Q4 2023 Peoples Bancorp Inc Earnings Call

Presentation

Operator

Good morning, and welcome to Peoples Bancorp Inc.'s conference call. My name is Rocco and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31, 2023. (Operator Instructions) This call is also being recorded. If you object to the recording, please disconnect at this time.
Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding Peoples' future financial performance or future events. These statements are based on management's current expectations. The statements in this call, which are not historical fact, are forward-looking statements and involve a number of risks and uncertainties detailed in Peoples' Securities and Exchange Commission filings.
Management believes the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of Peoples' business and operations. However, it is possible actual results may differ materially from these forward-looking statements. Peoples disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements.
Peoples' fourth quarter 2023 earnings release was issued this morning and is available at peoplesbancorp.com under Investor Relations. A reconciliation of the non-generally accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release.
This call will include about 25 to 30 minutes of prepared commentary followed by a question-and-answer period, which I will facilitate. An archived webcast of this call will be available on peoplesbancorp.com in the Investor Relations section for one year.
Participants in today's call will be Charles Sulerzyski, President and Chief Executive Officer; Tyler Wilcox, Chief Operating Officer; and Katie Bailey, Chief Financial Officer and Treasurer, and each will be available for questions following opening statements. Mr. Sulerzyski, you may begin your conference.

Thank you, Rocco, and good morning and thank you for joining our call today. In the fourth quarter, we reported record quarterly earnings of $33.8 million, while our diluted earnings per share improved to $0.96 compared to $0.90 for the linked quarter. This includes $1.3 million of acquisition related expenses for the limestone merger, which reduced diluted EPS for the fourth quarter by $0.03. Overall, our fourth quarter results included many highlights such as growth in our return on average stockholders' equity, which was 13.4% compared to 12.6% for the linked quarter.
Our efficiency ratio improved to 56% from 58.4% for the linked quarter. Our loan to deposit ratio declined slightly compared to the linked quarter end. Our nonperforming assets declined 8% compared to the linked quarter end and are at the lowest level as a percentage of total loans since the great recession.
Our book value per share improved to $29.83 compared to $28.06 at September 30 and $27.76 at year end 2022. While our tangible book value per share grew to $18.16 compared to $16.52 and $16.23, respectively. Our tangible equity to tangible asset ratio increased to 7.3% compared to 6.9% at the linked quarter end, and we completed a $3 million share repurchase during the quarter.
On a full year basis, our net income was $113.4 million, and our diluted EPS was $3.44 compared to $3.60 for 2022. This includes acquisition related expenses of $17 million during 2023, which negatively impacted diluted EPS by $0.40 and a $2.4 million pension settlement charge associated with the final termination of our pension plan, which negatively impacted diluted EPS for 2023 by $0.06.
Some highlights for the full year of 2023 include net interest income was up 34% compared to 2022. This increase was driven by the limestone merger and higher market interest rates, improving our earning asset yields while we controlled our deposit costs.
Our fee-based income grew 18% compared to 2022. Our return on average assets adjusted for noncore expenses improved to 1.61% for 2023 compared to 1.47% for 2022. We had positive operating leverage for the year compared to the prior year, which means we grew our revenues faster than our expenses. Our efficiency ratio improved to 58.7% from 59.6% for 2022. At the same time, our efficiency ratio adjusted for noncore expenses improved to 54.4% for 2023 compared to 58.6% for 2022. And our net charge-off rate was 15 basis points of average loans compared to 16 basis points for 2022.
Moving on to our credit quality, our allowance for credit losses represented 1.01% of total loans at quarter end. Changes in our allowance were driven by charge-offs within the loan portfolio, which were partially offset by improvements in our individually analyzed loan portfolio. Net charge-offs were driven by higher lease charge-offs a third of which was the result of a fraud related charge-off and increased consumer indirect loan charge-offs. While our consumer indirect loan charge-offs were higher than recent periods, they were consistent with pre-pandemic levels. As we had anticipated for both the leasing and indirect portfolios, we are satisfied with their risk-adjusted business performance. Nonperforming assets improved during the fourth quarter and were down 8% compared to the linked quarter. And as both on non-accrual and loans, 90 days past due and accruing declined at year end, our nonperforming assets decreased to 43 basis points of total assets compared to 48 basis points at the linked quarter and 63 basis points at year end 2022. Proportion of our loan portfolio considered current at quarter end was 98.6% compared to 99% at September 30th. For the quarter, our annualized net charge-off rate was 23 basis points, an increase of 15 basis points for the linked quarter and up from 18 basis points for the prior year quarter. For the full year, our annualized net charge-off rate was 15 basis points for 2023 compared to 16 basis points for 2022. Criticized loans to total loans increased during the fourth quarter to 3.82% at year end while our classified loans declined 10 basis points to 1.95% of total loans at year end. The increase in criticized loans was related to downgrades of several commercial relationships, while the growth was partially offset by payoffs and upgrades during the quarter.
In regards to the commercial real estate and commercial and industrial loan portfolio's credit quality metrics remained strong with delinquency reported at 45% at year end and combined had zero basis points in net charge-offs for the year. This compares to prior year end delinquency of 0.286% and net charge-offs of five basis points for the full year 2022.
As it relates to non-owner occupied commercial real estate as well as construction and land development. These balances represented 38% of total commercial loans and 27% of total loans at year end. The land development remains a small percentage of the loan portfolio totaled $106 million or 1.4% of total loans at year end. Our commercial office space outstanding balance was 2% of our total loan portfolio at year end, we have two large projects maturing in 2024 totaling $17 million, which will give us an opportunity to reassess 12% of our office portfolio as it relates to our construction loan portfolio, we continue to see high demand and successful project execution. We mentioned last quarter that we expected more construction projects to achieve certificates of occupancy during the fourth quarter, which were obtained and resulted in a decline in our construction loan balances. At year end, our construction loan balances totaled $364 million with outstanding commitments of $670 million. Our multifamily balances continue to convert from construction as projects reach completion and stood at $520 million at year end these projects have generally been leasing up at appropriate speeds and often at higher rates than projected. Our top 10 multifamily family loans account for 33% of the funded multifamily portfolio, six of which are still in construction phase. As we have noted previously, the location of these projects are within the growth markets, which strong metrics and notable guarantor support, hospitality loan balances were $174 million at year end and were less than 3% of our total loan portfolio. Following the third quarter, we were able to exit and out of market hotels that was acquired through the limestone merger, further reducing our hospitality exposure at year end. Additionally, to hotels successfully exited in the fourth quarter, the outstanding balance on one hotel materially change through a refinance utilizing the SBA five oh four program. The top 10 funded loans with flag hotels represent 52% of the hospitality portfolio at year end. Occupancy trends within this portfolio generally remain above the market competitors with trailing 12 inch rolling three months occupancies at 77% and 79% respectively. Our total loan portfolio grew $75 million by 10% annualized compared to the linked quarter end. Commercial and industrial loan balances experienced the most growth and were up $55 million for September 30, specialty finance divisions provided $25 million of growth, while commercial real estate loans were up $7 million compared to year end 2022. Organic loan growth was 10%, which excludes loans acquired from the limestone merger. Most of the organic growth was in commercial real estate, which was up $204 million. While our specialty finance divisions provided $113 million of growth. Commercial and industrial balances were up $77 million and consumer indirect loans increased $37 million at December 31, 2023, our commercial real estate loans comprised 36% of total loans, nearly 40% of which were owner-occupied while the remainder was investment real estate. At the same time, our total consumer loans, which include residential real estate and home equity lines of credit were 29% of total loans. Commercial and industrial loans were 19%. Specialty finance totaled 10% and construction loans was 6% a year and 49% of our total loans were fixed rate with the remaining 51% at variable rate.
I will now turn the call over to Katie for discussion of our financial performance.

Thanks, Chuck. During the fourth quarter, our net interest income was lower than the linked quarter due to higher deposit costs, which were partially offset by improved investment yields.
Our net interest margin was 4.44% for the current fourth quarter compared to 4.71% for the linked quarter. Lower net interest margin was partially due to our margin during margin being higher during the linked quarter as a result of acquisition related adjustments to accretion, which totaled $1.9 million and added 10 basis points to our third quarter net interest margin. During the fourth quarter of 2023, we recognized a $1.3 million increase and two accretion income related to refinements in our fair value marks from our limestone merger, which added seven basis points to net interest margin, also contributing to the decline in net interest margin compared to the linked quarter were higher deposit costs as we offered short term higher rate CDs that were part of a successful deposit acquisition strategy. We partially offset this increase with higher investment yields for the quarter. For the fourth quarter, our deposit costs were 1.66% and excluding brokered CDs were 1.33%. Accretion income net of amortization expense totaled $9.3 million for the fourth quarter compared to $9.5 million for the linked quarter. Accretion income positively impacted our net interest margin by 47 basis points for the fourth quarter and 52 basis points for the third quarter compared to the prior year quarter. Our net interest income grew 25%, while our net interest margin remained flat as improved investment in loan yields were offset by higher deposit costs for the full year of 2023 compared to 2022, our net interest income increased 34% and net interest margin grew 59 basis points. Net interest income was positively impacted by the limestone merger compared to 2022. Most of the increase in our net interest margin was due to our investment and loan yields improving, which were partially offset by higher deposit and funding costs. Since the beginning of 2023, the Federal Reserve has increased rates, a total of 5.25% over the same time period. Our interest-bearing deposit costs, when excluding brokered CDs, have only grown 1.2%. During the same period, our deposit betas have moved 23% excluding brokered CDs. As far as our expenses, total noninterest expense was down 6% compared to the linked quarter, which was largely due to lower acquisition related expenses. For the fourth quarter, acquisition related non-interest expenses totaled $1.3 million for the fourth quarter and were $4.4 million for the linked quarter compared to the prior year quarter. Total noninterest expense increased 27% and was up 29% for the full year of 2023 compared to 2022. These increases were primarily due to the acquisition related expenses for the fourth quarter of 2023 and 17 million for the full year of 2023, as well as the larger footprint and ongoing operating costs of the additional offices from limestone.
Our reported efficiency ratio was 56% for the fourth quarter compared to 58.4% for the linked quarter. When adjusted for non-core expenses, our efficiency ratio was 54.9% compared to 52.5% for the linked quarter. The increase was the result of higher deposit costs compared to the linked quarter. For the full year of 2023. Our reported efficiency ratio was 58.7% compared to 59.6% for 2022. Excluding non-core expenses, our efficiency ratio improved to five for 54.4% for 2023 compared to 58.6% for 2022.
Moving on to the balance sheet. At year end, our investment securities to total assets declined to 19.6%, while our loan to deposit ratio declined slightly to 86.1%. We continue to actively manage our balance sheet position with a focus on our interest rate risk profile. During the fourth quarter, we made a decision to sell nearly $37 million of our investment securities and recognized a loss of $1.7 million. This move. This move resulted in a payback of just over a year and reduces the credit exposure within our investment portfolio. We will continue to be opportunistic in our decision while trying to do so in a low risk manner with a short earnback period. Along those lines, we did utilize the Federal Reserve's bank term funding program this quarter as it provided a lower-cost funding source than our alternatives. As of today, the funds we borrowed under this program are at or so our at a rate 76 basis points less than what we would have paid for an FHLB overnight borrowings. And assuming the same rate benefit, it will result in savings of nearly $1.2 million over a one year period. As we have noted previously, we have ample liquidity and the attractive rate offered on this source was advantageous for us. We continue to have strong regulatory capital ratios we are confident in our stock and performance. And with that in mind, we repurchased 3 million of our shares or shares this quarter at an average price of $27.98. We have repurchased our shares in 2023, 2022 and 2024 an aggregate total of nearly nearly 40 million. We are committed to deploying our capital in the most effective manner, and we'll continue to do so in the future, while also being cognizant of the impact of dilution at year end, our capital ratios improved and our common equity Tier one capital ratio was 11.8%. Our total risk-based capital ratio was 13.5% and our leverage ratio was 9.6%. At year end, our tangible equity to tangible assets ratio improved to 7.3% compared to 6.9% at the linked quarter end. Our improved earnings, along with some recovery of our accumulated other comprehensive losses on our available-for-sale investment securities portfolio contributed to the growth. The improvement in our accumulated other comprehensive losses accounted for 44 basis points of the increase over the linked quarter.
I will turn the call over to Tyler, who will provide additional details around our performance and future outlook.

Thanks, Katie. For the fourth quarter our fee-based income was up 12% compared to the linked quarter and was driven by higher lease income compared to the fourth quarter of 2022. Our fee-based income grew 35% and on a year-to-date basis was up 18%. The increase compared to these prior periods was the result of higher lease income and insurance income and was also impacted by the limestone merger, which improved electronic banking income and deposit account service charges. A bright spot for us this quarter has been our ability to generate deposits compared to the linked quarter and our total deposits grew $115 million or 2%. The largest contributor to the growth was retail CDs, which were up $245 million. We acquired a lot of these CDs with our deposit pricing strategy utilizing short term higher rate CD offerings for customers. Money market accounts grew $45 million during the same period. While we had some declines in other interest bearing deposits are non-interest bearing deposit balances were relatively flat while we reduced our position in brokered CDs, which were down $33 million. Our demand deposits were 38% of total deposits at quarter end compared to 39% at September 30th. At quarter end, our deposit composition included 80% in retail deposit balances, which is comprised of consumers and small businesses and 20% in commercial deposit balances. Our average retail customer deposit relationship was $24,000 a year end, while our median was $2,500. While we think about 2024, I would like to give some updated guidance for the next year. We expect net interest income to benefit from the full year impact of the limestone merger, but to also be impacted by the projected market interest rate reductions in 2024.
With that being said, based on our most recent model runs, we have some preliminary expectations regarding potential rate cuts and increases. If rates were to stay flat for 2024, we would expect our deposit rates to move higher as competition accelerates. Potential impact of this could be a 1% to 3% decline in net interest income with a net interest margin of between 4.1% and 4.3% for the full year. If rates are flat for the first half of the year, with reductions coming in the middle of the year, we would anticipate some higher deposit costs, but would expect to offset those with lower funding costs resulting in minimal impact to net interest income and margin. If there were a 75 basis point decline in rates at the beginning of 2024. It could potentially lower our full year net interest income by approximately 1% with our net interest margin for the year coming in around 4.3%. A 150 basis point rate reduction as the beginning of 2024 could lower our full year net interest income by approximately 3% with net interest margin of around 4.2%. Our primary uncertainty at this point is the potential impact to deposit rates as competition may slow the corresponding reduction in deposit rates. If market interest rates were to decline in the down one 50 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year. In this scenario, unless the Federal Reserve were to cut rates more drastically than expected, we believe our fee-based income growth will be in the high single digit to low double digit percentages compared to 2023. We expect quarterly total noninterest expense to be between $67,000,069 million for the second, third and fourth quarters of 2024 with the first quarter of 2024 being higher due to our annual expenses we typically recognized during the first quarter of each year. We continue to believe our loan growth for 2024 will be will be between 6% and 8% compared to 2023. With the anticipated loan growth and return of some of our net charge-offs to pre-pandemic levels, we do expect an increase in our provision for credit losses during 2024 in our budget for 2024, we are expecting our full year net charge-off rate will be around 20 basis points. We do not anticipate having positive operating leverage for 2024 compared to 2023, given the technology investments we mentioned last quarter. However, however, we do anticipate returning to positive operating leverage in 2025 as we customarily do at the beginning of each year, I wanted to note that our first quarter expenses are generally higher due to a few expenses that we typically expect to recognize during the first quarter, which include employer contributions to health savings accounts, stock-based compensation expense for certain employees, higher payroll taxes and annual merit increases. I will now turn the call back to Chuck for his final comments.

Thanks, Tyler. I would like to thank the employees of Peoples for producing another record quarterly earnings report. This is my final earnings call as a point of personal privilege, I would like to reflect back on my time at Peoples.
Looking at our stock performance as of year end 2023 there was several key highlights over my nearly 13-year tenure. We have beaten the KBW Bank Index by over 4% on an annualized basis for the last three years. We have beaten the S&P by 3.4% and the KBW Bank Index by 10.4% annualized in 2023. We beat the KBW index by 27% more important than these results are the distinctive characteristics that makes people's a differentiated, high-performing community bank.
With apologies to David Letterman. I'd like to share my top 10 reasons why Peoples has been and will continue to be a great choice for investors.
Number 10, we are the epitome of a community bank. We make meaningful investments of time and money to help make our communities better. We provide capital to individuals and businesses that promote economic growth and employment. As a result, we are trusted and have deep and meaningful relationships with our customers number nine. Our employees are our most valuable asset at last three years. We are proud to have been recognized as one of America's best banks to work for. We are recognized as one of the American Banker's best banks to work for. We have a distinctive culture characterized by a passion for constant individual and organizational improvement, frequent coaching and attention to performance numbers at a corporate and individual level, we have a number eight. We have a diverse set of businesses. In addition to traditional banking, we have meaningful earnings contributions from insurance investments leasing and Premium Finance. As a result, we have better protected than the average community bank should one sector of the economy suffer stress number seven. Credit discipline is a key to our success. Our portfolio is comprised of five buckets from largest to smallest consumer lending, investment, real estate, commercial and industrial owner occupied real estate and specialty finance. We have averaged 20 basis points of net charge-offs over my tenure and 13 basis points over the last eight years. We have a disciplined underwriting and portfolio management process that makes us confident we will have a better than industry risk adjusted margin over all credit cycles.
Number six, as demonstrated during the historic rate increases of 2022 and 2023. We have a quality deposit base. While the Federal Reserve has increased rates 5.25%, our deposit costs have increased to 1.5% since December of 2021 and meaningfully outperformed the industry averages.
Number five, we have a core competency in acquisitions. We have done deals in banking, insurance investments and specialty finance. We quickly assimilate new associates and have them, learn and strengthen our culture. We hit our financial targets for the deals that we do. Number four, we strive to provide an extraordinary client experience. We are proud to be recognized as one of Newsweek's best regional banks for the 2nd year in a row. And there are only 10 banks in the country to be recognized by both Newsweek and the American Banker for best banks to work for number three, we manage capital with a focus on long-term returns. We believe in a meaningful and growing dividend. We maintain healthy capital levels and new stock buybacks. We are prudent. Number two, our Board and management decision making is guided by what is best for our shareholders in a three to five year timeframe. We do not chase the flavor of the day. We do not worry about short-term negativity when we know long-term risk adjusted returns will be improve. Number one, our management team has a mix of professionals from larger institutions and homegrown talent. As I pass the time, we have a great mix of young leaders like Tyler in KD as well as a cadre of very experienced executives from larger institutions in talent grown from within our organization. I am fully confident that Tyler, in the management team will build on our strengths and further improve our performance and results. Thank you for your interest and investment in peoples. This concludes our commentary and we will open the call for questions. Once again, this is Chuck Sulerzyski and joining me for Q&A session is Tyler Wilcox, Chief Operating Officer, and Katie Bailey, our Chief Financial Officer. I will now turn the call back into the hands of our whole facilitator.

Question and Answer Session

Operator

(Operator Instructions) Daniel Tamayo, Raymond James.

Morning everyone, much and congratulations on your last call. I guess first of all, thank you for all the detail, Tyler, on the margin and the sensitivity. I think I missed the last part of that on that guidance. If you excuse me, if you don't mind just repeating it. I got a little hit through the 150 basis point of rate cuts. And I think you had one more line in there?

Sure, Danny. I had said that our primary uncertainty at this point is the potential impact of deposit rates as competition may slow. The corresponding reduction in deposit rates if market interest rates were to decline. So in the down 150 basis points rate environment, we would anticipate net interest income and margin to be further compressed, but we would not anticipate net interest margin to fall below 4% for the year. In this scenario, unless the Federal Reserve were to cut rates more drastically than expected that the second part you're referring to, and I think so.

Yes, so I got it.
Yes.
No, I appreciate that. And so I guess the bottom line of that in terms on your guidance, is your assuming that the real I mean, assuming kind of what we most folks are baking in now in terms of rate cuts in the back half of the year that there's not too big of an impact on either margin or NII as a whole for 2020. For that, that starts to our I guess let me ask you, does that start to then impact negatively on 2025? Or how should we think about that?

I don't think it will have a meaningful negative on 25. I don't see the Fed bringing rates back to where they were there. They'll stop 2.5% to 3.3% depending on the shape of the curve on that, we should be fine.

Okay. And just a clarification on the commentary on the on hospitality loans. I think you said $174 million at year end, did you say that you exited one post year end, is that correct?

No, we said we exited out of market one door in the fourth quarter during the fourth quarter Okay.

So that $174 million is carrying into the first quarter.
Okay.

And we continued it. We India to decrease that portfolio.

Okay.

Okay.

And then I guess lastly, just just on on repurchases, you repurchased a small amount in the fourth quarter. The stock has done well, by and large valuation. You've got a stronger valuation in the market how are you thinking about what's a reasonable valuation when repurchasing shares?

Yes, we continue to evaluate each quarter. And as you can see from the prices we quoted, we are willing to go beyond kind of what we would do for an earnback of a bank deal slightly on the share repurchase, given the less risk. But again, I don't think we would expect to take a meaningful position and do a large volume of repurchase in any one quarter as we will continue to keep it relatively small and continue to support the stock Understood.

Okay. Thank you.

That's all I had.

Appreciate it right. Any.

Operator

Terry McEvoy, Stephens.

Good morning, Chuck, Tyler and Katie. Chuck, I've enjoyed working with you and our ongoing debate on people's deposit costs, which I must say it's an argument you won and the market rewarded your company last year. So congratulations on winning their.

Thank you, Terry. Don't bet against the mighty Thibault.

I learned that last year. A couple of questions here on the criticized loans, any common theme among the CRE downgrades and I'm wondering if you built up reserves for that portfolio last quarter.

So it was a combination of C&I and CRE. We feel really good about our portfolio. We have our lowest levels of NPAs and lowest level of credit class I classified. So yes, we did have an uptick in charge-offs in Q4, which Q4 charge-offs are usually a little higher than that than the rest of the year. But we remain extremely optimistic on the credit portfolio.

And as it relates to the allowance, as you would expect, each quarter, we go through and evaluate whether Q factor qualitative factors are necessary. And as you noted, we did establish a qualitative factor in the third quarter. I mean we continue to evaluate the use of that as we proceed, but it remains.

And then as a follow up on the expense levels and in 2024 will most of the expenses related to crossing $10 billion be in the run rate by the end of this year.

Yes.

And then maybe just one last one. What termed the loan growth of 6% to 8% is the target. How are you thinking about areas within the portfolio that should support that loan growth in 2024?

And I will comment that we had a good year in 23 with 10%. And I think you'll see the traditional C&I business continue to perform strong. We'll see some increase in balances as some of these projects move to a great start to completion on the commercial real estate front, our specialty finance businesses will continue to be strong. I think we'll see a little less growth in the indirect portfolio, and we've seen historically.
Great.

Thanks for taking my questions.

Thank you, operator.

Operator

[Nick] , Harvey group.

Good morning, everyone, and congratulations Chuck or Nick, I wanted to start on fee income.

The leasing line was quite volatile across 2023, and you pointed to the large buyout in 4Q. Can you help us think about a more normalized number for that business and how it may play out over the course of 2024.

And as we kind of noted when we bought this leasing company. This is the one we bought in early 2022. There is some kind of volatility of the fee income associated with that business as they do periodically experienced buyouts, in which case they generally recognize meaningful gains such as what you saw in the fourth quarter. This kind of the first quarter we have had them under our ownership where we've seen that, but it's kind of at the customer's discretion when those transpire. So I would say build be less frequent, but it's kind of contingent upon how the customer wants to engage with.

So if you were to think about a more normalized level for that business at closer to the first half of the year?

Yes, I think that fourth quarter was kind of inflated by about 2 million.

That's helpful, thank you. And then on the short term higher rate CD offerings, are you still running those campaigns? And if so, what rate are you paying for new money?

So we have that we have continued to run them and they are kind of evaluated each month. And the rate currently is just over 5%. And then we continue to manage that as we made it, like I said, every other week and we're keeping them short term. So the terms on those are anywhere from seven to 11 to 14 months in the rate is different for each each term.
Great.

And then just lastly for me, just a follow-up on the loan growth commentary. Did the leasing portfolio grew 20% in 2023. Is your expectation for a similar rate of growth in '24?

Yes, I think that's there. You will have yes, double digit growth of mid to mid to high 10s. I think there's probably more more likely.
Thank you for taking my questions and things like you said earlier.

Operator

Question comes from Tim Switzer with KBW. Please go ahead.

Hey, good morning. Thanks again, and congratulations on your career.

Thank you on.
I appreciate all you guys.

Really detailed guidance on the NI by different scenarios. So is the right way to think about it is that a rate cut in the near term is negative to the margin just because there's limited offsets in the deposit side due to competition right now. And if there's a cut later in the year, it's a little bit easier to digest the competition moderates because that kind of what you guys are talking about in your guidance?

Yes, I think that's consistent.

Okay.

And then with your comment that there was minimal impact to NI, if there's reductions in mid 24 is that just meaning that the full year NI would be flattish relative to 23?
Yes.

I think we'll see some compression 23 to 24 is kind of what we're expecting, given that we do expect rates, I think we ended 2023 at something like up 4.5% net interest margin. I think what we said is if you expect the 75 basis point cuts, which is kind of generally what some people expect for money for we end at something closer to the 4.3% on and some of that is being driven by kind of accretion adjustments and 23 or accretion reductions in 2014 relative to 23.

Right.

Sorry, I should've been more specific than that, that NI in 20 fours flat with 2013 scenario.

And I think, yes, I think that will still be up and net interest income would still be up I mean, we will have an additional four months of the limestone acquisition in our number.

Okay. On I got you. And if rates are flat throughout the year, it is a mix down the first quarter two and then rebounding back up towards the end of the year.

I think our uncertainty there remains around deposits. Competition, I think is where the expectation we have is if rates hold flat throughout the year, deposit competition will remain fierce and will continue to be pressured on deposit costs throughout the year.

Okay.

And the last question I have is on the loan yields, while a lot of the reported yields were lower on quarter over quarter, most of the categories, except for CRE. On and leases are down quite a bit. I know some of that might be like moderating purchase accounting and stuff. Can you maybe walk us through that, what you're really seeing on an underlying basis?

Yes, let us pull I think to your point, there is some noise in the yields as you see them by category in the earnings release because of accretion. Is that as at the segment level. But as far as loan origination yields, we did see improvement. I would say in the total portfolio, we were up 31 basis points from the third quarter to the fourth quarter in origination?
Yes.
Okay.

That's helpful. And thank you, Kate.
Thank you.

Operator

Manuel Davas, DA Davidson.

Hey, good morning and congrats, Jack, I just want to follow-up on the CDs are, are these mainly coming from? Is it new money into the bank? Is it new customers? Is it new customers bringing funds over? Do you have any other color on kind of where the funds are coming?
Thank you, Manny. It's primarily existing customers. Bringing us new money to the bank would be the biggest category.
Okay, that's helpful.
Izzy is the plan to kind of shift to this funding vehicle and then brokered runs off? Just any color on kind of those two pieces together?
Yes.

I mean, I think we would prefer the customer deposits over brokered deposits. And I think that again, our evaluation of broker deposits is more a function of pricing as it relates to comparable alternatives to us such as kind of FHLB overnight as our primary source for overnight funding because of the I guess, the short earnback on some securities exchange, you had what kind of was a shift in yields and then is there potential for more down the road?
Yes. I mean, we sold low lower-yielding securities and we reinvested in yields over 6% at certain times during the quarter. We will continue to evaluate. As you saw, I think we did a investment kind of a restructure in the first quarter. We followed them in the fourth quarter with another one as we said in the script, we'll be opportunistic as it relates to future opportunities there. We won't extend the earnback much past two years, if at all. And again, we'll keep the law in a quarter relatively reasonable.

So the new the new securities are about 6%.

That's across the whole QUARTER.

Any reinvestment you do, those are what we just reinvested in the fourth quarter with this transaction?
Yes, we have not been actively buying niche enough consistently throughout the quarter as you saw our assets or our percentage of investment securities to assets went down this quarter relative to last quarter?
Yes.

And I'm sorry, did you give what the new loan yields were?

I know you said they're up about 31 basis points quarter over quarter to what's 81.
That's great.

And I guess is there is there any other kind of big picture wildcards in your outlook besides deposit costs?
I think we feel really good about the underlying operating details in all of the businesses. And yes, we're optimistic on the outlook that we've presented.
That's great. I really appreciate it, guys.

Thank you.

Thank you.

Operator

Daniel Cardenas, Janney Montgomery Scott.

Morning, everybody And Chuck, congratulations on a nice run here. Quick question just given where valuation levels are right now? What are your thoughts on the M&A?
Correct.

Well, we continue to have dialogue with institutions in good times and bad times. So we're pretty persistent and consistent zone on talking to people. I think the accounting complexities make M&A less attractive to day. I think that, Tom, a lot of institutions are looking at where they are and wondering about whether it makes sense to join an institution that has a little better currency, both in terms of performance and in terms of volume of shares, greater liquidity and I think some people are beginning or some institutions are beginning to, yes, more realistic with premium expectations.
That being said, some if you ask me to guess for the industry, I think you'll see a slightly more deals in 24 was then 23, but it will not be a return to some of the historic levels.

Got it.
Thanks for that.
Color.
And then Kate, what, Kevin, what kind of accretable income can we expect from the line stone transaction in 24?

Yes, I can answer those Q4. We had accretion added about 47 basis points to margin, I think was the and again, that included some true ups as we continue to refine the purchase accounting for that transaction, given where within that year window. But I think we would expect it to be somewhere probably between 30 to 35 basis points on a quarterly basis benefit to the margin as we proceed through 2024. And again, there's a lot of volatility there. I'm not telling you anything you probably don't know, but to the extent any of these deals kind of rewrite or payoff. There could be kind of swings in that in any given quarter, but that's kind of what we would expect steady state.

Got it.
Got it.
Okay. Perfect.
And I think all my other questions have been asked and answered. So I'll step back.
Thanks, guys.

Operator

And at this time, there are no further questions. Sir, do you have any closing remarks?

Yes, I want to thank everyone for joining our call this morning. Please remember that our earnings release and a webcast of this call will be archived at peoplesbancorp.com under the Investor Relations section, and thank you for your time and have a great day.

Operator

Thank you. This concludes today's conference call, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.