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Peoples Bancorp's Bottom Line Likely To Gradually Improve

Sheen Bay Research profile picture
Sheen Bay Research


  • After the loss in the first quarter, earnings will likely improve in the remainder of the year due to a downwards trend in provision expense.
  • Acquisition of Triumph Premium Finance will also contribute to an improvement in the bottom line in the remainder of the year.
  • Despite the improvement, earnings will likely remain below normal in the remaining nine months of the year.
  • The severity and duration of COVID-19 are unknown, which could lead to earnings surprises. Consequently, PEBO should trade at a discount to its target price determined through the price-to-book method.

Peoples Bancorp, Inc. (NASDAQ:PEBO) made a loss of $0.04 per share in the first quarter on the back of a hike in provision expense. For the remaining nine months of the year, the provision expense will likely trend downwards as PEBO incorporated a reasonably bleak economic outlook in its reserves for the first quarter. PEBO's acquisition of Triumph Premium Finance will also support earnings in the remaining nine months of the year. Moreover, the company's participation in the Paycheck Protection Program will support earnings. Despite the improvement, earnings will likely remain below normal in the remainder of the year. I'm expecting PEBO's earnings per share to decline by 42% year-over-year to $1.54 in 2020. The December 2020 target price suggests a substantial price upside from the current market price. However, the impact of COVID-19 on provision expense is uncertain, which poses risks to the earnings and valuation. Consequently, I'm adopting a neutral rating on PEBO.

Worst of the Provisioning Over in the First Quarter

PEBO posted a provision expense of $17 million in the first quarter, up from $1.1 million in the fourth quarter of 2019. PEBO appears to have incorporated most of the impact of COVID-19 in its reserves for loan losses in the first quarter. However, I believe the company will have to further increase its reserves as the outlook on unemployment has worsened since the first quarter. As mentioned in the first quarter's conference call, around 65% of the portfolio is tied to US unemployment, and the remaining part is mostly tied to Ohio unemployment and GDP.

PEBO has very limited exposure to industries that have been hit hard by the COVID-19 pandemic. As mentioned in the investor presentation, around $70.6 million, or 2.4% of total loans are to the hotels and lodging industry, while around 0.2% of total loans are to

This article was written by

Sheen Bay Research profile picture
Around 10 years of experience covering Banks and Macroeconomics. Passionate about discovering lucrative investments and generating alpha.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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