Peoples Bancorp Inc. (PEBO) Earnings

Management highlights

- Overall Q2 2026 Financial Performance * Reported diluted EPS was 78 cents; adjusted for one-time items, diluted EPS was 96 cents, beating consensus analyst estimates of 85 cents * One-time adjustments included an $8.2 million loss from strategic investment security sales (reducing EPS by 18 cents) and $410,000 in acquisition-related expenses (reducing EPS by 1 cent); an energy tax credit purchase increased EPS by 1 cent * Net interest income increased 3% quarter-over-quarter, net interest margin expanded 7 basis points quarter-over-quarter * Fee-based income grew over $340,000 quarter-over-quarter, provision for credit losses declined 51% quarter-over-quarter, and the efficiency ratio improved to 58.3% from 58.6% in the prior quarter * Total loans grew $51 million (3% annualized), non-interest-bearing deposits grew $7 million (2% annualized), all regulatory capital ratios improved, and tangible book value per share grew at an 11% annualized rate - Credit Quality * Provision for credit losses totaled $4.7 million in Q2 2026, down $5 million (51%) from Q1 2026, driven by lower net charge-offs and stabilized macroeconomic modeling assumptions * The allowance for credit losses declined to 1.14% of total loans from 1.16% at March 31, 2026; annualized net charge-off rate improved to 31 basis points from 40 basis points in Q1 * Non-performing loans increased slightly to 0.6% of total loans; criticized loans grew $50 million to 4.01% of total loans (largely two commercial credits, with no expected charge-offs from either) returning to the historical run rate after an unusually low Q1 2026 * 99.1% of the loan portfolio was current at June 30, 2026, up from 98.9% at the end of the prior quarter - Balance Sheet and Deposits * Sold $135 million of available-for-sale investment securities in early Q2 2026 to remain below the $10 billion asset threshold and restructure the portfolio ahead of the pending Citizens merger, resulting in the $8.2 million loss * Core deposits declined $155 million quarter-over-quarter, driven by expected seasonal decreases in governmental deposits, reductions in interest-bearing demand accounts and retail CDs; declines were partially offset by growth in money market accounts and non-interest-bearing deposits * Deposit costs decreased 6 basis points quarter-over-quarter, and non-interest-bearing deposits remained 21% of total deposits - Pending Citizens Merger Progress * Integration planning is ongoing, with cross-team coordination to ensure a seamless transition * The merger is still on schedule, pending regulatory and Citizens shareholder approval, with an expected close in early Q4 2026; core system conversion is targeted for early Q2 2027 * Management continues to be opportunistic about additional potential acquisitions, and is engaged in ongoing discussions with other potential counterparties

Guidance

- Full year 2026 net interest margin is expected to be between 4.1% and 4.3% in a stable rate environment, with no rate moves baked into this guidance range. A 25 basis point Fed rate increase would deliver an additional 6 to 8 basis point improvement to full year NIM, which is not included in the base guidance. - Excluding non-core and merger-related expenses, management expects to achieve positive operating leverage for full year 2026 compared to 2025. - Quarterly fee-based income is expected to range between $28 million and $30 million for the remainder of 2026; quarterly total non-interest expense is expected to range between $73 million and $75 million for the remaining two quarters of 2026. - Full year 2026 loan growth is expected to land at the low end of the prior guided 3% to 5% range, due to higher-than-expected CRE payoffs and muted consumer lending demand. Management retains its full year 2026 CRE payoff estimate of ~$480 million, with $150 to $200 million expected in the second half. - Full year 2026 net charge-offs are expected to see a slight reduction compared to 2025, with charge-offs expected to remain in the 30-40 basis point annualized range for the remainder of the year. - Management retains prior guidance for 15 to 20 basis points of additional NIM expansion in 2027 following completed balance sheet restructuring for the Citizens merger. - There is continued upward potential for NIM in the back half of 2026 and into 2027, driven by ongoing mix shift in the deposit portfolio and expected new growth in higher-yielding small ticket leasing starting in early 2027.

Segment performance

This earning call covers results for the three and six months ended June 30, 2026, with segment breakdown provided by loan and business line: - Commercial and industrial loans: Contributed $43 million of Q2 2026 loan growth - Premium finance loans: Increased by $37 million in Q2 2026 - Construction loans: Increased by $25 million in Q2 2026 - Home Equity lines of credit: Increased by $13 million in Q2 2026 - Mid-ticket leasing: Added over $15 million in lease balances in Q2 2026 - Small ticket leasing: Balanced declined in Q2 2026, with net charge-offs of $3.4 million (down from $3.8 million in Q1 2026), and contributed 20 basis points to the annualized net charge-off rate for the quarter. High balance accounts in this segment totaled $7.2 million at June 30, 2026, after significant portfolio reductions. - Other commercial real estate loans: Balances declined $58 million in Q2 2026 due to elevated anticipated payoffs.

Risks & headwinds

- Higher than anticipated commercial real estate payoffs create a headwind to loan growth - Muted demand in indirect consumer lending is expected to keep that segment flat for the full year 2026 - Deposit competition remains ongoing, though it has not intensified in recent months - The Citizens merger remains subject to regulatory and shareholder approval, with closing dependent on these processes - Falling interest rates would lead to a nominal reduction in net interest income, though the bank maintains a relatively neutral rate position - Credit concentration in the small ticket leasing portfolio, specifically in high balance small business accounts, has been significantly reduced but limited residual risk remains - Competition for high-quality commercial loans continues, though management reports it remains rational and will not chase unprofitable deals

Analyst Q&A

• Q: The full year NIM guidance range of 4.1% to 4.3% does not include any baked-in rate moves. What would push NIM to the higher end of the range, and what is the current state of deposit competition? /

  A: Continued aggressive repricing of CDs, the ability to maintain a large deposit book, and further reductions in deposit costs will be the main drivers of upside to NIM. Management notes deposit competition is currently stable and not increasingly competitive relative to recent months, and will continue to evaluate rate changes for shorter-term deposit products as market expectations evolve.

• Q: What details can you share on the two commercial credits that caused the increase in criticized loans? /

  A: The two credits have no common characteristics. One is a large in-footprint multifamily project tied to a delayed larger economic project, but management expects no long-term losses. The second is a vehicle floor plan finance credit that is expected to be fully paid off by the end of 2026 with no expected losses. The increase simply reflects a return to historical criticized loan average levels after an unusually low Q1 2026.

• Q: Is the planned ~$560 million in total securities sales for the Citizens merger still on track, and when will remaining sales occur? /

  A: Half of the planned sales is the Citizens investment portfolio, which will be sold as close to merger close as possible. Half of the sales are from Peoples' existing portfolio, half of which have already been completed. Remaining sales from the existing portfolio may happen in Q3, but are more likely to occur in Q4, dependent on asset size and rate environment at the time. The restructuring is still expected to be accretive to net interest income after the associated brokered deposit reduction.

• Q: How competitive is lending for high-quality assets currently, and is competition still rational entering Q3? /

  A: Management confirms competition remains largely rational. There is slightly elevated competition in commercial real estate due to balance pressure, but the bank will not chase poorly priced deals. There are fewer active projects overall currently, but no major negative trends are observed, and the bank remains selective on which deals to pursue.

• Q: With the merger pending, are you still engaged in other M&A discussions, and are near-term opportunities likely? /

  A: Management confirms the bank remains ready, willing, and able to pursue additional strategically compelling acquisitions, and is engaged in multiple ongoing discussions with interested counterparties. The firm continues to exercise strategic patience while executing well on its core business, and is optimistic that some discussions will result in fruitful transactions.