Peoples Bancorp Reports Q3 EPS of $1.04, Shares Outlook

Peoples Bancorp (NASDAQ: PEBO ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Peoples Bancorp Inc. reported Q3 2026 diluted EPS of $1.04, surpassing analyst expectations of $0.93. Adjusted EPS was $0.91 after accounting for a $4.5 million loss on investment securities and $1.5 million in acquisition-related expenses. Strategic initiatives include the imminent closing of the Citizens merger and the pending acquisition of Capital Bancorp expected in 2027, enhancing capabilities and market presence.

Key financial metrics showed improvement, with net interest income increasing by 1%, net interest margin expanding by 8 basis points, fee-based income growing 5%, and nonperforming loans declining by 11%. The company maintains a positive outlook, expecting positive operating leverage in 2026 and 2027, with loan growth projected between 6% and 8% for 2026 and 3% to 5% for 2027. Management highlights include a focus on strategic mergers, managing asset size under $10 billion, and an expectation of increased criticized and classified loans following the Citizens merger. Full Transcript Gary (Conference Facilitator) Good morning and welcome to Peoples Bancorp Inc.

conference call. My name is Gary and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and nine months ended September 30, 2026. 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, 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' third quarter 2026 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-GAAP (Generally Accepted Accounting Principles) financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the 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, and each will be available for questions following opening statements. Mr. Wilcox, you may begin your conference. Tyler Wilcox (President and Chief Executive Officer) Thank you, Gary.

Good morning, everyone, and thank you for joining our call today. Activity levels at Peoples are high as we focus on a number of strategic priorities. We are working to close the Citizens merger at the end of this month. We also recently announced the pending acquisition of Capital Bancorp, which we expect to close in 2027.

We are excited about these strategic initiatives and the opportunity to enhance our capabilities, products, services, and company performance as a result of these investments. Focusing on the present, we continue to be pleased with our consistent and high-performing core results as reflected in our third quarter 2026 earnings which we released earlier this morning. For the third quarter, we reported diluted earnings per share of $0.91 when adjusted for one-time items. Our diluted EPS for the quarter was $1.04, which exceeded consensus analyst estimates of $0.93.

Our one-time items for the quarter included a $4.5 million loss on investment securities which reduced diluted EPS by $0.10. This was part of our planned effort to remain below $10 billion in assets with the pending Citizens merger, and acquisition-related expenses of $1.5 million which reduced our diluted EPS by $0.03.

Some of our highlights for the third quarter include improvements in our net interest income which was up 1%, expansion in our net interest margin of 8 basis points, growth in our fee-based income of 5%, provision for credit losses declined 24%, improvement in our efficiency ratio adjusted for one-time items, higher return on average assets which was 1.36%, increased return on average stockholders' equity of 10.44%, declines of 11% in our nonperforming loans, growth in our lower-cost interest-bearing demand deposit and money market accounts of nearly $100 million combined, and improved regulatory capital ratios.

Our provision for credit losses declined to $3.6 million, a 24% reduction compared to the second quarter. Our allowance for credit losses to total loans was 1.11%, a 3 basis point decrease compared to June 30. The reduction in our provision for credit losses for the quarter was due to declines in reserves for individually analyzed loans coupled with updates to our prepayment, curtailment, and funding rates, partially offset by higher net charge-offs. Our annualized quarterly net charge-off rate grew to 35 basis points compared to 31 basis points for the linked quarter.

For the third quarter, we had higher commercial and industrial loan charge-offs along with increases in commercial real estate and consumer indirect loan charge-offs. At the same time, we had a reduction of 25% in our lease charge-offs. As anticipated, our small-ticket lease charge-offs have declined throughout 2026. We remain committed to our small-ticket leasing business and see a return to growth coming throughout the year in 2027 with a focus on appropriate risk-adjusted returns and minimized volatility.

For the third quarter, our nonperforming loans declined $4 million, or 11%, compared to the linked quarter-end, which was driven by lower nonaccrual loans. Criticized loans decreased $18 million while classified loans grew $30 million. For the third quarter, we had downgrades of two commercial real estate relationships and one commercial and industrial relationship which drove the increase. We do not anticipate significant losses as we are in the process of exiting these credits.

We expect an increase in our criticized and classified loan balances during the fourth quarter as we onboard the loan portfolio from the Citizens merger. Our delinquency levels continue to improve with 99.2% of our loan portfolio considered current at September 30th compared to 99.1% at the linked quarter-end. Moving on to loan balances, we had increases of $19 million, or 1% annualized, compared to June 30. We mentioned on our last quarterly earnings call that we had expected payoffs later in the year that would be a headwind for loan growth, and we realized some of that this quarter with commercial payoffs of over $160 million.

We have also been selective with our lending activity as we are strategically managing under the $10 billion mark through year-end. Most of our increases in balances was in construction loans which were up $40 million, while commercial and industrial loans and home equity lines of credit grew $34 million and $10 million, respectively. We had reductions of $38 million in our commercial real estate loans which were due to the aforementioned payoffs, while residential real estate loans declined $14 million and leases were down $12 million. For the fourth quarter, the Citizens merger is expected to add nearly $350 million of loans before purchase accounting adjustments.

I will now turn the call over to Katie for a discussion of our financial performance. Kathryn Bailey (EVP, Chief Financial Officer and Treasurer) Thanks, Tyler. Our net interest income grew 1%, or $1.1 million, while our net interest margin improved 8 basis points. Increased investment and loan yields contributed to the higher margin, while net interest income benefited from higher loan income.

Accretion income totaled $1 million compared to $1.1 million for the linked quarter, contributing 4 basis points and 5 basis points to net interest margin, respectively. For the first nine months of 2026, net interest income improved 5%, or $12.8 million. Net interest margin expanded 8 basis points over the same period and was mostly attributable to our lower deposit costs. Our interest expense on deposits declined nearly $19 million compared to the first nine months of 2025.

Accretion income totaled $3.4 million compared to $7.8 million for 2025, contributing 5 basis points and 12 basis points to net interest margin, respectively. As it relates to our interest rate exposure, we are relatively neutral to slightly asset sensitive. We have been in this position for several quarters, and the two pending mergers will not have a meaningful impact on our overall interest rate risk position. Moving on to our fee-based income, we had growth of 5% compared to the linked quarter driven by higher lease income as well as increases in deposit account service charges, trust and investment income, and bank-owned life insurance income.

For the first nine months of 2026, fee-based income grew 8%. The improvement was mostly due to increased lease income, trust and investment income, and deposit account service charges. Our noninterest expenses were up 2% compared to the linked quarter. This included $1.5 million of acquisition-related expenses which were largely professional fees.

Excluding these expenses, noninterest expenses were flat compared to the second quarter. For the first nine months of 2026, noninterest expenses were up 4%. This included $1.9 million of acquisition-related expenses which was the primary driver of our higher professional fees. Salaries and employee benefits also contributed to the growth, along with operating lease expense which corresponds to our fee-based lease income.

Our reported efficiency ratio was 58.5% for the third quarter, an increase compared to 58.3% for the linked quarter. Excluding acquisition-related expenses, our adjusted efficiency ratio was 57.3% for the third quarter compared to 57.9% for the second quarter. For the first nine months of 2026, our reported efficiency ratio was 58.5% compared to 59% for the prior year and was driven by higher revenue. Excluding acquisition-related expenses, our adjusted efficiency ratio was 57.9% for 2026 compared to 59% for 2025.

Looking at our balance sheet, our investment portfolio as a percent of total assets declined to 18.3% at quarter-end compared to 19.1% at June 30. We completed another sale of securities as part of our investment portfolio restructuring related to the Citizens merger, which resulted in a $4.5 million loss for the quarter on the sale of approximately $59 million of securities. In addition to providing flexibility to remain under $10 billion, this will also improve the yield on our investment portfolio. Our loan-to-deposit ratio grew at quarter-end to 91.9% compared to 91.5% at the linked quarter-end, mostly due to lower deposits and some loan growth.

For the third quarter, our core deposit balances, which excludes brokered CDs, were up $19 million compared to June 30th. We had significant increases in our interest-bearing demand and money market accounts which were up $52 million and $46 million, respectively. These increases were partially offset by reductions of $44 million in retail CDs and $34 million in noninterest-bearing accounts. Our demand deposits as a percent of total deposits was flat at 36% for both September 30th and June 30th.

Our noninterest-bearing deposits to total deposits ratio was unchanged at 21% at quarter-end and at June 30th. The Citizens merger is projected to add approximately $550 million of deposits for the fourth quarter of 2026. As far as our capital levels, all of our regulatory capital ratios improved compared to the linked quarter-end as earnings outpace dividends. Our tangible equity to tangible asset ratio declined this quarter and was negatively impacted by increased unrealized losses on our available-for-sale investment portfolio.

I will now turn the call back over to Tyler for his closing comments. Tyler Wilcox (President and Chief Executive Officer) Thank you, Katie. We are focusing on successfully closing the Citizens merger this month while also prioritizing our work on the pending Capital merger. These mergers will set the stage for our future strategic growth, including expanded market areas within our footprint, improved financial metrics such as higher net interest margin and lower efficiency ratio, and the ability for our associates to have more meaningful conversations with existing and new clients about the diversified products and services we provide.

For the fourth quarter and full year of 2026, we have the following performance expectations, excluding the impact of noncore expenses but including our Citizens merger. We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4.2% and 4.3% for the full year of 2026. We believe our quarterly fee-based income will range between $28 million and $30 million.

We expect quarterly total noninterest expense to be between $78 million and $80 million. We believe loan growth will be between 6% and 8% for 2026 compared to 2025, which includes the acquired loans from Citizens. We continue to anticipate a reduction in our net charge-offs for 2026 compared to 2025, which we expect to continue to positively impact provision for credit losses. Excluding any changes in the economic forecasts, we expect between $11 million and $13 million of acquisition-related expenses during the fourth quarter for the Citizens merger.

We would also like to provide some high-level expectations for 2027, excluding the impact of noncore expenses and the planned Capital merger. We expect to achieve positive operating leverage for 2027 compared to 2026. For the full year of 2027, we anticipate our net interest margin will be between 4.3% and 4.5%. This assumes a 25 basis point increase in rates from the Federal Reserve in late 2026, one in March 2027, and another in September of 2027.

We believe our quarterly fee-based income will range between $31 million and $33 million. Our first-quarter fee-based income is typically elevated as it includes annual performance-based insurance commissions. We expect quarterly total noninterest expense to be between $80 million and $82 million for the second, third, and fourth quarters of 2027, with the first quarter of 2027 being higher due to the annual expenses we typically recognize during the first quarter of each year. We believe our loan growth will be between 3% and 5% compared to 2026, which is dependent on the timing of paydowns on our portfolio.

We anticipate similar charge-offs and net charge-off rate for 2027 compared to 2026, which includes projected increases related to the addition of the Citizens portfolio. We look to have a strong close to our 2026 performance and continue to be optimistic about our strategic plans and ability to execute on the pending mergers and future growth. Laying out a path beyond the $10 billion threshold is the culmination of years of strategic planning and patience. The investments we have made in people, technology and infrastructure are in place today and operating as if we have already crossed that milestone.

We have proven our ability to provide reliable results for our shareholders and improve performance both organically and through acquisitions. We will continue to place importance on the value we provide as an investment to our shareholders and the return that we produce. We will focus on being a top-notch employer and sharing our culture with our new associates from our mergers. We will make meaningful investments in the communities we serve and provide high-quality, trusted solutions for all of our clients.

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 facilitator. Gary (Conference Facilitator) We will now begin the question-and-answer session.

To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.

The first question today is from Ryan Payne with D.A. Davidson. Please go ahead. Ryan Payne (Analyst at D.A.

Davidson) Good morning, this is Ryan Payne on for Jeff Rulis today. Heard you on the expected Citizens close later this month. Any update on close timing for Capital next year?