PEOPLES BANCORP INC. ANNOUNCES 4TH QUARTER AND RECORD ANNUAL RESULTS FOR 2023

MARIETTA, Ohio, Jan. 23, 2024 /PRNewswire/ -- Peoples Bancorp Inc. ("Peoples") (NASDAQ: PEBO) today announced results for the quarter and year ended December 31, 2023. Net income totaled $33.8 million for the fourth quarter of 2023, representing earnings per diluted common share of $0.96. In comparison, Peoples reported net income of $31.9 million, representing earnings per diluted common share of $0.90, for the third quarter of 2023 and net income of $26.8 million representing earnings per diluted common share of $0.95, for the fourth quarter of 2022. For the full year, net income was $113.4 million in 2023 versus $101.3 million in 2022, representing earnings per diluted common share of $3.44 and $3.60, respectively.

The provision for (recovery of) credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management's quarterly estimates. The provision for credit losses negatively impacted earnings per diluted common share by $0.03 for the fourth quarter of 2023, $0.09 for the third quarter of 2023, and $0.06 for the fourth quarter of 2022. For the full year of 2023, the provision for credit losses negatively impacted earnings per diluted common share by $0.35, compared to a recovery of credit losses that positively impacted earnings per diluted common share by $0.10 for the full year of 2022.

 Non-core items, and the related tax effect of each, in net income primarily included acquisition-related expenses and a $2.4 million pension settlement charge recognized in the third quarter of 2023. Non-core items negatively impacted diluted earnings per common share by $0.08 for the fourth quarter of 2023, by $0.16 for the third quarter of 2023, and by $0.03 for the fourth quarter of 2022. Non-core items negatively impacted earnings per diluted common share by $0.59 and $0.11 for the full years of 2023 and 2022, respectively.

"2023 was the second consecutive year of record net income for Peoples," said Chuck Sulerzyski, President and Chief Executive Officer. "Our diversified mix of business continues to demonstrate our ability to perform at a high level, regardless of the operating or rate environments."

Pension Plan Termination:
During the third quarter of 2023, Peoples terminated its pension plan by settling the remaining benefit obligation of $7.7 million. The pension plan had been closed to new entrants since January 1, 2010. Peoples recorded a settlement charge of $2.4 million in the third quarter of 2023 in relation to the termination of the pension plan. No expense was recorded by Peoples in the fourth quarter of 2023, and Peoples does not anticipate further expenses related to the pension plan termination.

Completion of the Limestone Merger:
As of close of business on April 30, 2023, Peoples completed its previously announced merger with Limestone Bancorp, Inc. ("Limestone"), a bank holding company headquartered in Louisville, Kentucky, and the parent company of Limestone Bank, pursuant to a definitive Agreement and Plan of Merger (the "Merger Agreement") dated October 24, 2022. Under the terms of the Merger Agreement, Limestone merged with and into Peoples, and immediately thereafter Limestone Bank merged with and into Peoples' wholly-owned subsidiary, Peoples Bank (collectively, the "Limestone Merger"), in a transaction valued at $177.9 million. Peoples recorded acquisition-related expenses primarily related to the Limestone Merger, which included $1.3 million and $17.0 million in other non-interest expense for the fourth quarter and the full year of 2023, respectively. For the fourth quarter of 2023, the $1.3 million of acquisition-related non-interest expense consisted of $0.6 million in data processing and software expense, $0.5 million in professional fees, and $0.2 million in various other non-interest expense line items. For the full year of 2023, the $17.0 million of acquisition-related non-interest expense primarily consisted of $6.1 million in professional fees, $5.8 million in salaries and employee benefit costs, $2.9 million in other non-interest expense, $1.9 million in data processing and software expense, and $0.3 million in various other non-interest expense line items. The other non-interest expenses included $1.8 million of early contract termination fees on Limestone contracts driven by the system conversions, which took place in the third quarter of 2023.

Investment Portfolio Restructuring:
During the first quarter of 2023, Peoples executed sales of $96.7 million of lower yielding available-for-sale investment securities for an after-tax loss of $1.6 million. Proceeds from sales were used to pay down overnight borrowings. During the fourth quarter of 2023, Peoples executed the sales of an additional $36.5 million of lower yielding available-for-sale investment securities for an after-tax loss of $1.3 million. Proceeds from the sales were used to purchase higher yielding agency investment securities.

The loss on the sales of these available-for-sale investment securities had a nominal impact on tangible book value as such loss was previously reflected in capital through accumulated other comprehensive loss. The realized losses recognized due to the first quarter transactions were earned back within the 2023 fiscal year, and the realized losses recognized due to the fourth quarter transactions are expected to be earned back within 14 months.

Statement of Operations Highlights:

• Net interest income for the fourth quarter of 2023 decreased $4.9 million, or 5%, compared to the linked quarter and increased $17.8 million, or 25%, compared to the fourth quarter of 2022.
  • Net interest margin decreased 27 basis points to 4.44% for the fourth quarter of 2023, compared to the linked quarter, and was flat compared to the fourth quarter of 2022. The decrease in net interest margin when compared to the linked quarter was primarily driven by increases in interest expenses on interest-bearing deposits. The linked quarter was also impacted by a true-up of $1.9 million to the preliminary Limestone-related accretion, which added to net interest income.
  • The decrease in net interest income for the fourth quarter of 2023 when compared to the linked quarter was due to the increase in interest expenses and accretion true-up in the linked quarter mentioned above.
• Peoples recorded a provision for credit losses of $1.3 million for the fourth quarter of 2023, compared to a provision for credit losses of $4.1 million for the third quarter of 2023, and $2.3 million for the fourth quarter of 2022.
  • The decrease in the provision for credit losses for the fourth quarter of 2023 compared to the linked quarter was due primarily to an improvement of macro-economic conditions used within the current expected credit loss ("CECL") model and the release of reserves on individually analyzed loans, partially offset by an increase in charge-off activity.
  • Net charge-offs were $3.5 million, or 0.23% of average total loans, annualized, for the fourth quarter of 2023, compared to $2.3 million, or 0.15% of average total loans, annualized, for the linked quarter and $2.1 million, or 0.18% of average total loans, annualized, for the fourth quarter of 2022.
  • For the full year of 2023, net charge-offs were $8.5 million, or 0.15% of average total loans, up from $7.3 million, or 0.16% of average total loans, for 2022.
• Total non-interest income, excluding net gains and losses, increased $2.8 million, or 12%, for the fourth quarter of 2023 compared to the linked quarter, and increased $6.8 million, or 35%, compared to the fourth quarter of 2022.
  • The increase in total non-interest income, excluding gains and losses, for the fourth quarter of 2023, compared to the third quarter of 2023 was largely driven by an increase in lease income, primarily from an increase in net gains on lease terminations, partially offset by a decrease in other non-interest income.
  • Total non-interest income, excluding net gains and losses, for the full year of 2023 was 22% of total revenue (defined as net interest income plus total non-interest income excluding net gains and losses).
• Total non-interest expense for the fourth quarter of 2023 decreased $4.0 million, or 6%, compared to the linked quarter and increased $14.3 million, or 27%, compared to the fourth quarter of 2022.
  • The decrease in total non-interest expense for the fourth quarter of 2023 when compared to the linked quarter was primarily attributable to decreases in acquisition-related expenses as well as expenses recognized in the linked quarter in relation to the pension plan termination.
  • The efficiency ratio was 56.0% for the fourth quarter of 2023. When adjusted for non-core expenses, the efficiency ratio was 54.8% for the fourth quarter of 2023.

Balance Sheet Highlights:

• Period-end total loan and lease balances at December 31, 2023 increased $74.8 million, or 5% annualized, compared to at September 30, 2023.
  • The increases in period-end and average total loan and lease balances were primarily the result of growth in (i) commercial and industrial loans, (ii) premium finance loans, and (iii) leases, partially offset by reductions in construction loans and direct and indirect consumer loans.
• Asset quality metrics remained stable during the fourth quarter of 2023.
  • Delinquency trends remained relatively stable as loans considered current comprised 98.6% of the loan portfolio at December 31, 2023, compared to 99.0% at September 30, 2023.
  • Nonperforming assets at December 31, 2023 decreased $3.4 million when compared to at September 30, 2023, primarily driven by a decrease in loans 90 days or more past due and accruing.
  • Criticized loans increased $22.1 million during the fourth quarter of 2023. The increase was primarily driven by downgrades of commercial real estate relationships.
  • Classified loans decreased $4.8 million during the fourth quarter of 2023, driven by loan pay-offs.
• Period-end total deposit balances at December 31, 2023 increased $114.8 million, or 2%, compared to at September 30, 2023.
  • The increase was primarily driven by increases in retail certificate of deposit accounts and money market deposit accounts partially offset by reductions in (i) savings accounts, (ii) interest-bearing demand deposit accounts, (iii) governmental deposit accounts, and (iv) brokered certificates of deposit accounts
  • Total demand deposit balances were 38%, 39% and 48% of total deposits at December 31, 2023, at September 30, 2023 and at December 31, 2022, respectively.
  • The percentages of retail deposit balances and commercial deposit balances of the total deposit balance at December 31, 2023 were 80% and 20%, respectively, compared to 79% and 21%, respectively, at September 30, 2023.
  • Total loan balances were 86% of total deposit balances at December 31, 2023 and at September 30, 2023.
  • Deposit balances that exceeded the Federal Deposit Insurance Corporation ("FDIC") insurance limit of $250,000 were 31% of total deposits at both December 31, 2023 and September 30, 2023. Peoples pledges investment securities against certain governmental deposit accounts, which collateralized $788.7 million, or 40%, of the uninsured deposit balances at December 31, 2023.

Net Interest Income
Net interest income was $88.4 million for the fourth quarter of 2023, a decrease of $4.9 million, or 5%, compared to the linked quarter. Net interest margin was 4.44% for the fourth quarter of 2023, compared to 4.71% for the linked quarter. The decreases in net interest income and net interest margin were primarily driven by an increase in interest expenses on deposits partially offset by improved loan and investment yields when compared to the linked quarter. The linked quarter was also impacted by a true-up of $1.9 million to the preliminary Limestone-related accretion, which added to net interest income.

Net interest income for the fourth quarter of 2023 increased $17.8 million, or 25%, compared to the fourth quarter of 2022. The increase in net interest income compared to the fourth quarter of 2022 was driven by increases in market interest rates, the Limestone Merger, and organic growth. Net interest margin was flat when compared to the fourth quarter of 2022, as the increase in total interest income was offset primarily by an increase in interest expenses on deposits.

Accretion income, net of amortization expense, from acquisitions was $9.3 million for the fourth quarter of 2023, $9.5 million for the third quarter of 2023 and $2.2 million for the fourth quarter of 2022, which added 47 basis points, 52 basis points and 14 basis points, respectively, to net interest margin. The decrease in accretion income for the fourth quarter of 2023 when compared to the linked quarter was driven by a third quarter 2023 true-up to the preliminary Limestone-related accretion. The increase in accretion income for the current quarter compared to the fourth quarter of 2022 was a result of the accretion from the Limestone Merger.

Net interest income increased $85.9 million, or 34%, for 2023 compared to 2022, and net interest margin increased 59 basis points to 4.56%. The increase in net interest income for 2023 was driven by increases in market interest rates, the additional net interest income from the Limestone Merger, and improvement in investment yields. Partially offsetting these benefits was an increase in interest expense resulting from a shift in the composition of funding sources combined with an increase in market interest rates for deposits and other funding sources.

Accretion income, net of amortization expense, from acquisitions was $25.2 million for 2023 and $11.6 million for 2022, which added 34 basis points and 19 basis points to net interest margin for the full years of 2023 and 2022, respectively. The increase in accretion income for the full year of 2023 compared to the same 2022 period was due to higher accretion recognized in 2023, primarily from the Limestone Merger, than was recognized in 2022 from prior acquisitions.

Provision for (Recovery of) Credit Losses:
The provision for credit losses was $1.3 million for the fourth quarter of 2023, compared to $4.1 million for the linked quarter and $2.3 million for the fourth quarter of 2022. The decrease in the provision for credit losses for the fourth quarter of 2023 compared to the linked quarter was due primarily to an improvement of macro-economic conditions used within the CECL model, and the release of reserves on individually analyzed loans, partially offset by an increase in charge-off activity. The provision for credit losses for the fourth quarter of 2022 was largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a release of reserves on individually analyzed loans.

For the full year of 2023, the provision for credit losses was $15.2 million, compared to a recovery of credit losses of $3.5 million for 2022. The provision for credit losses during 2023 was driven by (i) the addition of the provision for the non-purchased credit deteriorated loans acquired in the Limestone Merger, (ii) loan growth and (iii) an increase in charge-offs, partially offset by a release of reserves on individually analyzed loans and the use of updated loss drivers. The recovery of credit losses during 2022 was primarily due to the impact of economic forecast improvement in the CECL model, coupled with loan pay-offs during certain periods.

Net charge-offs for the fourth quarter of 2023 were $3.5 million, or 0.23% annualized, of average total loans, compared to $2.3 million, or 0.15% annualized, of average total loans, for the linked quarter and $2.1 million, or 0.18% annualized, of average total loans, for the fourth quarter of 2022. Net charge-offs for the full year of 2023 were $8.5 million, or 0.15%, of average total loans, compared to $7.3 million, or 0.16% of average total loans, for the full year of 2022. For additional information on credit trends and the allowance for credit losses, see the "Asset Quality" section below.

Net Gains and Losses:
Net gains and losses include gains and losses on investment securities, asset disposals and other transactions, which are included in total non-interest income on the Consolidated Statements of Income. Net loss for the fourth quarter of 2023 was $2.2 million, compared to net loss of $0.3 million for the linked quarter, and net loss of $0.5 million in the fourth quarter of 2022. The net loss for the fourth quarter of 2023 was primarily due to the $1.7 million pre-tax net loss ($1.3 million after-tax) on the sales of available-for-sale investment securities mentioned above during the fourth quarter of 2023. The net loss for the linked quarter was due to $0.3 million of net losses on repossessed assets. The fourth quarter of 2022 net loss was due to $0.3 million of net losses on repossessed assets and $0.2 million of net losses on sales of investment securities.

 For the full year of 2023, net loss was $6.5 million compared to net loss of $0.7 million in 2022. The increase in net loss for the full year of 2023 when compared to the same period of 2022 was primarily driven by the $3.6 million pre-tax ($2.9 million after-tax) net loss on the sales of available-for-sale investment securities during the first and fourth quarters of 2023, as mentioned above, and a $1.6 million write-down of an other real estate owned ("OREO") property during the second quarter of 2023. The net loss during 2022 was driven by $0.3 million of net losses on repossessed assets, $0.2 million of net losses on other transactions, and $0.1 million of net losses on OREO.

Total Non-interest Income, Excluding Net Gains and Losses:
Total non-interest income, excluding net gains and losses, for the fourth quarter of 2023 increased $2.8 million compared to the linked quarter. The increase in non-interest income, excluding net gains and losses, was primarily impacted by increases of $2.9 million and $0.4 million in lease income and electronic banking income, respectively. The increase in lease income was due to a large lease buyout in the fourth quarter of 2023, while the increase in electronic banking income was due to an increase in customer activity. Partially offsetting the increases was a $0.5 million decrease in other non-interest income.

Compared to the fourth quarter of 2022, total non-interest income, excluding net gains and losses, increased $6.8 million for the fourth quarter of 2023, primarily due to (i) a $1.7 million increase in electronic banking income, (ii) a $1.5 million increase in lease income, (iii) a $0.7 million increase in deposit account service charges, (iv) a $0.6 million increase in insurance income, and (v) a $0.5 million increase in bank owned life insurance income. Insurance income increased due to new business and market increases for premiums. The other increases for the fourth quarter of 2023, when compared to the fourth quarter of 2022, were primarily due to the additional customers brought in from the Limestone Merger.

For the full year of 2023, total non-interest income, excluding net gains and losses, increased $14.4 million compared to 2022. The increase was driven by (i) a $4.1 million increase in electronic banking income, (ii) a $2.3 million increase in insurance income primarily due to growth in the property and casualty insurance line, (iii) a $2.1 million increase in deposit account service charges, (iv) a $1.5 million increase in bank owned life insurance income, and (v) a $2.7 million increase in other non-interest income. Insurance income increased due to new business and market increases for premiums. The increase in other non-interest income was due to an increase in operating lease income, which was partially offset by operating lease expense recognized in other non-interest expense. The other increases for the full year of 2023, when compared to the full year of 2022, were primarily due to the additional customers brought in from the Limestone Merger.

Total Non-interest Expense:
Total non-interest expenses for the fourth quarter and for the year ended December 31, 2023, were impacted by the Limestone Merger and acquisition-related non-interest expenses, which added $1.3 million and $17.0 million, respectively, across various line-items within non-interest expense. During the fourth quarter of 2023, the acquisition-related expenses recognized were primarily attributable to professional fees attributable to the Limestone Merger and system conversion costs. For the third quarter of 2023, the acquisition-related expenses recognized were primarily driven by early contract termination fees, system conversion costs, salaries and employee benefit costs, and professional fees related to the Limestone Merger.

The table below summarizes the amount of acquisition-related expenses for each line item that is a component of non-interest expense. Acquisition-related expenses are considered a non-core non-interest expense by Peoples. This information is used by Peoples to provide information useful to investors in understanding Peoples' operating performance and trends.

Total non-interest expense decreased $4.0 million, or 6%, for the fourth quarter of 2023, compared to the linked quarter. Excluding acquisition-related expense, total non-interest expense decreased $0.8 million, or 1%, primarily due to decreases of $2.5 million in other non-interest expense and $0.3 million in professional fees. The decrease in other non-interest expense was due to expenses recognized in the linked quarter in relation to the pension plan termination as well a $0.3 million decrease in operating lease depreciation expenses. Partially offsetting the decreases in total non-interest expense, excluding acquisition expenses, were increases of $1.2 million in salaries and employee benefit costs and $0.5 million in data processing and software expense. The increase in salaries and employee benefit costs was due to incentive compensation recognized during the fourth quarter of 2023, and the increase in data processing and software expense was primarily due to growth.

Compared to the fourth quarter of 2022, total non-interest expense increased $14.3 million, or 27%. Excluding acquisition-related expenses, non-interest expenses increased $13.7 million, or 26%, due to increases in all non-interest expense line items except for other loan expenses, which decreased $0.2 million. The increases were impacted by total non-interest expenses attributable to the Limestone Merger, excluding acquisition-related expense. A majority of the remaining variance, excluding acquisition-related expense, was due to the increased expenses associated with the increased size of the company following the Limestone Merger. The increase in other non-interest expenses was primarily due to the previously discussed pension plan settlement charges and a $0.6 million increase in operating lease depreciation expenses.

For the full year of 2023, total non-interest expense increased $59.3 million, or 29%, compared to 2022. Excluding acquisition-related expenses, non-interest expenses increased $45.4 million, or 22%, due to increases in all non-interest expense line items except for electronic banking expense, which decreased $2.3 million when compared to 2022. The increases were primarily driven by non-interest expenses, excluding acquisition-related expenses, attributable to the Limestone Merger, as well as organic growth. The increase in other non-interest expense was also driven by the previously discussed pension plan settlement charges and a $1.7 million increase in operating lease depreciation expenses. Electronic banking expense decreased when compared to 2022 due to reduced costs for Peoples' online banking platform and a reclassification of those costs relative to the prior period to data processing and software expense.

The efficiency ratio for the fourth quarter of 2023 was 56.0%, compared to 58.4% for the linked quarter and 56.7% for the fourth quarter of 2022. The efficiency ratio improved compared to the linked quarter mainly as the result of a decrease in total non-interest expenses and an increase in non-interest income, partially offset by a decrease in net interest income, primarily due to higher interest expenses in the fourth quarter of 2023. The improvement in the efficiency ratio compared to the prior year quarter was primarily due to higher net interest income due to increases in market interest rates and the additional customers from the Limestone Merger, which was mostly offset by the increase in non-interest expense. The efficiency ratio, adjusted for non-core items, was 54.9% for the fourth quarter of 2023, compared to 52.5% for the linked quarter, and 55.9% for the fourth quarter of 2022. For the full year of 2023, the efficiency ratio was 58.7%, compared to 59.6% for 2022. Adjusted for non-core items, the efficiency ratio for the full year of 2023 was 54.4%, compared to 58.6% for 2022. Peoples continues to focus on controlling expenses, while recognizing necessary costs in order to continue growing the business. 

Income Tax Expense:
Peoples recorded income tax expense of $9.7 million with an effective tax rate of 22.3% for the fourth quarter of 2023, compared to income tax expense of $8.8 million with an effective tax rate of 21.7% for the linked quarter and income tax expense of $7.1 million with an effective tax rate of 21.0% for the fourth quarter of 2022. The increase in income tax expense when compared to the fourth quarter of 2022 was primarily due to higher pre-tax income.

Peoples recognized income tax expense of $31.8 million with an effective tax rate of 21.9% for the full year of 2023, compared to $27.3 million with an effective tax rate 21.3% for the full year of 2022. The increase was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

Investment Securities and Liquidity:
Peoples' investment portfolio primarily consists of available-for-sale investment securities reported at fair value and held-to-maturity investment securities reported at amortized cost. The available-for-sale investment securities balance at December 31, 2023, increased $29.7 million when compared to at September 30, 2023, and decreased $83.1 million when compared to at December 31, 2022. The increase in the balance when compared to at September 30, 2023, was due to an increase in market value of available-for-sale investment securities after a decline in market interest rates for those securities during the fourth quarter of 2023. The decrease in the balance when compared to at December 31, 2022, was due to a reduction in market value of available-for-sale investment securities driven by increases in market interest rates when compared to at December 31, 2022, and the sales of the lower-yielding available-for-sale securities during the first and fourth quarters of 2023 as mentioned above. The balances of unrealized losses, net of tax, on available-for-sale investment securities recognized within accumulated other comprehensive loss were $104.2 million, $148.1 million, and $129.9 million at December 31, 2023, at September 30, 2023, and at December 31, 2022, respectively.

The held-to-maturity investment securities balance at December 31, 2023, increased $8.2 million and $123.4 million when compared to at September 30, 2023, and at December 31, 2022, respectively. The increases when compared to prior periods were driven by purchases of agency mortgage-backed securities, agency collateralized mortgage obligations, and agency debentures. Most of the securities purchased during 2023 were classified as held-to-maturity, which has contributed to the reduction of available-for-sale investment securities as a percentage of the bond portfolio. Management purchased these securities to increase portfolio yield and reduce Peoples' sensitivity to falling intermediate and long-term interest rates. The balances of net unrealized losses on held-to-maturity investment securities were $71.6 million, $105.5 million, and $81.7 million at December 31, 2023, at September 30, 2023, and at December 31, 2022, respectively.

The duration of the investment portfolio as of December 31, 2023, was estimated to be 5.53 years. The duration of Peoples' investments is managed as part of its Asset Liability Management program, and has the potential to impact both liquidity and capital, as mismatches in duration may require a liquidation of investment securities at market prices to meet funding needs. These assets are one component of Peoples' liquidity profile, which is discussed in further detail below.

Peoples maintains a number of liquid and liquefiable assets, borrowing capacity, and other contingent sources of liquidity to ensure the availability of funds. At December 31, 2023, Peoples had liquid and liquefiable assets totaling $616.6 million, which included (i) cash and cash equivalents, (ii) unpledged government and agency investment securities and (iii) unpledged non-agency investment securities that could be liquidated. At December 31, 2023, Peoples had a borrowing capacity of $665.9 million available through the Federal Home Loan Bank ("FHLB"), the Federal Reserve Bank ("FRB"), and federal funds. Additionally at December 31, 2023, Peoples had other contingent sources of liquidity totaling $2.1 billion.

Loans and Leases:
The period-end total loan and lease balances at December 31, 2023, increased $74.8 million, or 5% annualized, compared to at September 30, 2023. The increase in the period-end total loan and lease balances was primarily driven by increases of (i) $54.6 million in commercial and industrial loans, (ii) $13.9 million in premium finance loans, (iii) $11.4 million in leases, and (iv) $7.0 million in other commercial real estate loans, partially offset by reductions of $10.0 million in construction loans and $4.2 million in direct consumer loans.

The period-end total loan and lease balances at December 31, 2023, increased $1.5 billion, compared to at December 31, 2022, primarily due to the Limestone Merger. Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance increased $472.2 million, or 10%, driven by increases of $203.6 million, $76.6 million, $68.9 million, $44.0 million, $37.9 million, and $37.0 million in other commercial real estate loans, commercial and industrial loans, leases, premium finance loans, construction loans, and indirect consumer loans, respectively.

Quarterly average total loan balances increased $78.6 million compared to the linked quarter. The increase in average total loan balances when compared to the linked quarter was primarily the result of growth of (i) $48.9 million in other commercial real estate loans (ii) $16.4 million in commercial and industrial loans, (iii) $15.7 million in leases, (iv) $10.5 million in premium finance loans, and (v) $9.6 million in indirect consumer loans, partially offset by reductions of $13.2 million in commercial real estate construction loans and $11.8 million in residential real estate loans.

Compared to the fourth quarter of 2022, quarterly average loan balances in the current quarter increased $1.4 billion, or 31%. The increase was driven by loans acquired in the Limestone Merger, and to lesser extents, growth in other commercial real estate loans, commercial and industrial loans, leases, premium finance loans, construction loans, and indirect consumer loans.

Asset Quality:
Overall, asset quality remained stable through the fourth quarter of 2023. Total nonperforming assets at December 31, 2023, decreased $3.4 million, or 8%, compared to at September 30, 2023, and decreased $6.1 million, or 14%, compared to at December 31, 2022. The decrease in nonperforming assets compared to the linked quarter was primarily due to a decrease in the balance of loans and leases 90 days or more past due. The decrease in nonperforming assets compared to at December 31, 2022, was also impacted by reductions in nonaccrual commercial real estate loans and OREO. Nonperforming assets as a percent of total loans and OREO was 0.63% at December 31, 2023, down from 0.70% at September 30, 2023, and 0.96% at December 31, 2022.

 Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $22.1 million, or 10%, compared to at September 30, 2023, and increased $43.9 million, or 23%, compared to at December 31, 2022. As a percent of total loans, criticized loans were 3.82% at December 31, 2023, compared to 3.50% at September 30, 2023, and 4.07% at December 31, 2022. The increase in the amount of criticized loans compared to at September 30, 2023 was primarily driven by downgrades of commercial real estate loans. Compared to December 31, 2022, the increase in the amount of criticized loans was primarily driven by the acquisition of criticized loans in the Limestone Merger. However, criticized loans as a percent of total loans decreased, as criticized loans made up a smaller relative portion of the total loans acquired in the Limestone Merger.

Classified loans, which are those categorized as substandard or doubtful, decreased $4.8 million, or 4%, compared to at September 30, 2023, and increased $30.4 million, or 34%, compared to at December 31, 2022. As a percent of total loans, classified loans were 1.95% at December 31, 2023, compared to 2.05% at September 30, 2023, and 1.90% at December 31, 2022. The decrease in classified loans compared to at September 30, 2023, was driven by classified loan pay-offs. The increase in classified loans when compared to at December 31, 2022, was primarily driven by the acquisition of classified loans in the Limestone Merger.

Annualized net charge-offs were 0.23% of average total loans for the fourth quarter of 2023, compared to 0.15% for the linked quarter, and 0.18% for the fourth quarter of 2022. The increase relative to the linked quarter was driven by an increase in charge-offs on (i) leases, (ii) commercial and industrial loans, and (iii) indirect consumer loans, partially offset by increases in recoveries on other commercial real estate and residential real estate loans, during the fourth quarter of 2023. The increase in net charge-offs during the fourth quarter of 2023 versus the prior year fourth quarter was primarily attributable to an increase in charge-offs on (i) leases, (ii) commercial industrial loans, and (iii) indirect consumer loans, partially offset by increases in recoveries on other commercial real estate and residential real estate loans, during the fourth quarter of 2023. Net charge-offs were 0.15% of average total loans for 2023, compared to 0.16% for 2022.

At December 31, 2023, the allowance for credit losses decreased $0.9 million when compared to at September 30, 2023, and increased $8.8 million when compared to at December 31, 2022. The ratio of the allowance for credit losses as a percent of total loans decreased to 1.01% at December 31, 2023, compared to 1.03% at September 30, 2023, and 1.13% at December 31, 2022.

Deposits:
As of December 31, 2023, period-end total deposits increased $114.8 million, or 2%, compared to at September 30, 2023. The increase was primarily driven by increases of $244.7 million in retail certificate of deposit accounts and $44.6 million in money market deposit accounts partially offset by reductions of (i) $67.9 million in savings accounts, (ii) $36.7 million in interest-bearing demand deposit accounts, (iii) $34.9 million in governmental deposit accounts, and (iv) $33.5 million in brokered certificates of deposit accounts. The decrease in governmental deposit accounts is a typical seasonal trend that occurs during the fourth quarter of each year.

Compared to December 31, 2022, period-end deposit balances increased $1.4 billion, or 25%. The increase was primarily driven by deposits acquired in the Limestone Merger. Excluding Limestone deposit balances, total deposits at December 31, 2023 increased $483.2 million, or 8%, compared to at December 31, 2022, primarily due to increases of $669.3 million in retail certificates of deposit and $449.8 million in brokered certificates of deposit, partially offset by decreases of $228.9 million, $224.7 million, and $192.9 million in non-interest bearing deposits, savings accounts, and interest-bearing demand deposit accounts, respectively.

The percentages of retail deposit balances and commercial deposit balances of the total deposit balance at December 31, 2023 were 80% and 20%, respectively, compared to 79% and 21%, respectively, at September 30, 2023, and 74% and 26%, respectively, at December 31, 2022.

Uninsured deposits were 31%, 31%, and 33% of total deposits at December 31, 2023, at September 30, 2023, and at December 31, 2022, respectively. Uninsured amounts are estimated based on the portion of customer account balances that exceeded the FDIC limit of $250,000. Peoples pledges investment securities against certain governmental deposit accounts, which collateralized $788.7 million, or 40%, $812.7 million, or 42%, and $651.2 million, or 36% of the uninsured deposit balances at December 31, 2023, at September 30, 2023, and at December 31, 2022, respectively.

Average deposit balances during the fourth quarter of 2023 increased $33.6 million when compared to the linked quarter, and increased $1.3 billion, or 22%, when compared to the fourth quarter of 2022. For the full year of 2023, average deposit balances grew $740.6 million, or 13%, driven by deposits acquired in the Limestone Merger. Total demand deposit accounts comprised 38%, 39% and 48% of total deposits at December 31, 2023, at September 30, 2023 and at December 31, 2022, respectively.

Stockholders' Equity:
Total stockholders' equity at December 31, 2023, increased $60.3 million, or 6%, compared to at September 30, 2023. This change was primarily driven by a $42.2 million decrease in accumulated other comprehensive loss and net income of $33.8 million during the quarter, partially offset by dividends paid of $14.1 million. The change in accumulated other comprehensive loss was the result of the changes in the market value of available-for-sale investment securities during the period.

Total stockholders' equity at December 31, 2023, increased $268.2 million, or 34%, compared to at December 31, 2022, which was due to (i) the issuance of 6.8 million common shares (valued at $177.9 million) in the Limestone Merger, (ii) net income of $113.4 million for the full year of 2023, and (iii) a decrease in other comprehensive loss of $25.5 million, partially offset by dividends paid of $52.1 million and share repurchases of $3.0 million.

At December 31, 2023, the tier 1 risk-based capital ratio was 12.65%, compared to 12.31% at September 30, 2023, and 12.19% at December 31, 2022. The common equity tier 1 risk-based capital ratio was 11.82% at December 31, 2023, compared to 11.57% at September 30, 2023, and 11.92% at December 31, 2022. The total risk-based capital ratio was 13.46% at December 31, 2023, compared to 13.14% at September 30, 2023, and 13.06% at December 31, 2022. Peoples adopted the five-year transition to phase in the impact of the adoption of CECL on regulatory capital ratios. Compared to at September 30, 2023, these ratios improved due to higher net income. When compared to at December 31, 2022, the tier 1 risk-based capital and the total risk-based capital ratios improved due to higher net income, partially offset by the impact of the Limestone Merger and dividends paid. The common equity tier 1 risk-based capital ratio at December 31, 2023 decreased compared to at December 31, 2022 due to the common shares issued in the Limestone Merger.

At December 31, 2023, book value per common share and tangible book value per common share, which excludes goodwill and other intangible assets, were $29.83 and $18.16, respectively, compared to $28.06 and $16.52, respectively, at September 30, 2023, and $27.76 and $16.23, respectively, at December 31, 2022. The ratio of total stockholders' equity to total assets increased 40 basis points when compared to September 30, 2023. The tangible equity to tangible assets ratio, which excludes goodwill and other intangible assets, increased 48 basis points when compared to at September 30, 2023, due primarily to the changes in equity noted above. Compared to at December 31, 2022, the total stockholders' equity to total assets ratio increased from 10.90% to 11.50%, and the tangible equity to tangible assets ratio increased from 6.67% to 7.33%.

Peoples Bancorp Inc. ("Peoples", Nasdaq: PEBO) is a diversified financial services holding company and makes available a complete line of banking, trust and investment, insurance and premium financing solutions through its subsidiaries. Headquartered in Marietta, Ohio since 1902, Peoples has established a heritage of financial stability, growth and community impact. Peoples had $9.2 billion in total assets as of December 31, 2023, and 150 locations, including 133 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C., and Maryland. Peoples' vision is to be the Best Community Bank in America.

Peoples is a member of the Russell 3000 index of United States ("U.S.") publicly-traded companies. Peoples offers services through Peoples Bank (which includes the divisions of Peoples Investment Services, Peoples Premium Finance and North Star Leasing), Peoples Insurance Agency, LLC, and Vantage Financial, LLC.

Conference Call to Discuss Earnings:
Peoples will conduct a facilitated conference call to discuss fourth quarter and full year 2023 results of operations on January 23, 2024, at 11:00 a.m., Eastern Time, with members of Peoples' executive management participating. Analysts, media and individual investors are invited to participate in the conference call by calling (866) 890-9285. A simultaneous webcast of the conference call audio will be available online via the "Investor Relations" section of Peoples' website, www.peoplesbancorp.com. Participants are encouraged to call or sign in at least 15 minutes prior to the scheduled conference call time to ensure participation and, if required, to download and install the necessary software. A replay of the call will be available on Peoples' website in the "Investor Relations" section for one year.

Use of Non-US GAAP Financial Measures:
This news release contains financial information and performance measures determined by methods other than those in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). Management uses these "non-US GAAP" financial measures in its analysis of Peoples' performance and the efficiency of its operations. Management believes that these non-US GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and peers. These disclosures should not be viewed as substitutes for financial measures determined in accordance with US GAAP, nor are they necessarily comparable to non-US GAAP performance measures that may be presented by other companies. Below is a listing of the non-US GAAP financial measures used in this news release:

• Core non-interest expense is a non-US GAAP financial measure since it excludes the impact of acquisition-related expenses, pension settlement charges, COVID-19-related expenses and COVID-19 Employee Retention Credits received.
• The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income, excluding net gains and losses. This ratio is a non-US GAAP financial measure since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.
• The efficiency ratio adjusted for non-core items is calculated as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income, excluding net gains and losses. This ratio is a non-US GAAP financial measure since it excludes the impact of acquisition-related expenses, pension settlement charges, COVID-19-related expenses, COVID-19 Employee Retention Credits received and the amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.
• Tangible assets, tangible equity, the tangible equity to tangible assets ratio and tangible book value per common share are non-US GAAP financial measures since they exclude the impact of goodwill and other intangible assets acquired through acquisitions on both total stockholders' equity and total assets.
• Total non-interest income, excluding net gains and losses, is a non-US GAAP financial measure since it excludes all gains and losses included in earnings.
• Pre-provision net revenue is defined as net interest income plus total non-interest income, excluding net gains and losses, minus total non-interest expense. This measure is a non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in net income.
• Return on average assets adjusted for non-core items is calculated as annualized net income (less the after-tax impact of all gains and losses, acquisition-related expenses, pension settlement charges, COVID-19-related expenses, and COVID-19 Employee Retention Credits received) divided by average assets. This measure is a non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, pension settlement charges, COVID-19-related expenses and COVID-19 Employee Retention Credits received.
• Return on average tangible equity is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is a non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from net income and the impact of average goodwill and other average intangible assets acquired through acquisitions on average stockholders' equity.

A reconciliation of these non-US GAAP financial measures to the most directly comparable US GAAP financial measures is included at the end of this news release under the caption of "Non-US GAAP Financial Measures (Unaudited)."

Safe Harbor Statement:

Certain statements made in this news release regarding Peoples' financial condition, results of operations, plans, objectives, future performance and business, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:

As required by U.S. GAAP, Peoples is required to evaluate the impact of subsequent events through the issuance date of its December 31, 2023 consolidated financial statements as part of its Annual Report on Form 10-K to be filed with the SEC. Accordingly, subsequent events could occur that may cause Peoples to update its critical accounting estimates and to revise its financial information from that which is contained in this news release.

SOURCE Peoples Bancorp Inc.