Peoples Bancorp ((PEBO)) has held its Q2 earnings call. Read on for the main highlights of the call.

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Peoples Bancorp’s latest earnings call struck a cautiously upbeat tone, as management highlighted adjusted EPS strength, margin expansion, improving credit trends and solid capital growth. These positives were balanced against a sizable one‑time securities loss tied to merger positioning and ongoing funding and asset quality pressures, leaving investors with a generally optimistic but measured outlook.

Earnings Beat After Adjustments

Peoples reported diluted EPS of $0.78, but adjusted EPS of $0.96 after stripping out one‑off items. That figure beat Wall Street’s consensus of $0.85 by $0.11, signaling stronger underlying profitability than the headline number suggests and helping set a constructive tone for the quarter.

Net Interest Income and Margin Expansion

Net interest income rose 3% versus the prior quarter, supported by a 7 basis‑point improvement in net interest margin. Management guided to a full‑year 2026 NIM range of 4.10% to 4.30% and noted that a 25 bp Federal Reserve move could add roughly 6 to 8 basis points, underscoring sensitivity to higher rates.

Material Reduction in Provision for Credit Losses

Provision for credit losses fell sharply, down 51% quarter‑over‑quarter to $4.7 million, reflecting more stable credit trends. The allowance for credit losses edged lower but remained solid at 1.14% of total loans, compared with 1.16% in the prior period, suggesting no major deterioration in risk.

Improved Credit Metrics and Lower Charge-Offs

Asset quality showed improvement, with the annualized quarterly net charge‑off rate easing to 31 basis points from 40 basis points. Indirect consumer charge‑offs fell by $751,000 and small‑ticket lease charge‑offs declined to $3.4 million from $3.8 million, indicating gradual progress in historically stressed portfolios.

Loan Growth and Business Mix

Total loans increased by $51 million, a 3% annualized pace, led by commercial and industrial balances that grew $43 million. Additional strength came from premium finance, construction lending, home‑equity lines and more than $15 million of mid‑ticket leasing, pointing to a diversified growth engine despite headwinds.

Capital and Book Value Improvement

Capital metrics continued to firm up, with tangible equity to tangible assets rising 34 basis points to 9.25%. Book value per share advanced to $34.41 and tangible book value per share climbed to $23.56, implying annualized growth rates of 7% and 11% respectively and bolstering balance‑sheet resilience.

Fee Income and Efficiency Gains

Fee‑based income grew by over $340,000 quarter‑over‑quarter and by about $3 million year‑to‑date, supporting revenue diversification. The efficiency ratio improved modestly to 58.3% from 58.6% and year‑to‑date efficiency strengthened to 58.4% from 60.0%, signaling incremental operating discipline.

Operational Positioning and Merger Progress

Management emphasized that it expects positive operating leverage in 2026 versus 2025, excluding non‑core and merger‑related items. The team remains on track to close the Citizens transaction in early fourth quarter 2026 and aims to unlock earnings accretion through strategic repositioning and potential future deals.

One-Time Investment Securities Loss

A major swing factor was the sale of about $135 million of available‑for‑sale securities, which generated an $8.2 million loss. This move reduced adjusted EPS by roughly $0.18 and shrank the investment portfolio to 19.1% of assets from 20.3%, reflecting deliberate but costly balance‑sheet management.

Core Deposit Outflows and Balance Sheet Pressure

Core deposits fell by $155 million in the quarter, driven by declines in government accounts, retail certificates of deposit and interest‑bearing demand balances. The outflows pushed the loan‑to‑deposit ratio up to 91.5% from 88.5%, tightening funding and adding pressure to balance‑sheet flexibility.

Noninterest Expense and Acquisition Costs

Noninterest expenses rose about 2% from the prior quarter and year‑to‑date, lifted by higher operating lease costs, salaries and data processing. The company also booked $410,000 of acquisition‑related expenses in the quarter and $426,000 year‑to‑date, reflecting the financial impact of ongoing deal activity.

Increase in Criticized Loans

Criticized loans climbed by $50 million, now representing 4.01% of total loans compared with 3.3% previously and driven largely by two commercial relationships. Management does not currently anticipate charge‑offs from these exposures, but the rise adds a watch‑list element for investors tracking credit quality.

Persistent Asset Quality Pressure from Small-Ticket Leasing

Small‑ticket leasing remained a notable source of asset quality pressure, contributing about 20 basis points to the quarter’s annualized net charge‑off rate. While charge‑offs in this book declined sequentially, management acknowledged that this portfolio continues to weigh on overall credit performance.

Planned Asset Sales to Manage Size Constraint

The securities sales were partly driven by the need to keep total assets below $10 billion ahead of the Citizens merger, a regulatory size constraint that limits flexibility. Management indicated that additional securities sales from both Citizens and Peoples could occur around closing, potentially adding further one‑time impacts.

CRE Paydowns Acting as Headwind to Loan Growth

Commercial real estate paydowns are another drag on growth, with total payoffs expected around $480 million for the year. Roughly $300 million has already occurred in the first half and another $150 million to $200 million is anticipated in the second half, pushing full‑year loan growth toward the low end of the 3% to 5% target.

Nonperforming Loans and Slight Delinquency Increase

Nonperforming loans ticked up to 0.6% of total loans, a modest increase that nonetheless merits attention. Although 99.1% of the portfolio remains current, up from 98.9%, the combined rise in criticized loans and nonperformers keeps credit risk firmly on investors’ radar.

Guidance and Forward-Looking Outlook

For 2026, Peoples expects net interest margin between 4.1% and 4.3%, supported by potential Fed hikes and disciplined pricing. Management forecasts quarterly fee income of $28 million to $30 million, noninterest expense of $73 million to $75 million, loan growth near the low end of 3% to 5% and slightly lower net charge‑offs, while carefully managing assets below $10 billion and aiming for Citizens closing in early fourth quarter 2026.

Peoples Bancorp’s call painted a picture of a bank strengthening its core earnings and capital while navigating funding, asset quality and regulatory size constraints. With adjusted results ahead of expectations, improving efficiency and clear merger plans, the company appears positioned for long‑term gains, though investors should watch deposit trends, criticized credits and the impact of further securities repositioning.