PART I – FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements and accompanying notes for Peoples Bancorp Inc [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS%20(Unaudited)) This section details the company's assets, liabilities, and equity at the end of the reporting period Consolidated Balance Sheet Summary (Unaudited) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$7,311,520** | **$7,207,304** | | Total Investment Securities | $1,796,332 | $1,743,220 | | Net Loans and Leases | $4,706,415 | $4,653,988 | | Goodwill | $292,597 | $292,397 | | **Total Liabilities** | **$6,491,977** | **$6,421,976** | | Total Deposits | $5,788,527 | $5,716,941 | | Short-term Borrowings | $490,670 | $500,138 | | **Total Stockholders' Equity** | **$819,543** | **$785,328** | [Consolidated Statements of Operations](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20(Unaudited)) This section outlines the company's revenues, expenses, and resulting net income over the reporting period Consolidated Statements of Operations Summary (Unaudited) | (Dollars in thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $72,878 | $54,310 | | Provision for (recovery of) credit losses | $1,853 | $(6,807) | | Total Non-interest Income | $19,060 | $20,050 | | Total Non-interest Expense | $56,479 | $51,629 | | **Net Income** | **$26,560** | **$23,577** | | **Earnings per common share - diluted** | **$0.94** | **$0.84** | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=NOTES%20TO%20THE%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations of accounting policies and specific financial data from the statements - Effective January 1, 2023, the company adopted ASU 2022-02, eliminating Troubled Debt Restructuring (TDR) accounting guidance, with **no material impact** on financial statements[23](index=23&type=chunk)[24](index=24&type=chunk) - The company utilizes an interest rate protection program for commercial loans involving offsetting interest rate swaps with a notional amount of **$381.2 million** as of March 31, 2023[144](index=144&type=chunk)[145](index=145&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=42&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses Q1 2023 financial performance, highlighting key drivers like net interest income and asset growth [Executive Summary](index=45&type=section&id=EXECUTIVE%20SUMMARY) This section summarizes key financial results and balance sheet changes for the first quarter of 2023 Q1 2023 Key Financial Highlights | Metric | Q1 2023 | Q4 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | | Net Income | $26.6M | - | $23.6M | | Diluted EPS | $0.94 | $0.95 | $0.84 | | Net Interest Income | $72.9M | $70.6M | $54.3M | | Net Interest Margin | 4.53% | 4.44% | 3.41% | | Provision for Credit Losses | $1.9M | $2.3M | $(6.8)M (Recovery) | - **Total assets grew to $7.31 billion**, a $104.2 million increase from year-end 2022, driven by growth in held-to-maturity securities and net loans[196](index=196&type=chunk) - **Total stockholders' equity increased by $34.2 million** to $819.5 million, reflecting net income and a decrease in accumulated other comprehensive loss[199](index=199&type=chunk) [Results of Operations](index=47&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the components of the company's operating results, including interest and non-interest income/expense - **Net interest income increased by 34% year-over-year**, with net interest margin expanding by 112 bps due to rising interest rates and a shift into higher-yielding leases[209](index=209&type=chunk)[210](index=210&type=chunk) - A **provision for credit losses of $1.9 million** was recorded in Q1 2023, contrasting with a $6.8 million recovery in Q1 2022, due to deteriorating macroeconomic conditions[214](index=214&type=chunk)[215](index=215&type=chunk) - Total non-interest income, excluding net gains/losses, increased by $1.2 million year-over-year, primarily driven by a **15% YoY growth in insurance income**[192](index=192&type=chunk)[223](index=223&type=chunk) - **Total non-interest expense rose 9% year-over-year** to $56.5 million, mainly due to higher costs related to organic growth and acquisitions[193](index=193&type=chunk) [Financial Condition](index=61&type=section&id=FINANCIAL%20CONDITION) This section reviews the company's balance sheet, including loans, deposits, capital, and interest rate sensitivity - **Total loans increased by $52.6 million** (4% annualized) from year-end 2022, reaching $4.76 billion[269](index=269&type=chunk) - The allowance for credit losses stood at **$53.3 million**, or **1.12% of total loans**, at March 31, 2023[278](index=278&type=chunk) - **Total deposits increased by $71.6 million** to $5.79 billion, driven by a $147.6 million increase in brokered CDs, while core deposits decreased[286](index=286&type=chunk) - The company's balance sheet is positioned to benefit from rising interest rates, with a **+100 bps rate shock estimated to increase net interest income by 1.4%** ($4.2 million)[299](index=299&type=chunk)[306](index=306&type=chunk) Regulatory Capital Ratios | Capital Ratios | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Common Equity Tier 1 | 12.22% | 11.92% | | Tier 1 | 12.49% | 12.19% | | Total (Tier 1 and Tier 2) | 13.35% | 13.06% | | Tier 1 leverage ratio | 9.02% | 8.92% | [Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate risk, with the balance sheet positioned as asset-sensitive - The company's primary market risk is **interest rate risk (IRR)**, managed by the Asset-Liability Committee (ALCO)[297](index=297&type=chunk)[298](index=298&type=chunk) Estimated Impact of Interest Rate Shocks (as of March 31, 2023) | Change in Interest Rate (Basis Points) | Estimated Change in Net Interest Income (12-months) | Estimated Change in Economic Value of Equity | | :--- | :--- | :--- | | +300 | +3.7% | -7.5% | | +200 | +2.6% | -4.9% | | +100 | +1.4% | -2.4% | | -100 | -2.9% | +0.4% | [Controls and Procedures](index=75&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management confirms the effectiveness of disclosure controls and procedures with no material changes in internal controls - Management concluded that as of March 31, 2023, the company's **disclosure controls and procedures were effective**[316](index=316&type=chunk) - **No material changes** occurred during the quarter that affected the company's internal control over financial reporting[317](index=317&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=75&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company faces no material litigation outside the ordinary course of business - The company is engaged in various litigation in the ordinary course of business, but management **does not expect a material adverse effect** on its financial condition[319](index=319&type=chunk) [Risk Factors](index=75&type=section&id=ITEM%201A.%20RISK%20FACTORS) A new risk factor was added concerning the potential industry-wide impact of recent failures at other banks - A **new risk factor was added in Q1 2023** regarding the potential negative impact from problems at other financial institutions, citing recent bank failures[320](index=320&type=chunk)[321](index=321&type=chunk) - Potential impacts from peer bank failures include **reduced customer confidence**, adverse effects on funding and liquidity, and increased regulatory costs[321](index=321&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) No shares were repurchased under the public program, though some were withheld for tax purposes on vested awards - **No common shares were repurchased** under the company's publicly announced $30 million share repurchase program during the first quarter of 2023[322](index=322&type=chunk) - A total of **29,006 shares were purchased or withheld** during Q1 2023, primarily to satisfy income tax obligations on vested restricted stock awards[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk) [Other Information](index=76&type=section&id=ITEM%205.%20OTHER%20INFORMATION) There is no other information to report for this item - None[327](index=327&type=chunk) [Exhibits](index=77&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the report, including corporate documents and required certifications - Lists various corporate documents filed as exhibits, including **merger agreements** with Premier Financial Bancorp, Inc and Limestone Bancorp, Inc[329](index=329&type=chunk) - Includes required **CEO and CFO certifications** under Rule 13a-14(a)/15d-14(a) and Section 1350[331](index=331&type=chunk)

Financial Data and Key Metrics Changes - The net interest margin for 2023 is expected to be between 4.4% and 4.6%, with the second quarter potentially coming in below this range due to merger-related adjustments [1] - The efficiency ratio was reported at 57.8% for the quarter, compared to 56.7% for the linked quarter, while adjusted for non-core expenses, it was 57.2% compared to 55.9% [28] - Diluted earnings per share (EPS) was reported at $0.94, which was $0.02 lower than previously reported due to an underreporting of weighted average diluted shares [47][62] Business Line Data and Key Metrics Changes - Net interest income grew by 3% compared to the linked quarter, and net interest margin expanded by 9 basis points [91] - Fee-based income increased by 9% compared to the linked quarter, primarily due to annual performance-based insurance commissions [65] - The loan portfolio grew by 4% on an annualized basis, with significant growth in commercial real estate loans (16% annualized) and consumer indirect loans (11% annualized) [90] Market Data and Key Metrics Changes - The company experienced a decline in non-interest bearing deposits, but this was offset by an increase in governmental deposits [85] - The loan-to-deposit ratio stood at 82% at March 31, unchanged from year-end [49] - Non-performing assets improved to 0.58% of total assets, down from 0.63% at year-end [57] Company Strategy and Development Direction - The company is focused on completing the merger with Limestone, expecting to achieve internal metrics on projected cost savings [71] - The strategy includes ensuring a full suite of products will be available in the Limestone markets, indicating a commitment to growth through acquisition [72] - The company anticipates a 21% increase in total non-interest expenses for 2023, excluding acquisition-related expenses, while aiming for earnings growth between 18% and 19% [104] Management's Comments on Operating Environment and Future Outlook - Management expressed a lack of optimism regarding the economy, stating that growth will primarily come from taking business away from competitors [15] - The company is preparing for potential challenges in the banking industry but remains confident in its financial stability and client relationships [83][84] - Management indicated that they do not foresee a recession impacting their operations significantly, maintaining a focus on organic growth [15][120] Other Important Information - The company incurred $551,000 in acquisition-related expenses for the quarter, negatively impacting diluted EPS by $0.02 [37] - The tangible equity to tangible assets ratio improved to 7.1%, up 41 basis points compared to year-end [98] - The company plans to issue a new release regarding the underreported diluted EPS [47] Q&A Session Summary Question: What is the company's outlook on funding costs? - Management noted that funding costs remained benign but acknowledged the need to maintain deposit balances actively [106] Question: How is the company preparing for the $10 billion asset threshold? - The company is engaging a third-party firm to assist with analysis and preparation, indicating a strategic approach to future growth opportunities [100] Question: What are the expectations regarding the Limestone merger's impact on office exposure? - Management indicated that they are assessing the office exposure from Limestone but did not provide specific figures during the call [112] Question: What is the company's view on non-interest bearing deposit flows? - Management acknowledged some seasonality in deposits and expected minimal deposit growth outside of the Limestone acquisition [119] Question: How does the company view the potential for a recession? - Management expressed that they do not foresee a recession impacting their guidance significantly and highlighted opportunities for growth even in challenging times [120]

Mergers and Acquisitions - Peoples Bancorp Inc. announced a definitive Agreement and Plan of Merger to acquire Limestone Bancorp Inc. for approximately $208.2 million, expected to close in Q2 2023[18] - The acquisition of Vantage included $154.9 million in leases and $106.9 million in third-party debt, with cash consideration of $54.0 million[20] - Peoples Insurance acquired an insurance agency for $4.4 million, recognizing intangibles of $2.1 million[19] Loan Portfolio Composition - As of December 31, 2022, Peoples Bank's commercial loans represented 54.4% of total loans, down from 59.3% in 2021[25] - The commercial real estate loan portfolio comprised 30.2% of total loans at December 31, 2022, compared to 34.7% at December 31, 2021[31] - Peoples Bank's construction loans made up 5.2% of total loans at December 31, 2022, an increase from 4.7% in 2021[32] - Peoples Bank's portfolio of insurance premium finance loans comprised 3.4% of total loans at December 31, 2022, up from 3.0% at December 31, 2021[35] - The portfolio of commercial equipment leases increased to 7.3% of total loans at December 31, 2022, compared to 2.7% at December 31, 2021[36] - Residential real estate loans represented 15.4% of total loans at December 31, 2022, down from 17.2% at December 31, 2021[39] - At December 31, 2022, outstanding home equity lines of credit comprised 3.8% of total loans, slightly increasing from 3.7% at December 31, 2021[43] - Consumer indirect loans accounted for 13.4% of total loans at December 31, 2022, compared to 11.8% at December 31, 2021[46] - Peoples Bank's consumer direct loans comprised 2.3% of total loans at both December 31, 2022, and December 31, 2021[49] Financial Performance and Capital Management - Peoples repurchased 263,183 common shares totaling $7.4 million during 2022 under its share repurchase program[21] - As of December 31, 2022, Peoples had $2.4 million in Paycheck Protection Program (PPP) loans outstanding, down from $87.1 million in 2021[29] - Investment securities made up 24.2% of total assets at December 31, 2022, compared to 23.8% at December 31, 2021[51] - The unfunded commitment related to Overdraft Privilege was $70.9 million at December 31, 2022[50] - As of December 31, 2022, Peoples had 1,267 full-time equivalent employees, an increase from 1,188 at the end of 2021, reflecting a growth of approximately 6.6%[62] - Peoples has implemented a $15 minimum wage across the organization, ensuring all associates are at or above this threshold as of January 2023[62] Regulatory Environment and Compliance - The Federal Deposit Insurance Corporation (FDIC) insures Peoples Bank's deposits up to $250,000 per separately insured depositor, backed by the full faith and credit of the U.S. government[77] - Peoples Bank is a member of the Federal Home Loan Bank (FHLB), which provides credit through advances, requiring the bank to maintain an investment in FHLB capital stock[76] - The FDIC assesses quarterly deposit insurance premiums based on perceived risk characteristics, with institutions deemed less risky paying lower rates[81] - The Basel III Capital Rules require a minimum common equity tier 1 capital ratio of 4.5%, a minimum tier 1 risk-based capital ratio of 6.0%, and a minimum total risk-based capital ratio of 8.0%[96] - The Federal Reserve Board has adopted risk-based capital guidelines that are sensitive to differences in risk profiles among banking organizations[95] - The BHC Act requires prior approval from the Federal Reserve Board for the acquisition of more than 5% of the voting shares of a commercial bank[85] - The Federal Reserve Board has established a system of prompt corrective action for insured depository institutions that do not meet minimum capital requirements[94] - Peoples Bank meets the capital ratio requirements to be deemed "well capitalized," with a common equity tier 1 capital ratio of at least 6.5%[105] - Current regulations restrict Peoples Bank from paying dividends that would cause total capital to fall below required minimum levels[109] - The Federal Reserve Board's policy requires financial holding companies to act as a source of financial strength to their banking subsidiaries, potentially limiting cash available for dividends[110] Cybersecurity and Operational Risks - Federal regulators emphasize the importance of cybersecurity measures, requiring multiple layers of security controls and business continuity planning[127] - A final rule effective May 2022 requires banking organizations to notify regulators of computer-security incidents within 36 hours[129] - Peoples has implemented a clawback policy for incentive compensation payments, applicable to all executives who received incentive awards[126] - Peoples has not detected significant data loss or material financial losses related to cybersecurity attacks, but risks remain high due to evolving threats and increased use of technology-based services[133] - Peoples employs a layered defensive approach to manage cybersecurity controls, including encryption and multi-factor authentication[132] - Peoples is exposed to operational risks, including cybersecurity risks and potential disruptions from third-party service providers, which could adversely affect operations and customer service[164][165] - Peoples relies on third-party vendors for essential services, and any operational difficulties faced by these vendors could materially affect Peoples' operations[183] - Peoples has implemented security controls to prevent unauthorized access to systems, but breaches could result in reputational damage and financial loss[175] Economic and Market Conditions - Economic conditions, including inflation and interest rate changes, could adversely affect Peoples' asset quality and loan demand[146] - Changes in interest rates could negatively affect Peoples' profitability, particularly if rates on deposits and borrowings increase faster than those on loans[147] - The ongoing conflict in Ukraine has resulted in significant market disruptions and could impact Peoples' business for an unknown period[155] - The economic impact of COVID-19 has negatively affected global economies, creating significant volatility and disruption in financial markets, which could continue to impact Peoples' business and financial condition[162] Internal Controls and Financial Reporting - Peoples identified a material weakness in internal control over financial reporting as of December 31, 2021, which was remediated by December 31, 2022[208] - Peoples has taken measures to remediate material weaknesses in internal controls and believes they have been remediated[210] - Management cannot assure that additional material weaknesses or restatements of financial results will not arise in the future[211] - The existence of material weaknesses could adversely affect Peoples' reputation and investor perceptions, potentially impacting the trading price of common shares[210] - Additional costs may be incurred to remediate material weaknesses in internal control over financial reporting[210] - Current controls and procedures may not be adequate to prevent or identify irregularities or errors in the future[211] Strategic Focus and Market Position - The company focuses on expanding its market share and improving operational efficiency through organic growth and targeted acquisitions[17] - The company focuses on integrating traditional banking products with non-traditional financial products, such as insurance and investment services[60] - Peoples has expanded its primary market area into larger metropolitan regions, including central, southwestern, and northeastern Ohio, as well as eastern Virginia, southern Maryland, Minnesota, and Washington, D.C.[61] - Peoples competes with various national, regional, and local financial institutions, including fintechs, which intensifies competitive pressure in its primary market[58] - Peoples' success depends on its ability to adapt to rapid technological changes in the financial services industry, which is crucial for maintaining competitiveness[200] - The company may face challenges in attracting and retaining key employees, particularly in rural areas where competition for talent is high[201] Recognition and Awards - Peoples has been recognized as one of America's Best Banks 2023 by Newsweek and as a Best Bank to Work For by American Banker in 2021 and 2022[62]

Financial Data and Key Metrics Changes - The company reported a net income of $26.8 million for Q4 2022, translating to $0.95 in diluted earnings per share, and a full-year net income of $101.3 million, more than doubling compared to 2021 [28] - The return on average stockholder equity increased to 13.9% from 12.9% in the linked quarter, and the return on average assets improved to 1.51% [29] - The efficiency ratio improved to 56.7% for Q4 2022 from 57.2% in the linked quarter and 62.7% in the prior year quarter [36] Business Line Data and Key Metrics Changes - Annualized loan growth was 8% compared to the linked quarter, with significant contributions from consumer indirect loans, which increased by 25% annualized [4][94] - Lease income grew to $1.3 million from $600,000 in the prior year quarter, and insurance income increased by 12% compared to Q4 2021 [13][14] - Fee-based income for the full year was up 14% compared to the prior year, driven by deposit account service charges from the Premier merger [14] Market Data and Key Metrics Changes - The allowance for credit losses stood at 1.1% of total loans, slightly lower than the linked quarter and down from 1.4% at the prior year-end [5] - Non-performing assets as a percentage of total assets improved to 0.63%, down from the linked quarter and prior year-end [31] - Total deposits declined by 3% compared to the linked quarter, primarily due to seasonal outflows of governmental deposits [18] Company Strategy and Development Direction - The company is focused on integrating the Limestone merger, expecting to close in Q2 2023, and anticipates loan growth of 25% to 30% including new balances from the merger [9][22] - The company aims to maintain high credit standards while managing credit quality and reducing exposure to risks [8] - The strategic focus includes growing core business while leveraging recent acquisitions to enhance efficiency and technology offerings [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving loan growth between 5% and 7% organically, with a robust pipeline despite challenges in the real estate market [66] - The company expects net interest margin for 2023 to be between 4.5% and 4.65%, with a slight increase in funding costs anticipated [46] - Management highlighted the importance of M&A as part of their strategy but indicated no immediate plans for further acquisitions in 2023 [80] Other Important Information - The company was recognized as the 2023 Best Small Bank in Ohio and as the Best Bank to Work For in 2022 by American Banker [20] - The efficiency ratio for the full year improved to 59.6% from 73.6% in 2021, indicating positive operating leverage [12] Q&A Session Summary Question: What is the outlook for the margin? - Management indicated that the margin is expected to be between 4.5% and 4.65%, influenced by loan growth and deposit costs [56][58] Question: What areas could impact loan growth? - Management noted that real estate market conditions and the speed of moving credits to the permanent market could affect loan growth [66] Question: What are the capital priorities for 2023? - Management stated that while they do not plan to pursue further acquisitions in 2023, they will continue to focus on maintaining a robust dividend and building capital levels [80]

Acquisitions - Peoples announced a definitive agreement to acquire Limestone Bank in an all-stock merger valued at approximately $208.2 million[196]. - On April 1, 2022, Peoples Insurance acquired an insurance agency in eastern Kentucky for total consideration of $3.8 million, recognizing preliminary intangibles of $2.1 million[196]. - Peoples completed the acquisition of Vantage on March 7, 2022, for total consideration of $82.9 million, acquiring assets including $154.9 million in leases[196]. - The acquisition of Vantage resulted in preliminary goodwill of $27.2 million and other intangible assets of $13.2 million[197]. - Peoples acquired $1.2 billion in loans and $1.8 billion in deposits from the Premier Merger, with a transaction valued at $261.9 million[198]. - Recent acquisitions, including Vantage and Premier, have positively impacted average balances in loans and deposits, contributing to overall growth[229]. Financial Performance - Peoples reported net income of $26.0 million for Q3 2022, with earnings per diluted common share of $0.92, compared to $0.88 in Q2 2022 and a loss of $0.28 in Q3 2021[201]. - Net interest income for Q3 2022 was $67.1 million, an increase of $5.6 million, or 9%, from the linked quarter, and up $24.5 million, or 57%, from Q3 2021[202]. - The net interest margin increased to 4.17% in Q3 2022, up from 3.84% in the linked quarter and 3.50% in Q3 2021[202]. - Total non-interest income, excluding net gains and losses, increased by $0.8 million in Q3 2022 compared to the linked quarter, driven by a $1.3 million increase in lease income[206]. - For the first nine months of 2022, total non-interest income, excluding gains and losses, increased by $9.8 million, or 19%, compared to the same period in 2021[207]. - The efficiency ratio for Q3 2022 was 57.2%, down from 58.8% in the previous quarter and significantly improved from 94.7% in Q3 2021[210]. - For the first nine months of 2022, the efficiency ratio was 60.7%, a notable decrease from 78.4% for the same period in 2021[211]. Assets and Liabilities - Total assets as of September 30, 2022, were $7.01 billion, down 4% from $7.28 billion at June 30, 2022[214]. - Total liabilities decreased to $6.25 billion at September 30, 2022, from $6.49 billion at June 30, 2022[215]. - Total stockholders' equity decreased by $26.3 million from June 30, 2022, primarily due to an other comprehensive loss of $41.6 million[217]. - Total assets increased to $7,124,108 thousand as of September 30, 2022, compared to $7,121,663 thousand in the previous quarter[224]. - Total loans reached $4,591,002 thousand with a net interest margin of 5.33% for the quarter ended September 30, 2022, up from 5.00% in the previous quarter[224]. - Total interest-bearing deposits amounted to $4,250,586 thousand, with an interest rate spread of 0.22% for the quarter[224]. Credit Quality - The allowance for credit losses was $52,719 thousand, slightly decreased from $54,148 thousand in the previous quarter[224]. - The provision for credit losses was $1.8 million in Q3 2022, compared to a recovery of $0.8 million in the linked quarter and a provision of $9.0 million in Q3 2021[204]. - Net charge-offs for the third quarter of 2022 were $1,688,000, representing 0.15% of average total loans on an annualized basis[315]. - Nonperforming assets (NPAs) were $45,095,000 as of September 30, 2022, remaining stable at 0.64% of total assets compared to June 30, 2022[317]. - The allowance for credit losses as a percentage of nonaccrual loans was 189.95% as of September 30, 2022, indicating strong coverage[317]. Regulatory and Risk Management - The company is subject to regulation by the Ohio Division of Financial Institutions, the Federal Reserve Bank of Cleveland, and the FDIC[194]. - Peoples' financial condition and results are influenced by risks related to the COVID-19 pandemic, interest rate changes, and competitive pressures[187]. - The company emphasizes the importance of maintaining required capital levels and adequate sources of funding and liquidity[189]. - The company is focused on managing interest rate risk exposure and ensuring adequate liquidity through its asset-liability management function[332]. - The ALCO has established an IRR management policy to monitor and manage the level of interest rate risk[334]. Taxation - The effective tax rate for Q3 2022 was 22.2%, compared to 21.6% in the previous quarter and a tax benefit of 27.4% in Q3 2021[212]. - For the first nine months of 2022, the income tax expense was $20.2 million with an effective tax rate of 21.4%, up from $4.0 million and 16.8% in the same period of 2021[275]. Operational Expenses - Total non-interest expense increased by $2.4 million, or 5%, in Q3 2022 compared to the linked quarter, primarily due to increases in salaries and employee benefits[208]. - For the nine months ended September 30, 2022, total non-interest expense increased by $18.0 million, or 13%, compared to the same period in 2021, driven by increases in salaries and employee benefits[209]. - Salaries and employee benefit costs rose to $28.618 million in Q3 2022, a 12.0% increase from $25.589 million in Q3 2021[257]. - Data processing and software expense increased to $3.279 million in Q3 2022, up 29.6% from $2.529 million in Q3 2021[264].

Financial Data and Key Metrics Changes - The company reported a net income of $26 million for Q3 2022, with diluted earnings per share at $0.92, showing an improvement compared to the linked quarter [8] - The efficiency ratio improved to 57.2% from 58.8% in the previous quarter, indicating positive operating leverage with revenues growing faster than expenses [9] - Return on average stockholders' equity increased by 31 basis points to 12.92%, while return on average assets rose by 5 basis points to 1.45% compared to the linked quarter [9] - Net interest income increased by 9% over the linked quarter to $67.1 million, with a net interest margin of 4.17% [10][23] - Fee-based income grew by 4% over the linked quarter, marking the highest quarterly revenue ever reported [10][29] Business Line Data and Key Metrics Changes - Excluding PPP loans, loan balances increased by over $35 million or 4% annualized compared to the linked quarter, with consumer indirect loans up $29 million or 21% annualized [13] - Commercial and industrial loan balances increased by $19 million, net of an $11 million decline in PPP balances due to forgiveness [13] - The allowance for credit losses comprised 1.15% of total loans at quarter end, slightly up from 1.14% at June 30, 2022 [12] Market Data and Key Metrics Changes - The company experienced improvements in credit quality, with reductions in both criticized and classified loans compared to the linked quarter [11][15] - Criticized loans declined nearly $17 million or 9%, while classified loans decreased $21 million or 18% [16][17] - Nonperforming loans also declined, with the portion of the loan portfolio considered current standing at 98.9% [18] Company Strategy and Development Direction - The company announced the merger with Limestone Bancorp Inc., which has $1.5 billion in assets and operates 20 branches in Kentucky, expected to close in Q2 2023 [6][43] - The merger aims to expand into strategically important markets in Kentucky, enhancing the company's market share and operational capabilities [43][44] - The company anticipates realizing 30% cost savings from the merger, with 75% expected in 2023 and 100% in 2024 [47] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in credit quality for future periods while monitoring the impact of high interest rates and economic conditions [20] - The company expects loan growth for the full year to be between 4% to 6% excluding PPP loans, with a projected net charge-off rate of 20 to 30 basis points for Q4 2022 [56][57] - For 2023, the company anticipates net interest margin between 4.4% and 4.6%, with loan growth of 5% to 7% [59] Other Important Information - The company recorded a provision for credit losses of $1.8 million for Q3 2022, which reduced diluted EPS by $0.05 for the quarter [11] - The tangible book value, excluding accumulated other comprehensive losses, grew at an 11% annualized rate compared to the linked quarter end [41] Q&A Session Summary Question: Background on the Limestone deal and timing - Management indicated that discussions with Limestone have been ongoing for years, and the timing is strategic due to market conditions and scarcity of suitable targets [66][68] Question: Credit quality of Limestone's portfolio - Management expressed confidence in Limestone's credit quality, noting that it mirrors their own portfolio standards [70] Question: Cost savings from the merger - Management expects 30% cost savings from the merger, primarily from systems and labor efficiencies, with system conversion planned for August [78] Question: Revenue synergies from the merger - Management did not model revenue synergies but anticipates opportunities for cross-selling and increased lending capacity [80] Question: Deposit mix changes - Management does not expect major shifts in deposit mix, aside from seasonal variations and retail CD runoff [93] Question: Future M&A plans - Management indicated a pause on further acquisitions to digest the Limestone deal, with no urgency to exceed $10 billion in assets [104]

Acquisitions and Mergers - Peoples Insurance acquired an insurance agency in eastern Kentucky for $3.8 million, recognizing preliminary intangibles of $2.1 million[196]. - Peoples completed the acquisition of Vantage for $82.9 million, acquiring assets including $157.5 million in leases and $107.1 million in third-party debt[196]. - Preliminary goodwill from the Vantage acquisition was recorded at $24.7 million, with other intangible assets totaling $13.2 million[197]. - The company acquired $1.82 billion in deposits through the Premier Merger, contributing to the increase in total liabilities[213]. - The company acquired $1.1 billion in loans during the Premier Merger, significantly contributing to the increase in total loans[294]. Financial Performance - Peoples reported net income of $24.9 million for Q2 2022, with earnings per diluted common share of $0.88, compared to $0.84 in Q1 2022 and $0.51 in Q2 2021[200]. - Net interest income for Q2 2022 was $61.5 million, an increase of $7.2 million, or 13%, from the linked quarter, and up $21.8 million, or 55%, from Q2 2021[201]. - The efficiency ratio for Q2 2022 improved to 58.8%, down from 66.8% in the linked quarter and 68.6% in Q2 2021[210]. - Pre-provision net revenue (PPNR) for Q2 2022 was $31.15 million, an increase from $22.73 million in Q1 2022 and $15.91 million in Q2 2021, attributed to higher net interest income from recent acquisitions and rising market interest rates[271]. - The adjusted revenue for Q2 2022 was $81.46 million, up from $74.75 million in Q1 2022 and $56.13 million in Q2 2021, driven by improved net interest income and non-interest income[275]. Assets and Liabilities - Total assets increased to $7.28 billion as of June 30, 2022, up 3% from $7.06 billion at December 31, 2021, and 44% from $5.07 billion at June 30, 2021, primarily due to the Vantage acquisition and Premier Merger[212]. - Total liabilities rose to $6.49 billion at June 30, 2022, an increase of 4.3% from $6.22 billion at December 31, 2021, and 45% from $4.48 billion at June 30, 2021, driven by governmental deposits and long-term borrowings from Vantage[213]. - Total stockholders' equity decreased by $21.5 million from March 31, 2022, and by $58.2 million from December 31, 2021, due to comprehensive losses and dividends paid, despite net income of $24.9 million for the quarter[214]. Credit Quality - The allowance for credit losses decreased to $54.148 million, or 1.14% of total loans, reflecting improved economic conditions[212]. - Net charge-offs for the second quarter of 2022 were $1,541 thousand, representing 0.14% of average total loans on an annualized basis[307]. - Nonperforming assets (NPAs) decreased to $46,934 thousand as of June 30, 2022, down from $47,369 thousand in March 2022[310]. - The ratio of nonaccrual loans to total loans was 0.64% as of June 30, 2022, a slight decrease from 0.70% in the previous quarter[310]. - The total allowance for credit losses decreased from $63,967,000 at December 31, 2021, to $52,346,000 at June 30, 2022, due to improved economic forecasts[303]. Deposits and Funding - As of June 30, 2022, total deposits decreased by $73.7 million, or 1%, compared to March 31, 2022, but increased by $1.7 billion, or 40%, compared to June 30, 2021[318]. - Non-interest-bearing deposits were $1,661,865 thousand as of June 30, 2022, while total deposits reached $5,929,225 thousand[317]. - Total interest-bearing deposits amounted to $4,267,360 thousand as of June 30, 2022, reflecting a decrease from $4,336,258 thousand as of March 31, 2022[317]. - Borrowed funds increased to $450,129 thousand as of June 30, 2022, compared to $345,885 thousand as of March 31, 2022, primarily due to a large individual customer deposit[320]. Interest Rate Risk Management - Peoples has entered into thirteen interest rate swap contracts with an aggregate notional value of $125.0 million as part of its interest rate risk management strategy[334]. - Estimated increase in net interest income with a 300 basis point increase in interest rates is $27,881 thousand, representing an 11.1% increase[329]. - Peoples' exposure to interest rate risk is primarily due to differences in the maturity or repricing of earning assets and interest-bearing liabilities[327]. - The economic value of equity decreased by $22,151 thousand (1.6%) with a 300 basis point increase in interest rates as of June 30, 2022[329]. Operational Challenges and Strategic Focus - Peoples' financial condition and results are influenced by risks related to the COVID-19 pandemic, interest rate changes, and competitive pressures[187]. - The company anticipates potential impacts from legislative and regulatory changes affecting capital actions and operational requirements[187]. - Peoples aims to manage strategic initiatives, including the integration of recent acquisitions, amidst ongoing economic challenges[187]. - The company emphasizes the importance of maintaining required capital levels and adequate sources of funding and liquidity[187].

Acquisition and Mergers - Peoples reported a total consideration of $3.8 million for the acquisition of an insurance agency with five locations in eastern Kentucky[190]. - The company has recently completed the merger with Premier and acquisitions of NSL and Vantage, aiming to expand commercial and consumer lending activities[181]. - Peoples paid $82,900,000 for the Vantage acquisition during Q1 2022, impacting cash reserves[274]. - Recent acquisitions, including Vantage and Premier, have positively impacted average balances of loans and deposits[212]. Financial Performance - Peoples reported net income of $23.6 million for Q1 2022, with earnings per diluted common share of $0.84, compared to $0.98 in Q4 2021 and $0.79 in Q1 2021[194]. - Annualized net income for Q1 2022 was $95,618 thousand, compared to $110,083 thousand in Q4 2021 and $62,711 thousand in Q1 2021[267]. - For the first quarter of 2022, net income was $23,577,000, a decrease of 15.5% from $27,747,000 in the previous quarter, but an increase of 52.5% from $15,463,000 in the same quarter of 2021[271]. - The increase in PPNR compared to Q1 2021 was primarily due to the impact of recent acquisitions, which improved net interest income and non-interest income[259]. Assets and Liabilities - Total assets increased to $7.24 billion as of March 31, 2022, a 2% increase from $7.06 billion at December 31, 2021, and a 41% increase from $5.14 billion at March 31, 2021[202]. - Total liabilities were $6.43 billion at March 31, 2022, up from $6.22 billion at December 31, 2021, primarily due to seasonal growth in governmental deposits and long-term borrowings from Vantage[203]. - Total stockholders' equity was $808.3 million at March 31, 2022, a decrease of $36.7 million from December 31, 2021, but an increase of $229.2 million, or 40%, compared to March 31, 2021[204]. Credit Quality and Risks - Peoples' financial condition and results of operations are influenced by the ongoing effects of the COVID-19 pandemic, which may impact sales volumes and loan delinquencies[181]. - The company anticipates potential credit risks and higher credit losses due to loan concentrations by location or industry[183]. - The allowance for credit losses decreased to $54.8 million, or 1.20% of total loans, compared to $64.0 million and 1.43% at December 31, 2021[202]. - The company recorded a provision for credit losses of $387,000 during Q1 2022 for non-purchased credit deteriorated leases acquired from Vantage[291]. Income and Expenses - Net interest income for Q1 2022 was $54.3 million, a decrease of $0.4 million, or 1%, from the linked quarter, but an increase of $18.7 million, or 53%, compared to Q1 2021[195]. - Non-interest expense for salaries and employee benefits rose to $27,729 thousand, a 33% increase compared to $20,759 thousand in Q1 2021, primarily due to additional salaries from acquisitions[238]. - Total non-interest income, excluding net gains and losses, increased by $1.0 million compared to the linked quarter, driven by higher insurance income and increased deposit account service charges[198]. - Total interest expense increased by $289,000 compared to the linked quarter, driven by higher funding costs[216]. Regulatory and Compliance - The company is subject to regulation by the Ohio Division of Financial Institutions, the Federal Reserve Bank of Cleveland, and the FDIC[188]. - The impact of legislative or regulatory changes may impose new and more stringent requirements on Peoples' business operations[181]. - As of March 31, 2022, Peoples' Common Equity Tier 1 (CET1) ratio was 11.51%, down from 12.52% at December 31, 2021[310]. Deposits and Loans - Total deposits increased by $140.4 million, or 2%, compared to December 31, 2021, and by $1.7 billion, or 39%, compared to March 31, 2021[305]. - Total originated loans increased to $3,146.8 million as of March 31, 2022, up from $3,050.8 million at December 31, 2021, representing a growth of 3.1%[280]. - The repayment of premium finance loans is secured by the underlying insurance policy, mitigating geographic risk[287]. - As of March 31, 2022, the outstanding principal balance of PPP loans was $42.9 million, down from $349.9 million a year earlier, reflecting a decrease of approximately 87.8%[290]. Operational Efficiency - The efficiency ratio for Q1 2022 was 66.8%, up from 62.7% in the linked quarter and down from 70.4% in Q1 2021, with an adjusted efficiency ratio of 64.8%[200]. - The company’s commercial lending activities are focused on Ohio, Kentucky, West Virginia, Virginia, Washington, D.C., and Maryland[287]. - The company experienced an influx of deposits, contributing to high cash balances in recent periods, influenced by recent acquisitions and PPP proceeds[212]. Market and Economic Conditions - Peoples' reliance on third-party vendors for technology and services poses risks that could affect customer confidence and operational efficiency[183]. - The recent increase in the Federal Reserve benchmark interest rate had minimal impact during Q1 2021 due to its timing[216]. - Interest rate sensitivity analysis indicated a potential increase in net interest income of $24.21 million (10.5%) with a 300 basis point increase in interest rates as of March 31, 2022[317].

Acquisitions and Mergers - Peoples Bancorp Inc. completed the acquisition of Vantage Financial for $54.0 million, enhancing its equipment financing capabilities[18] - The merger with Premier Financial Bancorp was valued at $261.9 million, resulting in the acquisition of $1.1 billion in loans and $1.8 billion in deposits[19] Loan Portfolio Composition - Peoples Bank's commercial loans represented approximately 59.3% of total loans as of December 31, 2021, indicating a slight increase from 59.0% in 2020[28] - As of December 31, 2021, commercial and industrial loans comprised 19.9% of Peoples Bank's total loan portfolio, down from 28.6% in 2020[33] - Peoples Bank's portfolio of commercial real estate loans comprised 34.7% of total loans at December 31, 2021, up from 27.3% at December 31, 2020[34] - Construction loans accounted for 4.7% of Peoples Bank's total loan portfolio at both December 31, 2021, and December 31, 2020[35] - Insurance premium finance loans made up 3.0% of total loans at December 31, 2021, having been acquired in 2020[38] - The portfolio of commercial equipment leases and equipment financing agreements represented 2.7% of total loans at December 31, 2021[39] - Residential real estate loans comprised 17.2% of total loans at December 31, 2021, compared to 16.9% at December 31, 2020[40] - Home equity lines of credit accounted for 3.7% of total loans at December 31, 2021, slightly increasing from 3.6% at December 31, 2020[44] - Consumer indirect loans represented 11.8% of Peoples Bank's total loan portfolio at December 31, 2021, down from 14.8% at December 31, 2020[48] - Peoples Bank's consumer direct loans comprised 2.3% of total loans at both December 31, 2021, and December 31, 2020[50] Financial Performance and Capital Management - Peoples Bancorp Inc. has a share repurchase program authorized for up to $30 million, with no repurchases made during 2021[22] - Investment securities comprised 23.8% of total assets at December 31, 2021, compared to 18.0% at December 31, 2020[52] - The unfunded commitment related to Overdraft Privilege was $74.0 million as of December 31, 2021[51] - Peoples Bank's commercial loan portfolio consisted of 72.6% variable interest rate loans as of December 31, 2021[29] - The company aims to improve operating efficiency by focusing on offices and markets with the greatest earnings opportunities[17] Regulatory Environment - Peoples Bank is subject to extensive regulation by federal and state agencies, impacting its operations and capital requirements[73] - The FDIC insures Peoples Bank's deposits up to $250,000 per depositor, providing a safety net for customers[81] - The bank's insurance premiums to the FDIC are determined based on its capital level and supervisory rating, which could affect its earnings if rates increase[83] - The minimum capital requirements under the Basel III Capital Rules include a common equity tier 1 capital ratio of 4.5%, a tier 1 risk-based capital ratio of 6.0%, and a total risk-based capital ratio of 8.0%[100] - The Community Bank Leverage Ratio (CBLR) framework allows eligible community banks to measure capital adequacy with a simple leverage ratio if they maintain a leverage ratio greater than 9.0%[107] Economic Impact and Challenges - The COVID-19 pandemic has negatively impacted customers, leading to various government and monetary relief measures[25] - The economic impact of COVID-19 has negatively affected Peoples' business, potentially leading to increased credit losses and operational disruptions[147] - The COVID-19 pandemic continues to adversely affect Peoples' asset quality, deposit levels, and loan demand, potentially impacting financial condition and results of operations[157] - Changes in interest rates significantly influence Peoples' net interest income, which is crucial for profitability; a faster increase in deposit rates compared to loan rates could negatively affect earnings[158] Cybersecurity and Operational Risks - Peoples Bank has not detected significant data loss or material financial losses related to cybersecurity attacks, but risks and exposures are expected to remain high due to the evolving nature of threats and increased use of technology-based services[136] - The company employs a layered defensive approach to cybersecurity, utilizing encryption and multi-factor authentication to protect sensitive data[136] - Peoples relies heavily on third-party vendors for operational services, which exposes the company to risks related to cybersecurity and operational disruptions[188] - The company has implemented security controls to prevent unauthorized access to its systems, but risks of data breaches remain, which could result in loss of customer confidence and business[182] Workforce and Employee Management - As of December 31, 2021, Peoples had 1,188 full-time equivalent employees, a significant increase from 894 in the previous year, reflecting its commitment to workforce growth[65] - The company faces challenges in attracting and retaining key employees, particularly in rural areas, which may require offering higher compensation to remain competitive[207] - Regulatory restrictions on executive compensation may hinder the company's ability to attract and retain talented employees, potentially placing it at a disadvantage compared to non-financial service competitors[208] Credit Losses and Financial Stability - Peoples' allowance for credit losses may be insufficient to cover future losses, which could adversely impact financial condition and results of operations[200] - The adoption of the CECL model resulted in a pre-tax increase to the allowance for credit losses of $5.8 million, reflecting heightened expectations for credit losses due to economic conditions[202] - Peoples Bank's allowance for credit losses may need to be increased if borrowers experience financial difficulties beyond forbearance periods, adversely affecting net income[155] Reputational Risks - Negative public opinion regarding lending practices and corporate governance could adversely affect Peoples' ability to attract and retain customers, impacting share price and volatility[174] - Peoples' business may suffer from reputational damage, loss of customer business, and increased costs due to cybersecurity incidents, potentially leading to financial losses[184]

Financial Performance - The company reported record earnings of $27.9 million for Q4 2021, with net interest income growing 28% compared to the linked quarter and 24% for the full year compared to 2020 [6][8] - Total revenue increased by 24% compared to the linked quarter, 43% compared to Q4 2020, and 19% for the full year [6] - The efficiency ratio improved, with a reported efficiency ratio declining compared to the linked quarter [27] Business Line Performance - Fee-based income improved by 13% compared to the linked quarter and 8% compared to the full year of 2020, driven by electronic banking income and deposit account service charges [28][29] - Commercial loans originated during 2021 exceeded $0.5 billion, marking a significant increase compared to previous years [12] - The leasing business added $11 million in growth, reflecting a 40% annualized increase [12] Market Data - Demand deposits reached an all-time high of 47.9% of total deposits, with noninterest-bearing deposits comprising 28% of total deposits [7] - The company ranked in the top 5% in Ohio and top 10% in West Virginia for SBA 7(a) approved dollars for the fiscal year ending September 30, 2021 [16] Company Strategy and Industry Competition - The company aims to continue expanding its services and product offerings following the acquisition of Premier Financial Bancorp, focusing on cross-selling opportunities [18][53] - The management expressed optimism about the business outlook, emphasizing the importance of servicing clients and community contributions [36] Management Comments on Economic Environment and Future Outlook - Management noted an improved economic forecast, leading to a reduction in the provision for credit losses [11] - For 2022, the company expects loan growth between 6% and 8%, with a stabilization in credit costs as the economy recovers [40] - Fee-based income growth is anticipated to be between 14% and 16% compared to 2021 [41] Other Important Information - The company released nearly $8 million in provision for credit losses during Q4, positively impacting diluted EPS by $0.21 [10] - Total noninterest expense increased by 44% compared to the prior year quarter, primarily due to acquisition-related expenses [31] Q&A Session Summary Question: Insights on margin progression from Q4 to 2022 - Management discussed the impact of cash deployment and expected improvements in margin as excess liquidity is utilized [44][45] Question: Breakdown of earning asset portfolio - The loan portfolio is approximately 50% floating rate and the investment portfolio is largely fixed [51] Question: Revenue opportunities from the Premier acquisition - Management highlighted new product offerings and increased capabilities in various business lines as key growth drivers [52] Question: Loan growth guidance specifics - The loan growth guidance of 6% to 8% is based on end-of-year balances and excludes the $60 million in loan sales [67] Question: Future loan sales expectations - Management indicated that while the recent loan sale was significant, they do not anticipate additional sales in the near term [72] Question: Capital deployment thoughts - The company plans to support dividends and is focused on acquisitions rather than share buybacks at current prices [74]