Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Peoples Bancorp Inc (Marietta OH) (PEBO, Financial) reported an increase in diluted earnings per share to $0.89 for the third quarter, surpassing consensus estimates of $0.82.
- Net interest income improved by 3% and net interest margin expanded by 9 basis points compared to the previous quarter.
- The company experienced a 5% growth in fee-based income and a 4% decline in total non-interest expense.
- Deposits increased by $185 million, with over $100 million attributed to client deposit growth.
- Regulatory capital ratios improved, with tangible equity to tangible assets rising by 65 basis points to 8.25%.
Negative Points
- Classified loans increased during the third quarter due to the downgrade of two commercial relationships totaling nearly $10 million.
- The small ticket leasing division experienced higher net charge-offs, with expectations for continued elevated levels into the first quarter of 2025.
- Non-performing assets increased to 0.76% of total assets, driven by loans over 90 days past due.
- The company faced reductions in commercial balances due to paydowns exceeding new loan production.
- Consumer indirect loan net charge-offs have increased, driven by economic hardship on borrowers and softening used car prices.
Q & A Highlights
Q: Can you provide more details on the credit outlook for leases and expected charge-offs?
A: Tyler Wilcox, President and CEO, explained that lease charge-offs in the small ticket leasing segment are expected to peak in the fourth quarter, with a full-year net charge-off rate between 5% and 6%. The company anticipates a modest increase in the fourth quarter, with stabilization expected in the first quarter of next year. The business is priced for a 4.5% net charge-off rate, which remains profitable on a risk-adjusted basis.
Q: What industries are you backing away from in the leasing business?
A: Tyler Wilcox stated that the company has backed out of title fleet over-the-road trucking, garment printers, and significantly reduced exposure to hotel and hospitality. The focus is shifting towards core areas like manufacturing equipment, landscaping equipment, and plumbing.
Q: How is the M&A environment, and what is your appetite for additional deals?
A: Tyler Wilcox noted an increase in M&A conversations, with the company leaning towards seeking larger deals. While open to all opportunities, they are being patient and focusing on larger acquisitions due to the current environment.
Q: How did competitors react to the Fed rate cut in terms of deposit pricing, and what was your strategy?
A: Tyler Wilcox mentioned that competitors' reactions varied widely. Peoples Bancorp aimed to remain middle of the pack, lowering special rates to attract deposit growth while keeping durations short for flexibility.
Q: Is the small ticket leasing business accretive to shareholder value given its high ROA and margins?
A: Tyler Wilcox affirmed that the small ticket leasing business is accretive to shareholder value, providing diversity and profitability despite its small size relative to total loans. The business's risk-adjusted returns justify its inclusion in the portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
