Peoples Bancorp (PEBO) Q3 2026 earnings review
Peoples earns more on loans, but its lending barely grows
Peoples earned more on its loans and fees while its lending nearly stood still. Profit per share rose 10% from a year ago, as the margin widened again and fee income beat the bank's own range. Chief executive Tyler Wilcox called it a "strong performance". Peoples also agreed in September to buy Capital Bancorp of Maryland for about $728 million in stock.
| Net interest margin | 4.31% 4.23% last quarter; 4.16% a year ago |
|---|---|
| Profit per share | $0.91 +10% from a year ago; $1.04 excluding one-offs |
| Loan growth from last quarter | $19 million about 1% at an annual rate |
| Full-year margin outlook | Raised 4.20–4.30%, from 4.10–4.30% |
⚖️ Verdict: 🟢 Bullish
The story got better because the margin widened even as deposit costs stopped falling, and Peoples lifted the bottom of its full-year margin range. The bad news: loans grew only about 1% at an annual rate. By our math the new loan target is lower for the bank on its own, once Citizens' loans are set aside.
The question now is where the next margin gain comes from, now that cheaper deposits have stopped helping. Either the Fed and Citizens' low-cost deposits deliver the 2027 range, or the margin has peaked near 4.3% until Capital changes the balance sheet. The first-quarter 2027 margin, set against the first assumed rate rise, will tell.
🐂 Bull Case
Margin Widened Again, to 4.31%
Net interest margin is the gap between what Peoples earns on its loans and bonds and what it pays for its funding. The margin reached 4.31%, up from 4.23% last quarter. Chief executive Tyler Wilcox cited "continued improvement in our net interest margin, net interest income, our fee-based revenue streams, and overall profitability".
This quarter's gain came from assets: the loan yield edged up to 6.44% and the securities yield rose to 3.70%. The bond yield improved because the bank again sold lower-yielding securities, taking a loss to "manage its balance sheet under $10 billion in assets ahead of the Citizens merger". It sold $58.5 million of bonds at a $4.5 million loss, the third such sale in a year.
Margin matters more than volume here, because loans barely grew. By our math, each 10 basis points of margin is worth about $8.6 million of yearly interest income. Accounting gains from past acquisitions added only 4 basis points, against 8 a year ago, so most of the improvement is earned rather than booked.
What to watch: the fourth-quarter margin, which by our math the full-year outlook puts near 4.31%. A lower reading would mean the deposit repricing has run out before Citizens' cheaper deposits arrive.
Fee Income Rose Above Its Own Plan
Peoples earns about a quarter of its revenue from fees: trust and brokerage, insurance, electronic banking, deposit charges and equipment leases. Its outlook called for $28 million to $30 million of such income this quarter, excluding gains and losses on securities.
The bank booked $30.5 million, above that range and 13% more than a year ago. Lease income grew most, because rent on leased equipment and gains on leases ended early both rose, the company said. Trust and investment income grew 14% as assets under management rose 10%.
Fee income does not depend on interest rates, so it cushions the margin if rates fall. But gains on ended leases may not repeat, and the 2027 plan now asks for $31 million to $33 million a quarter.
What to watch: fourth-quarter fee income against the unchanged range. Another figure above $30 million would mean the gain is lasting rather than a one-time lease gain.
Business Loans Grow While Property Loans Shrink
Peoples is replacing loans secured by commercial property with commercial and industrial loans, which fund a business's equipment and working capital. This quarter's growth came from construction, business loans and home equity lines, offset by property-loan paydowns, the company said. Over a year the shift is large, even though total loans grew only 2%.
- Commercial and industrial loans: up 16% from a year ago, now 25% of all loans
- Other commercial real estate: down 5%, now 33% of loans from 35%
- Construction loans: up 28%; leases: down 11% as the small-ticket book shrinks by design
The mix matters because business loans mostly carry variable rates, so they support the margin while rates stay high. This quarter's largest charge-off also came from one such relationship, so the credit quality of the new book needs watching.
What to watch: commercial and industrial balances at year-end, excluding Citizens. Another rise would show Peoples can grow on its own while property loans run off.
🐻 Bear Case
Deposit Costs Stopped Falling and Borrowing Rose
Peoples credits its margin gains to "lower deposit and borrowing costs". That was true over a year: it pays 1.87% on interest-bearing deposits, against 2.21% a year ago. The rate did not move from last quarter, though. The cost of all deposits even edged up to 1.48% from 1.46%, because balances in accounts that pay nothing fell.
The bank also leaned harder on borrowed money: average brokered deposits rose $59 million from last quarter. Period-end short-term borrowings reached $704 million. Loans now equal 92% of deposits, against 86% a year ago. New lending is therefore funded with wholesale money that costs about 3.8%, not with customer deposits.
What to watch: the interest-bearing deposit rate next quarter, once Citizens' lower-cost deposits arrive. Another quarter without a decline would confirm that the deposit side can no longer lift the margin.
Classified Loans Jumped 21% on Three Downgrades
Classified loans are those a bank rates substandard or worse, the step before a loss. Peoples moved $30 million into that group this quarter, "driven by the downgrade of two commercial real estate loan relationships, and one commercial and industrial loan relationship". Classified loans now equal 2.50% of all loans, up from 2.06% in June.
Other readings improved. Nonperforming loans fell 11% and criticized loans, a broader warning list, fell 6% because of upgrades and paydowns. The small-ticket leasing book keeps improving after driving most losses last year. Its charge-offs fell to $2.5 million from $3.4 million. But charge-offs everywhere else nearly doubled because of one commercial and industrial customer. The overall rate therefore rose to 0.35% from 0.31%.
The company says it does "not anticipate significant losses from these relationships" and is "in the process of exiting these credits". Provision fell to $3.6 million, so the bank added no large reserve for them.
What to watch: whether the three relationships leave the classified list by year-end without a reserve. A specific reserve against any of them would mean the exits cost money and provision rises from a low base.
Loan Growth Target Rises Only Because of Citizens
Peoples' loan book grew $19 million this quarter, about 1% at an annual rate, as paydowns on commercial property offset new business loans. Since December it is up only 1.2%. The July plan called for the low end of 3% to 5%.
The new plan says 6% to 8% for 2026, "which is impacted by the acquired loans from Citizens". Citizens had about $342 million of loans at announcement, and the deal, which Peoples aimed to close early this quarter, is still pending. By our math, strip those loans out and the plan implies about 1% to 3% standalone growth, below the earlier target.
What to watch: year-end loans with Citizens shown separately. By our math the middle of the plan needs about $47 million of standalone growth in the fourth quarter, more than twice this quarter's pace.
Next Year's Margin Plan Needs Three Rate Rises
Peoples set next year's margin range at 4.30% to 4.50%, above this year's. The range assumes three Federal Reserve rate increases, the first late this year and two more during 2027, the presentation says. Last quarter's plan assumed steady rates.
The company said in July that each quarter-point rise adds 6 to 8 basis points to its full-year margin. Each of the three moves applies to only part of next year. By our math they supply roughly 12 to 16 basis points of the range, so most of the planned gain comes from the Fed rather than from the bank.
The plan is written "excluding non-core expenses and the pending Capital merger". That deal would carry Peoples past $10 billion in assets, where a federal cap on debit-card fees applies. In April the bank put that cost at about $11 million of revenue a year, including Citizens. Neither the cap nor Capital's own margin is in the 2027 numbers.
What to watch: whether the Fed moves late this year. Without that first rise, the range's starting point is gone before 2027 begins.
👓 Other Themes
Peoples Agrees to Buy Capital Bancorp for Stock
On September 30 Peoples agreed to buy Capital Bancorp, parent of Capital Bank of Rockville, Maryland, for stock worth about $728 million. By our math that equals 59% of Peoples' own equity, so the bank will issue a large block of new shares to Capital's holders. The 2027 outlook excludes the deal, and the smaller Citizens purchase has not yet closed.
Last Year's Deposits Now Include $200 Million More
The release shows $617 million of brokered deposits at the end of September last year, where last year's release showed $417 million, with short-term borrowings cut by the same amount. It lifts the year-ago base, so part of the 5% drop in deposits over the year is relabelled wholesale funding, not lost customers. Peoples does not explain the change.
💲 Other KPIs
Rose again, to 12.81% from 12.66% in June, the fifth straight quarterly rise, because, the presentation says, "earnings outpaced dividends". Tangible equity to tangible assets moved the other way, to 9.06% from 9.25%. Unrealized losses on bonds widened by $29 million and explain the gap, because regulatory capital ignores them and tangible equity does not.
Fell 0.9% from June to $23.35, the first decline in a year, because the bond losses that cut tangible equity also hit book value. It is still up 5.9% from a year ago. No shares were bought back, and the diluted share count rose 0.7% from a year ago, before any shares go to Citizens or Capital holders.
Improved to 57.3% from 57.9% in June, because revenue grew faster than core costs. The ratio shows cents of cost per dollar of revenue, excluding deal expenses and gains and losses. For the year so far it is 57.9% against 59.0% a year earlier, which is what the positive operating leverage plan means in practice.
🔮 Guidance
Raised. Peoples lifted the bottom of the range by 10 basis points and kept the top, so the middle rose to 4.25%. By our math that leaves about 4.31% for the fourth quarter, level with this quarter. The outlook now includes Citizens, whose cheaper deposits would help only if the deal closes early in the quarter.
Unchanged. The middle of the range is $29 million, about 5% below this quarter. A year ago the bank earned $28.3 million. Results have landed inside or above the range for three straight quarters, each higher than the last, so the top end looks closer than the middle.
Raised, because the range now includes Citizens' costs; the earlier range excluded the deal. The middle of the range is $79 million, 8% above this quarter's core figure. Without Citizens' own expense base, which Peoples has not disclosed, the standalone trend cannot be read from this number. Deal costs come on top: $1.5 million this quarter, up from $0.4 million.
Raised on paper, because the range now counts Citizens' loans. Citizens held roughly $342 million of loans at announcement. Strip those out and, by our math, the plan implies 1% to 3% standalone growth, below the earlier target. The fourth quarter would have to do most of the work: the middle needs about $47 million of standalone growth, more than twice this quarter's $19 million.
Unchanged. Peoples still expects fewer charge-offs this year than last, which it says should lower the provision for credit losses unless the economic forecast worsens. Nine months in, net charge-offs are $17.8 million against $21.9 million a year earlier. The plan looks achievable even after this quarter's rise to an annual rate of 0.35%.
Unchanged. Positive operating leverage means revenue grows faster than costs. Nine months in, revenue excluding gains and losses is up 5.6% while core costs are up 2.8%, so the bank is on course. The Citizens expenses now included in the plan would have to be large to reverse that in one quarter.
In line with April's statement. The middle of the range, 4.40%, sits 15 basis points above this year's. It assumes three Federal Reserve rate increases, the first late this year, where this year's plan assumed none, and it excludes Capital. By our math the rate moves account for 12 to 16 basis points of the range, so without them 2027 would look much like 2026.
New. The plan asks for $31 million to $33 million a quarter. That is a step up: by our math the middle is 10% above this year's planned level. This quarter's $30.5 million was already close to the bottom of it. The first quarter runs higher because annual insurance commissions land there, the company said. Citizens' fees are included; Capital's are not.
New. Quarterly costs of $80 million to $82 million, with a higher first quarter for annual benefit and stock-award expenses. It includes Citizens for a full year but not Capital. That is about $2 million above the fourth-quarter range, or at least $324 million a year by our math. Against this year's likely core cost, that is nearly 10% more.
New. Growth of 3% to 5% from the 2026 year-end book, "which is dependent on the timing of paydowns on our portfolio", the presentation says. The base includes Citizens, so the target is for the combined bank. It is the same range Peoples set for 2026 before property paydowns pushed it to the low end, so the question is whether those paydowns slow.
New. Peoples expects charge-offs and the charge-off rate next year to look like this year's, including a projected rise from adding Citizens' loans. That suggests the small-ticket leasing improvement is done and the Citizens book brings new losses, so the provision has little room to fall further from this quarter's $3.6 million.
New. Revenue is to grow faster than costs again next year, excluding deal expenses and Capital. By our math the cost plan is nearly 10% above this year's, so revenue must grow faster still. That rests on the margin range and the fee range both landing, and the margin range rests on three rate increases.
❓ Key Questions
Has Citizens closed, and what will its securities sale cost?
The July target was a close early this quarter; the release still calls the deal pending. Peoples planned to sell Citizens' entire bond book at close, and each of its own bond sales so far has cost a loss of several million dollars.
What is 2027 profit once Capital takes Peoples past $10 billion?
The 2027 outlook excludes Capital. Crossing $10 billion caps debit-card fees, a cost Peoples put at about $11 million of revenue a year in April, and adds regulatory expense. Investors have no combined figure to judge the deal by.
What are the three downgraded relationships, and how are they secured?
Classified loans rose $30 million on two property relationships and one business loan. Peoples expects no significant losses and is exiting them, but gives no balances, collateral or timeline, and the provision fell, so no large reserve was added.
Why did cash and short-term borrowings both rise about $115 million?
Period-end cash rose $121 million and short-term borrowings $115 million from June, while average borrowings fell. The release says cash fluctuates with the liquidity position but not whether the extra borrowing pre-funds the Citizens close or something else.
What do interest-bearing deposits cost today, and what matures?
The deposit rate held at 1.87% this quarter after a year of declines. Peoples has not updated the spot rate or the amount of retail certificates still to reprice, which decides whether the deposit side can lift the margin again.