10-K: Peoples Bancorp 2025 Annual Report: Earnings Dip Amid Higher Credit Losses

Peoples Bancorp Inc. reported a decrease in net income for 2025, driven by increased provision for credit losses and non-interest expenses, despite growth in total assets and loans.

Summary

• Net income for 2025 was $106.8 million, a decrease from $117.2 million in 2024 and $113.4 million in 2023.
• Diluted earnings per common share (EPS) was $2.99 in 2025, down from $3.31 in 2024 and $3.44 in 2023.
• Net interest income increased 2% to $355.2 million in 2025, compared to $348.7 million in 2024, primarily due to lower deposit and borrowing costs.
• Net interest margin decreased by 7 basis points to 4.14% in 2025 from 4.21% in 2024, mainly due to lower accretion income.
• Provision for credit losses significantly increased to $42.2 million in 2025, up from $24.8 million in 2024 and $15.2 million in 2023.
• Net charge-offs rose to $29.4 million (0.45% of average total loans) in 2025, compared to $23.2 million (0.37%) in 2024, driven by small-ticket leases.
• Total non-interest income (excluding gains and losses) increased $6.7 million (6%) in 2025, primarily from a $5.1 million increase in lease income and a $1.9 million increase in trust and investment income.
• Total non-interest expense increased $8.5 million (3%) to $282.3 million in 2025, mainly due to higher salaries and employee benefits ($6.5 million) and data processing and software expenses ($3.9 million).
• The efficiency ratio increased to 58.7% in 2025 from 58.0% in 2024.
• Total assets grew 4% to $9.65 billion at December 31, 2025, from $9.25 billion at year-end 2024.
• Loans and leases increased by $398.9 million, driven by growth in other commercial real estate loans ($208.0 million) and commercial and industrial loans ($188.1 million).
• The allowance for credit losses increased to $75.7 million (1.12% of total loans) at December 31, 2025, from $63.3 million (1.00%) at December 31, 2024.
• Total stockholders' equity increased $95.0 million (9%) to $1.21 billion at December 31, 2025.
• Capital ratios remained strong, exceeding 'well capitalized' thresholds, with a Tier 1 capital ratio of 12.73% and a Total capital ratio of 13.78% at December 31, 2025.
• Tangible book value per common share increased to $22.77 at December 31, 2025, from $19.94 at December 31, 2024.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a moderately negative report due to declining net income and EPS, coupled with a significant increase in credit loss provisions and net charge-offs, which overshadow positive asset and non-interest income growth.

Positives

• Net interest income increased by 2% in 2025, driven by lower deposit and borrowing costs.
• Total non-interest income (excluding gains and losses) increased by $6.7 million (6%) in 2025, primarily from lease income and trust and investment income.
• Total assets grew by 4% to $9.65 billion, with strong loan and lease growth of $398.9 million.
• Total stockholders' equity increased by $95.0 million (9%) to $1.21 billion.
• Maintained strong capital ratios, exceeding 'well capitalized' thresholds (Tier 1 capital ratio 12.73%, Total capital ratio 13.78%, Common equity tier 1 risk-based capital ratio 12.29%).
• Tangible book value per common share increased to $22.77 from $19.94.
• Recognized by Newsweek as one of America's Best Workplaces for the second consecutive year, by Forbes as one of America's Best-In-State Banks for 2025, and by American Banker as a Best Bank to Work For for the fifth consecutive year.
• Implemented a $15 minimum wage throughout the organization, with all associates at or above this threshold since January 2023.
• Liquidity coverage ratio of 4.82 times and total forecasted/contingent sources of cash to uses of cash ratio of 5.75 times, both well within policy limits, indicating robust liquidity management.

Negatives

• Net income decreased to $106.8 million in 2025 from $117.2 million in 2024 and $113.4 million in 2023.
• Diluted EPS decreased to $2.99 in 2025 from $3.31 in 2024 and $3.44 in 2023.
• Net interest margin decreased by 7 basis points to 4.14% in 2025, primarily due to lower accretion income.
• Provision for credit losses significantly increased to $42.2 million in 2025, up from $24.8 million in 2024 and $15.2 million in 2023.
• Net charge-offs increased to $29.4 million (0.45% of average total loans) in 2025, from $23.2 million (0.37%) in 2024, driven by charge-offs on small-ticket leases.
• Total non-interest expense increased by $8.5 million (3%) in 2025, mainly due to higher sales-based and incentive compensation, medical costs, and data processing and software expenses related to technology projects.
• The efficiency ratio increased to 58.7% in 2025 from 58.0% in 2024, indicating reduced operational efficiency.
• Recorded a net loss on investment securities of $2.7 million in 2025 due to the sale of lower-yielding available-for-sale securities.
• Incurred a $0.9 million loss on the sale of an OREO property and an $0.8 million loss on the early redemption of subordinated debt in the fourth quarter of 2025.
• Deterioration in the economic forecasts used within the CECL model contributed to the higher provision for credit losses.
• An increase in individually analyzed loans and leases was noted.

Risks

• Changes in economic and political conditions could adversely affect earnings and capital through declines in deposits, quality of investment securities, loan demand, borrower repayment ability, and collateral value.
• Changes in interest rates may adversely affect profitability, net interest income, and the ability of borrowers to repay loans, particularly adjustable-rate loans.
• Instability in global economic conditions and geopolitical matters, such as the Russia-Ukraine conflict and Middle East conflicts, could have a material adverse effect on operations and financial condition.
• Inflation may adversely impact business operations through increased non-interest expenses and reduce customers' ability to repay loans.
• Exposure to various operational risks, including reputational risk, cybersecurity risk, legal and compliance risk, fraud, theft, unauthorized transactions, and operational errors.
• Failures or material breaches in security of systems and telecommunications networks, or those of third-party service providers, could lead to reputational damage, data loss, regulatory scrutiny, litigation, and financial loss.
• Noncompliance with anti-money laundering (BSA, USA Patriot Act, AMLA) and OFAC regulations could result in financial loss, fines, regulatory actions, and reputational damage.
• Business could be adversely affected by events impacting third parties who perform significant operational services.
• Failure to comply with any material provision or covenant of debt instruments could have a material adverse effect on liquidity and operations.
• Exposure to credit risk, particularly from commercial loans, which comprise a significant portion of the loan portfolio and are more susceptible to default during economic downturns.
• The allowance for credit losses may be insufficient to absorb expected lifetime losses in the loan portfolio, especially with changes in economic conditions, regulations, and interest rates.
• Reliance on analytical and forecasting models for estimating expected credit losses, fair value, and interest rate risk, which may not be accurate or adequate.
• Unexpected inability to obtain needed liquidity could adversely affect business, profitability, and viability as a going concern.
• Operating in a highly regulated industry, with potential for new or changed laws and regulations increasing compliance costs or limiting business opportunities.
• Inability to adapt to rapid technological change, including digital or cryptocurrency, blockchain, and other fintech technologies.
• Inability to attract and retain key employees, potentially leading to higher compensation costs, especially in rural areas.
• Limitations on the ability to pay dividends due to regulatory restrictions and dependence on subsidiary bank dividends.
• Dependence on the accuracy and completeness of information provided by customers and counterparties.
• Potential requirement to repurchase loans or indemnify loan purchasers under the terms of sale agreements.
• Examinations and challenges by tax authorities could result in unexpected adjustments to tax liabilities.
• Adverse changes in the financial markets may negatively impact investment portfolio values.
• Environmental liability risk associated with lending activities, particularly real property collateral.
• The value of goodwill and other intangible assets may decline in the future, necessitating impairment charges.
• Increased losses from fraud due to sophisticated criminal techniques and synthetic identification.
• Inability to remain competitive against national, regional, and local financial institutions, credit unions, trust and brokerage companies, insurance agencies, fintechs, and online service providers.
• Increasing scrutiny and evolving expectations from stakeholders regarding environmental, social, and governance (ESG) practices may impose additional costs or expose to new risks.
• Climate change, severe weather, natural disasters, acts of war or terrorism, and pandemics could significantly impact business operations.
• The impact of larger or similar-sized financial institutions encountering problems (systemic risk) may adversely affect business, earnings, and financial condition.
• Economic and other conditions may cause volatility in the price of common shares.
• Changes in tax laws could adversely affect performance and the realization of net deferred tax assets.

Future Outlook

For 2026, Peoples expects to generate positive operating leverage, excluding accretion and non-core costs. The net interest margin is projected to be between 4.00% and 4.20% for the full year, anticipating one 25 basis point market interest rate cut, with each additional 25 basis point reduction potentially leading to a 3 to 4 basis point decline in NIM. Total non-interest income (excluding net gains and losses) is projected to be between $28 million and $30 million per quarter, with the first quarter elevated due to annual performance-based insurance commissions. Total non-interest expenses are expected to be between $72 million and $74 million for the second, third, and fourth quarters, with the first quarter being higher due to annual expenses. The efficiency ratio should be relatively similar to 2025. Annual loan growth for 2026 is anticipated to be between 3% and 5%. A slight reduction in net charge-offs and a lower provision for credit losses are expected for 2026, excluding any changes to economic forecasts. Deposit balances are expected to grow slightly, and the loan-to-deposit ratio is projected to increase as deposit growth may be slower than loan growth. Increased net charge-offs associated with the small-ticket leasing business are expected to continue for the first half of 2026, tapering off through the back half of the year, following changes to credit standards.

Management Comments

• Management believes Peoples is in position to maintain strong asset quality metrics and continued growth into 2026.
• Peoples has made changes to the small-ticket leasing business during 2025 in an effort to originate higher quality credit tiers, while tightening the credit standards to more closely align with the expectations for the business.
• Management believes that its methodology for developing such assumptions (for asset/liability modeling) is reasonable; however, there can be no assurance that modeled results will be achieved or are indicative of future results.
• Overall, management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

Industry Context

StockSavvy.ai notes that Peoples Bancorp operates in a highly competitive financial services industry, facing national, regional, and local financial institutions, as well as finance companies, financial technology companies (fintechs), insurance agencies, and mutual fund providers. The company's performance is significantly influenced by broader macroeconomic factors, including Federal Reserve monetary policy, interest rate changes, and inflationary pressures, which have impacted net interest margins and credit loss provisions. The industry is also undergoing rapid technological change, requiring continuous investment in digital capabilities to meet evolving customer demands. Regulatory scrutiny on cybersecurity and ESG practices is increasing across the sector, adding to compliance costs. Recent bank failures in 2023 and 2024 highlight systemic risks and underscore the critical importance of robust liquidity management in the banking industry.

Comparison to Industry Standards

• Peoples' net interest margin of 4.14% in 2025 is generally competitive within the community banking sector, though its 7 basis point decrease from 2024 reflects broader industry pressures on funding costs and asset yields.
• The efficiency ratio of 58.7% in 2025 is comparable to many regional banks, indicating a moderate level of operational efficiency, though the slight increase from 58.0% in 2024 suggests a minor decline in efficiency relative to some peers.
• The increase in net charge-offs to 0.45% of average total loans in 2025, particularly from small-ticket leases, is a notable rise from 0.15% in 2023 and could indicate a softening in certain loan segments or a more aggressive lending posture compared to more conservative industry benchmarks.
• Capital ratios (Common Equity Tier 1 at 12.29%, Tier 1 at 12.73%, Total Capital at 13.78%) remain well above regulatory 'well capitalized' minimums, demonstrating a strong capital position relative to industry standards and providing a substantial buffer against potential losses.
• The growth in total assets and loans aligns with a growth-oriented strategy, but the significant increase in provision for credit losses (from $15.2 million in 2023 to $42.2 million in 2025) warrants attention, as it outpaces loan growth and could signal a more cautious outlook on credit quality compared to peers with stable or declining provisions.

Corporate Governance

Legal Proceedings

• Peoples or its subsidiaries are engaged in various litigation matters, including the defense of claims of improper loan or deposit practices or lending violations.
• Management believes that damages, if any, and other amounts related to pending legal proceedings will not have a material adverse effect on the consolidated financial position, results of operations, or liquidity.

Related Party Transactions

• Peoples Bank granted loans to certain directors and officers of Peoples, including their affiliates, families, and entities in which they are principal owners.
• The balance of related party loans at December 31, 2025, was $3.342 million, up from $2.534 million at December 31, 2024.
• No related party loan was past due 90 or more days or on nonaccrual status at December 31, 2025.
• Deposits from related parties were $24.9 million at December 31, 2025, up from $19.3 million at December 31, 2024.

Stakeholder Impact

• Shareholders: Experienced decreased net income and diluted EPS, and an increased efficiency ratio, but saw an increase in tangible book value per share and maintained strong capital ratios. Cash dividends declared increased slightly.
• Employees: Recognized as a top workplace, benefited from a $15 minimum wage, and saw increases in salaries and employee benefits costs, though incentive compensation is tied to company performance.
• Customers: Continue to benefit from a focus on client service, convenience, and responsiveness, with ongoing improvements in online and mobile banking capabilities and a diverse range of financial products. However, customers may be impacted by inflation and rising interest rates affecting loan repayment ability.
• Regulators: The company maintains compliance with extensive federal and state regulations, including capital adequacy, anti-money laundering, and cybersecurity, and is subject to ongoing examinations and potential enforcement actions.
• Creditors: The company's strong capital position and robust liquidity management framework aim to ensure its ability to meet anticipated cash obligations.

Next Steps

• Actively manage the balance sheet mix during 2026 to mitigate the negative impact of any potential market interest rate changes.
• Continue to offer various Certificate of Deposit (CD) special rates to retain current clients and attract new clients.
• Monitor potential bank failures and volatility within the banking industry generally, together with any responsive measures taken by banking regulators.
• Continue to monitor developments in state-level privacy and cybersecurity standards and regulations.
• Renew the U.S. Bank Loan Agreement prior to its March 30, 2026, expiration.
• Continue efforts to ensure incentive compensation plans do not encourage inappropriate risks, consistent with regulatory principles.
• Continue to implement and test regulatory compliance controls for consumer lending.
• Continue to evaluate the suitability and adequacy of offices and related facilities, opening, relocating, remodeling, or closing them as appropriate.
• Monitor changes in real estate values from quarter-to-quarter and update estimates as needed for nonaccrual commercial real estate loans.
• Continue to emphasize growth of low-cost deposits and migration of customers to Insured Cash Sweep (ICS) network deposits.
• Continue to monitor and manage interest rate risk and liquidity through Asset-Liability Management Committee (ALCO) meetings and policies.
• Continue to implement changes to the small-ticket leasing business to originate higher quality credit tiers and tighten credit standards, with expected tapering of net charge-offs in the second half of 2026.

Key Dates

Recommendation

Peoples Bancorp Inc. shows a mixed financial performance for 2025, with declining net income and EPS, and a notable increase in credit loss provisions and net charge-offs, particularly in small-ticket leases. While the company demonstrates strong asset and loan growth, robust capital ratios, and an increase in tangible book value, the worsening profitability and asset quality metrics warrant caution. The future outlook anticipates positive operating leverage and loan growth, but also acknowledges continued challenges in the leasing business and potential net interest margin compression from rate cuts. A 'hold' recommendation is appropriate as investors should monitor the effectiveness of management's strategies to improve asset quality and efficiency, and the impact of future interest rate movements on profitability, before considering a stronger position.

Keywords

Banking, Financial Services, Community Banking, Commercial Lending, Consumer Lending, Mortgage, Insurance, Investment Management, Equipment Leasing, Premium Financing, 10-K, Financial Results, Net Income, EPS, Net Interest Income, Net Interest Margin, Credit Losses, Non-Interest Expense, Asset Quality, Capital Ratios, Liquidity, Cybersecurity, ESG, Ohio, Kentucky, West Virginia, Virginia, Washington D.C., Maryland, Fintech, CECL