Peoples Bancorp Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures are compared with December 31, 2023 unless noted. Peoples is a diversified financial services holding company operating banking, insurance, trust and investment, premium-finance lending, and equipment-leasing businesses. The Limestone acquisition, completed April 30, 2023, materially affects year-over-year comparisons.
Financial results and condition
- Earnings: Net income was $29.6 million, up 11.4% from $26.6 million in Q1 2023, while diluted EPS fell to $0.84 from $0.94. The share count increased substantially, primarily reflecting shares issued in the Limestone merger. Net income was below Q4 2023’s $33.8 million.
- Revenue and margin: Net interest income was $86.6 million, up 18.9% year over year but down 2.0% sequentially. Net interest margin was 4.27%, versus 4.53% a year earlier and 4.44% in Q4. Deposit costs and lower acquisition-related accretion weighed on margin. Non-interest income was $25.8 million, up from $19.1 million a year earlier. The filing reports total non-interest expense of $68.5 million, up 21% year over year.
- Credit costs: Provision for credit losses was $6.1 million, versus $1.9 million in Q1 2023. Management cited weaker macroeconomic assumptions, higher reserves on individually analyzed loans, and loan growth. Net charge-offs were $3.3 million, or 0.22% of average loans annualized, compared with $1.5 million, or 0.13%, a year earlier.
- Loans and asset quality: Loans and leases totaled $6.20 billion, up $43.6 million from year-end. Nonaccrual loans rose to $31.4 million from $25.5 million; nonperforming assets increased to $46.3 million from $39.4 million. Classified loans rose to $147.5 million from $120.0 million. Management said 98.7% of the portfolio was current, versus 98.6% at year-end. The allowance for credit losses was $64.8 million, or 1.05% of loans.
- Deposits, borrowings, and liquidity: Deposits grew $174.3 million to $7.33 billion, with growth in retail CDs partly offset by lower non-interest-bearing deposits. Short-term borrowings fell to $513.5 million from $601.1 million; total borrowings were $749.8 million. Uninsured deposits were estimated at $2.1 billion, with securities pledged against more than $865.6 million of uninsured balances. Peoples reported $565.4 million in liquid assets and an additional $158.7 million of unpledged securities.
- Cash flow: Operating activities provided $37.0 million; investing activities used $123.1 million and financing activities provided $89.1 million. Cash and cash equivalents ended at $429.7 million, up $3.0 million from year-end.
- Capital and securities: Stockholders’ equity was $1.06 billion. The company reported an 11.69% CET1 ratio and a 13.40% total risk-based capital ratio, and said capital remained substantially above regulatory well-capitalized minimums. Available-for-sale securities had a $145.9 million net unrealized loss at quarter-end; management attributed losses principally to interest rates and spreads, not credit deterioration, and said it did not expect to have to sell securities before recovery.
Notable changes, outlook, and risks
- Year-over-year growth in interest income and non-interest income reflects higher rates, organic expansion, and Limestone-related balances; the acquisition also increased expenses, intangible-asset amortization, and the share count. Excluding Limestone-acquired loans, management reported loan growth of $499.3 million, or 10%, year over year.
- Sequentially, lower acquisition accretion and excess cash held for liquidity reduced net interest income and margin. The fourth-quarter comparison also included a $1.3 million true-up to preliminary Limestone accretion.
- No specific earnings or margin guidance is provided. Management said the balance sheet was positioned to benefit in net interest income from rising rates; modeled parallel rate shocks showed estimated NII increases of 1.5%, 2.9%, and 4.3% for +100, +200, and +300 basis points, respectively. These are model scenarios, not forecasts, and depend on assumptions including deposit repricing and prepayments.
- Key disclosed risks include interest-rate and deposit-pricing pressures, inflation and borrower repayment capacity, credit deterioration and commercial real-estate exposure, liquidity and funding access, regulatory changes, competition, cybersecurity and third-party systems, and Limestone integration and expected synergies. Management reported no material change to previously disclosed risk factors. It said pending legal matters are not expected to have a material adverse effect, based on current knowledge and consultation with counsel.
- The company declared a $0.39-per-share first-quarter dividend and announced a $0.40-per-share second-quarter dividend. It repurchased $3.0 million of shares under its repurchase program during Q1.
Investor verification points
- Track deposit mix, CD repricing and funding costs, uninsured deposit levels, and available liquidity as market conditions change.
- Review whether rising nonaccrual loans, criticized/classified balances, charge-offs, and the credit-loss allowance develop as expected, particularly in commercial real estate, leases, and consumer lending.
- Monitor net interest margin and acquisition accretion as Limestone purchase-accounting benefits decline; compare actual results with management’s interest-rate sensitivity scenarios.
- Assess expense growth, integration progress, and realization of Limestone-related revenue synergies and cost savings; compare EPS trends with net income given the larger share count.
- Follow changes in unrealized securities losses, capital ratios, and regulatory or liquidity requirements; the filing says unrealized losses are largely rate-related, but market values and funding conditions can change.