Good morning, and welcome to Peoples Bancorp Inc. Conference Call. My name is Gary, and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31, 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 then 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 then 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 in fact, are forward-looking statements and involve a number of risks and uncertainties detailed in Peoples' 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' Fourth 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 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 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 peoplesbancorp.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 89¢ for the fourth quarter, which is a 7% increase compared to the linked quarter. During 2025, our diluted EPS was negatively impacted by $0.2 from the sale of another real estate owned property that we had previously acquired through a merger, which resulted in an $850,000 loss. This property comprised most of our OREO balance, and the sale reduced our nonperforming assets meaningfully compared to the linked quarter. We also redeemed a tranche of subordinated debt we had assumed in a prior acquisition, resulting in a loss of nearly $800,000 for the fourth quarter, which also negatively impacted diluted EPS by $0.02 but will result in future savings in our funding cost. For the full year of 2025, we achieved our expected results. We generated positive operating leverage compared to the prior year, including the impact of accretion income. We have loan growth of 6% compared to 2024, and our fee-based income improved 6% over the prior year. For the fourth quarter, when compared to the linked quarter, we have several highlights to note. Our fee-based income improved 5%. Our efficiency ratio was stable at 57.8%. Our tangible equity to tangible assets ratio grew 26 basis points to 8.8%. The vast majority of our regulatory capital ratios improved. Our book value per share grew 2%, while our tangible book value per share improved by 3%, and our diluted earnings per share exceeded consensus analyst estimates for the quarter, which were $0.88. For the fourth quarter, our provision for credit losses totaled $8,100,000 and was largely driven by net charge-offs. At year-end, our allowance for credit losses stood at 1.12% of total loans, an increase from…

Thanks, Tyler. For the fourth quarter, our net interest income was relatively flat when compared to the linked quarter, while our net interest margin declined four basis points. We were able to mostly offset declines in our investment and loan income by closely managing our funding costs. Our net interest margin was negatively impacted by lower loan yields, which declined 17 basis points, while our overall funding costs declined 10 basis points. Our accretion income for the quarter totaled $1,800,000 compared to $1,700,000 for the linked quarter and contributed eight basis points to net interest margin for both periods. For the full year of 2025, our net interest income improved 2% compared to 2024, while our net interest margin declined seven basis points. Our lower net interest margin was driven by declines in our accretion income, which totaled $9,600,000 for 2025 and contributed 11 basis points to margin compared to $25,200,000 and 30 basis points to margin for 2024. Excluding accretion income, our net interest income grew over $22,000,000, while our net interest margin expanded 12 basis points. We made a move in October to pay off subordinated debt we had previously acquired from Limestone, as we could secure financing at half the cost through FHLB advances and brokered CDs. The subordinated debt was being carried at a rate of around eight and a half percent. This should result in annual savings of around $1,000,000, with the tangible book value earn-back period on the transaction coming in at less than one year. From a total balance sheet perspective, we continue to position ourselves in a relatively neutral interest rate risk position and will continue to monitor market interest rates, taking action to reduce our deposit costs if rates move lower. As it relates to our fee-based income, we had a…

Thank you, Katie. To recap 2025, our results for the year fell within our guided ranges while we continue to make meaningful investments in our infrastructure. We made it a point in recent years to heavily focus on our technological capabilities and have continued on this path during the last year. We implemented state-of-the-art software programs, most of which integrate with each other and provide a more cohesive environment for our associates between lines of business, closely connecting the frontline with our operational groups. We have automated many manual processes, increasing efficiencies, and oversight of functions. Each year, we strive to be a great employer with a proven culture that has far-reaching impacts. For the fifth year in a row, we received recognition from American Bankers' Best Banks to Work For, which has only been achieved by 1% of the banks in the United States. We have invested our time and resources into our talent, which we continue to develop over the last year. We have made some key hires in certain areas, which will help us grow and expand our business while adding expertise to our existing groups. Earlier this morning, we announced the planned retirement of Doug Wyatt, our Chief Commercial Banking Officer. Doug joined us nearly a decade ago and has been instrumental in our diversified commercial loan growth, putting together a world-class commercial banking team, and has done so while improving our credit profile. Stepping into Doug's role will be Ron Majka, who joined us in September and has over thirty years of experience serving middle-market companies throughout the markets we serve. Ron will perpetuate and expand the proven commercial strategy that Doug helped establish. During the year, we have also focused on solidifying the strategies and targets around our small ticket leasing business, including originating…

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.

Our first question today is from Jeff Rulis with D.A. Davidson. Please go ahead.

Thanks. Good morning.

Good morning, Jeff.

Just a question on margin guide. Appreciate that range. I guess, is that safe to assume the accretion benefit within that guide is, call it, six to eight basis points for the full year. Is that fair?

I think eighth is the highest it would be, I think, because the fourth quarter, that's what it was. I think expect that to come down as we proceed through the year. So I would say closer to five around five for the full year.

Got it. And, Katie, while I have you on the tax rate, any expectations kind of step down in the fourth quarter, but I guess looking forward, any range you'd expect?

Yeah. A couple thoughts just as it relates to the fourth quarter. So as we noted, we did participate in a tax credit of about $650,000 in the fourth quarter. The other component in the fourth quarter is annual true-ups that we do as we finalize our prior year tax return. I think that took us to about a 21% rate for 2025, again, about 50 basis point benefit from the tax credit. So that would get us up to 21.5 on a kind of run rate perspective for '25. And I think you can expect that in the '20 probably in the '22 range for '26 as we move forward.

Great. Thanks. And then maybe just a last one on the loan demand. It sounded pretty encouraging. And I guess pretty good year in 'twenty five and I guess expecting something inside of that in '26. And sounded like a little of that's timing on paydowns. Maybe just if you could just flesh out a little bit more expectations on the production side as that sounds like that's increasingly positive, at least from the tone.

Yes, Jeff, thanks for that question. We're very encouraged by the loan growth that we've seen. You know, if there is a downside, it's the expectation of payoffs. A declining rate environment. A very small portion of that maybe due to we're gonna be selling more of our mortgage production, but overall, especially on the commercial side, we have seen incredible demand and incredible execution by our team, particularly led by the commercial team and on the CNI side. And we expect that to continue into this year as we think about favorable tax policy and know, adding new bankers. We've consistently added new talent. I think talked about that on our call over time. The aggregate incremental value of all this talent we continue to add in and are able to attract because of some of those things we talk about in building the culture. I think this is all paying off in that regard. A lot of optimism there.

Great. Thank you. Appreciate it.

Thank you. Thanks, Jeff.

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

Hey, good morning folks. Hope everyone is doing well.

I'm doing great.

Maybe just to kick things off here, Tyler, in light of your comments around $10,000,000,000 and not wanting to cross organically. Can you take a minute to refresh us on your own view of the M and A environment both at large as well as for PBO and just remind us of the criteria you folks have internally for dealing with this point, whether it's a size range or geographic preference.

Certainly. There's a yeah. A lot to say there. Obviously, there's been a lot of high-profile M and A. We enjoy when the large regionals engage in M and A because it allows us to attract talent and clients from some of the disruption. And so, you know, I think we'll continue to see some of that. As it relates to, you know, our outlook, you know, I'm gonna bore you and say some of the same things I've been saying for probably over a year. First of all, I'll start with my mantra of strategic patience. We continue to evaluate a number of opportunities and where we evaluate them is generally one a priority would be within our existing footprint, Ohio, Kentucky, West Virginia, and Virginia. You know, adjacent states that we would consider would be, you know, Pennsylvania, Indiana, Tennessee, and we continue to have conversations with banks throughout all of those regions. We have a size preference, although it is not exclusive preference. A size preference of, you know, larger deals being a bit easier to kinda execute all in one chunk. So in the $3,000,000,000 to $5,000,000,000 range, would be ideal. The alternative, would say, though, is increasingly become viable due to the regulatory environment where the expected approval timing of deals is more favorable, and have a supreme degree of confidence in the history of our team which includes, you know, multiple years where we did multiple deals. So we do hold out the possibility that small deals one or two or three small deals over a, you know, reasonable time frame are viable. As a path forward, and we will we have and will continue to consider those. So, you know, again but take you back to where we started with patience and discipline, and we desire nothing more than to ensure that our shareholders understand the strategic vision of where we're going and that we stay within discipline metrics in terms of earn back and we are optimistic about our ability to do that whether it's in, you know, three months or, you know, longer.

Okay. Fantastic. Got it. No. It's always good to get your latest thoughts in how you do get the question each quarter. Maybe switching gears here to NorthStar. Can you just update us on kind of the plateau that you guys have been about for the past couple of quarters of losses not improving for a while before you get that step down. It feels like that plateau is a little bit longer than you may have thought like three or six months ago. So just kind of curious what you're seeing there and kinda what, you know, benchmarks we on the ad outside should be looking for to make sure, you know, progress is taking place there.

Yeah, Brendan. You know, as we mentioned in the script, the slight increases, I would call it, quarter over quarter in the dollars of charge-offs in that business. And that's largely related to, you know, two high balance accounts that we had already identified an individual individually analyzed and had reserved for. So you know, I think our predictability, I would go back to know, this entire year I believe we've been giving guidance that, you know, 2026 is when we expect that plateau to begin to decline, and that's exactly what we're seeing. So do I do I like the charge-offs being where they are at that plateau? I do not. Know, we've talked to, you know, pretty extensively about the discipline that we've exercised on credit. And if nothing else, you can certainly see that the overall balances dropping in that portfolio, which stands at $133,000,000 today. That's by design. But I am optimistic about that business over the long term. We have added new credit-conscious growth-oriented leadership in that business. They were very optimistic and I would say, Brendan, that this year, you know, with Northstar Leasing, represents kind of a systematic collections, credit, and production overhaul what we believe is a long-term sound and lucrative business so that delivers what we want on a risk-adjusted return basis for our shareholders. So, yes, you'll see, you know, from a dollar perspective, you'll see you know, first and second quarter, you know, somewhere consistent with the dollars charged off. This year. And then again, we have a very good handle on the vintages and those high balance accounts. And both of those continue to decline as predicted and as designed. So we are optimistic about the future with that business.

Okay. Alright. Thank you for the talk, Tyler. Much appreciated.

Thanks, Brendan.

The next question is from Daniel Tamayo with Raymond James. Please go ahead.

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

Morning.

Maybe kind of looking at your commentary around positive operating leverage, I think that was intended to be taken absent rate cuts. Do you think you can get the positive operating leverage with a rate cut or two in '26?

So that the guidance includes a 25 basis point cut in '26 as we mentioned. In the prepared remarks. So yes, we do believe with a 25 basis point cut, we can get positive operating leverage in '26.

Yep. Well, fair enough. Sorry about that. I guess, what's the biggest threat to that? In terms of the levers that we'll get there? Is it margin contraction on a core basis? Is it fee income not hitting your targets expenses? Obviously, it would be some combination of all three, but how do you think about what might be the biggest risk to achieving that?

Yeah. I mean, I think we stand here, and we feel pretty good about budget or our expectations for '26. I mean, I think your point is it could be in any of any of those I don't know that I can say one's more more likely or you know, weighs on me more heavily.

Expenses is obviously the one that is, you know, most controllable, and we have shown over the past years that the ability to pivot on expenses relative to where we're tracking, and we will obviously continue to pull that lever as we as we need to.

Okay. Maybe asking, different question, but the kind of zeroing in on the margin a bit. With the movement happening in the first quarter with the sub debt redemption and then the rate cut, You gave obviously some comments earlier and some guidance on the margin for the year. But if we stripped out the accretion number, the eight basis points in the fourth quarter, to get you that four zero four How do think about just the pace of the margin moving through the year as we go?

I mean, think it depends on when the rate cuts happen. I think we quantified, you know, two to every 25 basis point cut we'll see compression of about two to three basis points in the margin. So think that will play a factor. I think it's the mix of the loan growth and when it happens, will also drive the margin. So I know, I think it'll be fairly stable over time. But if we have big payoffs in a quarter or big production in a quarter, we could get some lift faster or slower than anticipated.

Okay. So fair fairly stable kind of x rate cuts would be the you're thinking about that on a core basis.

Correct.

Okay. I mean, is that you you you hit on the the, I guess, the the what was what's top of mind to me is is the the reduction in the small ticket leasing, obviously, high yield stuff. Which is is impacting the the margin longer term, but you've got the ops offset on the the fixed rate loans repricing Is that do you think that offsets ultimately, over time? Or or is there more on one side of that equation that that you think could drive? I I mean, I guess I'm probably thinking it would be on the on the leasing, the REMAX. But, I mean, is that do you think that drives any kind of contraction over time as that plays out?

Well, I think we have some expectations of the North Star leasing portfolio over time. I think what you've seen is that it's been shrinking a bit as we've kind of right-sized the portfolio, the credit metrics, experience, the charge off, So it's and that's not a very professional term, but a big juice to margin when you're putting on those types of rates even at small balances. To the extent we can see some recovery in that production, in '26, I think that adds some true value the margin on a go forward. We're not expecting that right off the bat, but over time, we do expect that to recover on a production side within the credit profile that we've set for that business on a go forward.

Alright. That's helpful. Thanks for answering my questions.

Thanks, Danny.

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

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

Good morning, Tim.

Good morning. Quick follow-up on the margin discussion here. If we get more than, say, two rate cuts in '26, which I think is what the market has priced in right now. We get more than two rate cuts. Do you think the NIM can end the year above that 4% level you gave, or do think it'd maybe push a little bit below that?

I think we can still end above the four. I think it's as you I'm gonna state the obvious, it's dependent on timing. Of all of that. If all the rate cuts happen, you know, in March and the loan, you know, the production doesn't kinda happen in the early part of the year, that could compress it for a period of time. But I think in the for the total year, we could still end above the four.

Okay. That's helpful. And I appreciate all the color you've given on North Star leasing. Given your modeling kind of flattish charge offs for the first half of the year and then it starts to moderate down, What does that mean for the provision if you already have know, charge offs embedded within the reserve right there, are are we able to stick around, you know, the levels we saw in the second half of, '25 rather than it being a little bit higher like you saw in the first half of the year.

We do. We we expect a a lower provision as the year as the year goes on. As we said in the script, kinda absent any economic should, you know, our our model obviously drives some of that as well should you know, unemployment spike or other economic news like that that that would temper that. But on a on a core basis, yes, we feel well provisioned for the expected losses in those business.

Okay. That's helpful. And then sorry if you already answered this, but are there any other capital action being contemplated beyond the sub debt pay down?

Nothing outside of our history of what we've been active in. We continue to have a program in place for share buybacks. You know, the dividend we announced earlier this morning to with the continuation of our dividend rate. So think it's more of the same and continued with the organic growth that we laid out in our projections for 2026.

We certainly feel comfortable growing our capital position as we, you know, anticipate obviously some M and A in our future. And so that gives us some flexibility, and we'll continue to balance all those priorities.

Thank you.

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

Hi, good morning, Tyler. Good morning, Katie.

Hi, Terry.

Maybe just a couple questions on fee income. The insurance income was up call it, 1% in 2025. I'm just wondering if you could talk about the outlook and plans to accelerate growth there. And then leasing income had a good year, call it $15,500,000 is that the appropriate run rate as we start 2026?

Yeah. As it relates to the insurance, you know, the on a core basis, they had a a good amount of growth. Year over year, we saw a bit of a decline in our performance-based insurance income. Which hits in the first quarter. We are experiencing a hardening market, which I would say on a you know, if you see the market hardening, that should be, you know, kind of accretive to the bottom line. On the other hand, it creates a, you know, significantly more difficult sales cycle as clients are, you know, actively shopping and carrier appetite is constantly moving. So you you tend to run-in place quite a bit in the hardening market. We continue to be interested in there having multiple conversations on the acquisition side, most of which are you know, generally small in our history, but we've done a number of those. And, you know, insurance is a core part of our business and looking for ways to interrelate some of our lending businesses as well with our insurance business.

Yeah. And as it relates to lease income, I think the full year number for that was around $15,000,000 $16,000,000. I think that's a good range for 2026. I think there's a couple activities that go through that line. As it relates to our mid-ticket leasing business. They do some operating leases, which you see us as the fee of that fee income, and then there's some end of term activities that, as we've mentioned historically, can vary quarter to quarter based on activity of the clients. And how that plays out for us. So I think the 25 expectation or act results is a good expectation as you proceed into 26 for lease income. Line specifically?

Thanks. And then just as a follow-up, within the twenty twenty six expense outlook, can you discuss where inside the bank you expect to make investments I know, Tyler, you talked about technology and 25 talent know, what what are what are the top three areas of investment?

One of the primary areas is in is in data provision and data warehousing. As we've added and increased our sophistication with multiple systems. You know, centralized data is is a big part of $10,000,000,000 and beyond. You know, both from our expected infrastructure of what we're trying to build and you know, just what our all those systems demand. So that is part of it. Investments in a kind of continued investments in new talent, as I referred to earlier, are very opportunistic about, you know, kinda hiring the best people who become available in the businesses that we're in. As well as some investments into, you know, specialty areas within those existing businesses, that we have added talent with and, hope to see growth from in the future. So anything you would add?

Okay. Great. And, Katie, I'd say big juice is 100% a technical term in my book.

Thanks, Terry. Like the support.

Appreciate it, Terry. Thanks for my questions.

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

Hey, everyone. Good morning. Thanks for taking my Just going back to the capital question earlier. You know, just curious to get your thoughts on maybe contemplating a securities portfolio repositioning. Obviously, you have a good amount of excess capital, and it seems like some of those repositions have been well received in the market. So just curious on maybe using some excess capital to that end. The course of 2026.

Yeah. I mean, I think our most recent one was in Q3. We didn't do much in Q4, although we had some calls on some discounted investment we made. So you know, we'll continue to evaluate. I don't think we have or have a need for or a desire to do a wholesale restructure and blow through a big loss. In a in a quarter. We've kept that to around the $2,000,000 loss coming through in a quarter. But continue to evaluate pretty much every quarter we do an evaluation to if there's anything we want to move on. And, in the fourth quarter, we didn't do it, but we will continue that analysis as we proceed through 26.

Okay. Great. And then changing gears a bit, you know, curious if the is for deposit growth to keep up with the 3% to 5% target for loans, this year. And, you know, based on what you're seeing in terms of, you know, production levels on each side of the sheet, you know, if you expect that growth in both loans and deposits to be accretive to the core margin around 4.4% or I'm sorry, four point o 4% in the quarter.

Yeah. I don't I don't think we have expectations that deposits will keep up exactly with loan growth. I think we feel better that loan growth will be a little stronger than deposit growth, but we continue to be encouraging of the sales force to seek the opportunities equally. And so, we remain optimistic, but I think that's a will be more of a challenge. So I do think the loan to deposit ratio will increase as we proceed through '26. You know, we evaluate each deal we put on the book, into the margin that we have here today, and we look for it to be accretive or at least neutral too. So that'll be continued evaluation as we look at pricing both the loan and deposit side as the business.

And we we continue to invest in a number of deposit-focused initiatives, particularly within the commercial and small business banking realms that I expect to bear fruit over the coming year, year and a half.

Okay. Great. Very helpful. Thank you.

Thanks. Thanks, Nate.

Again, if you have a question, please press star then 1. The next question is from Daniel Cardenas with Janney Montgomery Scott. Please go ahead.

Good morning, guys.

Dan.

Hey, Dan.

Maybe some color on competitive factors on the lending side. Are you seeing any slowdown in the intensity there? Excuse me. And, you know, what are your competitors doing in terms of credit standards? Are you seeing any signs of weakness on that front?

Thanks, Dan. I would say we don't see craziness, and that's another banking technical term. In the deal structure or in pricing. There have been a limited amount of payoffs and things we have not renewed, very limited for the year or for the quarter, especially where we did not pursue, you know, existing loan or a new client opportunity because we weren't going to, you know, chase rate or make term exceptions. There is a high demand for high-quality borrowers. And it is competitive. But we win with the people, and we win with the services. Not to sound cliche, but we don't win by and our numbers would bear this out in terms of our yields and everything else that comes with that that we're not seeing that type of competitive pressure impact us nor do we expect it to. We would rather deliver lower loan growth than, you know, unfavorable metrics in those other areas. Is what I'm trying to say.

Okay. And then just maybe a follow-up question on the M and A front, and I might have missed your answer. We answered this before. But on the for the fee-based income side, I mean, what's your appetite for those types of M and A transactions? And are there a lot of opportunities presenting themselves right now?

As it relates to insurance investments, we are in the market. We would buy more and we will buy more. As it relates to specialty finance businesses for the reasons for the $10,000,000,000 threshold reasons, and I mean this by, you know, asset generators. And as to the, you know, loan to deposit ratio. We would rather add talent to those businesses than pursue an acquisition, although we remain active in the market and considering opportunities, but those are lower on our priority list right now behind primary bank M and A, you know, fee-based income M and A, and then, you know, passing on the mid, you know, considering too much in the specialty finance area asset generators.

Yeah.

Alright. My other questions have been asked and answered. Thank you, guys.

Thank you, Dan.

At this time, there are no further questions. Sir, 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 a webcast of this call, including our earnings conference call presentation, will be archived at peoplesbancorp.com under the Investor Relations section. Thank you for your time today, and have a great day.

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