Q3 2025 Peoples Bancorp Inc Earnings Call
Speaker #1: Good Good morning. And welcome to Peoples Bancorp Incorporated's conference call. My name is Gary, and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and nine months ended September 30th, 2025.
Operator: Good morning and welcome to Peoples Bancorp Inc.'s conference call. My name is Gary, and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and nine months ended September 30, 2025. 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 one on your telephone keypad, and the questions will be taken in the order they are received. If you would like to withdraw your question, press star two. This call is also being recorded. If you object to the recording, please disconnect at this time.
Speaker #1: Please be advised that all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.
Speaker #1: If you would like to ask a question during this time, simply press *1 on your telephone keypad, and the questions will be taken in the order they are received.
Speaker #1: If you would like to withdraw your question, press *2. This call is also being recorded. If you object to the recording, please disconnect at this time.
Speaker #1: Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding Peoples' future financial performance or future events. These statements are based on management's current expectations.
Operator: Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding Peoples Bancorp Inc.'s future financial performance or future events. These statements are based on management's current expectations. The statements in this call, which are not historical fact, are forward-looking statements and involve a number of risks and uncertainties detailed in Peoples Bancorp Inc.'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 Bancorp Inc.'s business and operations. However, it is possible actual results may differ materially from these forward-looking statements. Peoples Bancorp Inc. disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements.
Speaker #1: 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 #1: 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 #1: However, it is possible actual results may differ materially from these forward-looking statements. Peoples' disclaims and any any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements.
Operator: Peoples Bancorp Inc.'s third quarter 2025 earnings release and earnings conference call presentation were issued this morning and are available at peoplesbancorp.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. This call will include about 15 to 20 minutes of prepared commentary, followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on peoplesbancorp.com in the investor relations section for one year. 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.
Speaker #1: Peoples' third quarter 2025 earnings release and earnings conference call presentation were issued this morning, and are available at peoplesbancorp.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.
Speaker #1: This call will include about 15 to 20 minutes of prepared commentary, followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on peoplesbancorp.com in the Investor Relations section for one year.
Speaker #1: 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.
Speaker #1: Mr. Wilcox, you may begin your conference.
Speaker #3: Thank you, Gary. Good morning, everyone, and thank you for joining our call today. Earlier this morning, we reported diluted earnings per share of $0.83 for the third quarter of 2025.
Tyler Wilcox: Thank you, Gary. Good morning, everyone, and thank you for joining our call today. Earlier this morning, we reported diluted earnings per share of $0.83 for the third quarter of 2025, an improvement compared to the linked quarter. During the third quarter of 2025, we sold approximately $75 million of investment securities at a loss of $2.7 million, which negatively impacted our earnings per diluted share by $0.06 for the third quarter. We took this opportunity to sell some of our lower yielding investment securities in an effort to increase our investment securities yields going forward. When compared to the linked quarter, some of our highlights for the third quarter included annualized loan growth of 8%, our net interest income increased nearly $4 million, while our net interest margin expanded by one basis point.
Speaker #3: An improvement compared to the linked quarter. During the third quarter of 2025, we sold approximately $75 million of investment securities at a loss of $2.7 million, which negatively impacted our earnings per diluted share by 6 cents for the third quarter.
Speaker #3: We took this opportunity to sell some of our lower-yielding investment securities in an effort to increase our investment securities yields going forward. When compared to the linked quarter, some of our highlights for the third quarter included: annualized loan growth of 8%; our net interest income increased by nearly $4 million, while our net interest margin expanded by one basis point.
Speaker #3: Excluding accretion income, net interest margin expanded five basis points, which marks our fifth straight quarter of core net interest margin expansion. We continue to produce stable fee-based income.
Tyler Wilcox: Excluding accretion income, net interest margin expanded five basis points, which marks our fifth straight quarter of core net interest margin expansion. We continue to produce stable fee-based income. Our quarterly net charge-off rate decreased by two basis points, while our provision for credit losses declined by over 50%. Our non-interest expenses declined 1%. Our efficiency ratio improved to 57.1% compared to 59.3%. Our tangible equity to tangible assets ratio improved 27 basis points and stood at 8.5%. Our book value per share grew 2%, while our tangible book value per share improved by 4%. Our diluted earnings per share, excluding the losses on investment securities we recorded, exceeded consensus analysts' estimates for the quarter. As we mentioned last quarter, we anticipated a reduction in our provision for credit losses.
Speaker #3: Our quarterly net charge-off rate decreased by two basis points, while our provision for credit losses declined by over 50%. Our non-interest expenses declined 1%, our efficiency ratio improved to 57.1% compared to 59.3%, our tangible equity-to-tangible-assets ratio improved to 27 basis points, and stood at 8.5%.
Speaker #3: Our book value per share grew 2%, while our tangible book value per share improved by 4%. And our diluted earnings per share excluding the losses on investment securities we recorded exceeded consensus analyst estimates for the quarter.
Speaker #3: As we mentioned last quarter, we anticipated a reduction in our provision for credit losses. For the third quarter, our provision for credit losses declined over $9 million, and our allowance for credit losses stood at $1.11% of total loans.
Tyler Wilcox: For the third quarter, our provision for credit losses declined over $9 million, and our allowance for credit losses stood at 1.11% of total loans. Our provision for credit losses for the quarter was driven by net charge-offs, loan growth, and a slight deterioration in economic forecasts, which was partially offset by reductions in reserves for individually analyzed loans. For more information on our provision for credit losses, please refer to our accompanying slides. Our annualized quarterly net charge-off rate was 41 basis points, an improvement from 43 basis points for the linked quarter. The reduction was due to lower small ticket lease charge-offs as we had anticipated. Our non-performing loans declined nearly $2 million compared to the linked quarter end, with improvements in both loans 90-plus days past due and accruing and non-accrual balances.
Speaker #3: Our provision for credit losses for the quarter was driven by net charge-offs, loan growth, and a slight deterioration in economic forecasts, which was partially offset by reductions in reserves for individually analyzed loans.
Speaker #3: For more information on our provision for credit losses, please refer to our accompanying slides. Our annualized quarterly net charge-off rate was 41 basis points, an improvement from 43 basis points for the linked quarter.
Speaker #3: The reduction was due to lower small-ticket lease charge-offs, as we had anticipated. Our non-performing loans declined nearly $2 million compared to the linked quarter end, with improvements in both loans 90-plus days past due and accruing, and non-accrual balances.
Speaker #3: At September 30th, non-performing loans comprised 58 basis points of total loans, compared to 61 basis points at June 30th. Criticized loans increased by nearly $24 million compared to the linked quarter end, while classified loans grew nearly $34 million.
Tyler Wilcox: At September 30th, non-performing loans comprised 58 basis points of total loans compared to 61 basis points at June 30th. Criticized loans increased by nearly $24 million compared to the linked quarter end, while classified loans grew nearly $34 million. We had a handful of downgrades during the quarter. However, we do anticipate some of these credits will be paid off or upgraded in the fourth quarter. The downgrades were among credits that are unrelated from an industry and geographic standpoint and viewed as isolated issues. We continue to complete our extensive portfolio reviews while recognizing some softening economic indicators in recent quarters. At quarter end, our criticized loan balances as a percent of total loans was 3.99% compared to 3.7% at June 30th. Classified loans as a percent of total loans grew to 2.36% at quarter end compared to 1.89% at the linked quarter end.
Speaker #3: We had a handful of downgrades during the quarter, however, we do anticipate some of these credits will be paid off or upgraded in the fourth quarter.
Speaker #3: The downgrades were among credits that are unrelated from an industry and geographic standpoint and viewed as isolated issues. We continue to complete our extensive portfolio reviews while recognizing some softening economic indicators in recent quarters.
Speaker #3: A quarter-end, our criticized loan balances as a percent of total loans was 3.99% compared to 3.7% at June 30th. Classified loans as a percent of total loans grew to 2.36% at quarter-end compared to 1.89% at the linked quarter end.
Speaker #3: Please refer to our accompanying slides for trends in our historical criticized and classified loans. Our second quarter delinquency rates were stable, with 99% of our loan portfolio considered current at September 30th, compared to 99.1% at the linked quarter end.
Tyler Wilcox: Please refer to our accompanying slides for trends in our historical criticized and classified loans. Our second quarter delinquency rates were stable, with 99% of our loan portfolio considered current at September 30th compared to 99.1% at the linked quarter end. We continue to monitor our loan portfolio for impacts from the recent changes in economic conditions and monetary policy and have not identified any systemic negative trends at this time. Moving on to loan balances, we have loan growth of $127 million, or 8% annualized, compared to the linked quarter end. The most significant areas of growth were in commercial real estate and commercial and industrial loan balances. At the same time, we had declines in construction loans as those projects completed and moved into our commercial real estate portfolio.
Speaker #3: We continue to monitor our loan portfolio for impacts from the recent changes in economic conditions and monetary policy and have not identified any systemic negative trends at this time.
Speaker #3: Moving on to loan balances, we have loan growth of $127 million or 8% annualized, compared to the linked quarter end. The most significant areas of growth were in commercial real estate and commercial and industrial loan balances.
Speaker #3: At the same time, we had declines in construction loans as those projects completed and moved into our commercial real estate portfolio. We also had decreases in our loan and lease balances, with the reduction being mostly due to declines in our small-ticket leasing balances.
Tyler Wilcox: We also had decreases in our lease balances, with the reduction being mostly due to declines in our small ticket leasing balances. Our loan production this quarter arrived as anticipated. As we indicated last quarter, we expected and continue to expect payoff activity to be weighted to the second half of the year. Those payoffs have shifted to the fourth quarter and possibly into the first quarter of 2026. Our year-to-date loan growth through the third quarter was 6%, and we expect it to come down during the fourth quarter but to remain in our guided range for the full year. At quarter end, our commercial real estate loans comprised 35% of total loans, 32% of which were owner-occupied, while the remainder were investment real estate. At quarter end, 43% of our total loans were fixed rate, with the remaining 57% at a variable rate.
Speaker #3: Our loan production this quarter arrived as anticipated. As we indicated last quarter, we expected and continue to expect payoff activity to be weighted to the second half of the year.
Speaker #3: Those payoffs have shifted to the fourth quarter and possibly into the first quarter of 2026. Our year-to-date loan growth through the third quarter was 6%, and we expect it to come down during the fourth quarter but to remain in our guided range for the full year.
Speaker #3: At quarter-end, our commercial real estate loans comprised 35% of total loans, with 32% of those being owner-occupied, while the remainder were for investment real estate. At quarter-end, 43% of our total loans were fixed-rate, with the remaining 57% at a variable rate. I will now turn the call over to Katie for a discussion of our financial performance.
Tyler Wilcox: I will now turn the call over to Katie for a discussion of our financial performance.
Speaker #4: Thanks, Tyler. Our net interest income and net interest margin improved by 4% and one basis point, respectively, compared to the linked quarter. The increase in net interest margin was due to higher investment security yields compared to the second quarter.
Katie Bailey: Thanks, Tyler. Our net interest income and net interest margin improved by 4% and 1 basis point, respectively, compared to the linked quarter. The increase in net interest margin was due to higher investment security yields compared to the second quarter. Our investment securities yield improved to 3.79% compared to 3.52% for the linked quarter, as we made moves during the quarter to sell some lower yielding investment securities at a loss in an effort to be opportunistic with our portfolio yields. For the third quarter, accretion income declined to $1.7 million and contributed 8 basis points to net interest margin compared to $2.6 million and 12 basis points for the linked quarter. Excluding accretion income, our net interest margin expanded by 5 basis points, which is the fifth straight quarterly increase in core net interest margin.
Speaker #4: Our investment securities yield improved to 3.79% compared to 3.52% for the linked quarter as we made moves during the quarter to sell some lower-yielding investment securities at a loss in an invest in an effort to be opportunistic with our portfolio yields.
Speaker #4: For the third quarter, accretion income declined to 1.7 million dollars and contributed eight basis points to net interest margin, compared to 2.6 million dollars and 12 basis points, for the linked quarter.
Speaker #4: Excluding accretion income, our net interest margin expanded by five basis points. Which is the fifth straight quarterly increase in core net interest margin. For the first nine months of 2025, our net interest income improved 1%, while our net interest margin declined nine basis points compared to 2024.
Katie Bailey: For the first nine months of 2025, our net interest income improved 1%, while our net interest margin declined 9 basis points compared to 2024. Our lower net interest margin was due to a reduction in our accretion income, which was $7.8 million for 2025, contributing 12 basis points to margin compared to $20.3 million, or 33 basis points to margin for 2024. Excluding accretion income, our net interest margin expanded 12 basis points. We continue to be in a relatively neutral interest rate risk position and will continue to take further action on our deposit costs if market interest rates decline. Moving on to our fee-based income, we had a 1% decline compared to the linked quarter, which was driven by lower lease income and partially offset by higher electronic banking and deposit account service charges.
Speaker #4: Our lower net interest margin was due to a reduction in our accretion income, which was 7.8 million dollars for 2025, contributing 12 basis points to margin, compared to 20.3 million or 33 basis points to margin.
Speaker #4: For 2024, excluding accretion income, our net interest margin expanded by 12 basis points. We continue to be relatively neutral in a relatively neutral interest rate risk position and will take further action on our deposit costs if market interest rates decline.
Speaker #4: Moving on to our fee-based income, we had a 1% decline compared to the linked quarter, which was driven by lower lease income and partially offset by higher electronic banking and deposit account service charges.
Speaker #4: For the first nine months of 2025, fee-based income grew 7%, compared to 2024, the improvement was due to increases in lease income, commercial loan swap fee income, and trust in investment income.
Katie Bailey: For the first nine months of 2025, fee-based income grew 7% compared to 2024. The improvement was due to increases in lease income, commercial loan swap fee income, and trust and investment income. As it relates to our non-interest expenses, we experienced a 1% decline from the linked quarter and were within our guided range. This was driven by lower professional fees, which was partially offset by increases in marketing and franchise tax expense. For the first nine months of 2025, non-interest expenses grew $7.7 million, or 4% compared to 2024. The increase was due to higher salaries and employee benefit costs, coupled with higher data processing and software expenses. Our reported efficiency ratio improved to 57.1% compared to 59.3% for the linked quarter. This was primarily due to higher net interest income for the third quarter compared to the linked quarter.
Speaker #4: As it relates to our non-interest expenses, we experienced a 1% decline from the linked quarter and were within our guided range. This was driven by lower professional fees, which were partially offset by increases in marketing and franchise tax expense.
Speaker #4: For the first nine months of 2025, non-interest expenses grew 7.7 million dollars or 4% compared to 2024, the increase was due to higher salaries and employee benefit costs, coupled with higher data processing and software expenses.
Speaker #4: Our reported efficiency ratio improved to 57.1% compared to 59.3% for the linked quarter. This was primarily due to higher net interest income for the third quarter compared to the linked quarter.
Speaker #4: For the first nine months of 2025, our reported efficiency ratio was 59% compared to 57.4% for the same period in 2024. The increased efficiency ratio was largely due to the impact of lower accretion income, coupled with higher non-interest expense compared to the prior year.
Katie Bailey: For the first nine months of 2025, our reported efficiency ratio was 59% compared to 57.4% for the same period in 2024. The increased efficiency ratio was largely due to the impact of lower accretion income, coupled with higher non-interest expense compared to the prior year. Looking at our balance sheet at quarter end, we had another quarter of considerable loan growth, which was an annualized rate of 8% compared to the linked quarter end. The loan growth outpaced our deposit growth this quarter, bringing our loan-to-deposit ratio to 88% from 86% at June 30th. Our investment portfolio shrank to 20.5% of total assets compared to 21.2% at June 30th. This reduction was primarily due to our sales of around $75 million of lower yielding investment securities, which resulted in a $2.7 million loss we recognized during the quarter.
Speaker #4: Looking at our balance sheet at quarter-end, we had another quarter of considerable loan growth, which was an annualized rate of 8% compared to the linked quarter-end.
Speaker #4: The loan growth outpaced our deposit growth this quarter, bringing our loan-to-deposit ratio to 88% from 86% at June 30. Our investment portfolio shrank to 20.5% of total assets compared to 21.2% at June 30.
Speaker #4: This reduction was primarily due to our sales of around 75 million dollars of lower-yielding investment securities, which resulted in a 2.7 million dollar loss we recognized.
Speaker #4: During the quarter, we reinvested about half of the proceeds into higher-yielding investment securities and used the remainder to pay down our borrowing. We will continue to look for opportunities to improve the yield on our investment portfolio.
Katie Bailey: We reinvested about half of the proceeds into higher yielding investment securities and used the remainder to pay down our borrowings. We will continue to look for opportunities to improve the yield on our investment portfolio. Compared to June 30th, our deposit balances were relatively flat. Increases in our money market, interest-bearing demand, and non-interest-bearing accounts did not offset declines in our brokered CDs, governmental, and savings accounts. Typically, our governmental deposit balances grow in the third quarter. However, this quarter, the inflows were offset by outflows of tax payments. Our demand deposits as a % of total deposits remained flat at 34% compared to the linked quarter end. Our non-interest-bearing deposits to total deposits remained unchanged and stood at 20% at both September 30th and the linked quarter end. Our deposit composition was 77% in retail deposit balances, which included small businesses, and 23% in commercial deposit balances.
Speaker #4: Compared to June 30, our deposit balances were relatively flat. Increases in our money market interest-bearing demand and non-interest-bearing accounts did not offset declines in our brokered CDs, governmental accounts, and savings accounts.
Speaker #4: Typically, our governmental deposit balances grow in the third quarter; however, this quarter, the inflows were offset by outflows of tax payments. Our demand deposits as a percent of total deposits remained flat at 34%, compared to the linked quarter end.
Speaker #4: Our non-interest-bearing deposits to total deposits remained unchanged and stood at 20% at both September 30 and the linked quarter end. Our deposit composition was 77% in retail deposit balances, which included small businesses, and 23% in commercial deposit balances.
Speaker #4: Our average retail client deposit relationship was $26,000 at quarter-end, while our median was around $2,600. Moving on to our capital position, most of our capital ratios improved compared to the linked quarter-end.
Katie Bailey: Our average retail client-deposit relationship was $26,000 at quarter end, while our median was around $2,600. Moving on to our capital position, most of our capital ratios improved compared to the linked quarter end. This was due to earnings, net of dividends, more than offsetting the impact of loan growth on risk-weighted assets for the quarter. Our tangible equity to tangible assets ratio improved 27 basis points to 8.5% at quarter end, as higher earnings and reductions in our accumulated other comprehensive losses increased the ratio. Our book value per share grew 2%, while our tangible book value per share increased 4% compared to the linked quarter end. Finally, I will turn the call over to Tyler for his closing comments.
Speaker #4: This was due to earnings, net of dividends, more than offsetting the impact of loan growth on risk-weighted assets for the quarter. Our tangible equity-to-tangible assets ratio improved 27 basis points to 8.5% at quarter-end, as higher earnings and reductions in our accumulated other comprehensive losses increased the ratio.
Speaker #4: Our book value per share grew 2%, while our tangible book value per share increased 4% compared to the linked quarter end. Finally, I will turn the call over to Tyler Wilcox for his closing comments.
Speaker #3: Thanks, Katie. We continue to develop our business organically as we await the right opportunity to grow through acquisitions. We're managing our net interest income and net interest margin through this interest rate cycle and have recorded our fifth straight quarter of growth in net interest margin, excluding accretion income.
Tyler Wilcox: Thanks, Katie. We continue to develop our business organically as we await the right opportunity to grow through acquisitions. We're managing our net interest income and net interest margin through this interest rate cycle and have recorded our fifth straight quarter of growth in net interest margin, excluding accretion income. We posted 6% of loan growth through the first nine months of 2025. Our provision for credit losses declined to a more normalized rate for the third quarter. We generated positive operating leverage compared to the linked quarter. For the remainder of 2025, excluding non-core expenses, we expect to achieve positive operating leverage for 2025 compared to 2024, excluding the impact of the reduction in our accretion income, which declined faster than we had anticipated compared to the prior year.
Speaker #3: We boasted 6% of loan growth through the first nine months of 2025, our provision for credit losses declined to a more normalized rate for the third quarter, we generated positive operating leverage compared to the linked quarter, for the remainder of 2025, excluding non-core expenses, we expect to achieve positive operating leverage for 2025 compared to 2024, excluding the impact of the reduction in our accretion income, which declined faster than we had anticipated compared to the prior year.
Speaker #3: Assuming two 25 basis point reductions in rates, from the Federal Reserve in the fourth quarter, we expect our full year net interest margin to be in our guided range of between 4 and 4.2%.
Tyler Wilcox: Assuming two 25-basis-point reductions in rates from the Federal Reserve in the fourth quarter, we expect our full-year net interest margin to be in our guided range of between 4% and 4.2%. We continue to be in a relatively neutral position so that declines in interest rates have a minor impact to our net interest margin. We believe our fee-based income growth will be in the mid-single-digit percentages compared to 2024. We expect total non-interest expense to be between $69 million and $71 million for the fourth quarter of 2025. We believe our loan growth will be between 4% and 6% compared to 2024. We expect a provision for credit losses similar to the third quarter, excluding any negative impacts to the economic forecasts. As it relates to 2026, I would like to give some preliminary high-level guidance, which excludes non-core expenses.
Speaker #3: We continue to be in a relatively neutral position, so that declines in interest rates have a minor impact on our net interest margin. We believe our fee-based income growth will be in the mid-single-digit percentages compared to 2024.
Speaker #3: We expect total non-interest expense to be between 69 and 71 million dollars for the fourth quarter of 2025. We believe our loan growth will be between 4 and 6% compared to 2024.
Speaker #3: We expect a provision for credit losses similar to the third quarter, excluding any negative impacts to the economic forecasts. As it relates to 2026, I would like to give some preliminary high-level guidance, which excludes non-core expenses.
Speaker #3: We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4% and 4.2% for the full year of 2026, which does not include any expected rate cuts.
Tyler Wilcox: We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4% and 4.2% for the full year of 2026, which does not include any expected rate cuts. Each 25-basis-point reduction in rates from the Federal Reserve is expected to result in a three to four basis-point decline in our net interest margin for the full year. We believe our quarterly fee-based income will range between $27 million and $29 million. Our first quarter fee-based income is typically elevated as it includes annual performance-based insurance commissions. We expect quarterly total non-interest expense to be between $71 million and $73 million for the second, third, and fourth quarters of 2026, with the first quarter of 2026 being higher due to the annual expenses we typically recognize during the first quarter of each year.
Speaker #3: Each 25 basis point rate reduction in rates from the Federal Reserve is expected to result in a 3 to 4 basis point decline in our net interest margin for the full year.
Speaker #3: We believe our quarterly fee-based income will range between 27 and 29 million dollars, our first quarter fee-based income is typically elevated as it includes annual performance-based insurance commissions.
Speaker #3: We expect quarterly total non-interest expense to be between 71 and 73 million dollars for the second, third, and fourth quarters of 2026, with the first quarter of 2026 being higher due to the annual expenses we typically recognize during the first quarter of each year.
Speaker #3: We believe our loan growth will be between 3 and 5% compared to 2025, which is dependent on the timing of paydowns on our portfolio which could fluctuate given changes in interest rates.
Tyler Wilcox: We believe our loan growth will be between 3% and 5% compared to 2025, which is dependent on the timing of paydowns on our portfolio, which could fluctuate given changes in interest rates. We anticipate a reduction in our net charge-offs for 2026 compared to 2025, which we expect to positively impact provision for credit losses, excluding any changes in the economic forecasts. We will update this guidance in January at our next call. This concludes our commentary, and we will open the call for questions. 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 #3: We anticipate a reduction in our net charge-offs for 2026 compared to 2025, which we expect to positively impact provision for credit losses excluding any changes in the economic forecasts.
Speaker #3: We will update this guidance in January at our next call. This concludes our commentary and we will open the call for questions. Once again, this is Tyler Wilcox and joining me for the Q&A session is Katie Bailey, our Chief Financial Officer.
Speaker #3: I will now turn the call back into the hands of our call facilitator. Thank you.
Speaker #1: We will now begin the question and answer session. To ask a question, you may press * then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Daniel Tamayo with Raymond James. Please go ahead.
Speaker #1: To withdraw your question, please press * then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Daniel Tamayo with Regiment James.
Speaker #1: Please go ahead.
Speaker #5: Thank you. Good morning, Tyler. Good morning, Katie.
[Analyst 1]: Thank you. Good morning, Tyler. Good morning, Katie.
Speaker #3: Morning, Danny.
Tyler Wilcox: Morning, Daniel.
Speaker #5: Maybe one for you, Tyler, on credit to start here. You know, I think you said in the prepared remarks, correct me if I'm wrong, on the class an increase in the credit in the criticized and classified loans in the quarter that you expect to have some of that come back in the fourth quarter or, you know, near term.
[Analyst 1]: Maybe one for you, Tyler, on credit to start here. I think you said in the prepared remarks, correct me if I'm wrong, on the increase in the criticized and classified loans in the quarter, that you expect to have some of that come back in the fourth quarter or near-term. Can you just provide some clarification or color on what would cause you to think that and kind of size the amount of that 27% increase in classified loans, how much of that you would expect to revert?
Speaker #5: Can you just provide some clarification or color on what would cause you to think that? And kind of size the amount, you know, that 27% increase in classified loans—how much of that would you expect to revert?
Speaker #3: You're saying, Danny, just generally, so we expect to see it's a broad variety of kind of results depending on the specific credits. Obviously, we have a very granular view down into it.
Tyler Wilcox: Sure thing, Danny. Generally, we expect to see a broad variety of results depending on the specific credits. Obviously, we have a very granular view down into it. We expect some refinances and some property sales in these cases. To give you a little bit of color, in the criticized book, it's largely based on three loans. There are varying types and varying sizes. In the classified books, it's about four loans that comprise the increase. A couple of those, three out of those four, actually came from acquired portfolios, and we expect an orderly sale or an orderly exit from some of those that's timed in the fourth quarter. Based on what we know now, $35 to $55 million in either upgrades or payoffs in those buckets.
[Analyst 1]: Okay. That's helpful, Tyler. Thanks. Yeah. On the loan growth side, you've got guidance coming down a little bit in 2026 at the 4% level. From what you've done recently and what you're expecting here in the fourth quarter, is there a particular driver behind that? Is there a paydown assumption that's increasing or something else underlying the loan growth costs for 2026?
Tyler Wilcox: Yeah, Danny. No, thanks. We assumed we'd get some good questions about that. I would say a couple of things. One, you know, we're maybe slightly below this year's guidance, but we're kind of in line with our historic kind of 3% to 9% where we've been. As we look out in the coming year, obviously, we've been talking for a couple of quarters now about the paydown activity accelerating, particularly in a falling rate environment. That can tend to accelerate sales of completed projects, refinance activity, investors moving projects to the permanent market. There's probably a small component of that in there of future expected multifamily projects cooling off to a degree. Maybe it's such a consumer softening on the go-forward basis as we see kind of increases in auto prices and a little bit of weakness in the consumer.
Tyler Wilcox: I think the consumer, I think all the data would suggest that the kind of top 20% is driving a lot of the activity there, and we tend to bank the 80% more thoroughly. That's a little bit of the color on kind of where we see things.
[Analyst 1]: That's helpful. Maybe last one here, just a small one, but as we think about the $10 billion asset threshold, getting closer to that now, do you have kind of updated thoughts on when you might cross that organically?
Tyler Wilcox: We think that's a 2027 event. Let me be very clear, absent any other action. We also think before we have to move any levers outside of just our normal organic growth, we would expect 2027 to be when we would face the crossing issue, and then we would have options to obviously keep ourselves under there. My hope is that we would potentially do a deal before then, but we retain the flexibility and the patience to not feel the need to go forward with a deal just because 2027 is looming out there.
7 to be when we, we would face The Crossing issue and then we would have options to obviously keep ourselves under there. Uh, you know, my hope is that we would, uh, you know, potentially do a deal before then, but um, we retain the flexibility and the patience to, you know, not feel the need to
You know, go forward with the deal just because, um, you know, 2027 is looming out there.
[Analyst 1]: Understood. Thanks for all the color. I'll step back.
Understood.
Tyler Wilcox: Thank you.
Katie Bailey: Thanks, Danny.
Tyler Wilcox: Thank you.
Thanks for all the caller. I'll stay back. Thank you. Thanks Danny. Thank you.
Operator: The next question is from Brendan Nosal with Hovde Group. Please go ahead.
The next question is from Brenton Nool with Hoppy Group. Please go ahead.
[Analyst 2]: Hey, good morning, Tyler and Katie. Hope you're doing well.
Tyler Wilcox: Good morning.
[Analyst 2]: Doing well, Brendan.
Tyler Wilcox: I just want to circle back to loan growth because this one might seem obvious, but just on the growth for this year and for the fourth quarter in particular, given that you're at 6% growth for this year to date and your commentary around payoffs in the fourth quarter, I think it's fair to assume that spot balances are flat in the final quarter of the year.
Hey, good morning, Tyler and Katie. Hope you're doing well. Doing well, Brandon.
[Analyst 2]: Yes. The payoff activity that we expected to kind of materialize in the third and fourth quarter is really kind of bunched up into the fourth quarter and possibly into the first. We still think we have a really good handle on that. We expect record production on this, particularly on the commercial side, and record payoffs on the commercial side, particularly in the fourth quarter.
Um just want to Circle back to to the loan growth because this 1 might seem obvious but just on the the growth for this year and for fourth quarter in particular, um, given that you're at 6% growth for for this year to date and your your commentary around payoff in the fourth quarter, I think fair to assume that spot balances are are flat uh in the final quarter of the Year. Yes.
Tyler Wilcox: Okay. That's helpful. Maybe just kind of circling to the margin outlook, specifically the commentary around the impact of rate cuts. I think you're saying three to four basis points per 25-bip cut. I mean, that's if it happens like on January 1, right? If we're getting a mid-year cut, the impact would be less than that. Is that fair to assume?
Yeah. The the payoff activity that we expected to kind of materialize in the third and fourth quarter is really kind of, uh, you know, bunched up into the fourth quarter and possibly into the first. And so, uh, we still think we have a, a really good handle on that. We expect record production on, it was particular, on the commercial side and record payoffs on the commercial side, particularly in the fourth quarter.
Katie Bailey: That's exactly correct.
Tyler Wilcox: Okay. Okay. Good. I'm going to sneak one more in here. Just on asset quality as it pertains to North Star Leasing, can you just update us on kind of that plateau commentary that you spoke to last quarter around North Star Leasing loss content? If things go according to your plan, how do you envision loss content in that book evolving quarter by quarter as we move through next year?
Okay, okay, that's helpful. Um, and then maybe just kind of circling to the margin outlook specifically, the commentary around the impact of rate cuts. Um, I think you're saying 3 to 4 basis points, um, per 25 basis point cut. I mean, that's if it happens like on January 1st, right? If we're getting a mid-year cut, the impact would be less than that. Is that fair to assume? That's exactly correct.
[Analyst 2]: Sure. Brendan, thanks for the question. I think a couple of thoughts. One, we kind of demonstrate in our charts that the continued work as it relates to the high-balance accounts, which as we've discussed kind of correlated highly with the losses in that portfolio. That high-balance account, your portfolio is now down to about $15 million, $16 million and continues to fall. Obviously, we're not refilling that bucket. The outlook for the fourth quarter and for the first quarter of next year is that that plateau will kind of continue in the range of where it's been specific to the North Star Leasing charge-offs, with our expectation that the plateau will begin to get a little bit of a slope down to it in that second and third quarter and get to a normalized rate.
Good. Um, well, I'm gonna speak 1 more in here, um, just on classic quality as it pertains to, um, Northstar. Um, can you just update us on, kind of that, that Plateau, commentary that you spoke to last quarter around Northstar Northstar, lost content. Uh, and then it's, you know things go according to your plan. How do you envision lost content, uh, in that book evolving kind of quarter by quarter as we move through next year?
Sure, and then thanks for the question. I, I think a couple of thoughts 1, we kind of demonstrated in our charts that the continued work, as it relates to the high balance accounts, which as we've discussed kind of correlated for have correlated highly with the losses in that portfolio. That high balance accounts. Uh, your portfolio is now down to, you know, about, uh, 15/16 million dollars and continues to fall, and obviously we're not refilling that bucket. Um, and so, we know the outlook for the, for the fourth quarter and for the first quarter of next year, are that that Plateau will kind of continue, you know.
[Analyst 2]: Right now, the production in that portfolio is obviously not staying pace with the amortization and the charge-offs. That's by design as we exercise some credit discipline and stick to our knitting there. That's where we think we'll end up.
In the range of where it's been specific to to the Northstar leasing charge offs, um, with our expectation. That the portfolio or the plateau will begin to get a little bit of a slope down to it, uh, in that second and third quarter. And, you know, get to a normalized, you know, rate right now, the production in that portfolio is obviously not, um, staying Pace with the amortization, and the charge offs and, you know, that's by Design as we make, uh, as we exercise some credit discipline, and stick to our knitting there. So that's where we think we'll end up.
Tyler Wilcox: Okay. No, that's a super helpful glide path to have for that part of the business. All right. Thank you for taking my questions.
[Analyst 2]: Thank you.
Katie Bailey: Thanks, Brendan.
Operator: The next question is from Nathan Race with Piper Sandler. Please go ahead.
Uh, no. That's a a super helpful Glide path to, uh, to have for that part of the. All right. Thank you for taking my questions. Thank you. Thanks. Brendan
The next question is from Nathan Race with Piper Sandler. Please go ahead.
[Analyst 3]: Hi. This is Adam Kroll on for Nathan Race. Good morning, and thanks for taking my questions.
Tyler Wilcox: Hey, no problem.
Hi, this is Adam Crow on for Nathan race, uh, good morning and thanks for taking my questions. Hey, no problem.
[Analyst 3]: Yeah. Maybe just starting on the margin front, given the guide for 2026, for Katie, I was wondering if you'd be able to expand on what offsets you have to your floating rate portfolio if we were to get a few cuts in 2026 and maybe what you have in terms of fixed-rate loan repricing and securities cash flow rolling off.
Um, yeah, so maybe just starting on the margin front given the guide for 2026. Uh, for Katie, I was wondering if you'd be able to expand on what offsets you have to your floating rate portfolio. If we were to get a few Cuts in 26, and maybe what you have in terms of fixed rate, loan repricing and securities cash flow rolling off.
Katie Bailey: Yeah. As we've shown over the course of 2025, we have been continuously taking action on the deposit portfolio and predominantly the retail CD product that's within that portfolio. We also have some floating rate borrowings that we'll look to as to provide us some optionality as rates fall. The other piece of your question was on the investment securities portfolio. It generally trends $15 to $20 million a month of normal cash flow. I would just say, as you probably had seen in the balance sheet, we did have some short-term funding in there too. That changes, obviously, as does the variable rate loans.
Yeah. So on, uh, as we've shown over the course of 2025, we have been, uh, continuously making taking action on, uh, the deposit portfolio and predominantly the retail CD product that's within that portfolio. We also have some floating rate borrowing that will look to as to provide us some optionality as rates fall. Um, and then the other piece of your question was on the investment Securities portfolio. It's generally Trends 15 to 20 million dollars a month of normal, um, cash flow.
That fluctuates, obviously, as does the, uh, variable rate loans.
[Analyst 3]: Got it. That's super helpful. Maybe just another one on North Star. I was wondering if you could quantify the charge-off contribution from the high-balance accounts specifically during the quarter, just trying to get a sense of how large of a driver those accounts are as you've meaningfully reduced your exposure over the last few quarters.
[Analyst 2]: In the third quarter here, they were about 25% of the charge-offs. We expect kind of 30% for the full year if you look at the full-year projection of where those charge-offs will be coming from.
Got it, that's, that's super super helpful. Um, uh, maybe just another 1 on Northstar. I was wondering if you could quantify the charge off contribution from the high balance account specifically during the quarter, uh, just trying to get a sense of how large of a driver. Those accounts are as you meaningfully reduce your exposure over the last few quarters in the third quarter here. They were about 25% of the charge offs. We expect kind of 30% for the full year. If you look at the, you know, full year, projection of where those charge offs will be coming from,
[Analyst 3]: Got it. Last one for me on the securities restructure. Is there any sort of earn-back or any sort of metric you evaluate in your decision-making process? Is there any consideration for a larger one?
Got it. And then, last one for me on the securities. Restructure is there. Um, any sort of earn-back or any sort of metric you evaluate in your decision-making process? And, um, is there any consideration for a larger one?
Katie Bailey: Yes, there is an earn-back considered. I think we were about a year and a half on this one. We try to quantify it also from a loss perspective. We don't want to flush through a significant loss in any given quarter. We want it to be manageable. As far as a more meaningful in size loss trade, surely we have evaluated them. We don't see the need by which to have to do that transaction at this point, so we have continued to just be opportunistic and periodically look at the portfolio. I would just note this trade also was what we would call an odd lot trade. There were a lot of small pieces in our portfolio, so to make it more manageable in number of securities, that was part of this transaction as well.
Um, so yes, there is an urn back considered. I think we were about a year and a half on this one. We try to quantify it. Also, from a loss perspective, we don't want to flush through a significant loss in any given quarter; we want it to be manageable.
As far as a more meaningful and size, uh, loss trade.
[Analyst 2]: We've done a few of these over the past couple of years, and we've consistently kept them under two years as a discipline.
Surely we have evaluated them; we don't see the need by which to have to do that transaction at this point. And so we have continued to just be opportunistic and periodically look at the portfolio. I would just note this: this trade also was what we would call an odd-lot trade. There were a lot of small pieces in our portfolio, and so to make it more manageable, the number of securities that were part of this transaction as well.
Katie Bailey: On the loss side, generally, $2 to $3 million is kind of our appetite in a given quarter.
We've we've done a few of these over the past couple years and we've consistently kept them under 2 years and uh, you know, kind of as a as a discipline. So and on the last so I generally 2 to 3 million is kind of our appetite in a, in a given quarter.
[Analyst 3]: Got it. That was super helpful. Thanks for taking my questions.
Tyler Wilcox: Thank you.
Katie Bailey: Thank you.
Operator: The next question is from Tim Switzer with KBW. Please go ahead.
Got it. That was that was super helpful and thanks for taking my questions. Thank you. Thank you.
[Analyst 4]: Hey, good morning. Thank you for taking my question.
The next question is from Tim Switzer with KBW. Please go ahead.
[Analyst 1]: Morning, Tim.
Katie Bailey: Hi, Tim.
[Analyst 4]: The first one I have is there's been some noise around the market, around consumer behavior and the health of the consumer, particularly like the subprime end of the market. Just given your guys' exposure in both the deposit and loan side and your commentary about maybe slower growth for consumer in 2026, just curious if you guys have seen any indications of that at all or any changes in behavior.
Hey, good morning. Thank you for taking my questions. Tim. Hey, Tim
Um, the first 1 I have is there's been some noise, um, around the market around, uh, consumer Behavior and the health of the consumer, particularly like the subprime end of the market. I'm just giving you guys exposure in both the deposit.
And loan side and your commentary about maybe slower growth for consumers in 2026. Just curious if you guys have seen any indications of that at all. Um,
[Analyst 2]: The good news, let me start with the good news. Our auto portfolio comprises about $700 million, and the subprime component of that is about $1 million. We feel really good about our lack of exposure to subprime in the consumer side. Our average origination yield on the indirect side in the most recent quarter was close to 7.50%. We're sticking to our knitting there. I will say, Tim, that we have seen some increased surrender activity. I think the affordability of vehicles, particularly as tariffs are helping finally drive up some of the pricing, is challenging for consumers. From a deposit standpoint, I haven't seen any indications of increased utilization of our deposit protection services and overdraft protection services, but we'll obviously monitor that, that we'd be an outlet for that kind of activity. I think there is a lot of pent-up demand, though, for refis.
or any changes in Behavior.
The good news. Let me start with the good news. Um, we have our, our Auto portfolio comprises about 700 million dollars and the um, subprime component of that is about million dollars. So we feel really good about our lack of exposure to subprime in the consumer side. And uh, our average, um, origination yield on the indirect side. And the most recent quarter was, um, you know, close to 750. Uh, so we're sticking to our knitting there. I will say it's in that we have seen some, um, you know, increased surrender activity. Uh, I think the affordability of vehicles, uh, particularly as uh, you know, tariffs are helping, you know, finally drive up, uh, some of the pricing, um, is challenging for consumers, and, um, you know, from, uh,
from a deposit standpoint, you know, I think I I haven't seen any, uh, you know, indications of, you know, increased, uh, utilization of our um,
[Analyst 2]: If we see a falling rate environment, if mortgage rates do fall, we'd see an increase in refi activity and probably an increase in home purchases. Debt to incomes are kind of going down a little bit year over year, but we're watching it. On the flip side, our indirect losses, I think last year were running at about 88 basis points, and this year, at quarter to date, they're at 70. I would say that's a result of the discipline and the underwriting.
You know, deposit protection services and overdraft protection services, but we'll obviously monitor that, that we'd be an outlet for, you know, that kind of activity. Um, you know, I think there is a lot of pent-up demand, though for uh, you know, refi and if we see a following rate environment, if mortgage rates do fall, we'd see an increase in in refi activity. And, uh, and
Probably an increase in home purchases. Um, so you know, debt to incomes are are kind of going down a little bit year-over-year. But um, you know, we're we're watching it, it's it's um, you know, the on the flip side, our indirect losses, I think last year were running at about 88 basis points. And this year uh, a quarter of the day, there is 70. So you know there's um, you know, I would say that's a result of the discipline and the underwriting.
[Analyst 1]: Okay. Great. That was very helpful. I appreciate all the color there. On your previous commentary about the $10 billion asset threshold not getting there until 2027, if we take the high end of your loan growth guidance for 2026, that kind of gets you right to that $10 billion mark. What are your plans if you have to kind of manage near that level for a while? Is it to run down deposits in the securities book a little bit? I'm just curious how you guys are going to approach that.
Okay, great, that was very helpful. I appreciate all the color there. Um,
And then, on your previous commentary about the $10 billion asset threshold, I'm not getting there until 2027. If we take the high end of your loan growth guidance for '26, that kind of gets you right to that $10 billion.
Katie Bailey: I think the securities book is our first place to look. I think right now at 9:30, we're at 20.5%. I think historically, we've guided an 18% to 20% range to assets. Obviously, there's some room there. We have some overnight funding and some funding there that we could help manage the asset side. Those would be the first places we would look.
What are your plans if you have to kind of manage near that level? Um, for a while is it you know, run down deposits in the Securities book a little bit. Um, you know, just curious how you got it, really good approach that
Yeah, I think the security books book is our first place to look, I think, right now at 9:30. We're at 20.5%, I think historically, we've guided in 18 to 20% range to assets. Um so obviously there's some room there, we have some overnight funding and some um funding there that we could help.
Manage the asset side.
so that those would be the first places we would look
[Analyst 1]: Okay. Gotcha. One really quick last one. Can you remind us of the dollar amount of the seasonality for non-interest income and expenses? I think it's about $1.5 million in insurance income in Q1, but I wasn't positive about the expenses.
Okay. Gotcha. Um, and then 1 really quick. Last 1, can you remind us of the seat, the dollar amount of the seasonality for that interest income and expenses about 1 and a half million.
Katie Bailey: Yeah. I think you're right. On the contingent or performance-based income we see in our insurance agency, it's generally $1.5 million to $2 million or about. That would be the revenue side. On the expense side, it varies a bit, and it's predominantly around contributions to employee health savings accounts, some stock activity that happens in the first quarter, both with granting and vesting. I'd say that probably is close to the $2 million, $2.5 million range.
In insurance income in Q1, but I wasn't positive about the expenses.
Yeah, I think you're right on the contingent or performance-based income. We see in our insurance agency it's generally between $1.5 million and $2 million, thereabouts.
Uh, so that would be the revenue side, and on the expense side, it varies a bit. Um, and it's predominantly around contributions to employee health savings accounts, some stock activities that happen in the first quarter, both with granting and investing.
So, I'd say that probably is close to the 2 to 2.5 range.
[Analyst 1]: Great. Thank you, guys.
Katie Bailey: Thank you.
Great. Um, thank you guys.
Tyler Wilcox: Thank you.
Thank you. Thank you.
Operator: The next question is from Terry McEvoy with Stephens. Please go ahead.
The next question is from Terry McAvoy with Stevens. Please go ahead.
[Analyst 4]: Morning. This is Brandon Rudd on for Terry McEvoy.
Tyler Wilcox: Hi, Brandon.
Morning. This is Brandon Rude on for Terry.
[Analyst 4]: I first noticed a quick on loan growth last quarter, kind of a two-parter. For C&I loans, can you expand if there are any particular industries or regions that contribute to that growth? On the premium finance side, it looks like they were down year over year. Was that more strategic, or is that just a reflection of what the market's offering now?
[Analyst 2]: As to your first question, I'm happy to report that it's across a broad swath of industries and our geography. No particular concentrations to note on the C&I, just good broad-based solid C&I growth. As to the premium finance, that's more of a timing issue. I think by the end of the year, you know we'll see some growth in that business. As premiums increase in a hardening market, the demand for their services obviously goes up. We're not, you know we really like that business. It's pristine from a credit standpoint. There's no kind of strategic consideration there on a reduction. It's just, I would say it's a timing issue as to where that fell in the quarter.
Hi Brandon. Um, my first name is click on loan growth. Last quarter, I have a 2-part um, for cni loans. Can you uh can you expand it with if there are any particular in Industries or regions that can contribute to to that growth and the Premium Finance I looked at they were down year year-over-year. So um was that more strategic or is that just a reflection of what the Market's offering now?
Yeah, as to your first question um I'm happy to report that it's across a broad swath of Industries and our geography. Um, and so no, no particular concentrations to uh, to note on the cni, just good broad-based, uh, solid cni growth. Uh, you know, as to the uh, Premium Finance. Uh, that's large, more of a timing issue. I think, uh, by the end of the year, you know, we'll see some, uh, some some growth in that business and um, you know, as premiums increase in a hardening Market, the demand for their services, obviously goes up. So we're not uh, you know, we really like that business. It's it's Pristine from a credit standpoint. So there are there's no kind of strategic consideration there on uh on a reduction. It's just
Yeah, I would say it's a timing issue as to where that fell in the quarter.
[Analyst 1]: Okay. Got it. For my second, I guess we're about a month now past the last rate cut. Can you just discuss any actions taken since then, and clients' willingness to digest additional cuts and how that differs from the first 100 bps?
Okay, got it.
Um,
Katie Bailey: We meet regularly as a pricing committee and have taken action throughout the year, even in light of the Fed not having moved earlier in the year. We're continually evaluating, most notably, our retail CD promotional product, which I think right now is a five-month product. Over the last two years, it's ranged from a 13- to a five-month product. We continue to bring that rate down, less significant when there aren't rate cuts, but still taking action to lower that rate over time. We're seeing the repricing of that portfolio as that five-month term rolls off for various clients in any given month.
For my second, uh, I guess we're about a month now past the last rate cut. Can you just, uh, discuss any actions taken since then and then, uh, clients' willingness to digest additional cuts and how that differs from the first 100 basis points?
Sure. So we meet regularly as the Pricing Committee and have taken action throughout the year, even in light of the Fed and not having moved earlier in the year. And so we're continually evaluating, most notably our retail CD promotional product, which I think right now is a 5-month product. Over, you know, the last few years it's ranged from a 13 to a 5-month product, so we continue to bring that rate down.
Less significant when there aren't rate Cuts but still making taking action to lower that rate over time. And so we're seeing the repricing of that portfolio.
Is that 5-month term rolls off for various clients in any given month?
[Analyst 1]: Got it. Okay. Just my last one, from the benefit of fixed-rate asset repricing, particularly on the loan side. I think excluding accretion, loan yields rose about six basis points last quarter. Is that mid-single-digit basis point increase on a sequential basis? Is that a kind of a good rate to use going forward?
Got it. Okay, um and then just my my last 1 just from the the benefit of fixed rate. Fixed rate asset repricing particularly on, on the loan side, I think excluding accretion loan yields row is about 6 basis points. Last quarter, is that mid single digit basis point. Increase on a sequential basis is, is that, um, is that a kind of a good rate to use? Go going forward
Katie Bailey: You're saying for the fixed rate, I think specifically, so the 43% of the loan portfolio, is that what you're getting at?
[Analyst 1]: Right. Yeah.
You're saying for the fixed rate, I think specifically. So the 43% of the loan portfolio is that that's what you're getting that, right? Yep.
Katie Bailey: I think it's dependent on the mix of the loan growth in a given quarter. You know, this quarter we did not have any meaningful growth in our small ticket leasing business, which has high yields. Our premium finance business also did not have growth. They have nice origination yields too. I think it's dependent on the mix of loan growth in a quarter and obviously the paydowns thereof. I would expect it to continue to go up slightly. I can't say that it's 6% every quarter. It's just a mix.
I have nice origination yields too. So I think it's dependent on the mix of loan growth in a quarter and obviously the pay Downs thereof but I would expect it to continue to go up slightly.
But I can't say that it's 6% every quarter. It's just a mix.
[Analyst 1]: Okay, got it. I appreciate you for taking my questions. Thanks.
Got it. Um,
Katie Bailey: Thank you.
Tyler Wilcox: Thank you.
Operator: The next question is from Daniel Cardenas with Janney Montgomery Scott. Please go ahead.
thank you.
The next question is from Daniel Cardenas with Jaime Montgomery. Scott, please go ahead.
Tyler Wilcox: Hey, guys.
[Analyst 2]: Hey, Dan?
Guys. Hey, Dan
Tyler Wilcox: A couple of quick questions, just returning to the auto portfolio. If you could remind us what the average FICO score is on that portfolio, and then historical loss rates on it.
[Analyst 2]: Yeah. Average FICO is 746. Dan, historic loss rates, let me pull the right number for you here. Give me one moment. Sorry, I'm just shuffling papers, Dan.
Oh, so a couple of quick questions. Just returning to the auto portfolio, if you could remind us what the average FICO score is on that portfolio and then the historical loss rates on it.
Yeah, average FICO is 746. Dan historic loss rates. Let me pull the right number for you here.
1 moment.
Tyler Wilcox: Yeah, no worries. Maybe as you're shuffling through your papers, if you could give us an update on the health of your restaurant exposure.
Sorry, I'm just shuffling papers and
yeah, no worries.
[Analyst 2]: As it relates to the indirect, if you go this year, I mentioned it's tracking at 71 basis points. Year to date 2024, 80 basis points. Year to date 2023, 50 basis points. Year to date 2022, 30. I think we've been talking about for basically a couple of years now, kind of a little bit more of a reality of decline in that book, notwithstanding the continued strength of the FICO scores. Your question was about the restaurant portfolio, the size of it?
And then then maybe as you're shuffling through the, through your papers, if if you could give us uh, maybe an update on the on the health of your restaurant, uh, exposure.
Yeah. So, as it relates to the indirect, um, you know, if you this year, it's I mentioned, it's tracking at 71 basis points year to date. 24, uh, 80 80 basis points year to date 2350 basis points year to date 2230. And so I think we've been talking about for, you know, basically a couple years now kind of a, a little bit more of a reality of of decline in that book notwithstanding the kind of continued strength of the um, you know, FICO scores.
Your question was about the restaurant portfolio.
Size of it.
Tyler Wilcox: Size and just the relative health of the portfolio.
[Analyst 2]: Yeah. The McDonald's portfolio specifically is at about $389 million in commitments. The non-McDonald's is at about $128 million in commitments. The McDonald's continues to be a really high performer for us from a credit standpoint. The rest of it includes a broad variety, including some acquired loans. We don't really originate much on the restaurant side in the commercial space. McDonald's is really our focus as we think about restaurants.
A size and, just a, you know, relative cost of the portfolio.
Yeah, yeah. So the the McDonald's portfolio specifically is it about 389 million in commitments? The non-m McDonalds is it about 128 million in, in commitments, you know, the, the McDonald's continues to be a really high performer from for us from a credit standpoint. Um, and, uh, you know, the, the rest of it includes, you know, a broad variety, including some acquired loans. Um, you know, we don't really originated much on the uh, restaurant side in the commercial space. Um,
So, you know, McDonald's is really our focus as we think about restaurants.
Tyler Wilcox: They're showing no, that's not causing you any concern at the moment?
[Analyst 2]: No, it's been quite solid. I mean, it always depends on specific operators and specific geographies. We have had some cases where some of those moved into other buckets as we monitor and watch them. You know, never lost a dollar on a McDonald's deal thus far. We have good partnership with corporate and good outlook and good insight into the operators and understanding how they operate.
Okay. And they're showing no, no, that's not causing you any concern at the moment?
No, it's been uh, it's been quite solid. I mean, it it always depends on, you know, specific operators and specific geographies. And, uh, you know, we have had some cases where some of those, uh, moved into other buckets as we Monitor and watch them. But, uh, you know, never lost a dollar on a McDonald's, uh, deal that's far. And, uh, we have good partnership with corporate and good, uh, you know, good outlook and good insight into the operators and understanding how they operate.
Tyler Wilcox: Great. Perfect. All my other questions have been asked and answered. Thank you, guys.
[Analyst 2]: Thank you.
Operator: Again, if you have a question, please press star, then one. The next question is a follow-up from Brendan Nosal with Hovde Group. Please go ahead.
Great, perfect. Uh, all my other questions have been asked and answered. Thank you, guys. Thank you.
again, if you have a question, please press star then 1
The next question is a follow-up from Brendan nool with Javi group? Please go ahead.
Tyler Wilcox: Hey, folks. I just wanted to circle back on North Star Leasing. How much of the current reserve balance is allocated to North Star Leasing? I ask just because I'm trying to get a sense of like as you kind of work to cure that book, like how much of a reduction there could be, whether it's through working through the book or outright reserve releases to get to like a stabilized reserve-to-loan ratio?
[Analyst 2]: It's about $18 million, Brendan, of the $75 million.
Um hey folks um just wanted to Circle back um on on Northstar uh how much of the current Reserve balance is like allocated to Northstar. Um and I asked you because I'm trying to get a sense of like as you kind of work to cure that book like how much you've uh, have a reduction there could be, uh, whether it's, you know, through, you know, working through the book or or outright Reserve releases to get to like a, a stabilized Reserve to loan ratio, it's about 18 million.
Brandon.
Of of the 75.
Tyler Wilcox: Okay. All right. Fantastic. Thanks for taking the call.
[Analyst 2]: Yeah, no problem.
All right. Fantastic. Thanks for taking the ball out. Yeah, no problem.
Operator: The next question is from Ryan Payne with D.A. Davidson. Please go ahead.
The next question is from Ryan Payne with D.A. Davidson. Please go ahead.
[Analyst 1]: Hey, good morning. Most of my questions have been asked and answered, but just one for me here. On capital, I just wanted to gauge your appetite for buybacks and thoughts on M&A and how conversations have been going as we start to see an uptick in deal activity across the industry. Any detail on priorities you'd offer as you build capital?
[Analyst 2]: Yeah, thanks. I think as
Hey, good morning. Um that's my questions. Have been asked and answered but uh just just 1 for me here. Um on Capital, I just wanted to gauge your appetite for BuyBacks and thoughts on m&a and how conversations have been going. As we started to see an uptick in Deal activity across the industry. Um, so just any detail on priorities, you'd offer, as you build capital,
Operator: We think about capital. Buybacks are probably, we do have an active buyback program. We have exercised it where appropriate. I would say our priority is building up capital in preparation for M&A and supporting the dividend. As we think about M&A, I agree with you, there's a lot of conversations going on there. We have a number of conversations taking place, always at varying degrees of seriousness. I would say we also look to be opportunistic as there's market disruption. We've had opportunities to hire employees. We've had opportunities to look at market share in certain locations. We will pursue the opportunity to even potentially hire teams that are disrupted by M&A activity that overlaps with our market. In addition to just being very interested, obviously, in using M&A as the catalyst to cross $10 billion. We have and will continue to exercise strategic patience.
I think, uh, as we think about Capital BuyBacks are probably, we do have an active buyback program. We have, you know, exercised it where where appropriate, our I would say our priority is building up capital and preparation for m&a and uh kind of supporting the the dividend and um, you know, as we think about, you know, m&a, I agree with you. There's a, there's a lot of conversations going on there. Um, we, we have a number of conversations, uh, you know, taking place always at varying degrees of, uh, of seriousness. Um, but um, I would say, we also look to be opportunistic as there's Market disruption. We've had opportunities to hire employees. We've had opportunities to, um, you know, look at market share in certain brand, you know, in certain locations. And we've also, we'll
Operator: We think doing the right deal is a lot more important than doing the next quick deal. That's kind of how we think about it.
You will pursue, you know, the opportunity to even potentially hire teams that are disrupted by, uh, you know, M&A activity that overlaps with our market. So, uh, in addition to just being very interested, obviously, in, uh, using M&A as the catalyst to cross $10 billion. Um, but, uh, we have, uh, we have and will continue to exercise strategic patience. We think doing the right deals is a lot more important than doing the next quick deal. Um, and that's, that's kind of how we think about it.
Operator: Awesome. Thank you. I'll step back.
Operator: Thank you.
Katie Bailey: Thanks.
Awesome. Thank you. Uh, I'll step back.
Thank you, thanks.
Tyler Wilcox: At this time, there are no further questions. Mr. Wilcox, do you have any closing remarks?
Operator: Yes. I want to thank everyone for joining our call this morning. Please remember that our earnings release and webcast of this call, including our earnings conference call presentation, will be archived at peoplesbancorp.com under the investor relations section. Thank you for your time and have a great day.
At this time, there are no further questions, Mr. Wilcox. Do you have any closing remarks?
Tyler Wilcox: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Yes, I want to thank everyone for joining our call this morning. Please remember that our earnings release and webcast of this call, including our earnings conference call presentation, will be archived at peoplesbancorp.com under the Investor Relations section. Thank you for your time and have a great day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.