PEBO Q1 Deep Dive: Deposit Growth and Credit Quality Stability Offset Margin and Fee Headwinds

Regional banking company Peoples Bancorp (NASDAQ:PEBO) met Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $113 million. Its non-GAAP profit of $0.70 per share was 4.4% below analysts’ consensus estimates.

Is now the time to buy PEBO? Find out in our full research report (it’s free).

StockStory’s Take

Peoples Bancorp’s first quarter results were met with a positive market response, as management pointed to stable loan growth, improvements in credit quality, and expanding core deposit balances despite a challenging operating environment. CEO Tyler Wilcox emphasized annualized loan growth above 4%, core deposit growth of over 3%, and reductions in both nonperforming assets and criticized loans as key drivers. The bank’s ability to reduce higher-cost brokered deposits contributed to a healthier funding mix, while fee-based income showed modest gains. Management cited one-time compensation and health expense items as weighing on profitability this quarter, with CFO Kathryn Bailey noting, “These expenses totaled $2 million for the first quarter.”

Looking ahead, Peoples Bancorp’s outlook centers on maintaining operating leverage and disciplined cost control, even as macroeconomic uncertainty and potential interest rate changes persist. The company expects full-year net interest margin to remain in the 4% to 4.2% range and anticipates mid-single-digit growth in fee-based income, assuming rate cuts from the Federal Reserve later in the year. Wilcox highlighted that the bank’s asset sensitivity is now largely neutral, allowing for resilience against rate volatility, and added, “We’re positioned so the declines in interest rates have a minor impact to our net interest margin.” Continued attention to credit quality and prudent loan growth remain strategic priorities.

Key Insights from Management’s Remarks

Management attributed the steady quarter to strong loan production, improved asset quality, and proactive deposit management, while acknowledging elevated expenses and modest fee income growth.

• Loan growth led by commercial: Annualized loan growth exceeded 4% for the quarter, driven by commercial real estate, residential real estate, and consumer indirect loans. Management credited a robust loan pipeline and continued optimism in small business markets, despite national declines in consumer confidence.
• Improved credit quality: The company reported reductions in net charge-off rates, nonperforming assets, and criticized/classified loans. Wilcox explained that net charge-offs in the small-ticket leasing portfolio declined by over $2 million compared to the prior quarter, reflecting the winding down of higher-risk accounts.
• Core deposit growth and funding mix: Core deposit balances grew over 3%, aided by a reduction in brokered certificates of deposit (CDs) and increases in money market and governmental deposits. Bailey noted that lower deposit and borrowing costs helped offset declines in loan and investment income.
• Noninterest expense pressures: First quarter expenses rose due to typical annual items, including stock-based compensation and employer health savings contributions, which together reduced diluted earnings per share by $0.05. Management expects expense normalization for the rest of the year.
• Fee income variability: Fee-based income increased 2%, driven by seasonal insurance commissions but partially offset by lower commercial loan swap fees and service charges. Management indicated that future fee income will depend on insurance performance, mortgage sales strategy, and market-driven trust income.

Drivers of Future Performance

Management’s forward outlook is shaped by expectations of stable margins, prudent loan growth, and ongoing cost discipline amid an uncertain rate and macroeconomic backdrop.

• Stable margin guidance: The bank expects net interest margin to remain within the 4% to 4.2% range for the year, assuming two 25 basis point Fed rate cuts. Bailey emphasized that the balance sheet is now largely neutral to rate changes, minimizing risk from further rate movements.
• Loan and fee income growth: Peoples Bancorp projects loan growth between 4% and 6% for the year, with mid-single-digit percentage increases in fee-based income. Management sees ongoing strength in commercial real estate and indirect consumer lending, but notes that insurance commissions and trust income could fluctuate with market conditions.
• Credit and expense normalization: While provision for credit losses was elevated due to lingering small-ticket leasing charge-offs, management expects both charge-offs and provision levels to decline and normalize in the second half of the year. Noninterest expenses are also guided to stabilize, with flexibility to adjust if revenue falls short.

Catalysts in Upcoming Quarters

Our analyst team will closely watch (1) whether loan and deposit growth remains resilient as macroeconomic and tariff uncertainties persist, (2) signs of further improvement in credit quality, particularly within the leasing portfolio, and (3) progress toward stabilizing noninterest expenses and achieving targeted efficiency ratios. Execution on cost management and fee income diversification will also be key areas of focus.

Peoples Bancorp currently trades at $29.61, up from $27.54 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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