Q3 2023 Peoples Bancorp Inc Earnings Call

Good morning, and welcome to the Peoples Bancorp, Inc. 's conference call My.

My name is Anthony and I will be your conference facilitator today's call will cover a discussion of the results of operations for the three and nine months ended September 30, 30th 2023.

Please be advised that all lines have been placed on mute to prevent any background noise.

The Speakers' remarks, there'll be a question and answers period.

I'd 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 you would like to withdraw your question Press Star then two.

This call is also being recorded if you objected 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 and 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 risks and uncertainties detailed in Peoples' Securities and Exchange Commission filings.

Management believes that the forward looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of peoples' businesses and operation.

However, it is possible actual results may differ materially from these forward looking statements peoples.

Peoples disclaims any responsibility to update these forward looking statements. After this call except as may be required by applicable legal requirements.

Peoples' third quarter 2023 earnings release was issued this morning and is available at peoples Bancorp Dot com under Investor Relations.

Reconciliation of the non generally accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release.

This call will include about 25 to 30 minutes of prepared commentary followed by a question and answer period, which I will facilitate.

An archived webcast of this call will be available on peoples Bancorp Dot com in the Investor Relations section for one year.

Participants in today's call will be Chuck seller rescue so theres, the ski President and Chief Executive Officer, Tyler Wilcox Chief.

Chief operating officer, and Katie Bailey, Chief Financial Officer and Treasurer.

And each will be available for questions following opening statements.

Mr. Sella risky you may begin your conference.

Thank you Anthony good morning, and thank you for joining our call today.

Starting to realize the benefits of our limestone merger along with our strong organic growth, which is evidenced in our record earnings for the third quarter compared to the linked quarter. Our net interest income grew 10% and our fee based revenue increased 3%.

Our return on average stockholders' equity improved to 12, 6% for the quarter, while our return on average tangible stockholders equity was 23% our return on average assets also increased to 144% for the third quarter.

Charge off levels remain low and were 15 basis points of average loans on an annualized basis.

We had strong loan growth of $110 million or 7% annualized compared to the linked quarter end.

We had increases in our deposit balances of $78 million compared to the linked quarter.

It was mainly due to our successful campaign for retail Cds during the quarter.

Our loan to deposit ratio stayed flat compared to the linked quarter at 86%.

We generated positive operating leverage compared to the linked quarter prior year quarter and first nine months of 2022.

Our earnings for the quarter totaled $31 9 million and increased 51% compared to the linked quarter and 23% from the prior year quarter.

Diluted earnings per share were 90 cents and were negatively impacted by 15 cents of onetime cost during the third quarter, which included limestone acquisition related expenses of $4 4 million, resulting in a 10% decrease in diluted E. P. S. A.

Two 4 million pension settlement charge associated with the final termination of our pension plan, which negatively impacted diluted EPS by five cents.

We will no longer be recognizing any future ongoing cost of settlement charges related to our pension plan as a result of this final termination.

Moving onto our credit quality.

Allowance for credit losses represented 1.03% of total loans at quarter end.

Higher allowance compared to the linked quarter was attributed to several factors, including loan growth during the quarter updates to our prepayment curtailment and funding rates and deterioration of my macroeconomic conditions used within our T cell model.

All of these increases were partially offset by a decline in our reserve for individually analyzed loans.

The reduction in our reserves for individually annualized loans was largely due to the pay off of a single commercial real estate relationship.

It's relationship totaled $5 3 million at June 30, and was on non accrual and included in our criticized and classified asset balances at the linked quarter end.

We also recorded a $110000 charge off on this relationship and pay off during the third quarter.

Nonperforming assets remained flat compared to the linked quarter and 48% of total assets at September 30th.

The portion of our loan portfolio considered quarter.

So the current at quarter end was 99%, which was flat compared to June 30th.

The quarter, our annualized net charge off rate was 15 basis points consistent with the prior year quarter, and an increase of nine basis points for the linked quarter on.

On a year to date basis, our annualized net charge off rate was 13 basis points for 2023.

Compared to 15 basis points for the first nine months of 2022.

Criticized loans declined to 3.5% of total loans at quarter end, while our classified loans increased 2.05% of total loans.

As it relates to commercial office space, which is a very small portion of our loan portfolio. Our total outstanding balances were $136 million at quarter end and represented 2% of our total loan portfolio.

We continue to see high demand and successful project execution with our construction portfolio.

Been occasional construction delays. However, these projects have generally been leasing up at appropriate speeds and often at higher rents than projected.

We typically work with high net worth individuals who are able to withstand increases in interest carrying cost and delays in timing we.

We have witnessed a number of construction projects that achievement certificate of occupancy in the third quarter and more are likely in the fourth quarter.

As a result construction loans saw a decline in outstanding balances at quarter close.

The current portfolio has 374 million in outstanding balances compared to $689 million and commitments.

Land development remains a small percentage of the portfolio, representing $106 million or one 7% of total loans at quarter end.

Multifamily balances continued to grow as projects come through the construction phase and now rest at $501 million.

This sector has advanced not only due to construction seasonality, but also from the limestone merger, which had the outstanding balances up $235 million at the end of the first quarter. Our top 10 multifamily loans accounted for 38% of the funded multifamily portfolio fix up.

Anthony: Good morning and welcome to the People's Bancorp conference call. My name is Anthony and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and nine months ended September 30, 30th, 2023. Please be advised that all lines have been placed on YouTube or 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.

Which are in the construction phase. These projects are located within growth markets with strong metrics and notable guarantor support hospitality loan balances were 192 million at quarter end and comprised 3% of our total loan portfolio.

Anthony: If you would like to withdraw your questions 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 people's futures financial performance and 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 risks and uncertainties detailed in people's securities and exchange commissions filings.

The hospitality loan balances have grown in 2023 due to the limestone merger. However, we were able to exit an out of market hotel in the third quarter that was acquired through the limestone merger.

Anthony: Management believes that the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of people's businesses and operation. However, it is possible actual results made different materially from these forward-looking statements. People's disclaimed any responsibility to update these forward-looking statements after this call except this may be required by apical legal requirements. People's third quarter 2023 earnings release was issued this morning and is available at peoplesbankcorp.com under investor relations.

The limestone acquisition shifted the geographic distribution of our hospitality portfolio.

Six of our 10 largest exposures are located in the state of Kentucky, including the suburbs of Cincinnati, Ohio.

The hotel projects spanned throughout our footprint with a concentration in Ohio.

Top 10 funded loans with flag hotels represent 47% at the hospitality portfolio at quarter end.

Occupancy trends within the portfolio generally remain above market competitors with trailing 12, and trailing three month occupancy reported at 76% and 82% respectively. We continue to be highly selective in this segment and are working with high net worth individuals that provide.

Sponsor support including liquidity, we do not plan to increase our hotel exposure as a percentage of total loans in a meaningful way and we'll continue to manage our portfolio of exposure, where we can.

Anthony: Reconciliation of the non-generally accepted accounting principles or gap financial measures discussed during this call to the most directly comparable gap financial measures is included at the end of the earnings release. This call will include about 25 or 30 minutes of prepared commentary followed by a question and a superior which I will facilitate.

Specific assets are anticipated to be sold or refinanced in the fourth quarter, which will shift. The overall project mix. We continue to closely monitor our dealer floor plan portfolio and are assessing the potential impact of the United Auto workers strike on the portfolio at.

Anthony: An archived webcast of this call will be available on peoplesbankcorp.com in the investor relations section for one year.

Anthony: Participants in today's call will be Chuck Celoresiski, President and Chief Executive Officer Tyler Wilcox, Chief Operating Officer in Katie Bailey, Chief Financial Officer and Treasurer. And each will be available for questions following opening statements.

At quarter end, we had $340 million of exposure to vehicle dealers, 30% of which was two domestic franchise auto dealers and another 7% with the specialty vehicle dealers, who are supplied by the domestic manufacturers. The remaining 63% of the portfolio was evenly distributed among independent.

Chuck Celoresiski: Mr. Celoresiski, you may begin your conference. Thank you, Anthony.

Chuck Celoresiski: Good morning and thank you for joining our call today. We are starting to realize the benefits of our limestone merger along with our strong organic growth which is evidenced in our record earnings for the third quarter. Compared to the link quarter, our net interest income grew 10% and our fee-based revenue increased 3%. Our return on average stockholder equity improved to 12.6% for the quarter, while our return on average tangible stockholder equity was 23%.

Auto foreign franchise auto commercial truck and RV dealers are domestic franchise dealers are currently well stocked with new vehicle inventory. So the strikes have not yet had a meaningful impact on vehicle sales. We believe a larger clients have liquidity position to withstand short term delay.

As in the delivery of vehicles should the strike possess our largest 11th floor plan clients have an average debt service ratio of three three times with a trust position approaching two times, our top five floor plan commitments totaled $87 million, while the top 11 covered nearly 100 <unk>.

Chuck Celoresiski: Our return on average assets also increased to 1.44% for the third quarter. Our net charge off levels remained low and were 15 basis points of average loans on an annualized basis. We had strong loan growth of 110 million or 7% annualized compared to the link quarter end. We had increases in our deposit balances of 78 million compared to the link quarter, which was mainly due to our successful campaign for retail CD's during the quarter.

$50 million in commitment.

Compared to the linked quarter and our total loan balances grew $110 million or 7% annualized.

The largest contributor of our growth compared to June 30. It was all commercial real estate loans, which grew 118 million, while our specialty finance businesses provided over $51 million and grow <unk>.

Chuck Celoresiski: A loan to deposit ratio stayed flat compared to the link quarter at 86%. We generated positive operating leverage compared to the link quarter prior year quarter in first nine months of 2022. Our earnings for the quarter totaled 31.9 million and increased 51% compared to the link quarter and 23% from the prior year quarter. Deluted earnings for share were 90 cents and were negatively impacted by 15 cents of one-time cost during the third quarter which included.

Consumer indirect loans were up $14 million, while we had some declines in construction in commercial and industrial loan balances compared to the linked quarter end.

At quarter end, our commercial real estate loans comprised 36% of total loans nearly 40% of which were owner occupied at the same time, our total consumer loans were 29% of total loans commercial and industrial loans were 19% specialty finance totaled 10% and.

<unk> loans was 6%.

At September 30th 48% of our total loans with fixed rate with the remaining 52% at a variable rate. Additionally, while our premium finance loans are fixed rate. These loans operate similar to variable rate loans and they reprice every nine months I will now turn the call.

Chuck Celoresiski: Limestone acquisition related expenses of 4.4 million resulting in a 10 cent decrease in deluded EPS. A 2.4 million pension settlement charge associated with the final termination of our pension plan which negatively impacted deluded EPS by five cents.

Over to Tyler for additional details about our fee based income deposits and the limestone systems conversions. Thanks.

Chuck Celoresiski: We will no longer be recognizing any future ongoing cost of settlement charges related to our pension plan as a result of this final termination.

<unk> our fee based income improved 3% compared to the linked quarter was 15% higher than the prior year quarter and grew 13% compared to the first nine months of 2022.

Chuck Celoresiski: Moving on to our credit quality. Our allowance for credit losses represented 1.03% of total loans at quarter ends. A higher allowance compared to the link quarter was attributed to several factors including loan growth during the quarter, updates to our prepayments, curtailment and funding rates and deterioration of macroeconomic conditions used within our CSO model. All of these increases were partially offset by a decline in our reserve for individually analyzed loans. The reduction in our reserves for individually analyzed loans was largely due to the payoff of a single commercial real estate relationship.

The increases were driven by the additional accounts from the limestone merger, which resulted in higher deposit account service charge income compared to the linked quarter and prior year periods as well as higher electronic banking income compared to the prior year periods are.

Our insurance income has increased considerably this year, mainly due to the client acquisition efforts and hardening insurance markets. We also recorded a death benefit associated with our bank owned life insurance during the third quarter of 2023, which totaled around $400000.

During the quarter, we recorded $1 $3 million of operating lease income, which drove the increase in other noninterest income.

At the same time, our lease income declined $1 $8 million compared to the linked quarter as we recognized the unwind.

Chuck Celoresiski: This relationship totaled 5.3 million at June 30 and was on non accrual and included in our criticized and classified asset balances at the link quarter ends. We also recorded a $110,000 charge off on this relationship at pay off during the third quarter. Non-performing assets remained flat compared to the link quarter and were 48% of total assets at September 30. The portion of our loan portfolio considered current at quarter end was 99%, which was flat compared to June 30.

A residual premium related to two leases from the vantage acquisition, which paid off during the quarter.

The residual premiums were were a result of the fair values associated with the acquisition accounting for the vantage acquisition.

Moving on to our deposit book, we increased our deposit balances by $78 million compared to the linked quarter and a retail Cds grew $248 million as a result of our recent campaigns, which more than offset the decline in our noninterest bearing deposits. We typically have seasonal increases in governmental deposits.

Chuck Celoresiski: For the quarter, our annualized net charge off rate was 15 basis points consistent with the prior year quarter and an increase from 9 basis points for the link quarter. On a year-to-day basis, our annualized net charge off rate was 13 basis points for 2023 compared to 15 basis points for the first 9 months of 2022. Criticized loans declined to 3.5% of total loans at quarter end, while our classified loans increased and were 2.05% of total loans.

During the third quarter of each year, which contributed to growth of $56 million.

As we mentioned last quarter, we have utilized brokered Cds in recent periods as a funding mechanism as it provides us with a lower funding costs than the S. H L. P borrowings, we might otherwise you use and the brokerage Cds do not require us to pledge collateral.

Our demand deposits comprised 39% of total deposits at quarter end compared to 42% at June 30th.

At quarter end, our deposit composition included 79% in retail deposit balances, which is comprised of consumers and small businesses and 21% and commercial deposit balances.

Chuck Celoresiski: As it relates to commercial offer space, which is a very small portion of our loan portfolio, our total outstanding balances were 136 million at quarter end and represented 2% of our total loan portfolio. We continue to see high demand and successful project execution with our construction portfolio. There have been occasional construction delays, however these projects have generally been leasing up by appropriate speeds and often at higher rents than projected. We typically work with high net worth individuals who are able to withstand increases in interest carrying cost and delays in timing.

Our average consumer our average customer deposit relationship was $29000 at September 30th while our median was $2400.

During August we successfully completed the conversion of the limestone system to our core system. This helps our lines of business interact.

Gather in a more coordinated effort and allows for collaboration between business partners to optimize our offerings to our new clients. We continue to work on the expansion of our business model throughout our new footprint.

As part of our culture and core values, where we always make helping our communities with priority I'm pleased to note that we now have over 65% of our associates contributing a portion of their paychecks to local food banks, which results in approximately $200000 of annual contributions.

Chuck Celoresiski: We have witnessed a number of construction projects achieving certificate of occupancy in the third quarter and more are likely in the fourth quarter. As we saw, construction loans saw a decline in outstanding balances at quarter close. The current portfolio has 374 million in outstanding balances compared to 689 million in commitments. Land development remains a small percentage of the portfolio representing 106 million or 1.7% of total loans at quarter ends. Our multifamily balances continue to grow as projects come through the construction phase and now rest at 501 million.

Another part of our core values is providing our associates with a top notch workplace and environment. We're excited to note that enter gauge recognized us for the second year in a row as one of the top workplaces in the financial services industry for 2023.

Next I will turn the call over to Katie who will provide additional details around our financial performance.

Thanks, Tyler our net interest income continues to grow as we benefited from a full quarter of the limestone merger organic growth.

Chuck Celoresiski: This sector has advanced not only due to construction seasonality but also from the limestone merger which had outstanding balances of 235 million at the end of the first quarter. Our top 10 multifamily loans accounted for 38% of the funded multifamily portfolio, six of which are in the construction phase. These projects are located within growth markets with strong metrics and notable guarantee or support. Hospitality loan balances were 192 million at quarter end and comprised 3% of our total loan portfolio.

High market interest rates and our controlled funding cost.

Compared to the linked quarter net interest income was up 10% and net interest margin expanded 16 basis points to four 7%.

During the quarter, our net interest income and margin increased as we refine the fair value marks from our limestone merger and related accretion income net of amortization expense.

This resulted in an additional $1 $9 million in accretion income for May and June being recognized during the third quarter of 2023.

For the third quarter accretion income totaled $9 $8 million and positively impacted our net interest margin by 49 basis points.

Chuck Celoresiski: Our hospitality loan balances have grown in 2023 due to the limestone merger. However, we were able to exit in out of market hotel in the third quarter that was acquired through the limestone merger. The limestone acquisition shifted the geographic distribution of our hospitality portfolio. Six of our 10 largest exposures are located in the state of Kentucky including the suburbs of Cincinnati, Ohio. Other hotel projects span throughout our footprint with a concentration in Ohio.

Our higher accretion income for the quarter benefited our loan yield and helped offset increases in our funding costs.

As Tyler mentioned, we had retail CD growth from our recently advertised specials. However, we controlled the rates, we offered and how the increase in our funding cost relatively low for the quarter.

Our total deposit cost was 128 basis points for the third quarter compared to 87 basis points for the linked quarter.

Chuck Celoresiski: The top 10 funded loans with flag hotels represent 47% of the hospitality portfolio at quarter ends. Occupancy trends within the portfolio generally remain above market competitors with trailing 12 and trailing 3 month occupancy reported at 76% and 82% respectively. We continue to be highly selective in this segment and are working with high net worth individuals that provide sponsor support including liquidity. We do not plan to increase our hotel exposure as a percentage of total loans in a meaningful way and will continue to manage our portfolio exposure where we can. Specific assets are anticipated to be sold or refinanced in the fourth quarter which will shift the overall project mix.

Excluding brokered deposits, our total deposit costs for the quarter was 94 basis points compared to 63 basis points for the linked quarter.

Compared to the prior year quarter, our net interest income grew 39%.

Net interest margin expanded 53 basis points.

On a year to date basis, our net interest income increased 37% and margin grew 93 basis points.

Since the beginning of 2020 to the Federal reserve is increased rates a total.

0.25% over the same time period, our interest bearing deposit rates have gone up 1.45% and are up one 1% if you exclude brokered Cds.

At the same time, our deposit betas have moved 28%.

Chuck Celoresiski: We continue to closely monitor our deal of law plan portfolio and are assessing the potential impact of the United Auto Workers Strike on the portfolio. At quarter-end, we had 340 million of exposure to vehicle dealers, 30% of which was to domestic franchise auto dealers, and another 7% was to specialty vehicle dealers who are supplied by the domestic manufacturers. The remaining 63% of the portfolio was evenly distributed among independent auto, foreign franchise auto, commercial truck and RV dealers.

Moving on to expenses.

Our total noninterest expense increased 2% compared to the linked quarter.

Our acquisition related expenses for the quarter totaled $4 $4 million.

We recorded a pension settlement charge of $2 $4 million.

And we recognized a full quarter of operating costs from the expanded limestone footprint.

Compared to the prior year quarter total noninterest expense increased 37% and was 29% higher on a year to date basis.

Chuck Celoresiski: Our domestic franchise dealers are currently well stocked with new vehicle inventory, so the strikes have not yet had a meaningful impact on vehicle sales. We believe our larger clients have little liquidity positions to withstand short-term delays and the delivery of vehicles should the strike persist. Our largest 11th law-planned clients have an average death service ratio of 3.3 times with a trust position approaching two times. Our top five floor-planned commitments totaled 87 million while the top 11 covered nearly $150 million in commitment.

The comparison to these prior periods have been impacted by the acquisition related expenses, the limestone merger and on a year to date basis, the vantage lease acquisition.

Our reported efficiency ratio improved and with 58, 4% for the quarter compared to 62, 7% for the linked quarter.

When adjusted for Noncore expenses, our efficiency ratio was 52, 5% compared to 53, 3% for the linked quarter.

This quarter was our best adjusted efficiency ratio in decades.

For the first nine months of 2023, our reported efficiency ratio was 54, 2% compared to 59, 6% for 2022.

Chuck Celoresiski: Compared to the length quarter-end, our total loan balances grew 110 million or 7% annualized. The largest contributor of our growth compared to June 30th was our commercial real estate loans, which grew 118 million while our specialty finance businesses provided over $51 million in growth. Consumer indirect loans were up 14 million while we had some declines in construction and commercial and industrial loan balances compared to the length quarter-end. At quarter-end, our commercial real estate loans comprise 36% of total loans, nearly 40% of which were owner occupied.

Moving onto the balance sheet at September 30th our investment Securities portfolio declined to 19, 7% of total assets compared to 21, 3% at the linked quarter end.

We utilize cash flows from our investment portfolio during the quarter to fund a portion of our loan growth.

We believe the investment portfolio continues to be well positioned for potential movement in interest rates.

We'll benefit from higher rates and should not be significantly impacted by falling rates.

Chuck Celoresiski: At the same time, our total consumer loans were 29% of total loans. Commercial and industrial loans were 19% specialty finance total 10% and construction loans were 6%. At September 30th, 48% of our total loans were fixed rate with the remaining 52% at a variable rate. Additionally, while our premium finance loans are fixed rate, these loans operate similar to variable rate loans and they reprise every nine months.

We intend to be opportunistic as it relates to our investment portfolio and potential restructuring.

Our capital levels continue to be strong and increased compared to the linked quarter and the.

The improvement was a result of our higher earnings which included a full quarter of limestone.

At quarter end, our common equity tier one capital ratio was 11, 5%.

Our total risk based capital ratio was 13, 1% and our leverage ratio was nine 5%.

Tyler Wilcox: I will now turn the call over to Tyler for additional details about our fee-based income deposits and the limestone systems conversions. Thanks, Chuck. Our fee-based income improved 3% compared to the length quarter, was 15% higher than the prior year quarter and grew 13% compared to the first nine months of 2022. The increases were driven by the additional accounts from the limestone merger, which resulted in higher deposit accounts service charge income compared to the length quarter and prior year periods, as well as higher electronic banking income compared to the prior year periods.

As I had mentioned in our call last quarter, our leverage ratio was inflated due to the limestone merger and is now in a normal level.

Our tangible equity to tangible asset ratio was six 9% at quarter end and declined compared to 7% at the linked quarter end.

This ratio continues to be impacted by our accumulated other comprehensive losses, which grew this quarter and was driven by the higher market interest rates.

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

Katy we continue to have strong earnings asset quality and many other positive metrics compared to prior periods. We believe in our business model and work hard to execute our strategic initiatives daily.

Tyler Wilcox: Our insurance income has increased considerably this year, mainly due to client acquisition efforts and hardening insurance markets. We also recorded a death benefit associated with our bank owned life insurance during the third quarter of 2023, which totaled around $400,000. During the quarter, we recorded $1.3 million of operating lease income, which drove the increase in other non-interesting. At the same time, our lease income declined $1.8 million compared to the linked quarter as we recognize the unwind of a residual premium related to two leases from the Vantage acquisition which paid off during the quarter.

We have consistently mentioned, how we are positioning ourselves to cross $10 billion in assets, we are making many investments in systems associates and processes in order to have a successful transition along those lines. We have hired senior talent that will allow us to execute our plan.

As far as the cost we estimate that we have already incurred more of that expense at this point that we have left to pick up we continue to make investments in our systems in order to have best in class systems.

Tyler Wilcox: The residual premiums were a result of the fair values associated with the acquisition accounting for the Vantage acquisition. Moving on to our deposit book, we increased our deposit balances by $78 million compared to the linked quarter end. Our retail CDs grew $248 million as a result of our recent campaigns which more than offset the decline in our non-interest bearing deposits. We typically have seasonal increases in our governmental deposits during the third quarter of each year which contributed to growth of $56 million.

These include the carbon process of implementing a new customer relationship system, and replacing our email and communication software with Microsoft move.

Moving on to our expectations for the full year of 2023, excluding acquisition related expenses, we anticipate.

Our net interest income and margin will experience some compression in the fourth quarter compared to the third quarter, but we still believe it'll be between four and a half and four 7% for the full year <unk>.

Tyler Wilcox: As we mentioned last quarter, we have utilized broker CDs in recent periods as a funding mechanism. As it provides us with a lower funding cost than the FHLB borrowings we might otherwise use and the broker CDs do not require us to pledge collateral. Our demand deposits comprise 39% of total deposits at quarter end compared to 42% at June 30th. At quarter end our deposit composition included 79% in retail deposit balances which is comprised of consumers and small businesses and 21% in commercial deposit balances. Our average customer deposit relationship was $29,000 at September 30th while our median was $2,400.

Excluding the acquired limestone loans, we believe our annual organic loan growth will be between six and 8% we.

We expect fee based income percentage growth to be in the low to mid double digits compared to 2022.

We're still anticipating a 22% to 24% increase in our total noninterest expenses for 2023, excluding acquisition related expenses compared to the full year of 2022, which continues to assume we achieve our anticipated cost savings associated.

Rate at with limestone merger.

This assumes a fourth quarter non interest in our noninterest expense is between 65 and $67 million.

Tyler Wilcox: During August we successfully completed the conversion of the limestone system to our core system. It helps our lines of business interact together in a more coordinated effort and allows for collaboration between business partners to optimize our offerings to our new clients. We continue to work on the expansion of our business model throughout our new footprint.

We still expect our efficiency ratio, excluding one time expenses to be between 55% and 57% for the full year, including a limestone.

We expect our net charge off rate during 2023 will be relatively consistent with 2022.

Tyler Wilcox: As part of our culture and core values, we always make helping our communities the priority. I'm pleased to note that we now have over 65% of our associates contributing a portion of their paychecks to local food banks which results in approximately $200,000 of annual contributions. Another part of our core values is providing our associates with a top-notch workplace and environment. We're excited to note that EnerGage recognized us for the second year in a row as one of the top workplaces in the financial services industry for 2023.

For the third quarter at the analyst consensus estimate of our core diluted EPS was <unk> 93 per share <unk>.

Excluding our acquisition related expenses and pension settlement charges, we exceeded this expectation by <unk> 12 cents.

We have exceeded the quarterly consensus estimates 13 of the last 14 consecutive quarters.

But the one quarter, we missed in 2021, if you exclude the acquisition cost and day, one provision for credit losses related to the Premier acquisition. We would have beaten estimates the current core consensus estimate for 2023 diluted EPS is $3 in 87 cents.

Katie Bailey: Next I will turn the call over to Katie who will provide additional details around our financial performance. Thanks Tyler. Our net interest income continues to grow as we benefited from a full quarter of the limestone merger, organic growth, high market interest rates and our controlled funding cost.

We continue to expect to beat the consensus estimate for the full year of 2023, excluding acquisition related expenses pension settlement charges and onetime provision for credit losses for the acquired limestone loans.

Katie Bailey: Compared to the linked quarter, net interest income was up 10% and net interest margin expanded 16 basis points to 4.70%. During the quarter, our net interest income and margin increased as we refined the fair value marks from our limestone merger and related accretion income net of amortization expense. This resulted in an additional $1.9 million in accretion income from May and June being recognized during the third quarter of 2023. For the third quarter, accretion income totaled $9.8 million and possibly impacted our net interest margin by 49 basis points.

I would like to give some high level guidance for 2024, which is preliminary.

We expect higher net interest income as we will see the full year benefit of the limestone merger we.

We believe our fee based income growth will be in the low double digit percentages compared to 2023, we.

We expect quarterly noninterest expense to be between 67% and 69 million for the second third and fourth quarters of 2024.

Katie Bailey: Our higher accretion income for the quarter benefited our loan yield and helped us that increases in our funding cost. As Tyler mentioned, we had retail seeding growth from our recently advertised specials. However, we controlled the rates we offered and held the increase in our funding costs relatively low for the quarter. Our total deposit cost was 128 basis points for the third quarter, compared to 87 basis points for the linked quarter. Excluding broker deposits, our total deposit cost for the quarter was 94 basis points compared to 63 basis points for the linked quarter.

With the first quarter of 2024 being higher due to our annual expenses, we typically recognize during the first quarter of each year.

We believe our loan growth will be between 6% and 8% compared to 2023.

As a result of this projected growth. We also anticipate an increase in our provision for credit losses, excluding the onetime provision recorded for the limestone merger in 2023.

We will update this guidance in January at our next call. We are looking forward to capitalizing on our recent successes and will continue to develop our relationships with our clients. Our lines of businesses are focused on working together to identify client needs and improve our overall client experience with that.

Katie Bailey: Compared to the prior year quarter, our net interest income grew 39% while our net interest margin expanded 53 basis points. On a year-to-date basis, our net interest income increased 37% and margin grew 93 basis points. Since the beginning of 2022, the Federal Reserve has increased rates a total of 5.25% and over the same time period, our interest-bearing deposit rates have gone up 1.45%, and are up 1.1% if you exclude brokerage seedees. At the same time, our deposit betas have moved 28%.

Being said the current core consensus estimate for diluted EPS for the full year of 2024 is $3 61.

At this time, we feel confident in our ability to achieve this estimate this concludes our commentary and we will open the call for questions. Once again. This is Chuck seller risky and joining me for the Q&A session is Tyler Wilcox, Chief operating officer, and Katie Bailey, our chief financial.

Katie Bailey: Moving on to expenses, our total non-interest expense increased 2% compared to the linked quarter. Our acquisition related expenses for the quarter totaled $4.4 million. We recorded a pension settlement charge of $2.4 million, and we recognized a full quarter of operating costs from the expanded limestone footprint. Compared to the prior year quarter, total non-interest expense increased 37% and was 29% higher on a year-to-date basis. The comparison to these prior periods have been impacted by the acquisition related expenses, the limestone merger, and on a year-to-date basis, the Vantage lease acquisition.

I will now turn the call back into the hands of our call facilitator Anthony.

We will now begin the question and answer session.

To ask a question you May Press Star then one your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the keys.

To withdraw from the question queue. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question will come from Daniel Tamayo with Raymond James You May now go ahead.

Good morning, guys. Thanks for taking my questions.

Hi, Dana.

Maybe we start on.

Katie Bailey: Our reported efficiency ratio improved and was 58.4% for the quarter compared to 62.7% for the linked quarter. When adjusted for non-correct expenses, our efficiency ratio was 52.5%, compared to 53.3% for the linked quarter. This quarter was our best adjusted efficiency ratio in decades. For the first nine months of 2023, our reported efficiency ratio was 54.2%, compared to 59.6% for 2022.

On the margin and particularly the the loan yields which.

Our remained very high obviously, you've got the you had the.

The onetime benefit from from accretion in the third quarter, but just curious if you think we're nearing a peak there or if not kind of how that plays out assuming rates are relatively stable here over the next.

A few quarters and if you could just fill us in on your thoughts on accretion as well going forward.

Well I'll start with the yields and I'll have <unk> talk about accretion.

Katie Bailey: Moving on to the balance sheet. At September 30th, our investment securities portfolio declined to 19.7% of total assets, compared to 21.3% at the linked quarter end. We utilized cash flows from our investment portfolio during the quarter to fund a portion of our loan growth. We believe the investment portfolio continues to be well positioned for potential movement and interest rates. We will benefit from higher rates and should not be significantly impacted by falling rates.

Our yields weighted average for the quarter were eight 5%.

We think theres still some room to improve there.

A little bit, but we're nearing the top.

Your guess is as good as mine on rate increases.

It wouldn't surprise me if there is another rate increase in the next quarter.

Quarter or two but.

If there is well well see even higher yields.

Yes, Danny and as it relates to accretion so as noted in there in the script and in the earnings release, there was kind of a true up in the third quarter of which nine of that should have been recorded in the second quarter, but we were using an estimate in the second quarter and as we refine the purchase accounting are finalizing some of those number.

Katie Bailey: We intend to be opportunistic as it relates to our investment portfolio and potential restructuring. Our capital levels continue to be strong and increased compared to the linked quarter-end. The improvement was a result of our higher earnings which included a full quarter of line-stone. At quarter-end, our common equity tier-1 capital ratio was 11.5%, our total-risk-based capital ratio was 13.1%, and our leverage ratio was 9.5%. As I had mentioned in our call last quarter, our leverage ratio was inflated, due to the line-stone merger, and is now at a normal level.

So I would say.

As quoted in the script. It was 49 basis points of accretion was the benefit in the third quarter. If you take out that piece that related to the second quarter. It would've been closer to 40 basis points impact and I think we can expect that 35 to 40 in the fourth quarter of benefit if we go back to kind of day, one purchase accounting for the <unk>.

Limestone acquisition, it's about 85% of our Mark on loans was related to interest rate and the.

Katie Bailey: Our tangible equity-detangeable asset ratio was 6.9% at quarter-end and declined compared to 7% at the linked quarter-end. This ratio continues to be impacted by our accumulated other comprehensive losses, which grew this quarter and was driven by the higher market interest rate.

The other 15, obviously related to credit so again the rate environment created a much bigger discount than we've seen in prior deals when rates are relatively low and stable and so we'll continue to see some higher accretion numbers as those loans continue to pay down.

Chuck Celoresiski: I will now turn the call back to Chuck for his final comment. Thank you, Katie. We continue to have strong earnings, asset quality, and many other positive metrics compared to prior periods. We believe in our business model and work hard to execute our strategic initiatives daily. We have consistently mentioned how we are positioning ourselves to cross 10 billion in assets. We are making many investments in systems, associates, and processes in order to have a successful transition.

And we I would say, we haven't seen a lot of pay offs in that portfolio. So how much of that is just the normal accretion that we'll get on a quarterly basis as that portfolio matures.

As principal payments.

Okay. That's very helpful. And then I guess on the other side of the equation.

The the CD maturities that you have just curious.

I'm sorry, the Cds that you already have in the book just curious.

Maturities on those.

The thing is it's going to be maturing in the next few quarters I apologize if you mentioned that in the comments.

Chuck Celoresiski: Along those lines, we have hired senior talent that will allow us to execute our plans. As far as the cost, we estimate that we have already incurred more of that expense at this point than we have left to pick up. We continue to make investments in our systems in order to have best-in-class systems. These include the current process of implementing a new customer relationship system and replacing our email and communication software with Microsoft.

And then you know.

Not sure if you have any kind of overall thoughts on.

Where the margin may end up next year.

Or is it kind of comes down from a from a higher.

So on the Cds the specials, we've been running or anywhere from seven to 14 months. So they will start to mature in the coming quarters and we continue to remain active on our marketing efforts.

And your.

Chuck Celoresiski: Moving on to our expectations for the full year of 2023, excluding acquisition-related expenses, we anticipate that an interesting common margin will experience some compression in the fourth quarter compared to the third quarter, but we still believe it will be between 4.5 and 4.7 percent for the full year. Excluding the acquired limestone loans, we believe our annual organic loan growth will be between 6 and 8 percent. We expect fee-based income percentage growth to be in the low to mid-double digits compared to 2022.

Our yields on those.

As it relates to margin going into 'twenty, the fourth quarter and into 'twenty four as we quoted we do expect some compression in the fourth quarter and I think we expect it to kind of hit bottom there, but hold relatively stable from that point into the 24 period.

So I think that we.

We've quoted we guided to 2023 for the full year will be $4 50 to $4 60 or $4 70.

And I think you'll see us a little south of that range for the 24 year.

Okay.

Chuck Celoresiski: We are still anticipating a 22 percent to 24 percent increase in our total non-interest expenses for 2023. Excluding acquisition-related expenses compared to the full year of 2022, which continues to assume we achieve our anticipated cost savings associated with limestone merger. This assumes our fourth quarter non-interest expense is between 65 and 67 million. We still expect our efficiency ratio excluding one time expenses to be between 55 percent and 57 percent for the full year including limestone.

Great. Thanks for all the color I'll step back thank you.

Our next question will come from Terry Mcevoy with Stephens you May now go ahead.

Hey, good morning, everyone.

Territory.

Can you maybe a question for you could you just talk about managing the size of the balance sheet will you continue to pay down short term borrowings and are there additional actions within the securities portfolio for for additional restructuring.

Yeah. So as short term borrowings are function of loan growth and deposit flows and so we will continue to manage that on a daily basis as we have historically on the investment securities as we referenced in the script, we continually evaluate opportunities to restructure that portfolio.

Chuck Celoresiski: We expect our net charger of rate during 2023 will be relatively consistent with 2022. For the third quarter, the analyst consensus estimate of our core deluded EPS was 93 cents per share. Excluding our acquisition-related expenses and pension settlement charges, we exceeded this expectation by 12 cents. We have exceeded the quarterly consensus estimates 13 of the last 14 consecutive quarters. For the one quarter we missed in 2021, if you exclude the acquisition cost in day one provision for credit losses related to the premier acquisition, we would have beaten estimates.

As you might recall, we did a meaningful amount in the first quarter and took a loss of about $2 million at that time and to the extent there are securities, which we experienced.

In our games, we will likely offset those to clean up some of the lower yielding securities and offset the lost their we will continue to evaluate that trade and when we look at that we look at it from that.

What is the loss we are willing to accept in a quarter as well as what is the payback on that and kind of locking in the payback and somewhere between a year and a half to two years, that's kind of where were range and where we look at the range for the payback on that trade as it relates to the investment security restructuring options.

Chuck Celoresiski: The current core consensus estimate for 2023 diluted EPS is $3.87. We continue to expect to beat the consensus estimate for the full year of 2023, excluding acquisition-related expenses, pension settlement charges, and one time provision for credit losses for the acquired limestone loans.

Thanks for that and then just limestone I know this was touched on throughout the call, but our cost savings tracking in line with expectations anything to comment on deposit or loan run off I think you said on the lending side that hasnt happened in and any maybe early comments on dinner business synergies between <unk>.

Chuck Celoresiski: I would like to give some high-level guidance for 2024, which is preliminary. We expect higher net interest income, as we will see the full year benefit of the limestone merger. We believe our fee-based income growth will be in the low double-digit percentages compared to 2023.

Some of the businesses and products that you bring to the table with those new customers.

Costs are tracking probably just slightly maybe above where we expected them to be at this point in time.

Chuck Celoresiski: We expect quarterly non-interest expense to be between 67 and 69 million, with a second, third, and fourth quarters of 2024. With the first quarter of 2024 being higher, due to our annual expenses, we typically recognize during the first quarter of each year. We believe our loan growth will be between 6% and 8% compared to 2023. As a result of this projected growth, we also anticipating an increase in our provision for credit losses, excluding the one-time provision recorded for the limestone merger in 2023.

Loans as you indicated are.

Where we thought they would be.

Deposits.

Coming back together, we made maybe in the beginning so a little bit more run out than we would have I'm not so sure it's related to the deal are related to.

The market situation and in terms of synergies.

With the leasing and the investments in the insurance stuff I think we see more.

Each passing week as the newer associates become more familiar with what we do and how we do it.

Great. Thanks for taking my questions. Thanks Terry.

Chuck Celoresiski: We will update this guidance in January at our next call. We are looking forward to capitalizing on our recent successes, and we'll continue to develop our relationships with our clients. Alliance of businesses are focused on working together to identify client needs and improve our overall client experience.

Our next question will come from Tim Switzer with BW you.

You May now go ahead.

Hi, Tim.

Hi, I'm on for Mike Perito. Thanks for taking my question I wanted to ask a quick follow up on the net interest margin in your guidance for it to be lower on a full year basis for 'twenty, three and that makes sense given the compression you see but if it's.

Chuck Celoresiski: With that being said, the current core consensus estimate for deluded EPS for the full year of 2024 is $3.61. At this time, we feel confidence in our ability to achieve this estimate.

Crossing in Q4, you guys are growing loans mid to high single digits with I would assume a lot of help there from the leasing portfolio.

Can you help quantify for us how the nims.

Like the trajectory should look over the course of 'twenty four assuming the fed holds on the rates.

Chuck Celoresiski: This concludes our commentary, and we will open the call for questions.

Chuck Celoresiski: Once again, this is Chuck Selleristie, injuring me for the Q&A session as Tyler Wilcox, chief operating officer, and Katie Bailey, our chief financial officer.

You know like how many basis points of expansion do you think we could see over the course of the year.

I mean from a quarterly basis, I think we could see a five to 10 basis points of expansion from beginning to end on a quarterly basis.

Anthony: I will now turn the call back into the hands of our call facilitator Anthony. We will now begin the question and your session. To ask a question, may press star than one your touchstone phone. If using a speaker phone, please take up your hands up before pressing the keys. To withdraw from the question Q, please press star than two.

Like five to 10 basis points each quarter.

No I'd say more in total.

A few basis points each quarter.

Q4 over Q4.

Yeah, Okay. That's helpful.

Anthony: At this time, we'll pause momentarily to assemble our roster.

And.

Let's say, it's a scenario where the fed.

Cuts rate some time next year, what if this is after deposit costs have settled out from the rate hikes. You know do you have an idea of kind of like the sensitivity of your balance sheet to that and what NII would look like in that scenario.

Daniel Tamayo: Our first question will come from Daniel Tamayo with Raymond James. You may now go ahead. Good morning, guys. Thanks for taking my question. Can we start on the margin, and particularly the loan yields which are remained very high. Obviously you've got the one time benefit from accretion in the third quarter, but just curious if you think we're nearing a peak there, or if not, kind of how that plays out, assuming rates are relatively stable here over the next few quarters.

Yeah, I would say, we have positioned our balance sheet to be relatively neutral.

We have taken much of a benefit from rising rates into our base case scenario and therefore has hedged on the lower side predominantly through the investment securities portfolio and what we have put on over the last few quarters.

Okay, that's helpful and.

What what are like the economic assumptions you have for your loan growth expectations next year, and which category should be the leaders.

Daniel Tamayo: And if you can just fill us in on your thoughts on accretion as well. I'll start with the yields and I'll have Katie talk about accretion. Our yields weighted average for the quarter were eight and a half percent. We think there's still some room to improve there a little bit, but we're nearing the top. Your guess is as good as mine on rating increases. I wouldn't surprise me if there is another rate increase in the next quarter or two, but if there is, we'll see even higher yields.

And you know maybe what are the risks of not achieving that I'm, giving.

Given the macro environment.

Well, we will still see some growth in real estate construction projects come to completion, but we will not see.

As much CRE volume new business as we have been seeing we do not see a slowdown in our C&I customers. So we expect to see good C&I growth.

Auto will be.

Well, we'll get a few percentage of growth out of it.

Daniel Tamayo: Yeah, and Danian, as it relates to accretion, so as noted in their script and in their earnings release there was a true up in the third quarter, which a million nine of that should have been recorded in the second quarter, but we were using an estimate in the second quarter and as we refine the purchase accounting are finalizing some of those numbers. So I would say, as quoted in the script, it was 49 basis points of accretion was the benefit in the third quarter.

The leasing businesses.

You are seeing as is typical one.

You see the leasing businesses do better in higher rate environments are slower economic environment, and we expect that to continue we are very optimistic in the ability of our premium finance.

<unk> to have.

Good strong.

20 plus percent.

Growth so it's really.

Daniel Tamayo: If you take out that piece that related to the second quarter, it would have been closer to 40 basis points impact. And I think we can expect that 35 to 40 in the fourth quarter of benefit. If we go back to kind of day one purchase accounting for the limestone acquisition, that 85% of our mark on loans was related to interest rates and the other 15 obviously related to credit. So again, the rate environment created a much bigger discount than we've seen in prior deals when rates were relatively low and stable.

It's really a lot of little actions across many different.

Portfolios, we have some opportunities on things like <unk> or <unk>.

Very large Mcdonald's franchise lender in the state of Ohio.

Well be able to do that in Kentucky.

With the acquisition so a lot of a lot of granularity to the portfolio, which we think is great for origination and great for risk management.

Daniel Tamayo: So we'll continue to see some higher accretion numbers as those loans continue to pay down. I would say we haven't seen a lot of payoffs in that portfolio, so much of that is just the normal accretion that we'll get on a quarterly basis.

Okay great.

That's all for me. Thank you guys.

Thank you Tim Thank you.

Again, if you have a question. Please press Star then one on.

Our next question will come from Manuel novice with D. A Davidson.

Daniel Tamayo: Does that portfolio mature and has principle payments? Okay, that's very helpful. And then I guess on the other side of the equation, the CD maturities that you have just curious, sorry, the CDs that you already have in the book just curious maturities on those, if anything is going to be maturing in the next few quarters, I pause as you mentioned that in the comments. And then, you know, not sure if you have any kind of overall thoughts on where the margin may end up next year.

You May now go ahead.

Hey, good morning.

Okay.

Hey, just to get on with.

With your NIM expectations next year, what are you kind of contemplate deposit costs going to especially if the rate environment stays where they are.

Just kind of what are your deposit beta assumptions with it.

Yeah, I think historically, we've said our deposit betas run all inclusive noninterest bearing and otherwise about 25% I don't think we have in our projections getting quite to that high but we definitely have us getting pretty.

Daniel Tamayo: You know, as it kind of comes down from a high here. Yeah, so on the CDs, the specials we've been running are anywhere from kind of seven to 14 months, so they will start to mature in the coming quarters and we continue to remain active on our marketing efforts and price or yields on those. As it relates to margin going into the fourth quarter and into 24, as we quoted, we do expect some compression in the fourth quarter.

Upwards of 18% to 20%.

Okay.

Is.

What are the new Cds coming on at the kind of the promotional CD rate and I apologize if you said it during the prepared.

Daniel Tamayo: And I think we expect it to kind of hit bottom there, but hold relatively stable from that point into the 24 period. So I think we've guided 2023 for the full year. We'll be 450 to 470. And I think you'll see a little south of that range for the 24 year.

Oh, no need to apologize we didn't say it.

Some of the tenders that we've put out there have a 5% handle.

Okay.

Yeah.

Are you seeing and you keep it pretty short.

<unk> seen most of the.

The CD funding coming from current customers are you gaining some customers how are you thinking about that just strategically yeah.

Seeing a fair amount of protection in a CD specials coming from new clients somewhere between 40, and 45% I would say is kind of new new money and maybe I guess, maybe not always new clients put new money to the institution.

Okay.

And historically, a pretty strong metrics.

Those turn into nice cross sells.

Daniel Tamayo: Okay, well great. Thanks for all the color.

More permanent customers.

Terry: I'll step it. Good morning, everyone. Good morning, Terry. I'm Katie.

Yes that is the strategy.

Katie Bailey: Maybe a question for you. Could you just talk about managing the size of the balance sheet? Will you continue to pay down short-term borrowings and are there additional actions within the securities portfolio for additional restructuring? Yeah, so as you know, short-term borrowings, a function of low growth and deposit flows. And so we'll continue to manage that on a daily basis as we have historically. On the investment security, as we referenced in the script, we continually evaluate opportunities to restructure that portfolio.

And then.

Can you walk me through the earn back on the Securities transaction this quarter.

Sounds like it was even a faster earn back then you kind of target.

Usually it's within a year right or did I misread it a little bit.

So what we did in Q1.

So we saw I can't remember the volumes 70 million, maybe or we saw that that equated to about a loss of about $2 million, what we said and I guess it was closer to $97 million of balances we sold for about a $2 million loss in the first quarter and what we stated at that time was that would pay back within the calendar year. So yes. It was.

Katie Bailey: As you might recall, we did a meaningful amount in the first quarter and took a loss of about 2 million at that time. And to the extent there are securities, which we experienced, that said at games, we will likely offset those to clean up some of the lower yielding securities and offset the loss there. We will continue to evaluate that trade. And when we look at that, we look at it from what is the loss we are willing to accept in a quarter as well as what is the payback on that and kind of locking in the payback in somewhere between a year and a half to two years was kind of where we're range. And when we look at the range for the payback on that that trade, as it relates to the investment security restructuring option.

Less than a year payback on that strategy.

Okay, and you're willing to kind of play around up to two years, if you see opportunities.

The balance sheet needs it.

Correct, and we will be confident that the securities would stick around for those two years to make that earn back hold true.

Okay.

Okay.

Okay.

Leasing has been really strong trends can you kind of just focusing on that for a moment just what are your expectations next year, you talked about with high rates more folks are interested in leasing.

Chuck Celoresiski: Thanks for that. And then just limestone, I know this was touched on throughout the call, but our cost savings, tracking in line with expectations, anything to comment on deposit or loan runoff, I think you said on the lending side that hasn't happened. And any, maybe early comments on business synergies between some of the businesses and products that you bring to the table with those new customers. Costs are tracking probably slightly, maybe above where we expected them to be at this point in time.

And also just kind of big picture.

Credit expectations there.

Just kind of a reset on expectations for that business.

Well, we have two leasing companies one is a small ticket lease where the average ticket is about $50000.

Average yield in for originations.

For those leases at this point in time are north of 19.

Percent.

We see growth in that business and the second one which I'll talk about in a second in the neighborhood of 20 plus.

Chuck Celoresiski: The loans, as you indicated, are where we thought they would be deposits coming back together. We may be in the beginning, so a little bit more run out. And we would have, I'm not for sure, related to the deal or related to the market situation in terms of synergies, with the leafing and the investments and the insurance stuff. I think we see more each passing week as the newer associates become more familiar with what we do and how we do it.

Per percent, obviously at 19%.

You are pricing in some room for charge offs, our charge offs for the last couple of years have been less than one 5%.

You know those charge offs may go as high as 3% to 4%.

Over the next 24 months.

Obviously, we're getting well compensated for that the second leasing business as our vantage business in Minnesota. The average ticket size there is about $270000.

Terry: Thanks for taking my questions. Thanks, Terry.

They have.

Tim Switzer: Our next question will come from Tim Switzer with KBW. You may now go ahead. I think, hey, I'm on for Mike Perrito. Thanks for taking my question. I wanted to ask a quick follow-up on the metrics of margin and your guidance for it to be lower in a full-year basis for 23. That makes sense to see given the compression we see. But if it's crossing in Q4, you guys are growing loans, mid to high single digits, with I would assume a lot of help there from the leasing portfolio.

Have a.

Our emphasis on our focus on technology.

Many of their clients are.

Publicly traded companies.

Well positioned school districts some of the leading hospitals in the country.

We expect we have had very little charge off expectation with that business.

We expect to have very little charge offs.

Tim Switzer: Can you help quantify for us how the trajectory should look over the course of 24 assuming the Fed holds on to rates? How many basis points of expansion do you think we can see over the course of the year? I mean, from a quarterly basis, I think we could see five to ten basis points of expansion from beginning to end on a quarterly basis. Like five to ten basis points each quarter?

Activity in that in the next 24 months.

Their yields are currently on originations in the neighborhood of 9%.

Yeah.

That's great I really appreciate it and there's some seasonality here right.

Is there a is there a seasonality towards the end of the year.

With those two procedures.

Seasonality not.

Yeah, there's a little bit of seasonality, but not that much that it makes it that much.

Tim Switzer: No, I'd say more in total, so a few basis points each quarter. I got your Q4 over Q4. Yeah, okay, that's helpful. And in a... Let's say it's a scenario where the Fed cuts rates sometime next year. You know, if this is after deposit costs have settled out from the rate hikes, do you have an idea of the sensitivity of your balance sheet to that, and what NII would look like in that scenario?

If a difference.

Okay.

Let's just make sure I confirm that at 19% yields and 9% right.

Yeah, well, yeah more or less.

Okay I really appreciate that thank you very much. Thank you.

Our next question will come from Daniel Cardenas with Janney.

You May now go ahead.

Hey, good morning, guys.

And Anne.

Oh.

I may have missed this I joined a little bit late here, but on your on your leasing income for the third quarter. We noticed a significant drop can you can you give us a little bit of color as to what drove that and what's the potential for <unk>.

Tim Switzer: I would say we have positioned our balance sheet to be relatively neutral. We have taken much of the benefit from rising rates into our base case scenario, and therefore have hedged on the lower side predominantly through the investment security rates portfolio and what we have put on over the last few quarters. Okay, that's helpful. And what are the economic assumptions you have for your longer expectations next year, and which categories should be the leaders?

A bounce back in leasing income in the fourth quarter.

Sorry, Dan that relates to the purchase accounting related to the vantage transaction that we did last year.

Have they have residual values on their books and when we went through purchase accounting we had to Mark those says we have to mark the whole balance sheet.

So fair value and so we had to.

Tim Switzer: And maybe what are the risks of not achieving that given the macro environment? Well, we will still see some growth in real estate as construction projects come to completion, but we will not see as much CRE volume of new business as we have been seeing. We do not see a slowdown in our C&I customers, so we expect to see good C&I growth. Auto will get a few percentage of growth out of it.

Put on a premium related to that portfolio and as those come to term we have to realize that premium against any game that would otherwise be recorded so that is what you see.

Got a million 8 million 7 million eight premium amortization in the third quarter.

In prior quarters, it has not been that significant.

But it is chop it is choppy on a quarterly basis, just given when those leases come to term.

Yeah.

Tim Switzer: The leasing business is seeing as this typical one, you see leasing businesses do better in higher rate environments or slower economic environments, and we expect that to continue. We are very optimistic in the ability of our premium finance folks to have good strong 20 plus percent growth. So it's really a lot of little actions across many different portfolios. We have some opportunities on things like a very large McDonald's franchise lender in the state of Ohio. We will be able to do that in Kentucky with the acquisition. So a lot of granularity to the portfolio, which we think is great for origination and great for risk management.

Okay.

And then.

On the on the credit quality front.

Good to see.

Some improvement in the non performers, but did notice that you are 90 days past due were were up a bit there can you give us some color as to where that was coming from categorically.

Yeah. The majority of that is coming from the small ticket leasing business.

Okay, and then how it trends our watch list trends looking for.

Could that business well.

The trends in delinquencies are increasing.

The charge off.

We do expect it to increase as I mentioned earlier, we've had multiple years with like one 5% or less charge off rates, obviously at a 19% yield youre not going to get over a cycle one to one 5% charge off rates and we're very comfortable.

Tim Switzer: Okay, great. That's all for me. Thank you guys. Thank you, Tim. Thank you.

Manuel Navas: Again, if you have a question, please press star then one. Our next question will come from Manuel Navas with DAD. Davidson, you may now go ahead. Hey, good morning. Hey, just to get on the with your name expectations next year, what are you going to contemplate deposit costs going to, especially if they're rate environment stays where they are? Just kind of what are your deposit beta assumptions with it? Yeah, I think historically we've said our deposit beta run all inclusive, not interfering in otherwise, about 25%.

We frankly priced that stuff.

To a four 5% charge off rate, we do not see ourselves getting near that four 5% charge off rate, but if it creeps up to the twos and threes.

Perfectly comfortable with that.

Okay. Good and then on the lending front. Thank you for the guidance for <unk>.

For 2024.

Are there any areas that.

Youre, maybe tapping the brakes, a little bit on in terms of.

Growing those portfolios and then.

Manuel Navas: I don't think we have in our projections getting quite to that high, but we definitely have us getting pretty you know upwards of 18 to 20%. What are the CDEs coming on at the kind of the promotional CD rate? And I apologize, if you said it during the prepared comments. Oh, I need to apologize, we didn't say it. Some of the tenors that we've put out there have a 5% handle. Okay.

How should we be thinking about your provision model on a go forward basis.

Or should we be thinking about our provision provision progression.

We've never been a lover of hotels.

Our acquisitive and we pick up hotels, and we try to run.

<unk> tightened up that space.

A little a little bit.

That being said if somebody has a.

Well built hotel, that's cash flowing and good sponsors will.

Certainly look at it but its not our favorite.

Manuel Navas: Are you seeing, and you're keeping it pretty short, are you seeing most of the CD funding coming from current customers? Are you gaining some customers? How are you thinking about that just strategically? Yeah, we're seeing a fair amount of the production in the CD specials coming from new clients, somewhere between 40 and 45% I would say is kind of new money. And maybe I guess maybe not always new clients, but new money to the institution. And historically a pretty strong metrics that those turn into nice cross sales and more permanent customers. Yes, that is the strategy.

<unk>.

Two two.

Two two lens.

But for the most part we're open for business.

Think we're benefiting from that we're seeing some competitors having to pull back because of liquidity issues.

The 86% loan to deposit we have we have room, so we're hoping to.

To see the benefits of that over 2024.

Yeah, and as it relates to provision and I think it's safe to assume that we will follow what the forecast up to the extent the forecast worsen we will likely be building reserves.

And otherwise, we'll just be reserving on the graphs at the rate.

Manuel Navas: And then, can you walk me through the urnback on the Securities Transaction Disquarter? It sounded like it was even a faster urnback than you kind of target. Usually, like, it's within a year, right? Or did I misread it a little bit? So what we did in Q1, so we sold, I can't remember the volume, 70 million maybe? Or we sold it that equated to about a loss of about 2 million. What we said, and I guess it was closer to 97 million of balances we sold for about a $2 million loss in the first quarter and what we stated at that time was that would pay back within the calendar year.

At that you see on as it relates to the coverage ratio.

Okay, and then last question I guess with competitors.

Pulling back somewhat is that.

Is that being reflected in.

Alright yields.

I think it'll be more reflected in future yields than current yields I don't think we've got a ton of books a ton of business on our books in the first three quarters from competitors pulling back we tend to see more and more of that.

Uh huh.

More recently and I expect that that will continue.

Manuel Navas: So yes, it was less than a year payback on that strategy. Okay, and you're willing to kind of play around up to two years if you see opportunities and the balance you need to. Correct, and we'll be confident that the Securities would stick around for those two years to make that urn back hold true. Okay.

Alright, great guys. Thanks for the info.

Thanks, Dan Thank you.

At this time there are no further questions.

Sir do you have any closing remarks.

This concludes our commentary and we will open.

I'm, sorry, yes, I want to thank everybody 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 relationship section. Thank you for your time and have a great day.

Manuel Navas: Can Lee Seen has been really strong trends? Can he just focus in on that for a moment, just work our expectations next year? You talked about with high rates, more books are interested at Lee Seen, and also just kind of big picture credit expectations there. Just kind of a reset on expectations for that. Business. We have two leasing companies. One is a small ticket lease where the average ticket is about $50,000.

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Manuel Navas: The average yield of originations for those leases at this point in time or north of 19 percent. We see growth in that business and the second one which I'll talk about in a second in the neighborhood of 20 plus per cent. Obviously at 19 percent, you are pricing in some room for charge-offs. Our charge-offs for the last couple of years have been less than one and a half percent. Those charge-offs may go as high as three to four percent over the next 24 months, but obviously we're getting well compensated for that.

Manuel Navas: The second leasing business is our vantage business in Minnesota. The average ticket size there is about $270,000. They have a emphasis or a focus on technology. Many of their clients are publicly traded companies, well-positioned school districts, some of the leading hospitals in the country. We have had very little charge-off expectation with that business. We expect to have very little charge-off activity in the next 24 months. Their yields are currently on originations and the neighborhood of 9 percent.

Manuel Navas: That's great. I really appreciate it. There's some seasonality here. Is there a seasonality towards the end of the year with those two business? Seasonality. A little bit of seasonality, but not that much that makes that much of a difference. I just make sure I confirm that of 19 percent yields and 9 percent. Yeah, more or less. I really appreciate that. Thank you very much.

Daniel Cardenas: Our next question will come from Daniel Cardenas with Jamie. You may not go ahead.

Daniel Cardenas: Good morning, guys. I may have missed us. I joined a little bit late here, on your leasing income for the third quarter, notice a significant drop. Can you give us a little bit of color as to what drove that and what's the potential for a bounce back in leasing income in the fourth quarter? That relates to the purchase accounting related to the Vantage transaction that we did last year. They have residual values on their books and when we went through purchase accounting, we had to mark those as we have to mark the whole balance sheet to fair value.

Daniel Cardenas: We had to put on a premium related to that portfolio. As those come to term, we have to realize that premium against any gain that would otherwise be recorded. That is what you see. It's about a million, eight million, seven million, eight premium amortization in the third quarter, in prior quarters, it has not been that significant, but it is choppy on a quarterly basis just because you were up a bit there.

Daniel Cardenas: Can you give us some color as to where that was coming from categorically? Yeah, the majority of that is coming from this small ticket leasing business. Okay, and then how are trends, how are watchless trends looking for that business? Well, the trends in the linkancies are increasing. The charger rate, we do expect it to increase, as I mentioned earlier, we've had multiple years with like one and a half percent or less charge of rates.

Daniel Cardenas: Obviously, at a 19 percent yield, you're not going to get over a cycle, one to one and a half percent charge of rates, and we're very comfortable. We frankly priced that stuff to four and a half percent charge of rate. We do not see ourselves getting near that four and a half percent charge of rate, but if it creeps up to the twos and the threes, what's perfectly comfortable with that?

Daniel Cardenas: Okay, good.

Daniel Cardenas: And then on the lending front, thank you for the guidance for 2024. Are there any areas that you're maybe tapping the brakes a little bit on in terms of growing those portfolios, and then how should we be thinking about your provision on a go forward basis? Should we be thinking about our provision or provision? You know, we've never been a lover of hotels. You know, we are a quisitive and we pick up hotels and we try to run, you know, tighten up that space, you know, a little, you know, a little bit.

Daniel Cardenas: That being said, if somebody has a, you know, built hotel that's cash flowing in good sponsors will, you know, certainly look at it, but it's not our favorite place, you know, to, you know, to to lend. But for the most part, we're open for business. We think we're benefiting from that. We're seeing some competitors having to pull back because of liquidity issues, you know, at the 86% loan to deposit, you know, we have, you know, we have room.

Daniel Cardenas: So we're hoping to see the benefits of that over 2024. Yeah, and as it relates to provision, I think it's safe to assume that we'll follow what the forecast does, so that to the extent of forecast worsens, we will likely be building reserve. And otherwise, we'll just be reserving on the growth that the rate kind of that you see on that relates to the coverage ratio. Okay, and then last question, I guess with competitors pulling back somewhat, is that being reflected in current yields?

Daniel Cardenas: I think it will be more reflected in future yields than current yields. I don't think we've got a ton of books, a ton of business on our books in the first three quarters from competitors pulling back. We tend to see more and more of that, you know, more recently. And I expect that that will continue.

Daniel Cardenas: Great, guys. Thanks for the info. Thanks, Dan. Thank you.

Chuck Celoresiski: At this time, there are no further questions. Sir, do you have any closing remarks? Yes, this concludes our commentary and we will open the book. I'm sorry, I'm in the wrong place.

Chuck Celoresiski: Yes, I want to thank everybody for joining our call this morning. Please remember that our earnings released in a webcast of this call will be archived at PeoplesBancorp.com under the Investor Relationship Section. Thank you for your time and have a great day.

Anthony: The conference is now concluded. Thank you for attending today's presentation.

Anthony: You may now disconnect.