On Tuesday, Peoples Bancorp (NASDAQ:PEBO) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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View the webcast at https://app.webinar.net/9w1XG6qR0aN
Summary
Peoples Bancorp Inc announced a merger agreement with Citizens National Corporation, which will expand their presence in Kentucky and is expected to close in the second half of 2026.
The company reported first-quarter diluted earnings per share of $0.81, surpassing analyst estimates of $0.80, with a net interest margin expansion of 4 basis points.
Loan growth was $13 million, with significant commercial and industrial loan growth offsetting reductions in other loan categories.
Peoples Bancorp Inc’s non-performing loans and delinquency levels improved, while non-interest-bearing deposits grew by over $41 million.
The company’s tangible equity to tangible assets ratio increased to 8.91%, and all regulatory capital ratios improved.
Guidance for 2026 includes a net interest margin of 4-4.2%, quarterly fee-based income of $28-30 million, and quarterly total non-interest expenses between $73 million and $75 million.
The merger with Citizens is expected to result in $0.20 EPS accretion in 2027, with 40% cost savings anticipated from the transaction.
Management highlighted strategic flexibility for further mergers and acquisitions, with a focus on both large and smaller deals.
Full Transcript
OPERATOR
Good morning and welcome to Peoples Bancorp Inc’s conference call. My name is Chuck and I’ll be your conference facilitator. Today’s call will cover a discussion of the results operations for the quarter ended March 31, 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, please 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 and other forward looking statements regarding people’s future financial performance and 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 the People’s securities and Exchange Commission filings. Management believes that the forward looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of people’s 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 First Quarter 2026 Earnings Release and Earnings conference call presentation were issued this morning and or available@peoplesbanccorp.com under Investor Relations. A reconciliation of the Non Generally Accepted Accounting Principles or GAAP 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@peoplesbancorp.com in the Investor Relations section for one year. Participants in this call today are Mr. Tyler Wilcox, President and Chief Executive Officer, along with Ms. Katie Bailey, Chief Financial Officer and Treasurer and each will be available for questions following opening statements. Mr. Wilcox, you may begin the conference.
Tyler Wilcox (President and Chief Executive Officer)
Thank you, Chuck Good morning everyone and thank you for joining our call today. Earlier this morning we announced that we entered into an agreement to merge with Citizens National Corporation Citizens have approximately $700 million in assets and operates 12 branches in eight counties in Kentucky. We expect to close the merger in the second half of 2026. We are excited about this partnership which expands our presence in Kentucky markets that both overlap and complement our existing footprint. Citizens’ is a deposit rich franchise that shares a similar philosophy in serving the needs of clients and communities. We look forward to welcoming their shareholders’, employees and clients to become part of the Peoples team. We believe this merger will improve shareholder value and benefit associates of both Citizens’ and Peoples while offering clients of Citizens more diversified products. I will go into more details on the planned merger later in the call and you can refer to our accompanying slides for additional details. Now I would like to highlight our results issued this morning. We reported diluted earnings per share of $0.81 for the first quarter. Our results included several improvements compared to the linked quarter. For the first quarter, our net interest margin expanded 4 basis points driven by lower deposit costs. We had a $400,000 increase in fee based income. We had loan growth of $13 million when we had originally anticipated loan growth to be flat due to expected paydowns. During the first quarter, our non performing loans and delinquency levels improved while we also experienced reductions in our criticized and classified loan balances. Our non interest bearing deposits grew over $41 million or 3%. Our loan to deposit ratio improved to 88.5%. Our tangible equity to tangible assets ratio increased 12 basis points to 8.91%. Our book value per share grew 1% on an annualized basis compared to year end, while our tangible book value per share improved 3% on an annualized basis. All of our regulatory capital ratios improved and our diluted EPS of $0.81 exceeded consensus analyst estimates of $0.80. As we’ve noted previously, we typically have annual first quarter one time expenses that occur which include stock based compensation expense related to the annual forfeiture rate, true up on stock vested during the first quarter along with upfront expense on stock grants to retirement eligible employees which combined for a total of $764,000 and negatively impacted diluted EPS by $0.02 per share and Employer Health Savings Account contributions of $689,000 which reduced diluted EPS by $0.02per share. For the first quarter, our provision for credit losses totaled $9.7 million, increasing our allowance for credit losses as a percent of total loans to 1.16% from 1.12% at year end. Our provision for credit losses for the quarter was driven by a deterioration in macroeconomic conditions used within our models and is not indicative of issues we are seeing within our portfolio. However, we are cautious and disciplined within our underwriting and portfolio management as we assess the impact of the Iran conflict on oil prices and inflationary pressure on prospects and existing clients. Our annualized quarterly net charge off rate improved to 40 basis points compared to 44 basis points for the linked quarter. Our small ticket lease charge offs totaled $3.8 million for the first quarter and contributed 23 basis points of our annualized quarterly net charge off rate. While we experienced a reduction in our net charge offs for the first quarter, from a dollar perspective, we do anticipate our second quarter net charge offs to be consistent with recent quarters. We continue to project that the net charge offs will come down in the second half of 2026 compared to recent quarterly levels. We continue to reduce the size of our high balance accounts in our small ticket leasing business, which totaled around $9 million at March 31, down from nearly $13 million at year end. For more information on our small ticket leasing business and related net charge offs, please refer to our accompanying slides. Our non performing loans declined over $3 million compared to the linked quarter, mostly due to reductions in several categories of loans 90 plus days past due and accruing. We also had improvements in our criticized loans which were down $12 million compared to the linked quarter end and our classified loans were down $5 million. On March 31, our criticized loan balances as a percent of total loans improved to 3.31%, while our classified loans as a percent of total loans declined to 2.1%. Our delinquency levels improved and at March 31, 98.9% of our loan portfolio was considered current compared to 98.6% at year end. Moving on to loan balances, we generated loan growth of $13 million. We had significant commercial and industrial loan growth of over $111 million, which was partially offset by reductions in construction and commercial real estate loans of about $55 million combined. We also had declines in premium finance and leases of $24 million and $15 million respectively. We experienced some of the payoffs we had anticipated for the first quarter, however, some of those migrated to the second quarter. I will now turn the call over to Katie for a discussion of our financial performance.
Katie Bailey (Chief Financial Officer and Treasurer)
Thanks, Tyler. Our net interest income declined $629,000 compared to the linked quarter, while our net interest margin expanded 4 basis points. Most of the reduction in net interest income was driven by declines in accretion income, which totaled $1.3 million compared to $1.8 million for the fourth quarter, contributing 6 basis points and 8 basis points respectively. We had 2 fewer days in the first quarter than in the fourth quarter, which also contributed to the decline in net interest income. The improvement in our net interest margin was partially driven by a 12 basis point reduction in our core deposit costs which exclude brokered CDs. We also had a decrease in our brokered CD position which helped to increase our net interest margin. From a total balance sheet perspective, we have worked to minimize our interest rate risk exposure and are in a relatively neutral interest rate risk position. As it relates to our fee based income. We had growth of $400,000 compared to the linked quarter. We recognized $1.2 million related to our annual performance based insurance commission which we typically receive in the first quarter of each year. This income was partially offset by lower electronic banking income and deposit account service charges which are seasonally higher in the fourth quarter of each year. Our non interest expenses were up $341,000 compared to the linked quarter. As Tyler mentioned, we typically recognize additional employee related expense during the first quarter of each year which drove the increase compared to the fourth quarter. If you exclude our additional one time expenses from the first quarter, our non interest expense is actually down compared to the fourth quarter. Our reported efficiency ratio was 58.6% for the first quarter and 57.8% for the linked quarter. Increase in our ratio was driven by the one time expenses from the first quarter coupled with lower accretion income. Looking at our balance sheet at quarter end, our loan to deposit ratio improved to 88.5% compared to 88.8% at year end. As our influx of deposits outpaced our loan growth for the first quarter. Our investment portfolio as a percent of total assets declined slightly to 20.3% at March 31 compared to 20.5% at year end. Our core deposit balances which exclude brokered CDs increased $192 million compared to the linked quarter end. This improvement was due to $102 million of governmental deposit deposit growth coupled with an increase of $41 million in non interest bearing deposits. This growth was partially offset by $154 million of declines in our brokered CDs as we reduced our position opting for lower short term borrowing rates as a funding source. As a note, our governmental deposits are seasonally higher in the first quarter of each year so we anticipate seeing some of that money flow out in the second quarter. Our demand deposits as a percent of total deposits were flat at 35% for both quarter end and year end. Our non interest bearing deposits to total deposits grew to 21% at March 31 compared to 20% at year end. Moving on to our capital position, all of our regulatory capital ratios improved compared to the linked quarter end. Our tangible equity to tangible assets ratio improved 12 basis points to 8.9% at quarter end compared to 8.8% at year end. Our book value per share grew to $33.85 while our tangible book value per share improved to $22.95 or 3%. Annualized we increased our quarterly dividend rate for the 11th consecutive year to 42 cents per share. This results in an annualized dividend yield of 4.84%. Finally, I will turn the call over to Tyler for his closing comments.
Tyler Wilcox (President and Chief Executive Officer)
Thank you Katie Looking to our results for the full year of 2026 we expect the following which excludes the impact of non core expenses and the proposed merger. We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4 and 4.2% for the full year of 2026 which includes one 25 basis point rate cut. Each incremental 25 basis point reduction in rates from the Federal Reserve is …
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