Peoples Bancorp Inc. (NASDAQ:PEBO) is a diversified financial services holding company headquartered in Marietta, Ohio. The company provides a comprehensive suite of banking, trust and investment, insurance, premium financing, and equipment leasing solutions through its subsidiaries. With a strong presence across Ohio, Kentucky, West Virginia, Virginia, Washington D.C., and Maryland, Peoples Bancorp has built a reputation for delivering innovative financial products and exceptional customer service.
Business Overview and History
Peoples Bancorp was founded in 1902 and has a rich history of organic and inorganic growth. The company’s banking subsidiary, Peoples Bank, has been headquartered in Marietta, Ohio since its founding. Over the decades, Peoples Bank has grown through a combination of organic expansion and strategic acquisitions, establishing a regional footprint across multiple states. In 2021, the company acquired Premier Financial Bancorp, expanding its presence in West Virginia, Kentucky, and Virginia. Most recently, in 2023, Peoples completed the acquisition of Limestone Bancorp, Inc., adding 20 branches in Kentucky and further solidifying its position as a leading regional financial institution.
Throughout its history, Peoples has faced various challenges, including the dot-com bubble burst in the early 2000s and the 2008 financial crisis. During these periods, the company focused on maintaining strong asset quality and capital levels to weather the economic downturns. Peoples has also had to adapt to technological advancements in the banking industry, investing in digital capabilities to meet evolving customer preferences. Despite these challenges, Peoples has consistently demonstrated its resilience, maintaining a diversified business model and prioritizing prudent risk management and a commitment to its local communities.
Today, Peoples Bancorp operates a network of 149 locations, including 130 full-service bank branches. The company’s diversified business model allows it to generate revenue from a variety of sources, including net interest income, fee-based income, and non-interest income. As of September 30, 2024, Peoples reported total assets of $9.14 billion, total deposits of $7.48 billion, and total loans and leases of $6.27 billion.
Financial Highlights and Ratios
Peoples Bancorp has demonstrated consistent financial performance, even in the face of a challenging macroeconomic environment. For the fiscal year ended December 31, 2023, the company reported net income of $113.36 million, or $3.44 per diluted share. The company’s return on average assets (ROAA) and return on average equity (ROAE) for the same period were 1.32% and 11.25%, respectively.
As of September 30, 2024, Peoples Bancorp’s key financial ratios include: – Net Interest Margin: 4.27% – Efficiency Ratio: 55.1% – Tangible Common Equity Ratio: 8.25% – Nonperforming Asset Ratio: 0.76% – Loan-to-Deposit Ratio: 84%
The company’s strong capital position, as evidenced by its regulatory capital ratios, provides a solid foundation to navigate the evolving market landscape. At the end of the third quarter of 2024, Peoples Bancorp’s common equity Tier 1 capital ratio stood at 11.8%, well above the well-capitalized threshold of 7%.
Diversified Revenue Streams and Fee Income Growth
Peoples Bancorp’s diversified business model allows it to generate revenue from a variety of sources, including net interest income, fee-based income, and non-interest income. In the third quarter of 2024, the company reported a 3% increase in net interest income and a 5% growth in fee-based income compared to the linked quarter.
The company’s fee-based businesses, such as trust and investment services, insurance, and electronic banking, have been key contributors to its overall profitability. For the nine months ended September 30, 2024, fee-based income, excluding net gains and losses, grew by 13% year-over-year, driven by strong performance in areas like lease income, trust and investment income, and insurance income.
Disciplined Approach to Lending and Credit Quality
Peoples Bancorp has maintained a disciplined approach to lending, with a well-diversified loan portfolio that is closely monitored for credit quality. As of September 30, 2024, the company’s loan portfolio was comprised of 34.8% commercial real estate loans, 19.9% commercial and industrial loans, 12.4% residential real estate loans, 6.9% leases, 4.6% premium finance loans, and 12.6% consumer loans.
While the company’s small ticket leasing division has experienced higher net charge-offs in recent quarters, Peoples has taken proactive steps to manage this risk, including adjustments to its risk appetite and a strategic decision to eliminate some large broker relationships. The company’s overall credit quality remains stable, with a nonperforming asset ratio of 0.76% as of September 30, 2024.
Navigating the Evolving Interest Rate Environment
Peoples Bancorp has demonstrated the ability to navigate the changing interest rate environment. As the Federal Reserve has raised rates, the company has proactively managed its asset-liability mix to maintain a favorable net interest margin. In the third quarter of 2024, Peoples reported a net interest margin of 4.27%, which represented a 9-basis point expansion compared to the linked quarter.
The company’s liability management strategies, including the use of interest rate swaps to hedge its brokered CD funding, have helped to mitigate the impact of rising rates on its cost of funds. Additionally, Peoples has a large portion of its loan portfolio, approximately 53%, indexed to variable rates, which provides some protection against further rate hikes.
Financials
Income Statement Highlights
For the fiscal year ended December 31, 2023, Peoples Bancorp reported: – Net Interest Income: $376.2 million – Non-Interest Income: $102.4 million – Net Income: $113.36 million – Earnings Per Share (Diluted): $3.44
For the most recent quarter (Q3 2024), Peoples Bancorp reported: – Revenue: $111.479 million – Net Income: $31.405 million – Operating Cash Flow: $34.107 million – Free Cash Flow: $33.241 million
The company experienced year-over-year growth in revenue, net income, operating cash flow, and free cash flow in the most recent quarter compared to the prior year quarter.
Balance Sheet Highlights
As of September 30, 2024, Peoples Bancorp reported: – Total Assets: $9.14 billion – Total Loans and Leases: $6.27 billion – Total Deposits: $7.48 billion – Total Shareholders’ Equity: $1.05 billion
Liquidity
Peoples Bancorp maintains strong liquidity positions to meet its operational needs and regulatory requirements. As of September 30, 2024: – Cash and Cash Equivalents: $245 million – Available-for-Sale Securities: $1.82 billion – Loan-to-Deposit Ratio: 84% – Debt/Equity Ratio: 0.21 – Current Ratio: 8.59 – Quick Ratio: 8.59
The company also has access to various liquidity sources, including Federal Home Loan Bank borrowings and the Federal Reserve discount window, which provide additional flexibility in managing its liquidity position.
Business Segments and Product Portfolio
Peoples Bancorp’s loan and lease portfolio is diversified across several key categories:
Recent Financial Performance
For the third quarter of 2024, Peoples Bancorp reported net interest income of $88.9 million, an increase of $2.3 million compared to the linked quarter. Net interest margin improved to 4.27%, up from 4.18% in the prior quarter, primarily driven by higher accretion income from acquisitions and rising borrowing costs.
Over the first nine months of 2024, net interest income increased 4.0% to $262.2 million compared to the same period in 2023, while net interest margin decreased 36 basis points to 4.24%. The increase in net interest income was attributable to rising market interest rates and the additional four months of income from the Limestone Bancorp acquisition.
The provision for credit losses was $6.7 million in the third quarter of 2024, up from $5.7 million in the linked quarter and $4.1 million in the prior year quarter. For the first nine months of 2024, the provision for credit losses was $18.5 million, compared to $13.9 million in the same period of 2023.
Total non-interest income, excluding net gains and losses, increased 5.1% year-over-year in the third quarter of 2024, driven by growth in lease income, mortgage banking, and trust and investment management fees. Non-interest expense decreased 4.0% in the third quarter of 2024 compared to the linked quarter, primarily due to lower other non-interest expense and data processing/software costs.
Guidance and Future Outlook
For the fourth quarter of 2024, Peoples Bancorp expects: – Net interest income and net interest margin to modestly decline, with a net interest margin between 4% and 4.1%, assuming 50 basis points in rate reductions by the Federal Reserve. – Fee-based income to normalize, excluding the early termination gain on leases reported in the third quarter. – Quarterly total core non-interest expense between $67 million and $69 million. – Full-year loan growth between 4% and 6%, including potential paydowns, charge-offs, and selective lease balance growth. – A full-year net charge-off rate between 30 basis points and 35 basis points, primarily driven by trends in small ticket leasing and indirect charge-offs.
For 2025, the company’s preliminary guidance includes: – Positive operating leverage compared to 2024. – Improvement in return on average assets compared to 2024. – Net interest margin stabilization between 4% and 4.2%, assuming an additional 50 basis point reduction in rates from the Federal Reserve during 2025. – Fee-based income growth in the mid to high single-digit percentages compared to 2024. – Quarterly total non-interest expense between $69 million and $71 million for the second, third, and fourth quarters of 2025, with the first quarter being higher. – Loan growth between 4% and 6% compared to 2024. – Provision for credit losses and net charge-off rate similar to the 2024 levels.
Conclusion
Peoples Bancorp’s long history of prudent management, diversified revenue streams, and disciplined approach to lending have positioned the company well to navigate the evolving market dynamics. The company’s strategic focus on organic growth, selective acquisitions, and operational optimization, coupled with its strong financial profile, suggest that Peoples Bancorp is poised to continue delivering value to its shareholders in the years ahead. With a clear outlook for 2025 and a track record of meeting or exceeding guidance, Peoples Bancorp demonstrates its commitment to transparency and sustainable growth in a challenging financial environment.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.