Q4 2023 Peoples Bancorp Inc Earnings Call

Good morning and welcome to People's Bancorp, Inc.'s conference call.

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

Rocco: My name is Rocco, and I will be your conference facilitator.

Rocco: My name is Rocco and I will be your conference facilitator.

Rocco: Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31st, 2023.

Rocco: Today's call will cover a discussion of our results of operations for the quarter and fiscal year ended December 31st 2023.

Speaker Change: Please be advised that all eyes have been placed on mute to prevent any background noise.

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

Speaker Change: After the speaker's remarks, there will be a question and answer period.

Speaker Change: After the Speakers' remarks, there will be a question and answer period.

Speaker Change: If you would like to ask a question during this time, simply press star 1 on your telephone keypad and questions will be taken in the order they are received.

Speaker Change: If he would like to ask a question. During this time simply press star one on your telephone keypad and questions will be taken in the order they are received.

Speaker Change: If you would like to enjoy your question, please press star then 2.

Speaker Change: If you would like to withdraw your question. Please press Star then two.

Speaker Change: This call is also being recorded.

Speaker Change: This call is also being recorded.

Speaker Change: If you object to the recording, please disconnect at this time.

Speaker Change: Back to the recording please disconnect at this time.

Speaker Change: 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.

Speaker Change: Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding people's future financial performance or future events.

Speaker Change: These statements are based on management's current expectations.

These statements are based on management's current expectations.

Speaker Change: 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 Commission filings.

Speaker Change: The statements in this call, which are not historical facts are forward looking statements and involve a number of risks and uncertainties detailed in Peoples' Securities and Exchange Commission filings.

Speaker Change: Management believes the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of people's business and operations.

Speaker Change: 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.

Speaker Change: However, it is possible actual results may differ materially from these forward-looking

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

Speaker Change: Peoples disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements.

Speaker Change: Peoples disclaims any responsibility to update these forward looking statements. After this call.

Speaker Change: It may be required by applicable legal requirements.

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

Speaker Change: People's Fourth Quarter 2023 earnings release was issued this morning and is available at peoplesbankcorp.com under investor relations.

Speaker Change: A reconciliation of the non-generally accepted accounting principles, or GAAP, financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release.

Speaker Change: A reconciliation of the non generally accepted accounting principles or GAAP financial measures discussed on 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.

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

Speaker Change: Or by a question and answer period, which I will facilitate.

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

Speaker Change: and Archive Webcast for this call will be available on peoplesbankcorp.com in the investor relations section for one year.

Speaker Change: Participants in today's call will be Chuck Sorosky.

Speaker Change: Participants in today's call will be Chuck Swarovski,

Speaker Change: President and Chief Executive Officer, Tyler Wilcox, Chief Operating Officer, and Katie Bailey, Chief Financial Officer and Treasurer.

Chuck Sorosky: President and Chief Executive Officer.

Speaker Change: Our Wilcox Chief operating officer.

Katie Bailey, Chief Financial Officer and Treasurer.

Speaker Change: And each will be available for questions following opening statements.

Speaker Change: and each will be available for questions following opening statements.

Mr. Solorowski: Mr. Solorowski, you may begin your conference.

Speaker Change: Mr. Shaw you May begin your conference. Thank you Rocco good morning, and thank you for joining our call today.

Solorowski: Thank you Rocco. Good morning and thank you for joining our call today.

Solorowski: In the fourth quarter, we reported record quarterly earnings of $33.8 million, while our diluted earnings per share improved to 96 cents compared to 90 cents for the linked quarter.

Mr. Shaw: In the fourth quarter, we reported record quarterly earnings of $33 $8 million, while our diluted earnings per share improved to 96 cents compared to 90.

Mr. Shaw: For the linked quarter.

Solorowski: This includes $1.3 million of acquisition-related expenses for the limestone merger, which reduced diluted EPS for the fourth quarter by 3 cents.

Mr. Shaw: This includes $1 $3 million of acquisition related expenses for the limestone merger.

Which reduced diluted EPS for the fourth quarter by three.

Solorowski: Overall, our fourth quarter results included many highlights, such as

Mr. Shaw: Overall, our fourth quarter results included many highlights such as.

Solorowski: Growth in our return on average stockholders' equity, which was 13.4%, compared to 12.6% for the linked quarter.

Mr. Shaw: Growth in our return on average stockholders equity, which was 13, 4% compared to 12, 6% for the linked quarter.

Solorowski: Our efficiency ratio improved at 56% from 58.4% for the linked quarter.

Mr. Shaw: Our efficiency ratio improved to 56% from 58, 4% for the linked quarter.

Solorowski: Our loan-to-deposit ratio declined slightly compared to the linked quarter end.

Mr. Shaw: Our loan to deposit ratio declined slightly compared to the linked quarter end.

Solorowski: are non-performing assets declined 8% compared to the linked quarter end.

Mr. Shaw: Our nonperforming assets declined 8% compared to the linked quarter and <unk>.

Solorowski: and are at their lowest level as a percent of total loans since the Great Recession.

And are at their lowest level as a percent of total loans since the great recession.

Solorowski: Our book value for share improved to $29.83 Our book value for share improved to $29.83 Our book value for share improved to $29.83

Mr. Shaw: Our book value per share improved to 29, although its an 83 cents compared to $28.06 at September 30th and $27.76 a year end 2022.

Solorowski: compared to $28.06 at September 30th and $27.76 at year-end 2022.

Solorowski: While our tangible book value per share grew to $18.16,

While our tangible book value per share grew to $18 16 stand.

Solorowski: compared to $16.52 and $16.23 respectively.

Mr. Shaw: Compared to $16.52 and $16.23 respectively.

Solorowski: Our tangible equity to tangible asset ratio increased to 7.3% compared to 6.9% at the linked quarter end, and we completed a $3 million share repurchase during the quarter.

Mr. Shaw: Our tangible equity to tangible asset ratio increased to seven 3% compared to six 9% at the linked quarter end and we completed a $3 million share repurchase during the quarter.

Solorowski: On a full year basis, our net income was $113.4 million and our diluted EPS was $3.44

Mr. Shaw: On a full year basis, our net income was $113 4 million.

Mr. Shaw: Diluted EPS was $3.44 compared to $3 60 for 2022.

Solorowski: For more information, visit www.FEMA.gov

Solorowski: This includes acquisition-related expenses of $17 million during 2023, which negatively impacted diluted EPS by 40 cents, and a $2.4 million pension settlement charge associated with the final termination of our pension plan, which negatively impacted diluted EPS for 2023 by 6 cents.

Mr. Shaw: This includes the acquisition related expenses of $17 million during 'twenty twenty-three, which negatively impacted diluted EPS by <unk> 40 cents and a $2.4 million pension settlement charge associated with the final termination of our pension plan.

Mr. Shaw: Which negatively impacted diluted EPS for 2023 by 6%.

Mr. Shaw: Some highlights for the full year of 2023 include net interest income was up 34% compared to 2022.

Solorowski: Some highlights for the full year of 2023 include net interest income was up 34% compared to 2022.

Solorowski: This increase was driven by the limestone merger and higher market interest rates, improving our earning asset yields while we controlled our deposit costs.

Mr. Shaw: The increase was driven by the limestone merger and higher market interest rates, improving our earning asset yields while we controlled our deposit cost.

Solorowski: Our fee-based income grew 18% compared to 2022.

Mr. Shaw: Our fee based income grew 18% compared to 2022.

Solorowski: Our return on average assets adjusted for non-core expenses improved to 1.61% for 2023 compared to 1.47% for 2022.

Mr. Shaw: Our return on average assets adjusted for noncore expenses improved two one points six 1%, but 2023 compared to 1.47% for 'twenty to 'twenty two.

Solorowski: We had positive operating leverage for the year compared to the prior year, which means we grew our revenues faster than our expenses.

Mr. Shaw: Positive operating leverage for the year compared to the prior year, which means we grew our revenues faster than our expenses.

Solorowski: Our efficiency ratio improved to 58.7% from 59.6% for 2022.

Mr. Shaw: Our efficiency ratio improved to 58, 7% from 59, 6% for 2022 at.

Solorowski: At the same time, our efficiency ratio adjusted for non-core expenses improved to 54.4% for 2023 compared to 58.6% for 2022. And our net charge-off rate was 15 basis points of average loans compared to 16 basis points for 2022.

Mr. Shaw: At the same time, our efficiency ratio adjusted for noncore expenses improved to 54, 4%, but 2023 compared to 58, 6% for 2022 and our net charge off rate was 15 basis points of average loans compared to.

Mr. Shaw: The 16 basis points for 2022.

Solorowski: Moving on to our credit quality, our allowance for credit losses represented 1.01% of total loans at quarter end.

Mr. Shaw: Moving on to our credit quality, our allowance for credit losses represented one point or 1%.

Mr. Shaw: Total loans at quarter end.

Solorowski: Changes in our allowance were driven by charge-offs within the loan portfolio, which were partially offset by improvements in our individually analyzed loan portfolio.

Mr. Shaw: Changes in our allowance were driven by charge offs within the loan portfolio, which were partially offset by improvements in our individually analyzed loan portfolio.

Mr. Shaw: The net charge offs were driven by higher lease charge offs.

Solorowski: The net charge-offs were driven by higher lease charge-offs.

Solorowski: a third of which was the result of a fraud-related charge-off and increased consumer indirect loan charge-off.

Mr. Shaw: Third of which was the result of a fraud related charge off and increase consumer indirect loan charge offs.

Solorowski: While our consumer indirect loan charge-offs were higher than recent periods, they were consistent with pre-pandemic levels as we had anticipated.

Mr. Shaw: While consumer indirect loan charge offs were higher than recent periods. They were consistent with pre pandemic levels as we had anticipated.

Solorowski: For both the leasing and indirect portfolios, we are satisfied with their risk-adjusted business performance.

Mr. Shaw: But both the leasing and indirect portfolios, we are satisfied with their risk adjusted business performance.

Mr. Shaw: Nonperforming assets improved during the fourth quarter and were down 8% compared to the linked quarter and as bolt on non accrual and loans 90 days past due and accruing declined.

Solorowski: Non-performing assets improved during the fourth quarter and were down 8% compared to the linked quarter end as both our non-accrual and loans 90 days past due and accruing declined.

Solorowski: At year end, our non-performing assets decreased to 43 basis points of total assets at year end, our non-performing assets decreased to 43 basis points of total assets

Mr. Shaw: At year end, our nonperforming assets decreased to 43 basis points of total assets compared to 48 basis points at the linked quarter end and 63 basis points at year end 2022.

Solorowski: compared to 48 basis points at the linked quarter end.

Solorowski: 63 basis points at year-end 2022.

Mr. Shaw: The portion of our loan portfolio considered current at quarter end was 98, 6% compared to 99% at September 30th.

Solorowski: The portion of our loan portfolio considered current at quarter end was 98.6% compared to 99% at September 30th.

Mr. Shaw: For the quarter, our annualized net charge off rate was 23 basis points, an increase of 15 basis points for the linked quarter and up from 18 basis points for the prior year quarter for the full year, our annualized net charge off rate was 15 basis points, but 2023.

Solorowski: For the quarter, our annualized net chargeoff rate was 23 basis points, an increase of 15 basis points for the linked quarter, and up from 18 basis points for the prior year quarter. For the full year, our annualized net chargeoff rate was 15 basis points for 2023, compared to 16 basis points for 2022.

Mr. Shaw: Compared to 16 basis points for 2022.

Mr. Shaw: Criticized loans to total loans increased during the fourth quarter to 382% at year end, while our classified loans declined 10 basis points to one point, 95% of total loans at year end.

Solorowski: Criticized loans to total loans increased during the fourth quarter to 3.82% at year end, while our classified loans declined 10 basis points to 1.95% of total loans at year end.

Solorowski: The increase in criticized loans was related to downgrades of several commercial relationships while the growth was partially offset by payoffs and upgrades during the quarter.

Mr. Shaw: The increase in criticized loans was related to downgrades of several commercial relationships, while the growth was partially offset by payoffs and upgrades during the quarter.

Solorowski: In regards to the commercial real estate and commercial and industrial loan portfolios, credit quality metrics remain strong, with delinquency reported at 45.

Mr. Shaw: In regards to the commercial real estate and commercial and industrial loan portfolios credit quality metrics remained strong with delinquency reported at 45.

Solorowski: at year end and combined had zero basis points in that charge-offs for the year.

Mr. Shaw: At year end, and combined had zero basis points and net charge offs for the year.

Solorowski: This compares the prior year end delinquency of 0.86% and net charge off the five basis points for the full year 2022.

Mr. Shaw: This compares to prior year end delinquency, a point to eight 6% and net charge offs of five basis points for the full year 2022.

Solorowski: As it relates to non-owner-occupied commercial real estate, as well as construction and land development, these balances represent 38% of total commercial loans and 27% of total loans at year-end.

Mr. Shaw: As it relates to non owner occupied commercial real estate as well as construction and land development. These balances represented 38% of total commercial loans and 27% of total loans at year end.

Solorowski: The land development remains a small percentage of the loan portfolio and totaled $106 million or 1.4% of total loans at year end.

Mr. Shaw: The land development remains a small percentage of the loan portfolio and totaled 106 million or one 4% of total loans at year end.

Solorowski: Our commercial office space outstanding balance was 2% of our total loan portfolio at year end.

Mr. Shaw: Our commercial office space outstanding balance was 2% of our total loan portfolio at year end.

Solorowski: We have two large projects maturing in 2024, totaling $17 million, which will give us an opportunity to reassess 12% of our office portfolio.

Mr. Shaw: Have two large projects maturing in 'twenty, 'twenty, four totaling $17 million, which will give us an opportunity to reassess 12% of our office portfolio.

Solorowski: As it relates to our construction loan portfolio, we continue to see high demand and successful project execution. We mentioned last quarter that we expected more construction projects to achieve certificates of occupancy during the fourth quarter, which were obtained and resulted in a decline in our construction loan balance.

Mr. Shaw: As it relates to our construction loan portfolio, we continue to see high demand and successful project execution, we mentioned last quarter that we expected more construction projects to achieve certificates of occupancy during the fourth quarter, which were obtained and resulted in a decline in Arkansas.

Mr. Shaw: <unk> loan balances at.

Solorowski: At year end, our construction loan balance has totaled $364 million with outstanding commitments of $670 million.

Mr. Shaw: At year end, our construction loan balances totaled $364 million with outstanding commitments of $670 million.

Mr. Shaw: Our multifamily balances continued to convert from construction as projects reached completion and stood at 520 million at year end.

Solorowski: Our multifamily balances continue to convert from construction as projects reach completion and stood at $520 million at year end.

Solorowski: These projects have generally been leasing up at appropriate speeds and often at higher rates than projected.

Mr. Shaw: These projects have generally been leasing up at appropriate speeds and often at higher rates than projected.

Solorowski: Our top 10 multifamily loans account for 33% of the funded multifamily portfolio.

Mr. Shaw: Top 10 multifamily family loans account for 33% of the funded multifamily portfolio.

Solorowski: six of which are still in construction phase.

Mr. Shaw: Six of which are still in the construction phase.

Solorowski: As we have noted previously, the location of these projects are within the growth market and the growth markets are within the growth market.

As we have noted previously the location of these projects are within the growth markets with strong metrics and notable guarantor support.

Solorowski: Strong Metrics, and notable guarantor support.

Solorowski: Hospitality loan balances were $174 million at year end and were less than 3% of our total loan portfolio.

Mr. Shaw: Hospitality loan balances were 174 million at year end and were less than 3% of our total loan portfolio.

Solorowski: Following the third quarter, we were able to exit an out-of-market hotel that was acquired through the limestone merger, further reducing our hospitality exposure at year end.

Mr. Shaw: Following the third quarter, we were able to exit an out of market hotel that was acquired through the limestone merger further reducing our hospitality exposure at year end.

Solorowski: Additionally, two hotels successfully exited in the fourth quarter while the outstanding balance on one hotel materially changed through a refinance utilizing the SBA 504 program.

Mr. Shaw: Additionally, two hotels successfully exited in the fourth quarter.

Mr. Shaw: Outstanding balance on one hotel materially change, where we financed utilizing the SBA 504 program.

Mr. Shaw: Top 10 funded loans with flag hotels represent 52% of the hospitality portfolio at year end occupancy trends within this portfolio generally remain above the market competitors with trailing 12 trailing three months Occupancies at 77 and 17.

Solorowski: The top 10 funded loans with flag hotels represent 52% of the hospitality portfolio at year end.

Solorowski: Occupancy trends within this portfolio generally remain above the market competitors with trailing 12 and trailing three months occupancies at 77 and 79% respectively.

Mr. Shaw: 9% respectively.

Solorowski: Our total loan portfolio grew $75 million or 10% annualized compared to the linked quarter end.

Mr. Shaw: Our total loan portfolio grew 75 million or 10% annualized compared to the linked quarter and commercial and industrial loan balances experienced the most growth and were up $55 million or September 30th.

Solorowski: Commercial and industrial loan balances experienced the most growth and were up $55 million for September 30th.

Solorowski: Specialty Finance Divisions provided $25 million of growth, while commercial real estate loans were up $7 million.

Mr. Shaw: Specialty finance divisions provided $25 million of growth, while commercial real estate loans were up 7 million.

Solorowski: Compared to year-end 2022, our organic loan growth was 10%, which excludes loans acquired from the limestone merger.

Mr. Shaw: Compared to year end 2022 organic loan growth was 10%, which excludes loans acquired from the limestone merger.

Solorowski: Most of the organic growth was in commercial real estate, which was up $204 million, while our specialty finance divisions provided $113 million of growth, commercial and industrial balances were up $77 million, and consumer indirect loans increased $37 million.

Mr. Shaw: Most of the organic growth was in commercial real estate, which was up 204 million, while our specialty finance divisions provided $113 million of growth commercial and industrial balances were up 77 million and consumer indirect loans increased 37 million.

Solorowski: At December 31st, 2023, our commercial real estate loans comprised 36% of total loans, nearly 40% of which were owner-occupied, while the remainder was investment real estate.

Mr. Shaw: At December 31st 2023, our commercial real estate loans comprised 36% of total loans, nearly 40% of which were owner occupied while the remainder was investment real estate.

Solorowski: At the same time, our total consumer loans, which include residential real estate and home equity lines of credit, were 29% of total loans. Commercial and industrial loans were 19%, specialty finance totaled 10%, and construction loans were 6%. At year end, 49% of our total loans were fixed rate, with the remaining 51% at variable rate.

Mr. Shaw: At the same time, our total consumer loans, which include residential real estate and home equity lines of credit were 29% of total loans commercial and industrial loans were 19% specialty finance totaled 10% in construction loans was 6% at year end.

Mr. Shaw: 49% of our total loans with fixed rate with the remaining 51% at variable rate I will now turn the call over to Katy for a discussion of our financial performance.

Solorowski: I will now turn the call over to Katie for a discussion of our financial performance.

Katy: Thanks Chuck.

Katie Bailey: Thanks, Chuck.

Katie Bailey: During the fourth quarter, our net interest income was lower than the linked quarter due to higher deposit costs.

Katy: During the fourth quarter, our net interest income was lower than the linked quarter due to higher deposit costs, which were partially offset by improved investment yields.

Katie Bailey: which were partially offset by improved investment yields.

Katy: Our net interest margin was 4.44% for the fourth quarter compared to 4.71% for the linked quarter.

Katie Bailey: Our net interest margin was 4.44% for the fourth quarter compared to 4.71% for the linked quarter.

Katy: The lower net interest margin was partially due to our margin during margin being higher during the linked quarter. As a result of acquisition related adjustments to accretion, which totaled $1 $9 million and added 10 basis points to our third quarter net interest margin.

Katie Bailey: The lower net interest margin was partially due to our margin being higher during this linked quarter as a result of acquisition-related adjustments to accretion, which totaled $1.9 million and added 10 basis points to our third quarter net interest margin.

Katie Bailey: During the fourth quarter of 2023, we recognized a $1.3 million increase to accretion income related to refinements in our fair value marks from our limestone merger, which added seven basis points to net interest margin.

Katy: During the fourth quarter of 'twenty two 'twenty three we recognized a 1.3 million dollar increase in it.

Katy: Two accretion income related to refinements in our fair value marks from our limestone merger, which added seven basis points to net interest margin.

Katie Bailey: also contributing to the decline in non-interest margins compared to the linked quarter were higher deposit costs.

Katy: Also contributing to the decline in net interest margin compared to the linked quarter, where higher deposit costs as.

Katie Bailey: as we offered short-term higher rate CDs that were part of a successful deposit acquisition strategy.

Katy: As we offered short term higher rate Cds that were part of a successful deposit acquisition strategy.

Katy: We partially offset this increase with higher investment yields for the quarter.

Katie Bailey: partially offset this increase with higher investment yields for the quarter.

Katy: For the fourth quarter, our deposit costs were 1.66% and excluding brokered Cds were 1.33%.

Katie Bailey: For the fourth quarter, our deposit costs were 1.66% and excluding brokered CDs were 1.33%.

Katie Bailey: Accretion income net of amortization expense totaled $9.3 million for the fourth quarter compared to $9.5 million for the linked quarter.

Katy: Accretion income net of amortization expense totaled $9 $3 million for the fourth quarter compared to $9.5 million for the linked quarter.

Katie Bailey: Accretion income positively impacted our net interest margin by 47 basis points for the fourth quarter and 52 basis points for the third quarter.

Accretion income positively impacted our net interest margin by 47 basis points for the fourth quarter and 52 basis points for the third quarter.

Katy: Compared to the prior year quarter.

Katie Bailey: Compared to the prior year quarter, our net interest income grew 25% while our net interest margin remained flat.

Katy: Our net interest income grew 25%, while our net interest margin remained flat.

Katy: As improved investment and loan yields were offset by higher deposit costs.

Katie Bailey: as improved investment in loan yields were offset by higher deposit costs.

Katy: For the full year of 2023 compared to 2022, our net interest income increased 34% and net interest margin grew 59 basis points.

Katie Bailey: For the full year of 2023, compared to 2022, our net interest income increased 34% and net interest margin grew 59 basis points.

Katie Bailey: Net interest income was positively impacted by the limestone merger compared to 2022.

Katy: Noninterest income was positively impacted by the limestone merger compared to 2022.

Katy: Most of the increase in our net interest margin was due to our investment in loan yields improving which were partially offset by higher deposit and funding costs.

Katie Bailey: Most of the increase in our net interest margin was due to our investment and loan yields improving, which were partially offset by higher deposit and funding costs.

Katy: Since the beginning of 'twenty two 'twenty three.

Katie Bailey: Since the beginning of 2023, the Federal Reserve has increased rates a total of 5.25%.

Katy: Our reserve has increased rates and turn off by two 5%.

Katie Bailey: Over this same time period, our interest-bearing deposit costs, when excluding brokered CDs, have only grown 1.2%.

Katy: Over the same time period, our interest bearing deposit costs, when excluding brokered Cds have only grown 1.2%.

Katy: During the same period, our deposit betas have moved 23% excluding brokered Cds.

Katie Bailey: During the same period, our deposit betas have moved 23% excluding brokered CDs.

Katy: As far as our expenses total noninterest expense was down 6% compared to the linked quarter, which was largely due to lower acquisition related expenses for the fourth quarter.

Katie Bailey: As far as our expenses, total non-interest expense was down 6% compared to the linked quarter, which was largely due to lower acquisition-related expenses for the fourth quarter.

Katie Bailey: Acquisition-related non-interest expenses totaled $1.3 million for the fourth quarter and were $4.4 million for the linked quarter.

Katy: Acquisition related noninterest expenses totaled $1 $3 million for the fourth quarter and were $4 $4 million for the linked quarter.

Katie Bailey: Compared to the prior year quarter, total non-interest expense increased 27% and was up 29% for the full year of 2023 compared to 2022.

Katy: Compared to the prior year quarter total noninterest expense increased 27% and was up 29% for the full year of 2023 compared to 2022.

Katie Bailey: These increases were primarily due to the acquisition-related expenses for the fourth quarter of 2023 and $17 million for the full year of 2023.

Katy: These increases were primarily due to the acquisition related expenses for the fourth quarter of 2023 and $17 million for the full year of 2023.

Katie Bailey: as well as the larger footprint and ongoing operating costs of the additional offices from Limestone.

Katy: As well as the larger footprint and ongoing operating costs of the additional offices from limestone.

Katy: Our reported efficiency ratio was 56% for the fourth quarter compared to 58, 4% for the linked quarter.

Katie Bailey: Our reported efficiency ratio was 56% for the fourth quarter compared to 58.4% for the linked quarter.

Katie Bailey: When adjusted for non-core expenses, our efficiency ratio was 54.9% compared to 52.5% for the linked quarter.

Katy: When adjusted for Noncore expenses, our efficiency ratio was 54, 9% compared to 52.5% for the linked quarter.

Katie Bailey: The Increase

Katy: The increase was the result of higher deposit costs compared to the linked quarter.

Katie Bailey: was the result of higher deposit costs compared to the linked quarter.

Katie Bailey: For the full year of 2023, our reported efficiency ratio was 58.7% compared to 59.6% for 2022.

Katy: For the full year of 'twenty twenty-three I reported efficiency ratio was 58, 7% compared to 59, 6% for 'twenty to 'twenty two.

Katie Bailey: Excluding non-core expenses, our efficiency ratio improved to 54.4% for 2023 compared to 58.6% for 2022.

Katy: Excluding noncore expenses, our efficiency ratio improved to 554, 4% or 2023 compared to 58, 6% for 2022.

Katy: Moving onto the balance sheet at year end, our investment securities to total assets declined to 19, 6%, while our loan to deposit ratio declined slightly to 86, 1%.

Katie Bailey: Moving on to the balance sheet. At year end, our investment securities to total assets declined to 19.6% while our loan to deposit ratio declined slightly to 86.1%.

Katie Bailey: We continue to actively manage our balance sheet position with a focus on our interest rate risk profile.

We continue to actively manage our balance sheet position with a focus on our interest rate risk profile during.

Katie Bailey: During the fourth quarter, we made a decision to sell nearly 37 million of our investment securities and recognized a loss of 1.7 million dollars.

Katy: During the fourth quarter, we made a decision to sell nearly 37 million of our investment securities and recognized a loss of $1.7 million.

Katie Bailey: This move resulted in a payback of just over a year and reduces the credit exposure within our investment portfolio.

Katy: This move this move resulted in a payback of just over a year and reduces the credit exposure within our investment portfolio.

Katie Bailey: We will continue to be opportunistic in our decisions while trying to do so in a low risk manner with a short earn back period.

Katy: We will continue to be opportunistic in our decision while trying to do so in a low risk manner with a short earn back period.

Katie Bailey: Along those lines, we did utilize the Federal Reserve's Bank Term Funding Program this quarter as it provided a lower cost funding source than our alternative.

Katy: Along those lines, we did utilize the federal Reserve's Bank term funding program this quarter as it provided a lower cost funding source and then our alternatives.

Katie Bailey: As of today, the funds we borrowed under this program are at a rate 76 basis points less than what we would have paid for an FHLB overnight borrowing. And assuming the same rate benefit, it will result in savings of nearly $1.2 million over a one-year period.

Katy: As of today the funds we borrowed under this program are at or are.

Katy: At a rate 76 basis points less than what we would have paid for an F. H L. B overnight borrowing and assuming the same rate benefit. It will result in savings of nearly $1.2 million over a one year period.

Katy: As we have noted previously we have ample liquidity and the attractive rate offered on this sourced was advantageous for us.

Katie Bailey: As we have noted previously, we have ample liquidity and the attractive rate offered on this source was advantageous for us.

Katy: We continue to have strong regulatory capital ratios.

Katie Bailey: continue to have strong regulatory capital ratios.

Katy: We are confident in our stock and performance and with that in mind, we repurchased $3 million of our shares the shares this quarter at an average price of $27 and 98%.

Katie Bailey: We are confident in our stock and performance, and with that in mind, we repurchased $3 million of our shares this quarter at an average price of $27.98.

Katie Bailey: We have repurchased our shares in 2023, 2022, and 2020 for an aggregate total of nearly $40 million.

Katy: We have repurchased our shares in 'twenty to 'twenty, three 2022 and 'twenty 'twenty for an aggregate total of nearly nearly $40 million.

Katie Bailey: We are committed to deploying our capital in the most effective manner and will continue to do so in the future while also being cognizant of the impact of dilution.

Katy: We are committed to deploying our capital in the most effective manner and we will continue to do so in the future while also being cognizant of the impact of deletion.

Katie Bailey: At year end, our capital ratios improved, and our common equity Tier 1 capital ratio was 11.8%, our total risk-based capital ratio was 13.5%, and our leverage ratio was 9.6%.

At yearend, our capital ratios improved and our common equity tier one capital ratio was 11, 8% our total risk based capital ratio was 13.5% and our leverage ratio was nine 6%.

Katie Bailey: At year end, our tangible equity to tangible assets ratio improved to 7.3% compared to 6.9% at the linked quarter end.

Katy: At year end, our tangible equity to tangible assets ratio improved to seven 3% compared to six 9% at the linked quarter end.

Katy: Our improved earnings along with some recovery of our accumulated other comprehensive losses on our available for sale investment securities portfolio contributed to the growth.

Katie Bailey: Our improved earnings along with some recovery of our accumulated other comprehensive losses on our available for sale investment securities portfolio contributed to the growth.

Katy: The improvement in our accumulated other comprehensive losses accounted for 44 basis points of the increase over the linked quarter.

Katie Bailey: The improvement in our accumulated other comprehensive losses accounted for 44 basis points of the increase over the linked quarter.

Speaker Change: Next I will turn the call over to Tyler, who will provide additional details around our performance and future outlook.

Speaker Change: Next, I will turn the call over to Tyler, who will provide additional details around our performance and future outlook.

Tyler Wilcox: Thanks, Katie. For the fourth quarter, our fee-based income was up 12% compared to the linked quarter and was driven by higher lease income.

Tyler: Thanks, Katy for the fourth quarter, our fee based income was up 12% compared to the linked quarter and was driven by higher lease income compared to the fourth quarter of 2022, our fee based income grew 35% and on a year to date basis was up 18% the increase compared to these prior periods.

Tyler Wilcox: Compared to the fourth quarter of 2022, our fee-based income grew 35% and on a year-to-date basis was up 18%.

Tyler Wilcox: The increase compared to these prior periods was the result of higher lease income and insurance income and was also impacted by the Limestone merger, which improved electronic banking income and deposit account service charges.

Katy: As a result of higher lease income and insurance income and was also impacted by the limestone merger, which improved electronic banking income and deposit account service charges, a bright spot for us this quarter has been our ability to generate deposits.

Tyler Wilcox: A bright spot for us this quarter has been our ability to generate deposits.

Tyler Wilcox: Compared to the linked quarter end, our total deposits grew $115 million or 2%.

Katy: Compared to the linked quarter and our total deposits grew $115 million or 2%.

Tyler Wilcox: The largest contributor to the growth was retail CDs, which were up $245 million.

Katy: We're just contributor to the growth was retail Cds, which were up $245 million.

Tyler Wilcox: We acquired a lot of these CDs with our deposit pricing strategy utilizing short-term, higher-rate CD offerings for customers.

Katy: We acquired a lot of these C DS with our deposit pricing strategy utilizing short term higher rate CD offerings for customers money.

Tyler Wilcox: Money market accounts grew $45 million during the same period, while we had some declines in other interest-bearing deposits.

Katy: Money market accounts grew $45 million during the same period, while we had some declines in other interest bearing deposits.

Tyler Wilcox: Our non-interest-bearing deposit balances were relatively flat, while we reduced our position in brokered CDs, which were down $33 million.

Noninterest bearing deposit balances were relatively flat, while we reduced our position in brokered Cds, which were down $33 million.

Tyler Wilcox: Our demand deposits were 38% of total deposits at quarter end compared to 39% at September 30th.

Katy: Our demand deposits were 38% of total deposits at quarter end compared to 39% at September 30th.

Katy: At quarter end, our deposit composition included 80% in retail deposit balances, which is comprised of consumers and small businesses and 20% and commercial deposit balances.

Tyler Wilcox: At quarter end, our deposit composition included 80% in retail deposit balance,

Unnamed Host: Good morning, and welcome to People's Bancorp, Inc.'s conference call.

Tyler Wilcox: which is comprised of consumers and small businesses and 20% in commercial deposit balance.

Rocco: My name is Rocco, and I will be your conference facilitator.

Unnamed Host: Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31st, 2023. Please be advised that all eyes have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star 1 on your telephone keypad, and questions will be taken in the order they are received. If you would like to enjoy your question, please press star then 2. 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 future financial performance or future events.

Katy: Our average retail customer deposit relationship was $24000 at year end, while our median was $2500.

Tyler Wilcox: Our average retail customer deposit relationship was $24,000 a year end, while our median was $2,500.

Tyler Wilcox: While we think about 2024, I would like to give some updated guidance for the next year.

Well, we think about 'twenty 'twenty four I would like to give some updated guidance for the next year.

Tyler Wilcox: We expect net interest income to benefit from the full year impact of the limestone merger, but to also be impacted by the projected market interest rate reductions in 2024.

Katy: We expect net interest income to benefit from the full year impact of the limestone merger, but to also be impacted by their projected market interest rate reductions in 2024.

Tyler Wilcox: With that being said, based on our most recent model runs, we have some preliminary expectations regarding potential rate cuts and increases.

Katy: With that being said based on our most recent model runs we have some preliminary expectations regarding potential rate cuts and increases.

Katy: If rates were to stay flat for 'twenty 'twenty four we would expect our deposit rates to move higher as competition accelerates.

Tyler Wilcox: If rates were to stay flat for 2024, we would expect our deposit rates to move higher as competition accelerates.

Tyler Wilcox: Potential impact of this could be a 1% to 3% decline in net interest income with a net interest margin of between 4.1% and 4.3% for the full year.

Katy: The potential impact of this could be a 1% to 3% decline in net interest income with a net interest margin of between 4.1 and four 3% for the full year.

Unnamed Host: 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 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 that actual results may differ materially from these forward-looking statements. Peoples disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements. People's Fourth Quarter 2023 earnings release was issued this morning and is available at peoplesbankcorp.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 of the earnings release.

Tyler Wilcox: If rates are flat for the first half of the year, with reductions coming in the middle of the year, we would anticipate some higher deposit costs, but would expect to offset those with lower funding costs, resulting in minimal impact to net interest income and margin.

If rates are flat for the first half of the year with reductions coming in the middle of the year, we would anticipate some higher deposit costs, but would expect to offset those with lower funding costs, resulting in minimal impact to net interest income and margin.

Tyler Wilcox: If there were a 75 basis point decline in rates at the beginning of 2024, it could potentially lower our full year net interest income by approximately 1%, with our net interest margin for the year coming in around 4.3%.

Katy: If there were a 75 basis point decline in rates at the beginning of 'twenty 'twenty four it could potentially lower our full year net interest income by approximately 1% with our net interest margin for the year coming in around four 3%.

Katy: A 150 basis point rate reduction at the beginning of 'twenty 'twenty four could lower our full year net interest income by approximately 3% with net interest margin of around four 2%.

Tyler Wilcox: A 150 basis point rate reduction at the beginning of 2024 could lower our full-year net interest income by approximately 3%, with net interest margin of around 4.2%.

Tyler Wilcox: Our primary uncertainty at this point is the potential impact to deposit rates as competition may slow the corresponding reduction in deposit rates if market interest rates were to decline.

Katy: Our primary uncertainty at this point is the potential impact to deposit rates as competition may slow the corresponding reduction in deposit rates if market interest rates were to decline.

Unnamed Host: This call will include about 25 to 30 minutes of prepared commentary, followed by a question and answer period, which I will facilitate, and an archived Webcast of this call will be available on peoplesbankcorp.com in the investor relations section for one year. Participants in today's call will be Chuck Swarovski, 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 remarks. Mr. Solorowski, you may begin your conference.

Tyler Wilcox: In the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed.

Katy: And the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the federal reserve were to cut rates more drastically than expected.

Tyler Wilcox: But we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the Federal Reserve were to cut rates more drastically than expected.

Tyler Wilcox: We believe our fee-based income growth will be in the high single-digit to low double-digit percentages compared to 2023.

Katy: We believe our fee based income growth will be in the high single digit to low double digit percentages compared to 'twenty to 'twenty three.

Tyler Wilcox: We expect quarterly total non-interest expense to be between $67 million and $69 million for the 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.

Katy: We expect quarterly total noninterest expense to be between $67 million and $69 million for the second third and fourth quarters of 'twenty 'twenty four with the first quarter of 2024 being higher due to our annual expenses, we typically recognized during the first quarter of each year.

Rocco: Thank you, Rocco.

Good morning, and thank you for joining our call today. In the fourth quarter, we reported record quarterly earnings of $33.8 million, while our diluted earnings per share improved to 96 cents compared to 90 cents for the linked quarter.

Katy: We continue to believe our loan growth for 'twenty 'twenty, four will be will be between 6% and 8% compared to 2023.

Tyler Wilcox: We continue to believe our loan growth for 2024 will be between 6% and 8% compared to 2023.

This includes $1.3 million of acquisition-related expenses for the limestone merger, which reduced diluted EPS for the fourth quarter by 3 cents. Overall, our fourth-quarter results included many highlights, such as growth in our return on average stockholders' equity, which was 13.4%, compared to 12.6% for the linked quarter. Our efficiency ratio improved at 56% from 58.4% for the linked quarter. However, our loan-to-deposit ratio declined slightly compared to the linked quarter end, and our non-performing assets declined 8% compared to the linked quarter end, and they are at their lowest level as a percent of total loans since the Great Recession.

Katy: The anticipated loan growth and return of some of our net charge offs to pre pandemic levels. We do expect an increase in our provision for credit losses during 'twenty 'twenty four.

Tyler Wilcox: With the anticipated loan growth and return of some of our net charge-offs to pre-pandemic levels, we do expect an increase in our provision for credit losses during 2024.

Tyler Wilcox: In our budget for 2024, we are expecting our full-year net charge-off rate will be around 20 basis points.

Katy: In our budget for 'twenty 'twenty four we are expecting our full year net charge off rate will be around 20 basis points.

Katy: We do not anticipate having positive operating leverage for 'twenty 'twenty four compared to 20 twenty-three given the technology investments we mentioned last quarter. However, however, we do anticipate returning to positive operating leverage in 2025.

Tyler Wilcox: We do not anticipate having positive operating leverage for 2024 compared to 2023, given the technology investments we mentioned last quarter. However, we do anticipate returning to positive operating leverage in 2025.

Tyler Wilcox: As we customarily do at the beginning of each year, I wanted to note that our first quarter expenses are generally higher due to a few expenses that we typically expect to recognize during the first quarter, which include

Katy: As we customarily do at the beginning of each year I wanted to note that our first quarter expenses are generally higher due to a few expenses that we typically expect to recognize during the first quarter, which include employer contributions to health savings accounts stock based compensation expense for certain employees higher payroll taxes and.

Tyler Wilcox: employer contributions to health savings accounts,

Tyler Wilcox: Stock-Based Compensation Expense for Certain Employees, Higher Payroll Taxes, and Annual Merit Increases.

Our book value for share improved to $29.83 Our book value for share improved to $29.83, compared to $28.06 at September 30th and $27.76 at year-end 2022. Meanwhile, our tangible book value per share grew to $18.16, compared to $16.52 and $16.23 respectively. Our tangible equity to tangible asset ratio increased to 7.3% compared to 6.9% at the linked quarter end, and we completed a $3 million share repurchase during the quarter. On a full year basis, our net income was $113.4 million, and our diluted EPS was $3.44. For more information, visit www. FEMA.gov This includes acquisition-related expenses of $17 million during 2023, which negatively impacted diluted EPS by 40 cents, and a $2.4 million pension settlement charge associated with the final termination of our pension plan, which negatively impacted diluted EPS for 2023 by 6 cents.

Katy: Annual Merit increases I will now turn the call back to Chuck for his final comments. Thanks, Tyler I would like to thank the employees of People's for producing another record quarterly earnings report.

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

Chuck Swarovski: Thanks, Tyler. I would like to thank the employees of Peoples for producing another record quarterly earnings report.

Chuck Swarovski: This is my final earnings call. As a point of personal privilege, I would like to reflect back on my time at People.

Chuck Sorosky: This is my final earnings call as a point of personal privilege I would like to reflect back on my time at peoples.

Chuck Swarovski: Looking at our stock performance as of year-end 2023, there were several key highlights. Over my nearly 13-year tenure, we have beaten the KBW Bank Index by over 4% on an annualized basis.

Chuck Sorosky: Looking at our stock performance as of year end 2023 there were several key highlights over my nearly 13 year tenure, we have beaten the K B W Bank index by over 4% on an annualized basis.

Chuck Swarovski: For the last three years, we have beaten the S&P by 3.4% and the KBW Bank Index by 10.4% annualized.

For the last three years, we have beaten the S&P by three 4% in the K B W Bank index by 10, 4% annualized.

Chuck Sorosky: In 2023, we'd beat the K B W index by 27%.

Chuck Swarovski: In 2023, we beat the KBW index by 27%.

Chuck Swarovski: More important than these results are the distinctive characteristics that makes Peoples a differentiated, high-performing community bank.

Chuck Sorosky: More important than these results are the distinctive characteristics that makes people a differentiated high performing community bank.

Chuck Swarovski: With apologies to David Letterman, I'd like to share my top 10 reasons why People's has been and will continue to be a great choice for investors.

Chuck Sorosky: With apologies to David Letterman I'd like to share My top 10 reasons why people has been and will continue to be a great choice for investors number 10, we go the epitome of a community bank.

Chuck Swarovski: 10. We are the epitome of a community bank. We make meaningful investments of time and money to help make our communities better.

Chuck Sorosky: Make meaningful investments of time and money to help make our communities better.

Chuck Swarovski: provide capital to individuals and businesses that promote economic growth and employment.

Chuck Sorosky: Provide capital to individuals and businesses that promote economic growth and employment.

Some highlights for the full year of 2023 include net interest income being up 34% compared to 2022.

Chuck Swarovski: As a result, we are trusted and have deep and meaningful relationships with our customers.

Chuck Sorosky: As a result, we are trusted and have deep and meaningful relationships with our customers number nine our employees are our most valuable asset, but the last three years. We are proud to have been recognized as one of America's best banks to work walk.

This increase was driven by the limestone merger and higher market interest rates, improving our earning asset yields while we controlled our deposit costs. Our fee-based income grew 18% compared to 2022. Our return on average assets adjusted for non-core expenses improved to 1.61% for 2023 compared to 1.47% for 2022. We had positive operating leverage for the year compared to the prior year, which means we grew our revenues faster than our expenses. Our efficiency ratio improved to 58.7% from 59.6% in 2022.

Recognized as one of American bankers best banks to work for we have a distinctive culture characterized by a passion for constant individual and organizational improvement.

Chuck Swarovski: recognized as one of the American bankers best banks to work

Chuck Swarovski: We have a distinctive culture characterized by a passion for constant individual and organizational improvement, frequent coaching, and an attention to performance numbers at a corporate and individual level.

Chuck Sorosky: Quinn coaching and an attention to performance numbers at a corporate and individual level.

Chuck Swarovski: 8. We have a diverse set of businesses. In addition to traditional banking, we have meaningful earnings contributions from insurance, investments, leasing, and premium finance.

Chuck Sorosky: We have a number eight we have a diverse set of businesses. In addition to traditional banking, we have meaningful earnings contributions from insurance investments leasing and premium finance.

Chuck Swarovski: As a result, we are better protected than the average community bank should one sector of the economy suffer stress.

Chuck Sorosky: As a result, we are better protected than the average community bank should one sector of the economy suffer stress.

At the same time, our efficiency ratio adjusted for non-core expenses improved to 54.4% for 2023 compared to 58.6% for 2022, and our net charge-off rate was 15 basis points of average loans compared to 16 basis points for 2022. Moving on to our credit quality, our allowance for credit losses represented 1.01% of total loans at quarter end. Changes in our allowance were driven by charge-offs within the loan portfolio, which were partially offset by improvements in our individually analyzed loan portfolio.

Chuck Swarovski: Number seven, credit discipline is a key to our success.

Chuck Sorosky: Number seven credit discipline is a key to our success.

Chuck Swarovski: Our portfolio is comprised of five buckets from largest to smallest, consumer lending, investment real estate, commercial and industrial, owner-occupied real estate, and specialty finance.

Chuck Sorosky: Our portfolio was comprised of five buckets from largest to smallest consumer lending investment real estate <unk>.

Chuck Sorosky: And industrial owner occupied real estate and specialty finance.

Chuck Sorosky: We have averaged 20 basis points of net charge offs over my tenure and 13 basis points over the last eight years.

Chuck Swarovski: We have averaged 20 basis points of net charge-offs over my tenure and 13 basis points over the last eight years.

Chuck Swarovski: We have a disciplined underwriting and portfolio management process that makes us confident we will have a better-than-industry risk-adjusted margin over all credit cycles.

Chuck Sorosky: We have a disciplined underwriting and portfolio management process that makes us confident we will have a better than industry risk adjusted margin over all credit cycles numbers.

Chuck Swarovski: Number six.

Chuck Sorosky: Number six as demonstrated during the historic rate increases of 2022 and 2023 we have a quality deposit base, while the federal reserve has increased rates, 5.25% our deposit costs have increased 1.5% since December of 'twenty.

Chuck Swarovski: As demonstrated during the historic rate increases of 2022 and 2023, we have a quality deposit base.

The net charge-offs were driven by higher lease charge-offs, a third of which was the result of a fraud-related charge-off and increased consumer indirect loan charge-offs. While our consumer indirect loan charge-offs were higher than recent periods, they were consistent with pre-pandemic levels, as we had anticipated. For both the leasing and indirect portfolios, we are satisfied with their risk-adjusted business performance.

Chuck Swarovski: While the Federal Reserve has increased rates 5.25%, our deposit costs have increased 1.5% since December of 2021 and meaningfully outperformed the industry average.

Chuck Sorosky: 'twenty, one and meaningfully outperformed the industry averages.

Chuck Swarovski: Number five, we have a core competency in acquisition.

Chuck Sorosky: Number five we have a core competency in acquisition.

Chuck Swarovski: We have done deals in banking, insurance, investments, and specialty finance.

Chuck Sorosky: We have done deals in banking insurance investments in specialty finance, we quickly assimilate new associates and have them learn and strengthen all culture, we hit our financial targets for the deals that we do.

Non-performing assets improved during the fourth quarter and were down 8% compared to the linked quarter end as both our non-accrual and loans 90 days past due and accruing declined. At year end, our non-performing assets decreased to 43 basis points of total assets, compared to 48 basis points at the linked quarter end. 63 basis points at year-end 2022. The portion of our loan portfolio considered current at quarter end was 98.6% compared to 99% at September 30th. For the quarter, our annualized net chargeoff rate was 23 basis points, an increase of 15 basis points for the linked quarter and up from 18 basis points for the prior year quarter.

Chuck Swarovski: We quickly assimilate new associates and have them learn and strengthen our culture.

Chuck Swarovski: We hit our financial targets for the deals that we do.

Chuck Swarovski: Number four, we strive to provide an extraordinary client experience.

Chuck Sorosky: Number four we strive to provide an extraordinary client experience. We are proud to be recognized as one of Newsweek best regional banks for the second year in a row and there are only 10 banks in the country to be recognized by both Newsweek and the American banker, what best banks to work for <unk>.

Chuck Swarovski: We are proud to be recognized as one of Newsweek's best regional banks for the second year in a row, and there are only 10 banks in the country to be recognized by both Newsweek and the American Banker for best banks to work for.

Chuck Swarovski: Number three, we manage capital with a focus on long-term return.

Chuck Sorosky: Three we manage capital with a focus on long term returns, we believe in a meaningful and growing dividend, we maintained healthy capital levels and use stock buybacks where prudent.

Chuck Swarovski: We believe in a meaningful and growing dividend. We maintain healthy capital levels and use stock buybacks where prudent.

Chuck Swarovski: Number two, our board and management decision making is guided by what is best for our shareholders in a three to five year time frame.

Chuck Sorosky: Number two our board and management decision, making is guided by what is best for our shareholders.

Three to five year timeframe, we do not chase the flavor of the day, we do not worry about short term negativity when we know long term risk adjusted returns will be improved.

Chuck Swarovski: We do not chase the flavor of the day. We do not worry about short-term negativity when we know long-term risk-adjusted returns will be improved.

For the full year, our annualized net chargeoff rate was 15 basis points for 2023, compared to 16 basis points for 2022. Criticized loans to total loans increased during the fourth quarter to 3.82% at year end, while our classified loans declined 10 basis points to 1.95% of total loans at year end. The increase in criticized loans was related to downgrades of several commercial relationships, while the growth was partially offset by payoffs and upgrades during the quarter.

Chuck Swarovski: Number one, our management team is a mix of professionals from larger institutions and homegrown talent.

Chuck Sorosky: Number one our management team as a mix it professionals from larger institutions and homegrown talent.

Chuck Swarovski: As I pass the baton, we have a great mix of young leaders like Tyler and Katie, as well as a cadre of very experienced executives from larger institutions and talent grown from within our organization.

Chuck Sorosky: As I pass the Baton, we have a great mix of young leaders like Tyler and KD as well as a cadre of very experienced executives from larger institutions and talent grown from within our organization I am fully confident that Tyler and the management team will build on our strengths and further improve our performance and resolve.

Chuck Swarovski: I am fully confident that Tyler and the management team will build on our strengths and further improve our performance and results. Thank you for your interest and investment in Peeples. This concludes our commentary and we will open the call for questions. Once again, this is Chuck Celerewski and joining me for 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 for your interest and investment in peoples. This concludes our commentary and we will open the call for questions. Once again. This is Chuck seller risky and joining me for Q&A session is Tyler Wilcox, Chief operating officer, and Katie Bailey, Our Chief Financial Officer, I will now turn the call back.

In regards to the commercial real estate and commercial and industrial loan portfolios, credit quality metrics remain strong, with delinquency reported at 45 at year end and combined had zero basis points in that charge-offs for the year. This compares the prior year end delinquency of 0.86% and net charge-off of five basis points for the full year 2022. As it relates to non-owner-occupied commercial real estate, as well as construction and land development, these balances represent 38% of total commercial loans and 27% of total loans at year-end.

Chuck Sorosky: Into the hands of a whole facilitate.

Speaker Change: Thank you for watching.

Speaker Change: Thank you.

Speaker Change: Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad.

To ask a question. Please press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.

The reason the speaker phone, we ask you please pickup your handset before pressing the keys.

Speaker Change: To withdraw your question, please press star then 2.

Speaker Change: To withdraw your question. Please press Star then two.

So the first question comes from Daniel Tomorrow with Raymond James. Please go ahead.

Speaker Change: Today's first question comes from Daniel Tamayo with Raymond James. Please go ahead.

The land development remains a small percentage of the loan portfolio and totaled $106 million, or 1.4% of total loans at year end. Our commercial office space outstanding balance was 2% of our total loan portfolio at year end. We have two large projects maturing in 2024, totaling $17 million, which will give us an opportunity to reassess 12% of our office portfolio. As it relates to our construction loan portfolio, we continue to see high demand and successful project execution. We mentioned last quarter that we expected more construction projects to achieve certificates of occupancy during the fourth quarter, which were obtained and resulted in a decline in our construction loan balance. At year end, our construction loan balance totaled $364 million, with outstanding commitments of $670 million. Our multifamily balances continue to convert from construction as projects reach completion and stood at $520 million at year end. These projects have generally been leasing up at appropriate speeds and often at higher rates than projected.

Daniel Edward Cardenas: Good morning, everyone I'm not sure I congratulations on your in your last call.

Daniel Edward Cardenas: Good morning everyone, congratulations on your last call.

Daniel Edward Cardenas: I guess first of all,

Daniel Edward Cardenas: I guess I guess first of all.

Speaker Change: Thank you for all the detail, Tyler, on the margin.

Speaker Change: Thank you for for all the detail Tyler on on the margin in the sensitivity.

Speaker Change: sensitivity. I think I missed the last.

Speaker Change: I I think I missed the last.

Tyler: Part of that that guidance. If you excuse me if you don't mind, just repeating it I I got all the way through the 150 basis point of rate cuts and I think you had one more line in there sure Danny I'd said that our primary uncertainty at this point is the potential impact of deposit rates. There's competition may slow the corresponding <unk>.

Tyler Wilcox: are all part of that guidance. If you don't mind just repeating it, I got all the way through the 150 basis point of rate cuts, and I think you had one more line in there. Sure. Danny, I'd say that our primary uncertainty at this point is the potential impact of deposit rates as competition may slow the corresponding reduction in deposit rates if market interest rates were to decline. So in the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the Federal Reserve were to cut rates more drastically than expected. Is that the part you're referring to? Thank you.

Reduction in deposit rates, if market interest rates were to decline so.

Tyler: In the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the federal reserve were to cut rates more drastically than expected is that the car you're referring to.

Speaker Change: I think so yeah, sorry I.

Danny: I think so, yeah. So I got it. Yeah, no, I appreciate that. So I guess the bottom line of that in terms of guidance is you're assuming that the real I mean, assuming kind of what we most folks are baking in now in terms of rate cuts in the back half of the year that

Speaker Change: I got it yeah, no I appreciate that.

So I guess the bottom line of all of that in terms of [noise] guidance.

Our top 10 multifamily loans account for 33% of the funded multifamily portfolio, six of which are still in the construction phase. As we have noted previously, the location of these projects is within the growth market, and the growth markets are within the growth market. Strong Metrics, and notable guarantor support.

Speaker Change: As you you're assuming that the real I mean, assuming kind of what most folks are are baking in now in terms of rate cuts in the back half of the year that.

Danny: There's not too big of an impact on either margin or NII as a whole for 2024 that starts to, or I guess let me ask you, does that start to then impact negatively on 2025 or how should we think about that?

Speaker Change: Theres not too big of an impact on.

Speaker Change: Either margin or NII as a whole for 2024 that that starts to do or I guess when they ask you does that start to then.

Hospitality loan balances were $174 million at year end, and they were less than 3% of our total loan portfolio. Following the third quarter, we were able to exit an out-of-market hotel that was acquired through the limestone merger, further reducing our hospitality exposure at year end. Additionally, two hotels successfully exited in the fourth quarter while the outstanding balance on one hotel materially changed through a refinance utilizing the SBA 504 program. The top 10 funded loans with flag hotels represent 52% of the hospitality portfolio at year end. Occupancy trends within this portfolio generally remain above market competitors, with trailing 12 and trailing three months occupancies at 77 and 79%, respectively.

Speaker Change: Impact negatively on 'twenty, 'twenty, five or or how should we think about that.

I don't think it'll have a meaningful.

Speaker Change: I don't think it'll have a meaningful negative on 25. I don't see the Fed bringing rates back to where they were. You know, they'll stop 2.5% to 3%, and depending on the shape of the curve, we should be fine.

Speaker Change: Negative on 25, I don't see the fed bringing rates back to where they were they're they'll stop two and a half to three 3% and depending on the shape of the curve.

Speaker Change: We should be fine.

Speaker Change: Okay.

Speaker Change: And just a clarification on the commentary on the on the hospitality loans I think you said 174 million at year end did you say that you exited one post year end is that correct.

Speaker Change: And just a clarification on the commentary on the hospitality loans. I think you said $174 million at year end. Did you say that you exited one post year end? Is that correct?

Speaker Change: No, we said we exited an out-of-market one during the fourth quarter.

Speaker Change: No. We said, we exited an out of market one door in the fourth.

Speaker Change: Fourth quarter.

Speaker Change: During the fourth quarter, Okay. So that $174 million is carrying into the first quarter. Okay. We continue that.

Speaker Change: during the fourth quarter. Okay, so that $174 million is carrying into the first quarter. Okay. We continue to decrease that portfolio.

Our total loan portfolio grew $75 million, or 10% annualized compared to the linked quarter end. Commercial and industrial loan balances experienced the most growth and were up $55 million for September 30th. Specialty Finance Divisions provided $25 million of growth, while commercial real estate loans were up $7 million. Compared to year-end 2022, our organic loan growth was 10%, which excludes loans acquired from the limestone merger. Most of the organic growth was in commercial real estate, which was up $204 million, while our specialty finance divisions provided $113 million of growth, commercial and industrial balances were up $77 million, and consumer indirect loans increased $37 million. At December 31st, 2023, our commercial real estate loans comprised 36% of total loans, nearly 40% of which were owner-occupied, while the remainder was investment real estate.

Syngenta decreased that portfolio.

Speaker Change: Okay. Okay.

Speaker Change: Okay.

Speaker Change: And then I guess lastly, just on repurchases, you repurchased a small amount in the fourth quarter. You know, the stock has done well by enlarged valuation. You've got a stronger valuation than the market. How are you thinking about what's a reasonable valuation when repurchasing shares?

Speaker Change: And then I guess lastly, just just on on repurchases are you your purchase a small amount in the in the fourth quarter. You know the stock has done well are by and large valuation you're you've got a stronger valuation in the market. How are you thinking about what's a reasonable valuation.

Speaker Change: When repurchasing shares yeah, we continue to evaluate each quarter I'm as you can see from the prices. We quoted we are willing to go beyond kind of what we would do for an earn back of a bank deal lately on the share repurchase given the less rasp, but again I don't think we would expect to take a meaningful position and do a large volume of repurchase in any.

Speaker Change: We continue to evaluate each quarter. As you can see from the prices we quoted, we are willing to go beyond kind of what we would do for an earn back of a bank deal slightly on the share repurchase given the less risk. But again, I don't think we would expect to take a meaningful position and do a large volume of repurchase in any one quarter as we will continue to keep it relatively small and continue to support the stock.

Speaker Change: In one corner and we will continue to keep it relatively small and continue to support the stock.

Speaker Change: Understood. Okay. Thank you. That's all I had. Appreciate it. Thank you, Danny.

Speaker Change: Understood. Okay. Thank you that's all I had I appreciate it.

Speaker Change: Thanks.

Speaker Change: And our next question today comes from Terry Mcevoy with Stephens. Please go ahead.

Speaker Change: And our next question today comes from Perry McEvoy with Stevens, please go ahead.

Terry Mcevoy: Hi, Good morning, Chuck Tyler and Katie Chuck I've enjoyed working with you and.

At the same time, our total consumer loans, which include residential real estate and home equity lines of credit, were 29% of total loans. Commercial and industrial loans were 19%, specialty finance totaled 10%, and construction loans were 6%. At year end, 49% of our total loans were fixed rate, with the remaining 51% at variable rates. I will now turn the call over to Katie for a discussion of our financial performance.

Terry Mcevoy: Our ongoing debate on People's deposit costs, which I must say, it's an argument you won in the market rewarded.

Speaker Change: Company last year, so congratulations on winning their thank you terrie don't bet against the Mighty people.

Speaker Change: I learned that last year.

Speaker Change: A couple of questions here on the criticized loans any common theme among the CRE downgrades and I'm wondering if you built up reserves for that portfolio last quarter.

Thanks, Chuck.

During the fourth quarter, our net interest income was lower than the linked quarter due to higher deposit costs, which were partially offset by improved investment yields. Our net interest margin was 4.44% for the fourth quarter compared to 4.71% for the linked quarter. The lower net interest margin was partially due to our margin being higher during this linked quarter as a result of acquisition-related adjustments to accretion, which totaled $1.9 million and added 10 basis points to our third quarter net interest margin.

Speaker Change: It was a combination of C&I and CRE, we feel really good about our portfolio.

Speaker Change: We have our lowest levels of M. P. As lowest level you know crit class classified.

Speaker Change: Yeah, we did have an uptick in charge offs in Q4, which you know Q4 was charge offs are usually a little higher than.

Speaker Change: Then the rest of the year, but yeah, we we remain extremely optimistic on the credit portfolio.

Speaker Change: And as it relates to the allowance and so you would expect each quarter, we go through and evaluate whether Q factor qualitative factors are necessary and as you noted we did establish a qualitative factor in the third quarter and we continue to evaluate the use of that as we proceed but it remains.

During the fourth quarter of 2023, we recognized a $1.3 million increase in accretion income related to refinements in our fair value marks from our limestone merger, which added seven basis points to net interest margin. Also contributing to the decline in non-interest margins compared to the linked quarter were higher deposit costs, as we offered short-term higher-rate CDs that were part of a successful deposit acquisition strategy. We partially offset this increase with higher investment yield For the fourth quarter, our deposit costs were 1.66%, and excluding brokered CDs, they were 1.33%. Accretion income net of amortization expense totaled $9.3 million for the fourth quarter compared to $9.5 million for the linked quarter. Accretion income positively impacted our net interest margin by 47 basis points for the fourth quarter and 52 basis points for the third quarter.

Speaker Change: And then as a follow up the expense levels.

Speaker Change: Ending 'twenty 'twenty four will most of the expenses related to crossing $10 billion b in the run rate.

Speaker Change: By the end of this year, yes.

Speaker Change: Yes.

Speaker Change: And then maybe I'll ask one last one what the loan growth of six 8% as the target.

Speaker Change: Or are you thinking about areas within the portfolio that should support that loan growth in 2024.

Speaker Change: And I will comment that we had a good year in 'twenty three with 10% I think you'll see the traditional C&I business continue to perform strong we'll see some increase in balances as some of these projects moved to creation to completion.

Speaker Change: On the commercial real estate front.

Compared to the prior year quarter, our net interest income grew 25% while our net interest margin remained flat, as improved investment in loan yields were offset by higher deposit costs. For the full year of 2023, compared to 2022, our net interest income increased 34%, and our net interest margin grew 59 basis points. Net interest income was positively impacted by the limestone merger compared to 2022. Most of the increase in our net interest margin was due to our investment and loan yields improving, which were partially offset by higher deposit and funding costs. Since the beginning of 2023, the Federal Reserve has increased interest rates by a total of 5.25%.

Speaker Change: Specialty finance businesses, all continued to be strong I think we'll see a little less growth in the indirect portfolio than we've seen historically.

Speaker Change: Great.

Speaker Change: Thanks for taking my questions.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Thank you and our next question comes from Nekoosa Raleigh with Hudson Group. Please go ahead.

Nekoosa Raleigh: Good morning, everyone and congratulations Chuck.

Nekoosa Raleigh: Hi, Nick.

Nekoosa Raleigh: I wanted to start on fee income that the leasing line was quite volatile across 2023, and you pointed to the large buyout in for Q can you help us think about a more normalized number for that business and how it may play out over the course of 'twenty 'twenty four and as we had kind of noted when we bought this leasing company and this is the one we bought in early 'twenty two.

Nekoosa Raleigh: 22, there is some kind of volatility of the fee income associated with that business as they do periodically experienced buyouts in which case they generally recognize meaningful gains which is what you saw in the fourth quarter. This is kind of the first quarter, we have had them under our ownership, where we've seen that but it's gone.

Over this same time period, our interest-bearing deposit costs, when excluding brokered CDs, have only grown 1.2%. During the same period, our deposit betas have moved 23%, excluding brokered CDs.

As far as our expenses are concerned, total non-interest expense was down 6% compared to the linked quarter, which was largely due to lower acquisition-related expenses for the fourth quarter. Acquisition-related non-interest expenses totaled $1.3 million for the fourth quarter and were $4.4 million for the linked quarter. Compared to the prior year quarter, total non-interest expense increased 27% and was up 29% for the full year of 2023 compared to 2022. These increases were primarily due to acquisition-related expenses for the fourth quarter of 2023 and $17 million for the full year of 2023, as well as the larger footprint and ongoing operating costs of the additional offices from Limestone. Our reported efficiency ratio was 56% for the fourth quarter compared to 58.4% for the linked quarter. However, when adjusted for non-core expenses, our efficiency ratio was 54.9% compared to 52.5% for the linked quarter. The increase was the result of higher deposit costs compared to the linked quarter. For the full year of 2023, our reported efficiency ratio was 58.7% compared to 59.6% for 2022.

At the customers discretion when those transpire, so I would say they'll be.

Nekoosa Raleigh: Be less frequent but.

Nekoosa Raleigh: Kind of contingent upon how the customer wants to engage with us.

Nekoosa Raleigh: So if you were to think about a more normalized level for that business is it closer to the first half of the year.

Speaker Change: Yeah, I think that's it.

Speaker Change: Or was it kind of inflated by about $2 million.

That's helpful. Thank you.

Speaker Change: And then on the in the short term higher rate CD offerings or are you still running those campaigns and if so what rate are you paying for new money.

Speaker Change: So we have been we have continued to run them, they're kind of.

Speaker Change: Evaluated each month the rate currently is just over 5%.

Speaker Change: And we continue to.

Speaker Change: Manage that.

Speaker Change: As we meet a like I said every other week.

Speaker Change: And we're keeping them short term so it turns out knows they're anywhere from seven to 11 to 14 months.

Speaker Change: And the rate is different for each each term.

Speaker Change: Okay, Great and then just lastly for me just a follow up on the loan growth commentary that the leasing portfolio grew 20% in 2023 is your expectation for a similar rate of growth in 'twenty four.

Speaker Change: Yeah, I think that's there you will have you know.

Speaker Change: Double digit growth Oh, maybe mid to high teens, I think there's probably more more likely.

Excluding non-core expenses, our efficiency ratio improved to 54.4% for 2023 compared to 58.6% for 2022. Moving on to the balance sheet, At year end, our investment securities to total assets declined to 19.6%, while our loan to deposit ratio declined slightly to 86.1%. We continue to actively manage our balance sheet position with a focus on our interest rate risk profile. During the fourth quarter, we made a decision to sell nearly 37 million of our investment securities and recognized a loss of 1.7 million dollars. This move resulted in a payback of just over a year and reduced the credit exposure within our investment portfolio. We will continue to be opportunistic in our decisions while trying to do so in a low risk manner with a short payback period.

Speaker Change: Thank you for taking my questions.

Speaker Change: Exactly thank you.

Speaker Change: Question comes from Switzerland, and VW. Please go ahead.

Speaker Change: Hey, good morning. Thanks.

Speaker Change: Thanks, again and congratulations on your career.

Speaker Change: Thank you.

Speaker Change: I appreciate all you guys really detailed guidance on the NII by different scenarios and so is the right way to think about it is that a rate cut in the near term.

Speaker Change: As to the margin just because there's limited offsetting the odd side due to competition right now.

Speaker Change: And then there's a cut later in the year, it's a little bit easier to digest. The competition moderate does that kind of what you guys are talking about in your guidance, Yes, I think that's consistent.

Speaker Change: Okay, and then with your comment that there was minimal impact to NII, there's reduction in mid 'twenty four.

Speaker Change: Meaning that the full year NII would be flattish relative to 'twenty three.

Along those lines, we did utilize the Federal Reserve's Bank Term Funding Program this quarter as it provided a lower-cost funding source than our alternative. As of today, the funds we borrowed under this program are at a rate 76 basis points less than what we would have paid for an FHLB overnight borrowing. And assuming the same rate benefit, it will result in savings of nearly $1.2 million over a one-year period. As we have noted previously, we have ample liquidity, and the attractive rate offered on this source was advantageous for us. We continue to have strong regulatory capital ratios. We are confident in our stock and performance, and with that in mind, we repurchased $3 million of our shares this quarter at an average price of $27.98.

Speaker Change: I think we will see some compression in 'twenty three to 'twenty four mm is kind of what we're expecting given that we do expect rates I think we ended 20 twenty-three at something like a 4.5% net interest margin I think what we said is if you expect a 75 basis point cut switches kind of in general.

Speaker Change: What.

Speaker Change: Some people expect for Tommy for we end at something closer to the four 3% I mean, some of that is being driven by kind of accretion adjustments and 23.

Speaker Change: Accretion reductions in 'twenty four relative to 'twenty three.

Speaker Change: Right, sorry, I should've been more specific I meant that NII in 'twenty four is flat with 23 in that scenario.

Speaker Change: I think that yeah, I think that will still be up net interest income would still be up I mean, we will have additional four months of the limestone acquisition in our numbers.

Speaker Change: Okay.

We have repurchased our shares in 2023, 2022, and 2020 for an aggregate total of nearly $40 million. We are committed to deploying our capital in the most effective manner and will continue to do so in the future while also being cognizant of the impact of dilution. At year end, our capital ratios improved, and our common equity Tier 1 capital ratio was 11.8%, our total risk-based capital ratio was 13.5%, and our leverage ratio was 9.6%. Additionally, at year end, our tangible equity to tangible assets ratio improved to 7.3% compared to 6.9% at the linked quarter end. Our improved earnings, along with some recovery of our accumulated other comprehensive losses on our available for sale investment securities portfolio contributed to the growth. The improvement in our accumulated other comprehensive losses accounted for 44 basis points of the increase over the linked quarter.

Speaker Change: Hum.

Speaker Change: I Gotcha, and if rates are flat throughout the year is the NIM down in the first quarter or two and then NIM rebounding back up towards the end of the year.

Speaker Change: And I say I think our uncertainty there remains around deposit.

Competition I think if the expectation we have is if rates hold flat throughout the year.

Speaker Change: Deposit competition will remain fierce and we will continue to be pressured on deposit costs throughout the year.

Speaker Change: Okay and the last question I have is on the loan yield.

Speaker Change: Out of the reported yields were lower quarter over quarter, most of the categories except for E. R E.

Speaker Change: And leases were down quite a bit I know some of that might be like moderating purchase accounting and stuff can you maybe walk us through that what you're really seeing on an underlying basis.

Speaker Change: Yes, let us full.

Speaker Change:

Speaker Change: So I think to your point there is some noise in the yellow as you see them by category in the earnings release because of accretion.

Speaker Change: Is that done at the segment level, but as far as loan origination yeah. We did see improvement I would say in the total portfolio and we were up 31 basis points.

Next, I will turn the call over to Tyler, who will provide additional details on our performance and future outlook. Thanks, Katie. For the fourth quarter, our fee-based income was up 12% compared to the linked quarter and was driven by higher lease income. Compared to the fourth quarter of 2022, our fee-based income grew 35% and, on a year-to-date basis, was up 18%. The increase compared to these prior periods was the result of higher lease income and insurance income and was also impacted by the Limestone merger, which improved electronic banking income and deposit account service charges. A bright spot for us this quarter has been our ability to generate deposits. Compared to the linked quarter end, our total deposits grew $115 million, or 2%.

Speaker Change: In the third quarter to the fourth quarter in origination yields.

Speaker Change: Okay. That's helpful. Thank you Kate.

Kate: Thank you.

Speaker Change: And ladies and gentlemen, as a reminder to ask a question. Please first star then one.

Speaker Change: Next question comes from let alone the boss.

Speaker Change: Davidson.

Davidson: Hey, good morning, Congrats Chuck.

Davidson: I just wanted to follow up on the Cds.

Davidson: Or are these mainly coming from is it new money into the bank is it new customers is it are you.

Davidson: Your customers, bringing funds over do you have any other color on kind of what where the funds are coming from.

The largest contributor to the growth was retail CDs, which were up $245 million. We acquired a lot of these CDs with our deposit pricing strategy, which utilizes short-term, higher-rate CD offerings for customers. Money market accounts grew $45 million during the same period, while we had some declines in other interest-bearing deposits. Our non-interest-bearing deposit balances were relatively flat, while we reduced our position in brokered CDs, which were down $33 million. Our demand deposits were 38% of total deposits at quarter end compared to 39% at September 30th. At quarter end, our deposit composition included 80% of the retail deposit balance, which is comprised of consumers and small businesses, and 20% of the commercial deposit balance.

Speaker Change: Thank you Manny, it's primarily existing customers.

Manny: Yes, new money to the bank would be the biggest category.

Yeah.

Speaker Change: Okay. That's helpful.

Speaker Change: Is the plan to kind of a shift to this funding.

Funding vehicle and as the brokered runs off.

Speaker Change: Just any color on kind of the.

Speaker Change: Those two.

Speaker Change: Pieces together, yeah, I mean, I think we would prefer customer deposits over brokered deposits.

Speaker Change: And I think that again, our evaluation of broker deposits is more a function of pricing as it relates to comparable alternatives to us such as kind of F. H L. B overnight as our primary source for overnight funding.

Speaker Change: Okay.

Speaker Change:

Our average retail customer deposit relationship was $24,000 at year end, while our median was $2,500. While we think about 2024, I would like to give some updated guidance for the next year. We expect net interest income to benefit from the full year impact of the limestone merger but to also be impacted by the projected market interest rate reductions in 2024. With that being said, based on our most recent model runs, we have some preliminary expectations regarding potential rate cuts and increases. If rates were to stay flat for 2024, we would expect our deposit rates to move higher as competition accelerates. The potential impact of this could be a 1% to 3% decline in net interest income with a net interest margin of between 4.1% and 4.3% for the full year.

Speaker Change:

Speaker Change: Uh huh.

Speaker Change: The short earn back on some securities.

Speaker Change: Exchange you had what kind of.

Speaker Change: It was a shift in yields and is there potential for more down the road.

Speaker Change: Yeah, I mean, we sold lower yielding securities and we are reinvesting. It in you know yields over 6% are at certain times during the quarter. We will continue to evaluate as you saw I think we did that investment kind of restructure in the first quarter, we followed up in the fourth quarter with another one.

Speaker Change: As we said in the script will be opportunistic as it relates to future opportunities. There we won't extend the earn back [laughter] much past two years, if at all and again, we will keep the loss in a quarter are relatively reasonable.

Speaker Change: So the new the new securities or about 6% that's across the whole quarter any reinvestment you do.

If rates are flat for the first half of the year, with reductions coming in the middle of the year, we would anticipate some higher deposit costs but would expect to offset those with lower funding costs, resulting in a minimal impact on net interest income and margin. If there were a 75 basis point decline in rates at the beginning of 2024, it could potentially lower our full-year net interest income by approximately 1%, with our net interest margin for the year coming in around 4.3%. A 150 basis point rate reduction at the beginning of 2024 could lower our full-year net interest income by approximately 3%, with a net interest margin of around 4.2%. Our primary uncertainty at this point is the potential impact on deposit rates as competition may slow the corresponding reduction in deposit rates if market interest rates were to decline.

Speaker Change: Those are what we just reinvested in the fourth quarter with this transaction yeah, we have not been.

Speaker Change: We actively buying each you know consistently throughout the quarter.

Speaker Change: As you saw our assets or our percentage of investment securities to assets went down this quarter relative to last quarter.

Speaker Change: Yes.

Speaker Change: And I'm, sorry did you give what the new loan yields were I know you said they were up about 31 basis points quarter over quarter.

Two was eight.

Speaker Change: 881.

Speaker Change: That's great.

Speaker Change:

Speaker Change: And I guess.

Speaker Change: It is there is there any other kind of big picture Wildcards in your outlook Besides deposit costs.

Speaker Change: Yeah.

Speaker Change: I think we feel really good about the underlying.

Speaker Change: Operating details in all of the businesses and.

In the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed. However, we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the Federal Reserve were to cut rates more drastically than expected. We believe our fee-based income growth will be in the high single-digit to low double-digit percentages compared to 2023. We expect quarterly total non-interest expense to be between $67 million and $69 million for the 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 continue to believe our loan growth for 2024 will be between 6% and 8% compared to 2023. With the anticipated loan growth and return of some of our net charge-offs to pre-pandemic levels, we do expect an increase in our provision for credit losses during 2024. In our budget for 2024, we are expecting our full-year net charge-off rate to be around 20 basis points.

Speaker Change: We're optimistic on the outlook that we've presented.

Speaker Change: Okay.

Speaker Change: Oh, that's great I really appreciate it guys. Thank you. Thank you.

Speaker Change: Hello, Hi, Flushing household Daniel Cardenas with Janney Montgomery Scott. Please go ahead.

Speaker Change: Good morning, everybody Chuck Congratulations on a nice run here.

Speaker Change:

Speaker Change: Quick question, just given where valuation levels are right now what what are your thoughts on the M&A front.

Speaker Change: Well, we continue to have dialogue with institutions in good times and bad times, So we're pretty persistent and consistent.

Speaker Change: Talking to people I think the accounting complexities make M&A less attractive.

Speaker Change: You know two day I think that a lot of institutions are looking at where they are and wondering about whether it makes sense to drawing a institution that has a little better currency both in terms of performance and in terms.

Of volume of shares greater liquidity and I think some people are beginning of some institutions are beginning to.

We do not anticipate having positive operating leverage in 2024 compared to 2023, given the technology investments we mentioned last quarter.

Speaker Change: Yeah, more realistic with premium expectations that being said I you know if you're asking me the guests for the industry I think youll see a slightly more deals in 'twenty four 'twenty three but it will not be a return to some of the historic levels.

However, we do anticipate returning to positive operating leverage in 2025. As we customarily do at the beginning of each year, I wanted to note that our first quarter expenses are generally higher due to a few expenses that we typically expect to recognize during the first quarter, which include employer contributions to health savings accounts, Stock-Based Compensation Expense for Certain Employees, Higher Payroll Taxes, and Annual Merit Increases. I will now turn the call back to Chuck for his final comments.

Speaker Change: Okay got it.

Speaker Change: Thanks for that color and then Kate what what what kind of what kind of.

Speaker Change: Accretable income can we expect from the limestone transaction in 'twenty four.

Thanks, Tyler.

I would like to thank the employees of Peoples for producing another record quarterly earnings report.

Speaker Change: Yeah.

Speaker Change: Yeah I think.

For the fourth quarter, we had accretion added about 47 basis points to margin I think we will and again that included some true ups as we continue to refine the purchase accounting for that transaction, given where within that year window, but I think we would expect it to be somewhere probably between 30 to 35 basis points on a quarterly basis.

This is my final earnings call. As a point of personal privilege, I would like to reflect back on my time at People. Looking at our stock performance as of year-end 2023, there were several key highlights. Over my nearly 13-year tenure, we have beaten the KBW Bank Index by over 4% on an annualized basis.

Speaker Change: Benefit to the margin as well.

Speaker Change: Proceed through 'twenty 'twenty four and.

Speaker Change: And again, there's a lot of volatility there I'm not telling you anything you probably don't know but to the extent any of these deals kind of rewrite or pay off there could be kind of swings in that in any given quarter, but that's kind of what we would expect that a state.

For the last three years, we have beaten the S&P by 3.4% and the KBW Bank Index by 10.4% annualized. In 2023, we will beat the KBW index by 27%.

More important than these results are the distinctive characteristics that make Peoples a differentiated, high-performing community bank. With apologies to David Letterman, I'd like to share my top 10 reasons why Peoples has been and will continue to be a great choice for investors.

Speaker Change: Got it got it okay perfect. Yeah, I think all my other questions have been asked and answered so I'll step back thanks, guys.

Speaker Change: Thanks, Dan.

Speaker Change: At this time there are no further questions. Sir do you have any closing remarks, yes, 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.

10. We are the epitome of a community bank. We make meaningful investments of time and money to help make our communities better, and provide capital to individuals and businesses that promote economic growth and employment. As a result, we are trusted and have deep and meaningful relationships with our customers, and recognized as one of the American bankers' best banks to work for. We have a distinctive culture characterized by a passion for constant individual and organizational improvement, frequent coaching, and attention to performance numbers at a corporate and individual level. 8.

Speaker Change: Thank you. This concludes today's conference call. We thank you all for attending today's presentation.

Speaker Change: All of this once your lines and have a wonderful day.

We have a diverse set of businesses. In addition to traditional banking, we have meaningful earnings contributions from insurance, investments, leasing, and premium finance.

As a result, we are better protected than the average community bank should one sector of the economy suffer stress. Number seven, credit discipline is a key to our success. Our portfolio is comprised of five buckets from largest to smallest, consumer lending, investment real estate, commercial and industrial, owner-occupied real estate, and specialty finance. We have averaged 20 basis points of net charge-offs over my tenure and 13 basis points over the last eight years.

We have a disciplined underwriting and portfolio management process that makes us confident we will have a better-than-industry risk-adjusted margin across all credit cycles.

Number six. As demonstrated during the historic rate increases of 2022 and 2023, we have a quality deposit base. While the Federal Reserve has increased rates 5.25%, our deposit costs have increased 1.5% since December of 2021 and meaningfully outperformed the industry average. Number five, we have a core competency in acquisition. We have done deals in banking, insurance, investments, and specialty finance.

We quickly assimilate new associates and have them learn and strengthen our culture.

We hit our financial targets for the deals that we do. Number four, we strive to provide an extraordinary client experience. We are proud to be recognized as one of Newsweek's best regional banks for the second year in a row, and there are only 10 banks in the country to be recognized by both Newsweek and the American Banker for the best banks to work for. Number three, we manage capital with a focus on long-term return. We believe in a meaningful and growing dividend. We maintain healthy capital levels and use stock buybacks where prudent. Number two, our board and management decision making is guided by what is best for our shareholders in a three to five year time frame. We do not chase the flavor of the day. We do not worry about short-term negativity when we know that long-term risk-adjusted returns will be improved.

Number one, our management team is a mix of professionals from larger institutions and homegrown talent. As I pass the baton, we have a great mix of young leaders like Tyler and Katie, as well as a cadre of very experienced executives from larger institutions and talent grown within our organization. I am fully confident that Tyler and the management team will build on our strengths and further improve our performance and results.

Thank you for your interest and investment in Peeples.

Unnamed Host: This concludes our commentary, and we will open the call for questions. Once again, this is Chuck Celerewski, and joining me for the Q&A session is Tyler Wilcox, Chief Operating Officer, and Katie Bailey, our Chief Financial Officer.

Unnamed Host: I will now turn the call back into the hands of our call facilitator.

Unnamed Host: Thank you for watching.

Unnamed Host: Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Today's first question comes from Daniel Tamayo with Raymond James.

Daniel Edward Cardenas: Please go ahead.

Daniel Edward Cardenas: Good morning everyone, congratulations on your last call. I guess, first of all, Thank you for all the detail, Tyler, on the margin, sensitivity, I think I missed the last, are all part of that guidance.

If you don't mind just repeating it, I got all the way through the 150 basis points of rate cuts, and I think you had one more line in there. Sure. Danny, I'd say that our primary uncertainty at this point is the potential impact of deposit rates as competition may slow the corresponding reduction in deposit rates if market interest rates were to decline. So in the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the Federal Reserve were to cut rates more drastically than expected. Is that the part you're referring to?

Daniel Edward Cardenas: Thank you.

Daniel Edward Cardenas: I think so, yeah.

So I got it. Yeah, no, I appreciate that.

Daniel Edward Cardenas: So I guess the bottom line of that in terms of guidance is you're assuming that the real I mean, assuming kind of what we most folks are baking in now in terms of rate cuts in the back half of the year that, There's not too big of an impact on either margin or NII as a whole for 2024 that starts to, or I guess let me ask you, does that start to then impact negatively on 2025 or how should we think about that?

I don't think it'll have a meaningful negative impact on 25. I don't see the Fed bringing rates back to where they were. You know, they'll stop at 2.5% to 3%, and depending on the shape of the curve, we should be fine.

Daniel Edward Cardenas: And just a clarification on the commentary on the hospitality loans. I think you said $174 million at year end.

Did you say that you left one post post year end? Is that correct?

Daniel Edward Cardenas: No, we said we exited an out-of-market one during the fourth quarter, during the fourth quarter.

Okay, so that $174 million is carrying into the first quarter.

Daniel Edward Cardenas: Okay.

We continue to decrease that portfolio.

Daniel Edward Cardenas: And then, I guess lastly, just on repurchases. You repurchased a small amount in the fourth quarter.

You know, the stock has done well because of its enlarged valuation.

Daniel Edward Cardenas: You've got a higher valuation than the market.

How are you thinking about what's a reasonable valuation when repurchasing shares?

Daniel Edward Cardenas: We continue to evaluate each quarter.

As you can see from the prices we quoted, we are willing to go beyond kind of what we would do for an earn back of a bank deal slightly on the share repurchase given the lower risk.

Daniel Edward Cardenas: But again, I don't think we would expect to take a meaningful position and do a large volume of repurchases in any one quarter as we will continue to keep it relatively small and continue to support the stock.

understood.

Daniel Edward Cardenas: Okay.

Daniel Edward Cardenas: Thank you.

That's all I had.

Daniel Edward Cardenas: I appreciate it.

Thank you, Danny.

Unnamed Host: And our next question today comes from Perry McEvoy with Stevens. Please go ahead.

Unnamed Speaker: Our deposit composition included 80% in retail deposit balance, which is comprised of consumers and small businesses, and 20% in commercial deposit balance. Our average retail customer deposit relationship was $24,000 at year end, while our median was $2,500.

Tyler: While we think about 2024, I would like to give some updated guidance for the next year. We expect net interest income to benefit from the full year impact of the limestone merger but to also be impacted by the projected market interest rate reductions in 2024. With that being said, based on our most recent model runs, we have some preliminary expectations regarding potential rate cuts and increases. If rates were to stay flat for 2024, we would expect our deposit rates to move higher as competition accelerates. The potential impact of this could be a 1 to 3 percent decline in net interest income with a net interest margin of between 4.1 and 4.3 percent for the full year. If rates are flat for the first half of the year, with reductions coming in the middle of the year, we would anticipate some higher deposit costs but would expect to offset those with lower funding costs, resulting in a minimal impact on net interest income and margin.

Tyler: If there were a 75 basis point decline in rates at the beginning of 2024, it could potentially lower our full-year net interest income by approximately 1%, with our net interest margin for the year coming in around 4.3%. A 150 basis point rate reduction at the beginning of 2024 could lower our full-year net interest income by approximately 3%, with our net interest margin around 4.2%. A primary uncertainty at this point is the potential impact on deposit rates, as competition may slow the corresponding reduction in deposit rates if market interest rates were to decline. In the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed. But we would not anticipate the net interest margin falling below 4% for the year in this scenario unless the Federal Reserve were to cut rates more drastically than expected.

Chuck: We believe our fee-based income growth will be in the high single-digit to low double-digit percentages compared to 2023. We expect quarterly total non-interest expense to be between $67 million and $69 million for the 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 continue to believe our loan growth for 2024 will be between 6% and 8% compared to 2023. With the anticipated loan growth and return of some of our net charge-offs to pre-pandemic levels, we do expect an increase in our provision for credit losses during 2024. In our budget for 2024, we are expecting our full-year net charge-off rate to be around 20 basis points.

Chuck: We do not anticipate having positive operating leverage in 2024 compared to 2023, given the technology investments we mentioned last quarter. However, we do anticipate returning to positive operating leverage in 2025. As we customarily do at the beginning of each year, I wanted to note that our first quarter expenses are generally higher due to a few expenses that we typically expect to recognize during the first quarter, which include employer contributions to health savings accounts, stock-based compensation expense for certain employees, higher payroll taxes, and annual merit increases. I will now turn the call back to Chuck for his final comment.

Chuck: Thanks, Tyler. I would like to thank the employees of People's for producing another record quarterly earnings report. This is my final earnings call. As a point of personal privilege, I would like to reflect back on my time at People.

Chuck: Looking at our stock performance as of year end 2023, there were several key highlights. Over my nearly 13-year tenure, we have beaten the KBW Bank Index by over 4% on an annualized basis. For the last three years, we have beaten the S&P by 3.4% and the KBW Bank Index by 10.4% annualized. In 2023, we beat the KBW index by 27%.

Chuck: More important than these results are the distinctive characteristics that make People's a differentiated, high-performance community bank. With apologies to David Letterman, I'd like to share my top 10 reasons why People's has been and will continue to be a great choice for investors. Number 10, we are the epitome of a community bank. We make meaningful investments of time and money to help make our communities better. We provide capital to individuals and businesses that promote economic growth and employment.

Chuck: As a result, we are trusted and have deep and meaningful relationships with our customers. Number nine, our employees are our most valuable asset. For the last three years, we are proud to have been recognized as one of America's best banks to work for, recognized as one of the American bankers' best banks to work for. We have a distinctive culture characterized by a passion for constant individual and organizational improvement, frequent coaching, and attention to performance numbers at a corporate and individual level. We have a number eight; we have a diverse set of businesses. In addition to traditional banking, we have meaningful earnings contributions from insurance, investments, leasing, and premium finance. As a result, we are better protected than the average community bank should one sector of the economy suffer stress.

Chuck: Number seven, credit discipline is a key to our success. Our portfolio is comprised of five buckets from largest to smallest, consumer lending, investment real estate, commercial and industrial, owner-occupied real estate, and specialty finance. We have averaged 20 basis points of net charge-offs over my tenure and 13 basis points over the last eight years. We have a disciplined underwriting and portfolio management process that makes us confident we will have a better-than-industry risk-adjusted margin over all credit cycles. Number six.

Chuck: As demonstrated during the historic rate increases of 2022 and 2023, we have a quality deposit base. While the Federal Reserve has increased rates 5.25%, our deposit costs have increased 1.5% since December of 2021 and meaningfully outperformed the industry average. Number five, we have a core competency in acquisition. We have done deals in banking, insurance, investments, and specialty finance. We quickly assimilate new associates and have them learn and strengthen our culture.

Chuck: We hit our financial targets for the deals that we do. Number four, he strives to provide an extraordinary client experience. We are proud to be recognized as one of Newsweek's best regional banks for the second year in a row, and there are only 10 banks in the country to be recognized by both Newsweek and the American Banker for Best Banks to Work For.

Chuck: Number three, we manage capital with a focus on long-term return. We believe in a meaningful and growing dividend. We maintain healthy capital levels and use stock buybacks where prudent. Number two, our board and management decision making is guided by what is best for our shareholders in a three to five-year timeframe. We do not chase the flavor of the day.

Chuck: We do not worry about short-term negativity when we know long-term risk-adjusted returns will be improved. Number one, our management team is a mix of professionals from larger institutions and homegrown talent. As I pass the baton, we have a great mix of young leaders like Tyler and Katie, as well as a cadre of very experienced executives from larger institutions and talent grown within our organization. I am fully confident that Tyler and the management team will build on our strengths and further improve our performance and results. Thank you for your interest and investment in Peeples. This concludes our commentary, and we will open the call to questions. Once again, this is Chuck Sellerski, and joining me for the Q&A session is Tyler Wilcox, Chief Operating Officer, and Katie Bailey, our Chief Financial Officer.

Operator: I will now turn the call back into the hands of our call facilitator. Thank you. Thank you. If you would like to ask a question, please press star and one on your telethon keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the key.

Daniel Edward Cardenas: To withdraw your question, please press star then 2. Today's first question comes from Daniel Tamayo with Raymond James. Please go ahead. Good morning, everyone.

Daniel Edward Cardenas: Chuck, congratulations on your last call. I guess, first of all, Thank you for all the detail, Tyler, on the margin, sensitivity. I think I missed the last...

Tyler: So I think that's a good part of that guidance. If you don't mind just repeating it, I got all the way through the 150 basis points of rate cuts, and I think you had one more line in there. Sure, Danny. I said that our primary uncertainty at this point is the potential impact on deposit rates, so competition may slow the corresponding reduction in deposit rates if market interest rates were to decline. So in the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year in this scenario unless the Federal Reserve were to cut rates more drastically than expected. Is that the part you're referring to?

Tyler: I think so, yeah, so I got it. Yeah, no, I appreciate that. So I guess the bottom line of that in terms of guidance is you're assuming, really, what most folks are baking in now in terms of rate cuts in the back half of the year that... There's not too big of an impact on either margin or NII as a whole for 2024. That starts to, or I guess I should ask you, does that start to then impact negatively on 2025, or how should we think about that? I don't think it will have a meaningful negative impact on 25. I don't see the Fed bringing rates back to where they were. They'll stop at 2.5 to 3%, and depending on the shape of the curve, we should be fine.

Unnamed Speaker: And just a clarification on the commentary on the hospitality loans. I think you said $174 million at year-end. Did you say that you exited one post-year-end? Is that correct? No, we said we exited an out-of-market one during the fourth quarter.

Unnamed Speaker: Okay, so that $174 million is carrying into the first quarter. Okay. We continue to decrease that portfolio.

Unnamed Speaker: And then, I guess lastly, just on repurchases. You repurchased a small amount in the fourth quarter. You know, the stock has done well, by and large. Valuation, you've got a stronger valuation than the market. How are you thinking about what's a reasonable valuation when repurchasing shares? Yeah, we continue to evaluate each quarter. As you can see from the prices we quoted, we are willing to go beyond kind of what we would do for an earn-back-of-a-bank deal slightly on the share repurchase given the lower risk. But again, I don't think we would expect to take a meaningful position and do a large volume of repurchase in any one quarter as we will continue to keep it relatively small and continue to support the stock.

Unnamed Speaker: Okay. That's all I had. Appreciate it. And our next question today comes from Terry McEvoy with Stevens. Please go ahead.