Improving Credit & CZNL to Help Drive Above Avg Profitability; Inc Est & PT

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Improving Credit & CZNL to Help Drive Above Avg Profitability; Inc Est & PT

h high-balance North Star accounts now just ~7% of

that portfolio, mgmt. believes limited residual risk remains. Consistent with mgmt.

commentary, we model NCOs ticking up to 38-42 bps in 2H26 and step-downs in 2027.

Well-Controlled Operating Expenses in 2Q; CZNL Integration Remains on Track

 Operating expenses of $73.2M (+2% LQ) were in-line. Primary sequential variances were

higher professional fees ($4.0M in 2Q vs. $2.8M in 1Q), data processing ($7.9M vs. $7.5M),

“other” ($6.8M vs. $6.5M). PEBO’s remaining expense line items were well managed.

 Mgmt. continues to express confidence in the CZNL integration timeline and that the ~40%

cost saves target remains readily achievable with synergies consisting of typical personnel

and technology redundancies as well as some branch overlap.

 Our 3Q expense outlook of $74.0M is consistent with unchanged guidance (at $73M-

$75M). We model a step-up in 4Q (to $79.0M) reflecting the addition of CZNL. Our outlook

translates to only 5% YoY growth in 2026. We would not be surprised if PEBO

outperformed our 6% YoY operating expense growth outlook for 2027 given likely upside

to the CZNL cost saves target and continued well-managed legacy costs at PEBO.

 PEBO’s efficiency ratio of 60% in 2Q was slightly more favorable than 61% expectations

and we model the efficiency ratio during 2H26 remaining near the 2Q level before stepping

down to 59% by 4Q27 as benefits from the CZNL acquisition materialize.

Moderately Higher 2Q Core Fee Income; Unchanged Guidance

 Core fee income of $29.0M (+1% LQ) was 1% above expectations with sequential growth

driven by electronic banking ($6.5M in 2Q vs. $5.9M in 1Q), leasing ($5.0M vs. $4.6M),

wealth management ($6.0M vs.