Good morning, and welcome to Peoples Bancorp Incorporated conference call. My name is Gary. I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and nine months ended September 30, 2025. Please be advised that all lines have been placed on mute to prevent any background noise. After the speakers' 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, 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 or other forward-looking statements regarding Peoples' 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 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 Peoples business and operations. However, it is possible actual results may differ materially from these forward-looking statements. Peoples disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements. Peoples' third quarter 2025 earnings release and Earnings Conference Call Presentation were issued this morning and are available at peoplesbancorp.com under Investor Relations. A reconciliation of the nine generally accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP measures is included at the end of the earnings release. This call will include about fifteen to twenty minutes of prepared commentary, followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on peoples.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, Gary. Good morning, everyone, and thank you for joining our call today. Earlier this morning, we reported diluted earnings per share of $0.83 for the 2025. An improvement compared to the linked quarter. During the 2025, we sold approximately $75,000,000 of investment securities at a loss of $2,700,000 which negatively impacted our earnings per diluted share by $0.06 for the third quarter. We took this opportunity to sell some of our lower-yielding investment securities in an effort to increase our investment securities yields going forward. When compared to the linked quarter, some of our highlights for the third quarter included annualized loan growth of 8%, our net interest income increased nearly $4,000,000 while our net interest margin expanded by one basis point. Excluding accretion income, net interest margin expanded five basis points which marks our fifth straight quarter of core net interest margin expansion. We continue to produce stable fee-based income. Our quarterly net charge-off rate decreased by two basis points while our provision for credit losses declined by over 50%. Our noninterest expenses declined 1%. Our efficiency ratio improved to 57.1%, compared to 59.3%. Our tangible equity to tangible assets ratio improved 27 basis points and stood at 8.5%. Our book value per share grew 2% while our tangible book value per share improved by 4%. And our diluted earnings per share excluding the losses on investment securities we recorded, exceeded consensus analyst estimates for the quarter. As we mentioned last quarter, we anticipated a reduction in our provision for credit losses. For the third quarter, our provision for credit losses declined over $9,000,000 and our allowance for credit losses stood at 1.11% of total loans. Our provision for credit losses for the quarter was driven by net charge-offs, loan growth, and a slight deterioration in economic…

Thanks, Tyler. Net interest income and net interest margin improved by 4% and one basis point, respectively, compared to the linked quarter. The increase in net interest margin was due to higher investment security yields compared to the second quarter. Our investment securities yield improved to 3.79% compared to 3.52% for the linked quarter as we made moves during the quarter to sell some lower-yielding investment securities at a loss and invest in an effort to be opportunistic with our portfolio yields. For the third quarter, accretion income declined to $1,700,000 and contributed eight basis points to net interest margin. Compared to $2,600,000 and 12 basis points for the linked quarter. Excluding accretion income, our net interest margin expanded by five basis points which is the fifth straight quarterly increase in core net interest margin. For the first nine months of 2025, our net interest income improved 1% while our net interest margin declined nine basis points compared to 2024. Our lower net interest margin was due to a reduction in our accretion income which was $7,800,000 for 2025 contributing 12 basis points to margin compared to $20,300,000 or 33 basis points to margin for 2024. Excluding accretion income, our net interest margin expanded 12 basis points. We continue to be relatively neutral in a relatively neutral interest rate risk position, and we will continue to take further action on our deposit costs as market interest rates decline. Moving on to our fee-based income. We had a 1% decline compared to the linked quarter, which was driven by lower lease income and partially offset by higher electronic banking and deposit account service charges. For the first nine months of 2025, fee-based income grew 7% compared to 2024. The improvement was due to increases in lease income, commercial loan swap fee…

Thanks, Katie. We continue to develop our business organically as we await the right opportunity to grow through acquisitions. We are managing our net interest income and net interest margin through this interest rate cycle have recorded our fifth straight quarter of growth in net interest margin excluding accretion income. We posted 6% of loan growth through the first nine months of 2025, our provision for credit losses declined to a more normalized rate for the third quarter. We generated positive operating leverage compared to linked quarter. For the remainder of 2025, excluding noncore expenses, we expect to achieve positive operating leverage for 2025 compared to 2024 excluding the impact of the reduction in our accretion income, which declined faster than we had anticipated compared to the prior year. Assuming two twenty-five basis point reductions in rates, from the Federal Reserve in the fourth quarter, we expect our full year net interest margin to be in our guided range of between 4.2%. We continue to be in a relatively neutral position so that declines in interest rates have a minor impact to our net interest margin. We believe our fee-based income growth will be in the mid-single-digit percentages compared to 2024. We expect total non-interest expense to be between $69,000,000 and $71,000,000 for the 2025. We believe our loan growth will be between 4-6% compared to 2024. We expect a provision for credit losses similar to the third quarter excluding any negative impacts to the economic forecast. As it relates to 2026, I would like to give some preliminary high-level guidance, which excludes noncore expenses. We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4.2% for the full year of 2026 which does not include any expected rate…

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Daniel Tamayo with Raymond James. Please go ahead.

Thank you. Good morning, Tyler. Good morning, Katie.

Morning, Danny.

Maybe one for you, Tyler, on, on credit to to start here. I think you said in the prepared remarks correct me if I'm wrong, on the class an increase in the the crit and the criticized and classified loans in the quarter that you expect to have some of that come back in the fourth quarter or or you know, near near term. Can you just provide some clarification or color on on what you what would cause you to to, think that and and kind of size the amount, you know, that 27% increase in classified loans, how much of that you would expect to to revert?

Sure thing, Danny. Just generally, so we to see it's it's a broad variety of kind of results depending on the specific credits. Obviously, we have a a very granular view down into it. Expect some refinances. We expect some property sales. In in these cases. Just to give you a little bit of color in the criticized book, largely based on three loans. There's a, you know, a a varying varying types and varying sizes. In classified books, it's about four loans that comprises the increase. A couple of those three out of those four actually came from acquired portfolios. And we expect the, you know, kind of an orderly sale or an orderly exit from some of those that's timed in the fourth quarter. And so, you know, something on the order of, you know, based on what we now know now, you know, 35 to $55,000,000 in either upgrades or or payoffs in that in those buckets.

Okay. That's helpful, Tyler. Thanks. And then maybe on the on the loan growth side, so you've got guidance coming down a little bit in 2026 at, you know, the 4% level, from what you've done, recently and what you're expecting here in the fourth quarter. Is that is there a particular driver behind that? Is there, like, a pay down assumption that's increasing or or or something else underlying the the loan growth? Odds for '26.

Yeah, Danny. No. Thanks. We assume we get some good questions about that. I I say a couple. Things. One, you know, we're we're maybe slightly below this year's guidance, we're kind of in line with our historic three to 9% where we've been. As we look out in the coming year, obviously, we've been talking for a couple of quarters now about our the pay down activity accelerating, particularly in a in a falling rate environment. That can tend to accelerate you know, sales of completed projects. Refinance activity, investors moving projects to the permanent market, know, there's there's probably a small component of that in there of multi future expected multifamily projects. Cooling off to a degree. And and maybe it's such a consumer softening on the go forward basis as we see kind of increases in auto prices and and a little bit of weakness in the consumer I think the the consumer, I think, all the data would suggest that the kind of top 20% is driving a lot of the activity there. And tend to bank the 80%, you know, more thoroughly. So that's a little bit of the color on kind of where we see things.

That's helpful. And then maybe last one here, just a small one. But know, as we think about the 10,000,000,000 threshold, getting closer to that now, do you have kind of updated thoughts on when you might cross that organically?

We think that's a 2027 event. You know, Now let me say let me be very clear. Absent any other action, so we also think we before we have to move levers outside of just our normal organic growth, we would expect, you know, 2027 to be when we we would face the crossing issue. And then we would have options to obviously keep ourselves under there. You know, my hope is that we would, you know, potentially do a deal before then, but we retain the flexibility and the patients to know, not feel the need to you know, go forward with the deal just because, you know, 2027 is looming out there. Understood.

Thanks for all the color. I'll step back.

Thank you. Thanks, Danny.

The next question is from Brendan Nosal with Hovde Group. Please go ahead.

Hey, good morning, Tyler and Katie. Hope you're doing well.

Doing well, Brendan.

Just wanna circle back to to loan growth because this one might seem obvious, but just on the the growth for this year and for fourth quarter in particular, given that you're at 6% growth for this year to date and your your commentary around payoffs in the fourth quarter. Mean, fair to assume that spot balances are flat in the final quarter of the year?

Yes. Yeah. The the payoff activity that we expected to kinda materialize in the third and fourth quarter is really kind of you know, bunched up into the fourth quarter and possibly into the first. And so we still think we have a a really good handle on that. We expect record production on this particular on the commercial side and record payoffs. On the commercial side, particularly in the fourth quarter.

Okay. That's helpful. And then maybe just kinda circling to the margin outlooks specifically the commentary around the impact of rate cuts I think you're saying three to four basis points per 25 bps I mean, that's if it happens, like, on January 1. Right? If we're getting a a midyear cut, the impact would be less than that. Is that fair to assume?

That's exactly correct.

Okay. Good. We're gonna sneak one more in here. Just on asset quality as it pertains to North Star. Can you just update us on kind of that plateau commentary that you spoke to last quarter? Around North Star loss content And then if things go according to your plan, how do you envision lost content in that book evolving kind of quarter by quarter as we move through next year?

Sure. And thanks for the question. I I think a couple of thoughts. One, we kind of demonstrated in our charts that the continued work as it relates to the high balance accounts, which as we've discussed, kinda correlated correlated highly with the losses in that portfolio. That high balance account, your portfolio is now down to about $1,516,000,000 dollars and continues fall. And obviously, we're not refilling that bucket. And so, you know, the outlook for the the fourth quarter and for the first quarter of next year are that that plateau will kinda continue you know, in the range of where it's been specific to to the North Star leasing charge offs. With our expectation that the portfolio or the plateau will begin to get a little bit of a slope down to it. In that second and third quarter and get to a normalized you know, rate. Right now, the production in that portfolio is obviously not staying the pace with the amortization and the charge offs. And, you know, that's by design as we make as we exercise some credit discipline and stick to our knitting there. So that's where we think we'll end up.

Okay. That that's a super helpful glide path. To to have for that part of the the business. Alright. Thank you for taking my questions.

Thank you. Thanks, Brendan.

The next question is from Nathan Race with Piper Sandler. Please go ahead.

Hi. This is Adam Kroll on for Nathan Race. Good morning, and thanks for taking my questions.

Hey. No problem.

Yeah. So maybe just starting on the margin front, given the guide for 2026 for Katie, I was wondering if you'd be able to expand on what offsets you have to your floating rate portfolio if we were to get a few cuts in '26 and maybe what you have in terms of fixed rate loan repricing and securities cash flow rolling off?

Yes. So as we've shown over the course of 2025, we have been continuously making taking action on the deposit portfolio and predominantly the retail CD product that's within that portfolio. We also have some floating rate borrowings that we'll look to as to provide us some optionality as rates fall. And then the other piece of your question was on the investment securities portfolio portfolio. It's generally trend $15,000,000 to $20,000,000 a month. Of normal cash flow. And I would just say, as you probably had seen in in the balance sheet, we did have some short-term funding in there too. So that chain that flex obviously. As does the variable rate loans.

Got it. That's that's super helpful. Maybe just another one on North Star. I was wondering if you could quantify the charge off contribution from the high balance accounts specifically during the quarter? Just trying to get a sense of how large of a driver those accounts are as you've meaningfully reduced your exposure over the last few quarters.

In the third quarter here, they were about 25% of the charge offs. We expect kind of 30% for the full year If you look at the, you know, full year projection of where those charge offs will be coming from.

Got it. And then last one for me on the securities restructure. Is there any sort of earn back or any sort of metric you evaluate your decision-making process and is there any consideration for a larger one?

So, yes, there is an earn back considered. I think we're about a year and a half on this one. We try to quantify it also from a loss perspective. We don't wanna flush through a significant loss in any given quarter. We want it to be manageable. As far as a more meaningful in size, loss trade, Surely, we have evaluated them. We don't see the need by which to have to do that transaction at this point, and so we have continued to just be opportunistic and periodically look at the portfolio. I would just note this this trade also was what we would call an odd lot trade. There was a lot of small pieces in our portfolio, and so to make it more manageable in number of securities, that was part of this transaction as well.

We've we've done a few of these over the past couple of years, and we've kept them under two years. So we and, you know, kind of as a as a discipline.

And on the loss side, generally, 2 to 3,000,000 is kind of our appetite in a in a given quarter?

Got it. That was that was super helpful, and thanks for taking my questions.

Thank you. Thank you.

The next question is from Tim Switzer with KBW. Please go ahead.

Hey, good morning. Thank you for taking my question.

Good morning, Tim. Hey, Tim.

The first one I have is there there's been some noise around the market around consumer behavior and the health of the consumer, particularly, like, the subprime end of, the market. It's just giving you guys exposure in both the deposit and loan side and your commentary about maybe slower growth for consumer in '26. Just curious if you guys have seen any indications of that at all? Or any changes in behavior.

Well, the good news let me start with the good news. We have our our auto portfolio comprises about $700,000,000 and the subprime component of that is about $1,000,000. So we feel really good about our lack of exposure to subprime. Prime in the consumer side, and our average origination yield on the indirect side in the most recent quarter was close to seven fifty. So we're sticking to our knitting there. I will say Tim, that we have seen some, you know, increased surrender activity I think the affordability of vehicles, particularly as know, tariffs are helping finally drive up some of the pricing. Is challenging for consumers. And you know, from from a deposit standpoint, know, I think I don't I haven't seen any, you know, indications of you know, increased utilization of our you know, deposit protection services and overdraft protection services, but we'll obviously monitor that. That would be an outlet for you know, that kind of activity You know, I think there is a lot of pent up demand though for, you know, refis and if we see a falling rate environment, if mortgage rates do fall, see an increase in in refi activity and and probably an increase in home purchases. So, you know, debt to incomes are are kinda going down a little bit year over year. But, you know, we're we're watching it. It's it's, you know, the on the flip side, our indirect losses, I think, last year, we're running at about 88 basis points. And this year, at quarter to date, they're at 70. So, you know, there's you know, I would say that's a result of the discipline and the underwriting.

Okay. Great. That was very helpful. I appreciate all the color there. And then on your your previous commentary about the $10,000,000,000 threshold not getting there until 2027, If we take the high end of your loan growth guidance for '26, that kinda gets you right to that $10,000,000,000 mark. You know, what are your plans if you have to kind of manage near that level for a while? Is it the you know, run down deposits in the securities book a little bit? Know, I'm just curious how you kinda going to approach that.

Yeah. I think the securities books book is our first place to look. I think right now, ninethirty, we're at 20.5%. I think historically, we've guided an 18% to 20% range to assets. Obviously, there's some room there. We have some overnight funding and some funding there that we could help manage the asset side. So that those would be the first places we would look.

Okay. Gotcha. And then one really quick last one. Can you remind us of the c the dollar amount of the seasonality for non-interest income and expenses, it's about 1 and a half million in insurance income in Q1, but wasn't positive about the expenses.

Yeah. I think you're right. On the contingent or performance-based income we see in our insurance agency. It's generally 1.5% to $2,000,000 or about So that would be the revenue side. And on the expense side, it varies a bit and it's predominantly around contributions to employee health savings accounts some stock activity that happens in the first quarter, both with granting and vesting. So those I'd say that probably is close to the two, two and a half range.

Great. Thank you, guys.

Yep. Thank you.

The next question is from Terry McEvoy with Stephens. Please go ahead.

Good morning. This is Brandon Root on for Terry.

Hi, Brandon.

I first noticed quick on loan growth last quarter. Kind a two parter. For C and I loans, can you can you expand that with if there are any particular industries or regions that contribute to to that growth? And on the premium finance side, it looked like they were down year year over year. So was that more strategic, or is that just a reflection of what the market's offering now?

Yeah. As to your first question, I'm happy to report that it's across a broad swath of industries and our geography. And so no no particular concentrations to to note on the CNI, just good broad-based solid C and I growth. Yeah. As to the premium finance, that's more of a timing issue. I think by the end of the year, you know, we'll see some some some growth in that business. And yes, premiums increase in a hardening market, the demand for their services obviously goes up. So we're not We really like that business. It's it's pristine from a credit standpoint. So there are there's no kind of strategic consideration there. On on a reduction. It's just yeah. I would say it's a timing issue as to where that fell in the quarter.

Okay. Got it. Let me try a second. We're I guess we're we're about a month now past the the last rate cut. Can you just discuss any actions taken since then? And then, client's willingness to to digest additional cuts and how that differs from the first 100 basis points?

Sure. So we meet regularly as a pricing committee. Have taken action throughout the year even in light of the Fed not having moved earlier in the year. And so we're continually evaluating most notably, our retail CD promotional product, which I think right now is a five-month product. Over you know, they're last few years, it's ranged from a thirteen to a five-month product. So we continue to bring that rate down less significant when there aren't rate cuts, but still making taking action to lower that rate over time. And so we're seeing the re of that portfolio as that five-month term rolls off for various clients in any given month.

Got it. Okay. And then just my my last one, from the the benefit of fixed rate, fixed rate asset, repricing, particularly on the loan side, I think excluding accretion, loan yields rose about six basis points last quarter. Is that mid single digit basis point increase on a sequential basis? Is that kind of a good rate to use going forward?

You're saying for the fixed rate, I think, specifically, so the 43% of the loan portfolio, is that that's what you're seeing that Right. Yep. I think it's dependent on the mix of the loan growth in a given quarter. You know, this quarter, I'll just that we did not have any meaningful growth in our small ticket leasing business, which has high yield. Our premium finance business also did not have growth. They have nice origination yields too. So I think it's dependent on the mix of loan growth in a quarter and, obviously, the pay downs thereof. But would expect it to continue to go up slightly but I can't say that it's 6% every quarter. It's a mix.

Okay. Got it. I I I appreciate you for taking my questions.

Thanks. Yeah. Thank you.

The next question is from Daniel Cardenas with Janney Montgomery Scott. Please go ahead.

Hey, guys.

Hey, Dan.

So couple of quick questions. Just returning to the auto portfolio, if you could remind us what the average FICO score is on that portfolio? And then historical loss rates on it.

Yeah. Average FICO is seven forty six. Dan, historic loss rates, let me pull the right number for you here. One moment. Sorry. I'm just shuffling papers.

Yeah. No worries. And then and maybe as you're shuffling through the through your papers, if if you could give us, maybe an update on the on the health of your restaurant, exposure.

Yeah. So as it relates to the indirect if you this year, it's I mentioned it's tracking at 71 basis points. Year to date, 24, eighty eighty basis points. Year to date, 23, 50 basis points. Year to date, 22, 30. So I think we've been talking about for, you know, basically a couple years now, kind of a a little bit more of a reality of of decline in that book notwithstanding the kinda continued strength of the you know, FICO scores. Your question was about the restaurant portfolio. The size of it. Size and and just the, you know, relative cost of the portfolio. Yeah. So the the McDonald's portfolio specifically is about $389,000,000 in commitments. The non McDonald's is at about $128,000,000 in commitments. You know, the the McDonald's continues to be a really high from for us from a credit standpoint. And, you know, the the the rest of it includes, you know, a broad variety including some acquired loans. You know, we don't really originate much on the restaurant side in the commercial space. So, you know, McDonald's is really our focus as we think about restaurants.

And they're they're showing no no that's not causing you any concern at the moment?

No. It's been it's been quite solid. I mean, it it always depends on, you know, specific operators and specific geographies and, we have had some cases where some of those moved into other buckets as we monitor and watch them. But know, never lost a dollar on a McDonald's deal thus far. And we have good partnership with corporate and good you know, good outlook and good insight into the operators and understanding how they operate.

Great. Perfect. All my other questions have been asked and answered. Thank you, guys.

Thank you.

Again, if you have a question, please press star then 1. Next question is a follow-up from Brendan Nosal with Hobby Group. Please go ahead.

Folks. I just wanted to circle back. On North Star. How much of the current reserve balance is like allocated to North Star? And I ask you this because I'm trying to get a sense of, like, as you kind of work to cure that book, like, how much of a a reduction there could be, whether it's, you know, through know, working through the book or or outright reserve releases to get to, like, a a stable reserve to loan ratio?

It's about $18,000,000, Brandon. Of the 75.

Okay. Alright. Fantastic. Thanks for you for taking the call.

Yeah. No problem.

The next question is from Ryan Payne with D. A. Davidson. Please go ahead.

Hey, good morning. Most of my questions have been asked and answered, but, just just one for me here. On capital, I just wanted to gauge your appetite for buybacks and thoughts on m and a and how conversations have been going as we start to see an uptick in deal activity across the industry. So just any detail on priorities you'd offer as you build capital?

Yes, thanks. I think as we think about capital, buybacks are probably we do have an active buyback program. We have you know, exercised it where where appropriate. Our I would say our priority is building up capital in preparation for m and a. And kinda supporting the the dividend. You know, as we think about, you know, m and a, I agree with you. There's a there's a a lot of conversations going on there. We we have a number of conversations, you know, taking place always at varying degrees of of seriousness. But would say we also look to be opportunistic as there's market disruption. We've had opportunities to hire employees. We've had opportunities to you know, look at market share in certain brand you know, in certain locations. And we've also we'll we will pursue, you know, the opportunity even potentially hire teams that are disrupted by, you know, m and a activity that overlaps with our market. So in addition to just being very interested, obviously, in in the using m and a as the catalyst across $10,000,000,000. But we have we have and will continue to exercise strategic patience. We think doing the right deal is a lot of more important than doing the next quick deal. And that's that's kinda how we think about it.

Awesome. Thank you. I'll step back.

Thank you. Thanks.

At this time, there are no further questions. Mr. Wilcox, do you have any closing remarks?

Yes. I want to thank everyone for joining our call this morning. Please remember that our earnings release and webcast of this call including our earnings conference call presentation, will be archived at peoplesbancorp.com. Under the Investor Relations section. You for your time, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.