PEOPLES BANCORP INC

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.

Net interest margin, which is calculated by dividing fully tax-equivalent ("FTE") net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a federal statutory corporate income tax rate of 21% for the three months ended March 31, 2025, December 31, 2024 and March 31, 2024.

The following table details the calculation of FTE net interest income:

The following tables detail Peoples’ average balance sheets for the periods presented:

(a)Average balances are based on carrying value.

(b)Interest income and yields are presented on a fully tax-equivalent basis, using a 21% statutory federal corporate income tax rate.

(c)Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented.

(d)Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.

(e)Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered CDs for the periods presented in which FHLB advances and brokered CDs were being utilized.

(f)Included in other long-term borrowings are trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures.

Peoples' deposit balances have increased primarily due to an increase in money market deposit accounts and retail certificates of deposits driven by special promotional rate offerings over the past year.

The following table provides an analysis of the changes in FTE net interest income:

(a)The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the dollar amounts of the change in each.

(b)Interest income and yields are presented on a fully tax-equivalent basis, using a 21% statutory federal corporate income tax rate.

Net interest income was $85.3 million for the first quarter of 2025 and decreased $1.3 million when compared to the linked quarter. Net interest margin was 4.12% for the first quarter of 2025, compared to 4.15% for the linked quarter. The decrease in net interest income and net interest margin was primarily driven by a decrease in accretion income, net of amortization, from acquisitions.

Net interest income for the first quarter of 2025 decreased $1.4 million, or 2%, compared to the first quarter of 2024. Net interest margin decreased 14 basis points when compared to the first quarter of 2024. The decrease in net interest income and net interest margin compared to the first quarter of 2024 was driven by lower accretion income.

Accretion income, net of amortization expense, from acquisitions was $3.5 million for the first quarter of 2025, $4.9 million for the linked quarter and $6.5 million for the first quarter of 2024, which added 17 basis points, 23 basis points and 32 basis points, respectively, to net interest margin. The decrease in accretion income for the first quarter of 2025 when compared to the linked quarter and the first quarter of 2024 was driven by fewer loan payoffs.

Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this MD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."

Provision for Credit Losses

The following table details Peoples’ provision for credit losses:

The provision for 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 for the first quarter of 2025 and the fourth quarter of 2024 was mainly a result of net charge-offs. The provision for credit losses for the first quarter of 2024 was driven by (i) net charge-offs, (ii) a deterioration in macro-economic conditions used within the CECL model, (iii) an increase of reserves on individually analyzed loans and (iv) loan growth.

Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this MD&A under the caption “FINANCIAL CONDITION - Allowance for Credit Losses.”

Net Gain (Loss) Included in Total Non-Interest Income

Net gain (loss) includes net gains and losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses for the periods presented:

The net loss on other assets during the first quarter of 2025 was driven by the loss recorded on repossessed assets. The net loss reported for the linked quarter was attributable to the write-down of an OREO property which totaled $1.2 million. The net loss reported for the quarter ended March 31, 2024 was driven by repossessed assets.

Total Non-Interest Income, Excluding Net Gains and Losses

Total non-interest income, excluding net gains and losses, comprised 24% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the first quarter of 2025, 24% for the linked quarter, and 23% for the first quarter of 2024.

For the first quarter of 2025, insurance income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. The following table details Peoples' insurance income:

Peoples' insurance income for the first quarter of 2025 increased $1.5 million when compared to the linked quarter primarily due to seasonal performance-based commission being paid, which are annual in nature and typically occur in the first quarter of each year. Insurance income for the first quarter of 2025 decreased when compared to the first quarter of 2024 due to a decrease in the annual performance-based commissions being paid, partially offset with an increase in property and casualty insurance income.

Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to customers. The following table details Peoples' e-banking income:

Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity.

Peoples' trust and investment income, which includes fiduciary income, brokerage income, and employee benefit fees, continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement plan services business. The following table details Peoples’ trust and investment income:

Fiduciary income and brokerage income in the first quarter of 2025 remained flat relative to the linked quarter. When compared to the first quarter of 2024, trust and investment income increased $0.5 million, which was driven by an increase in assets under administration and management.

The following table details Peoples' assets under administration and management:

The decrease in assets under administration and management at March 31, 2025 compared to at December 31, 2024 were driven by market value fluctuations. The increase in assets under administration and management at March 31, 2025 when compared to at March 31, 2024 were primarily due to growth, as Peoples added new accounts and the underlying market values of assets under management grew.

Deposit account service charges are based on the recovery of costs associated with services provided. The following table details Peoples' deposit account service charges:

The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges decreased for the first quarter of 2025 compared to the linked quarter due to seasonality of customer activity. Deposit account service charges decreased slightly when comparing the first quarter of 2025 to the first quarter of 2024.

The following table details the other items included within Peoples' total non-interest income:

Other non-interest income decreased $0.4 million for the three months ended March 31, 2025 when compared to the linked quarter and increased $0.6 million compared to the first quarter of 2024.

Bank owned life insurance income for the first quarter of 2025 decreased compared to the linked quarter and the prior year quarter primarily due to changes in the cash surrender values of the underlying policies.

Lease income is primarily comprised of (i) gains on the early termination of leases, net of any associated purchase accounting adjustments, (ii) month-to-month lease payments in excess of net investment in the lease, net of any associated purchase accounting adjustment, (iii) fees received for referrals, (iv) gains and losses recognized on the sales of residual assets, net of any purchase accounting impact, and (v) syndication income. Lease income for the first quarter of 2025 increased compared to the linked quarter due to an increase in month-to-month lease income. The increase when compared to the first quarter of 2024 was driven by increases in month-to-month lease income, operating lease income, and gains on terminated leases.

Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage banking income for the first quarter of 2025 increased when compared to each of the prior periods and was primarily driven by higher production.

In the first quarter of 2025, Peoples sold $0.2 million in loans into the secondary market with servicing retained and $4.7 million in loans with servicing released, compared to $6.5 million and $9.9 million, respectively, in the fourth quarter of 2024, and $0.2 million and $6.9 million, respectively, in the first quarter of 2024.

Non-Interest Expense

Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs:

Base salaries and wages for the first quarter of 2025 decreased compared to the linked quarter and remained relatively flat compared to the first quarter of 2024.

Sales-based and incentive compensation increased for the first quarter of 2025 compared to the linked quarter and the first quarter of 2024 due to an increase in corporate incentives.

The decrease in employee benefits for the first quarter of 2025 compared to the linked quarter was primarily related to an adjustment related to prior period nonqualified deferred compensation expense. The increase over the first quarter of 2024 was primarily due to increased medical costs.

Payroll taxes and other employment costs for the first quarter of 2025 increased compared to the linked quarter due to seasonal expenses recognized in the first quarter of each year.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years. An adjustment is made at the vesting date to reverse expense relating to forfeitures for performance awards, and at the date of forfeiture to reverse expense for non-vested restricted common share awards. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year based upon Peoples achieving certain performance goals during the prior year, and are generally contingent on employment through the vesting period.

Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. Deferred personnel costs for the first quarter of 2025 remained relatively flat when compared to both the fourth quarter of 2024 and the first quarter of 2024.

Peoples' net occupancy and equipment expense was comprised of the following:

Net occupancy and equipment expense decreased for the first quarter compared to both the linked quarter and the first quarter of 2024 due to an adjustment of property tax accruals resulting from a review of recent assessments.

The following table details the other items included in total non-interest expense:

Data processing and software expenses for the first quarter of 2025 increased over all periods presented due to costs associated with recent technology projects.

Professional fees for the first quarter of 2025 decreased when compared to the linked quarter due to lower costs of professional services and fewer legal expenses incurred. Professional fees for the first quarter of 2025 compared to the same period in 2024 remained flat.

Amortization of other intangible assets for the first quarter of 2025 decreased $0.6 million compared to both the linked quarter and the prior year quarter due to decreases in amortization on core deposits and customer relationship intangibles.

Peoples' e-banking expense is comprised of costs associated with debit and ATM cards and is driven by timing of customer activity. E-banking expense remained relatively flat compared to the linked quarter and increased $0.2 million compared to the first quarter of 2024.

Peoples' FDIC insurance premiums for the first quarter of 2025 were relatively flat when compared to the linked quarter and the first quarter of 2024.

Other loan expenses during the first quarter of 2025 increased $0.3 million when compared to the linked quarter. Other loan expenses were relatively flat when compared to the first quarter of 2024.

Operating lease expense decreased when compared to the linked quarter due to less expense associated with Vantage and increased compared to the same period in 2024 due to the volume of leases.

Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. The increase in franchise tax expense for the first quarter of 2025 compared to the linked quarter relates to the prior quarter including a true-up driven by lower than estimated apportionment in Ohio. The increase in franchise tax expense for the first quarter of 2025 when compared to the first quarter of 2024 was due to higher equity.

Marketing expense for the first quarter of 2025 decreased when compared to both the linked quarter and the first quarter of 2024 due to less advertising expenses and promotional items.

Communication expense remained relatively flat for the first quarter of 2025 when compared to both the linked quarter and the same period of the prior year.

Travel and entertainment expense decreased over both the linked quarter and the same period for 2024 due to the timing of travel. Travel and entertainment expense will commonly spike in the fourth quarter due to additional travel and holiday gatherings.

Other non-interest expense for the first quarter of 2025 decreased when compared to the linked quarter primarily due to a a legal contingency accrued at the end of the prior period of approximately $1.0 million. Other non-interest expense for the first quarter of 2025 compared to the same period of 2024 increased due to an increase in miscellaneous expense of $0.4 million and postage which was approximately $0.3 million.

Income Tax Expense

Peoples recorded income tax expense of $7.0 million with an effective tax rate of 22.4% for the first quarter of 2025, compared to income tax expense of $7.9 million with an effective tax rate of 22.7% for the linked quarter and income tax expense of $8.3 million with an effective tax rate of 21.8% for the first quarter of 2024. The decrease in income tax expense when compared to the linked quarter and to the first quarter of 2024 was primarily due to lower net income.

Additional information regarding income taxes can be found in "Note 13. Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2024 Form 10-K.

Pre-Provision Net Revenue (Non-US GAAP)

Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This measure represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings.

The decrease in the PPNR for the first quarter of 2025 compared to the linked quarter and the first quarter of 2024 was driven by lower accretion income.

Efficiency Ratio (Non-US GAAP)

The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of FTE net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses FTE net interest income.

(a) Interest income and yields are presented on a fully tax-equivalent basis, using a 21% statutory federal corporate income tax rate.

The efficiency ratio for the first quarter of 2025 was 60.7%, compared to 59.6% for the linked quarter and 58.1% for the first quarter of 2024. The efficiency ratio increased compared to the linked quarter mainly as the result of higher non-interest expense, which was driven by annual expenses that occur in the first quarter of each year. The efficiency ratio increased for the first quarter of 2025 compared to the first quarter of 2024 due to higher non-interest expense. Peoples continues to focus on controlling expenses, while recognizing necessary costs in order to continue growing the business.

Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)

In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance. The return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses and acquisition-related expenses.

(a) Based on a 21% statutory federal corporate income tax rate.

The return on average assets and the return on average assets adjusted for non-core items for the first quarter of 2025 decreased when compared to the linked quarter, due to a decrease in annualized net income resulting from higher non-interest expense and lower net interest income. The decrease in the return on average assets and return on average assets adjusted for non-core items for the first quarter of 2025, compared to the first quarter of 2024, was attributable to a decrease in annualized net income resulting from higher non-interest expense and an increase in average assets.

Return on Average Tangible Equity Ratio (Non-US GAAP)

The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio 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 Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.

(a) Based on a 21% statutory federal corporate income tax rate.

The return on total average stockholders' equity and average tangible equity ratios decreased when compared to the linked quarter due to a decrease in annualized net income mainly attributable to an increase in non-interest expense and a decrease in net interest income. The decreases in the return on total average stockholders' equity and average tangible equity ratios for the first quarter of 2025 compared to the same period of 2024 was driven by lower net income.