Q4 2024 Peoples Bancorp Inc Earnings Call
Nick: Good morning, and welcome to People's Bancorp, Inc.'s conference call. My name is Nick, and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31, 2024.
Speaker Change: Please be advised that all lines 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, then 1 on your telephone keypad, and questions will be taken in the order they are received. If you would like to withdraw your question, please press star and then 2.
Speaker Change: This call is also being recorded. If you object to the recording, please disconnect at this time.
Speaker Change: Please be advised that commentary in this call will contain projections or other forward-looking statements regarding people's future financial performance or future events. 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's 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. However, it is possible actual results may differ materially from these forward-looking statements.
Speaker Change: People's disclaims any responsibility to update these forward-looking statements after this call except as may be required by applicable legal requirements.
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: This call will include about 20 minutes of prepared commentary, followed by a question and answer period, which I will facilitate.
Speaker Change: Participants in today's call will be Tyler Wilcox, President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer and Treasurer. And each will be available for questions following opening statements. Mr. Wilcox, you may begin your conference.
Tyler Wilcox: Thank you, Nick. Good morning, everyone, and thank you for joining our call today. Our fourth quarter diluted earnings per share was 76 cents and was $3.31 for the full year of 2024. As we look at 2024, I want to note some key takeaways.
Tyler Wilcox: Our net interest income improved 3% compared to 2023 and our net interest margin continued to outperform most in our industry at 4.21%.
Tyler Wilcox: fee-based income grew 10%, our efficiency ratio stood at 58%, our book value per share improved 5% to $31.26, while our tangible book value per share grew 10% to $19.94.
Tyler Wilcox: We had a favorable shift in the mix of our loan portfolio as our commercial and industrial loans grew relative to our commercial real estate portfolio.
Tyler Wilcox: Our commercial and industrial loans increased $163 million, growing from 19% to 21% of our portfolio as commercial real estate loans declined from 36% to 34% from 2024 to 2023.
Tyler Wilcox: Our criticized loans improved to 25% of our total risk-based capital at year-end, compared to 27% for 2023, demonstrating the stability of our commercial-blown portfolio.
Tyler Wilcox: We had deposit balance growth of $443 million, or 6%, compared to 2023.
Tyler Wilcox: Our Tangible Equity to Tangible Assets ratio improved to 8.01% at year-end.
Tyler Wilcox: And, we continued to beat consensus diluted EPS estimates, which were 75 cents for the fourth quarter and $3.30 for the full year of 2024.
Tyler Wilcox: As far as our credit quality at year-end, our overall allowance for credit losses was 1% of total loans.
Tyler Wilcox: Our provision for credit loss has declined for the fourth quarter, as we had a reduction in individually analyzed loan reserves, which was partially offset by charge-offs for the fourth quarter.
Tyler Wilcox: Our annualized net charge-off rate was 61 basis points for the quarter compared to 38 basis points for the linked quarter. This was driven by our leasing charge-offs, which comprised 49 basis points of the quarterly rate.
Tyler Wilcox: For the full year, our net charge-off rate was 37 basis points.
Tyler Wilcox: compared to 15 basis points for 2023. Our leasing business drove 22 basis points of the annual rate for 2024.
Tyler Wilcox: We have provided guidance in the previous two quarters regarding the elevated charge-offs in our small ticket leasing business and last quarter guided to an anticipated peak of these charge-offs in the fourth quarter.
Tyler Wilcox: We took an aggressive approach with these credits during the fourth quarter, which drove the higher net charge-off rates, as collection strategies brought some of the charge-offs forward into the fourth quarter.
Tyler Wilcox: While improvements from the fourth quarter peak are expected, we anticipate a gradual decline towards our expected charge-off rate of 4 to 5 percent.
Tyler Wilcox: We had reserves established on many of these credits during the previous quarters, which reduced the impact provision for credit losses during the fourth quarter.
Tyler Wilcox: To provide some perspective on our small ticket leasing, over the two-year period prior to 2024, net charge-offs within the portfolio went from around 1.5 percent to our current rate of 6.7 percent.
Tyler Wilcox: The average historical net charge-off rate for small-ticket leasing was around 4.5% prior to our ownership.
Tyler Wilcox: Going forward, our strategy with this business continues to be to seek origination yields between 18 and 20 percent with net charge-offs in the 4 to 5 percent range.
Tyler Wilcox: We expect that the adjustments we have made in Origination and Credit Focus are returning us to the average historical net charge-off levels.
Tyler Wilcox: For more information on our small ticket leasing business, please refer to our accompanying slides.
Tyler Wilcox: Our non-performing assets declined $21 million and were 0.53% of total assets at year end. We noted last quarter, during our call, that we had administrative past-due lease accounts and premium finance accounts.
Tyler Wilcox: for which we were awaiting expected proceeds from carriers on canceled policies. The majority of those cleared up in the fourth quarter and our non-performing asset levels were back in a normal range at year-end.
Tyler Wilcox: Criticized and classified loans were relatively similar to levels at the end of the third quarter.
Tyler Wilcox: As it relates to our loan portfolio concentrations, we had no material changes during the fourth quarter.
Tyler Wilcox: Our total investment commercial real estate exposure at year-end was 36% of the $4.6 billion in our commercial loan portfolio and declined to 183% of our total risk-based capital.
We continue to be pleased with our multifamily portfolio metrics.
Tyler Wilcox: which declined to $562 million or 8% of total loans a year end.
Tyler Wilcox: These loans are focused on quality metropolitan areas that are within our core markets.
Tyler Wilcox: Collectively, these metropolitan areas experienced average annualized rental rate growth of 3.1 percent, job growth of 1.25 percent, median household income growth of 3.1 percent, and population growth of 0.93 percent.
Tyler Wilcox: We continue to have minimal exposure in specific lending concentrations, including land development, which comprise 1.4% of total loan balances at year-end, office at 1.7%, and hospitality at 2.7%.
Tyler Wilcox: As far as loan balances, we had 5% annualized loan growth during the fourth quarter. Our commercial and industrial loans were up over $97 million, while our residential real estate loans were up $57 million compared to the linked quarter end.
Tyler Wilcox: Our commercial real estate balances declined 24 million dollars, which was the result of payoffs and sales within the portfolio, which outpaced new loan growth.
Tyler Wilcox: Our lease balances declined at $26 million due to lower originations during the quarter, coupled with charge-offs in our small-ticket leasing business.
Tyler Wilcox: At Quarter End, our commercial real estate loans comprised 34% of total loans, nearly 40% of which were owner-occupied, while the remainder were investment real estate.
Tyler Wilcox: At year-end, 47% of our total loans were fixed-rate, with the remaining 53% at a variable rate.
Tyler Wilcox: I will now turn the call over to Katie for a discussion of our financial performance.
Thanks, Tyler.
Katie Bailey: For the fourth quarter, net interest income declined 3% compared to the length quarter and was driven by lower accretion income.
Katie Bailey: Net interest margin was 4.15% compared to 4.27% for the third quarter.
Katie Bailey: The compression and net interest margin was driven by lower accretion income, which totaled $4.9 million and added 23 basis points to margin for the fourth quarter, compared to $8.1 million and 39 basis points for the linked quarter.
Katie Bailey: During the fourth quarter, we were able to reduce our interest-bearing deposit costs by six basis points as we saw lower rates on all of our deposit categories during the quarter.
Katie Bailey: We also fully paid off our borrowings from the Bank Term Funding Program, which contributed to the reduction in our short-term borrowing costs.
Katie Bailey: For the full year, Net Interest Income increased 3% while Net Interest Margin declined 34 basis points.
Katie Bailey: As we have mentioned previously, our decline in net interest margin compared to 2023 was mostly due to the timing of our deposit cost increases occurring slower than the repricing of our loans to higher rates.
Katie Bailey: From an interest rate risk perspective, we are in a generally neutral position. Our net interest income profile is robust and is relatively insensitive to changes in interest rates.
Moving on to our fee-based income.
We had growth of 5% compared to the linked quarter.
This increase was driven by higher commercial loan swap fees.
Katie Bailey: which were up nearly $1 million and were partially offset by declines in mortgage banking income.
Katie Bailey: For the full year, fee-based income grew 10% and was the result of improved lease, trust and investment, and insurance income, as well as the full year impact of the Limestone merger.
Katie Bailey: During the fourth quarter, we recognized a $1.2 million loss on another real estate-owned property, which was included in our non-performing assets.
Katie Bailey: This loss was recognized based on a recent appraisal received regarding the property value.
Katie Bailey: As it relates to our net interest expenses, we had an increase of 7% compared to the linked quarter.
Katie Bailey: The majority of this increase was in other non-interest expenses due to higher non-core expenses coupled with reductions in corporate expense recognized last quarter.
Katie Bailey: For the fourth quarter, our reported efficiency ratio was 59.6% and was up compared to 55.1% for the linked quarter.
Katie Bailey: Our improvement in fee-based income for the quarter was outpaced by lower net interest income and increased non-interest expense, resulting in a higher efficiency ratio compared to the linked quarter.
Katie Bailey: For the full year, our reported efficiency ratio was 58 percent, an improvement compared to 58.7 percent for 2023 due to lower acquisition-related costs in 2024.
Katie Bailey: Looking at our balance sheet at year-end, our loan-to-deposit ratio was flat compared to the leaked quarter-end and stood at 84% for both periods.
Katie Bailey: As noted in our accompanying slides, we had growth in our deposits during the quarter, which were up $112 million compared to September 30th.
Katie Bailey: Our non-interest-bearing deposits grew considerably, while our interest-bearing transaction accounts also increased.
Katie Bailey: At the same time, our governmental deposits declined compared to September 30th.
Katie Bailey: As we have noted previously, these deposits are seasonally higher during the first and third quarter of each year.
Katie Bailey: Our retail CDs grew compared to the linked quarter end, while our brokered CDs also increased as part of our funding strategy.
Katie Bailey: As we have mentioned before, we view brokered CDs as an additional funding source and they have been available at a rate lower than FHLB advances in recent periods.
Katie Bailey: We expect our deposit costs to continue to decline as they did for the fourth quarter.
Katie Bailey: Our CD specials at year-end 2024 were around 4%, compared to between 4.75% and 5.25% at year-end 2023.
Katie Bailey: While the Fed funds rate increased 4.25% from the fourth quarter of 2021 through year-end 2024, our deposit rates only increased 1.8% over the same time period.
Katie Bailey: Our demand deposits as a percent of total deposits were 34% at quarter end and were consistent with the linked quarter end.
Katie Bailey: Our non-interest bearing deposits grew to 20% of total deposits at quarter end, compared to 19% for the linked quarter end.
Katie Bailey: At year end, our deposit composition was 79% in retail deposit balances, which included small businesses, and 21% in commercial deposit balances.
Katie Bailey: Our average retail client-deposit relationship was $26,000 at quarter end, while our median was around $2,500.
Katie Bailey: Moving on to our capital position. Most of our capital ratios improved compared to the linked quarter and benefited from earnings outpacing dividends.
Katie Bailey: Are Tangible Equity to Tangible Assets Ratio declined to 8% compared to 8.3% at September 30th?
Katie Bailey: Our book value and tangible book value continue to improve, and we're up 5% and 10% respectively compared to December 31, 2023.
Katie Bailey: While managing our capital levels, we continue to provide a high-yield return to our shareholders with a current dividend yield of 5.11%.
Tyler Wilcox: Finally, I will turn the call over to Tyler for his closing comments.
Thank you, Katie.
Tyler Wilcox: We continue to be recognized as a top employer by many publications, allowing us to attract and retain top talent.
Tyler Wilcox: We contributed to our communities in meaningful ways, including donations, volunteering, and through our scholarship programs. These activities are key to our market presence and competitiveness within our markets.
Tyler Wilcox: We continue to leverage the investments we have made to prepare to surpass $10 billion in assets.
Speaker Change: You are recognized as being in the top 15% of banks nationally in the Small Business Administration 7A Approved Loans.
Speaker Change: We are reiterating our guidance for the full year of 2025, which excludes non-core expenses.
Speaker Change: We expect to have positive operating leverage for 2025 compared to 2024.
Speaker Change: We expect to have improvement in our return on average assets for 2025 compared to 2024.
Speaker Change: Assuming an additional 50 basis point reduction in rates from the Federal Reserve during 2025,
Speaker Change: spread over the first nine months of the year, we anticipate a stabilization in our net interest margin of between 4% and 4.2%.
Speaker Change: In our projections for 2025, each 25 basis point reduction in rates results in a nominal impact of one or two basis points to net interest margin.
Speaker Change: We believe our fee-based income growth will be in the mid-to-high single-digit percentages compared to 2024.
Speaker Change: With the first quarter of 2025 being higher due to the annual expenses we typically recognize during the first quarter of each year.
Speaker Change: We believe our loan growth will be will be between 4% and 6% compared to 2024
Speaker Change: We anticipate provision for credit losses to be similar to our 2024 quarterly run rate for 2025.
Speaker Change: We also expect our net charge-off rate for the full year of 2025 to be modestly lower than the rate experienced for the full year of 2024.
Speaker Change: This concludes our commentary and we will open the call for questions.
Speaker Change: Once again, this is Tyler Wilcox, and joining me for the Q&A session is Katie Bailey, our Chief Financial Officer. I will now turn the call back into the hands of our call facilitator. Thank you.
Speaker Change: We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble a roster.
Speaker Change: And our first question today will come from Brendan Nozl with Hobbit Group. Please go ahead.
Speaker Change: Good morning folks, hope you're doing well. Hey Brendan, good to hear from you.
Speaker Change: I think just to start off on loan growth, I was just kind of curious, what was the driver of the divergence between end of period and average for the quarter? I mean, it seemed like the period end number was quite healthy, but the average was down a bit. I'm just kind of curious, was that timing or were there payoffs earlier in the quarter that dragged down the average? Any color there would be helpful.
Speaker Change: Brendan, just so I understand your question, kind of relative to the first three quarters, is that what you're asking?
Speaker Change: Got it. Yeah, I think I think it was timing and December production was just
Speaker Change: You know a lot of a lot of our borrowers getting their deals done in in December Mostly a timing issue, but you know I would say demand continues to be strong across all of our portfolios as well
Speaker Change: Okay, great. Then maybe turning to the deposit base, I get that you guys have a much more retail-oriented base than others, but just kind of curious how long you think it takes for you to get more beta out of that deposit base and kind of, you know, the timing on that to, you know, squeeze more of that 100 basis points out of the Fed onto your own pricing.
Speaker Change: Yeah, I mean, I think we started a little ahead of the Fed cutting in September, and we have been actively managing it through the cycle of, you know, the fourth quarter, and we'll continue to do so into the first quarter, even if no rates, you know, cuts are experienced in the first quarter.
Speaker Change: Okay, perfect. Maybe one last one from me. Just on asset quality, you know, broadly and I guess especially outside of the leasing book, I mean, numbers outside of leasing look really, really solid. So I'm just curious, you know, what you're seeing more broadly on both commercial and consumer credit trends.
Speaker Change: Yeah, thanks for the question, Brendan. A couple thoughts. I agree with you. The asset quality, you know, overall in the, you know, kind of 97% of that portfolio is incredibly strong.
Speaker Change: We saw, as we said last quarter, we saw kind of a reduction to norms in non-performing assets and the delinquency rates.
Speaker Change: You know, our positive trend, the criticized classified, you know, as a percentage of capital is down. And, you know, the full contribution for the year in the commercial book was two basis points of charge-offs.
Speaker Change: We expect that credit quality to continue, both because of the kind of diversity of the loan portfolio and the quality of our execution from a credit monitoring standpoint.
and Consumer, we've talked this year.
Speaker Change: about consumer being kind of elevated from a slightly from an incidence of charge-off and in the indirect portfolio and then also from a
Speaker Change: each individual charge-off. We've seen a four-month trend of decline there in the charge-off rates. So the fourth quarter charge-off rate came down about 30 basis points in the indirect portfolio. And just generally, you know, the overall borrowing.
Speaker Change: profile on the commercial side is, you know, deploying those low-cost deposits into quality markets, as we mentioned, and so we feel a high degree of confidence in the overall portfolio.
All right, fantastic. Thank you for taking the questions.
Tim Switzer: And your next question today will come from Tim Switzer with KBW. Please go ahead.
Hey, good morning. Thank you for taking my question.
No, no problem. Great to hear from you, Tim.
Speaker Change: Good to hear from you guys. My first question is on, with the 53% of loans that you guys said are variable rate, can you remind us, is that all repricing quarterly or does some of that have a bit of a longer lag?
Speaker Change: Most of it is monthly, with a portion of it quarterly, and a very small portion later than that, but the majority is monthly.
Speaker Change: Okay, that's great. And then offsetting that, you know, giving you guys a pretty great neutral, can you review what your shorter-term funding sources are, particularly like on the deposit side? I know you have some CDs that are maturing over the course of the year that are probably helpful.
Speaker Change: Our primary source is an overnight funding source through the FHLB.
Speaker Change: Okay, I got you. And you guys have been talking about deposits a little bit already, but could you provide some details on maybe like the customer response to you lowering deposit rates fairly broadly across your different sources there? And, you know, do you expect that to change at all with how, you know, Fed rate expectations have come up a little bit?
Speaker Change: Yeah, I mean, I think we've started lowering our special rate CD prices in lockstep with the Fed. I mean, again, we were a little ahead of it, and we haven't gotten quite all of it out of it just based on the repricing.
Speaker Change: term of those. But we're still seeing some growth in that line item as you saw in the quarterly results. We haven't seen a big reaction from a customer attrition perspective. I think we're still keeping it fairly competitive within the markets that we serve.
Speaker Change: And yeah, although we're largely retail-focused there, we saw some healthy growth, for example, in commercials. So, you know, keeping up as well, so keeping up with the competition, the results kind of speak for themselves in terms of how the clients are reacting.
Speaker Change: There's a lot of different puts and takes on kind of the macro outlook and the impact of tariffs and where rates will go. Are you seeing that result in any?
Speaker Change: caution from some of your CNI borrowers at all, or maybe even the other direction, certain industries where they're a little bit more bullish. Has it impacted like your loan pipeline in any way?
Speaker Change: As you say, there are some puts and takes. We certainly have some C&I-focused clients.
that may be impacted by tariffs.
Speaker Change: But overall, I would say, if you look at some of the...
and so cautious optimism is how I would phrase it.
Okay, great. Thank you guys. Thank you. Thank you, Tim.
Speaker Change: And your next question today will come from Terry McEvoy with Stevens. Please go ahead.
Speaker Change: Good morning, Katie. We'll just start with a couple of small questions from the quarter.
Terry Mcevoy: Could you just expand on the acquisition-related expense? I mean, Limestone closed almost two years ago. I was curious to see that pop up. And then just the swap fees which you called out in the press, how much were those in the quarter? And is that taken into consideration in your 2025 outlook?
Speaker Change: Yeah, so as it relates to the acquisition cost, that is related to a legal contingency that represents the anticipated settlement of a lawsuit that we inherited with the limestone acquisition.
Speaker Change: And then as it relates to the commercial loan swap fees, that was about $1.2 million for the quarter compared to about $200,000 in the third quarter.
Speaker Change: Again, that's all customer demand, and we've seen spikes like that in other times. I would say we don't necessarily anticipate each quarter in 2025 to be at the million dollar range, but we think that the year might land somewhere around that.
Okay.
Speaker Change: And then to follow up, maybe could you just, the C&I growth was nice to see. Any specific markets or industries that contributed to the quarterly growth? And then what type of headwind do you expect from kind of CRE paydowns in 2025? And will you continue to manage down the leasing portfolio or Northstar?
Speaker Change: Yeah, let me take those sequentially. So on the C&I growth, I would say it was broad-based across all of our markets and no particular area that stands out, which is kind of what we like. Your second question was...
Speaker Change: Sorry, these compound questions, I'm slow, Terry. Sorry, the CRE paydowns and runoff of leasing.
Speaker Change: So CRE paydowns, we have about $350 million of CRE maturing in 2025. Obviously, we've kind of done a
Speaker Change: Deep dive into that, as we talked about on previous calls, you know, pay down activity has been heavier this year than it has been previously, particularly driven not just by permanent financing, but by sales. But the sales market is very strong.
Speaker Change: And I think it's also a testament to the quality of the markets that we're in, that the sales demand is high as investors look to purchase, particularly those multifamily projects.
Speaker Change: And then your question about Northstar leasing, or excuse me, small ticket leasing, was what, remind me?
Speaker Change: Will you continue to manage down that portfolio, I believe in the past you've talked about?
Speaker Change: shrinking it and we did see some runoff in the fourth quarter.
Speaker Change: Yes, a year-end that stood at about $191 million, that will likely decline notwithstanding, you know, we expect originations to pick up a little bit.
Speaker Change: Yeah, and just to give you a little bit of color on that for...
Speaker Change: Overall, we believe the worst is behind us. You know, as we clean up the portfolio, there's still some work to do, so, you know, we're not returning...
just for clarity.
Speaker Change: You know, we went from 1.5% charge-offs to over 6%. Over 6% is too high, but...
Speaker Change: under four was probably too low from a historical perspective and we look to
Speaker Change: ramped back down over the year, closer to that 4% net charge-off. So, that'll continue a little bit of pressure on that portfolio size while originations, we hope, will pick up.
Thanks for all the insight. Appreciate it. Thank you.
Speaker Change: Your next question today will come from Daniel Tamayo with Raymond James. Please go ahead.
Thank you. Good morning everyone.
Speaker Change: You guys have talked about this already, but maybe just a little bit more specifically, Katie, on the margin guidance, you know, given the neutral balance sheet sensitivity and, you know, it seems like the
Speaker Change: goalposts of the 4 to 4.20 be driven by deposit repricing and payoffs perhaps.
Speaker Change: I'm curious if that's kind of how you're thinking about it as well and if so is there like a range of betas on the way down that you think kind of fit those goalposts or just curious kind of how you were thinking about it in the budgeting process?
Yeah. So the
Speaker Change: Just to be clear, the 4-420 does include accretion income, as it has historically for us, and as we've guided to in the past, we would anticipate that.
Speaker Change: on a quarter, you know, the first half of the year, somewhere around, you know, 15 to 20 basis points, getting somewhere closer to, and probably staying within that range for the full year.
Speaker Change: just slightly moving down that range as we proceed through the year.
Speaker Change: And again, to your point, I think we will, some of that is the insight we have into that is the deposit betas. We do expect to continue to see some reduction in those price or that cost for us as we said, as we proceed through the first quarter, even if there are no Fed rate cuts in the first half of the year.
Speaker Change: Again, as a reminder, and as we said in the call, we were slow to raise deposit rates. So, you're seeing some of that. It's a little bit of a lag to what the loan pricing has done over the Fed cycle.
Speaker Change: back on track to come down, but it's just slower than because we were still rising, I guess, when the feds started cutting.
Got it, thanks for that color. And then maybe just.
Speaker Change: high-level thought on credit. You sounded pretty bullish relative to where you've been. You've got the leasing book being cleaned up. I mean, if you had to say,
Speaker Change: There's one area that you think is the biggest risk to guidance in 2025 from a credit perspective. Is it just kind of a longer tail on that leasing portfolio, or do you think it's now kind of moved beyond that and more focused on the typical commercial and consumer portfolios?
Speaker Change: Yeah, I think from a credit perspective, Danny, you know, depends on what rates and inflation do that that is probably one of the catalysts for the
Speaker Change: the increase that we saw in the small ticket leasing because that's particularly, has a little bit more of a concentration in startups and businesses that are a little bit more vulnerable. Look, I think we will always have kind of the few ups and downs on the criticized and classified.
Speaker Change: And as you saw this year, one quarter up, one quarter down, but relatively stable and consistent. And that's kind of what we expect at this point. So overall, I think it's a high quality, diversified loan portfolio.
Speaker Change: And notwithstanding the small-ticket leasing, as that ramps down towards the more realistically expected credit losses, I have a high degree of confidence in the overall portfolio.
Tyler Wilcox: Alright, well thanks for taking my questions, Tyler and Katie. Thanks, Danny.
Speaker Change: And your next question today will come from Nathan Race with Piper Sandler. Please go ahead.
Hey, Tyler and Katie. Hey, Katie.
Speaker Change: Staying warm these days. Question just on kind of the trajectory for loan yields going forward within the context of the guidance you provided going forward, you know, assuming the Fed's on hold at least for the next quarter or two, just curious what you guys are seeing on terms of new loan pricing, perhaps on a way average basis these days.
On a blended basis, we ended the year at 7.14%
yield across the entire portfolio, including loans and leases.
Speaker Change: Commercial has been positive up there at about 7.71 for the full year average.
Speaker Change: and you know our specially financed businesses drive that a little bit higher and our consumer is a little bit lower. So we expect yields to remain strong.
Speaker Change: You know, but we're also, you know, not following any competition when it goes into terms or rates that don't kind of comport with our expectations for the business, and I think you'll see consistency there.
Speaker Change: Okay, great. And just going back to credit, you know, I appreciate the guidance around, you know, provisioning at a similar level relative to last year. It sounds like, as you described, charge-offs, particularly in the leasing segment, peaked in the fourth quarter. So just curious if you guys have any kind of goalposts in minds in terms of where you want to see the Reserve get back up to maybe by the end of this year relative to loans?
Speaker Change: Yeah, I mean, I think the one-handle, I think, is a good place, being an audited institution. But I think where we are now is reasonable, and, you know, we might take up a few basis points.
Speaker Change: But I think historically, we've played in that 1 to 1.1, 1 and a quarter, and so I would expect we would stay within that range for 25.
Speaker Change: Assuming the forecast continues kind of as is from an economic perspective, our provision, you know, has some some factors in it relative to unemployment and so forth that that can drive the formulaic results but
Katie Bailey: I think it's been consistent over the years, as Katie mentioned.
Thank you for watching!
Speaker Change: Got it. Just a housekeeping question on the accretion income expectations for this year. Katie, any thoughts on what we can expect maybe in terms of accretion income in 2025?
Katie Bailey: Yeah, from a basis point perspective, I think we will be in that 15 to 20, we'll start the year at the high end of that and end the year at the low end of that. That's assuming kind of a normal expectation for payoffs.
Speaker Change: But, you know, I'd say $10 to $15 million in accretion income for 2025 is probably in the range of expectation.
Speaker Change: Gotcha. One last one from me, just be curious to hear if you guys are seeing any increased or feeling any increased optimism on the M&A front, you know, in light of everything that's unfolded over the last 90 days or so, and just curious what you're seeing in terms of the number of partners you're talking to and just the overall
magnitude of some of those conversations.
Speaker Change: Yeah, Nate, thank you. I think there's a lot of conversations going on, as you know about us, that we are very active in the space talking to potential partners and that continues to be the case.
I would say that
You know, there's optimism out there.
and the
Speaker Change: The discussions I have is that there's a lot of optimism among the larger regionals that
Speaker Change: were well-placed to take advantage of and to recruit talent. But that wasn't really your question. So I would say, yes, a lot of active conversations, we're optimistic, but we continue to kind of preach for ourselves and to potential partners that strategic patience.
Speaker Change: you know, from a size perspective, and we'll continue to do that, but if the right opportunity comes along...
Speaker Change: soon we'll take it and if it doesn't come along in any immediate timeline we'll be fine because we have headroom. So we remain kind of poised to be opportunistic is what I would say.
Collar: Okay, great. Collar, I appreciate it. Thank you. Thank you. Thank you, Nate.
Speaker Change: And your next question today will come from Manuel Navas with DA Davidson. Please go ahead.
Manuel Navas: Hey, good morning. More big picture, what do you see as the biggest wild card for that positive operating leverage target for next year, positively or negatively?
Manuel Navas: Well, you know, the potential for, you know, outsized loan growth, you know, is a possibility and that would certainly drive
some a positive result for us.
Manuel Navas: I feel positive about kind of our expense control going into the next year so I don't see that as a real potential risk.
Manuel Navas: No, I mean, I think we feel good about our deposit base. We think that's one of the attractive features of this institution.
Manuel Navas: Great environment. Again, we said we're relatively asset neutral or neutral to interest rates, but you know, we'll see what happens from the Fed.
Manuel Navas: I think right now it's different than where we were six months ago, so it's likely to change, but I think we feel good about where we sit today, but that's just something out of our control that we'll...
Speaker Change: continue to monitor and manage. Yeah, I think the threats are more external. Were there to be a recession or, you know, economic downturn or, you know, persistent inflation, those types of things that would drive economic activity, that's maybe where the wild card risks lie.
Speaker Change: Okay, that's more exogenous. I appreciate that. Can you dive a little bit more into the DDA trends you had? I don't think it's come up just how strong the non-interest bearing growth was. What kind of drove that? Is it just because the C&I was up at the same time? Any more color on that?
in general.
Speaker Change: Yeah, I mean, I think we have continued as an institution to...
Speaker Change: I encourage the sales force to not only look for the loans, but also to actively engage their client in the deposit conversation, too. And I think we're seeing that benefit come through in the deposit base. And that holds true for the retail franchise as well as the commercial part of the business.
Speaker Change: I think that's what you're seeing come through in the growth in the fourth quarter.
Speaker Change: And that growth, so you're saying that some of that growth was retail DBA as well as operating accounts?
Correct.
Speaker Change: Awesome and if you're getting that four to six percent loan growth you kind of expect deposits to keep up or will there be a little bit of a tick higher in the loan to deposit ratio?
I think we saw 6% deposit growth in 2020.
Speaker Change: I think that beat our expectations a little bit. I think, generally speaking, we expect deposit growth of 2 to 3 percent a year. So I'd expect, you know, we would see some borrowings put on to help potentially with the loan growth.
Okay, that's helpful
Thank you. I appreciate the commentary.
Thank you. Thank you, Emmanuel.
Speaker Change: Again, if you have a question, please press star and then 1.
Speaker Change: And your next question today will come from Daniel Cardenas with Jannie Montgomery Scott. Please go ahead.
Good morning, guys. Hi, Dan.
Speaker Change: Most of my questions have been asked and answered, but maybe it's a little bit of cleanup. As I look at the charge-off levels in the fourth quarter...
How much of that was covered by specific reserves?
Thank you. Bye-bye.
Speaker Change: versus what was taken in the quarter in terms of provisions. Yeah, about $3 million was covered with specific reserves that we had up at $9.30 that were then charged off in the fourth quarter.
and those are all related to the leasing portfolio? Correct.
Speaker Change: And how difficult would it be to kind of build that back up? I know you kind of said that you want your reserve to loan level.
Speaker Change: you know, maybe a little bit higher than where it is at one percent, but
Speaker Change: Do you envision a scenario where we could see that closer to 110 by the end of the year?
Speaker Change: specifically the small-ticket leasing and our analysis thus far has been, you know, what enabled us to be able to be predictive on the fourth quarter and where we think we're going in the subsequent quarters. So, you know, I think we have a high degree of...
Speaker Change: of confidence in our kind of internal analysis of that book and our expectation of how the charge-offs will potentially cascade throughout the year and
I think fourth quarter really proved that out.
Speaker Change: throughout the process. So again, we elevated that with some specific reserves that Q3 and earlier in the year. So I don't expect a big increase related to the small ticket leasing in the reserve as we go forward. I think we're.
Speaker Change: We've been carrying it in that 4% to 5% historic rate, which we quoted in the release. Again, another factor that plays into the reserve, as you're well aware, under CECL is the economic forecast. So...
You know that looks
Speaker Change: In my opinion, pretty good right now, to the extent that moves meaningfully against us. You know, that reserve ratio could...
Got it. Got it.
Speaker Change: Okay, and then just in terms of talent acquisitions, as you noted, there have been a bit of a pickup in M&A activity here recently. Have you seen that kind of result into...
Speaker Change: additional discussion with teams or individuals and markets that you're either in or want to be in?
Speaker Change: Dan, I would say less with teams. We have historically not done kind of major lift outs, but we are as active on the talent acquisition front as we are on the general acquisition front.
Speaker Change: And I would say, for example, you know, in the past few quarters, we've added.
Speaker Change: Nine additional commercial bankers across kind of what we view as our core footprints of Ohio and particularly in Kentucky and Southern Ohio, kind of in the Cincinnati, basically the Columbus to Louisville corridor, if you want to call it that.
Speaker Change: and optimistic about kind of their future production, which is kind of baked into our 2025 numbers. So yeah, we will continue to be opportunistic with those hires. We're also investing in our leasing businesses. We're investing in all of our lending businesses.
Speaker Change: indirect to expand that network as well and so we are kind of all in on talent acquisition and will continue to be because that ultimately drives our results.
Speaker Change: That makes sense. All right, great. That's all I have for right now. Thank you guys. Thank you, Dan. Thank you, Dan
Speaker Change: At this time, there are no further questions. Sir, do you have any closing remarks?
Speaker Change: With that, I'll say I want to thank everyone for joining our call this morning.
Speaker Change: Please remember that our earnings release and a webcast of this call, including our earnings conference call presentation, will be archived at peoplesbankcorp.com under the investor relations section. Thank you for your time and have a great day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.