KBRA Assigns Ratings to PeoplesBancorp, MHC

KBRA assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 to PeoplesBancorp, MHC (“Peoples” or “the company”). Additionally, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 to its subsidiary, PeoplesBank. The Outlook for all long-term ratings is Stable.

The ratings are supported by Peoples’ conservative risk profile, attributable to its mutual-like residential tilt and longstanding operating presence within stable markets, which has been stewarded by an experienced and capable management team. Furthermore, the company’s sound underwriting and monitoring practices within its complementary commercial lending verticals has facilitated solid credit quality over an extended period with an NCO ratio that has tracked below 0.2% over the past decade, and largely outperformed peers during the GFC, peaking at just 0.4% in 2012. These strengths are counterbalanced by the company’s sub-peer earnings power, which has limited internal capital generation. Although Peoples’ earnings have been extremely durable over a long period of time (ROA between 0.50% and 1.00% annually over the past 10 years), moderately higher loan (and RWA) growth more recently has principally offset capital augmentation through retained earnings, with the CET1 ratio being managed in the mid-10% range since 2019. While the impending acquisition of SSB Community Bancorp, MHC and associated loan marks are expected to weaken core capital in the near term, KBRA views the company’s ability to quickly rebuild capital towards its targeted levels while also maintaining its durable earnings profile on a go-forward basis as paramount to the ratings. Peoples has relied more heavily on FHLB borrowings and brokered deposits (~20% of total funding as of 2Q24) to supplement core deposit generation, driving up the loan-to-core deposit ratio to a recent high watermark of 116% as of 2Q24. Moving forward, the company plans to reduce wholesale funding usage as it curtails growth in its (deposit-lite) purchased loan portfolio and continues to emphasize core deposit generation.

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