Peoples Bancorp Inc.

Good morning and welcome to People's Bank Corp Inc. conference call. My name is Betsy and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and six months ended June 30th, 2025. Please be advised that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, Simply press star 1 on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, please press star 2. This call is also being recorded. If you object to the recording, please disconnect at this time. Please be advised that the commentary in this call will contain projections and other forward-looking statements regarding people's future financial performance or future events. These statements are based on management's current expectations. The statements in this call, which are not historical facts, are forward-looking statements and involve a number of risks and uncertainties detailed in the People's Securities and Exchange Commission filings. Management believes the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of people's business and operations. However, it is possible actual results may differ materially from these forward-looking statements. People's disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements. People's second quarter 2025 earnings release and earnings conference call presentation were issued this morning and are available at peoplesbankcorp.com under investor relations. A reconciliation of the non-generally accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release. This call will include about 15 to 20 minutes of prepared conversation, followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on peoplesbankcorp.com. in the investor relations section for one year. Participants in today's call will be Tyler Wilcox, President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer and Treasurer. And each will be available for questions following opening statements. Mr. Wilcox, you may begin your conference.

Thank you, Betsy. Good morning, everyone, and thank you for joining our call today. This morning, we reported diluted earnings per share of 59 cents for the second quarter of 2025. We had improvements in our quarterly results in many areas, including annualized loan growth of 11%, our net interest income increased over $2 million, while our net interest margin expanded three basis points, which includes reductions in accretion income of nearly $1 million. For the second quarter, Accretion income added 12 basis points to net interest margin compared to 17 basis points for the linked quarter. This is the fourth straight quarter that we have had core net interest margin expansion, which excludes accretion income. Our fee-based income was relatively stable as improvements in several areas mostly offset the reduction in insurance income due to the annual performance-based insurance commissions we recognized in the first quarter. Our non-interest expense declined and was within our guided range. Our pre-provision net revenue exceeded consensus estimates for the quarter, and our tangible equity to tangible assets ratio was stable at 8.3%. During the second quarter, our overall allowance for credit losses grew $9.4 million to 1.13% of total loans. This increase in our ratio puts us more in line with the median of our peers, which was at 1.17% at March 31st. For the second quarter, our provision for credit losses totaled $16.6 million, an increase of $6.5 million from the linked quarter. Our second quarter provision for credit losses was comprised of $7 million in net charge-offs, which was down from $8.1 million for the linked quarter, a $3.8 million increase in reserves on individually analyzed loans, a $2.5 million increase in reserves on small ticket leases, a $2.3 million net increase related to a periodic refresh in our loss drivers utilized within the CECL model, and the remainder of the increase was due to deterioration in economic forecasts coupled with loan growth during the quarter. For more information on our provision for credit losses, please refer to our accompanying slide. Our annualized quarterly net charge off rate was 43 basis points, an improvement from 52 basis points for the linked quarter. The reduction was driven by lower small ticket leasing charge offs. As we mentioned last quarter, we expected a reduction in our charge offs from our small ticket leasing business, but that they would remain elevated. We were down from $5.4 million in net charge offs for the previous quarter to $4.8 million for this quarter. For the second quarter, our annualized net charge-off rate for the small ticket leasing business was 11.51%, compared to 11.97% for the first quarter and down from the peak of 13.35% for the fourth quarter of 2024. For additional details on our small ticket leasing business, please refer to the accompanying slides in our presentation. Our non-performing assets increased a little over $800,000 and were 49 basis points of total assets compared to 50 basis points at March 31st. The increase was due to higher balances in 90 or more days past due and accruing, and was due to increases mostly within our premium finance portfolio. The past two premium finance loans are mostly due to the timing of the receipt of expected proceeds from carriers on canceled policies, which we have noted previously on occasion as administrative delinquencies. These increases were partially offset by lower non-accrual loans. Our criticized loans grew $18 million, which was largely due to the downgrade of one commercial relationship. We are optimistic that we will be able to exit this credit with little loss exposure. Our classified loan balances as a percent of total loans declined to 1.89% compared to 1.93% on March 31st. Our second quarter delinquency rates improved, as the portion of our loan portfolio considered current was 99.1% compared to 98.5% at the linked quarter end. At this point, we have not observed impacts to our loan growth or credit metrics from the tariffs, but we continue to closely monitor our portfolio for the potential effects of tariffs to both. We've experienced increased loan demand, which was reflected in our pipelines last quarter, and in our loan growth this quarter. Moving on to loan balances, we had loan growth of $173 million, or 11% annualized compared to the linked quarter end. We had balanced loan growth in all categories, which included commercial and industrial loans of $64 million, residential real estate loans of $30 million, construction loans of $22 million, commercial real estate loans of $18 million, premium finance loans of $14 million, and consumer indirect loans of $12 million. We had lease balance growth of $5 million during the quarter, which was driven by our mid-ticket leasing business. At quarter end, our commercial real estate loans comprised 34% of total loans, about 35% of which were owner-occupied, while the remainder were investment real estate. At quarter end, 46% of our total loans were fixed rates, with the remaining 54% at a variable rate. I will now turn the call over to Katie for a discussion of our financial performance.

Thanks, Tyler. We had improvements in our net interest income this quarter, which was up over $2 million, or 3%, compared to the linked quarter, while our net interest margin expanded three basis points to 4.15%. The primary driver of the increase was a reduction in our deposit and borrowing costs, which declined 10 basis points and 18 basis points, respectively. For the second quarter, our deposit costs were 1.76%. Our accretion income declined to $2.6 million and contributed 12 basis points to net interest margin, compared to $3.5 million and 17 basis points for the linked quarter. As Tyler mentioned, excluding accretion income, our core net interest margin has expanded for the last four consecutive quarters. For the first half of 2025, our net interest income was relatively stable, and our net interest margin was down eight basis points compared to 2024. The reduction in our net interest margin was entirely due to lower accretion income, which was $6.1 million for 2025, contributing 15 basis points to margin, compared to $12.3 million for 30 basis points for 2024. Excluding the impact of accretion income, our year-to-date core net interest margin expanded seven basis points compared to the prior year. Reductions in our loan yields compared to the prior year were offset by higher investment yields, coupled with decreases in our deposit and borrowings costs. Our deposit costs declined 10 basis points during the first half of 2025 compared to 2024. We are currently in a relatively neutral interest rate risk position and have actively been managing our funding costs even without further reductions from the Federal Reserve. Moving on to our fee-based incomes, We experienced a decline of 1% compared to the linked quarter, which was primarily due to performance-based insurance commissions we recognized in the first quarter. These commissions for the first quarter totaled $1.5 million and are typically received annually during the first quarter, resulting in the decline for the second quarter. This reduction was partially offset by higher lease income, electronic banking income, trust and investment income, and commercial loan swap fees. The improvement in lease income was largely driven by gains recorded on early termination of leases through our mid-ticket leasing business. For the first half of 2025, fee-based income grew $4 million, or 8% compared to 2024. The improvement was due to higher lease income, which grew $3.5 million. As it relates to our non-interest expenses, we were within our guided range at $70.4 million, which was a 1% decline from the linked quarter. The majority of the reduction was related to lower salaries and employee benefit costs, which were higher in the linked quarter due to additional costs related to stock-based compensation expense and employer health savings account contributions we record annually in the first quarter. This reduction was partially offset by higher professional fees and data processing and software expense. For the first half of 2025, non-interest expenses grew $3.9 million, or 3% compared to 2024. The increase was due to higher salaries and employee benefit costs, data processing and software expenses, and professional fees. At the same time, we had reductions in amortization of other intangible assets other expense, and net occupancy and equipment expense. Our reported efficiency ratio was 59.3% and improved compared to 60.7% for the linked quarter. The improvement was driven by higher net interest income coupled with reductions in non-interest expenses compared to the linked quarter. For the first half of 2025, our reported efficiency ratio was 60% compared to 58.6% for the first half of 2024. The efficiency ratio was negatively impacted by lower accretion income during 2025 compared to 2024, along with increased non-interest expense, mostly due to higher salaries and employee benefits costs. Looking at our balance sheet at quarter end, the highlight is our annualized loan growth of 11% compared to the linked quarter end. This loan growth, coupled with the seasonal declines in our deposits, nudged the loan-to-deposit ratio to 86% from 83% at March 31st. Our investment portfolio grew around $140 million compared to the linked quarter end and was driven by investments in higher-yielding bonds at around 5.3%. while some lower yielding securities paid off, improving our overall investment yield for the quarter. Our investment securities comprised 21% of total assets at June 30th, which was slightly higher than our target range of 18% to 20%, but we are satisfied with the higher yielding securities we have added. We will continue to be opportunistic with the investment portfolio as we look to obtain higher yielding securities. Compared to March 31st, our deposit balances declined 1% or $98 million. Our governmental deposits were at a seasonal high at March 31st and decreased $52 million during the second quarter. We also had reductions in our money market accounts of $40 million and interest-bearing checking accounts of $28 million. These declines were partially offset by retail CD growth of $39 million. Our demand deposits as a percent of total deposits remained flat compared to March 31st and was 34% at quarter end. Our non-interest-bearing deposits to total deposits was flat at 20% for both periods. Our deposit composition was 78% in retail deposit balances, which included small businesses, and 22% in commercial deposit balances. Our average retail client deposit relationship was $23,000 at quarter end, while our median was around $2,300. Moving on to our capital position. Most of our regulatory capital ratios declined compared to the linked quarter end. This was due to earnings net of dividends not outpacing the impact of loan growth to risk-weighted assets for the quarter. Our tangible equity to tangible asset ratio was stable at 8.3% at quarter end and at March 31st. Our book value per share grew 1%, while our tangible book value per share increased 2% compared to the linked quarter end. Finally, I will turn the call over to Tyler for his closing comments.