Peoples Bancorp Earnings Call: Growth, Credit and Guidance

Peoples Bancorp ((PEBO)) has held its Q4 earnings call. Read on for the main highlights of the call.

Peoples Bancorp Balances Credit Headwinds With Solid Growth and Capital Gains in Latest Earnings Call

Peoples Bancorp’s latest earnings call painted a cautiously optimistic picture: operational performance and capital strength are moving in the right direction, but credit costs and margin pressure remain meaningful headwinds. Management highlighted an EPS beat, healthy full-year loan and fee income growth, and improved capital ratios, while acknowledging elevated net charge-offs, a higher provision for credit losses, and net interest margin (NIM) compression tied to lower accretion income. The tone was constructive, with management signaling confidence in underlying earnings power and offering encouraging 2026 guidance, yet clearly aware of ongoing credit and rate-related challenges.

Quarterly EPS Beat Signals Resilient Core Earnings

Peoples Bancorp delivered diluted EPS of $0.89 for the fourth quarter, up 7% from the prior quarter and slightly above consensus expectations of $0.88. The beat is notable given the drag from one-time items and a tougher rate and credit environment. Management underscored that underlying profitability remains solid even as non-core losses and higher provisions weigh on reported results. This performance suggests the bank is managing through credit normalization while still generating respectable earnings momentum.

Loan Growth Hits Top of Guidance, Led by C&I and Construction

Full-year 2025 loan growth reached 6% versus 2024, landing at the top end of prior guidance and underscoring steady demand in key commercial segments. On a quarter-over-quarter basis, loan balances grew at a 2% annualized pace, adding nearly $30 million from September 30. Commercial and industrial loans increased by $46 million, while construction loans rose by $40 million. This mix skews toward relationship-based, higher-yielding categories, which should support revenue over time, even as management remains selective in underwriting amid a more uncertain credit backdrop.

Fee-Based Income Strengthens and Diversifies Revenue

Fee-based income was a bright spot, rising 5% in the fourth quarter and 6% for the full year 2025 versus 2024. Growth was broad-based, driven by higher lease income, stronger deposit service charges, improved mortgage banking activity, and increased trust and investment income. This expanding non-interest income base helps offset margin pressures on the spread side of the business and signals that Peoples is deepening customer relationships across products, not just loans and deposits. A more diversified revenue mix also gives the bank more flexibility as interest rate and credit cycles evolve.

Capital Ratios and Book Value Continue to Improve

Capital and book value trends were firmly positive. The tangible equity to tangible assets ratio improved by 26 basis points to 8.8%, while Common Equity Tier 1 and Tier 1 capital ratios each rose 18 basis points. Book value per share increased 2% and tangible book value per share climbed 3% to $22.77. These gains came despite absorbing one-time losses and elevated credit costs, showing that internal capital generation remains strong. Improved capital levels enhance the bank’s ability to navigate credit normalization, support growth, and maintain strategic flexibility.

Subordinated Debt Redemption Trades One-Time Loss for Ongoing Savings

Peoples redeemed subordinated debt, taking an upfront loss of roughly $800,000 but locking in an estimated $1.0 million in annual funding cost savings. Management estimated the tangible book value earn-back period at under one year, making this a relatively quick-payback transaction. The move reflects proactive balance sheet management: near-term pain in reported earnings to secure structural improvements in funding costs and long-term profitability.

Risk Reduction in Small-Ticket Leasing Portfolio

In a notable risk-management step, the company materially shrank its small-ticket leasing exposure to $13.0 million at year-end from $35.0 million a year earlier and stopped originating these leases. This portfolio had been a key driver of elevated charge-offs, so the run-off strategy is designed to reduce future credit volatility. While current loss levels from this book are still high, shrinking and exiting the segment should gradually reduce a disproportionate source of risk within the overall loan portfolio.

OREO Sale Reduces Legacy Nonperforming Asset Exposure

The bank sold an other real estate owned (OREO) property, recording an $850,000 loss but meaningfully cutting nonperforming assets and legacy OREO exposure. Management’s decision to take the hit now reflects a desire to clean up the balance sheet and remove lingering problem assets, even at a cost to near-term earnings. Over time, a leaner OREO and nonperforming asset profile should support better asset quality metrics and lower ongoing carrying costs.

Core Net Interest Income Growth Masked by Lower Accretion

Net interest income (NII) increased 2% for full-year 2025 compared to 2024 on a reported basis, but the underlying picture is stronger once reduced accretion income is stripped out. Q4 accretion income was $1.8 million, contributing about 8 basis points to NIM. Excluding accretion, NII grew by more than $22 million and NIM actually expanded by 12 basis points year-over-year. That disconnect underscores that underlying spreads and earning-asset performance are improving, but headline NIM appears weaker due to the natural roll-off of acquisition-related accretion.

Investments in Technology and Talent Support Long-Term Franchise Value

Peoples continued to invest in technology, automation, data integration, and talent throughout the year, signaling a focus on long-term efficiency and customer experience rather than short-term cost cuts. The bank was again named to American Banker’s “Best Banks to Work For” list for the fifth straight year, a distinction achieved by only about 1% of U.S. banks. This recognition suggests a healthy culture and strong employee engagement, which can be competitive advantages in attracting talent, supporting consistent execution, and strengthening client relationships.

Deposit Growth Year-Over-Year Supports Funding Stability

Despite quarterly noise, funding trends over the past year were constructive. Compared with the prior year, total deposits excluding brokered CDs increased nearly $160 million, including a $38 million rise in non-interest-bearing deposits. The loan-to-deposit ratio held around 89% at year-end, a level that indicates solid funding coverage without overreliance on wholesale sources. This mix shift toward core and non-interest-bearing deposits helps buffer funding costs, an important factor in a still-competitive deposit environment.

Elevated Provision Reflects Higher Credit Costs and Cushion Building

The provision for credit losses climbed to $8.1 million in the fourth quarter, driven largely by realized net charge-offs. As a result, the allowance for credit losses increased to 1.12% of total loans from 1.00% at the prior year-end. Management is clearly building reserves in response to pressure in the leasing portfolio and some pockets of commercial credit. While this weighs on current earnings, the stronger reserve position provides more protection against potential future losses and reflects prudent risk management in a late-cycle credit environment.

Net Charge-Offs Concentrated in Small-Ticket Leases

Quarterly annualized net charge-offs rose to 44 basis points from 41 basis points in the prior quarter, but the pressure remained heavily concentrated in small-ticket leasing. Charge-offs from this segment contributed about 31 basis points of the total, meaning the rest of the loan portfolio had a very low 13 basis points annualized charge-off rate. This split underscores a bifurcated credit story: outside of the leasing book, credit performance remains solid, while legacy lease exposures continue to drag on the overall loss rate.

Nonperforming Loans Tick Higher, Driven by Single C&I Relationship

Nonperforming loans increased by nearly $4.0 million quarter-over-quarter, primarily from an acquired commercial and industrial relationship moving into nonaccrual status. The percentage of loans current declined modestly to 98.6% from 99.0% at September 30. While not a broad-based deterioration, the move highlights that individual commercial credits can still surprise in this environment. Management framed this as manageable within the context of overall asset quality and the strengthened reserve position.

NIM Pressure as Loan Yields Slip Faster Than Funding Costs

Net interest margin declined 4 basis points in Q4 compared with the prior quarter and fell 7 basis points for full-year 2025 versus 2024. Loan yields dropped by 17 basis points, while funding costs improved by only 10 basis points, leaving spreads slightly squeezed. This reflects the lagged effect of repricing in a high-rate environment and continued competition for deposits. Together with the decline in accretion income, these dynamics weighed on reported NIM, though management stressed that underlying core margin trends are better than the headline numbers suggest.

Sharp Decline in Accretion Income a Major NIM Headwind

Accretion income dropped to $9.6 million in 2025, contributing about 11 basis points to NIM, compared with $25.2 million and roughly 30 basis points of NIM contribution in 2024. This steep decline was a major headwind to reported margin performance year-over-year. As acquisition-related accretion naturally fades, the bank has to rely more on organic spread management and balance sheet mix to sustain NIM. The good news: excluding accretion, both NII and NIM actually improved, indicating that core earnings power is being built even as this non-recurring tailwind diminishes.

One-Time Losses Tempered EPS but Cleaned Up the Balance Sheet

Two non-core losses weighed on 2025 earnings: the $850,000 OREO sale loss and nearly $800,000 from the subordinated debt redemption. Combined, they reduced diluted EPS by roughly $0.02. While modest in size, these items are important context for investors assessing underlying trends. Both losses were tied to deliberate actions—exiting legacy assets and optimizing capital structure—that should benefit the balance sheet and recurring earnings in future periods.

Quarterly Deposit Outflows Driven by Government and CD Runoff

On a linked-quarter basis, total deposits fell $22.0 million in Q4, largely due to a $30 million decline in governmental deposits and $25 million runoff in retail CDs. These pressures were partially offset by $24 million growth in interest-bearing demand balances and $9 million in non-interest-bearing deposits. The shift underscores the ongoing churn in certain rate-sensitive and institutional categories but also shows the bank’s ability to grow more stable, relationship-based deposits at the same time.

Efficiency Ratio Edges Higher Amid Incentive Costs and Lower Accretion

Peoples’ efficiency ratio weakened slightly, coming in at 57.8% in Q4 versus 57.1% in the prior quarter and 58.7% for 2025 compared with 58.0% in 2024. The modest deterioration reflects higher lease-related and sales-based incentive expenses, along with the earnings drag from lower accretion income. While still in a respectable range, the trend highlights the importance of the bank’s ongoing technology and process investments and its focus on achieving positive operating leverage in the coming year.

NorthStar Leasing Losses Plateau, Improvement Expected in 2026

The NorthStar small-ticket leasing portfolio saw a plateau of elevated losses and charge-offs through 2025, and management warned that near-term quarters may remain pressured. However, the expectation is that charge-offs will begin to taper in 2026 as the portfolio runs off and risk exposure shrinks. Combined with the halt in new originations, this suggests that the worst of the leasing-related credit pain may be near its peak, with gradual improvement ahead.

Guidance: Positive Operating Leverage and Modestly Better Credit Ahead

Looking to 2026, management guided to positive operating leverage excluding non-core items. They expect full-year NIM around 4.2%, assuming one 25-basis-point Federal Reserve rate cut, with each additional 25-basis-point cut likely trimming NIM by roughly 3–4 basis points. Accretion income is projected to contribute about 5 basis points to NIM. Quarterly fee-based income is forecast at $28–30 million, with first-quarter fees typically stronger, and total non-interest expense is projected at $72–74 million per quarter, again with Q1 elevated. Loan growth is targeted at 3–5% versus 2025, and management anticipates a slight reduction in net charge-offs, implying a more favorable provision outlook absent a deterioration in the macro environment. Overall, the guidance points to steady growth, incremental efficiency improvement, and moderating credit costs.

In sum, Peoples Bancorp’s earnings call showcased a franchise that is growing loans and fees, strengthening capital, and proactively cleaning up risk exposures, even as credit costs and NIM compression pose real challenges. The bank’s core performance looks stronger than the headline numbers suggest once one-time losses and fading accretion are stripped out. With conservative credit positioning, strategic funding and capital moves, and a clear roadmap for 2026, management struck a tone of measured optimism that should resonate with investors focused on long-term, through-the-cycle earnings power.