PEOPLES BANCORP INC. ANNOUNCES SECOND QUARTER 2023 RESULTS Français

MARIETTA, Ohio, July 25, 2023 /PRNewswire/ -- Peoples Bancorp Inc. ("Peoples") (Nasdaq: PEBO) today announced results for the three and six months ended June 30, 2023. Peoples reported net income of $21.1 million for the second quarter of 2023, representing earnings per diluted common share of $0.64. In comparison, Peoples reported net income of $26.6 million, representing earnings per diluted common share of $0.94, for the first quarter of 2023, and net income of $24.9 million, representing earnings per diluted common share of $0.88, for the second quarter of 2022. For the six months ended June 30, 2023, Peoples recorded net income of $47.7 million, or $1.56 per diluted common share, compared to $48.5 million, or $1.72 per diluted common share, for the six months ended June 30, 2022.

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 $0.19 for the second quarter of 2023, compared to $0.05 for the first quarter of 2023, while the release of provision positively impacted earnings per diluted common share by $0.02 for the second quarter of 2022. For the first six months of 2023, the provision negatively impacted earnings per diluted common share by $0.25, compared to the release of provision positively impacting earnings per diluted common share by $0.21 for the first six months of 2022.

Non-core items, and the related tax effect of each, in net income primarily included acquisition-related expenses. Non-core items negatively impacted earnings per diluted common share by $0.28 for the second quarter of 2023, $0.07 for the first quarter of 2023, and $0.02 for the second quarter of 2022. Non-core items negatively impacted earnings per diluted share by $0.37 and $0.06 for the six months ended June 30, 2023 and 2022, respectively.

"We are delighted to have closed on our merger with Limestone," said Chuck Sulerzyski, President and Chief Executive Officer. "We have already begun to see the results of the merger throughout the second quarter, which have added to our already impressive first half of 2023. We are grateful for the dedication of all colleagues who made this acquisition possible and remain bullish on our future together."

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 related to the Limestone Merger which included $10.8 million and $11.2 million in other non-interest expense for the second quarter and the six months ended June 30, 2023, respectively. For the second quarter of 2023, the $10.8 million of non-interest expense consisted of $5.2 million in salaries and employee benefit costs, $4.8 million in professional fees, $0.5 million in insurance expense, $0.1 million in electronic banking expense, and $0.2 million in various other non-interest expense line items. For the six months ended June 30, 2023, the $11.2 million of non-interest expense consisted of $5.2 million in salaries and employee benefit costs, $5.1 million in professional fees, $0.5 million in insurance expense, $0.1 million of printing costs (which is a component of other non-interest expense), $0.1 million in electronic banking expense, and $0.2 million in various other non-interest expense line items.

Investment Portfolio Restructuring:
During the first quarter of 2023, Peoples executed the sales of $96.7 million of its lower yielding available-for-sale investment securities for an after-tax loss of $1.6 million. Proceeds from the sale were used to pay down overnight borrowings. The loss on the sale 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 these transactions are projected to be earned back within the 2023 fiscal year. There were no sales of investment securities pursuant to this restructuring during the second quarter of 2023.

Statement of Operations Highlights:

• Net interest income for the second quarter of 2023 increased $12.0 million, or 16%, compared to the linked quarter and increased $23.4 million, or 38%, compared to the second quarter of 2022.
• Net interest margin increased 1 basis point to 4.54% for the second quarter of 2023, compared to 4.53% for the linked quarter and increased 70 basis points compared to 3.84% for the second quarter of 2022.
• The increase in net interest margin for the second quarter of 2023 compared to the linked quarter was primarily driven by the accretion on the acquired Limestone portfolio as well as increases in market interest rates.
• The increase in net interest income for the second quarter of 2023 compared to the second quarter of 2022 was driven by increases in market interest rates and the accretion on the acquired Limestone portfolio.
• Peoples recorded a provision for credit losses of $8.0 million for the second quarter of 2023, compared to a provision for credit losses of $1.9 million for the first quarter of 2023, and a recovery of credit losses of $0.8 million for the second quarter of 2022.
• The provision for credit losses in the second quarter of 2023 was due to a provision for credit losses of $9.4 million established for the non-purchased credit deteriorated loans acquired in the Limestone Merger, partially offset by the release of reserves on individually analyzed loans and improvements in macro-economic conditions. The provision for credit losses in the linked quarter was largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction in reserves for individually analyzed loans. The recovery of credit losses in the second quarter of 2022 was attributable to an improvement in economic factors and loss drivers within the current expected credit loss ("CECL") model.
• Net charge-offs were $1.2 million, or 0.09% of average total loans annualized, for the second quarter of 2023, compared to $1.5 million, or 0.13%, for the linked quarter and $1.5 million, or 0.14%, for the second quarter of 2022.
• Total non-interest income, excluding net gains and losses, for the second quarter of 2023 increased $1.6 million, or 8%, compared to the linked quarter, and increased $3.3 million, or 17%, compared to the second quarter of 2022.
• The increase in non-interest income, excluding gains and losses, for the second quarter of 2023 when compared to the first quarter of 2023 was primarily due to an increase in lease income, mostly from Vantage Financial, LLC ("Vantage"), and increased electronic banking income and deposit account service charge income from the additional customers brought in from the Limestone Merger. The increase in lease income for the second quarter of 2023 when compared to the linked quarter was due to increases in residual sales and month-to-month lease income.
• Total non-interest income, excluding net gains and losses, for the first six months 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 increased $14.1 million, or 25%, compared to the linked quarter and increased $20.7 million, or 42%, compared to the second quarter of 2022.
• The increase in total non-interest expense for the second quarter of 2023 when compared to the linked quarter was primarily attributable to a $10.2 million increase in acquisition-related expenses.
• For the second quarter of 2023, the efficiency ratio was 62.7%. When adjusted for non-core items, the efficiency ratio was 53.3% for the second quarter of 2023.

Balance Sheet Highlights:

• Period-end total loan and lease balances at June 30, 2023 increased $1.2 billion, or 26%, compared to March 31, 2023.
• The increases in period-end and average total loan and lease balances were primarily the result of loans acquired in the Limestone Merger totaling $1.1 billion at the time of the Limestone Merger.
• Excluding the loans acquired through the Limestone Merger, period-end loan and lease balances increased $146.4 million, primarily due to increases of (i) $71.3 million in construction loans, (ii) $25.3 million in commercial and industrial loans and (iii) $23.1 million in leases.
• Asset quality metrics remained stable during the quarter.
• Delinquency trends improved slightly as loans considered current comprised 99.0% of the loan portfolio at June 30, 2023, compared to 98.8% at March 31, 2023.
• Nonperforming assets at June 30, 2023 decreased $0.9 million compared to March 31, 2023. The decrease was primarily attributable to reductions in nonaccrual commercial real estate loans and other real estate owned ("OREO"), which were largely offset by increases in nonperforming and nonaccrual leases.
• Criticized loans increased $22.4 million during the second quarter of 2023 when compared to the end of the linked quarter. The increase was primarily driven by criticized loans acquired in the Limestone Merger.
• Classified loans increased $18.9 million during the second quarter of 2023 when compared to the end of the linked quarter. The increase was primarily driven by the Limestone Merger.
• Period-end total deposit balances at June 30, 2023 increased $1.2 billion, or 20%, compared to at March 31, 2023.
• The increase was driven by the deposits acquired in the Limestone Merger, which included $821.3 million of interest-bearing deposits and $261.5 million of non-interest-bearing deposits.
• Excluding the acquired Limestone deposit balances, deposits at June 30, 2023 increased $88.6 million, primarily due to increases of $241.4 million in brokered certificates of deposits and $139.2 million in retail certificates of deposit, partially offset by decreases of $133.9 million, $59.9 million, $50.0 million and $41.1 million in non-interest bearing deposits, savings accounts, governmental deposit accounts, and interest-bearing demand deposit accounts, respectively.
• The percentages of retail deposit balances and commercial deposit balances of the total deposit balance at June 30, 2023 were 78% and 22%, respectively, compared to 75% and 25%, respectively, at March 31, 2023.
• Total demand deposit balances were 42% and 46% of total deposit balances at June 30, 2023 and at March 31, 2023, respectively.
• Total loan balances were 86% of total deposit balances at June 30, 2023 and 82% of total deposit balances at March 31, 2023.
• At both June 30, 2023 and March 31, 2023, 32% of our deposit balances exceeded the FDIC insurance limit of $250,000. Peoples pledges investment securities against certain governmental deposit accounts, which collateralized $749.9 million, or 38%, of the uninsured deposit balances at June 30, 2023.

Net Interest Income:
Net interest income was $84.9 million for the second quarter of 2023, an increase of $12.0 million, or 16%, compared to the linked quarter. The increase in net interest income was primarily due to net interest income provided by Limestone following the Limestone Merger and increases in market interest rates. Net interest margin was 4.54% for the second quarter of 2023, compared to 4.53% for the linked quarter. The increase in net interest margin was primarily driven by the accretion on the acquired Limestone portfolio as well as increases in market interest rates. Also impacting the increases in net interest income and net interest margin were 43 basis points of improvement in loan yields due to recent increases in market interest rates and a shift in the composition of the loan portfolio into higher-yielding leases, and 29 basis points of improvement in investment yields when compared to the linked quarter due to sales of lower-yielding investment securities and securities acquired in the Limestone Merger. Partially offsetting this benefit was a shift in the composition of funding sources combined with an increase in market interest rates for deposits and other funding sources.

Net interest income for the second quarter of 2023 increased $23.4 million, or 38%, compared to the second quarter of 2022. Net interest margin for the second quarter of 2023 increased 70 basis points compared to 3.84% for the second quarter of 2022. The increase in net interest income compared to the second quarter of 2022 was driven by increases in market interest rates, the Limestone Merger and organic growth.

Accretion income, net of amortization expense, from acquisitions was $4.5 million for the second quarter of 2023, $2.0 million for the first quarter of 2023 and $3.9 million for the second quarter of 2022, which added 24 basis points, 13 basis points and 25 basis points, respectively, to net interest margin. The increases in accretion income for the second quarter of 2023 when compared to the linked quarter and the second quarter of 2022 were driven by accretion from the Limestone Merger.

For the first six months of 2023, net interest income increased $42.0 million, or 36%, compared to the first six months of 2022, while net interest margin increased 90 basis points to 4.53%. The increase in net interest income was driven by increases in market interest rates and the additional net interest income from the Limestone Merger. Partially offsetting this benefit was 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 $6.5 million for the six months ended June 30, 2023, compared to $6.7 million for the six months ended June 30, 2022, which added 18 and 21 basis points, respectively, to net interest margin. The decrease in accretion income for the first six months of 2023 compared to the same period in 2022 was due to more accretion in 2022 from the acquisitions of Vantage and NS Leasing, LLC ("NSL") and the merger with Premier Financial Bancorp, Inc. ("Premier"), as compared to accretion from the Limestone Merger.

Provision for (Recovery of) Credit Losses:
The provision for credit losses was $8.0 million for the second quarter of 2023, compared to a provision for credit losses of $1.9 million for the linked quarter and a recovery of credit losses of $0.8 million for the second quarter of 2022. The provision for credit losses in the second quarter of 2023 was due to a provision of $9.4 million for the non-purchased credit deteriorated loans acquired in the Limestone Merger, partially offset by the release of reserves of $1.7 million on individually analyzed loans and a recovery of $1.0 million due to improvements in macro-economic conditions. The provision for credit losses in the linked quarter was largely attributable to a deterioration of macro-economic conditions and charge-offs, partially offset by a reduction in reserves for individually analyzed loans. The recovery of credit losses in the second quarter of 2022 was primarily due to an improvement in economic factors and loss drivers within the CECL model.

The provision for credit losses during the first six months of 2023 was $9.8 million, compared to a recovery of credit losses of $7.6 million for the first six months of 2022. The provision for credit losses during the first six months of 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 (ii) economic forecast deterioration, partially offset by a reduction in the reserves for individually analyzed loans and the use of updated loss drivers. The recovery of credit losses during the first six months of 2022 was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods.

Net charge-offs for the second quarter of 2023 were $1.2 million, or 0.09% of average total loans annualized, compared to net charge-offs of $1.5 million, or 0.13% of average total loans annualized, for the linked quarter and net charge-offs of $1.5 million, or 0.14% of average total loans annualized, for the second quarter of 2022. Net charge-offs for the first six months of 2023 were $2.7 million, or 0.11% of average total loans annualized, compared to net charge-offs of $3.5 million, or 0.15% annualized, for the first six months 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 Operations. The net loss realized during the second quarter of 2023 was $1.8 million, compared to a net loss of $2.2 million for the linked quarter, and a net loss of $196,000 for the second quarter of 2022. The net loss in the second quarter of 2023 was primarily driven by a $1.6 million write-down of an OREO property due to a potential sale of the property. The net loss for the linked quarter was primarily due to the $2.0 million pre-tax net loss on the sale of the available-for-sale investment securities mentioned above.

The net loss realized during the first six months of 2023 was $4.0 million, compared to $193,000 for the first six months of 2022. The net loss for the first six months of 2023 was primarily driven by the $2.0 million pre-tax net loss on the sale of the available-for-sale investment securities mentioned above and the $1.6 million write-down of the OREO property mentioned above. The net loss recognized in the first six months of 2022 was primarily driven by an adjustment to the gain on sale of loans recognized in the fourth quarter of 2021 due to a measurement period adjustment to the acquisition-date fair value of Premier loans acquired that were subsequently sold.

Total Non-interest Income, Excluding Net Gains and Losses:
Total non-interest income, excluding net gains and losses, for the second quarter of 2023 increased $1.6 million compared to the linked quarter. The increase in non-interest income, excluding net gains and losses, was due to a $1.0 million increase in electronic banking income and a $0.6 million increase in deposit account service charge income, mostly due to the additional customers brought in from the Limestone Merger, and a $0.6 million increase lease income, primarily from residual sales and month-to-month lease income.

Compared to the second quarter of 2022, non-interest income, excluding net gains and losses, increased $3.3 million, primarily due to a $1.0 million increase in electronic banking income and a $0.6 million increase in deposit account service charge income, mostly due to the additional customers brought in from Limestone Merger, and a $1.3 million increase in lease income, primarily from residual sales and month-to-month lease income.

For the first six months of 2023, total non-interest income, excluding gains and losses, increased $4.5 million, or 11%, compared to the first six months of 2022. The increase was driven by growth of (i) $1.6 million in lease income, primarily due to lease fee income from Vantage, (ii) a $1.2 million increase in electronic banking income, primarily due to the Limestone Merger and (iii) a $1.1 million increase in insurance income due to growth in the commercial insurance line.

Total Non-interest Expense:
Total non-interest expense for the second quarter and six months ended June 30, 2023 were primarily impacted by the Limestone Merger, which added $10.7 million and $11.3 million of non-interest expenses, respectively, across various line-items within non-interest expense. The table below summarizes the amount of acquisition-related expenses for each line item that is a component of non-interest expense. This information is used by Peoples to provide information useful to investors in understanding Peoples' operating performance and trends.

Total non-interest expense increased $14.1 million, or 25%, for the three months ended June 30, 2023, compared to the linked quarter. The increase in total non-interest expense for the second quarter of 2023 was attributable to increases of $5.1 million and $4.5 million in acquisition-related salaries and employee benefit costs and professional fees, respectively, due to the Limestone Merger. Excluding acquisition-related expenses, total non-interest expense increased $4.0 million, primarily due to increases of (i) $0.9 million in the amortization of other intangible assets, (ii) $0.9 million in salaries and employee benefit costs, both driven by the Limestone Merger, and (iii) $0.7 million in FDIC insurance expense.

Compared to the second quarter of 2022, total non-interest expense for the second quarter of 2023 increased $20.7 million, or 42%, primarily due to an increase of $10.1 million in acquisition-related expenses. Excluding acquisition-related expenses, non-interest expenses increased $10.6 million, primarily due to a $5.1 million increase in salaries and employee benefit costs due to additional employees added in the Limestone Merger, and a $1.9 million increase in data processing and software expense due to recent growth, including through acquisitions.

For the six months ended June 30, 2023, total non-interest expense increased $25.6 million, or 25.2%, compared to the first six months of 2022, primarily due to an increase of $9.3 million in acquisition-related expenses. Excluding acquisition-related expenses, non-interest expenses increased $16.3 million. This variance was driven by increases of $9.6 million and $3.6 million in salaries and employee benefit costs and data processing and software expense, respectively, due to recent growth, partially offset by a $2.4 million decrease in electronic banking expense.

The efficiency ratio for the second quarter of 2023 was 62.7%, compared to 57.8% for the linked quarter, and 58.8% for the second quarter of 2022. The increases in the efficiency ratio compared to the linked quarter and prior year quarter were primarily due to the increases in non-interest expenses, primarily from the Limestone Merger, which were partially offset by higher net interest income due to increases in the market interest rates and additional customers from Limestone. The efficiency ratio, adjusted for non-core items, was 53.3% for the second quarter of 2023, compared to 57.2% for the linked quarter and 58.0% for the second quarter of 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 $6.2 million with an effective tax rate of 22.6% for the second quarter of 2023, compared to income tax expense of $7.0 million with an effective tax rate of 21.0% for the linked quarter, and income tax expense of $6.8 million with an effective tax rate of 21.6% for the second quarter of 2022. Income tax expense for the second quarter of 2023 compared to the linked quarter and second quarter of 2022, decreased due to less net income before income taxes. The effective rate increase for the second quarter of 2022 was primarily due to the Limestone Merger. Peoples recorded income tax expense of $13.2 million with an effective tax rate of 21.7% in the first six months of 2023 and $12.8 million with an effective tax rate of 20.9% in the first six months of 2022. The increase was driven by higher pre-tax income.

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 June 30, 2023 increased $83.9 million and $2.0 million, when compared to at March 31, 2023, at December 31, 2022, respectively, and decreased $134.2 million when compared to at June 30, 2022. The changes in the balance from March 31, 2023 and December 31, 2022 were due to available-for-sale investment securities acquired in the Limestone Merger. The change in the balance from June 30, 2022 was due to a reduction in market value of available-for-sale securities driven by the recent increases in market interest rates and the sales of the lower-yielding available-for-sale securities mentioned above. The balances of unrealized losses on available-for-sale investment securities recognized within accumulated other comprehensive loss were $121.5 million, $112.7 million, $129.9 million and $93.6 million at June 30, 2023, at March 31, 2023, at December 31, 2022 and at June 30, 2022, respectively.

The held-to-maturity investment securities balance at June 30, 2023 decreased $20.1 million when compared to at March 31, 2023, and increased $113.7 million, and $273.2 million when compared to at December 31, 2022 and at June 30, 2022, respectively. The decrease when compared to at March 31, 2023 was due to calls on five securities during the second quarter of 2023. The increases when compared to at December 31, 2022 and at June 30, 2022 were driven by purchases of agency mortgage-backed securities, agency collateralized mortgage obligations, and agency debentures. Most of the securities purchased during the first quarter of 2023 were classified as held-to-maturity, which has contributed to the reduction of available-for-sale 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 unrealized losses on held-to-maturity investment securities were $81.1 million, $68.6 million, $80.6 million and $59.9 million at June 30, 2023, at March 31, 2023, at December 31, 2022 and at June 30, 2022, respectively.

The duration of the investment portfolio as of June 30, 2023 was estimated to be 6.02 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 June 30, 2023, Peoples' had liquid and liquefiable assets of $501.2 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 June 30, 2023, Peoples had a borrowing capacity of $870.5 million available through the Federal Home Loan Bank ("FHLB"), the Federal Reserve Bank ('FRB"), and federal funds. Additionally at June 30, 2023, Peoples had other contingent sources of liquidity totaling $2.0 billion. 

Loans and Leases:
The period-end total loan and lease balances at June 30, 2023 increased $1.2 billion, or 26%, compared to at March 31, 2023. The increase in the period-end loan and lease balance was primarily driven by loans acquired in the Limestone Merger totaling $1.1 billion at the time of the Limestone Merger. Excluding the loans acquired through the Limestone Merger, the period-end loan and lease balance increased $146.4 million, or 12% annualized, primarily due to increases of (i) $71.3 million in construction loans, (ii) $25.3 million in commercial and industrial loans, (iii) $23.1 million in leases and (iv) $22.9 million in other commercial real estate loans.

The period-end total loan and lease balance at June 30, 2023 increased $1.3 billion compared to at December 31, 2022 due to the Limestone Merger. Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance increased $199.0 million, or 9% annualized, driven by increases of $80.4 million, $56.6 million, $32.7 million, $24.9 million and $23.8 million in other commercial real estate loans, construction loans, leases, indirect consumer loans and commercial and industrial loans, respectively. These increases were partially offset by a decrease of $16.3 million in consumer residential real estate loans.

The period-end total loan and lease balance increased $1.4 billion compared to at June 30, 2022 due to the Limestone Merger. Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance increased $330.2 million, or 7% annualized, primarily due to increases of $101.0 million, $91.3 million, $63.3 million, $58.0 million and $43.9 million in construction loans, indirect consumer loans, leases, commercial and industrial loans and other commercial real estate loans, respectively. These increases were partially offset by a reduction of $36.0 million in consumer residential real estate loans.

The quarterly average loan and lease balance increased $860.4 million, or 18%, in the second quarter of 2023 compared to the linked quarter, mostly due to the loans acquired in the Limestone Merger and to a lesser extent, growth in commercial real estate loans, partially offset by a decline in consumer residential real estate loans. Compared to the second quarter of 2022, the quarterly average loan and lease balances increased $997.1 million, or 22%, primarily driven by the loans acquired in the Limestone Merger. Also impacting the increase when compared to second quarter of 2022, was growth in commercial real estate loans and indirect consumer loans, partially offset by a decline in consumer residential real estate loans.

For the first six months of 2023, the average loan and lease balance increased $621.0 million, or 14%, compared to the same period of 2022. The increase was driven by loans acquired in the Limestone Merger, and to lesser extents, growth in leases, indirect consumer loans and commercial real estate loans. Partially offsetting theses increases was a decline in the consumer residential real estate loan average balance.

Asset Quality:
Asset quality metrics remained stable during the quarter. Total nonperforming assets decreased $0.9 million, or 2%, compared to at March 31, 2023, and $5.0 million, or 11%, compared to at June 30, 2022. The decrease in nonperforming assets at June 30, 2023 compared to at March 31, 2023 was primarily attributable to reductions in nonaccrual commercial real estate loans and an OREO property, largely offset by increases in nonperforming and nonaccrual leases. The decrease from at June 30, 2022 was driven by reductions in (i) nonaccrual commercial real estate loans, (ii) OREO and (iii) nonperforming leases, partially offset by increases in nonaccrual leases and commercial and industrial loans. Nonperforming assets as a percent of total loans and OREO were 0.70% at June 30, 2023, down from 0.90% at March 31, 2023 and 1.02% at June 30, 2022.

Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $22.4 million, $29.8 million and $39.8 million at June 30, 2023 compared to at March 31, 2023, at December 31, 2022 and at June 30, 2022, respectively. As a percent of total loans, criticized loans were 3.70% at June 30, 2023, compared to 4.18% at March 31, 2023, 4.07% at December 31, 2022 and 3.96% at June 30, 2022. The increases in the amount of criticized loans were primarily related to criticized loans acquired 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 from Limestone.

Classified loans, which are those categorized as substandard or doubtful, increased $18.9 million and $22.4 million and decreased $3.4 million compared to at March 31, 2023, at December 31, 2022 and at June 30, 2022, respectively. As a percent of total loans, classified loans were 1.88% at June 30, 2023, compared to 1.96% at March 31, 2023, 1.90% at December 31, 2022 and 2.52% at June 30, 2022. The increases in classified loans compared to at March 31, 2023 and at December 31, 2022 were primarily driven by the Limestone Merger. The decrease in classified loans when compared to at June 30, 2022 was largely attributable to the pay-off or upgrade of classified loans acquired from Premier; the majority of these loans were categorized as purchased credit deteriorated loans at acquisition, partially offset by classified loans acquired in the Limestone Merger. Classified loans as a percent of total loans at June 30, 2023 decreased compared to all comparative periods, as classified loans made up a smaller portion of the total loans acquired from Limestone.

Annualized net charge-offs were 0.09% of average total loans for the second quarter of 2023, compared to 0.13% for the linked quarter and 0.14% for the prior year second quarter, with the decrease relative to the linked quarter driven by an increase in recoveries on commercial and industrial loans during the second quarter of 2023, partially offset by higher charge-offs on leases. The decrease in net charge-offs during the second quarter of 2023 versus the prior year second quarter was primarily attributable to an increase in recoveries, partially offset by increases of charge-offs on indirect consumer loans and leases. Annualized net charge-offs were 0.11% of average total loans for the first six months of 2023, compared to 0.15% for the same 2022 period. The decrease was driven by an increase of recoveries and a decrease of charge-offs on commercial and industrial loans, partially offset by an increase in charge-offs on indirect consumer loans.

At June 30, 2023, the allowance for credit losses was $61.2 million, compared to $53.3 million at March 31, 2023, $53.2 million at December 31, 2022 and $52.3 million at June 30, 2022. The allowance for credit losses at June 30, 2023 was impacted by the establishment of an allowance for credit losses for loans acquired in the Limestone Merger. The ratio of the allowance for credit losses as a percent of total loans was 1.02% at June 30, 2023, compared to 1.12% at March 31, 2023 and 1.14% at June 30, 2022.

Deposits:
At of June 30, 2023, period-end deposit balances increased $1.2 billion, or 20%, compared to at March 31, 2023, primarily driven by deposits acquired in the Limestone Merger which included $821.3 million of interest-bearing deposits and $261.5 million of non-interest-bearing deposits. Excluding Limestone deposit balances, deposits at June 30, 2023 increased $88.6 million compared to at March 31, 2023, primarily due to increases of $241.4 million in brokered certificates of deposits, which are primarily used as a source of funding, and of $139.2 million in retail certificates of deposit, partially offset by decreases of $133.9 million, $59.9 million, $50.0 million and $41.1 million in non-interest bearing deposits, savings accounts, governmental deposit accounts, and interest-bearing demand deposit accounts, respectively. The decrease in governmental deposit accounts was due to the seasonality of the balances, which are typically higher in the first quarter and third quarter of each year.

Period-end total deposits at June 30, 2023 increased $1.2 billion, or 22%, compared to at December 31, 2022. The increase was primarily driven by deposits acquired in the Limestone Merger. Excluding Limestone deposit balances, deposits at June 30, 2023 increased $160.1 million compared to at December 31, 2022, primarily due to increases of $389.0 million in brokered certificates of deposit and of $231.1 million in retail certificates of deposit, partially offset by decreases of $168.3 million, $103.8 million, $116.1 million and $26.6 million in non-interest bearing deposits, savings accounts, interest-bearing demand deposit accounts and governmental deposit accounts, respectively.

Period-end total deposits at June 30, 2023 increased $1.0 billion, or 17%, compared to at June 30, 2022 due to the deposits acquired in the Limestone Merger. Excluding Limestone deposit balances, deposits at June 30, 2023 decreased $52.1 million compared to at June 30, 2022. The decrease was primarily driven by decreases of $240.7 million, $128.7 million, $115.3 million, $98.9 million and $73.4 million in non-interest bearing deposits, governmental deposit accounts, savings accounts, interest-bearing demand deposit accounts and money market deposit accounts, respectively. Partially offsetting these decreases in deposit balances, excluding the deposits acquired in the Limestone Merger, were increases of $427.9 million in brokered certificates of deposits and of $177.1 million in retail certificates of deposit.

The percentages of retail deposit balances and commercial deposit balances of the total deposit balance at June 30, 2023 were 78% and 22%, respectively, compared to 75% and 25%, respectively, at March 31, 2023, 74% and 26%, respectively, at December 31, 2022 and 73% and 27%, respectively, at June 30, 2022.

Uninsured deposits were 32%, 32%, 33% and 35% of total deposits at June 30, 2023, March 31, 2023, December 31, 2022 and June 30, 2022, respectively. Uninsured amounts are estimated based on the portion of customer account balances that met or exceeded the FDIC limit of $250,000. Peoples pledges investment securities against certain governmental deposit accounts, which collateralized $749.9 million, or 38%, of the uninsured deposit balances at June 30, 2023.

Average deposit balances during the second quarter of 2023 increased $863.1 million compared to the linked quarter. Compared to the second quarter of 2022, quarterly average deposits increased $653.9 million. These increases were driven by the deposits acquired in the Limestone Merger. Total demand deposits comprised 42%, 46% and 47% of total deposits at June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

Stockholders' Equity:
Total stockholders' equity at June 30, 2023 increased by $179.4 million compared to at March 31, 2023, which was primarily due to 6.8 million common shares issued (valued at $177.9 million) in the Limestone Merger and net income for the second quarter of 2023 of $21.1 million, partially offset by an increase in accumulated other comprehensive loss of $7.9 million and dividends paid of $13.4 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. Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $121.5 million and $112.7 million at June 30, 2023 and at March 31, 2023, respectively.

Total stockholders' equity at June 30, 2023 increased by $213.6 million compared to at December 31, 2022, which was primarily due to common shares issued in the Limestone Merger, net income for the first six months of 2023 of $47.7 million and a decrease in accumulated other comprehensive loss of $8.2 million, partially offset by dividends paid of $24.1 million. Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $129.9 million at December 31, 2022.

Total stockholders' equity at June 30, 2023 increased $212.1 million compared to at June 30, 2022, which was primarily due to common shares issued in the Limestone Merger and net income of $100.5 million in the last twelve months, partially offset by dividends paid of $45.6 million and an increase in accumulated other comprehensive loss of $25.6 million. The increase in accumulated other comprehensive loss was the result of an increase of $27.8 million in unrealized losses related to the available-for-sale investment securities portfolio from June 30, 2022 to June 30, 2023. Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $93.6 million at June 30, 2022.

At June 30, 2023, the tier 1 risk-based capital ratio was 12.10%, compared to 12.49% at March 31, 2023, and 11.91% at June 30, 2022. The common equity tier 1 risk-based capital ratio was 11.36% at June 30, 2023, compared to 12.22% at March 31, 2023, and 11.62% at June 30, 2022. The total risk-based capital ratio was 12.92% at June 30, 2023, compared to 13.35% at March 31, 2023, and 12.81% at June 30, 2022. Peoples adopted the five-year transition to phase in the impact of the adoption of CECL, effective January 1, 2020, on regulatory capital ratios. Compared to at March 31, 2023 these capital ratios decreased due to the impact of the Limestone Merger, partially offset by net income during the second quarter of 2023. Compared to at June 30, 2022, the tier 1 risk-based capital ratio and the total risk-based capital ratio 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 June 30, 2023 decreased compared to at June 30, 2022 due to the common shares issued in the Limestone Merger.

Book value per common share and tangible book value per common share, which excludes goodwill and other intangible assets, were $28.24 and $16.56, respectively, at June 30, 2023, compared to $28.77 and $17.37, respectively, at March 31, 2023, and $27.81 and $16.21, respectively, at June 30, 2022.

The ratio of total stockholders' equity to total assets was 11.37% at June 30, 2023, compared to 11.21% at March 31, 2023, 10.90% at December 31, 2022 and 10.81% at June 30, 2022. The ratio increased from June 30, 2022 due primarily to additional common shares issued in the Limestone Merger as well as net income over the last twelve months. The tangible equity to tangible assets ratio, which excludes goodwill and other intangible assets, was 7.00% at June 30, 2023, compared to 7.08%, 6.67% and 6.60% at March 31, 2023, December 31, 2022 and June 30, 2022, respectively. The ratio decreased compared to at March 31, 2023 due to an increase in accumulated other comprehensive loss. The ratio increased compared to at December 31, 2022 and June 30, 2022 primarily due to net income over the last twelve months, partially offset by an increase in accumulated other comprehensive loss.

Peoples Bancorp Inc. ("Peoples", Nasdaq: PEBO) is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples has been headquartered in Marietta, Ohio since 1902. Peoples had $8.8 billion in total assets as of June 30, 2023, and 150 locations, including 129 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 Limestone Bank, 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 second quarter 2023 results of operations on July 25, 2023 at 11:00 a.m., Eastern Daylight 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 in accordance with accounting principles generally accepted in the U.S. ("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. Peoples also uses the non-US GAAP financial measures for calculating incentive compensation. 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, 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, 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, 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, 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 risks and uncertainties include, but are not limited to:

As required by US GAAP, Peoples is required to evaluate the impact of subsequent events through the issuance date of Peoples' June 30, 2023 consolidated financial statements as part of Peoples' Quarterly Report on Form 10-Q 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.