KBRA Affirms Ratings for PeoplesBancorp, MHC

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Holyoke, Massachusetts-based PeoplesBancorp, MHC (“Peoples” or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for lead subsidiary, PeoplesBank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the lower-risk nature of the company’s loan portfolio that includes 44% in residential mortgage loans, underpinned by its long-term track record of below average credit losses, including through the GFC when Peoples NCO ratio peaked at 0.4% in 2012. Peoples conservative risk profile is primarily attributable to its mutual operating strategy and its long-standing presence in rather stable markets. Moreover, while the company’s moderately sized commercial portfolio ($2.2 billion, or 47% of total loans) is concentrated in CRE, this portfolio is well-diversified by property type and highly granular in nature.

The company’s funding is centered around a rather granular and durable core deposit base, though includes a slightly elevated usage of wholesale funding (+20%), which, coupled with its higher concentration of time deposits (25% of total deposits as compared to the rated peer average of 20%), results in above-average funding costs (2.46% for 2Q25). Furthermore, the company maintains a lower-yielding loan portfolio (5.44% for 1H25), largely related to its elevated concentration in lower-risk residential mortgage loans, thus, resulting in its lower NIM and consequently relatively weaker earnings. However, earnings have been comparatively less volatile with an ROAA ranging from 0.5% - 0.9% dating back to early post-GFC years.

Following a period of steady build, Peoples reported a meaningful decrease in capital ratios in 1Q25, related to its merger with SSB Community Bancorp, MHC, the mutual bank holding company for Cornerstone Bank, and the associated interest rate marks on the acquired assets. Capital is expected to remain below peers over the near term, particularly given the pending acquisition of Athol Savings Bank. However, with stable earnings and moderate loan growth, Peoples should be able to rebuild capital in a reasonable timeframe, achieving the company’s stated capital targets and operating closer to peers long term (+11% CET1 ratio).

Rating Sensitivities

The Stable Outlook reflects KBRA’s view that a rating change is unlikely over the medium term. Should Peoples be unable to execute its stated capital rebuild objectives, or should the company experience a material deterioration in asset quality, with loss rates well above peer averages and impacting its profitability, negative ratings action could result.

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