Peoples Bancorp earnings drop to $24.3m in Q1 2025—Is this a buying opportunity or warning sign?

What were the key financial results for Peoples Bancorp in Q1 2025?

Peoples Bancorp Inc. reported a net income of $24.3 million for the first quarter of 2025, translating to earnings of $0.68 per diluted common share. This represents a sequential decline from $26.9 million in Q4 2024 ($0.76 per share) and a year-over-year fall from $29.6 million in Q1 2024 ($0.84 per share). The reduction was primarily driven by compressed net interest margins and a higher provision for credit losses, despite an uptick in core lending volumes.

President and CEO Tyler Wilcox stated that although headline net interest margin fell by three basis points to 4.12%, the core margin excluding acquisition-related accretion income actually expanded, suggesting underlying operational strength. This nuanced performance underscores the company’s strategic emphasis on consistent, core-driven value creation even amid a shifting macroeconomic landscape.

Why did net interest income decline despite loan growth?

Net interest income for the first quarter stood at $85.3 million, a decrease of $1.3 million compared to Q4 2024 and down $1.4 million versus the same period last year. The decline was largely attributable to reduced accretion income, which fell from $4.9 million in the previous quarter to $3.5 million, and from $6.5 million in Q1 2024. This income, tied to previously acquired loan portfolios, is inherently volatile due to its dependence on loan payoffs.

Despite a 4% annualised increase in period-end loan balances to $6.9 billion—driven by commercial and residential real estate lending—margin compression weighed on profitability. Net interest margin declined from 4.15% in Q4 2024 and from 4.26% in Q1 2024. However, excluding accretion income, core interest margin actually improved by three basis points, showing stabilisation in the bank’s underlying lending operations.

What drove the sharp increase in credit loss provisions?

Peoples Bancorp reported a provision for credit losses of $10.2 million, compared to $6.3 million in the previous quarter and $6.1 million in Q1 2024. This was primarily influenced by net charge-offs, particularly in the North Star Leasing portfolio. Additionally, updates to macroeconomic assumptions in the CECL (Current Expected Credit Loss) model contributed to reserve build-up.

The provision negatively impacted Q1 2025 earnings by $0.22 per share, up from a $0.13 impact in the prior quarter. Despite this, asset quality metrics improved: criticized loans fell by $14.4 million and classified loans declined by $4.8 million. Nonperforming assets also dropped 6% quarter-over-quarter, representing 0.71% of total loans and OREO.

How did non-interest income and expenses shape the quarter?

Total non-interest income, excluding net losses, rose by $0.6 million sequentially and $1.3 million year-over-year. The increase was largely due to a $1.5 million rise in insurance income from seasonal performance-based commissions. However, service charge and electronic banking revenues dipped by $0.5 million and $0.4 million, respectively. Lease and trust revenues helped offset these declines.

On the expense front, total non-interest costs rose by $0.3 million compared to Q4 2024 and by $2.3 million year-on-year. Increases were concentrated in salaries, benefits, and stock-based compensation due to annual merit raises and retiree awards. The efficiency ratio rose to 60.7% from 59.6% last quarter and 58.1% a year ago, reflecting seasonal expense recognition typical of Q1.

How has Peoples’ balance sheet evolved, particularly in loans and deposits?

Total loans and leases rose by $70.5 million compared to the end of 2024, with gains in commercial real estate and residential loans offsetting declines in leases and construction lending. Average loan balances also rose by $113.2 million sequentially, supported by strength in business and mortgage lending. Compared to Q1 2024, the loan portfolio grew by $225.7 million, with commercial and industrial loans alone contributing $129.2 million.

Total deposits rose by $144.5 million in the quarter, fuelled by inflows into money market, retail CD, and governmental accounts. However, brokered deposits declined by $96 million as the company shifted toward lower-cost funding sources. Compared to a year earlier, deposits grew by $408.2 million, a 6% increase. The percentage of uninsured deposits stood at 27%, consistent with industry norms.

Peoples continues to maintain robust liquidity, with $723.7 million in liquid assets and $1.1 billion in borrowing capacity from the Federal Home Loan Bank, the Federal Reserve, and federal funds lines. An additional $3.9 billion in contingent liquidity reinforces the institution’s readiness to meet funding needs in varying economic scenarios.

What is the current stock sentiment for Peoples Bancorp (NASDAQ: PEBO)?

Peoples Bancorp’s stock closed at $27.55 on April 21, 2025, down 1.05% following its Q1 results. This suggests cautious investor sentiment due to the earnings decline and rising credit costs. However, the company’s YTD return remains strong at 11.99%, indicating longer-term confidence in its fundamentals and growth prospects.

Institutional ownership stands at approximately 59.56%, highlighting substantial interest from large investment firms. The bank’s dividend yield is also attractive, offering an annualised 5.89% return based on the recent dividend of $0.41 per share and the April 17 closing price of $27.85.

While some investors may view the earnings softness as a cautionary signal, others might interpret the stock’s valuation and yield as a compelling income investment. Analysts are likely to maintain a ‘Hold’ recommendation in the short term, awaiting improvements in net interest margin and confirmation that credit quality trends remain on a positive trajectory.

What does this mean for investors and stakeholders?

Peoples Bancorp enters the second quarter with improved asset quality, rising deposits, and growing loan balances. Despite pressure from declining accretion income and heightened credit provisioning, its strong capital base, robust liquidity profile, and diversified income streams provide stability. The company’s strategic shift away from brokered funding, coupled with investment in high-yield assets and technology-driven efficiency, positions it well for long-term growth.

The latest earnings may not reflect a breakout quarter, but the fundamentals remain strong. For income-focused investors, the consistently high dividend yield adds to its appeal, while institutional investors will likely watch for further progress in operating leverage and margin sustainability. Peoples Bancorp’s Q1 performance highlights the balance between short-term headwinds and long-term resilience in a changing banking landscape.