PEOPLES BANCORP INC

Peoples reported net income of $31.7 million for the third quarter of 2024, representing earnings per diluted common share of $0.89. In comparison, Peoples reported net income of $29.0 million, representing earnings per diluted common share of $0.82, for the second quarter of 2024, and net income of $31.9 million, representing earnings per diluted common share of $0.90, for the third quarter of 2023. For the nine months ended September 30, 2024, Peoples recorded net income of $90.3 million, or $2.55 per diluted common share, compared to $79.5 million, or $2.47 per diluted common share, for the nine months ended September 30, 2023. Non-core items negatively impacted earnings per diluted common share by $0.01 for the third quarter of 2024, $0.02 for the second quarter of 2024, and $0.16 for the third quarter of 2023. Non-core items negatively impacted earnings per diluted share by $0.03 and $0.52 for the nine months ended September 30, 2024 and 2023, respectively.

Net interest income was $88.9 million for the third quarter of 2024, and increased $2.3 million when compared to the linked quarter. Net interest margin was 4.27% for the third quarter of 2024, compared to 4.18% for the linked quarter. The increase in net interest income and net interest margin was primarily driven by an increase in accretion income, net of amortization, from our acquisitions and higher earning asset yields, which were partially offset by higher borrowings costs. Net interest income for the third quarter of 2024 decreased $4.4 million, or 5%, compared to the third quarter of 2023. The decrease in net interest income compared to the third quarter of 2023 was driven by higher funding costs. Net interest margin for the third quarter of 2024 was 4.27% and decreased 43 basis points compared to 4.70% for the third quarter of 2023, driven primarily by an increase in interest expense on deposits. For the first nine months of 2024, net interest income increased $11.2 million, or 4%, compared to the first nine months of 2023, while net interest margin decreased 36 basis points to 4.24%. The increase in net interest income was driven by increases in market interest rates and an additional four months of income from the Limestone Merger. The decrease in net interest margin for the first nine months of 2024 compared to the first nine months of 2023 was primarily driven by higher borrowing costs, which offset higher earning asset yields.

Accretion income, net of amortization expense, from acquisitions was $8.1 million for the third quarter of 2024, $5.8 million for the second quarter of 2024 and $9.5 million for the third quarter of 2023, which added 39 basis points, 28 basis points and 48 basis points, respectively, to net interest margin. The increase in accretion income for the third quarter of 2024 when compared to the linked quarter was driven by higher pay-offs. The decrease in accretion income for the current quarter compared to the third quarter of 2023 was a result of the accretion from the Limestone Merger. Accretion income, net of amortization expense, from acquisitions was $20.3 million for the nine months ended September 30, 2024, compared to $15.8 million for the nine months ended September 30, 2023, which added 33 and 29 basis points, respectively, to net interest margin. The increase in accretion income for the first nine months of 2024 compared to the same period in 2023 was due to more accretion from the Limestone Merger.

The provision for credit losses was $6.7 million for the third quarter of 2024, compared to a provision for credit losses of $5.7 million for the linked quarter and a provision for credit losses of $4.1 million for the third quarter of 2023. The provision for credit losses for the third quarter of 2024 was mainly a result of net charge-offs. The provision for credit losses for the second quarter of 2024 was driven by (i) higher charge-offs, (ii) an increase of reserves for individually analyzed loans and leases, and (iii) loan growth. The provision for credit losses for the third quarter of 2023 was driven by (i) loan growth, (ii) an increase in net charge-offs, (iii) updates to our prepayment, curtailment and funding rates, and (iv) a deterioration in macro-economic conditions used within the CECL model, partially offset by the release of reserves on individually analyzed loans. Net charge-offs for the third quarter of 2024 were $6.1 million, or 0.38% of average total loans annualized, compared to net charge-offs of $4.2 million, or 0.27% of average total loans annualized, for the linked quarter and net charge-offs of $2.3 million, or 0.15% of average total loans annualized, for the third 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.

The provision for credit losses for the first nine months of 2024 was $18.5 million, compared to $13.9 million for the first nine months of 2023. The provision for credit losses for the first nine months of 2024 was mainly the result of (i) higher net charge-offs, (ii) an increase in reserves for individually analyzed loans and leases and (iii) economic forecast deterioration and (iv) loan growth. The provision for credit losses for the first nine 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 (iii) economic forecast deterioration, partially offset by a reduction in the reserves for individually analyzed loans and leases and the use of updated loss drivers. Net charge-offs for the first nine months of 2024 were $13.6 million, or 0.29% of average total loans annualized, compared to net charge-offs of $5.1 million, or 0.12% of average total loans annualized, for the first nine months 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 third quarter of 2024 was $0.9 million, compared to a net loss of $0.8 million for the linked quarter and a net loss of $0.3 million for the third quarter of 2023. The net loss for the third quarter of 2024, the second quarter of 2024, and the third quarter of 2023 was driven primarily by net losses on repossessed assets of $0.5 million, $0.4 million and $0.3 million, respectively. The net loss realized during the first nine months of 2024 was $2.0 million, compared to $4.3 million for the first nine months of 2023. The net loss for the first nine months of 2024 was driven by $1.3 million of net losses on repossessed assets. The net loss for the first nine months of 2023 was primarily driven by a $2.0 million pre-tax net loss on the sale of available-for-sale investment securities and the $1.6 million writedown of an OREO property. During the first nine months of 2024, Peoples sold $96.7 million of it's lower yielding available-for-sale investment securities, with proceeds from the sale used to pay down overnight borrowings.

Total non-interest income, excluding net gains and losses, for the third quarter of 2024 increased $1.2 million compared to the linked quarter. The increase in non-interest income, excluding net gains and losses, was primarily impacted by increases of $0.8 million in mortgage banking income and $0.7 million in lease income, partially offset by a decrease of $0.6 million in bank-owned life insurance income ("BOLI"). Compared to the third quarter of 2023, total non-interest income, excluding net gains and losses, increased $2.1 million, primarily due to a $1.9 million increase in lease income, a $0.8 million increase in mortgage banking income, and a $0.6 million increase in trust and investment income, partially offset by a $0.9 million decrease in BOLI income. The increases for the third quarter of 2024, when compared to the third quarter of 2023, were primarily due to gains on early terminations on leases that paid off, higher production in mortgage banking, and an increase in trust and investment income driven by an increase in assets under administration and management.

For the first nine months of 2024, total non-interest income, excluding gains and losses, increased $8.7 million, or 13%, compared to the first nine months of 2023. The increase was driven by (i) a $2.0 million increase in other non-interest income, driven by operating lease income, (ii) a $1.7 million increase in trust and investment income driven by increases in assets under administration and management, (iii) a $1.4 million increase in lease income driven by gains on terminated leases, (iv) a $1.2 million increase in insurance income driven by higher contingency income and market increases for premiums, (v) a $0.9 million increase in deposit account service charge income, and (vi) a $0.9 million increase in mortgage banking income.

Total non-interest expense decreased $2.7 million, or 4%, for the three months ended September 30, 2024, compared to the linked quarter. The decrease in total non-interest expense was primarily due to decreases of $2.9 million in other non-interest expense, driven by a one-time $1.3 million true-up of corporate expenses recorded in the linked quarter, and a decrease of $0.6 million in data processing and software expense.

Compared to the third quarter of 2023, total non-interest expense decreased $5.6 million, or 8%. The decrease in total non-interest expense was primarily due to acquisition-related expenses in the third quarter of 2023. Excluding acquisition-related expenses, non- interest expenses decreased $0.5 million, or 1%, primarily due to a decrease of $2.7 million in other non-interest expense, partially offset by an increase of $1.1 million in data processing and software expense.

For the nine months ended September 30, 2024, total non-interest expense increased $4.5 million, or 2%, compared to the first nine months of 2023. Excluding acquisition-related expenses, non-interest expenses increased $21.0 million, or 11%, primarily due to increases of $11.6 million in salaries and employee benefit costs due to additional employees added in the Limestone Merger, $4.4 million and $2.5 million in data processing and software expense and in net occupancy and equipment expense, respectively, due to recent technology projects and growth, including through acquisitions.

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.

The efficiency ratio for the third quarter of 2024 was 55.1%, compared to 59.2% for the linked quarter, and 58.4% for the third quarter of 2023. The efficiency ratio, adjusted for non-core items, was 55.7% for the third quarter of 2024, compared to 59.2% for the linked quarter and 52.5% for the third quarter of 2023. The efficiency ratio and the adjusted efficiency ratio for non-core items improved compared to the linked quarterly mainly as a result of a reduction in non-interest expense and an increase in net interest income. The efficiency ratio for the first nine months of 2024 was 57.4%, compared to 59.7% for the first nine months of 2023. The efficiency ratio improved compared to the prior year first nine months due to the decrease in acquisition-related expenses. The efficiency ratio, adjusted for non-core items, was 57.7% for the first nine months of 2024, compared to 54.2% for the first nine months 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 $9.2 million with an effective tax rate of 22.5% for the third quarter of 2024, compared to income tax expense of $6.9 million with an effective tax rate of 19.1% for the linked quarter, and income tax expense of $8.8 million with an effective tax rate of 21.7% for the third quarter of 2023. The increase in income tax expense for the third quarter of 2024 compared to the linked quarter was driven by a $1.1 million one-time benefit recognized in the second quarter of 2024 related to a prior year amended return and higher pre-tax income. Peoples recorded income tax expense of $24.3 million with an effective tax rate of 21.2% for the first nine months of 2024 and $22.1 million with an effective tax rate of 21.7% for the first nine months of 2023. The increase was driven by higher pre-tax income.

At September 30, 2024, total assets were $9.14 billion, compared to $9.23 billion at June 30, 2024, $9.16 billion at December 31, 2023 and $8.94 billion at September 30, 2023. Total assets at September 30, 2024 decreased when compared to at June 30, 2024 primarily due to a decrease in loans and investment securities, partially offset by an increase in cash and cash equivalents. The period-end total loan and lease balances at September 30, 2024 decreased $53.5 million, or 3% annualized, compared to at June 30, 2024. The decrease in the period-end total loan and lease balances was primarily driven by decreases of (i) $20.5 million in construction loans, (ii) $15.5 million in other commercial real estate loans, (iii) $11.8 million in residential real estate loans, and (iv) $7.9 million in commercial and industrial loans, partially offset by an increase of $5.5 million in home equity lines of credit. Total assets at September 30, 2024 decreased compared to December 31, 2023 due to a decrease of $143.0 million in total cash and cash equivalents, partially offset by an increase of $112.6 million in loans and leases. Total assets at September 30, 2024 increased compared to September 30, 2023 due to an increase of $187.4 million in total loans and leases. The period-end loan and lease increased from September 30, 2023 to September 30, 2024 primarily as a result of organic growth in our commercial and industrial, premium finance, and lease portfolios of $121.3 million, $97.7million, and $30.4 million, respectively.

Total liabilities were $8.02 billion at September 30, 2024, down from $8.15 billion at June 30, 2024 and $8.10 billion at December 31, 2023, and up from $7.95 billion at September 30, 2023. The decrease in total liabilities when compared to at June 30, 2024 was primarily due to a decrease of $306.8 million in short-term borrowings, partially offset by an increase of $185.4 million in period-end total deposits. The decrease in total liabilities when compared to at December 31, 2023 was primarily due to a decrease of $425.2 million in short-term borrowings, partially offset by an increase of $330.9 million in total period end deposits. The increase in total liabilities when compared to at September 30, 2023 was primarily due to a $445.6 million increase in period in deposits, partially offset by a decrease of $409.5 million in short-term borrowings. The increase in deposits was primarily driven by increases of $685.4 million in retail certificates of deposit, $163.8 million in money market deposit accounts, and $62.5 million in governmental deposit accounts, partially offset by decreases of $122.2 million, $115.6 million, $115.2 million, and $113.0 million in savings accounts, non-interest bearing deposits, interest-bearing demand deposit accounts and brokered certificates of deposit, respectively. The increase in retail certificates of deposits was driven by current promotional offerings.

Total stockholders' equity at September 30, 2024 increased by $47.1 million compared to at June 30, 2024, which was primarily due to net income for the third quarter of 2024 of $31.7 million and a decrease of $27.7 million in accumulated other comprehensive loss, partially offset by dividends paid of $14.2 million. Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $83.7 million and $112.7 million at September 30, 2024 and at June 30, 2024, respectively. Total stockholders' equity at September 30, 2024 increased by $71.6 million compared to at December 31, 2023, which was primarily due to net income of $90.3 million for the first nine months of 2024 and a decrease of $19.1 million in accumulated other comprehensive loss, partially offset by dividends paid of $42.1 million. The increase in total stockholders' equity at September 30, 2024 when compared to at September 30, 2023 was impacted by net income of $124.1 million in the last twelve months and a decrease in accumulated other comprehensive loss of $61.3 million, partially offset by dividends paid of $56.2 million.