Peoples Bancorp Inc. Announces Second Quarter 2021 Results

MARIETTA, Ohio, July 20, 2021 /PRNewswire/ -- Peoples Bancorp Inc. ("Peoples") (Nasdaq: PEBO) today announced results for the quarter and six months ended June 30, 2021.  Peoples reported net income of $10.1 million for the second quarter of 2021, representing earnings per diluted common share of $0.51.  In comparison, Peoples recognized earnings per diluted common share of $0.79 for the first quarter of 2021 and earnings per diluted common share of $0.23 for the second quarter of 2020.  For the six months ended June 30, 2021, Peoples recorded net income of $25.6 million, or $1.31 per diluted common share, compared to $4.0 million, or $0.19 per diluted common share, for the six months ended June 30, 2020.

Non-core items, and the related tax effect of each, contained in net income included gains and losses on investment securities, and asset disposals and other transactions, acquisition-related costs, pension settlement charges, severance expenses, COVID-19-related expenses and a contribution to Peoples Bank Foundation, Inc.  Non-core items negatively impacted earnings per diluted common share by $0.30 for the second quarter of 2021, $0.11 for the first quarter of 2021, and $0.06 for the second quarter of 2020.  Non-core items negatively impacted earnings per diluted common share by $0.32 and $0.08 for the six months ended June 30, 2021, and 2020, respectively.

"During the quarter we have several accomplishments that we are proud of.  We integrated North Star Leasing into our operations," said Chuck Sulerzyski, President and Chief Executive Officer.  "This additional line of business is growing as we anticipated, which is reflected in our results for the quarter.  We completed the acquisition of Justice and Stamper Insurance Agency in Pikeville, Kentucky in May.  We also were very honored to be recognized by Forbes magazine as the second Best-in-State Bank both in Ohio and West Virginia, one of only sixteen banks across the country to be recognized in two or more states, along with earning the top workplace designation from Cleveland.com and Cincinnati.com in Ohio.  We have spent a considerable amount of time planning with our partners at Premier Financial Bancorp, Inc. and still anticipate on closing later in the third quarter." 

Acquisition Announcements:
On March 29, 2021, Peoples and Premier Financial Bancorp, Inc. ("Premier") jointly announced the signing of a definitive Agreement and Plan of Merger dated March 26, 2021 (the "Merger Agreement") pursuant to which Peoples will acquire, in an all-stock merger, Premier, a bank holding company headquartered in Huntington, West Virginia, and the parent company of Premier Bank, Inc. ("Premier Bank") and Citizens Deposit Bank and Trust, Inc. ("Citizens").  Under the terms and subject to the conditions of the Merger Agreement, Premier will merge with and into Peoples (the "Merger"), and Premier Bank and Citizens will subsequently merge with and into Peoples' wholly-owned subsidiary, Peoples Bank, in a transaction valued at approximately $292.3 million. The Merger is expected to close during the third quarter of 2021, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Peoples.  Premier shareholders approved the Merger at a special shareholder meeting held on July 1, 2021.  Peoples' special meeting of shareholders is on July 22, 2021.  Peoples has received approval of the proposed Merger from the Federal Reserve Bank of Cleveland and continues to await approval from the Ohio Division of Financial Institutions. At the time of closing, the financial services offices of Premier Bank and Citizens will become branches of Peoples Bank. 

COVID-19:
The income statement and balance sheet results as of and for the three and six months ended June 30, 2021 continued to be affected by ongoing developments related to COVID-19, the reactions of government authorities, individuals and businesses, and the impact on the economy, specifically in Peoples' market area.  Many of the limitations imposed by state and local governments were largely removed by the end of the second quarter of 2021; however, the impact caused by the previous closures continued to significantly impact the economy during the second quarter of 2021.  The Board of Governors of the Federal Reserve System ("Federal Reserve Board") maintained the Federal Funds interest rate effective target range at 0.00% to 0.25% during the second quarter of 2021.  Additionally, the London Interbank Offered Rate ("LIBOR") and the prime rate both remained historically low throughout the second quarter of 2021, which impacted results for the quarter.

The federal government's passage of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act resulted in the creation of the Paycheck Protection Program ("PPP") targeted to provide small businesses with financial support to cover payroll and certain other specific types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the SBA and, therefore, carry no related allowance for credit losses.  These loans earn 1% interest, and participating banks receive an origination fee of between 1% and 5%, based on the size of the PPP loan. An extension of this economic relief occurred with the enactment of the Consolidated Appropriations Act, 2021 in December 2020.  As of June 30, 2021, Peoples had $187.6 million aggregate principal amount in PPP loans outstanding, which were included in commercial and industrial loan balances, compared to $349.9 million at March 31, 2021.  During the second quarter of 2021, Peoples received forgiveness payments from the SBA of $186.3 million on previously originated PPP loans and originated new PPP loans in the aggregate principal amount of $22.0 million.  During the first quarter of 2021, Peoples received forgiveness payments from the SBA of $155.7 million on previously originated PPP loans and originated new PPP loans in the aggregate principal amount of $130.8 million. Peoples recognized interest income on deferred loan fees/costs of $3.4 million and $4.7 million during the second and first quarters of 2021, respectively, along with $726,000 and $869,000 of interest earned on PPP loans during the second and first quarters of 2021, respectively.  At June 30, 2021, Peoples had $7.1 million in net deferred loan fees/costs to recognize over the remaining terms of the PPP loans, which is generally five years. 

Interest income was negatively impacted by the reduction in interest rates by the Federal Reserve Board in 2020 and the low interest rates were maintained during the first six months of 2021.  Additionally, variable rate commercial loans that are subject to changes in the LIBOR and the prime rate were adjusted downward in 2020 and remained low in the first six months of 2021, which caused interest income and net interest margin to remain at low levels.  The addition of North Star Leasing ("NSL") has offset this impact by adding 29 basis points to the net interest margin during the quarter.  The impact of the prepayment speed activity within Peoples' investment securities portfolio was reduced during the second quarter of 2021 due to efforts previously undertaken to reposition the portfolio. 

Unemployment benefits that included a federal subsidy of $300 per week for individuals who had been displaced due to business closures or layoffs were stopped by the end of the second quarter of 2021.  The various stimulus payments provided by the government have led to an overall increase in deposit balances and decreased commercial and consumer line of credit utilization.

Peoples incurred non-core non-interest expenses as a result of COVID-19.  COVID-19-related expenses recognized during the second and first quarters of 2021 were $210,000 and $292,000, respectively, and were primarily related to  providing Peoples' employees meals in support of local businesses, assisting employees with childcare and elder care needs, as well as taking extra precautions in cleaning facilities.  Also included in the COVID-19-related expenses was the purchase of a computer software application in the first quarter of 2021 that was used in assisting clients with the PPP application and forgiveness process.  

North Star Leasing:
Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 (the "Asset Purchase Agreement"), with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as "North Star Leasing". The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021.  Peoples Bank acquired assets comprising NSL's equipment finance business and assumed from NSL certain specified liabilities for total consideration of $116.6 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. NSL originates, underwrites and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $25.2 million and preliminary other intangibles of $13.5 million, which included customer relationship intangible and non-compete agreements related to this transaction. Peoples also recorded preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. As of June 30, 2021, leases had grown to $95.6 million. 

Peoples Premium Finance:
Effective after the close of business on June 30, 2020, Peoples closed on the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance ("TPF"), a division of TBK Bank, SSB.  Based in Kansas City, Missouri, the division operating as Peoples Premium Finance provides insurance premium financing loans for commercial customers to purchase property and casualty insurance products through Peoples Premium Finance's growing network of independent insurance agency partners nationwide. Peoples Bank acquired $84.4 million in loans at the acquisition date, after fair value adjustments.  Peoples also recorded $4.3 million of other intangible assets and $5.5 million of goodwill related to the acquisition. As of June 30, 2021, Peoples Premium Finance loans had grown to $117.1 million.

Statement of Operations Highlights:

• Net interest income increased $4.1 million, or 11%, compared to the linked quarter and increased $4.8 million, or 14%, compared to the second quarter of 2020.
• Net interest margin increased 19 basis points to 3.45% for the second quarter of 2021, compared to 3.26% for the linked quarter and increased 26 basis points compared to 3.19% for the second quarter of 2020. The increase in net interest margin compared to the linked quarter was driven by the addition of NSL.
• The increase in net interest income for the second quarter of 2021, compared to the second quarter of 2020, reflected the impact of the additional interest income from NSL, PPP loans, premium finance loans and investment securities coupled with lower funding costs.
• Peoples recorded a provision for credit losses of $3.1 million for the second quarter of 2021, compared to a recovery of $4.7 million for the first quarter of 2021, and a provision for credit losses of $11.8 million for the second quarter of 2020.
• The provision for credit losses for the second quarter was attributable to the day-one impact of $3.3 million for the leases acquired from NSL.
• Net charge-offs were $0.8 million, or 0.09% of average total loans annualized, for the second quarter of 2021.
• Total non-interest income, excluding net gains and losses, decreased $1.1 million, or 6%, compared to the linked quarter, and increased $1.2 million, or 8%, compared to the second quarter of 2020.
• The decrease in non-interest income, excluding gains and losses, compared to the first quarter of 2021 was largely driven by lower insurance income. Insurance income recognized in the first quarter of 2021 included $2.0 million in annual performance-based insurance commissions that are recognized in the first quarter of each year.
• Total non-interest income, excluding net gains and losses, for the second quarter of 2021 was 29% of total revenue.
• Total non-interest expense increased $1.9 million, or 5%, compared to the linked quarter and $8.1 million, or 25%, compared to the second quarter of 2020.
• The increase in total non-interest expense for the second quarter of 2021 was primarily due to the acquisition of NSL, which added $1.1 million in salaries and employee benefit costs and $695,000 in intangible asset amortization.
• The second quarter of 2021 included non-core expenses of $2.5 million, which included $2.3 million of acquisition-related expenses and $210,000 of expenses related to COVID-19. The linked quarter had $2.8 million of non-core expenses and the second quarter of 2020 had $1.2 million.
• For the second quarter of 2021, the efficiency ratio was 68.6%. When adjusted for non-core items, the efficiency ratio was 64.2% for second quarter of 2021.

Balance Sheet Highlights:

• Period-end total loan balances were down $37.5 million compared to March 31, 2021.
• The decrease in period-end loan balances was the result of PPP forgiveness during the second quarter of $186.3 million.
• Excluding PPP loans and leases acquired from NSL, loan growth for the quarter was $29.2 million, or 4% annualized.
• Average loan balances increased for the quarter, compared to the linked quarter, and were driven by a $86.5 million increase in the average balances of leases, offset by a $58.1 million reduction in average PPP loans.
• Asset quality metrics were generally stable during the quarter.
• Annualized net charge-offs for the quarter remained low at 0.09% of average loans.
• The provision for credit losses recorded during the quarter was driven by the day-one impact to the allowance for credit losses required as a result of the NSL acquisition.
• Delinquency trends improved as loans considered current comprised 99.1% of the loan portfolio at June 30, 2021, compared to 98.8% at March 31, 2021.
• Nonperforming assets increased $1.1 million compared to March 31, 2021. The increase was primarily related to nonperforming leases acquired from NSL.
• Criticized loans decreased $2.6 million during the second quarter of 2021. The decrease was largely the result of pay-offs of several smaller commercial loans.
• Classified loans decreased $6.9 million during the second quarter of 2021. The decrease was driven by the upgrade of one commercial and industrial relationship and the pay-off of several smaller commercial loans.
• Period-end total deposit balances at June 30, 2021 decreased $71.6 million, or 2%, compared to March 31, 2021.
• The decrease in total deposits compared to March 31, 2021 was driven primarily by a $38.7 million reduction in money market deposits, a $25.0 million decrease in non-interest bearing deposits and a $17.1 million decline in certificates of deposit.
• Total demand deposit balances were 45% of total deposit balances at June 30, 2021 and at March 31, 2021.

Net Interest Income:
Net interest income was $39.7 million for the second quarter of 2021, an increase of $4.1 million, or 11%, compared to the linked quarter.  Net interest margin was 3.45% for the second quarter of 2021, compared to 3.26% for the linked quarter.  The increases in net interest income and net interest margin reflected the positive impact of leases acquired from NSL and PPP loan forgiveness payments received during the second quarter.  Net interest income and net interest margin continue to be impacted by the low interest rate environment caused by COVID-19 that continued throughout the second quarter of 2021.  Interest on leases was $4.2 million for the second quarter of 2021.  A reduction in the cost of funds benefited net interest income compared to the linked quarter, and also contributed to the improvement in net interest margin. 

Net interest income for the second quarter of 2021 increased $4.8 million, or 14%, compared to the second quarter of 2020.  Net interest margin increased 26 basis points compared to 3.19% for the second quarter of 2020.  The increase in net interest income compared to the second quarter of 2020 was driven by lease income, PPP loan income, premium finance loan income and a reduction of 15 basis points on the cost of funds, which were offset partially by a reduction in yield on other loans, other than leases, PPP loans, and investment securities.   

Accretion income, net of amortization expense, from acquisitions was $821,000 for the second quarter of 2021, $383,000 for the first quarter of 2021 and $955,000 for the second quarter of 2020, which added 7 basis points, 4 basis points and 9 basis points, respectively, to net interest margin.  The increase in accretion income compared to the linked quarter was a result of the acquisition of NSL. 

For the first six months of 2021, net interest income increased $5.8 million, or 8%, compared to the first six months of 2020, while net interest margin increased two basis points to 3.36%.  The change in net interest income was the result of lower funding costs due to a shift from higher cost overnight FHLB advances to lower cost brokered deposits, as well as a higher volume of loans due to the NSL and premium finance acquisitions.     

Accretion income, net of amortization expense, from acquisitions was $1.2 million for the six months ended June 30, 2021, compared to $2.0 million for the six months ended June 30, 2020, which added 6 and 10 basis points, respectively, to net interest margin. 

Provision for (Recovery of) Credit Losses:
The provision for credit losses was $3.1 million for the second quarter of 2021, compared to a recovery for credit losses of $4.7 million for the linked quarter and a provision for credit losses of $11.8 million for the second quarter of 2020.  The change in the provision for credit losses compared to the linked quarter was primarily due to the day-one allowance for credit losses of $3.3 million related to the leases acquired from NSL, which was recognized in the second quarter of 2021.  As the lease portfolio grew over the second quarter of 2021, an additional reserve of $427,000 was required for leases, based on the current expected credit loss ("CECL") model.  Excluding leases, the reduction of specific reserves on individually evaluated loans resulted in a recovery of $931,000 for the second quarter of 2021.  Compared to the second quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, coupled with the day-one allowance for credit losses required that resulted from the acquisitions of NSL in the second quarter of 2021.  Net charge-offs for the second quarter of 2021 were $780,000, or 0.09% of average total loans annualized, compared to net charge-offs of $1.1 million, or 0.13% of average total loans annualized, for the linked quarter and net recoveries of $369,000, or 0.05% of average total loans annualized, for the second quarter of 2020.  Net charge-offs for the six months ended June 30, 2021 were $1.8 million, or 0.11% of average total loans annualized, compared to $129,000, or 0.01% of average total loans annualized for the six months ended June 30, 2020. Net charge-offs for the second quarter included $414,000 in leases that were charged-off.  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.  Net losses realized during the second quarter of 2021 were $326,000, compared to net losses of $363,000 for the linked quarter, and net losses of $60,000 in the second quarter of 2020.  Net losses for the second quarter of 2021 were driven primarily by losses on the sale of investment securities.  During the second quarter of 2021, Peoples sold $33.6 million of available-for-sale investment securities and incurred a net loss of $202,000.  Net losses for the first quarter of 2021 were also driven primarily by losses on the sale of investment securities.  During the first quarter of 2021, Peoples sold $25.3 million of available-for-sale investment securities, incurred a net loss of $409,000, and reinvested a portion of the proceeds into higher yielding investments that were less sensitive to prepayment speeds.  

For the first six months of 2021, net losses were $689,000, compared to net gains of $172,000 for the first six months of 2020.  Net losses for the first six months of 2021 were primarily the result of the sales of available-for-sale investment securities noted above. Net gains recognized during the first six months of 2020 were the result of gains recognized on the sale of investment securities, offset partially by losses on asset disposals.

Total Non-interest Income, Excluding Net Gains and Losses:
Total non-interest income, excluding net gains and losses, for the second quarter of 2021 was down $1.1 million compared to the linked quarter.  The decline in non-interest income, excluding net gains and losses, was the result of a decrease in insurance income of $1.9 million, due to the annual performance-based insurance commissions of $2.0 million     recognized in the first quarter of 2021.  Mortgage banking income was down $320,000 which was driven by lower originations compared to the prior quarter.  The decreases in insurance income and mortgage banking income were offset partially by increases in electronic banking income, and trust and investment income.            

Compared to the second quarter of 2020, non-interest income, excluding net gains and losses, was up $1.4 million, or 10%.  Trust and investment income increased $904,000, electronic banking income increased $895,000 and other income increased $381,000.  The increase in trust and investment income was due to an increase in the market value of assets under management coupled with new accounts added during the first half of 2021.  Electronic banking income increased in the second quarter of 2021 due to an increase in interchange income earned from customer's debit and credit card usage during the quarter.  Other income increased in the second quarter of 2021 due to other fee income of $245,000 recognized on leases related to the sale of leases and early termination of leases.

For the first six months of 2021, total non-interest income, excluding net gains and losses, increased $3.2 million, compared to the first six months of 2020.  The increase was caused by higher electronic banking income, trust and investment income, and insurance income.  Electronic banking income was up due to an increase in debit and credit card transactions.  The increase in trust and investment income was due to an increase in market value of assets under management along with new accounts added during the first half of 2021.  The increase in insurance income was due to an increase in the annual performance-based insurance commissions and the addition of new customers. 

Total Non-interest Expense:
Total non-interest expense was up $1.9 million, or 5%, for the three months ended June 30, 2021, compared to the linked quarter.  The increase in total non-interest expense for the second quarter of 2021 was primarily due to the acquisition of NSL, which added $1.1 million in salaries and employee benefit costs and $695,000 in intangible asset amortization during the second quarter of 2021.  Total non-interest expense in the second quarter of 2021 contained non-core expenses including acquisition-related expenses of $2.3 million, $210,000 in COVID-19-related expenses and $14,000 in severance expenses.  During the first quarter of 2021, non-core expenses included acquisition-related expenses of $1.9 million, a $500,000 contribution to Peoples Bank Foundation, Inc., $292,000 in COVID-19-related expenses and $49,000 in severance expenses.

Compared to the second quarter of 2020, total non-interest expense increased $8.1 million, or 25%, primarily due to an increase in salaries and employee benefit costs of $3.9 million, acquisition-related expenses of $2.3 million, and an increase in amortization of intangible assets of $640,000.  The increase in salaries and employee benefit costs and amortization of intangible assets were primarily the result of the acquisitions of NSL and premium finance.  Acquisition-related expenses increased in the second quarter of 2021 due to the closing of the NSL acquisition and pending merger with Premier. 

For the six months ended June 30, 2021, total non-interest expense increased $11.8 million compared to the same period last year.  The variance was driven primarily by increases of $4.8 in salaries and employee benefit costs, $4.1 million in acquisition-related costs, and data processing and software costs of $1.4 million.  These changes were partially offset by decreases in pension settlement charges and COVID-19-related expenses. Similar to the quarterly comparisons, the acquisitions of NSL and premium finance increased salaries and employee benefit costs, as well as amortization of intangible assets. 

The efficiency ratio for the second quarter of 2021 was 68.6%, compared to 70.4% for the linked quarter, and 62.3% for the second quarter of 2020.  The change in the efficiency ratio compared to the linked quarter was primarily due to the increase in net interest income mentioned above.  The efficiency ratio, adjusted for non-core items, was 64.2% for the second quarter of 2021, compared to 65.2% for the linked quarter and 59.9% for the second quarter of 2020.  Peoples continues to control expenses, while recognizing some necessary costs in order to continue growing the company. 

Income Tax Expense: 
Peoples recorded income tax expense of $2.4 million for the second quarter of 2021, compared to income tax expense of $3.8 million for the linked quarter and income tax expense of $1.1 million for the second quarter of 2020.  Income tax expense for the second quarter of 2021 was down, compared to the linked quarter, due to lower pre-tax income recognized.  Income tax expense was up for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, due to higher pre-tax income.     

Loans:
Period-end total loan balances at June 30, 2021 decreased $37.5 million compared to March 31, 2021.  The decrease in period-end loans balances was driven by $186.4 million in forgiveness received on PPP loans during the quarter, offset partially by $22.0 million in new PPP originations that were completed earlier in the quarter and $95.6 million in leases.  Excluding PPP loan balances and the lease balances, period-end loan balances grew 4% annualized for the three months ended June 30, 2021. 

Period-end total loan balances decreased $30.7 million compared to December 31, 2020.  The decrease was driven by PPP loan forgiveness for the first six months of 2021, offset partially by the leases acquired from NSL and continued growth in consumer indirect loans of $34.4 million.   Excluding PPP loans and the leases, period-end loan balances grew 3% annualized for the six months ended June 30, 2021.

Period-end total loan balances increased $11.2 million compared to June 30, 2020; however, the mix of loans changed significantly.  The acquisition of premium finance added $117.1 million in loan balances as of June 30, 2021 and the NSL acquisition added $95.6 million in leases as of June 30, 2021.  Consumer indirect loans grew $87.6 million, while commercial real estate loans grew $33.8 million and commercial and industrial loans, excluding PPP loans, grew $5.5 million.  Consumer indirect loan originations continued to grow, which was driven by customer demand.  The growth above was muted by decreases in PPP loans of $270.1 million and residential real estate loans of $46.5 million. Residential real estate loans were down due to lower refinance activity. 

Quarterly average loan balances increased $55.0 million, or 2%, in the second quarter of 2021 compared to the linked quarter.  The growth was driven by leases acquired at the beginning of the second quarter of 2021.  This increase was offset by a decrease in average PPP loans, which are included with commercial and industrial loan balances, of $59.1 million, or 17%, while average residential real estate loans were down $7.0 million, or 1%.  Residential real estate average loan balances decreased because of lower refinance activity.  The average yield on loans increased 24 basis points to 4.50% for the second quarter 2021, compared to the linked quarter, due primarily to the acquisition of NSL.

Compared to the second quarter of 2020, quarterly average loan balances increased $162.1 million, or 5%, driven by leases acquired, premium finance loans acquired and originated and indirect consumer loan originations.  Average indirect consumer loan balances increased $107.2 million, or 25%, compared to the second quarter of 2020. 

For the first six months of 2021, average loan balances grew $327.9 million, or 11%, compared to 2020.  The increase was driven by the PPP loans and leases acquired, coupled with premium finance loans and originated loan growth.  The yield on loans decreased 11 basis points to 4.38% for the first six months of 2021, compared to 2020, due primarily to the low interest rate environment and accelerated premium amortization of loans that were paid off.

Asset Quality:
Asset quality metrics remained stable during the quarter.  Total nonperforming assets increased $1.1 million, or 4%, compared to March 31, 2021, and were down $1.6 million and $86,000 compared to December 31, 2020 and June 30, 2020, respectively.  The increase in nonperforming assets compared to the prior quarter was primarily attributable to nonperforming leases acquired from NSL.    Nonperforming assets as a percent of total loans and OREO were 0.80% at June 30, 2021, up from 0.76% at March 31, 2021, down from 0.84% at December 31, 2020 and flat compared to June 30, 2020.

Criticized loans, which are those categorized as special mention, substandard or doubtful, decreased $2.6 million, or 2%, compared to March 31, 2021, were down $12.8 million, or 10%, compared to December 31, 2020 and were $8.3 million, or 8% higher, compared to June 30, 2020.  As a percent of total loans, criticized loans were 3.37% at June 30, 2021, compared to 3.41% at March 31, 2021, 3.72% at December 31, 2020 and 3.14% at June 30, 2020.  The decrease in the amount of criticized loans compared to March 31, 2021 was primarily due to the pay-off of several smaller commercial loans.  Compared to December 31, 2020, the decrease in the amount of criticized loans was driven by the upgrade of one commercial and industrial relationship and the pay-off of several smaller commercial loans.  Compared to June 30, 2020, the increase in the amount of criticized loans was largely due to downgrades during the third quarter of 2020 of a few commercial relationships based on updated information on the borrowers that became available.  Classified loans, which are those categorized as substandard or doubtful, decreased $6.9 million, or 9%, compared to March 31, 2021, decreased $3.4 million, or 5%, compared to December 31, 2020 and were up $2.6 million, or 4%, compared to June 30, 2020.  As a percent of total loans, classified loans were 2.05% at June 30, 2021, compared to 2.23% at March 31, 2021, and 1.98% at June 30, 2020.  The decrease in classified loans was driven by the upgrade of one commercial and industrial loan relationship, and the pay-off of several smaller commercial loans.

Annualized net charge-offs were 0.09% of average total loans for the second quarter of 2021, compared to 0.13% for the linked quarter.  Annualized net recoveries were 0.05% of average total loans for the second quarter of 2020.  Annualized net charge-offs were 0.11% of average total loans for the first six months of 2021, compared to 0.01% for the first six months of 2020. 

At June 30, 2021, the allowance for credit losses was $47.9 million, $44.9 million at March 31, 2021, $50.4 million at December 31, 2020 and $54.4 million at June 30, 2020.  The change in the allowance for credit losses compared to March 31, 2021 was primarily due to the acquisition of NSL.  The decrease in the allowance for credit losses compared to December 31, 2020 and June 30, 2020 was related to the impact of COVID-19 and economic assumptions on the CECL model at that time.  The ratio of the allowance for credit losses as a percent of total loans was 1.42% at June 30, 2021, compared to 1.32% at March 31, 2021, 1.48% at December 31, 2020 and 1.62% at June 30, 2020. The ratio of the allowance for credit losses as a percent of total loans includes PPP loans that do not have an allowance because of the guarantee by the SBA.  The ratio of the allowance for credit losses as a percent of total loans would increase at June 30, 2021 to 1.51%, compared to 1.47% at March 31, 2021, 1.66% at December 31, 2020, and 1.88% at June 30, 2020, if PPP loans were excluded from each ratio.  The increase in the ratio of the allowance for credit losses as a percent of total loans at June 30, 2021, compared to March 31, 2021, excluding PPP loans, was a result of the NSL acquisition.

Deposits:
As of June 30, 2021, period-end deposit balances were down $71.6 million, or 2%, compared to March 31, 2021.  The decrease was driven by a decline in non-interest bearing checking accounts of $25.0 million, seasonal reduction in governmental deposits of $13.5 million and a decrease in money market deposits of $38.7 million, offset partially by increases in savings and other interest bearing transaction accounts. The overall decrease in non-interest bearing checking accounts was impacted by increased customer usage based on pent-up demand for goods and services, as the economy recovers from the pandemic.

Period-end deposit balances grew $322.2 million, or 8%, compared to December 31, 2020.  The increase was driven by an increase in non-interest bearing deposit accounts.  Customers maintained higher balances due primarily to economic stimulus provided by the government, as well as changes in customer buying habits.

Period-end deposit balances grew $207.7 million, or 5%, compared to June 30, 2020.  The increase was driven by economic stimulus provided by the government as well as changes in customer buying habits as the pandemic continued throughout 2020 and the first half of 2021.

Average deposit balances during the second quarter of 2021 increased $272.9 million, or 7%, compared to the linked quarter.  This increase was the result of economic stimulus provided by the Consolidated Appropriations Act, 2021.  Compared to the second quarter of 2020, quarterly average deposits increased $503.8 million, or 13%.  This increase was due to customers maintaining higher balances resulting from the various forms of fiscal stimulus provided by the CARES Act and Consolidated Appropriations Act, 2021, along with proceeds from PPP loans.  Total demand deposit accounts comprised 45% of total deposits at June 30, 2021 and March 31, 2021, and 42% at June 30, 2020.

Stockholders' Equity:
Total stockholders' equity at June 30, 2021 increased by $6.6 million compared to March 31, 2021, which was driven by net income for the quarter and an increase in accumulated other comprehensive income of $2.7 million, partially offset by dividends paid to shareholders of $7.1 million.  The change in accumulated other comprehensive income was the result of the changes in the market value of available-for-sale investment securities during the period. 

Total stockholders' equity at June 30, 2021 increased $9.8 million compared to December 31, 2020.  This increase was driven by net income for the first six months of 2021, offset by $13.9 million in dividends paid to shareholders and the change in accumulated other comprehensive income of $3.6 million to an accumulated other comprehensive loss of $2.2 million. 

Total stockholders' equity at June 30, 2021 increased $16.3 million, or 3%, compared to June 30, 2020, which was mainly due to $56.3 million in net income during the prior twelve-month period, offset by a decrease in accumulated other comprehensive income of $6.9 million and dividends paid of $27.8 million.  The decrease in accumulated other comprehensive income was the result of a lower market value related to the available-for-sale investment securities portfolio, which was driven by changes in interest rates from June 30, 2020, to June 30, 2021.

At June 30, 2021, the tier 1 risk-based capital ratio was 11.56%, compared to 12.65% at March 31, 2021, and 13.55% at June 30, 2020.  The common equity tier 1 risk-based capital ratio was 11.34% at June 30, 2021, compared to 12.42% at March 31, 2021, and 13.30% at June 30, 2020.  The total risk-based capital ratio was 12.75% at June 30, 2021, compared to 13.78% at March 31, 2021, and 14.80% at June 30, 2020.  Peoples adopted the five-year transition to phase in the impact of the adoption of CECL on regulatory capital ratios.  Compared to each of March 31, 2021 and June 30, 2020, the capital ratios were impacted by dividends paid to shareholders and an other comprehensive loss recognized in the first half of 2021, which both reduced capital.

Book value per common share and tangible book value per common share, which excludes goodwill and other intangible assets, were $29.78 and $18.51, respectively, at June 30, 2021, compared to $29.49 and $20.12, respectively, at March 31, 2021, $29.43 and $19.99, respectively, at December 31, 2020, and $28.57 and $19.70, respectively, at June 30, 2020.   The increase in stockholders' equity drove the change in book value per share compared to March 31, 2021. The change in tangible book value for all periods was caused by the intangible assets created with the NSL acquisition. 

The ratio of total stockholders' equity to total assets was 11.55% at June 30, 2021, up from 11.26% at March 31, 2021.  The tangible equity to tangible assets ratio, which excludes goodwill and other intangible assets, decreased 45 basis points compared to March 31, 2021, due primarily to the changes in stockholders' equity noted above.

The ratio of total stockholders' equity to total assets decreased 54 basis points compared to December 31, 2020, because assets grew faster than stockholders' equity due to the acquisition of NSL.  The tangible equity to tangible assets ratio decreased 104 basis points compared to December 31, 2020.

The ratio of total stockholders' equity to total assets increased 13 basis points compared to June 30, 2020.  The ratio of tangible equity to tangible assets decreased 65 basis points compared to June 30, 2020, because assets grew faster than stockholders' equity which was the result of the NSL and premium finance acquisitions.

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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 and has an established heritage of financial stability, growth and community impact.  Peoples had $5.1 billion in total assets as of June 30, 2021, and 89 locations, including 76 full-service bank branches in Ohio, West Virginia and Kentucky.  Peoples is a member of the Russell 3000 index of U.S. publicly-traded companies.  Peoples offers services through Peoples Bank (which includes the divisions of Peoples Investment Services, Peoples Premium Finance and North Star Leasing) and Peoples Insurance Agency, LLC.

Conference Call to Discuss Earnings:
Peoples will conduct a facilitated conference call to discuss second quarter 2021 results of operations on July 20, 2021 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 United States of America ("US GAAP").  Management uses these "non-US GAAP" financial measures in its analysis of Peoples' performance and the efficiency of its operations. Management believes that these non-US GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and peers.  These disclosures should not be viewed as substitutes for financial measures determined in accordance with US GAAP, nor are they necessarily comparable to non-US GAAP performance measures that may be presented by other companies.  Below is a listing of the non-US GAAP financial measures used in this news release:

• Core non-interest expense is non-US GAAP since it excludes the impact of acquisition-related expenses, pension settlement charges, severance expenses, the contribution to Peoples Bank Foundation, Inc. and COVID-19-related expenses.
• 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 non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.
• 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 non-US GAAP since it excludes the impact of acquisition-related expenses, pension settlement charges, severance expenses, COVID-19-related expenses, the contribution to Peoples Bank Foundation, Inc., 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, tangible equity to tangible assets ratio and tangible book value per common share measures are non-US GAAP 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 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 non-US GAAP 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 costs, pension settlement charges, severance expenses, the contribution to Peoples Bank Foundation Inc. and COVID-19-related expenses) divided by average assets. This measure is non-US GAAP since it excludes the after-tax impact of all gains and losses, acquisition-related costs, pension settlement charges, severance expenses, the contribution to Peoples Bank Foundation, Inc. and COVID-19-related expenses.
• Return on average tangible equity is calculated as annualized net income (less after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is non-US GAAP 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," and similar expressions.

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

As required by US GAAP, Peoples is required to evaluate the impact of subsequent events through the issuance date of its June 30, 2021 consolidated financial statements as part of its 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.