PEBO Q2 Deep Dive: Loan Growth Offsets Credit Pressures, Margin Outlook Stable

Regional banking company Peoples Bancorp (NASDAQ:PEBO) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 3.2% year on year to $115 million. Its non-GAAP profit of $0.61 per share was 21.5% below analysts’ consensus estimates.

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StockStory’s Take

Peoples Bancorp’s second quarter results for 2025 were met with a negative market reaction, primarily due to earnings per share falling significantly below Wall Street’s expectations. Management attributed the performance to elevated charge-offs in the small ticket leasing business, which, while showing improvement from previous quarters, continued to weigh on profitability. CEO Tyler Wilcox noted, “We knew this was going to be an issue for a period of time,” referencing ongoing efforts to reduce exposure in high-balance leasing accounts. Conversely, strong annualized loan growth and expanding core net interest margin helped offset some of these pressures, as the company benefited from disciplined deposit cost management and stable core credit performance outside the leasing segment.

Looking ahead, Peoples Bancorp’s forward guidance is shaped by expectations that small ticket leasing charge-offs will plateau before declining, while the remainder of the loan portfolio maintains its strong credit profile. Management anticipates positive operating leverage for the remainder of the year, assuming modest Federal Reserve rate reductions and continued loan growth in the mid-single-digit range. CFO Katie Bailey emphasized active management of deposit costs and a neutral interest rate risk position, suggesting that interest margin should remain resilient even if rate cuts occur. The company projects quarterly noninterest expense to stay within a controlled range, with Wilcox stating the goal is to “achieve positive operating leverage for 2025 compared to 2024.”

Key Insights from Management’s Remarks

Management pointed to robust loan origination, stable deposit composition, and targeted reductions in riskier loan exposures as major themes for the quarter. The largest deviation from expectations stemmed from higher-than-anticipated credit costs in leasing.

• Small ticket leasing cleanup: The small ticket leasing portfolio continued to produce elevated charge-offs, though net charge-off rates improved versus previous quarters. Management reiterated that no new high-balance accounts are being originated and expects this portfolio, now just 2% of total loans, to continue shrinking as problematic exposures are resolved.
• Loan growth momentum: Annualized loan growth reached 11%, with balanced contributions from commercial, residential, and consumer categories. Management highlighted robust production pipelines and broad-based demand, helping to offset seasonal deposit declines and maintain a stable loan-to-deposit ratio.
• Deposit cost discipline: Deposit and borrowing costs both declined, supporting net interest margin expansion. Management credited proactive pricing strategies and stable deposit composition—particularly in retail and noninterest-bearing accounts—as key factors in controlling funding expenses.
• Provision for credit losses: The allowance for credit losses increased to align with peer medians, largely due to specific reserve builds for small ticket leasing and a downgraded commercial relationship. Management described this quarter’s provision as a “peak,” anticipating lower provisions in coming quarters barring significant economic deterioration.
• Investment portfolio optimization: The company opportunistically increased investments in higher-yielding securities, which contributed to overall net interest income growth. Management indicated the investment portfolio is now slightly above target size but plans to continue seeking attractive returns within risk parameters.

Drivers of Future Performance

Peoples Bancorp’s outlook is driven by proactive credit portfolio management, deposit cost control, and an expectation for steady loan demand, amid ongoing monitoring of economic headwinds.

• Leasing portfolio resolution: Management expects small ticket leasing charge-offs to plateau and begin declining, as the portfolio continues to shrink and high-balance accounts are worked out. CEO Tyler Wilcox stated, “We believe this is the peak” for credit costs in this segment, projecting improvement in coming quarters.
• Loan and deposit trends: The company anticipates loan growth of 4-6% for the year, supported by strong pipelines across business lines. Deposit growth is expected to be seasonally influenced, with governmental deposits peaking in the third quarter and a focus on maintaining stable, low-cost funding through proactive pricing and client retention.
• Margin and expense discipline: Peoples Bancorp projects net interest margin to remain within a 4.00% to 4.20% range, assuming modest rate cuts by the Federal Reserve. Management also expects noninterest expenses to stay within guided ranges, emphasizing continued focus on operational efficiency and cost control.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be watching (1) the pace at which small ticket leasing charge-offs stabilize and begin to decline, (2) Peoples Bancorp’s ability to sustain loan growth momentum while maintaining disciplined underwriting, and (3) the effectiveness of deposit pricing strategies as rate environments shift. Additionally, we will monitor progress on operational efficiency, credit quality trends in the broader portfolio, and any signals of increased M&A activity or market expansion initiatives.

Peoples Bancorp currently trades at $30.39, down from $31.58 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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