Conferencia de resultados del T3 de 2026 de Peoples Bancorp (PEBO): crecimiento del margen y perspectivas de fusión

Conclusiones clave

• Peoples Bancorp Inc. registró en el tercer trimestre de 2026 un BPA diluido de 0,91 dólares y un BPA diluido ajustado de 1,04 dólares.
• Los ingresos netos por intereses aumentaron un 1%, o 1,1 millones de dólares, con respecto al segundo trimestre, mientras que el margen neto de intereses se amplió 8 puntos básicos. La dirección prevé otra mejora del margen de 8 a 10 puntos básicos en el cuarto trimestre tras la fusión con Citizens.
• Los ingresos por comisiones crecieron un 5% intertrimestral. La provisión para pérdidas crediticias disminuyó un 24% hasta los 3,6 millones de dólares, aunque la tasa anualizada de saneamientos netos aumentó a 35 puntos básicos desde los 31 puntos básicos.
• Los préstamos aumentaron en 19 millones de dólares, o un 1% anualizado, a pesar de más de 160 millones de dólares en amortizaciones de préstamos comerciales. Se espera que la fusión con Citizens aporte aproximadamente 350 millones de dólares en préstamos y 550 millones de dólares en depósitos en el cuarto trimestre.
• La dirección prevé para todo el año 2026 un margen neto de intereses del 4,2%–4,3%, unos ingresos trimestrales por comisiones de 28 a 30 millones de dólares y un crecimiento de los préstamos del 6%–8%, incluidos los préstamos adquiridos de Citizens.
• Peoples prevé cerrar la fusión con Citizens a finales de octubre de 2026. Se espera que la adquisición de Capital Bank Corp se cierre cerca del final del primer trimestre o a principios del segundo trimestre de 2027.

Datos financieros principales

El trimestre incluyó una pérdida de 4,5 millones de dólares por la venta de títulos de inversión, lo que redujo el BPA diluido en 0,10 dólares, y 1,5 millones de dólares en gastos relacionados con adquisiciones, que redujeron el BPA en 0,03 dólares. Excluyendo los costes de adquisición, los gastos no financieros se mantuvieron estables intertrimestralmente.

Rendimiento comercial y operativo

La producción comercial alcanzó su tercer nivel trimestral más alto, según la dirección, mientras que la composición del crédito siguió desplazándose hacia los préstamos comerciales e industriales. Los préstamos para la construcción aumentaron en 40 millones de dólares, los préstamos comerciales e industriales subieron 34 millones de dólares y las líneas de crédito con garantía hipotecaria crecieron en 10 millones de dólares.

Estos avances se vieron parcialmente compensados por un descenso de 38 millones de dólares en préstamos inmobiliarios comerciales, una reducción de 14 millones de dólares en préstamos inmobiliarios residenciales y una disminución de 12 millones de dólares en arrendamientos. La dirección atribuyó gran parte del descenso en el sector inmobiliario comercial a las amortizaciones. Peoples registró más de 160 millones de dólares en amortizaciones comerciales durante el trimestre y aproximadamente 460 millones de dólares en los primeros nueve meses de 2026.

Los depósitos principales, excluidos los CD intermediados, aumentaron en 19 millones de dólares. Los depósitos a la vista remunerados subieron 52 millones de dólares y las cuentas del mercado monetario aumentaron en 46 millones de dólares, lo que fue parcialmente compensado por descensos de 44 millones de dólares en CD minoristas y de 34 millones de dólares en cuentas no remuneradas.

Peoples vendió aproximadamente 59 millones de dólares en títulos con una rentabilidad del 1,5% aproximadamente, lo que generó la pérdida de 4,5 millones de dólares. La reestructuración tenía como objetivo ayudar a mantener los activos por debajo de los 10.000 millones de dólares hasta fin de año y mejorar la rentabilidad de la cartera de inversión.

Los saneamientos de arrendamientos de pequeña cuantía continuaron disminuyendo. La dirección prevé que esta cartera, actualmente de unos 100 millones de dólares, vuelva a crecer en 2027, con un crecimiento concentrado hacia el segundo semestre e integrado en las perspectivas de crecimiento del crédito de la sociedad.

Previsiones de la dirección

Las perspectivas de la dirección para 2026 excluyen los gastos no recurrentes, pero incluyen la fusión con Citizens:

La dirección prevé que el margen neto de intereses del cuarto trimestre aumente aproximadamente entre 8 y 10 puntos básicos tras la operación con Citizens, la reestructuración de títulos y la incorporación de la franquicia de depósitos de Citizens.

Para 2027, excluyendo los gastos no recurrentes y la fusión prevista con Capital, la dirección ofreció las siguientes perspectivas:

Las perspectivas del margen para 2027 asumen un aumento de tipos de 25 puntos básicos por parte de la Reserva Federal a finales de 2026, seguido de subidas en marzo y septiembre de 2027. La dirección estimó una beta de aproximadamente el 30% para los depósitos sin vencimiento, incluidos los saldos no remunerados.

Riesgos y áreas de atención

Los préstamos clasificados aumentaron en 30 millones de dólares tras la rebaja de calificación de dos relaciones inmobiliarias comerciales y una comercial e industrial. La dirección está saliendo de esos créditos y no prevé pérdidas significativas, pero anticipa que los saldos especiales y clasificados aumentarán en el cuarto trimestre a medida que se incorporen los préstamos de Citizens.

La morosidad en los préstamos indirectos al consumo aumentó de forma modesta. La dirección citó la presión sobre los consumidores, el aumento de los tipos de interés y el alza de los precios de los combustibles, al tiempo que señaló que las nuevas operaciones continúan presentando puntuaciones crediticias cercanas a los 750 puntos.

La competencia por los depósitos se ha intensificado y la dirección prevé gestionar la mayor presión de financiación en parte mediante la fijación de precios de los CD minoristas. Peoples también indicó que podría producirse otra pérdida de 2 a 3 millones de dólares en títulos en el cuarto trimestre, según las condiciones del mercado y la gestión del tamaño de los activos.

La empresa sigue estimando una reducción anual de 11 millones de dólares en los ingresos por comisiones de intercambio a partir de julio de 2028 bajo el umbral de la Enmienda Durbin. La dirección señaló que la operación con Capital no modifica sustancialmente dicha estimación.

Puntos destacados de la sesión de preguntas y respuestas con analistas

• Plazos de la operación de Capital: La dirección prevé que la adquisición se cierre cerca del final del T1 o principios del T2 de 2027. No se esperan todos los ahorros de costes de Capital hasta 2028.
• Margen tras la operación de Capital: Una vez que Capital se refleje totalmente en los resultados trimestrales, la dirección prevé que el margen neto de intereses se aproxime, alcance o se mantenga cerca del 5%. No se espera que el margen de todo el año 2027 alcance el 5% debido a que la operación no contribuirá durante todo el ejercicio.
• Incertidumbre en la amortización de préstamos: La dirección prevé otros 150 a 180 millones de dólares en amortizaciones, con incertidumbre sobre si se producirán en el T4 de 2026 o se trasladarán al T1 de 2027.
• Composición del crédito en 2027: La dirección prevé aproximadamente un crecimiento comercial del 5% y un crecimiento en arrendamiento financiero del 6%–7%, estando la expansión comercial más ponderada hacia C&I que hacia el sector inmobiliario comercial.
• Cobertura de reservas: Se espera que el ratio de reserva sobre préstamos se mantenga cerca del 1,11% inicialmente y que potencialmente aumente hacia el 1,2% con el tiempo tras la incorporación de Capital. No se prevé que Citizens tenga un efecto significativo en el ratio.
• Sensibilidad a los tipos de interés: La dirección describió a Peoples como una entidad neutral o ligeramente sensible a los activos y estimó que un aumento de tipos de 25 puntos básicos aportaría unos 5 puntos básicos de beneficio al margen.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Thank you. Good morning and welcome to Peoples Bancorp Inc.'s 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 three and nine months ended September 30, 2026. [Operator Instructions]

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 PPG'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 fact, are forward-looking statements and involve a number of risks and uncertainties detailed in Peoples' Securities and Exchange Commission filings. The 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 2026 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 commentary, 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 Kathryn Bailey, Chief Financial Officer and Treasurer, and each will be available for questions following opening statements. Mr. Wilcox, you may begin your conference.

Tyler Wilcox

Thank you, Gary. Good morning, everyone, and thank you for joining our call today. Activity levels at Peoples are high as we focus on a number of strategic priorities, working to close the Citizens merger at the end of this month. We also recently announced the pending acquisition of Capital Bank Corp, which we expect to close in 2027. We are excited about these strategic initiatives and the opportunity to enhance our capabilities, products, services, and company performance as a result of investments. Focusing on the present, we continue to be pleased with our consistent and high-performing core results as reflected in our third quarter 2026 earnings, which we released earlier this morning. For the third quarter, we reported diluted earnings per share of $0.91. When adjusted for one-time items, our diluted EPS for the quarter was $1.04, which exceeded consensus analysts' estimates of $0.93.

Our one-time items for the quarter included a $4.5 million loss on investment securities, which reduced diluted EPS by ¢10. This was part of our planned effort to remain below $10 billion in assets with the pending Citizens merger and acquisition-related expenses of $1.5 million, which reduced our diluted EPS by 3 cents. Some of our highlights for the third quarter include improvements in our net interest income, which was up 1%, expansion in our net interest margin of eight basis points, growth in our fee-based income of 5%, provision for credit losses declined 24%, improvement in our efficiency ratio adjusted for one-time items, higher return on average assets, which was 1.36%, increased return on average stockholders' equity of 10.44%, declines of 11% in our non-performing growth in our lower-cost interest-bearing demand deposit and money market accounts of nearly $100 million combined, and improved regulatory capital ratios. Our provision for credit losses declined to $3.6 million, a 24% reduction compared to the second quarter.

Our allowance for credit losses to total loans was 1.11%, a three basis point decrease compared to June 30th. The reduction in our provision for credit losses for the quarter was due to declines in reserves for individually analyzed loans, coupled with updates to our prepayment, curtailment, and funding rates, partially offset by higher net charge-offs. Our annualized quarterly net charge-off rate grew to 35 basis points compared to 31 basis points for the linked quarter. For the third quarter, we had higher commercial and industrial loan charge-offs, along with increases in commercial real estate and consumer indirect loan charge-offs. At the same time, we had a reduction of 25% in our lease charge-offs. As anticipated, our small ticket lease charge-offs have declined throughout 2026. We remain committed to our small-ticket leasing business, and see a return to growth coming throughout the year in 2027 with a focus on appropriate risk-adjusted returns and minimized volatility. For the third quarter, our non-performing loans declined $4 million, or 11%, compared to the linked quarter end, which was driven by lower non-accrual loans.

Indexed loans decreased $18 million, while classified loans grew $30 million. For the third quarter, we had downgrades of two commercial real estate relationships and one commercial and industrial relationship, which drove the increase. We do not anticipate significant losses as we are in the process of exiting these credits. We expect an increase in our Criticized and Classified Loan balances during the fourth quarter as we onboard the loan portfolio from the Citizens Merger. Our delinquency levels continue to improve with 99.2% of our loan portfolio considered current at September 30th compared to 99.1% at the linked quarter end. Moving on to loan balances, we had increases of $19 million or 1% annualized compared to June 30th. We mentioned on our last quarterly earnings call that we had expected payoffs later in the year that would be a headwind for loan growth, and we realized some of that this quarter with commercial payoffs of over $160 million.

We have also been selective with our lending activity, as we are strategically managing under the $10 billion mark through year-end. Most of our increases in balances was in construction loans, which were up $40 million, while commercial and industrial loans and home equity lines of credit grew $34 million and $10 million, respectively. We had reductions of $38 million in our commercial real estate loans, which were due to the aforementioned payoffs, while residential real estate loans declined $14 million and leases were down $12 million. For the fourth quarter, the Citizens merger is expected to add nearly $350 million of loans before purchase accounting adjustments. I will now turn the call over to Kathryn for a discussion of our financial performance.

Kathryn Bailey

Thanks, Tyler. Our net interest income grew 1% or $1.1 million, while our net interest margin improved 8 basis points. Increased investment in loan yields contributed to the higher margin, while net interest income benefited from higher loan income. Accretion income totaled $1 million compared to $1.1 million for the linked quarter, contributing four basis points and five basis points to net interest margin, respectively. For the first nine months of 2026, net interest income improved 5% or $12.8 million. Net interest margin expanded eight basis points over the same period and was mostly attributable to our lower deposit costs. Our interest expense on deposits declined nearly $19 million compared to the first nine months of 2025. Accretion income totaled $3.4 million compared to $7.8 million for 2025, five basis points and 12 basis points to net interest margin, respectively.

As it relates to our interest rate exposure, we are relatively neutral to slightly asset sensitive. We have been in this position for several quarters and the two pending mergers will not have a meaningful impact on our overall interest rate risk position. Moving on to our fee-based income, we had growth of 5% compared to the linked quarter, driven by higher lease income, as well as increases in deposit account service charges, trust and investment income, and bank-owned life insurance income. For the first nine months of 2026, fee-based income grew 8%. The improvement was mostly due to increased lease income, trust and investment income, and deposit account service charges. Our non-interest expenses were up 2% compared to the linked quarter. This included $1.5 million of acquisition-related expenses, which were largely professional fees.

Excluding these expenses, non-interest expenses were flat compared to the second quarter. For the first nine months of 2026, non-interest expenses were up 4%. This included $1.9 million of acquisition-related expenses, which was the primary driver of our higher professional fees. Salaries and employee benefits also contributed to the growth, along with operating lease expense, which corresponds to our fee-based lease income. Our reported efficiency ratio was 58.5% for the third quarter, an increase compared to 58.3% for the linked quarter. Excluding acquisition-related expenses, our adjusted efficiency ratio was 57.3% for the third quarter compared to 57.9% for the second quarter. For the first nine months of 2026, our reported efficiency ratio was 58.5% compared to 59% for the prior year and was driven by higher revenue.

Excluding acquisition-related expenses, our adjusted efficiency ratio was 57.9% for 2026 compared to 59% for 2025. Looking at our balance sheet, our investment portfolio as a percent of total assets declined to 18.3% at quarter end compared to 19.1% at June 30th. We completed another sale of securities as part of our investment portfolio restructuring related to the Citizens Merger, which resulted in a $4.5 million loss for the quarter on the sale of approximately $59 million of securities. In addition to providing flexibility to remain under $10 billion, this will also improve the yield on our investment portfolio. Our loan-to-deposit ratio grew at quarter end to 91.9% compared to 91.5% at the linked quarter end, mostly due to lower deposits and some loan growth for the third quarter. Our core deposit balances, which excludes brokered CDs, were up $19 million compared to June 30th. We had significant increases in our interest-bearing demand and money market accounts, which were up $52 million and $46 million respectively.

These increases were partially offset by reductions of $44 million in retail CDs and $34 million in non-interest-bearing accounts. Our demand deposits as a percent of total deposits was flat at 36% for both September 30th and June 30th. Our non-interest-bearing deposits to total deposits ratio was unchanged at 21% at quarter end and at June 30th. The Citizens Merger is expected to add approximately $550 million of deposits for the fourth quarter of 2026. As far as our capital levels, all of our regulatory capital ratios improved compared to the linked quarter end as earnings outpaced dividends. Our tangible equity to tangible asset ratio declined this quarter and was negatively impacted by increased unrealized losses on our available for sale investment portfolio. I will now turn the call back over to Tyler for his closing comments.

Tyler Wilcox

Thank you, Kathryn. We are focusing on successfully closing the Citizens merger this month, while also prioritizing our work on the pending Capital merger. These mergers will set the stage for our future strategic growth, including expanded market areas within our footprint, through financial metrics such as higher net interest margin and lower efficiency ratio, and the ability for our associates to have more meaningful conversations with existing and new clients about the diversified products and services we provide. For the fourth quarter and full year of 2026, we have the following performance expectations, excluding the impact of non-core expenses, but including our Citizens merger. We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4.2% and 4.3% for the full year of 2026. We believe our quarterly fee-based income will range between $28 million and $30 million. We expect quarterly total non-interest expense to be between $78 million and $80 million.

We believe loan growth will be between 6% to 8% for 2026 compared to 2025, which includes the acquired loans from Citizens. We continue to anticipate a reduction in our net charge-offs for 2026 compared to 2025, which we expect to continue to positively impact provision for credit losses, excluding any changes in the economic forecasts. We expect between $11 million and $13 million of acquisition-related expenses during the fourth quarter for the Citizens Merger. We would also like to provide some high-level expectations for 2027, excluding the impact of non-core expenses and the planned Capital merger. We expect to achieve positive operating leverage for 2027 compared to 2026. For the full year of 2027, we anticipate our net interest margin will be between 4.3% and 4.5%. This assumes a 25 basis point increase in rates from the Federal Reserve in late 2026, one in March 2027, and another in September of 2027.

We believe our quarterly fee-based income will range between $31 million and $33 million. Our first quarter fee-based income is typically elevated, as it includes annual performance-based insurance commissions. We expect quarterly total non-interest expense to be between $80 million and $82 million for the second, third, and fourth quarters of 2027, with the first quarter of 2027 being higher due to the annual expenses we typically recognize during the first quarter of each year. We believe our loan growth will be between 3% and 5% compared to 2026, which is dependent on the timing of paydowns on our portfolio. We anticipate similar charge-offs and net charge-off rate for 2027 compared to 2026, which includes projected increases related to the addition of the Citizens portfolio. We look to have a strong close to our 2026 performance and continue to be optimistic about our strategic plans and ability to execute on the pending mergers and future growth. Laying out a path beyond the $10 billion threshold is the culmination of years of strategic planning and patience.

The investments we have made in people, technology, and infrastructure are in place today and operating as if we have already crossed that milestone. We have proven our ability to provide reliable results for our shareholders and improve performance both organically and through acquisitions. We will continue to place importance on the value we provide as an investment to our shareholders and the return that we produce. We will focus on being a top-notch employer and sharing our culture with our new associates from our mergers. We will make meaningful investments in the communities we serve and provide high-quality, trusted solutions for all of our clients. That concludes our commentary and we will open the call for questions. Once again, this is Tyler Wilcox and joining me for the Q&A session is Kathryn Bailey, our Chief Financial Officer.

I will now turn the call back into the hands of our call facilitator.

Operator

We will now begin the question and answer session. [Operator Instructions] The first question today is from Ryan Payne with DA-Davidson. Please go ahead.

Preguntas y respuestas

Ryan Payne

Good morning. This is Ryan Payne on for Jeff Roulis today. I heard you on the expected Citizens close later this month. Any update on close timing for Capital next year?

Tyler Wilcox

Yes, our expectation is sometime very end of first quarter, beginning of second quarter.

Ryan Payne

Got it. And on the security sale, some more detail on that. What was the timing of that during the quarter, the yield on those securities, and as well as the expected impact on NIM going forward?

Kathryn Bailey

Yes, so it happened in August, and the yield on the amount we sold was about 1.5%. And the impact to margin on a go-forward, I think was the third part of your question. I think we expect a slight increase of a few basis points.

Ryan Payne

Last for me, Durbin impact, we last heard an $11 million annual hit to those fees beginning July 2028. Just wanted to confirm that or if anything has changed there.

Kathryn Bailey

No, that's still the number. And again, as a reminder that we noted in the capital announcement that they have minimal impact to our Durbin into interchange income. So the number has not really changed. Understood.

Ryan Payne

Thanks, guys.

Tyler Wilcox

Thank you.

Kathryn Bailey

Thank you, Ryan.

Operator

The next question is from Tim DeLacy with Raymond James. Please go ahead.

Timothy DeLacey

Hey, good morning, Tyler. Good morning, Kathryn. Just filling in for Danny this morning. Hey, Tyler, maybe starting off on loan growth, you know, growth is obviously relatively modest this quarter. You kind of laid out some of the factors that played in there and kind of laid out the 3% to 5% target for next year. You know, just curious how the commercial pipelines are looking today, you know, where you're seeing the drivers of growth coming from in the near term, whether you're expecting some of those payoff headwinds to start easing as we move into '27 here.

Tyler Wilcox

Thanks for the question. My hope is, yes, we will see some of that easing. Let me lay out a few thoughts for you as to demand. This was actually our third highest quarter ever of commercial production, and I really like the kind of mixed shift into CNI that we've seen throughout the year. And so demand remains really positive. For reference, we expected this year about $480 million in payoffs. Through three quarters, we've seen about $460 million in payoffs. The vast majority of that, about 40%, is via sales of primarily multifamily projects, which says that there's a high demand for the high-quality stuff that our folks are producing.

And for the remainder of the year, there's probably about $150 million to $180 million of expected, forecasted, payoffs and whether that materializes in the fourth quarter or materializes kind of or pushes into the first quarter is one of the main questions weighing on that loan growth for the forward guidance. So did I miss anything in your question there?

Timothy DeLacey

No, no, no, that was very helpful, Tyler. I appreciate that. And maybe, Kathryn, just flipping over to the margin, we appreciate the guidance for 2027. With the rate increases that you guys are assuming for next year, just curious about how you're thinking about what we should expect for betas on the deposit side. That should be factored into the 2027 guide.

Kathryn Bailey

Yes, non-interest or non-maturity beta is inclusive of non-interest bearing is about 30%.

Timothy DeLacey

Okay, appreciate that. And then maybe just finishing up, you know, just Tyler, maybe one on credit, you know, outside of the few relationships you highlight in the presentations, you know, are you seeing any meaningful changes in credit trends across the broader commercial portfolio or, you know, any particular areas you're keeping your eye on more closely with the recent move in rates?

Tyler Wilcox

No, not so far. Thankfully, commercial credit remains very strong. Last quarter, we were talking about the slight increase in criticize. That's come down. Now we see the slight increase in classified. As we guided, we expect those to pay off and exit the bank with minimal loss. So the core commercial credit remains incredibly strong. The significant reduction in the small ticket leasing is also, you know, extremely positive. I would say the one area where we've seen a slight increase in delinquency on the indirect portfolio, as I think you mentioned, I think there's some pressure on consumers in that area, which is also weighing on the production with interest rates and fuel prices increasing.

So that is an area where we're watching, but we continue to, you know, generate, um, you know, that, uh, production that, you know, near 750 credit scores consistent with our past practices. So very cautiously optimistic on credit overall, and particularly in the commercial space.

Timothy DeLacey

Okay. Well, that's terrific, Tyler. Guys, I'll step back. Thank you.

Operator

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

Adam Kroll

Hi, good morning. This is Adam Kroll on for Nate. Good morning, Tyler and Kathryn. And thanks for taking my questions. Maybe for Tyler to start, I know the loan growth guide excludes capital, but they've historically been a pretty high growth franchise. So I guess I'd be curious, you know, is there any transition period after the deal closes, where maybe growth is a little softer, or just any color there.

Tyler Wilcox

Thanks. I would say as the capital, one of the most exciting things to me is the level of mutual engagement that we have with the capital team and the capital leadership particularly. And a big part of that is obviously the continuity for their bankers, their clients, and, you know, their entire organization of our intent to, you know, continue the things that they're doing that made them attractive purchase in the first place. So I don't anticipate any kind of trough because the, you know, the lead-in of the next, you know, four, five, six months of engagement together. That includes our bankers, our credit staff, their leadership, their bankers, and their clients is, you know, mutually committed to continuing what it is they do. So we do expect that, you know, they're historically higher growth rates than ours, are something that we can perpetuate and is part of what makes the deal appealing.

Adam Kroll

Got it. I appreciate the call there. And, Tyler, I think you, on the last call you mentioned, uh, small ticket leasing could potentially begin to grow again in '27. Is that still the case? And, um, is any of that contemplated in the loan growth guide that you gave?

Tyler Wilcox

It is. It's baked in as part of our forecast and we do believe it will grow. Now it's not going to grow at double digits and the growth I think will be more heavily weighted to the second half of the year, you know, growing off of the now $100 million portfolio. But we have the right sales. We have the right leadership and we have the right credit box now that we've tested out to ensure that we grow in a positive way that we think can really impact and let it start punching above its weight again, which is the reason why we are excited about the future of that business.

Adam Kroll

Got it. Maybe one last one from me. Kathryn, I'd be curious to hear how we should think about provisioning in 2027, just given the likely step up in the reserve with the capital deal, and just maybe longer term where you see the reserve kind of settling out.

Kathryn Bailey

Yes, I mean, I think, to your point, I think the last couple quarters have been pretty nice from a provision perspective. I expect we get elevated from here. I think the coverage ratio, which is how I call it, the allowance to total loans, right now we're at 1.11%. I think we'll stay in that range, go up to maybe 1.2% over time with capital coming on board. That's where I would see us progress. Again, Citizens won't have any material impact to that ratio, but capital when it comes on board will help stabilize that.

Adam Kroll

Got it. Thanks for taking my questions.

Tyler Wilcox

No problem.

Kathryn Bailey

Thanks.

Adam Kroll

Thank you.

Operator

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

Brendan Nosal

Hey, good morning folks. Thanks for taking the questions.

Kathryn Bailey

Hey, no problem, Brendan.

Brendan Nosal

Maybe starting off here, just kind of on prepping the balance sheet for year end, are there any other security sales that need to take place to stay under $10 billion? And I think you initially were contemplating like $300 million.

Kathryn Bailey

Well, as we articulated with the Citizens acquisition closing here later this month, we will sell a majority of their portfolio at close or very near to close. As it relates to any more of our portfolio that we will sell, that will just be dependent on how we transition through the remainder of the year where we are from an asset size. We might take another $2 million to $3 million loss in the fourth quarter, but we'll just continue to evaluate the market and evaluate our asset size as we proceed through the remainder of the fourth quarter.

Brendan Nosal

Yes, okay. That's perfect. Then maybe turning to the margin, can you just narrow down kind of the NIM that you're expecting to see next quarter? There's a lot of moving pieces with kind of movement in both your and Citizens' securities books and then their impact on both the core margin and, you know, fair value market creation.

Kathryn Bailey

Yes, so I think in the next quarter we could see, you know, I'm going to project somewhere in the 8 to 10 basis point lift with the addition of Citizens, given the securities restructure we just talked about, their portfolio, and then just the deposit franchise, that it makes that organization very attractive.

Brendan Nosal

Okay. All right. Awesome. Thanks, Kathryn. Moving on, on a kind of related note. Just thinking about your rate positioning, I think back to last quarter, I think you folks said that each 25 basis point hike was six to eight basis points of margin improvement. That reads to me as being fairly asset sensitive, but it kind of sounds like now you're more neutral to only slightly asset sensitive. So I'm wondering what changed over the past couple of months.

Kathryn Bailey

Yes, I think that number, I mean it ebbs and flows with each rate increase. It varies a little bit, but I think that 25 basis points now, I think we would quantify be about five basis points of benefit to us. And so I think it's... I mean, we could debate whether that's significantly asset sensitive or slightly, but that's where the new number is.

Brendan Nosal

Yes, yes, okay. That's fair and also helpful. Okay, thanks for taking my questions.

Kathryn Bailey

Thank you.

Operator

Thank you. The next question is from Matthew Brees with Stephens. Please go ahead.

Matthew Breese

Good morning.

Tyler Wilcox

Good morning, Matt.

Matthew Breese

You know, just thinking about your loan growth guide for next year, could you give us some idea on what it contemplates for commercial real estate and leasing growth? And if it does include positive growth from those segments, what type of growth are you anticipating?

Tyler Wilcox

Yeah, I think overall commercial growth is about 5% or so as one of the main drivers. The leasing overall growth is probably about 6% to 7%. The kind of drag on the loan growth is going to be, you know, kind of coming from our expectations on the consumer book in a rising rate environment. You know, we're not seeing the refi business on the residential indirect has slowed down a bit. And so that's kind of the outlook on those pieces. I will say the growth as well in commercial is probably a little bit more weighted to the CNI as opposed to the CRE, still still good CRE growth.

Matthew Breese

Okay. So you do anticipate positive commercial real estate growth next year?

Tyler Wilcox

We do. Okay. It is a bit of running on a treadmill, as I noted, because of the heavily weighting to the sales and the payoffs in that space particularly.

Matthew Breese

Yep. And then Kathryn, just thinking about the '27 NIM guide, but including capital, you know, if I go back to the deal deck, I think it suggested a 5% NIM or higher. Could you talk about that in the context of the updated '27 NIM guide on the standalone and whether or not that 5% still holds and what would put you at the upper versus the lower end?

Kathryn Bailey

Well, I think with it not being in, capital not closing until probably, let's say, early in the second quarter or end of the first quarter, we won't have the benefit of that in the first quarter. So the full year guide with that, with capital in next year, I don't think we would get to the 5%. I think once they are in our numbers on a quarterly basis, I think we will approach five, be at five or slightly around the 5% rate that we previously quoted. Full year, I don't think we will get to five in 2027. Correct.

Matthew Breese

Right, but you'll be in and around 5% with them and beyond. Fair enough. Okay. I hate to pick pile on the $10 billion question, but you do have some excess cash at the end of the quarter as well. I'm curious how you see kind of the cash and securities components playing out as you pull the levers and stay below $10 billion by year-end.

Kathryn Bailey

Yes, I think you will see our cash position decrease over time. I think some of that is just on balance sheet liquidity as we approach the end of the quarter, given the securities portfolio is was smaller. So I think you'll see it diminish, especially as we kind of manage through year end.

Matthew Breese

Okay. That's all I had. I'll leave it there. Thank you.

Kathryn Bailey

Thank you.

Operator

The next question is from Emily Lee with KBW. Please go ahead.

Unknown Speaker

Hey everyone, this is Emily stepping in for Tim Switzer. Thanks for taking my question.

Kathryn Bailey

Sure, morning.

Unknown Speaker

Just to go back to the NIM, I was just wondering what was the exit margin in Q3 and how are deposit rates looking at the end of the quarter too?

Kathryn Bailey

The exit margin on the quarter was a little higher than where we reported for the full quarter. An accretion was a similar impact for the month of September as it was for the quarter. A slight benefit, call it five to eight basis points as we exited from where we reported for the full quarter. As it relates to deposits, I think we're starting to see some more competition in the market for deposits and I think we'll continue to see that as this rate outlook plays out and as we start to see rates potentially move upward. And so we've been slowly following that trend and we'll continue to actively manage it as we have been in the past. And that will continue to likely come through our retail CD pricing product.

Unknown Speaker

Understood. Very helpful. And then what does guidance imply for expenses of capital once all the cost saves are achieved? So basically the run rate for 4Q'27.

Kathryn Bailey

So, the full cost saves for capital will not be realized in 2027. They won't be fully realized until 2028.

Unknown Speaker

Okay. Okay, thank you. That's all.

Tyler Wilcox

Okay.

Kathryn Bailey

Thank you.

Tyler Wilcox

Thank you.

Operator

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

Brendan Nosal

Hey, one more for me on kind of expenses. I was trying to bridge the gap from this quarter's $73 million in core expenses to the the first quarter number, you know, at the higher end of your $80 million to $82 million range. And I'm asking because it looks like Citizens is running like $4.5 million on costs. So, you know, 73 and $4.5 million gets you to like $77.5 million. So, kind of where does that other, you know, several million dollars kind of come from in the updated expense outlook for both 4Q'26 and then 1Q'27?

Kathryn Bailey

A couple things. I think Q3 was a little lighter than we anticipated. I think some of that was just the timing that we'll see move into the fourth quarter. Again, therefore, starting at the 73, I think you're starting off a little light, $1 million, call it, for a round number. I think then you have the annual increase in predominantly our largest expense item as it relates to salaries and benefits. I think we are seeing a meaningful increase in benefit cost expectations for '27 over '26. I'd say those are the big factors that are probably influencing that number higher than where you just quoted, Brendan. Thank you.

Brendan Nosal

Yep, okay, that's helpful, Kathryn.

Kathryn Bailey

Thank you.

Operator

The next question is a follow-up from Nathan Race with Piper Sandler. Please go ahead.

Adam Kroll

I'm going to go to the fourth quarter. It looks like it takes a slight step down at the midpoint of $29 million, even with the contribution from Citizens. So I guess I'd be curious, is that just from lower lease income or any color on the primary drivers there?

Kathryn Bailey

I think you had, I think it's lease income. As we've quoted over time, that's a little bit of a volatile, that creates volatility in the fee income when it relates to lease income as we can have some end-of-term transactions that result in some gains that are reflected in that number on a quarterly basis. And I think you see that to the tune of $1 million, $1.5 million in the third quarter. So I think that run rate was a little little elevated versus the trend in Q3. And that's the biggest variance, I would say.

Adam Kroll

Thanks, Kathryn.

Kathryn Bailey

Thank you.

Operator

There are no further questions. Sir, do you have any closing remarks?

Tyler Wilcox

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 peoplesbankcorp.com under the investor relations section. Thank you for your time and have a great day.

Operator

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