Peoples Bancorp NASDAQ: PEBO used its first-quarter 2026 earnings call to highlight improving core trends in margin, deposits and asset quality, while also announcing a planned acquisition designed to deepen its presence in Kentucky.
Merger agreement with Citizens National
President and CEO Tyler Wilcox said the company has entered into an agreement to merge with Citizens National Corporation, a Kentucky-based bank with approximately $700 million in assets and 12 branches across eight counties. Peoples expects the merger to close near the “ending of Q3/beginning of Q4” of 2026, with system conversion expected sometime in the second quarter of 2027.
Wilcox described Citizens as “a deposit-rich franchise” with a similar community-focused banking philosophy. The transaction is valued at approximately $77 million, with Citizens shareholders receiving 2.1 shares of Peoples stock and $8 in cash for each share of Citizens stock. Wilcox said the deal is expected to have an “expected tangible book value earn back period of less than one year,” and he added that Peoples anticipates 40% cost savings from the combination, with roughly half realized in 2026 and the remainder in early 2027.
Peoples also provided earnings and balance sheet expectations tied to the acquisition. Wilcox said the company expects the transaction to be accretive to 2027 EPS by $0.20 and indicated regulatory capital ratios should improve at close based on pro forma results. In response to an analyst question, CFO Katie Bailey said there is “15-20 basis points opportunity” to Peoples’ standalone net interest margin guide on a full-year 2027 basis, with only “a couple basis points” of that coming from accretion and the larger benefit coming from reducing low-yielding securities and paying down higher-cost overnight wholesale funding.
Asked about how the deal developed, Wilcox said Peoples has been interested in the franchise since its earlier Kentucky expansion tied to the 2018 First Commonwealth acquisition, and that Citizens’ decision to explore a sale created an opportunity to combine given the geographic overlap and strategic fit.
First-quarter EPS and notable quarterly trends
Peoples reported diluted earnings per share of $0.81 for the first quarter ended March 31, 2026, slightly above the consensus analyst estimate of $0.80, according to Wilcox. He said results reflected several improvements versus the linked quarter, including a 4 basis point expansion in net interest margin, a $400,000 increase in fee-based income, $13 million in loan growth, and improving credit quality metrics.
Wilcox also flagged seasonal first-quarter expenses that the company typically incurs. He said stock-based compensation items totaled $764,000 and reduced diluted EPS by $0.02, while employer health savings account contributions of $689,000 reduced diluted EPS by another $0.02.
Net interest income, margin and deposit costs
Bailey said net interest income declined $629,000 from the fourth quarter, while net interest margin expanded 4 basis points. She attributed the decline in net interest income primarily to lower accretion income—$1.3 million in the first quarter compared with $1.8 million in the fourth quarter—as well as two fewer days in the quarter.
The margin improvement was “partially driven by a 12-basis point reduction in our core deposit costs,” Bailey said, excluding brokered CDs. She also noted a reduction in brokered CDs supported margin improvement and said Peoples has sought to minimize interest rate risk and is in a “relatively neutral interest rate risk position.” On deposit pricing, Bailey said the company continues to evaluate pricing frequently and has been “strategic and opportunistic” with deposit costs, “most notably the retail CD product.”
On the securities portfolio, Bailey said the company continues to receive about $15 million to $20 million per month in cash flows on a standalone basis and estimated the yield on those cash flows at “somewhere in the range of 350.” She indicated reinvestment yields can be 100 to 150 basis points higher, “maybe up to five,” depending on market conditions and balance sheet needs.
Fees, expenses, balance sheet and capital
Fee-based income increased $400,000 from the linked quarter, Bailey said, driven by $1.2 million tied to an annual performance-based insurance commission typically received in the first quarter. That was partially offset by seasonally lower electronic banking income and deposit account service charges compared with the fourth quarter.
Non-interest expense rose $341,000 sequentially, reflecting higher employee-related expenses that recur in the first quarter. Bailey said that excluding the quarter’s one-time expenses, non-interest expense was down compared with the fourth quarter. The reported efficiency ratio was 58.6% in the first quarter versus 57.8% in the linked quarter, which Bailey attributed to one-time expenses and lower accretion income. Later, in response to a question about guidance, Bailey said an increase in the expected expense run rate for the remaining quarters of 2026 was “mostly impacted by operating lease expense,” with corresponding revenue from Vantage Leasing operations that is positive to pre-tax earnings.
Peoples ended the quarter with a loan-to-deposit ratio of 88.5%, improving from 88.8% at year-end. Bailey said core deposit balances excluding brokered CDs increased $192 million from the linked quarter, including $102 million in governmental deposit growth and a $41 million increase in non-interest-bearing deposits. Those gains were partially offset by a $154 million decline in brokered CDs, as the company reduced that funding source and opted for lower short-term borrowing rates.
Bailey cautioned that governmental deposits are seasonally higher in the first quarter and that Peoples expects some of those balances to flow out in the second quarter. Demand deposits were 35% of total deposits at both March 31 and year-end, while non-interest-bearing deposits rose to 21% of total deposits from 20%.
On capital, Bailey said all regulatory capital ratios improved. Tangible equity to tangible assets rose 12 basis points to about 8.9% at quarter-end, while book value per share increased to $33.85 and tangible book value per share improved to $22.95. She also announced that Peoples increased its quarterly dividend for the 11th consecutive year to $0.42 per share, which she said equates to an annualized dividend yield of 4.84%.
Credit and loan growth: provision driven by macro assumptions
Wilcox said first-quarter provision for credit losses totaled $9.7 million, lifting the allowance for credit losses to 1.16% of total loans from 1.12% at year-end. He emphasized the provision was driven by a “deterioration in macroeconomic conditions used within our models” and “is not indicative of issues we are seeing within our portfolio.” He said the company remains cautious as it evaluates potential impacts of the Iran conflict on oil prices and inflationary pressures.
The annualized quarterly net charge-off rate improved to 40 basis points from 44 basis points in the linked quarter. Wilcox said small-ticket lease charge-offs totaled $3.8 million and contributed 23 basis points to the net charge-off rate. He added that second-quarter net charge-offs are expected to be consistent with recent quarters, with net charge-offs projected to decline in the second half of 2026.
On asset quality, Wilcox said non-performing loans declined by more than $3 million from the linked quarter, and criticized and classified loan balances declined by $12 million and $5 million, respectively. At March 31, criticized loans were 3.31% of total loans and classified loans were 2.1%, while 98.9% of the loan portfolio was current, up from 98.6% at year-end.
Peoples generated $13 million in loan growth, including more than $111 million in commercial and industrial growth, partially offset by combined declines of about $55 million in construction and commercial real estate loans. Premium finance and leases fell $24 million and $15 million, respectively, as the company saw some payoffs it had anticipated.
In the Q&A, Wilcox said the company expects a little over $400 million in loan payoffs for the full year, with about $380 million expected in the first half. He said C&I loan demand remains robust, while consumer activity has slowed somewhat, citing high interest rates and affordability pressures. Bailey said new loan rates vary by portfolio but are “somewhere between 7% and 7.25%,” and the loan book is roughly 50/50 fixed and variable, with a slight tilt toward variable.
On the company’s Northstar leasing portfolio, Bailey noted production has been depressed amid tighter credit actions but said new originations in that business can carry rates of 18% to 20% if production ramps in the company’s stated “credit box.” Wilcox said management expects that ramp-up “towards the end of this year, beginning of next year.”
Looking ahead, Wilcox guided for full-year 2026 results excluding non-core expenses and the proposed merger, including net interest margin between 4% and 4.2% (assuming one 25 basis point rate cut), quarterly fee-based income of $28 million to $30 million, and quarterly non-interest expense of $73 million to $75 million for the remaining quarters of 2026. He said loan growth is expected toward the low end of its 3% to 5% range, while net charge-offs are expected to be slightly lower in 2026 than in 2025, excluding changes in economic forecasts.
Wilcox also reiterated the company’s view that it would cross $10 billion in assets in 2027 absent actions taken, while noting the company retains flexibility. Asked about Durbin-related impacts, he said the revenue risk upon crossing $10 billion is about $10 million pre-tax before the Citizens deal, with Citizens adding about $1 million. Wilcox said Peoples has expenses “baked in” and does not expect incremental expense pressure from crossing the threshold.
About Peoples Bancorp NASDAQ: PEBO
Peoples Bancorp, Inc is a bank holding company headquartered in Marietta, Ohio. Through its subsidiary Peoples Bank, the company provides a comprehensive range of commercial and consumer banking services designed to serve individuals, businesses and institutional clients. Its deposit products include checking and savings accounts, money market accounts, certificates of deposit and digital banking platforms that enable secure online and mobile access.
On the lending side, Peoples Bancorp offers commercial and industrial loans, commercial real estate financing, construction and agricultural lending, as well as residential mortgage products.
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