PEOPLES BANCORP INC Q3 FY2024 earnings call

• Diluted EPS improved: Third quarter diluted EPS $0.89 vs $0.82 linked quarter; first nine months 2024 $2.55 vs $2.47 2023.
• Financial metrics: Net interest income up 3%, net interest margin up 9 bps; fee-based income up 5%; non-interest expense down 4%; return on average assets 1.38%, return on average equity 11.5%; efficiency ratio 55.1%.
• Balance sheet: Deposits grew $185M, loan to deposit ratio 84%; retail CDs, governmental deposits, money markets contributed to deposit growth.
• Credit quality: Criticized loans declined, classified loans increased due to commercial relationship downgrades; delinquency comparable; non-performing assets 0.76% of total assets.
• Small ticket leasing: Higher net charge-offs expected, adjustments made to risk appetite, comprised ~3% of balances.
• Community initiatives: Received awards for best companies to work for, partnered with institutions and supported healthcare projects.

For the third quarter, net interest income improved 3% and net interest margin expanded 9 basis points. Fee-based income grew 5%. Total non-interest expense declined 4%. Return on average assets for the third quarter improved to 1.38% compared to 1.27%. Return on average stockholders' equity improved to 11.5% from 11%. Efficiency ratio improved to 55.1% compared to 59.2%. Deposits increased $185 million with over $100 million of client deposit growth. Tangible equity to tangible assets improved 65 basis points to 8.25%. Loan to deposit ratio declined to 84% compared to 87% for the linked quarter end. Commercial real estate was 37% of the $4.5 billion commercial loan portfolio. Small ticket leasing comprised around 3% of outstanding balances at September 30th. Consumer indirect loan net charge-offs increased.

• Q4 2024: Assuming 50 bps rate cut, net interest income and margin to modestly decline; net interest margin 4%-4.1%; fee-based income to normalize; core non-interest expense $67M-$69M; full year loan growth 4%-6%; net charge-off rate 30-35 bps.
• 2025: Expect positive operating leverage; improvement in return on average assets; net interest margin stabilization 4%-4.2%; fee-based income mid to high single-digit growth; quarterly non-interest expense $69M-$71M; loan growth 4%-6%; provision for credit losses similar to 2024; net charge-off rate similar to 2024.

• Credit risks in small ticket leasing with higher net charge-offs expected.
• Consumer indirect loans affected by economic hardship and used car price softening.
• Past due leases and premium finance loans posing risks, though some have low credit risk.

Q: Nathan Race asked about margin trajectory with more rate cuts in 2025.

A: Katie Bailey said for every 25 bps cut, ~2 bps impact to margin, with deposit growth helping offset, and accretion income expected to trend down.

Q: Tim Switzer asked about NIM trajectory and CD repricing.

A: Katie Bailey said NIM could stabilize to upside later next year, with retail CDs currently ~4.5% for five-month terms, adjusting with Fed rate cuts.

Q: Manuel Navas asked about commercial pipeline reaction to rate cuts.

A: Tyler Wilcox said there were accelerated paydowns in investment commercial real estate, but demand could be good in a falling rate environment.

Q: Daniel Cardenas asked about stock repurchase activity.

A: Katie Bailey said they continue to evaluate stock repurchases, prioritizing organic growth, dividend, M&A, and then buybacks as capital ratios improve.

Q: Daniel Cardenas asked about deposit specials in Q3.

A: Katie Bailey said the special product was close to 5% for a five-month term, with rates adjusted down following Fed cuts.