Peoples Bancorp Inc. Q1 FY2026 earnings call

• Announced merger with Citizens National Corporation, expected to close in second half of 2026. Citizens has ~$700 million in assets and 12 branches in Kentucky. - Highlighted first quarter 2026 results: diluted EPS 81 cents, net interest margin expanded, fee-based income increased, loan growth, improved non-performing loans and delinquency levels, increased non-interest-bearing deposits, improved loan-to-deposit ratio, etc. - Discussed planned merger details, including valuation, cost savings, and expected accretive impact on EPS. - Outlined expectations for full year 2026, including net interest margin range, fee-based income range, non-interest expense range, loan growth, and net charge-offs.

Net interest income declined $629,000 compared to the linked quarter, while net interest margin expanded four basis points. Fee-based income grew $400,000 compared to the linked quarter. Non-interest expenses were up $341,000 compared to the linked quarter. Loan growth was $13 million. Non-performing loans and delinquency levels improved. Non-interest-bearing deposits grew over $41 million, or 3%. Loan-to-deposit ratio improved to 88.5%. Tangible equity to tangible assets ratio increased 12 basis points to 8.91%. Book value per share grew 1% on an annualized basis, while tangible book value per share improved 3% on an annualized basis. All regulatory capital ratios improved. Diluted EPS was 81 cents.

• Expect positive operating leverage for 2026 compared to 2025. - Net interest margin expected to be between 4% and 4.2% for full year 2026, including one 25 basis point rate cut. Each 25 basis point rate cut from Fed expected to result in 3-4 basis point decline in net interest margin, similar increase expected to result in 3-4 basis point improvement. - Quarterly fee-based income expected to range between $28 and $30 million. - Quarterly total non-interest expense expected to be between $73 million and $75 million for remaining quarterly periods of 2026. - Loan growth expected to come in towards low end of 3%-5% guided range due to paydown movement and macro environment changes. - Anticipate slight reduction in net charge-offs for 2026 compared to 2025, positively impacting provision for credit losses. - Merger with Citizens expected to be accretive to 2027 EPS by 20 cents, with 40% cost savings expected, 50% effectuated within 2026 and remainder within early 2027.

• Provision for credit losses totaled $9.7 million, driven by deterioration in macroeconomic conditions used in models. Cautious and disciplined underwriting and portfolio management needed due to impact of Iran conflict on oil prices and inflationary pressure on prospects and existing clients. - Uncertainty regarding actual results differing from forward-looking statements. - Risks associated with merger closing, including regulatory and shareholder approvals. - Potential negative impact of Durbin Amendment upon crossing $10 billion in assets.

Q: How did the deal with Citizens come to be and your relationship with the bank?

A: In 2018 did first Commonwealth acquisition close to Kentucky, had interest in Citizens since then, and it came together due to fit, overlap, and long-term interest.

Q: Where could margins shake out post planned security sales and borrowing paydowns?

A: 2027 on a more full year basis, there's a 15-20 basis point opportunity to standalone guide on margin side.

Q: What's built into 40% cost savings?

A: About 50% effectuated within 2026 and remainder within early 2027, mix of contracts, duplicate locations, staffing, etc.

Q: Timing of deal close?

A: Probably near end of Q3/beginning of Q4, conversion in second quarter of next year.

Q: Does citizen's acquisition preclude announcing another merger before closing?

A: Given right opportunity, ready, willing, and able to announce and execute.

Q: Color on loan mark for citizens?

A: Cautious approach due to one or two emerging loan situations, but no systematic issue, credit is satisfied.

Q: Still seeing opportunities to reduce deposit costs?

A: Continually evaluate, meet regularly to evaluate pricing and portfolio balances.

Q: Color on loan growth guide for year?

A: Generally conservative, related to payoff activity, robust CNI loan demand, tinge down in CRE project funding, more slowdown in consumer side.

Q: Charge off contribution from high balance accounts during quarter?

A: High balance accounts were about 30% of charge-offs within North Star business.

Q: Current Durban related revenue risks upon crossing 10 billion?

A: About $10 million pre-tax before deal.

Q: Remix of securities and cash flows?

A: Standalone portfolio still has ~$15-20 million a month cash flow, yield depends on loan growth and funding side.

Q: New loans coming on portfolio at and fixed rate loans repricing?

A: Rate varies, about 50-50 fixed vs variable, slightly more variable, fixed rate loans repricing higher over next 12 months could be tailwind.

Q: Competitive factors on deposit side?

A: Manageable, maintain margins, not chasing stupid, competing against rational actors.