Peoples Bancorp, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Reported diluted earnings per share (EPS) of $0.91 for the third quarter; adjusted diluted EPS was $1.04, exceeding consensus estimates of $0.93.
• Adjusted EPS included a $4.5 million loss on investment securities (reducing EPS by $0.10) and $1.5 million in acquisition-related expenses (reducing EPS by $0.03).
• Net interest income increased 1 percent ($1.1 million) quarter-over-quarter; net interest margin expanded 8 basis points.
• Fee-based income grew 5 percent quarter-over-quarter and 8 percent for the first nine months of 2026 compared to the prior year.
• Provision for credit losses declined 24 percent to $3.6 million compared to the second quarter.
• Annualized quarterly net charge-off rate increased to 35 basis points from 31 basis points in the linked quarter.
• Return on average assets was 1.36 percent; return on average stockholders' equity was 10.44 percent.
• Reported efficiency ratio was 58.5 percent; adjusted efficiency ratio (excluding acquisition expenses) was 57.3 percent.
• Non-interest expenses increased 2 percent quarter-over-quarter to include $1.5 million in acquisition-related expenses; excluding these, expenses were flat.
• Loan-to-deposit ratio increased to 91.9 percent at quarter end from 91.5 percent.
• Investment portfolio as a percent of total assets declined to 18.3 percent from 19.1 percent.
• Tangible equity-to-tangible asset ratio declined due to increased unrealized losses on the available-for-sale investment portfolio.

Guidance and Future Outlook:

• Full-year 2026 net interest margin guidance is 4.2 percent to 4.3 percent.
• Fourth quarter 2026 fee-based income is expected to range between $28 million and $30 million.
• Fourth quarter 2026 total non-interest expense is projected between $78 million and $80 million.
• Full-year 2026 loan growth is expected to be 6 percent to 8 percent compared to 2025, including acquired loans from the Citizens merger.
• Fourth quarter 2026 acquisition-related expenses for the Citizens merger are expected to be between $11 million and $13 million.
• Full-year 2027 net interest margin is anticipated to be 4.3 percent to 4.5 percent, assuming three 25-basis point Federal Reserve rate increases (late 2026, March 2027, September 2027).
• Full-year 2027 fee-based income is projected to range between $31 million and $33 million.
• 2027 total non-interest expense is expected to be $80 million to $82 million for the second, third, and fourth quarters, with the first quarter higher due to annual insurance commissions.
• 2027 loan growth is expected to be 3 percent to 5 percent compared to 2026.
• Management anticipates positive operating leverage for both 2026 and 2027 compared to the prior year.
• Net charge-offs are expected to decrease in 2026 compared to 2025.

Business Segments and Product Lines:

• Construction loans increased by $40 million; commercial and industrial loans grew by $34 million; home equity lines of credit grew by $10 million.
• Commercial real estate loans decreased by $38 million due to payoffs; residential real estate loans declined $14 million; leases decreased $12 million.
• Interest-bearing demand deposits increased $52 million; money market accounts increased $46 million.
• Retail CDs decreased $44 million; non-interest-bearing accounts decreased $34 million.
• Small-ticket lease charge-offs have declined throughout 2026, with a 25 percent reduction in lease charge-offs for the quarter.
• The Citizens merger is expected to add nearly $350 million in loans and approximately $550 million in deposits in the fourth quarter of 2026.
• The pending Capital Bancorp acquisition is expected to close in 2027, adding a historically high-growth franchise.

Market and Competitive Landscape:

• Management notes increasing competition in the market for deposits as rates potentially move upward.
• The company is strategically managing under the $10 billion asset threshold through year-end, utilizing security sales to remain compliant with the pending Citizens merger.
• Commercial credit remains strong, though indirect consumer portfolios face pressure from rising interest rates and fuel prices.
• The company expects to exit certain criticized and classified credits with minimal losses.

Risks and Challenges:

• Potential for increased criticized and classified loan balances in the fourth quarter due to onboarding the Citizens merger portfolio.
• Volatility in fee-based income driven by lease income transactions and end-of-term gains.
• Future net charge-offs may increase in 2027 due to the addition of the Citizens portfolio.
• Regulatory capital ratios were impacted by unrealized losses on the available-for-sale investment portfolio.
• Forward-looking statements involve risks and uncertainties, including the timing and success of pending mergers and economic forecasts.

Management Commentary and Tone:

• Management expressed high activity levels and confidence in strategic priorities, including the closing of the Citizens merger and the pending Capital Bancorp acquisition.
• Tyler Wilcox described the path beyond the $10 billion threshold as the culmination of years of strategic planning and stated that infrastructure investments are already operating as if the milestone has been crossed.
• Management remains "very cautiously optimistic" on credit overall, particularly in the commercial space, while monitoring the indirect consumer portfolio.
• Katie Bailey noted that the allowance for credit losses to total loans is expected to stabilize around 1.21 percent over time with the Capital deal, compared to the current 1.11 percent.

Analyst Questions and Answers:

• The Capital Bancorp merger is expected to close in the very end of the first quarter or beginning of the second quarter of 2027.
• A security sale in August involved approximately $59 million of securities with a yield of about 1.5 percent, resulting in a $4.5 million loss.
• Durbin impact fees are expected to hit $11 million annually starting July 2028, with minimal impact from the Capital deal.
• Commercial production was the third highest quarter ever; approximately $460 million in payoffs occurred in the first three quarters against a $480 million annual expectation.
• Non-interest bearing deposit betas are approximately 30 percent.
• Full cost savings from the Capital merger will not be realized until 2028.
• Management expects a slight increase in net interest margin (8 to 10 basis points) in the next quarter due to the Citizens merger.
• The company is asset sensitive but neutral to slightly asset sensitive, with a 25 basis point rate hike estimated to provide a five basis point benefit to margin.
• Commercial real estate and leasing are expected to grow 5 percent and 6-7 percent respectively in 2027.
• Full-year 2027 net interest margin with Capital included is expected to approach 5 percent, though likely not reach 5 percent for the full year.

Other Key Points:

• Peoples Bancorp is closing the Citizens merger at the end of October 2026.
• The pending acquisition of Capital Bancorp is expected to close in 2027.
• The company sold approximately $59 million of securities in August to restructure the investment portfolio and remain under the $10 billion asset limit.
• Management anticipates a potential additional $2 million to $3 million loss on securities in the fourth quarter depending on asset size transitions.
• The company plans to continue selective lending activity to manage under the $10 billion mark through year-end.
• Small-ticket leasing is expected to return to growth in 2027 with a focus on risk-adjusted returns.
• The Citizens merger is projected to improve net interest margin and lower the efficiency ratio post-closing.