Peoples Bancorp - Earnings Call - Q1 2025
April 22, 2025
Executive Summary
- Q1 2025 EPS of $0.68 declined QoQ and YoY (Q4 2024: $0.76; Q1 2024: $0.84) as provision rose to $10.2M on leasing charge-offs; headline NIM fell 3 bps to 4.12%, but core NIM ex-accretion expanded 3 bps, and fee income rose 8% QoQ; asset quality metrics improved.
- Results missed S&P Global consensus: EPS $0.68 vs $0.73 est (−$0.05) and “Revenue” $102.2M vs $112.7M est (−$10.6M); both Q3 and Q4 2024 were beats, making Q1 a reversal vs recent trend (S&P Global) [Q1/Q4/Q3 estimates data: GetEstimates].
- Balance sheet trends were constructive: loans grew ~4% annualized QoQ (+$70.5M), deposits +2% QoQ (+$144.5M) with a strategic $96M reduction in brokered CDs; uninsured deposits ~27% and well-collateralized; CET1 improved to 12.09%.
- FY25 outlook reaffirmed: NIM 4.0–4.2% assuming two 25 bp Fed cuts; loan growth 4–6%; noninterest expense $69–71M in Q2–Q4; provision normalizing in H2; dividend raised to $0.41 (10th consecutive yearly increase).
- Near-term stock drivers: miss vs consensus and elevated provision (albeit improving Leasing trajectory) vs improving deposit mix, core NIM expansion ex-accretion, and reiterated FY25 guide.
What Went Well and What Went Wrong
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What Went Well
- Core spread resilience: despite a 3 bps headline NIM dip to 4.12%, core NIM (ex-accretion) expanded 3 bps and core NII grew; accretion contribution moderated to 17 bps from 23 bps.
- Funding mix improved: total deposits +$144.5M QoQ (+2%) driven by money market and governmental deposits; brokered CDs −$96.0M; L/D ~83% stable.
- Asset quality improved: NPAs fell to 0.50% of assets (0.53% prior), criticized and classified loans declined; allowance coverage vs NPLs rose to 163.8%.
- Management tone/discipline: reiterated 2025 guide (positive operating leverage; NIM 4.0–4.2% with limited rate sensitivity) and highlighted continued expense control and pricing discipline.
- Quote: “On a core basis, which excludes accretion income, net interest margin expanded by three basis points” – CEO Tyler Wilcox.
-
What Went Wrong
- Consensus miss: EPS missed by ~$0.05 and revenue by ~$10.6M vs S&P Global consensus, reversing prior-quarter beats (see Estimates Context) (S&P Global) [GetEstimates].
- Provision higher than anticipated: provision rose to $10.2M (Q4: $6.3M) on leasing charge-offs; the provision reduced EPS by ~$0.22.
- Efficiency ratio worsened: 60.7% vs 59.6% QoQ and 58.1% YoY on seasonal first‑quarter expenses (stock comp forfeiture true-up and HSA contributions).
- Fee income mix: insurance performance commissions were softer YoY; mgmt trimmed fee-growth expectations modestly (more mortgages held on balance sheet).
Transcript
Operator (participant)
Good morning, and welcome to Peoples Bancorp Inc.'s conference call. My name is Sagar, and I will be your conference facilitator. Today's call will cover a discussion of results of operations for the quarter ended March 31, 2025. Please be advised that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then one on your telephone keypad, and questions will be taken in the order they are received. If you would like to withdraw your question, please press star, then two. 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 Q1 2025 earnings release and earnings conference call presentation were issued this morning and are 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 earnings release. This call will include about 15 to 20 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 Tyler Wilcox, President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer and Treasurer. Each will be available for questions following opening statements. Mr. Wilcox, you may begin your conference.
Tyler Wilcox (President and CEO)
Thank you, Sagar. Good morning, everyone, and thank you for joining our call today. For the Q1, our diluted earnings per share were $0.68. We had many positives for the Q1 compared to the linked quarter. Our annualized loan growth was over 4%. We had improvements in asset quality metrics, including reductions in our annualized net charge-off rate, non-performing assets, and criticized and classified loans. Deposit balances grew 2%, which was driven by higher money market and governmental deposit account balances, while we reduced our brokered CDs by $96 million, resulting in core deposit growth of over 3%. Our book value per share grew 2% to $31.90 at quarter end, while our tangible book value per share improved 4% to $20.68. Our tangible equity to tangible assets ratio improved to 8.34% at March 31, compared to 8.01% at year-end.
We announced an increase to our quarterly dividend for the 10th consecutive year. Our reported net interest income was down 1% compared to the linked quarter, and our net interest margin was down 3 basis points. However, on a core basis, which excludes accretion income, net interest income grew, while net interest margin expanded 3 basis points. Fee-based income grew over 2%, and total non-interest expense increased slightly but was impacted by annual first quarter one-time expenses, including stock-based compensation expense related to the annual forfeiture rate true-up on stock vested during the first quarter, along with upfront expense on stock grants to certain retirement-eligible employees totaling $1.3 million, which reduced diluted EPS by 3 cents per share, and employer health savings account contributions totaling $724,000, which negatively impacted diluted EPS by 2 cents. At March 31, our key credit quality metrics improved compared to year-end.
As we had anticipated, our annualized net charge-off rate declined compared to the linked quarter and was 52 basis points for the Q1 compared to 61 basis points for the Q4. While we experienced a meaningful decline, per our previous guidance, net charge-offs continued to be driven by our small-ticket leasing business, which comprised 31 basis points of the first quarter rate and was 49 basis points of the Q4 rate. As we noted last quarter, we expected the Q4 to be our peak quarter of charge-offs for the leasing portfolio, and in turn, these net charge-offs declined by over $2 million during the Q1 as compared to the linked quarter. Our non-performing assets decreased over $3 million and were 50 basis points of total assets compared to 53 basis points at year-end.
These improvements were driven by lower balances of loans that were 90 or more days past due and accruing, which was largely due to administrative delinquencies in our leasing and premium finance portfolios at year-end. Criticized and classified loans both declined compared to year-end and were down $14 million and $5 million, respectively. Our delinquency rates were stable, as was the portion of our loan portfolio considered current at quarter end, which was 98.5% compared to 98.7% at year-end. Our overall allowance for credit losses grew nearly $2 million to 1.01% of total loans. Our provision for credit losses increased nearly $4 million compared to the linked quarter and was primarily driven by net charge-offs during the first quarter.
The growth in our allowance for credit losses was attributable to a deterioration in the macroeconomic conditions used within our models, an increase in reserves on individually analyzed loans, and loan growth during the quarter. While there is much uncertainty around tariffs and the market, current actual impacts to our clients and our business have so far been nominal. As far as business sentiment in our markets and from our clients, we see continued optimism around the regulatory and tax outlook. Recent headwinds of uncertainty with tariffs have led to declines in confidence nationally, reflected in various small business indexes. Notwithstanding national declines in consumer confidence in the past couple of months, those declines have not materialized as reductions in consumer demand in our lines of business during that same time period.
We have undertaken extensive reviews of our various portfolios in order to better understand the potential impacts of tariffs and executive orders on our loan demand or credit. Thus far, no material impact has been observed. Our portfolio assessment has focused on commercial relationships with credit exposure over $3 million, automotive dealer exposure, and our continued focus on our small-ticket leasing business. The recent pause in tariffs will allow any impacted clients some additional time to address any concerns they may have and allow us to continue to refine our assessments. We will continue with our heightened monitoring and analysis while uncertainty remains. On a positive note, we could see some long-term benefit from reshoring in our markets. Moving on to loan balances, for the first quarter, we had 4% annualized loan growth, which was in the range of our 2025 guidance.
Commercial real estate loans led the increase, contributing $75 million of growth, while our residential real estate loans were up $13 million, and consumer indirect loans grew $10 million. Some of this production was offset by declines in commercial and industrial loans, leases, and construction loans. The decline in lease balances was driven by net charge-offs in the small-ticket leasing portfolio during the quarter. The reduction in our construction loans was due to movement to commercial real estate loan balances as projects were completed. At quarter end, our commercial real estate loans comprised 35% of total loans, about 35% of which were owner-occupied, while the remainder were investment real estate. At quarter end, 47% of our total loans were fixed rate, with the remaining 53% at a variable rate. I will now turn the call over to Katie for a discussion of our financial performance.
Kathryn Bailey (CFO and Treasurer)
Thanks, Tyler. Our net interest income declined 1% this quarter compared to the linked quarter end and was attributable to lower accretion income during the Q1. Net interest margin was 4.12% compared to 4.15% for the Q4, and on a core basis, which excludes accretion income, our margin expanded 3 basis points. Accretion income was $3.5 million, adding.
Operator (participant)
Ladies and gentlemen, the line for the chairperson has been dropped. Please stay connected while we reconnect the line for the management. Ladies and gentlemen, we have the line for the management reconnected. Please go ahead.
Kathryn Bailey (CFO and Treasurer)
During the quarter, we were able to reduce our deposit and borrowing costs, which more than offset the decline in interest income from loans and investments, excluding accretion income. Our interest-bearing deposit costs declined 12 basis points for the first quarter compared to the fourth quarter. Our average retail CD balances grew compared to the linked quarter and repriced at a lower rate during the first quarter, contributing to the lower deposit costs. Moving on to our fee-based income, for the Q1, we had growth of 2%, which was primarily due to performance-based insurance commissions we typically record during the Q1 of each year. This growth was partially offset by lower commercial loan swap fees, deposit account service charges, and electronic banking income. As it relates to our non-interest expenses, we had a slight increase compared to the linked quarter.
The key drivers of the increase were one-time costs that Tyler mentioned earlier that we typically record in the Q1 of each year related to stock-based compensation expense and employer health savings account contributions. These expenses totaled $2 million for the first quarter. We experienced declines in many of our expense categories, which nearly offset the increased expense for the Q1. As we have indicated, outside of the Q1 items and potential non-core expenses, our quarterly expense run rate is expected to be between $69 million-$71 million for the remainder of 2025. Our reported efficiency ratio was 60.7% and was up compared to 59.6% for the linked quarter. The increase was driven by our higher costs during the first quarter that I mentioned, along with lower accretion income compared to the fourth quarter.
Looking at our balance sheet at March 31, our loan-to-deposit ratio stood at 83% and was relatively consistent with year-end. Our investment portfolio declined $40 million and was 20.3% of total assets compared to 20.7% at year-end, as we were able to reinvest proceeds into loan growth during the quarter. Our target range for investments as a percent of assets is between 18% and 20%. Compared to year-end, our deposit balances grew 2%, or $145 million. The most significant growth was in our money markets, governmental deposits, and retail CDs. We had seasonal growth in our governmental deposits, which contributed to the quarterly increase. During the Q1, our average new retail CDs and renewals were originated at a rate of about 20 basis points lower than our Q4 average rate.
We also had nearly $19 million of balance increase in our non-interest-bearing deposits, while we reduced our brokered CDs by over $96 million compared to year-end. While the Fed Funds rate increased 4.25% from the Q4 of 2021 through March 31, our deposit rates have only increased 1.7% over the same period. Our demand deposits as a percent of total deposits were flat at 34% for both quarter end and year-end. Our non-interest-bearing deposits to total deposits were 20% for both periods as well. Our deposit composition was 76% in retail deposit balances, which included small businesses, and 24% in commercial deposit balances. Our average retail client deposit relationship was $26,000 at quarter end, while our median was around $2,900. Moving on to our capital position, we are proud to announce another increase to our quarterly dividend, which is now at $0.41 per share.
This is our 10th consecutive year of increasing our dividend. We continually evaluate our ability to provide a solid return for our shareholders, and this new dividend rate results in an annualized yield of 5.95%. We continue to have strong regulatory capital ratios, which improved compared to year-end. Our tangible equity to tangible assets ratio improved to 8.3% compared to 8% at year-end. This growth was due to earnings outpacing dividends, as well as reductions in our accumulated other comprehensive losses related to our available-for-sale investment securities. Our book value and tangible book value both grew compared to year-end and were up 2% and 4%, respectively. Finally, I will turn the call over to Tyler for his closing comments.
Tyler Wilcox (President and CEO)
Thank you, Katie, and our apologies for the call dropping. We're not sure what happened there. Hopefully, we're coming in loud and clear. As I think about how much our business has changed over the last few years, one thing remains the same: our dedication to being the best at what we do. We have very high standards for our associates, both those who serve our customers and those who serve internally. Our culture makes us a place where great people want to work, which is evident in our track record of being a top employer. We recently received recognition from USA Today for a top workplace for the Q4 in a row. We have the ability to partner with other institutions during mergers, with proven success integrating them into our processes and systems.
We are committed to service within our communities, ensuring that all of our associates have the opportunity to make a difference in causes that matter to us and our clients. These are the characteristics that define Peoples and, in turn, drive solid results and shareholder value. We were also recognized by Forbes for the second year in a row as one of America's best banks 2025. In the past 12 months that I have been president, I have been in awe of how our associates take care of our clients, each other, shareholders, and our communities. We intend to keep this momentum going and keep our focus on these core strengths. As we move through the remainder of 2025, here are some of our expectations for the full year of 2025, which exclude non-core expenses. We expect to achieve positive operating leverage for 2025 compared to 2024.
Assuming a 25 basis point reduction in rates from the Federal Reserve during mid-2025 and another 25 basis point reduction in the fourth quarter, we anticipate a full-year net interest margin of between 4% and 4.2%. We are positioned so that declines in interest rates have a minor impact to our net interest margin, and timing of the rate reductions has little impact to our projections for 2025, as we have meaningfully reduced our asset sensitivity compared to prior periods and are now in a relatively neutral position. We believe our fee-based income growth will be in the mid-single-digit percentages compared to 2024. We expect quarterly total non-interest expense to be between $69 million and $71 million for the Q2, Q3, and Q4 of 2025. We believe our loan growth will be between 4% and 6% compared to 2024.
While our Q1 provision for credit losses was higher, we anticipate the quarterly run rate for provision for credit losses to normalize during the H2 of 2025 and be similar to our 2024 quarterly rate, excluding any potential negative impacts to our forecasts. While we cannot control the macro environment or predict the uncertainty of policymakers, we remain committed to our core operating performance and principles, which are collecting and deploying high-value deposits into quality lending businesses, managing our credit risk responsibly, and ensuring that our quality mix of businesses work together, bringing to bear every financial tool we have for the benefit of our clients. We will continue to evaluate our risks while sticking to our strengths and executing our strategic plans. This concludes our commentary, and we will open the call for questions.
Once again, this is Tyler Wilcox, and joining me for the Q&A session is Katie Bailey, our Chief Financial Officer. I will now turn the call back into the hands of our call facilitator. Thank you.
Operator (participant)
Thank you. We will now begin the question and answer session. If you wish to ask a question, please press Star and 1 on your telephone keypad. If you would like to withdraw your question, please press Star, then 2. At this time, we will wait momentarily to assemble our roster. Our first question comes from Brendan Nosal from Hovde Group. Please go ahead.
Brendan Nosal (Director of Equity Research)
Hey, good morning, Tyler and Katie. Hope you're doing well.
Tyler Wilcox (President and CEO)
I'm great, Brendan.
Brendan Nosal (Director of Equity Research)
Maybe just starting off here on loan growth. I mean, for the quarter, you hit the 4%-6% guide that you laid out earlier in the year, and it seems like you stuck to that outlook for the rest of the year. I would just love some color on how you view the balance of risks to the loan growth outlook, just given all the tariff crosstalk, and then what you're seeing from an actual activity standpoint after tariffs were announced earlier this month. Thanks.
Tyler Wilcox (President and CEO)
Thanks, Brendan. A couple of thoughts going in a few different directions. Traditionally, the first quarter is one of our softer quarters. If we were in a normalized year, I'd be maybe a little bit more optimistic. I will say our visibility into the Q2 pipeline is strong, and that pipeline looks strong. I expect we'll have good production. We'll also probably see a little bit higher payoff activity in the Q2 than we saw in the Q1. Our reiteration of our guide is really based on what we're seeing today. I think all of us are asking the questions of what impact will the tariffs have or not have. That's one of the reasons why we mentioned the kind of confidence in our markets. I think there is a lot of optimism.
There continues to be optimism in the small business space, which is where we play. We have seen some surprises, despite, as I mentioned, despite consumer confidence being at an all-time low since the pandemic. We still saw record production and had the highest production March that we have ever had in indirect. If that is maybe a temporary bounce, that is possible. I think there are some reasons for optimism in all of those portfolios. Like we said, we cannot control the macro environment. That is our best estimate as of today from what we are hearing from our sales pipeline and from our salespeople. The last thing I would add is that we continue and have continued to add talent throughout all those markets where we want to deploy our loan balances, both in specialty finance and in the core bank.
That addition of talent is also a tailwind.
Brendan Nosal (Director of Equity Research)
Okay. Great. That's helpful color, Tyler. I appreciate it. Maybe then pivoting to North Star Leasing and leasing overall. While loss content remains elevated, it did start to move in the right direction, like you telegraphed last quarter. Just kind of curious to hear your thoughts on how long you think it takes to get back down to that normalized range for that business and if there are any knock-on effects to the yields in that portfolio as you kind of work the credit quality side of the business. Thanks.
Tyler Wilcox (President and CEO)
Yeah. Thank you. Again, we continue to remain committed to the business. We continue to invest in that business, and so we believe it in the long term. I feel good coming to you and coming to the street and saying that we are exactly where we thought we would be with respect to the charge-offs in the Q4 and actually a hair under. When do we normalize? I think that continues to decline throughout the remainder of the year. One of the key drivers that we've talked about is kind of those high-balance accounts. The high-balance accounts comprise a significantly higher portion of that portfolio in 2024. By the end of this year, we believe that portion of the portfolio will be between $8 million and $10 million, down from over $50 million last year.
The high correlation there between that is why we have that high degree of confidence that it will ramp down. If we think of it like a bell curve, we kind of hit the top of that curve, and we are on our way down. It will not be in the second quarter that we return to that historical norm. I just remind everybody that we were historically low at 1.5% charge-offs for a couple of years that I do not think was ever going to be sustainable. We have not originated any high-balance accounts for a number of quarters now. What you are seeing is kind of the cleaning out of the portfolio and the go-forward, even though the portfolio size has declined. Overall, we are okay with that because we are making that compromise for credit quality, and yields have held up.
Brendan Nosal (Director of Equity Research)
Okay. Great. Great. Thanks for taking the questions.
Tyler Wilcox (President and CEO)
Thank you.
Kathryn Bailey (CFO and Treasurer)
Thanks, Brendan.
Operator (participant)
Thank you. Our next question comes from Daniel Tamayo from Raymond James. Please go ahead.
Daniel Tamayo (VP and Senior Research Analyst)
Thank you. Good morning, everybody.
Tyler Wilcox (President and CEO)
Hi, Daniel.
Kathryn Bailey (CFO and Treasurer)
Hi, Daniel.
Daniel Tamayo (VP and Senior Research Analyst)
Yeah. Maybe starting just on the fee income guidance, it looks like it was reduced a bit here. Just wanted to get some color if that's kind of the drivers of that reduction, if it's more around the, well, I'll leave it in your hands, sir.
Kathryn Bailey (CFO and Treasurer)
Sure. I think what you saw in the Q1 is insurance income came in a little softer from a performance commission-based income than the prior year. That is a little bit of the reduction. I think on the mortgage side, too, I think some more of that is being held on balance sheet as opposed to seeing some or expected to see some gains that we previously might have seen in our prior guide. I would just put out there there is a variable out there as it relates to our wealth management or trust and investment income as it is somewhat dependent on the market and the performance thereof. Just given the volatility, there is some hedge in the numbers there.
Daniel Tamayo (VP and Senior Research Analyst)
Okay. Terrific. Then maybe moving over to the margin. I guess just curious, you laid out the sensitivity of the balance sheet should be relatively kind of neutral, so mitigating impacts from rate cuts. Just your thoughts on, or I guess if you have some color on repricing of remaining CDs, what that looks like for the rest of the year. If you could touch on, given the volatility and the accretion number, where you think that might shake out.
Kathryn Bailey (CFO and Treasurer)
Yeah. I'll go in reverse order. On the accretion side, we printed it added 17 basis points to the Q1, which was in line with the 15-20 I said in the H1. I think you can expect it to stay at that end or that range or a little lower as we proceed through the year. I would say between 15-17 probably for Q2 and maybe falling slightly below 15 for the back half of 2025, the last two quarters. On a margin side, as it relates to retail CDs, those CDs, again, we're keeping relatively short. Kind of our highest rate we're paying is on a five-month right now.
We continue to bring that rate down in the Q1, even without a Fed moving, and we'll continue to follow suit with the Fed repricing, as I think we expect them to do in some time in 2025. I think there's plenty of opportunity to reprice the deposit books, specifically the retail CDs, downward as we have been ever since August and before last year.
Daniel Tamayo (VP and Senior Research Analyst)
Okay. Great. Lastly, on loan yields, if you have some color on where you were seeing new loan yields in the quarter relative to what was rolling off.
Kathryn Bailey (CFO and Treasurer)
I'm just pulling up. I think they're, as we quoted in the script, about 53% of our portfolio is variable rate. We did see some compression in loan yields during the quarter, more than offset by reduced funding costs, of course. I think they're holding up relatively well. As we articulated previously, for North Star Leasing specifically, those yields are holding pretty strong for us in the 18%-20% range. The commercial came down a little bit more from the variable rate side, but still holding strong, and we still like the spreads of all the businesses.
Daniel Tamayo (VP and Senior Research Analyst)
Okay. That's terrific color. Thank you so much. That's it for me.
Tyler Wilcox (President and CEO)
Thank you, Daniel.
Operator (participant)
Thank you. The next question comes from Tim Switzer from KBW. Please go ahead.
Tim Switzer (Director)
Hey, good morning, guys. Thank you for taking the question.
Tyler Wilcox (President and CEO)
Morning, Tim.
Tim Switzer (Director)
I really appreciate the color you guys have given on the potential impact of tariffs and how you haven't really seen anything too notable in regards to loan demand or credit. Just given your exposure to retail deposits, I thought you guys might have a good sense of how consumers have reacted, if at all, to the tariffs and economic uncertainty, if you've seen any notable changes to consumer behavior or spending.
Tyler Wilcox (President and CEO)
Yeah, Tim, I think a couple of thoughts. One, as I mentioned a little bit counterintuitively, we've seen significant increases in our indirect lending business. I think part of that is due to the reaction of some of the manufacturers and the dealers to put incentives on vehicles. I think there's also kind of a mental rush to go secure a vehicle before expected prices increase. I think there's also a flight to used vehicles as being in value there. Deposits increasing, certainly, as well as people or consumers a little bit more inclined to put their money in the bank than into the equity markets. The other thing I would say is I think that all that activity is, oh, the other thing I would say is, excuse me, is the mortgage pipeline is incredibly strong, despite the fact that there's been no movement on rates.
All of those things, I think, are varying well for the consumer businesses. HELOC balances and new originations are significant. You see a lot of consumers tapping into significant increases in the equity in their homes that they have developed over the past few years.
Tim Switzer (Director)
Interesting. Thank you. The other question I have is any updated thoughts you have on M&A and crossing the $10 billion threshold, how you guys would like to approach that. I know it is early, but has the Capital One Discover approval accelerated discussions at all across the industry?
I think we tend to look, Tim, from an approval perspective, we tend to look at the deals that are closer in size to us. I think about the German American deal or the WesBanco deal that seem to have gone in nice approval processes. We think the ability to do a deal is there. We're actively engaged in conversations. We've been able to evaluate a few opportunities over the last two quarters. I would say we are standing on our strategic patience outlook. We have a strong desire to cross 10 and to continue to grow the bank because that's been a core strength. We feel no particular compulsion to do that quickly. We want to do it correctly.
Given that we have, call it, two years of headroom on organic growth, we're going to be thoughtful and patient around finding the right partner of the right size and strategy and geography that makes the most sense. That could happen next quarter, and it could happen in a year and a half, and I would be fine either way because that would mean we're kind of executing on that strategic patience.
Great. Thank you, guys.
Tyler Wilcox (President and CEO)
Thank you.
Kathryn Bailey (CFO and Treasurer)
Thank you.
Operator (participant)
Thank you. The next question comes from Terry McEvoy from Stephens. Please go ahead.
Terry McEvoy (Managing Director and Research Analyst)
Hi. Good morning.
Tyler Wilcox (President and CEO)
Morning, Terry.
Kathryn Bailey (CFO and Treasurer)
Good morning, Terry.
Terry McEvoy (Managing Director and Research Analyst)
Maybe just keeping up with the news this morning. Just how should we or how are you thinking about consumer lending given the student loan borrowers kind of facing mandatory collections, I think, next month? Does that present any risk to your consumer loan portfolio or how you underwrite consumer credit?
Tyler Wilcox (President and CEO)
It'll certainly play into consideration in the initial credit evaluations when we're doing our underwriting on consumer-type loans. I think there was we already crossed a hurdle with that when the previous loan forgiveness or loan freezes went out of effect. I realize that's another hurdle today. We'll always just evaluate the debt-to-income, and I think that may be somewhat of a driver of, again, people tapping their equity in their homes. I don't think it will make a meaningful difference for us, and we'll continue to stick to our knitting with respect to our underwriting standards on all the consumer loan businesses. I don't expect a meaningful change as a result of that.
Terry McEvoy (Managing Director and Research Analyst)
Thank you for slide four. My question is, when you look at the charge-offs in Q4 and Q1 relative to the industry breakdown, any observations in terms of industries or sectors, either last quarter or this quarter, that contributed to those charge-offs?
Tyler Wilcox (President and CEO)
Yeah, Terry, I think the mix within the small-ticket leasing is heavily weighted towards restaurant, but we've curtailed the titled trucking, the trailer fleets, a little bit of the brewing equipment. As you can see in that mix, it is fairly varied, and there's always going to be, it's always going to be heavily centered around hospitality because that's the outlet, and that's why we get the yields that we get. I think the combination of that, plus taking smaller bites as we are, as we're avoiding those high-balance accounts for multiple quarters now, should keep it within our appetite.
Terry McEvoy (Managing Director and Research Analyst)
Great. Thanks for taking my questions. Appreciate it.
Tyler Wilcox (President and CEO)
Thank you, Terry.
Operator (participant)
Thank you. The next question comes from Nathan Race from Piper Sandler. Please go ahead.
Nathan Race (Managing Director and Senior Research Analyst)
Hey, everyone. Thanks for taking the time.
Kathryn Bailey (CFO and Treasurer)
Hey, Morning, Nathan.
Nathan Race (Managing Director and Senior Research Analyst)
Going back to the margin front, just curious, as you look at some of the opportunities to reduce non-maturity deposit pricing going forward, can you kind of just speak to what those opportunities look like, just following the Fed cuts in the back half of last year and just assuming the Fed remains on pause at least through the Q2?
Kathryn Bailey (CFO and Treasurer)
Yeah. For many months last year, we were running a five-month special. Towards the end of the year and early this year, we had closer to an 11-month special. I think it's a little varied, but I think there's meaningful opportunity in each month as we look at maturities each month as we proceed through 2025, given that special rate that we had out there and the production we had in the month. Even with no rate cuts, I think there's still meaningful opportunity for us on the CD deposit repricing.
Nathan Race (Managing Director and Senior Research Analyst)
Gotcha. That's helpful. Just in terms of kind of the stable margin guidance, even following Fed rate cuts, can you just remind us in terms of kind of how much opportunity there are to kind of redeploy cash off the bond book in terms of what that dollar amount looks like and also in terms of some of the upward repricing you can see as well on the loan side of things outside of the 40-year?
Kathryn Bailey (CFO and Treasurer)
Yeah. On the investment securities portfolio, that's roughly $15 million-$20 million a month we see in paydowns on that portfolio. I would just note too, we've bought at times where there are available discounted bonds that are callable, and we expect a meaningful rate reduction. Those would be called, and therefore that $15 million-$20 million a month obviously would be significantly higher if that situation presents itself. $15 million-$20 million a month is kind of the run rate we think about from the investment portfolio as it relates to kind of moving into the loan portfolio.
Nathan Race (Managing Director and Senior Research Analyst)
Katie, just in terms of kind of the non-floating rate book in terms of that repricing cadence over the back half of the year?
Kathryn Bailey (CFO and Treasurer)
Yeah. I mean, one piece of that is the premium finance portfolio. Those are roughly 10 months, so there's meaningful opportunity there. The leasing book is largely three- to five-year money. As Tyler noted earlier, some of those high-balance leases, we expect much roll-off of that in the back half of the year and put it into kind of more of the small-ticket kind of 18%-20% yield.
Nathan Race (Managing Director and Senior Research Analyst)
Okay. Great. Any color you can provide just in terms of kind of how the cadence in equipment leasing charge-offs trended so far this year? Are you seeing that continue to come down, or has it been kind of choppy over the last several months?
Tyler Wilcox (President and CEO)
I do. I expect it to come down. We charged off $7.5 million in the small-ticket leasing in Q4, about $5.4 million in this quarter, which is directly on target with where we expected it to be. Barring any unforeseen circumstances, I see the remainder of the year kind of proceeding as expected and ramping down through the remainder of the year. We feel front-loaded in the first two quarters, I guess, is fair to say.
Nathan Race (Managing Director and Senior Research Analyst)
Okay. Got it. One last one from me. It sounds like you guys are still having some encouraging discussions on the acquisition front. Just curious, just given where the stock trades relative to peers on board earnings and just given the down-draft and industry-wide valuations recently, how you're thinking about maybe getting back in the market on share buybacks?
Kathryn Bailey (CFO and Treasurer)
Yeah. As we've said before, we have a plan in place, and we have executed under that plan in April. Obviously, you did not see that in disclosures as of Q1 because it happened in April when things started to go a little more volatile from a stock price perspective. We are in the market for our stock, and we will continue to monitor that through the second quarter as well.
Nathan Race (Managing Director and Senior Research Analyst)
Okay. Got it. That's helpful. I appreciate the color. Thank you.
Tyler Wilcox (President and CEO)
Thanks, Nate.
Kathryn Bailey (CFO and Treasurer)
Thank you.
Operator (participant)
Thank you. The next question comes from Manuel Navas from DA Davidson. Please go ahead.
Manuel Navas (SVP and Equity Research Analyst)
Hey, good morning.
Tim Switzer (Director)
Good morning, Manuel.
Manuel Navas (SVP and Equity Research Analyst)
Just want to clarify.
Thanks. Just wanted to clarify on the provision. It is likely to normalize to 2024 quarterly rate in the back half of the year. You kind of expect one more quarter of a little bit elevated as that net charge-off declines for the leasing business. Is that the right way to think about it in the second quarter?
Kathryn Bailey (CFO and Treasurer)
Yes, that's right. As we had articulated, I think there's some expectation that North Star will remain elevated. We expect it to continue to come down. I think it was $5.4 million in Q1. We expect a slight reduction in Q2, but still elevated, and therefore a provision will be a function of that. I just caveat that we, as many, do use a forward economic forecast, and this is assuming kind of steady state there, no meaningful movements. As we might all project, that could change as we proceed through 2025.
Manuel Navas (SVP and Equity Research Analyst)
Okay. That's good color. You talked a little bit about some mortgage strength and the pipelines being pretty strong and a little bit more on balance sheet. Some of that of what you're seeing from customers. Is that a choice in product? Is that a choice on your end? How is that lending decision versus on balance sheet decision versus fee decision going? Just kind of have a little more color on that.
Tyler Wilcox (President and CEO)
Yeah. I would say that's not product-driven. That is a choice on our end as we've, over time, made choices where we want loan growth to be and how we want to deploy our capital. We've been slightly weighted towards putting more on balance sheet recently, but we'll evaluate that based on the fee-income trade-off as we go forward and what the demand is.
Manuel Navas (SVP and Equity Research Analyst)
Is there a give within the OpEx guide? If we do see a bit of a downturn, would you be towards the lower end of the OpEx guide if fees do not grow maybe at the low end of the mid-single digits, if loan growth is at the low end of mid-single digits? Can you just talk about that give on the OpEx guide for different revenue scenarios?
Kathryn Bailey (CFO and Treasurer)
Yeah. I mean, I think a large portion of our operating expenses is salaries and benefits, and in there is incentive and kind of production payouts. To the extent, as you know, if any of the fee-income businesses or loan production falls on the shorter end, I think you would expect that component of base salaries and benefits to be on the lower side as well.
Tyler Wilcox (President and CEO)
We're committed to using the levers that we have in the scenarios that are necessary to ensure that we control our expenses. I think we have flexibility there.
Manuel Navas (SVP and Equity Research Analyst)
That's great. I appreciate the commentary. Thank you.
Kathryn Bailey (CFO and Treasurer)
Thank you.
Tyler Wilcox (President and CEO)
Thanks, Manuel.
Operator (participant)
Thank you. The next question comes from Daniel Cardenas from Janney Montgomery Scott. Please go ahead.
Daniel Cardenas (Managing Director)
Good morning, guys.
Tim Switzer (Director)
Hi, Dan.
Kathryn Bailey (CFO and Treasurer)
Hi, Dan.
Daniel Cardenas (Managing Director)
Most of my questions have been asked and answered. Just a couple of housekeeping questions. In terms of tax rate for you guys on a go-forward basis, is that 21.5% number still kind of a good run rate for the remainder of the year?
Kathryn Bailey (CFO and Treasurer)
I think it's closer to 22%-22.5%.
Daniel Cardenas (Managing Director)
On the improvements that we saw in the criticized and classified loans, I think in the press release you mentioned that that was due to upgrades and paydowns. Can you maybe break that down a little bit and tell us percentage-wise how much of those improvements were paydowns and how much were upgrades?
Tyler Wilcox (President and CEO)
Yeah. There's quite a few puts and takes as those are always moving, but I would say it's mostly upgrades. We had one or two paydowns in the $5 million-$10 million range and a decent amount of upgrades.
Daniel Cardenas (Managing Director)
Were those mostly technical? They went into classified or criticized because of technical exceptions or?
Tyler Wilcox (President and CEO)
Yeah. I mean, think about Q1 timing as well. We're getting updated financials from the clients, and some of those are specific cases where the client had one report in the Q4, and we were able to get full-year financials and be able to feel confident in upgrading them. That's about $28 million, more or less, was the upgrade amount and about $22 million in paydowns, if that helps.
Daniel Cardenas (Managing Director)
Okay. Thank you. Last question for me in terms of acquisitions. Geographically, what direction would you guys like to go? Where would you like to go that you're not, or where do you see holes in the franchise that you'd like to fill?
Tyler Wilcox (President and CEO)
As always, my number one preference would be fill-in in our markets. More Ohio, more Kentucky, and more West Virginia. We are in Virginia to a small degree, and I would love to be in Virginia more meaningfully. A lot of those Virginia markets are contiguous and share a lot of characteristics with our existing franchise, and that is going to be a great opportunity. I would add kind of southwest Pennsylvania, which is very close to our headquarters and gives us adjacency and access, and then essentially southern Indiana with our presence in Louisville, Kentucky, and Cincinnati, Ohio. Those are kind of my broad view. We continue to evaluate national specialty finance business opportunities as well, both that would be additive to our existing capabilities and potentially new.
Daniel Cardenas (Managing Director)
Got it. All right. That's all I have for right now. Thank you, guys.
Tyler Wilcox (President and CEO)
Thanks, Dan.
Kathryn Bailey (CFO and Treasurer)
Thanks, Dan.
Operator (participant)
Thank you. At this time, there are no further questions. Do you have any closing remarks?
Tyler Wilcox (President and CEO)
Yes. I want to thank everyone for joining our call this morning. Please remember that our earnings release and a webcast of this call, including our earnings conference call presentation, will be archived at peoplesbancorp.com under the investor relations section. Thank you for your time and have a great day.