On Tuesday, Peoples Bancorp (NASDAQ:PEBO) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Peoples Bancorp Inc announced a merger agreement with Citizens National Corporation, which will expand their presence in Kentucky and is expected to close in the second half of 2026.
The company reported first-quarter diluted earnings per share of $0.81, surpassing analyst estimates of $0.80, with a net interest margin expansion of 4 basis points.
Loan growth was $13 million, with significant commercial and industrial loan growth offsetting reductions in other loan categories.
Peoples Bancorp Inc's non-performing loans and delinquency levels improved, while non-interest-bearing deposits grew by over $41 million.
The company's tangible equity to tangible assets ratio increased to 8.91%, and all regulatory capital ratios improved.
Guidance for 2026 includes a net interest margin of 4-4.2%, quarterly fee-based income of $28-30 million, and quarterly total non-interest expenses between $73 million and $75 million.
The merger with Citizens is expected to result in $0.20 EPS accretion in 2027, with 40% cost savings anticipated from the transaction.
Management highlighted strategic flexibility for further mergers and acquisitions, with a focus on both large and smaller deals.
Full Transcript
OPERATOR
Good morning and welcome to Peoples Bancorp Inc's conference call. My name is Chuck and I'll be your conference facilitator. Today's call will cover a discussion of the results operations for the quarter ended March 31, 2026. Please be advised that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press Star then one on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, please press Star then two. 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 and other forward looking statements regarding people's future financial performance and 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 the People's securities and Exchange Commission filings. Management believes that the forward looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of people's 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 First Quarter 2026 Earnings Release and Earnings conference call presentation were issued this morning and or [email protected] 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 [email protected] in the Investor Relations section for one year. Participants in this call today are Mr. Tyler Wilcox, President and Chief Executive Officer, along with Ms. Katie Bailey, Chief Financial Officer and Treasurer and each will be available for questions following opening statements. Mr. Wilcox, you may begin the conference.
Tyler Wilcox (President and Chief Executive Officer)
Thank you, Chuck Good morning everyone and thank you for joining our call today. Earlier this morning we announced that we entered into an agreement to merge with Citizens National Corporation Citizens have approximately $700 million in assets and operates 12 branches in eight counties in Kentucky. We expect to close the merger in the second half of 2026. We are excited about this partnership which expands our presence in Kentucky markets that both overlap and complement our existing footprint. Citizens' is a deposit rich franchise that shares a similar philosophy in serving the needs of clients and communities. We look forward to welcoming their shareholders', employees and clients to become part of the Peoples team. We believe this merger will improve shareholder value and benefit associates of both Citizens' and Peoples while offering clients of Citizens more diversified products. I will go into more details on the planned merger later in the call and you can refer to our accompanying slides for additional details. Now I would like to highlight our results issued this morning. We reported diluted earnings per share of $0.81 for the first quarter. Our results included several improvements compared to the linked quarter. For the first quarter, our net interest margin expanded 4 basis points driven by lower deposit costs. We had a $400,000 increase in fee based income. We had loan growth of $13 million when we had originally anticipated loan growth to be flat due to expected paydowns. During the first quarter, our non performing loans and delinquency levels improved while we also experienced reductions in our criticized and classified loan balances. Our non interest bearing deposits grew over $41 million or 3%. Our loan to deposit ratio improved to 88.5%. Our tangible equity to tangible assets ratio increased 12 basis points to 8.91%. Our book value per share grew 1% on an annualized basis compared to year end, while our tangible book value per share improved 3% on an annualized basis. All of our regulatory capital ratios improved and our diluted EPS of $0.81 exceeded consensus analyst estimates of $0.80. As we've noted previously, we typically have annual first quarter one time expenses that occur which include stock based compensation expense related to the annual forfeiture rate, true up on stock vested during the first quarter along with upfront expense on stock grants to retirement eligible employees which combined for a total of $764,000 and negatively impacted diluted EPS by $0.02 per share and Employer Health Savings Account contributions of $689,000 which reduced diluted EPS by $0.02per share. For the first quarter, our provision for credit losses totaled $9.7 million, increasing our allowance for credit losses as a percent of total loans to 1.16% from 1.12% at year end. Our provision for credit losses for the quarter was driven by a deterioration in macroeconomic conditions used within our models and is not indicative of issues we are seeing within our portfolio. However, we are cautious and disciplined within our underwriting and portfolio management as we assess the impact of the Iran conflict on oil prices and inflationary pressure on prospects and existing clients. Our annualized quarterly net charge off rate improved to 40 basis points compared to 44 basis points for the linked quarter. Our small ticket lease charge offs totaled $3.8 million for the first quarter and contributed 23 basis points of our annualized quarterly net charge off rate. While we experienced a reduction in our net charge offs for the first quarter, from a dollar perspective, we do anticipate our second quarter net charge offs to be consistent with recent quarters. We continue to project that the net charge offs will come down in the second half of 2026 compared to recent quarterly levels. We continue to reduce the size of our high balance accounts in our small ticket leasing business, which totaled around $9 million at March 31, down from nearly $13 million at year end. For more information on our small ticket leasing business and related net charge offs, please refer to our accompanying slides. Our non performing loans declined over $3 million compared to the linked quarter, mostly due to reductions in several categories of loans 90 plus days past due and accruing. We also had improvements in our criticized loans which were down $12 million compared to the linked quarter end and our classified loans were down $5 million. On March 31, our criticized loan balances as a percent of total loans improved to 3.31%, while our classified loans as a percent of total loans declined to 2.1%. Our delinquency levels improved and at March 31, 98.9% of our loan portfolio was considered current compared to 98.6% at year end. Moving on to loan balances, we generated loan growth of $13 million. We had significant commercial and industrial loan growth of over $111 million, which was partially offset by reductions in construction and commercial real estate loans of about $55 million combined. We also had declines in premium finance and leases of $24 million and $15 million respectively. We experienced some of the payoffs we had anticipated for the first quarter, however, some of those migrated to the second quarter. I will now turn the call over to Katie for a discussion of our financial performance.
Katie Bailey (Chief Financial Officer and Treasurer)
Thanks, Tyler. Our net interest income declined $629,000 compared to the linked quarter, while our net interest margin expanded 4 basis points. Most of the reduction in net interest income was driven by declines in accretion income, which totaled $1.3 million compared to $1.8 million for the fourth quarter, contributing 6 basis points and 8 basis points respectively. We had 2 fewer days in the first quarter than in the fourth quarter, which also contributed to the decline in net interest income. The improvement in our net interest margin was partially driven by a 12 basis point reduction in our core deposit costs which exclude brokered CDs. We also had a decrease in our brokered CD position which helped to increase our net interest margin. From a total balance sheet perspective, we have worked to minimize our interest rate risk exposure and are in a relatively neutral interest rate risk position. As it relates to our fee based income. We had growth of $400,000 compared to the linked quarter. We recognized $1.2 million related to our annual performance based insurance commission which we typically receive in the first quarter of each year. This income was partially offset by lower electronic banking income and deposit account service charges which are seasonally higher in the fourth quarter of each year. Our non interest expenses were up $341,000 compared to the linked quarter. As Tyler mentioned, we typically recognize additional employee related expense during the first quarter of each year which drove the increase compared to the fourth quarter. If you exclude our additional one time expenses from the first quarter, our non interest expense is actually down compared to the fourth quarter. Our reported efficiency ratio was 58.6% for the first quarter and 57.8% for the linked quarter. Increase in our ratio was driven by the one time expenses from the first quarter coupled with lower accretion income. Looking at our balance sheet at quarter end, our loan to deposit ratio improved to 88.5% compared to 88.8% at year end. As our influx of deposits outpaced our loan growth for the first quarter. Our investment portfolio as a percent of total assets declined slightly to 20.3% at March 31 compared to 20.5% at year end. Our core deposit balances which exclude brokered CDs increased $192 million compared to the linked quarter end. This improvement was due to $102 million of governmental deposit deposit growth coupled with an increase of $41 million in non interest bearing deposits. This growth was partially offset by $154 million of declines in our brokered CDs as we reduced our position opting for lower short term borrowing rates as a funding source. As a note, our governmental deposits are seasonally higher in the first quarter of each year so we anticipate seeing some of that money flow out in the second quarter. Our demand deposits as a percent of total deposits were flat at 35% for both quarter end and year end. Our non interest bearing deposits to total deposits grew to 21% at March 31 compared to 20% at year end. Moving on to our capital position, all of our regulatory capital ratios improved compared to the linked quarter end. Our tangible equity to tangible assets ratio improved 12 basis points to 8.9% at quarter end compared to 8.8% at year end. Our book value per share grew to $33.85 while our tangible book value per share improved to $22.95 or 3%. Annualized we increased our quarterly dividend rate for the 11th consecutive year to 42 cents per share. This results in an annualized dividend yield of 4.84%. Finally, I will turn the call over to Tyler for his closing comments.
Tyler Wilcox (President and Chief Executive Officer)
Thank you Katie Looking to our results for the full year of 2026 we expect the following which excludes the impact of non core expenses and the proposed merger. We expect to achieve positive operating leverage for 2026 compared to 2025. We anticipate our net interest margin will be between 4 and 4.2% for the full year of 2026 which includes one 25 basis point rate cut. Each incremental 25 basis point reduction in rates from the Federal Reserve is expected to result in a 3 to 4 basis point decline in our net interest margin for the full year, while similar increases would have a 3 to 4 basis point improvement in our net interest margin. We believe our quarterly fee based income will range between 28 and $30 million. We expect quarterly total non interest expense to be between $73 million and $75 million for the remaining quarterly periods of 2026. We believe our loan growth will come in towards the low end of our guided range of 3 to 5% due to the movement of paydowns from late 2025 to 2026. Coupled with the macro environment changes that occurred in the first quarter. We anticipate a slight reduction in our net charge offs for 2026 compared to 2025 which we expect to positively impact provision for credit losses excluding any changes in the economic forecasts. As far as our proposed merger, we find the Citizens' merger attractive for many reasons. While we have talked more frequently about large deals to cross 10 billion, we have consistently sought opportunities for depth and efficiency in our existing markets. This opportunity with Citizens' meets all of those other criteria while retaining the strategic flexibility to organically stay under 10 billion as well as pursue additional merger and acquisition opportunities. Citizens' has high quality, low cost deposits and an attractively low loan to deposit ratio. This merger will give us increased efficiency in markets where we already have a meaningful presence. Our diversified products and services will allow us to expand offerings to the Citizens' clients to engage them in a more robust overall financial experience while giving our existing clients more access to convenient locations. We look forward to welcoming the Citizens' Associates into our organization and and allowing them to continue to deliver high quality service to their clients while giving their clients the opportunity to work with our other lines of business in fulfilling their needs. This transaction is valued as approximately $77 million with shareholders of Citizens' receiving 2.1 shares of people's stock and $8 in cash for each share of Citizen Stock. The merger is priced attractively for our shareholders with an expected tangible book value earned back period of less than one year. As far as assumptions, we anticipate realizing 40% cost savings associated with this transaction which should improve our combined efficiency ratio. We expect the transaction to be accretive to our 2027 EPS by $0.20. We also anticipate that our regulatory capital ratios will improve at the close of the merger. Based on pro forma results, we have included additional details regarding the proposed merger within our accompanying slides. The Citizens' merger transaction is subject to the satisfaction of customary closing conditions, including regulatory and shareholder approvals. Last quarter we provided clarity as to our anticipated crossing of 10 billion in assets. We said that absent actions taken, we would cross that mark in 2027. This remains the case and we also continue to retain some flexibility to remain under $10 billion for a period of time using the levers we described last quarter, including flexibility in our investment portfolio beyond proposed actions taken related to the merger. Going forward, we will continue to consider all viable paths. These include a larger bank acquisition in the $2 to $5 billion asset range as our primary priority. We additionally see a path where we do more small deals given the larger number of available partners at that level and the potential for efficiencies as seen in our recently announced deal. Additionally, we believe the current regulatory environment is generally favorable to bank mergers and acquisitions, giving opportunities for multiple deals which our team is capable of pursuing and executing. Finally, we will weigh the trade offs of crossing $10 billion organically in the future and and the negative impact of the Durbin amendment. Ultimately, we acknowledge some uncertainty is inherent in our share price and has been noted by us, our analysts and our shareholders. Crossing $10 billion in any of these described manners could serve to provide strategic clarity. We continue to strive to increase shareholder value by producing stable and reliable financial results, being mindful with our strategic and organic growth while giving our clients a robust financial offering. We will always work to make decisions that are in the best interest of our shareholders, associates and clients. This concludes our commentary and we will open the call for questions Once again, this is Tyler Wilcox and joining me for the Q and A session is Katie Bailey, our chief financial officer. I will now turn the call back into the hands of our call facilitator. Thank you.
OPERATOR
Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. And our first question for today will come from Jeff Rulis with DA Davidson.
Ryan Paynon
Please go ahead. Good morning, this is Ryan Paynon for Jeff Rulis. If we could start with how the deal came to be and overall your relationship with the bank.
Tyler Wilcox (President and Chief Executive Officer)
Yeah, thanks, appreciate the question. So in 2018 we did the first Commonwealth acquisition which was headquartered very close in proximity geographically. That represented our kind of first of multiple expansions into Kentucky. And even at that time we looked around those markets, saw the attractive cost of deposits, deposits saw the kind of like minded associates and communities where we can make a difference and frankly have had an interest in this franchise ever since then. So we've been, you know, we've been watching and waiting for some number of years. They've been a good performing bank and have been committed to independence. And given the their recent decision to proceed with exploring a sale, we found that I think we were great partners for each other and it came together nicely because of that fit, because of that overlap and because of that long
Ryan Paynon
term interest that we had. Okay, great. And appreciate the NIM guide for the full year. But looking ahead with the transaction, where could we see the margin shaking out kind of post the plan security, sales and borrowing paydowns?
Katie Bailey (Chief Financial Officer and Treasurer)
Yeah, I mean I think there's obviously upward trajectory to that number. I think you know, 26, it's going to be impacted but not until the later part of the year. So I think when we look at 27 on a more full year basis, I think there's a 15 to 20 basis point opportunity to our standalone guide on the margin side.
Ryan Paynon
Got it. Last one for me, it's with the 40% cost savings. What's built into that number, Is that all more so back office and systems. And do you have estimates on timing of those cost saves?
Katie Bailey (Chief Financial Officer and Treasurer)
Yeah, I'll address the timing first. We expect about 50% of that cost savings to be effectuated within 2026 and the remainder within the beginning of of 2027. As to kind of the mix of that, it's a combination of everything. There's contracts, there's duplicate locations, there's staffing and so forth. So it's the usual mix of efficiencies gained from the two organizations combining.
Ryan Paynon
Got it. Thanks, guys.
Katie Bailey (Chief Financial Officer and Treasurer)
Thank you. Thank you.
OPERATOR
The next question will come from Tim Switzer with kbw.
Tim Switzer
Please go ahead. Hey, good morning. Thanks for taking my question. Hey, Tim. Hey, congrats on the deal. One quick one, and sorry if you guys already said this, but any, any more color you can provide on like the timing of the deal close, you know, is it, are we thinking, you know, end of Q4, beginning Q4, Q3, just trying to get a better idea for the model.
Tyler Wilcox (President and Chief Executive Officer)
Probably right near the ending of Q3, beginning of Q4 for a closing, and we expect conversion in kind of the second quarter, sometime of next year.
Tim Switzer
Got it. Okay. And does the Citizens Acquisition, like, does that preclude you at all from announcing another merger before closing, or do you think you still have the capability to do that if the right opportunity arrives?
Tyler Wilcox (President and Chief Executive Officer)
Given the right opportunity, we are ready, willing and able and, you know, obviously continue long term in many conversations. So should any of those come to fruition, we would, you know, we would be ready to announce that and execute on it. So this does not put us on the sidelines in any way, shape or form.
Tim Switzer
Okay, that's great to hear. And
Tyler Wilcox (President and Chief Executive Officer)
my guess would be no, just given the size. But does this acquisition alter your criteria on the type of bank you'd like to acquire, the size of bank, your strategy or approach to that as you cross 10 billion? You know, it doesn't, I think, you know, like I said in the prepared remarks, although we've talked probably more frequently about our number one choice being a single large acquisition, we've left open that possibility, especially kind of in the last year, given the regulatory favorability to time to close and those types of things that we've seen in other transactions out there in the world. So we see that and noticed it. And then if we find something that's very attractive in the $1 billion range, maybe a little bit more, maybe a little bit less, that has a lot of the metrics that are attractive for our shareholders like this one is, we would absolutely pursue that and then be on the train to continue that over time and continue to be open in that scenario to larger or smaller deals going forward.
Tim Switzer
Gotcha. Very helpful. Thank you, Tyler. Thank you.
OPERATOR
Thanks, Tim. The next question will come from Brendan Nossal with Hovdi.
Brendan Nossal
Please go ahead hey, good morning, folks. Hope you're doing well. Good morning. If I Look at slide 22, just the actions that you plan on taking around the 10 billion threshold, are those contemplated in the deal accretion of 5.6% or would that be further accretive just kind of given where securities roll off versus where the borrowing costs are.
Katie Bailey (Chief Financial Officer and Treasurer)
Sorry, I'm getting to your slide. So the transaction, the selling of the securities is contemplated in the metrics that we noted related to the deal. But any further action outside of selling part of their securities or their securities portfolio and part of ours is not contemplated in the deal. Sorry, say that again, Katie. What is included in the deal accretion you provide and what isn't? Yeah, included is the selling of about 300 million of their. Of our securities and their securities portfolio. So the 560. I don't think it's. Yeah, the 560 million noted on slide 22 is contemplated or is included in the deal math that we articulated.
Brendan Nossal
Okay, all right, thank you, that's helpful. Maybe turning to expenses, you know, even with the seasonally higher items that tend to hit in the first quarter, I thought expenses were really well contained. But it looks like you did increase the expected run rate for the final three quarters of the year. Is this just a timing difference for when you realize certain things, or is there maybe something else worth pointing out?
Katie Bailey (Chief Financial Officer and Treasurer)
The one thing I would point out is it's mostly impacted by operating lease expense which has corresponding revenue associated with it from our vantage leasing operations. And so it's positive to pre tax earnings. But it does increase the expense base and that's what's driving that increase in the guide. And there's revenue on the other side, like I said, but that revenue side stayed within our guide.
Brendan Nossal
Got it. Okay, I'm going to speak one more in here. Just on the loan mark for citizens, you know, 4% loan mark feels, you know, I guess somewhat heavy from the current credit environment. Was there anything particular that drove the mark to that level? Whether it's a specific portfolio or something you saw in the diligence performance. Sorry, in the diligence process that might not be super obvious to those of us on the outside.
Tyler Wilcox (President and Chief Executive Officer)
Yeah, I would agree with you that especially their reported metrics which we found to be validated, they had very, very few charge offs. I'd say one, it's a very small denominator. So one or two loans can significantly move that a little bit. As we did our, as we did our analysis, they had one or two very small emerging loan situations that we wanted to take a cautious approach to and ensure that we were fully reserved for. So there is no systematic issue. We're very satisfied with the credit. But that, you know, one or two relationships is what drove of reasonable size for them is what drove that mark.
Brendan Nossal
Okay. All right. That's helpful color chatter. Thanks for taking the questions.
Tyler Wilcox (President and Chief Executive Officer)
Yeah, thank you.
Adam Kroll
The next question will come from Adam Kroll with Piper Sandler. Please go ahead. Hi, I'm on for Nate Race. Good morning and thanks for taking questions.
Tyler Wilcox (President and Chief Executive Officer)
Morning, Adam.
Adam Kroll
Yeah, maybe a question for Katie. You had some really nice reductions in funding costs during the quarter, I guess. Are you still seeing opportunities to reduce deposit costs even with the Fed on hold?
Katie Bailey (Chief Financial Officer and Treasurer)
Yeah, we continually evaluate. I think we meet at least twice a month and more regularly offline to evaluate pricing and compare our pricing competitively as well as the balances that we're seeing in our portfolio. So we have continued to remain strategic and opportunistic as it relates to the deposit cost and most notably the retail CD product.
Adam Kroll
Got it. Maybe switching to the loan growth guide for the year. You know, just given some of the commentary in the deck on the macro environment changes, I was just wondering if you could provide some color if you're seeing that come through in the pipeline or hearing some of your borrowers pausing on projects. Or is it more just being conservative?
Tyler Wilcox (President and Chief Executive Officer)
Yeah, I'll start by saying it's generally more being conservative. And when we look at kind of the pressures on our net loan growth, it's really about the payoff activity. For context, we have, we expect a little over $400 million in payoffs for the full year. And the vast majority, about 380 million of that we expect in the first half. Just to give you an idea of kind of where we're coming from there. So our commentary about the macro environment we still continue to see really robust as shows in our results. CNI loan demand maybe a tinge down in the crew project funding and sourcing, but still experience growth there. And then finally, I would say maybe in the consumer side we're seeing a little bit more slowdown, particularly in kind of our indirect and residential as interest rates remain high and affordability. For example, in the auto industry, I think we've all seen the headlines around the average auto price hitting $50,000. And so I think rising fuel costs and some of those things are impacting the consumer demand a little bit more than the commercial demand.
Adam Kroll
Got it. Really appreciate the color, Tyler. Maybe just last one on credit on the Northstar Portfolio specifically. I was wondering if you had the charge off contribution specifically from the high balance accounts during the quarter.
Tyler Wilcox (President and Chief Executive Officer)
See, the high balance accounts as a percentage of the charge offs. They were about, in this quarter, they were about 1.15 million of the 3.8 million of the charge offs within that business. So about 30%.
Adam Kroll
Okay, got it. Thanks for taking my questions.
Tyler Wilcox (President and Chief Executive Officer)
Thank you.
Adam Kroll
Thanks, Adam.
OPERATOR
The next question will come from Daniel Tamayo with Raymond James.
Daniel Tamayo
Please go ahead.
Tyler Wilcox (President and Chief Executive Officer)
Thank you. Good morning, Tyler. Good morning, Katie. I'm going to dig a little bit more into the size of the deal I know you've had. You made comments in the prepared remarks and then answered a question on it. But you've obviously been looking for a deal for a while and then this one comes along and, and it's significantly smaller, I think, than what we were potentially looking for, which I don't think is a bad thing. Is it fair to say? I mean, you said it, but is it fair to say that the 2 to 5 billion deal that checks all the boxes is much harder to find maybe than you were anticipating and the more likely path, or at least the easier to see path over the next few years as you do a number of these smaller deals to find your way over 10 billion? I mean, just playing the odds, Danny. Well, one, I would say the old saying, the neighbor's farm only goes on sale once a generation. And so, you know, this, I hope everybody realizes this is a deal that because it became available now, you know, we felt like we had to be, you know, opportunistic and seize on it. But if you're just going back, if you're just playing the numbers, you know, there are literally hundreds of banks that, that fit within the kind of billion dollar range and there's a much smaller number. So strategically and execution wise, it is for all the reasons we've said all along, it is much more preferable to grab that three or $4 billion bank. But there's just fewer. I would say I'm still as optimistic as I have been because we continue to have conversations with banks that are in that space. Whether those materialize in two quarters or two years, I can't say right now. But I am optimistic enough to continue to talk publicly here about that being something that we see as a viable path. But just given the numbers and given the favorable regulatory environment and given our ability to execute on that, I wouldn't say it's more likely that we'll do a smaller deal, but it's maybe is as likely and we're ready, willing and able because again, those who have followed us for a while, like you have, remember the four deals in four quarters. I'm not announcing that to be very clear, but our team is capable of that and so we see it as a viable path.
Daniel Tamayo
Okay, that's great. Thanks, Tyler.
Tyler Wilcox (President and Chief Executive Officer)
Anything else in the loan book or business wise that you think you are interested in getting out of or selling from their balance sheet? No, they have a very, you know, their balance sheet and their loan portfolio is very much in line with, you know, what you look at First Commonwealth bank, you look at Premier, you look at, you know, although I would say it's maybe higher quality than some that we've looked at in the past. So there's nothing that we're going to wholesale, you know, walk away from and we'll work with those clients and we're looking forward to that. It's again, communities. We know there are many loans that we had at some point that they picked up and vice versa. So that's the good of being in markets that we are highly familiar with.
Daniel Tamayo
Okay, so the way to think about the net add from a balance sheet perspective is kind of their balance sheet that they're bringing on minus the 560 securities. I mean that's kind of the way to think about it from before any growth, obviously, and maybe some runoff, but that's a kind of fair way to start. Fair place to start.
Tyler Wilcox (President and Chief Executive Officer)
Yeah, that's fair. I think their loan portfolio is about $350 million CRE and, and one to four family and you know, it's just very, very community bank. No surprises. Some C stores, some hotels, all things we're familiar with.
Daniel Tamayo
Okay. And sorry, some cleanup items here. Katie, the 15 to 20 basis points of NIM expansion that you talked about, how much of that is accretion do you think?
Katie Bailey (Chief Financial Officer and Treasurer)
A couple basis points. It's not a significant contributor to the margin impact. I think the more significant margin benefit is coming from the reduction of low yielding securities and the pay down of higher cost overnight wholesale funding.
Daniel Tamayo
Got it. Okay. I don't want to take everybody's questions. I'm not sure if I'm the last one or not. If I'm not, let me know and I'll jump off.
OPERATOR
Otherwise there's still a few more behind you, but that's okay, go ahead, I'll
Daniel Tamayo
drop off and if it doesn't get asked, I'll get back on. Thank you.
Matthew Breese
The next question will come from Matthew Breese with Stevens Inc. Please go ahead. Hey, Good morning. Maybe just to start, what is the current Durbin related revenue risks upon crossing 10 billion?
Tyler Wilcox (President and Chief Executive Officer)
It's about 10 million pre tax before this deal.
Matthew Breese
Okay. And is there any incremental expenses or you've kind of already checked off that box?
Katie Bailey (Chief Financial Officer and Treasurer)
No, we have our expenses baked in. We are ready to cross and there won't be a negative dividend to that on expenses for us.
Matthew Breese
Okay. And Katie, I think you'd mentioned just kind of the remixing or the repricing of securities. Could you give us some sense for expected cash flows the rest of the year in the securities book and kind of the roll on, roll off dynamics within that.
Katie Bailey (Chief Financial Officer and Treasurer)
So for our portfolio on a standalone basis. For our portfolio it still remains in that 15 to 20 million dollars a month of cash flow that we receive.
Matthew Breese
Do you know what the yield is on on cash flows?
Katie Bailey (Chief Financial Officer and Treasurer)
I would guess somewhere in the range of 350.
Matthew Breese
Okay, and you're putting it back on 100 to 150 bps better sometimes it
Katie Bailey (Chief Financial Officer and Treasurer)
just depends where we are with loan growth, where we are on the funding side. But yes, if we're reinvesting it, I think your number is correct. Maybe upwards up to 5 depending where we are in the cycle of the market.
Matthew Breese
Okay. Okay, I will. Do you have the. I think you had said it's just a couple of bips from accretion from the deal. Is that. That's right. Right out of the gate. All right, that's all I had. Thanks for taking my questions.
Katie Bailey (Chief Financial Officer and Treasurer)
Thank you.
Matthew Breese
Yeah, thank you.
OPERATOR
The next question is a follow up from Adam Kroll with Piper Sandler.
Adam Kroll
Please go ahead. Hi. Yeah, just a follow up for me, maybe for Katie, I'd be curious, you know, just what are new loans coming on the portfolio at and more broadly what you're seeing from a competition perspective. And maybe just remind us what you have in terms of fixed rate loans repricing over the next year or so.
Katie Bailey (Chief Financial Officer and Treasurer)
Sure. So the rate that's coming on as you might imagine, it varies meaningfully across all the portfolios that we have on the lending side. But I would say it's somewhere between three or between seven and seven and a quarter. And then as far as fixed versus variable, it's about 50. 50 I think we're slightly, you know, might be 55% variable and 45% fixed as we sit here today. I can't remember if there was another component to your question and if so please feel free to re ask.
Adam Kroll
Just in terms of fixed rate loans, maybe repricing higher over the next 12 months or so. That could be kind of a tailwind to yields.
Katie Bailey (Chief Financial Officer and Treasurer)
Yes, I think that's correct. And the other thing I've highlighted the last few quarters is the production in our North Star leasing portfolio has been depressed or lower than we had historically seen. Given the activities on the credit that we've articulated the last few quarters, I think to the extent we start to see that production ramp back up and we in the credit box that we've articulated very clearly, there's I think meaningful opportunity to the margin. Given those are coming in somewhere between 18 and 20% from a rate perspective on new originations, we expect that ramp up to kind of as we've added, as we've talked about new management there, you know, kind of towards the end of this year, beginning of next year is when you'll see that begin to make an impact.
Adam Kroll
Got it. Really appreciate the color there.
Katie Bailey (Chief Financial Officer and Treasurer)
Thank you.
Adam Kroll
Thank you.
OPERATOR
The next question is a follow up from Brendan Nossel with Hovd.
Brendan Nossal
Please go ahead. Hey guys, just not to beat a dead horse on kind of the merger assumptions, but Katie said the security sales were contemplated in the 5.6% EPS accretion. Does that also include the impact of the borrowing reduction?
Katie Bailey (Chief Financial Officer and Treasurer)
Yes, yes, that whole balance sheet trade right there is included.
Brendan Nossal
Okay, perfect. And then one other for me just on North Star I get the work you've done on kind of the high balance stuff, but given that like two thirds of the charge offs from Northstar are coming from outside of that particular sleeve, is there anything else you, any other actions you need to contemplate to get you know, the lost content in that book where you need to. Or is the, the high balance activities sufficient in your view?
Tyler Wilcox (President and Chief Executive Officer)
No, I, there is action taking. We talk about the high balance quite a bit because it's a quantifiable portfolio that we haven't originated for well over a year now. And we want to, you know, make clear that that's not going to be a recurring issue. As to the rest of it, one, the denominator has continued to shrink and that's as Katie just acknowledged and that's by design. And so the charge off rate is a bit higher than we would like but historically we'd like to get back to that 4 to 6% charge off rate. So you know, we turn that portfolio around to growth and originate what we will be seeing. You know, that's non high balance and that is of the quality that will deliver that portfolio to 6% charge off ratio. We feel good about where the credit target is. I Think we're right over the target that we want to be at and it's just going to take a while for that, you know, that rate to normalize as the portfolio begins to grow again. But you know, some of that is, some of that is non high balance but is related to the 2022, 2023 vintages. But you know, with what we've been putting on the books and in this new credit regime over the last year, we have a high degree of confidence that we have it under control and it's a viable business that we're pretty excited about for the reasons that Katie articulated in the future.
Brendan Nossal
Okay, fantastic. Thank you for taking the follow ups.
Daniel Cardenas
The next question will come from Daniel Cardenas with Breen Capital. Please go ahead. Good morning, guys.
Tyler Wilcox (President and Chief Executive Officer)
Congrats on the deal. Just absent, absent the transaction itself, maybe if you could, and I apologize if I missed this, I've been jumping around here, but could you maybe give us some color on competitive factors on the deposit side? Are those beginning to pick up in your footprint or are they still, you know, rather manageable at the moment? Yeah, I would say it's manageable. Katie talked a little bit about our regular pricing committee where we do kind of evaluations of our extensive geography. And there's always some outlier players, often smaller banks or credit unions. But we're, you know, we're able to maintain where we want to be from a macro, you know, we don't, you know, as we shared I think last quarter, we don't chase stupid, that's a technical baking term. But we really value our margins so we don't price to the lowest common denominator. And there's not a lot of, you know, we're competing largely against rational actors in the community bank and larger regional space.
Daniel Cardenas
All my other questions have been asked and answered. Thank you. Thank you. Thanks, Stan.
OPERATOR
The next question is a follow up from Daniel Tamayo with Raymond James.
Daniel Tamayo
Please go ahead. Thanks, guys. Super quick one. The Durbin hit of 10 million, I think you said was before the deal. I imagine it's really small, but do you have a sense for what citizens would add to that? It's about a million dollars, Danny. Great. Okay, thanks. That's all I had. Thank you.
OPERATOR
This will conclude our question and answer session. I would like to turn the conference back over to Mr. Wilcox for any closing remarks.
Tyler Wilcox (President and Chief Executive Officer)
Yes, I want to thank everybody for Thank you for your time and have a great day.
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