 borrowers representing 49% at the hospitality portfolio in the top 10 hospitality exposures range from 8 million to 14 million in deal size.
At quarter end, the weighted average loan to value of the hospitality portfolio with 62%.
Occupancy trends within the portfolio remain above its market competitors with trailing 12 trailing three month occupancy reported at 76 and 75% respectively.
In addition for the majority of the projects, we have notable sponsor support including liquidity and network.
Quarter end, our loan balances included $1 1 billion related to loans acquired from limestone.
Excluding the limestone acquired balances our organic loan growth organic loan portfolio grew $146 million or 12% annualized compared to the linked quarter.
This was led by our construction loans, which were up $71 million.
We also had increases in commercial and industrial loans, which grew 25 million or 6% annualized.
Our commercial real estate loans also increased $23 million or 23% on an annualized basis compared to the linked quarter lease balances grew $23 million or 26% on an annualized basis.
At quarter end, our commercial real estate loans comprised 35% of total loan over a third of which were owner occupied while consumer loans with 30%.
And industrial loans were 19% specialty finance totaled 9% in construction loans was 7%.
At June 30th 55% of our total loans was fixed rate and the remaining 45% at a variable rate.
And its debut performance I will now turn the call over to Tyler for further details about our quarter and the limestone merger.
Thanks, Chuck I appreciate the introduction and the time, everyone who's given to listen into our call. Our future is bright and I'm excited about the opportunity I've spent many years learning all aspects of our businesses understanding our clients associates and communities needs and what ultimately benefits our shareholders. We will continue to leverage.
Strength into the future, while focusing on our culture relationships with clients being a top employer in providing above average financial performance.
The most important aspects of our business is having a diversified revenue stream, which are fee based income is an integral part.
Compared with the linked quarter, our fee based income grew 8%.
We more than offset the decline from the annual performance based insurance commissions of $1 $5 million recognized during the first quarter.
The drivers of the increase compared to the linked quarter, where higher electronic banking income and deposit account service charge income, which benefited from our limestone merger along with increased trust and investment income.
Compared to the prior year quarter, our fee based income was up 17% and on a year to date basis increased 11%.
The growth was attributable to higher income in nearly all categories of fee based income, which also benefited from our limestone merger and vantage acquisition.
Moving onto our deposit book the higher rate environment continues to show the significant value of our deposit base. We are focused on maintaining low deposit costs, while also retaining as much of our deposit balances as possible.
Compared to the linked quarter and our total deposit balances grew $1 2 billion and was driven by the deposits acquired in the limestone merger.
Our total deposits, excluding brokered Cds increased 885 million, mostly due to the limestone merger.
Excluding limestone acquired deposits and brokered Cds or total deposits declined $141 million or 3% compared to the linked quarter and.
This included our seasonal reduction in governmental deposits, which were down $50 million or 6% compared to March 31st.
We had a decrease in noninterest bearing deposits of $134 million, which was more than offset by an increase of 139 million and retail Cds for the quarter.
Additionally, savings and interest bearing demand accounts declined $60 million and 41 million respectively.
As we mentioned before our deposits had been inflated in recent periods due to COVID-19. So some of this shift was expected.
On a quarterly basis, excluding acquired deposits and brokered Cds, we have performed better in terms of deposit declines compared to national trends in commercial bank deposits since the second quarter of 2022.
At the same time, we have increased our deposit rates to be more competitive and retain deposit balances.
Our demand or our demand deposits comprised 42% of total deposits at June 30th compared to 46% in March 31.
At quarter end, our deposit composition included 78% and retail deposit balances, which is comprised of consumers and small businesses and 22% and commercial deposit balances.
Our average customer deposit relationship was $29000 at June 30th.
Moving onto our recent merger we are benefiting from the impact of limestone, both financially and operationally.
As of the close of business on April 30th we completed the merger and the results were presented for the quarter are inclusive of limestone.
We will convert the limestone core system to our system. The first weekend in August we have confidence that this will be a successful transition and we will give additional functionality to our new clients.
A little later on Katie will provide more details regarding the limestone merger and purchase accounting.
As Chuck mentioned during our last call, we're working diligently to prepare to pass the 10 billion asset Mark and are taking a disciplined approach. We realize that there are many areas that are impacted once this threshold is crossed including regulatory and compliance.
We have worked with specialists to address the changes needed to prepare for this transition.
<unk> also put in place the technology infrastructure and associates to make this a successful endeavor.
We are adding new email calendar and meeting software, which will give our associates some of the newest technology available.
We are also working to implement a new customer relationship management software, which was linked to our other systems and will enable a more seamless data driven approach with our clients and partners within our businesses.
At the same time, we are focused on fully absorbing limestone and we're in no hurry to grow through another bank acquisition.
I look forward to the opportunity to lead our organization into the future constant improvement in learning as a part of our culture, which we will continue to stress in order to further improve our performance.
I appreciate Chuck and his mentorship over the years and I'm excited about our continued success.
And I'm grateful to the fine team of professionals like Katie and I will get to partner with next up is Katie who will cover additional financial metrics for the quarter.
Thanks, Tyler our net interest income improved due to the limestone merger organic growth and increased market interest rates in recent period.
Compared to the linked quarter net interest margin expanded one basis point to 4.54%.
For the quarter margin was positively impacted by accretion income from the limestone merger, which offset declines related to the overall profile of limestone, which we had anticipated would pull down our own margin.
For comparison purposes, our margin for the first quarter of 2023 with 4.53% while limestone with 3.58% for the same period.
Accretion income net of amortization expense from acquisitions was $4 $5 million and added 24 basis points to net interest margin for the second quarter.
Note that our accretion income recorded during this period as preliminary as we work to finalize our review and processes around our acquisition accounting.
Also helping to improve our net interest margin where are loan yields, which improved 43 basis points compared to the linked quarter.
We more than doubled our average broker deposit balances, which negatively impacted our overall deposit cost.
Broker deposits provided a lower funding cost and then utilizing other funding sources.
For the quarter, our total deposit costs with 87 days.
Compared to 40 basis points for the linked quarter.
Excluding broker deposits, our total deposit costs for the quarter was 63 basis points compared to 29 basis points for the linked quarter.
Compared to the prior year quarter, our net interest income grew 38%, while our net interest margin expanded 70 basis points.
On a year to date basis net interest income increased 36% and margin grew 90 basis points.
Last quarter, we had mentioned that we anticipate that our net interest margin for the full year of 2023 would be between 4.40% and $4 60 per cent and we continue to expect to fall within that range.
For the quarter, our total noninterest expense grew 25% compared to the linked quarter, but as Chuck mentioned, we recorded $10 $7 million in acquisition related expenses, which drove a majority of the increase.
For the quarter total noninterest expense included five quite $4 million in additional expense from the expanded limestone footprint and operating costs.
And when coupled with the acquisition related expenses made up the entire increase compared to the linked quarter.
Compared to the prior year quarter total noninterest expense increased 42% and was 25% higher on a year to date basis.
The comparison to these prior periods have been impacted by the acquisition related expenses a.
Limestone merger and on a year to date basis, the vantage lease acquisition.
Our reported efficiency ratio was 62, 7% for the quarter compared to 57, 8% for the linked quarter.
When adjusted for Noncore expenses, our efficiency ratio was 53, 3% compared to 57, 2% for the linked quarter.
For the first six months of 2023 our reported efficiency ratio declined 2% compared to 2022 and on an adjusted basis It declined 6%.
As it relates to the limestone merger.
Transaction was valued at $178 million.
This is $27 million lower than we had modeled for the deal based on the change in the stock price.
We recorded preliminary goodwill of $64 million, which is subject to further their purchase accounting adjustment as we finalized our review procedures.
The loan discount, which includes a component for credit and interest was $9 million higher due to the change in market interest rates since we announced the merger.
Our core deposit intangible ended up being $5 million lower than projected and was driven by reductions in deposit balances.
The purchased credit deteriorated loans from limestone had a preliminary allowance for credit losses of $1 million.
This credit Mark on P. C. D lines was $8 million lower than we had anticipated as the P. C. D pool was relatively small.
As it relates to the limestone investment portfolio, we brought the entire portfolio into ours as available for sale and the discount we recorded was $21 million higher than we originally projected and when.
It's driven by the change in market interest rates.
Limestone carried some investment securities that we do not typically investment and back then and they've sold some of those securities pre merger and we sold some additional securities shortly after the close date.
Our discount on the trust preferred securities and subordinated debt acquired was $9 million higher than projected again due to the change in market interest rates.
The combination of all of these differences contributed to the $24 million reduction in goodwill recorded compared to what we originally projected.
Based on our preliminary analysis, our tangible book value earn back period improved from two eight years to 2.7 years.
At quarter end, our investment securities portfolio declined to 21, 3% of total assets compared to 24, 6% at the linked quarter end.
As it relates to our interest rate sensitivity, we continue to manage to a relatively neutral neutral balance sheet position.
We remain slightly asset sensitive and will continue to monitor our balance sheet for opportunities to manage our interest rate risk exposure.
Our capital levels continue to be well capitalized.
We had some fluctuation in our capital ratios compared to the linked quarter and as a result of our limestone merger.
At quarter end, our common equity tier one capital ratio was 11, 4% our total risk based capital ratio was 12, 9% and our leverage ratio was nine 6%.
For the quarter, our leverage ratio was inflated as we received the benefit of the equity issued in the numerator, but there was only a partial quarter of the limestone acquired balances and our average assets for the denominator of this ratio.
Our tangible equity to tangible assets ratio declined to 7.0 per cent from seven 1% at the linked quarter end.
We had anticipated this ratio would be negatively impacted by the limestone merger.
However, we expect this to be a short term impact.
I will now turn the call back to Chuck for his final comments. Thank you Katy the limestone merger positively impacted our results this quarter, coupled with organic growth. We are pleased with a low adjusted efficiency ratio this quarter, which was 53, 3% our net interest margin was stable at <unk>.
0.54% compared to the linked quarter and the goodwill recorded from the a limestone merger was lower than we had anticipated which reduced the amount of the expected decline in our regulatory capital levels for the quarter.
We are well positioned for the future we have invested in our systems and our people as we are preparing to cross $10 billion in assets and we are improving efficiencies with a limestone merger, we want to finish up this call with our guidance for the remainder of 2023.
These projections include the impact of the limestone merger, but exclude acquisition related expenses.
During the rest of 2023, we we we expect our net interest income to continue to grow due to the impact of the limestone merger as well as the benefits of a full year of higher market interest rates as our loans continue to reprice to higher rates. We continue to expect a slowdown in net interest.
Margin expansion as we recognize the impact of limestone for the remainder of the year, coupled with increased funding costs.
In fact, some minor compression in margin through the last two quarters of the year we.
We still believe that net interest margin will be between four 4% and four 6% for the full year of 2023.
This projection includes one additional rate increase during the remainder of the year and would improve slightly if there was a second and third increase.
A potential variable impact to our anticipated margin is the recognition of accretion income from the limestone merger, which we are finalizing and could fluctuate based on activity for the rest of the year.
Excluding the acquired limestone loans, we believe our annual organic loan growth will be between six and 8%.
We expect fee based income percentage growth to be in the low to mid double digits compared to 2022.
We are anticipating a 22% to 24% increase in our total noninterest expense for 2023 <unk>.
Excluding acquisition related expenses compared to the full year of 2022, which continues to assume we achieve our anticipated cost savings associated with the limestone merger.
We are anticipating between four and $5 million in remaining acquisition related expenses that we should be caught during the third quarter. We believe these expenses will be minimal for the fourth quarter.
We still expect our efficiency ratio, excluding onetime expenses to be between 55 and 57% for the full year, including limestone, we expect our net charge off rate during 2023 will be relatively consistent with 2022.
Current course consensus estimates for 2023 diluted EPS is $3 66, and we expect to beat consensus estimates excluding acquisition related expenses and the onetime provision for credit losses for the acquired limestone loans based on <unk>.
Our projections, we expect diluted EPS for 'twenty 'twenty four to exceed 2023 on a reported basis, we have a positive outlook for the remainder of the year as we plan to continue to reap the benefits from the limestone merger.
We also anticipate recognizing off 30% and projected cost saves associated with the merger within the calendar year. We are also optimistic about the product and service offerings. Our teams can provide to our new clients coupled with organic growth that we're projecting.
Our footprint lends itself well to our growth as many of our big four banks, including Wells Fargo Chase Bank of America and city do not have an extensive network within many of the communities we serve.
If you look at the counties that are within a 90 minute drive from our headquarters in Marietta or approximately 600 bank branches of those 600 branches. The big four banks only have 26, and we have 51 those counties generated 30% of our total revenue for the first half of 2023.
<unk>.
We believe this leads to opportunities to expand our business and offerings to new clients. We will continue to focus on developing these relationships and our teams will work together to make an extraordinary client experience.
Concludes our commentary and we will open the call for questions. Once again. This is Chuck Celebre ski and joining me for the Q&A session is Tyler Wilcox Chief operating officer, and Katie Bailey, Our Chief Financial Officer, I will now turn the call back into the hands of our call facilitator. Thank you.
Yeah.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone Com. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.
The first question is from Brendan Nosal with Piper Sandler. Please go ahead.
Hey, good morning, guys hope you're doing well good.
Morning.
Well maybe to start off here on the outlook for expenses came in a little better than I was looking for in the quarter, which is nice to see.
And then Chuck if I heard your guide correctly, I think you said, 22% to 24% for the year ex merger costs.
And I think the prior outlook was for a 21% increase so just curious what the moving parts are that.
That push that up just a little bit.
Yeah, I think its investments in both people and technology as we proceed through the remainder of this year, we referenced some of those investments in the scripts and new system technology and client engagement systems.
Got it okay, and that's off of the 2022 reported cost base correct.
Yes.
Alright.
And then one more from me before I step back.
Just you guys opportune commentary on preparing internally for $10 billion of assets.
Just as you think about what you have done and what still needs to get done to get there.
What inning of that preparation do you think you guys are in.
It wasn't until mid to late innings, I think we're in pretty good shape, but I also want to reiterate we're in no hurry to cross 10 billion. We are in a hurry to get ready to cross 10 billion.
So I just want to make that distinction.
Yeah. That's helpful. Okay. Thank you for taking the questions.
Thank you.
The next question is from Daniel Tamayo of Raymond James. Please go ahead.
Thanks, guys first congrats the Chuck on your retirement and to Tyler on your promotion.
Hum.
Okay.
Thank you.
So I guess first on the margin.
I I I I hear your comments Katie on Oh, I think it was Chuck you said that there's going to be more.
There will be compression here going forward in the margin I think we talked about last quarter the.
Potential for a reset higher in the third quarter from the limestone.
Alex sheet as well as more.
More accretion so just as we think is kind of the in terms of the timing of our over the next couple of quarters of the margin just curious if you could.
Walk us through the moving parts within the forecast for for compression Yeah, just going back to the commentary from the first quarter, we had what's that Q.
Q2 might come in at lower a little lower than that range of $4 40 to $4 60, with the thought there being we might still be working through the day, one fair value related to the limestone acquisition. So we weren't caught we weren't sure. If we would have the accretion income, which you saw in the numbers that came through actuals for Q2.
We had meaningful accretion and so in light of that the rebound that we had referenced being a possibility in the first quarter call to happen in the third quarter. I don't think you would expect anymore, because Q2 had accretion and what we had said in the script this quarter related to Q3.
As we continue to finalize this fair value Mark there might be some minor adjustments.
In those numbers as we work through that Finalization, but I wouldn't expect a meaningful shift.
And accretion income between Q2 and Q3.
And the guide was to four four to $4 six for the year, we don't see any dramatic change in the margin in the next couple of quarters.
Okay.
Hmm.
Alright, that's helpful and then Oh on the loan growth side.
So you you talked about low to mid double digit loan growth obviously, including.
I'm still imbalances, so how should we think about how you're planning to fund that is there.
Some kind of leading or using cash flows from securities.
And that are you planning to let that draw down a little bit and then within within the deposit.
<unk>.
Growth just curious on on the expectation for brokered balances going forward.
Yeah just to.
Go back to that 6% to 8% loan growth guidance that we referenced in the script here earlier today that is as it relates to kind of the core people alone does not include the limestone loaned them in that 6% to 8%.
Increase.
I'd say as it relates to the funding of the loan growth for the back half of this year I think it'll be much at the same you have seen some reductions in the investment portfolio, but the PMO and then through what we acquired from limestone I think you would expect some of that to continue just like you mentioned to use the cash flows off the investment book to fund alone.
Graph I think on the deposit side.
Lori will likely remain similar with the exception of the governmental deposits generally increase as we proceed through the third quarter and had another kind of high watermark at the end of September .
So we expect some growth on the governmental deposits that we would continue to evaluate the use of brokered Cds as a funding mechanism.
Specifically as an alternative to an overnight for them that we would otherwise use which is generally F. H L. B.
Okay.
And just as a placeholder here what were you putting on Cds and brokered and the second quarter what routes.
On brokered Cds it was in the high fours.
Five mm and on customer I think you're asking about customer deposits too on the CD side.
Yeah, Yeah, the retail so yeah. They were in a net four.
Okay, great. Thanks for taking all my questions. Thank.
Thank you.
The next question is from Tim quicker of K VW. Please go ahead.
Hey, there good morning, I'm on for Mike Perito.
First off Chuck Congrats on your upcoming retirement, and Tyler as well for the new role.
Thank you.
I had a quick follow up kind of on the last line of questioning there what were the blended loan yields.
At the end of the quarter just for new originations.
Yeah, just give me a second I can get you some.
Exact numbers I can put my hands.
Hands on it.
But they were higher than the R. A.
Originations the.
And the portfolio of the total was 8.2.
Percent.
I don't know if you had a particular products are <unk>.
Moshe was.
7.14.
Percent consumer.
Consumer.
On average at least the indirect was 759.
Percent.
Okay. Yeah. That's helpful. That's great. Thank you and then just because so you kind of give us a good jumping off point for the NIM next quarter. We went out the first full quarter impact of limestone do you have kind of like what the spot NIM was at the end of the quarter.
Yeah.
So we have to limit.
No.
It was pretty close to what was reported for the quarter.
Okay, Financer I I'm trying to get back to you on that okay, not a significant change it sounds like.
No and again that was heavily influenced by the accretion.
Right right I guess, if you look at it ex the accretion.
You you guys reported about 4.32 core NIM was it still around there in June as well.
Yeah, Yeah, it should be yes.
Yeah.
Okay, that's great and.
You guys comments about being open to another deal, but not looking for one but eventually wanting to cross.
The 10 billion asset threshold.
You know I is there anything specific you'd be looking for would you grow past 10 billion or are you looking to acquire passed the 10 billion even if its a few years from now.
You know we've looked at it a couple of different ways. You know, there's three ways to do it you can do a big deal you can do a small deal or you can grow organically.
And if you look at the results of those banks a couple of years after after the fact.
While this.
Prevailing wisdom is doing a big deal is the way to go.
Two three years later, it doesn't really matter that much. So I think our focus is really to get as prepared as possible again, we're in no rush, we have a lot of room or at eight 8 billion.
We continue to take down the investment portfolio.
We will continue to grow organically, we continue to have conversations with institutions of all sizes and as we get closer.
We'll make the best strategic decision that is you know.
Front of us.
And so.
Maybe we have a whisker of a preference to do a large deal to shoot us over time, but I wouldn't be crushed one organically and I wouldn't be crushed if we did a small deal.
Okay, Yeah that makes sense that's all for me. Thank you guys.
Thank you. Thank you.
The next question is from Nick Nick Couture all of healthy group. Please go ahead.
Good morning, everyone. How are you.
On the increased organic loan growth guide can you give us a sense of the opportunities that you're seeing that give you confidence in this this deeper trajectory is it broad based demand across your footprint or a particular segments that are driving the improved guidance.
First off the guide has been consistent at 6% to 8% we didn't increase the guide are the actual quarter.
Came in at 12%, which was higher than.
And then the guide I think we're seeing good good demand across our geography, we're benefiting from some.
Long approves a multifamily construction projects that are funding that are growing so we're seeing more outstandings, that's helping us.
You know a little bit, but our indirect business continues to chug along a more.
Specialty finance businesses continue to chug, along it really is a portfolio play.
Both from the product lines and from the geography.
Okay. That's helpful. And then just a question on the insurance business, it's a hard market, but your first half 2023 results are up 13% relative to 2022, how much do you attribute to the environment or is it deepening relationships with your expanding customer base are both quite frankly.
Whisker of it is some year over year impact of some very small acquisitions.
Some of it is the hardening market and some of it is really an organizational wide focus on bringing the suite of products and services, we have retirement plans insurance.
Leasing et cetera.
To our business.
Our customers.
Great. Thank you for taking my questions. Thank you came back.
The next question is from Terry Mcevoy of Stephens. Please go ahead.
Hi, good morning, everyone.
Hi, how are you doing.
I'm doing great and congrats to both of you on the news from earlier this month, congrats maybe I havent crunched the numbers, yet, but it looks like the percentage of revenue from insurance and trust and investment income on a relative basis has declined given some of the recent acquisitions, either bank or where the leasing company.
What are your thoughts on acquiring some businesses too to grow are those revenue lines.
First off we love those businesses, we're committed to them.
We continue to look for acquisition candidates in both businesses.
Pretty consistently have been doing very small deals in the insurance space.
We'd love to do more deals in the investment space.
Would love those fee based businesses to be a higher percentage of total business. The increase in margin you know over the last you know.
Six quarters.
[noise] shrunk them on a relative basis, but hasnt shrunk our commitment to them.
And then as a follow up on the commercial real estate portfolio, which is over $2 billion. Today do you know how much of that matures over the next call. It six to 12 months and and have you stressed and kind of evaluated what the impact of higher interest rates could be on those borrowers.
Yeah, we're very.
We're very comfortable with the.
The ability of our borrowers to absorb the higher rates when these loans were underwritten.
I can't tell you that we stress them, 5%, but we stress them three 3% and basically what we're lending to a.
Proven developers.
Sponsors with deep.
Deep balance sheets.
Katie do you have a number of Jason you have the number on what's matures in the next I think it was my memory is 120, that's right 120 million. Okay got it that's not bad for 66 years of age.
Maturing.
The this year and the number for next year.
It was actually something.
One five to 225 for next year.
Great. Thanks for taking my questions.
Thanks Darren.
The next question is from Manuel novice.
D. A davidson. Please go ahead.
Hey, I just wanted to circle up on that.
You're right on the new loan yield at 8%, but commercial southern and consumers around seven was there a component I was missing there yeah yeah.
The leasing businesses, which helps okay great.
Okay. So the overall, 8%, but the other components a little bit lower perfect and then.
Roughly how much you're getting in securities cash flows per per month or per quarter.
$15 million to $20 million per month.
Okay.
Hum.
It's really impressive you're you're.
Pretty pretty low deposit betas extra broker deposits.
Do you have an estimate there or just kind of.
It's pretty minimal so far so you expect it to stay pretty pretty low though it is somewhat that's the value of the franchise.
You know our deposits the places where we are that was the comment in there about the absence of the large.
Competitors.
We have dominant market share in many small towns across places.
Most competitors have left.
And we're proud to provide service and reap the rewards in times like this.
Yeah, but the branch that.
You're at 50 out of the 600 branches and you're 90 minute drive from Marietta is that kind of like the core area you'd want to.
Consider acquisitions is that kind of the target zone would that makes sense to describe it as such no I would say the area for acquisitions is broader than that we'd certainly would look at acquisitions in those areas would have opportunity for cost take out but yeah. We are.
We would like to do more in other places in Ohio, We do more in Kentucky, and West, Virginia, We'd love to do more.
And.
D C Baltimore Metropolitan area, I think someday, we'll probably get into southwestern Pennsylvania.
Which is real close to hear I mean southwest Pennsylvania.
I want a half to two.
Two hours. So we have lots of places that we can do.
Deals.
We just got to find the right partners with the right mix of business in the right.
Philosophies.
I appreciate that thank you and congrats on all the different.
Promotions are moving around a bit.
That's going on with the team.
I really appreciate working with all of you guys, but I'm gonna have you guys for a while longer so that's good too.
They have made for a while longer to yeah, absolutely. Thank you.
Faneuil.
Okay.
The next question is from Daniel car Dennis of Janney Montgomery Scott Scott. Please go ahead.
Hey, good morning, guys.
And then yeah.
As we look at credit quality can you maybe give us a little bit of color as to how watch list trends are shaping up and if there's anything out there at the moment, that's that's causing you any concern.
It scares me to say, but I have very little concerns, it's almost yearly too good to be a to.
To be true, but we.
So we had really good.
Indicated in the script really good improvements during the quarter.
You know you always have issues and things that you're working on but I think we're optimistic on the vast majority of the stuff.
Now that we have so.
We don't see any.
Any issues in the short term.
Okay, and so then as I think about provisioning for you guys on a go forward basis, mostly just to cover.
Charge offs and expected growth is that kind of the best way to be looking at it near term.
Yeah because.
We're gonna Accountants design that our provision system that's.
Doesn't allow us to.
Put money away for a rainy day, but yes, I think you have it right.
How do I do.
Kt is going to be glad to get rid of it.
[laughter].
And then on the on the tax side, what what's kind of a good run rate to use for you guys in the back half of the year.
And 'twenty, 2.5% to 23% thereabouts.
Being driven up a little by limestone and that acquisition.
Okay.
And then last question for me in terms of the deposits acquired with limestone what kind of run off are you seeing and is that within your projected.
Expectations.
So far, but it's really pretty you know.
Sure.
We just closed may 1st we convert next so that's the first weekend in.
August .
See our fees and see our systems. They really haven't seen any of that are you know any of the fees are peoples bank stuff. So I think thats in front of us to before we can give you a good answer.
Alright fair enough fair enough alright, that's all I have congrats chunk in Tyler Hope all goes well for both of you. Thank.
Thank you. Thank you.
Again, if you have a question. Please press Star then one.
The next question is a follow up from Brendan Nosal with Piper Sandler. Please go ahead.
Hey, guys. Thanks for taking the follow up just wanted to follow up on.
The cost outlook.
I take the midpoint of the guide implies Hunter.
$138 million or so for expenses in the back half of the year or about $69 million or so per quarter for each of the next two quarters just want to make sure that that is indeed, how you're thinking about things and if so is any of that transitory as you prepare for $10 billion or is that more or less the new run rate going forward.
69 is a little high and then I would say it's closer to the range of 66 68 in the coming quarters.
23.
And again I think some of that is the preparation to cross 10, and like we mentioned the investments in both people and systems and technology.
Got it thank you for clarifying.
You.
At this time there are no further questions. Sir do you have any closing remarks.
So I want to thank everyone for joining our call. This morning. 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. Thank you for your time and have a great day.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.