Peoples Bancorp Inc. — FY2022 Form 10-K
Period: Fiscal year ended December 31, 2022. This is an annual report; it does not provide standalone fourth-quarter results. Peoples is an Ohio-based financial holding company operating primarily through Peoples Bank, with community banking as its sole reportable segment. Its businesses include banking, insurance, premium finance, equipment leasing, and investment and trust services.
Financial performance and condition
| Metric | FY2022 / year-end | Comparable period |
|---|---|---|
| Net interest income | $253.4 million; net interest margin 3.97% | 2021: $172.6 million; 3.40% |
| Net income / diluted EPS | $101.3 million / $3.60 | 2021: $47.6 million / $2.15 |
| Non-interest income / expense | $78.8 million / $207.1 million | 2021: $68.9 million / $183.7 million |
| Efficiency ratio | 59.6%; 58.6% adjusted for non-core items | 2021: 73.6%; 63.5% adjusted |
| Assets | $7.21 billion | 2021: $7.06 billion |
| Loans and leases, net of deferred fees and costs | $4.71 billion | 2021: $4.48 billion |
| Deposits | $5.72 billion | 2021: $5.86 billion |
| Borrowed funds | $601.2 million | 2021: $266.0 million |
| Cash and cash equivalents | $154.0 million | 2021: $415.7 million |
| Stockholders’ equity | $785.3 million | 2021: $845.0 million |
- Earnings and cash flow: Net interest income rose 47%, reflecting acquisitions, organic growth, and higher market rates. Net cash provided by operating activities was $119.8 million; investing activities used $414.2 million; financing activities provided $32.7 million. Cash declined $261.7 million during the year.
- Credit quality: Peoples recorded a $3.5 million recovery of credit losses, versus a $0.7 million provision in 2021. Net charge-offs were $7.3 million, or 0.16% of average loans, compared with $4.7 million and 0.13%. The allowance for credit losses was $53.2 million, or 1.13% of loans, versus $64.0 million and 1.43% at year-end 2021. Nonperforming assets were 0.63% of total assets, down from 0.68%.
- Capital and securities: Peoples’ common equity tier 1 ratio was 11.92%, tier 1 ratio 12.19%, total capital ratio 13.06%, and tier 1 leverage ratio 8.92%. It remained above regulatory “well capitalized” thresholds. A $115.5 million after-tax other comprehensive loss—principally from lower fair values of available-for-sale securities as rates rose—contributed to the decline in equity. Tangible book value per share fell to $16.23 from $19.58.
- Liquidity and funding: Deposits fell $145.6 million, while short-term borrowings rose, including $400.0 million of FHLB overnight borrowings at year-end. Demand deposits were 48% of deposits; uninsured deposits were estimated at $1.6 billion. Management reported a 3.71x liquidity coverage ratio and $251.3 million of liquid assets. These figures should be considered alongside the cash decline and increased wholesale borrowing.
Material changes versus 2021
- Net income more than doubled, with higher net interest income the main driver. The 2022 net interest margin benefited from rate increases and acquisitions; acquisition accretion contributed $11.6 million, or 19 basis points.
- Non-interest expense rose 13%, mainly from higher staffing, occupancy, technology, and intangible amortization costs associated with growth and acquisitions. Acquisition-related expense fell to $3.0 million from $21.4 million in 2021.
- Loans and leases increased $225.6 million, including the Vantage lease portfolio and growth in indirect consumer, construction, and premium finance lending. Deposits declined, with decreases in retail CDs, non-interest-bearing accounts, and money market accounts.
- Available-for-sale securities had a $169.3 million net unrealized loss at year-end, versus a $7.7 million loss in 2021. Held-to-maturity securities increased to $560.2 million at amortized cost; their disclosed fair value was $478.5 million.
- Peoples acquired Vantage in March 2022 and an insurance agency in April. The 2021 comparison includes only a partial year of the Premier merger, completed in September 2021. Peoples’ $208.2 million all-stock Limestone Bancorp merger was pending at year-end.
Outlook, risks, and unusual items
- 2023 outlook: Management projected net interest margin of 4.50%–4.65%, total revenue growth of 20%–25%, non-interest income growth of 10%–15%, and non-interest expense growth of approximately 20% excluding acquisition-related expenses. The projections include the expected Limestone merger. Management projected loan growth of 25%–30% including Limestone, with organic growth of 5%–7%; deposit growth of 20%–25% including Limestone, with organic growth of 2%–4%; and an efficiency ratio of 55%–57%. It expected net charge-offs to rise roughly 5 basis points. These are forward-looking estimates, not guarantees.
- Management commentary: Management cited higher rates, acquisitions, and organic growth as supporting performance, but expected margin expansion to slow as funding costs rise. Limestone was expected to close in the second quarter of 2023, subject to conditions including regulatory approvals.
- Key risks: Rising rates may increase deposit and borrowing costs and affect borrowers’ ability to repay. Other material risks include commercial real estate and construction exposure, credit-loss estimation, deposit competition and liquidity, securities valuation, acquisition integration, cybersecurity and third-party service-provider concentration, regulation, and the LIBOR-to-SOFR transition.
- Unusual items and controls: 2022 included $3.0 million of acquisition-related expenses and $185,000 of pension settlement charges; COVID-19-related expenses were immaterial. A material weakness in acquired-loan accounting identified in 2021 was reported as remediated by year-end 2022. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2022; the auditor issued unqualified opinions on the financial statements and controls.
- Legal matters: Peoples reported ordinary-course litigation and stated management did not expect pending proceedings to materially affect consolidated financial position, results, or liquidity.
Important facts for investors to verify
- Whether Limestone closed as expected, and whether integration, projected synergies, and acquisition-related costs align with management’s assumptions.
- Whether forecast deposit growth and funding costs support the projected margin, given 2022 deposit outflows and increased FHLB borrowing.
- Trends in credit performance, especially lease charge-offs, criticized and classified loans, commercial real estate exposure, and allowance adequacy.
- The effect of securities marks and further rate changes on tangible book value, capital ratios, and liquidity.
- Progress on SOFR transition and continued effectiveness of internal controls, including acquired-loan accounting.