PEOPLES BANCORP INC PEBO

Peoples Bancorp reported diluted earnings per share of $0.78 for Q2 FY26, with adjusted diluted EPS reaching $0.96, surpassing consensus estimates. The quarter saw a 3% increase in net interest income and a 7 basis point expansion in net interest margin. Fee-based income grew by over $340,000, and the efficiency ratio improved to 58.3% from 58.6% in the linked quarter. Loan growth was $51 million, or 3% annualized, and noninterest-bearing deposits grew $7 million, or 2% annualized. Tangible equity to tangible assets ratio increased 34 basis points to 9.25%, and tangible book value per share improved 11% annualized to $23.56.

Provision for credit losses declined 51% quarter-over-quarter to $4.7 million, driven by reduced net charge-offs and stabilized macroeconomic conditions. The allowance for credit losses decreased to 1.14% of total loans from 1.16%. The annualized quarterly net charge-off rate improved to 31 basis points from 40 basis points, with indirect consumer loan net charge-offs decreasing by $751,000. Small ticket lease charge-offs were $3.4 million, down from $3.8 million, contributing 20 basis points to the NCO rate. Nonperforming loans increased slightly to 0.6% of total loans, and criticized loans grew $50 million to 4.01% of total loans, primarily due to two commercial credits not expected to result in charge-offs.

The company's loan-to-deposit ratio increased to 91.5% from 88.5% due to loan growth and a reduction in deposits. The investment portfolio as a percentage of total assets declined to 19.1% after the sale of approximately $135 million of available-for-sale investment securities, resulting in an $8.2 million loss. Core deposit balances decreased by $155 million, mainly due to seasonal governmental deposits ($87 million down) and retail CDs ($92 million down), partially offset by increases in money markets and noninterest-bearing deposits. Deposit costs improved by 6 basis points quarter-over-quarter, and demand deposits as a percentage of total deposits grew to 36%.

Progress continues on the pending Citizens merger, with an anticipated close date in early Q4 2026, pending regulatory and shareholder approvals. The core system conversion is targeted for early Q2 2027. The strategic sale of investment securities, including $135 million in Q2, was part of the plan to remain below $10 billion in total assets and restructure the portfolio in conjunction with the merger. The company expects to sell the Citizens portion of the investment portfolio as close to the merger close as possible and will continue to evaluate further sales from its own portfolio.

Loan growth of $51 million (3% annualized) was driven by commercial and industrial loans ($43 million), premium finance loans ($37 million), construction loans ($25 million), and home equity lines of credit ($13 million). Mid-ticket leasing balances grew over $15 million, offsetting declines in small ticket leasing. Other commercial real estate loan balances declined $58 million due to anticipated payoffs. The company expects full-year loan growth to be at the low end of its 3% to 5% guided range, citing continued payoffs and muted demand in consumer lending, particularly indirect auto.