PEOPLES BANCORP INC

Peoples reported net income of $29.6 million for the first quarter of 2024, representing earnings per diluted common share of $0.84. In comparison, Peoples reported net income of $33.8 million, representing earnings per diluted common share of $0.96, for the fourth quarter of 2023, and net income of $26.6 million, representing earnings per diluted common share of $0.94, for the first quarter of 2023. Non-core items negatively impacted earnings per diluted common share by $0.01 for the first quarter of 2024, $0.08 for the fourth quarter of 2023, and $0.05 for the first quarter of 2023.

Net interest income was $86.6 million for the first quarter of 2024, a decrease of $1.7 million, or 2.0%, compared to the linked quarter. Net interest margin was 4.27% for the first quarter of 2024, compared to 4.44% for the linked quarter. The decreases in net interest income and net interest margin were primarily driven by a decrease in accretion income, net of amortization, from our acquisitions. The linked quarter was impacted by a true-up of $1.3 million to the preliminary Limestone-related accretion, which added to net interest income. The small remaining decline in net interest margin, compared to the linked quarter, was mostly due to excess cash on-hand during the quarter for liquidity purposes. Net interest income for the first quarter of 2024 increased $13.8 million, or 18.9%, compared to the first quarter of 2023. Net interest margin for the first quarter of 2024 decreased 26 basis points compared to 4.53% for the first quarter of 2023, driven primarily by an increase in interest expense on deposits.

Accretion income, net of amortization expense, from acquisitions was $6.6 million for the first quarter of 2024, $9.0 million for the fourth quarter of 2023 and $2.0 million for the first quarter of 2023, which added 32 basis points, 45 basis points and 13 basis points, respectively, to net interest margin. The decrease in accretion income for the first quarter of 2024 when compared to the linked quarter was driven by a fourth quarter 2023 true-up to the preliminary Limestone-related accretion. The increase in accretion income for the current quarter compared to the first quarter of 2023 was a result of the accretion from the Limestone Merger.

The provision for credit losses was $6.1 million for the first quarter of 2024, compared to a provision for credit losses of $1.3 million for the linked quarter and a provision for credit losses of $1.9 million for the first quarter of 2023. The provision for credit losses for the first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses for the fourth quarter of 2023 was largely attributable to higher net charge-offs, offset by an improvement of macro-economic conditions and the release of reserves on individually analyzed loans. Net charge-offs for the first quarter of 2024 were $3.3 million, or 0.22% of average total loans annualized, compared to net charge-offs of $3.5 million, or 0.23% of average total loans annualized, for the linked quarter and net charge-offs of $1.5 million, or 0.13% of average total loans annualized, for the first quarter of 2023. For additional information on credit trends and the allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below.

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 first quarter of 2024 was $0.3 million, compared to a net loss of $2.2 million for each of the linked quarter and the first quarter of 2023. The net loss for the first quarter of 2024 was due to $0.3 million of net losses on repossessed assets. The net loss for the linked quarter was primarily due to the sales of $36.5 million of lower yielding available-for-sale investment securities for a pre-tax loss of $1.7 million. The net loss for the first quarter of 2023 was primarily due to a pre-tax net loss of $2.0 million on the sale of $96.7 million of its lower yielding available-for-sale securities.

Total non-interest income, excluding net gains and losses, for the first quarter of 2024 decreased $0.2 million compared to the linked quarter. The decrease in non-interest income, excluding net gains and losses, was primarily due to decreases of $1.6 million in lease income and $0.8 million in electronic banking income. The decrease in lease income was due to a large lease buyout in the fourth quarter of 2023, while the decrease in electronic banking income was due to a decline in customer activity. Partially offsetting the decreases was a $2.2 million increase in insurance income due to seasonal performance-based commissions being paid in the first quarter of the year. Compared to the first quarter of 2023, total non-interest income, excluding net gains and losses, increased $4.9 million, primarily due to (i) a $1.1 million increase in insurance income, (ii) a $1.0 million increase in other non-interest income, (iii) a $0.8 million increase in bank owned life insurance income, (iv) a $0.7 million increase in deposit account service charges, (v) a $0.6 million increase in electronic banking income. Insurance income increased due to higher contingency income, new business, and market increases for premiums. Bank owned life insurance increased due to a $0.5 million death benefit in the first quarter of 2024 and additional income from policies acquired in the Limestone Merger. The other increases for the first quarter of 2024, when compared to the first quarter of 2023, were primarily due to the additional customers brought in from the Limestone Merger.

Total non-interest expenses for the first three months ended March 31, 2024 were impacted by anticipated annual expenses that occur in the first quarter of each year including annual merit increases, stock-based compensation expenses attributable to retirement-eligible employees and health savings account ("HSA") contributions. Total non-interest expense for the prior periods were impacted by the Limestone Merger and acquisition-related 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 $0.8 million, or 1%, for the three months ended March 31, 2024, compared to the linked quarter. Excluding acquisition-related expense, total non-interest expense increased $2.1 million, or 3%, primarily due to increases of $1.6 million in salaries and employee benefit costs. The increase in salaries and employee benefit costs was due to anticipated annual expenses that occur in the first quarter of each year including annual merit increases, stock-based compensation expenses attributable to retirement-eligible employees and HSA contributions.

Compared to the first quarter of 2023, total non-interest expense increased $12.0 million, or 21%. Excluding acquisition-related expenses, non-interest expenses increased $12.6 million, or 23%, primarily due to a increases of $6.9 million in salaries and employee benefits costs due to additional employees added in the Limestone Merger and $1.3 million and $1.2 million in net occupancy and equipment expense and data processing and software expense, respectively, due to the recent growth, including through acquisitions.

The efficiency ratio for the first quarter of 2024 was 58.0%, compared to 56.0% for the linked quarter, and 57.8% for the first quarter of 2023. The increase in the efficiency ratio compared to the linked quarter was largely a result of an increase in interest expense on deposits. The efficiency ratio compared to the prior year quarter was relatively flat. The efficiency ratio, adjusted for non-core items, was 58.1% for the first quarter of 2024, compared to 54.8% for the linked quarter and 57.19% for the first quarter of 2023. Peoples continues to focus on controlling expenses, while recognizing necessary costs in order to continue growing the business.

Peoples recorded income tax expense of $8.3 million with an effective tax rate of 21.8% for the first quarter of 2024, compared to income tax expense of $9.7 million with an effective tax rate of 22.3% for the linked quarter, and income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023. Income tax expense for the first quarter of 2024 compared to the linked quarter decreased due to lower pre-tax income. The increase for the first quarter of 2024 compared to the first quarter of 2023, was driven by higher pre-tax income.

At March 31, 2024, total assets were $9.27 billion, compared to $9.16 billion at December 31, 2023 and $7.31 billion at March 31, 2023. Total assets at March 31, 2024 increased when compared to at December 31, 2023 primarily due to increases in investment securities and period-end total loan and lease balances. The period-end total loan and lease balances at March 31, 2024 increased $43.6 million, or 3% annualized, compared to at December 31, 2023. The increase in the period-end loan and lease balance was primarily driven by increases of (i) $46.8 million in other commercial real estate loans, (ii)$35.8 million in premium finance loans, and (iii) $29.6 million in commercial and industrial loans, partially offset by reductions of (a) $49.3 million in construction loans, (b) $16.2 million in indirect consumer loans, and (c) $15.2 million in direct consumer loans. Total assets at March 31, 2024 increased compared to March 31, 2023 due to $1.46 billion of assets, primarily loans, acquired in the Limestone Merger. Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance at March 31, 2024 increased $499.3 million, or 10%, driven by increases of $198.1 million, $100.6 million, $80.7 million, $68.1 million, $37.3 million, and $23.5 million in other commercial real estate loans, commercial and industrial loans, premium finance loans, leases, construction loans, and home equity lines of credit, respectively.

Total liabilities were $8.21 billion at March 31, 2024, up from $8.10 billion at December 31, 2023 and $6.49 billion at March 31, 2023. The increase in total liabilities when compared to at December 31, 2023 was primarily due to an increase of $174.3 million in period-end total deposits, partially offset by a decrease of $87.6 million in short-term borrowings. The increase in period-end total deposits when compared to at December 31, 2023 was primarily driven by increases of (i) $237.0 million in retail CDs, (ii) $98.5 million in governmental deposits and (iii) $84.5 million in money market deposit accounts, partially offset by decreases of (a) $99.3 million in non-interest bearing deposit accounts, (b) $41.8 million in brokered CDs, (c) $36.6 million in interest-bearing demand deposit accounts, and (d) $17.8 million in savings accounts. The increase in governmental deposit accounts was due to the seasonality of the balances, which are typically higher in the first quarter each year. The increase in total liabilities when compared to at March 31, 2023 was primarily due to $1.35 billion of liabilities, primarily deposits, acquired in the Limestone Merger. Excluding deposits acquired in the Limestone Merger, period-end total deposits at March 31, 2024 increased $784.8 million, or 14%, compared to at March 31, 2023. The increase was primarily driven by increases of $956.9 million in retail CDs, $210.3 million in brokered CDs, and $191.2 million in money market deposit accounts, partially offset by decreases of $270.9 million, $191.8 million, and $158.4 million in non-interest-bearing deposit accounts, savings accounts, and interest-bearing demand deposit accounts, respectively.

Total stockholders' equity at March 31, 2024 increased by $8.5 million compared to at December 31, 2023, which was primarily due to net income for the first quarter of 2024 of $29.6 million, partially offset by dividends paid of $13.7 million and a $7.4 million increase in accumulated other comprehensive loss. The change in accumulated other comprehensive loss was primarily 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 $111.8 million and $104.2 million at March 31, 2024 and at December 31, 2023, respectively. The increase in total stockholders' equity at March 31, 2024 when compared to at March 31, 2023 was also impacted by net income of $116.4 million in the last twelve months and a decrease in accumulated other comprehensive loss of $2.0 million, partially offset by dividends paid of $55.1 million and share repurchases of $6.0 million.