Peoples Bancorp Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Peoples is a diversified financial-services holding company offering banking, insurance, trust and investment, premium-finance lending, and equipment leasing. Figures are unaudited; dollar amounts are in U.S. dollars.
Financial performance
- Profit: Net income was $26.6 million, up from $23.6 million in Q1 2022. Diluted EPS was $0.94 versus $0.84. The filing reports $0.95 diluted EPS for Q4 2022.
- Interest income and margin: Net interest income was $72.9 million, up 34% year over year and 3% from Q4 2022. Fully tax-equivalent net interest margin was 4.53%, versus 3.41% in Q1 2022 and 4.44% in Q4 2022. Management attributed the year-over-year gain mainly to higher market rates and a full quarter of Vantage lease income; higher funding costs partly offset asset-yield gains.
- Other income and expenses: Non-interest income was $19.1 million, down from $20.1 million, including a $1.9 million securities loss. Non-interest expense rose to $56.5 million from $51.6 million, primarily reflecting salaries and benefits, data processing and software, and other expenses. The reported efficiency ratio was 57.8%, compared with 66.8% a year earlier.
- Credit costs: The provision for credit losses was $1.9 million, compared with a $6.8 million recovery in Q1 2022. Net charge-offs were $1.5 million, or 0.13% of average loans on an annualized basis. The allowance for loan losses was $53.3 million, equal to 1.12% of loans.
- Cash flow: Operating activities provided $48.0 million; investing activities used $90.0 million; financing activities provided $45.1 million. Cash and cash equivalents ended the quarter at $157.2 million.
Financial position and changes
- Assets and loans: Total assets were $7.31 billion, up $104.2 million from year-end 2022. Loans and leases were $4.76 billion, up $52.6 million from year-end and $212.6 million from Q1 2022. Growth included commercial real estate, indirect consumer loans, and leases.
- Deposits and borrowings: Deposits were $5.79 billion, up $71.6 million from year-end, but down $214.4 million year over year. The quarterly increase depended on a $147.6 million rise in brokered CDs; excluding those, deposits declined $76.0 million. Short-term borrowings were $490.7 million and long-term borrowings $95.6 million.
- Liquidity and funding: Management reported $318.0 million of liquid assets, equal to 3.9% of total assets and unfunded loan commitments, plus $231.4 million of unpledged investment securities. Estimated uninsured deposits were $1.7 billion; pledged securities covered more than $698.9 million of uninsured governmental deposits.
- Capital and securities: Stockholders’ equity was $819.5 million. Peoples reported a 12.22% common equity tier 1 ratio and a 13.35% total risk-based capital ratio, and said capital remained substantially above well-capitalized minimums. Available-for-sale securities had a $147.0 million net unrealized loss at quarter-end; management attributed losses primarily to rates and spreads, not credit deterioration, and said it did not expect to have to sell the securities before recovery.
- Credit quality: Nonperforming assets were $42.8 million, or 0.58% of assets, down from 0.63% at year-end. However, criticized loans rose to $198.8 million from $191.4 million; management cited downgrades in commercial and industrial relationships. The filing reports 98.8% of loans current.
Management commentary, outlook, and risks
- Peoples sold $96.7 million of lower-yielding available-for-sale securities at a pretax loss of about $2.0 million and used the proceeds to reduce overnight borrowings. Management projected the realized loss would be earned back within fiscal 2023; this is a management estimate, not formal earnings guidance.
- The balance sheet was positioned, in management’s rate-shock analysis, to benefit in net interest income from rising rates. The analysis also showed potential declines in economic value of equity under parallel rate shocks; results depend on assumptions about deposit repricing and securities prepayments.
- No specific full-year earnings or financial forecast is provided in the supplied filing text. Management highlighted inflation, further rate changes, deposit retention and funding costs, credit deterioration, securities valuations, and competitive and operational risks.
- The filing added risk disclosure concerning failures at other financial institutions and potential effects on customer confidence, funding and liquidity, regulation, markets, and industry reputation.
- The Limestone merger, announced in 2022, closed on April 30, 2023, after the reporting date. Peoples had recorded $1.0 million of related expenses through March 31. Management also identified integration, synergy, and execution risks.
- Management said pending legal matters were not expected to have a material adverse effect. Disclosure controls were concluded to be effective, with no material changes to internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether deposit trends, including reliance on brokered CDs and the level of uninsured deposits, remain stable after quarter-end.
- Whether liquidity, borrowing needs, and securities unrealized losses change materially; review the effects of any securities sales and the assumptions behind recovery.
- Whether criticized and classified commercial loans, consumer and lease charge-offs, and the allowance for credit losses worsen.
- Whether higher deposit and borrowing costs continue to pressure net interest margin and earnings despite rising asset yields.
- How the Limestone merger performs after closing, including integration costs, expected synergies, and any effect on capital and reported results.