Digital Banking Will Strengthen Community Banking Networks

Key Takeaways

• Strong local economic trends, digital innovation, and personalized service drive loan and deposit growth, enhancing profitability and competitive positioning.
  
• Strategic risk management and capital allocation support improved credit quality, operational efficiency, and long-term value creation.
  
• Ongoing credit quality issues, margin pressures, rising costs, funding challenges, and geographic concentration threaten Peoples Bancorp's profitability and future growth prospects.

Catalysts

Operates as the financial holding company for Peoples Bank that provides commercial and consumer banking products and services.

• Robust loan growth across diversified categories, alongside population and business migration to secondary and tertiary markets where the bank operates, suggests Peoples Bancorp is well-positioned to benefit from increased loan demand and local economic strength-likely supporting future revenue and earnings expansion.
  
• Ongoing customer preference for personalized, community-focused banking, as larger institutions lose trust, gives Peoples Bancorp an opportunity to capture deposit growth and deepen client relationships-positively impacting deposit base stability and net interest income.
  
• Proactive cost containment and technology investments, including the scaling of digital banking and automation, are already reflected in lower deposit and borrowing costs, more stable noninterest expense, and an improving efficiency ratio; further digital adoption is expected to reduce costs and support net margin expansion.
  
• Management is actively reducing exposure to underperforming small-ticket leasing portfolios, with charge-offs expected to plateau and potential for profitability restoration as legacy issues subside-setting the stage for more favorable credit quality metrics and lower provision expense, thus improving future returns on equity and earnings.
  
• Healthy pipelines for loan and deposit growth, competitive pricing discipline, and active capital management (including opportunistic share repurchases and a strategic approach to acquisitions) support long-term revenue and book value growth, while taking advantage of regulatory trends that benefit well-capitalized, efficiently run community banks.

Peoples Bancorp Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Peoples Bancorp's revenue will grow by 14.3% annually over the next 3 years.
• Analysts are assuming Peoples Bancorp's profit margins will remain the same at 26.1% over the next 3 years.
• Analysts expect earnings to reach $164.9 million (and earnings per share of $4.19) by about July 2029, up from $110.5 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.0x on those 2029 earnings, down from 12.6x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 2.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Risks

• Persistent elevated charge-offs and delinquencies within the small-ticket leasing portfolio, despite steps to reduce exposure, indicate ongoing credit quality risk and the potential for higher future provisions, which could negatively impact net income and pressure overall profitability if economic conditions deteriorate or if losses persist longer than anticipated.
  
• Declining accretion income has been a significant drag on net interest margin (NIM) year-over-year, and with expectations for accretion income to remain in the low-to-mid-teens basis points going forward, there is less support for NIM growth; combined with already tight spreads, this threatens future revenue and earnings growth if portfolio yields stagnate or recede.
  
• Deposit balances declined 1% in the quarter due to seasonal and competitive dynamics, and the company remains reliant on retail CDs (with higher costs and shorter duration); in a persistently competitive or low-rate environment, funding pressures and potential margin compression could constrain future net interest income and earnings.
  
• Noninterest expenses rose 3% year-over-year in the first half of 2025, while the efficiency ratio deteriorated compared to the prior year due to increased compensation and software costs; limited scale and ongoing investment requirements (particularly in technology and compliance) may continue to constrain net margins and erode operational efficiency absent meaningful revenue growth.
  
• Peoples Bancorp's limited geographic diversification and heavy concentration in secondary and tertiary Midwest markets increases vulnerability to local economic downturns or demographic shifts (such as rural depopulation), which, together with limited digital transformation, could restrict long-term loan demand and deposit growth-potentially impacting both revenue trajectory and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $41.5 for Peoples Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $632.5 million, earnings will come to $164.9 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 7.1%.
• Given the current share price of $39.5, the analyst price target of $41.5 is 4.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.