Peoples Bancorp Q2 Earnings Call Highlights

Key Points

• Peoples Bancorp beat expectations in Q2 with adjusted diluted EPS of $0.96, helped by higher net interest income, lower credit-loss provision and improved capital ratios. Reported EPS was $0.78 after an $8.2 million securities-sale loss tied to preparation for the pending Citizens merger and staying below the $10 billion asset threshold.
• Net interest income and margin improved as lower deposit costs lifted results, with Q2 net interest income rising $2.3 million and net interest margin expanding 7 basis points. Management said a stable-rate environment underpins full-year guidance, while a 25-basis-point Fed hike would likely boost margin by 6 to 8 basis points.
• Credit trends improved as provision for credit losses fell 51% sequentially to $4.7 million and the annualized net charge-off rate improved to 31 basis points from 40 basis points. Loan growth was positive overall, but commercial real estate paydowns kept management expecting full-year growth toward the low end of its 3% to 5% target.

Peoples Bancorp NASDAQ: PEBO reported second-quarter diluted earnings per share of $0.78, or $0.96 on an adjusted basis, as management pointed to higher net interest income, lower credit-loss provision and improved capital ratios during the company’s earnings call for the three and six months ended June 30, 2026.

President and Chief Executive Officer Tyler Wilcox said adjusted diluted EPS exceeded consensus analyst estimates of $0.85. Reported results included an $8.2 million loss tied to the strategic sale of investment securities, which reduced diluted EPS by $0.18. Wilcox said the sale was undertaken in preparation for the pending Citizens merger and as part of the company’s current objective to remain below $10 billion in assets. The quarter also included $410,000 in acquisition-related expenses, reducing diluted EPS by $0.01, and the purchase of an energy tax credit that lowered income tax expense by $480,000 and added $0.01 to diluted EPS.

Net Interest Income and Margin Improve

Chief Financial Officer and Treasurer Katie Bailey said second-quarter net interest income increased $2.3 million from the linked quarter, while net interest margin expanded by seven basis points. She said lower deposit costs benefited both measures. Accretion income totaled $1.2 million in the second quarter, compared with $1.3 million in the first quarter, contributing five basis points and six basis points to net interest margin, respectively.

For the first six months of 2026, net interest income improved $10.3 million, or 6%, while net interest margin expanded six basis points. Bailey said deposit cost discipline and higher interest income contributed to the increase. She added that the company is currently positioned to benefit more from a rising rate environment, while a falling rate environment would cause a “nominal reduction” in net interest income.

During the question-and-answer session, Bailey said the company’s full-year 2026 net interest margin guidance of 4.10% to 4.30% assumes a stable rate environment and does not include any rate moves. Management said a 25-basis-point Federal Reserve rate increase would be expected to add six to eight basis points to full-year net interest margin. Wilcox attributed the upside sensitivity largely to the loan portfolio, noting that more than 50% of loans are variable rate.

Credit Provision Falls as Charge-Offs Decline

Wilcox said provision for credit losses totaled $4.7 million in the second quarter, down $5 million, or 51%, from the first quarter. The allowance for credit losses declined to 1.14% of total loans from 1.16% at March 31. Wilcox said the lower provision reflected reduced net charge-offs and stabilization in the macroeconomic assumptions used in the company’s model.

The annualized quarterly net charge-off rate improved to 31 basis points from 40 basis points in the linked quarter. Indirect consumer loan net charge-offs declined by $751,000, driven by lower charge-offs and improved recoveries. Wilcox said small-ticket lease charge-offs declined to $3.4 million from $3.8 million in the first quarter and contributed 20 basis points to the annualized net charge-off rate.

Wilcox said Peoples has “significantly reduced” its position in high-balance accounts within the small-ticket leasing portfolio, which totaled $7.2 million at June 30, and said the company has limited residual risk remaining in that segment. In response to an analyst question, he said high-balance accounts comprised about 7% of the total portfolio and contributed approximately $1.3 million to $1.4 million of year-to-date charge-offs.

Nonperforming loans increased slightly and represented 0.6% of total loans at quarter-end. Criticized loans increased $50 million from March 31 to 4.01% of total loans, while classified loans declined by $1 million. Wilcox said the increase in criticized loans was mostly related to two commercial credits, one of which was acquired, and said management does not currently expect charge-offs from those relationships. He described one as a larger multifamily project tied to a delayed economic project and the other as a vehicle floor-plan finance credit expected to be paid off by year-end.

Loan Growth Offset by CRE Paydowns

Peoples generated loan growth of $51 million in the second quarter, or 3% annualized. Wilcox said commercial and industrial loans contributed $43 million of growth, followed by premium finance loans at $37 million, construction loans at $25 million and home equity lines of credit at $13 million. Lease balances also increased, with mid-ticket leasing adding more than $15 million, partially offset by declines in small-ticket leasing.

Other commercial real estate loan balances declined by $58 million, which Wilcox attributed to elevated first-half payoffs that the company had anticipated. In response to an analyst question, he said the company had expected about $480 million in payoffs for the full year and recorded about $300 million in the first half. Peoples still expects full-year payoffs to fall near the original estimate, with roughly $150 million to $200 million expected in the remainder of the year.

Wilcox said the company expects loan growth to come in toward the low end of its guided range of 3% to 5% because paydowns have continued to move from late 2025 into 2026. He also said indirect auto demand is muted and is expected to remain largely flat.

Deposits Decline, But Costs Improve

Bailey said the loan-to-deposit ratio increased to 91.5% at June 30 from 88.5% at March 31, reflecting loan growth and a reduction in deposits. Core deposits, excluding brokered certificates of deposit, declined by $155 million from March 31. Governmental deposits fell $87 million due to seasonal decreases, interest-bearing demand accounts declined $17 million and retail CDs decreased $92 million.

Those declines were partially offset by a $37 million increase in money market balances and a $7 million increase in noninterest-bearing deposits. Bailey said deposit costs improved by six basis points compared with the linked quarter. Demand deposits rose to 36% of total deposits from 35%, while noninterest-bearing deposits remained flat at 21% of total deposits.

In the Q&A session, management described deposit competition as stable but competitive. Wilcox said Peoples would continue to evaluate the term at which it raises rates, while Bailey indicated there may still be room to reprice some CDs downward through the year.

Citizens Merger Remains on Track

Wilcox said Peoples continues to make progress on its pending merger with Citizens and is awaiting regulatory and Citizens shareholder approvals. The company anticipates a closing date early in the fourth quarter of 2026, with the core system conversion targeted for early in the second quarter of 2027.

Management also discussed the investment portfolio restructuring tied to the merger and the company’s $10 billion asset threshold. Bailey said the investment portfolio declined to 19.1% of total assets at June 30 from 20.3% at March 31 after the sale of approximately $135 million of available-for-sale securities, which resulted in the $8.2 million loss. In response to an analyst question, she said the securities were sold in early May and had yields of about 2.75%.

Wilcox said Peoples remains opportunistic about other potential acquisitions and continues to have conversations with other institutions. He said the company is “ready, willing and able” to do additional deals, while continuing to exercise strategic patience.

For full-year 2026, excluding non-core expenses and the planned merger, Peoples expects positive operating leverage compared with 2025. Management expects quarterly fee-based income of $28 million to $30 million and quarterly total noninterest expense of $73 million to $75 million for the remaining two quarters of 2026. The company also anticipates a slight reduction in net charge-offs for 2026 compared with 2025, excluding changes in economic forecasts.

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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