PEOPLES BANCORP INC. ANNOUNCES 4TH QUARTER AND ANNUAL RESULTS FOR 2021

MARIETTA, Ohio, Jan. 25, 2022 /PRNewswire/ -- Peoples Bancorp Inc. ("Peoples") (NASDAQ: PEBO) today announced results for the quarter and year ended December 31, 2021.  Net income totaled $27.9 million for the fourth quarter of 2021, representing earnings per diluted common share of $0.99.  In comparison, earnings (loss) per diluted common share were ($0.28) for the third quarter of 2021 and $1.05 for the fourth quarter of 2020.  For the full year, net income was $47.7 million in 2021 versus $34.8 million in 2020, representing earnings per diluted common share of $2.16 and $1.73, respectively.

 Non-core items, and the related tax effect of each, in net income (loss) included acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses, losses on investment securities, and gains and losses on asset disposals and other transactions.  Non-core items positively impacted diluted earnings per common share for the fourth quarter of 2021 by $0.02 and negatively impacted earnings per diluted common share by $0.71 for the third quarter of 2021, and by $0.07 for the fourth quarter of 2020.  Non-core items negatively impacted earnings per diluted common share by $0.85 and $0.22 for the full years of 2021 and 2020, respectively.

"We are very optimistic that 2022 will be an even better year for Peoples," said Chuck Sulerzyski, President and Chief Executive Officer.  "We look forward to seeing greater loan growth, greater efficiency and strengthening of our excellent client and employee experience."

Completion of Premier Acquisition:
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 acquired, 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 merged with and into Peoples (the "Merger"), and Premier Bank and Citizens subsequently merged with and into Peoples' wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million.  At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of Peoples Bank.  Peoples acquired $1.1 billion in loans and $1.8 billion in deposits.  Peoples preliminarily recorded $73.8 million in goodwill and $4.2 million in other intangible assets in connection with the Merger.

COVID-19:
The operating results and financial condition for the three and twelve months ended and as of December 31, 2021 continued to be affected by ongoing developments related to COVID-19, the reactions of government authorities, individuals and businesses, and the associated impact to the economy, specifically in Peoples' footprint.  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 fourth quarter of 2021.  The Board of Governors of the Federal Reserve System (the "Federal Reserve Board") maintained the Federal Funds interest rate effective target range at 0.00% to 0.25% during the fourth quarter of 2021.  Additionally, the London Interbank Offered Rate ("LIBOR") and the U.S. Prime Rate both remained historically low throughout the fourth 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 Small Business Administration ("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 December 31, 2021, Peoples had $87.1 million aggregate principal amount in PPP loans outstanding (including $23.4 million acquired in the Merger with Premier), which were included in commercial and industrial loan balances, compared to $135.8 million at September 30, 2021.  During the fourth quarter of 2021, Peoples received forgiveness payments on behalf of customers from the SBA of $49.2 million on previously originated PPP loans.   During the third quarter of 2021, Peoples received forgiveness payments on behalf of customers from the SBA of $132.2 million on previously originated PPP loans.  During the fourth quarter of 2020, Peoples received $96.7 million in forgiveness payments on behalf of customers from the SBA on previously originated PPP loans.  Peoples recognized interest income on deferred loan fees/costs of $1.8 million, $3.1 million and $3.7 million during the fourth and third quarters of 2021 and the fourth quarter of 2020, respectively, along with $0.3 million, $0.4 million and $1.2 million of interest earned on PPP loans during the fourth and third quarters of 2021 and the fourth quarter of 2020, respectively.  At December 31, 2021, Peoples had $2.2 million in net deferred loan fees/costs to recognize over the remaining terms of the PPP loans, which are generally five years or until forgiven by the SBA, whichever occurs first. 

Interest income was negatively impacted by the reduction in interest rates initiated by the Federal Reserve Board in 2020 and interest rates remained low throughout 2021.  Additionally, the average yield on variable rate commercial loans that are subject to changes in the LIBOR and the U.S. Prime Rate moved downward in 2020 and remained low throughout 2021, impacting interest income and net interest margin.  The addition of the North Star Leasing equipment leasing business has partially offset this impact by adding 23 basis points to the net interest margin during the fourth quarter of 2021 and 21 basis points during the full year of 2021.     

Peoples incurred non-core non-interest expenses as a result of COVID-19.  COVID-19-related expenses recognized during the fourth and third quarters of 2021 were $0.6 million and $0.2 million, respectively, and $125,000 during the fourth quarter of 2020.  During the fourth quarter of 2021, Peoples awarded common shares to all associates who were at the Assistant Vice President level or below.  The remainder of the COVID-19-related expenses were primarily related to providing Peoples' employees meals in support of local businesses, assisting employees with childcare and elder care needs, incentivizing employees to be vaccinated and taking extra precautions in cleaning facilities.  

North Star Leasing:
Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 (the "Asset Purchase Agreement"), with NS Leasing, LLC ("NSL") pursuant to which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank, on April 1, 2021.  Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus a potential earn-out payment to NSL of up to $3.1 million. Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded goodwill in the amount of $24.7 million and other intangibles of $14.0 million, which included customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.2 million and $0.4 million in non-interest expense during the fourth and third quarters of 2021, respectively, related to updates to the estimated earn-out provision of $3.0 million. As of December 31, 2021, equipment leases had grown to $122.5 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 December 31, 2021, Peoples Premium Finance's loans had grown to $136.1 million. 

Statement of Operations Highlights:

• Net interest income increased $12.0 million, or 28%, compared to the linked quarter and increased $20.3 million, or 59%, compared to the fourth quarter of 2020. Net interest income also increased 24% for the full year of 2021 compared to 2020.
• Net interest margin decreased 14 basis points to 3.36% for the fourth quarter of 2021, compared to the linked quarter, and increased 24 basis points compared to the fourth quarter of 2020. The decrease in net interest margin compared to the linked quarter was primarily driven by Peoples maintaining higher cash balances, which negatively impacted margin by 18 basis points. A decline in lease accretion income also negatively impacted margin for the fourth quarter of 2021. Net interest margin was 3.39% for the full year of 2021, compared to 3.24% for the full year of 2020.
• The increases in net interest income for the fourth quarter of 2021, compared to the third quarter of 2021 and the fourth quarter of 2020, were caused by the full-quarter impact of the Premier acquisition and organic growth.
• Peoples recorded a recovery of credit losses of $7.6 million for the fourth quarter, compared to a provision for credit losses of $9.0 million for the third quarter of 2021, and a recovery of credit losses of $7.3 million for the fourth quarter of 2020.
• The decline in the provision for credit losses for the fourth quarter of 2021 compared to the linked quarter was due primarily to the sale of $59.8 million of predominantly purchased credit deteriorated loans acquired from Premier as well as a favorable outlook on Moody's most recent economic forecast.
• Net charge-offs were $1.3 million, or 0.11% of average total loans, annualized, for the fourth quarter of 2021.
• For the full year of 2021, net charge-offs were $4.7 million, or 0.13% of average total loans, up from $1.8 million, or 0.05% of average total loans, for 2020.
• Net gains on asset disposals and other transactions recognized during the fourth quarter of 2021 were $1.8 million, compared to net losses of $0.3 million for the linked quarter and $53,000 for the fourth quarter of 2020.
• Net gains for the fourth quarter of 2021 were driven by the sale of $59.8 million of loans acquired from Premier. The net gain recognized from this sale aggregated $1.5 million during the fourth quarter of 2021. Management felt it was prudent to sell these loans to restore Peoples' exposure in the hospitality industry to pre-acquisition levels and reduce criticized and classified loans.
• Total non-interest income, excluding net gains and losses, increased $2.2 million, or 13%, for the fourth quarter of 2021 compared to the linked quarter, and $1.7 million, or 10%, compared to the fourth quarter of 2020. Total non-interest income, excluding gains and losses, increased $4.9 million, or 8% for the full year of 2021, compared to 2020.
• The increase in total non-interest income, excluding gains and losses, compared to the third quarter of 2021 was largely driven by an increase in electronic banking income and higher service charges on deposit accounts.
• Total non-interest income, excluding net gains and losses, for the fourth quarter of 2021 was 26% of total revenue.
• For the full year of 2021 compared to 2020, all non-interest income categories were impacted by the Premier acquisition, with the exception of mortgage banking income and swap fee income. Mortgage banking income decreased due to the volume of refinance activity experienced in 2020 when interest rates declined, which was not repeated in 2021. Swap fee income also decreased as a result of lower customer demand caused by the sustained lower rate environment in 2021.
• Total non-interest expense decreased $9.8 million, or 17%, compared to the linked quarter and increased $14.7 million, or 44%, compared to the fourth quarter of 2020. Total non-interest expense increased $50.0 million, or 37% for the full year of 2021 compared to 2020.
• The fourth quarter of 2021 contained non-core expenses of $0.9 million, which included $0.9 million of acquisition-related expenses, $0.6 million of expenses related to COVID-19 and a $0.6 million benefit recognized for core system contract negotiations.
• The efficiency ratio was 62.8% for the fourth quarter of 2021 and 73.7% for the full year of 2021. When adjusted for non-core expenses, the efficiency ratio was 61.6% for the fourth quarter of 2021 and 63.5% for the full year of 2021.

Balance Sheet Highlights:

• Period-end investment securities balances at December 31, 2021 increased $107.3 million, or 7%, compared to September 30, 2021, and increased $825.0 million, or 96%, compared to December 31, 2020.
• The increase in investment securities compared to the linked quarter was a result of Peoples' continued reinvestment of proceeds from available-for-sale investment securities acquired from Premier that were sold in the third quarter and the investment of excess cash in higher-yielding investment securities. The increase compared to December 31, 2020 was driven primarily by the Premier acquisition.
• Period-end loan balances decreased $12.1 million compared to September 30, 2021, and increased $1.1 billion compared to December 31, 2020.
• Growth of $81.6 million in commercial and industrial loans, $35.2 million in construction loans and $11.1 million in leases excludes the sale of $59.8 million of loans acquired from Premier and PPP loans.
• Excluding the impact of the loan sale and PPP loans, loans grew 8.8% annualized during the quarter.
• The increase in period-end loan balances compared to December 31, 2020 was driven by loans and leases acquired from Premier and NSL.
• Asset quality metrics remained strong during the fourth quarter and for the full year of 2021.
• Delinquency trends remained relatively stable as loans considered current comprised 98.8% of the loan portfolio at December 31, 2021, compared to 98.9% at September 30, 2021, and 98.8% at December 31, 2020.
• Nonperforming assets decreased $4.7 million compared to September 30, 2021.
• Criticized loans decreased $40.8 million during the quarter. The decrease in the fourth quarter was due to the disposal of criticized loans included in the sale of $59.8 million of loans acquired from Premier.
• Classified loans decreased $36.1 million during the fourth quarter of 2021. The decrease in classified loans compared to the linked quarter was driven by the disposal of classified loans included in the sale of $59.8 million of loans acquired from Premier.
• Annualized net charge-offs for the quarter remained low at 0.11% of average loans.
• Period-end total deposit balances at December 31, 2021 increased $30.8 million, or 1%, compared to September 30, 2021, and increased $2.0 billion, or 50%, compared to December 31, 2020.
• The increase in deposits compared to the linked quarter was primarily due to growth in non-interest bearing deposits, which made up 28% of total deposits at December 31, 2021.
• Compared to December 31, 2020, the increase in deposits was the result of deposits acquired from Premier.
• Total demand deposit balances were 48% of total deposits at December 31, 2021, compared to 46% at September 30, 2021 and 43% at December 31, 2020.

Net Interest Income
Net interest income was $54.6 million for the fourth quarter of 2021, an increase of $12.0 million, or 28%, compared to the linked quarter.  Net interest margin was 3.36% for the fourth quarter, compared to 3.50% for the linked quarter.  The increase in net interest income primarily reflected higher cash balances, reducing net interest margin by 19 basis points.  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 and net interest margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves and the low interest rate environment caused by COVID-19 that continued throughout the fourth quarter of 2021.  Peoples recognized interest income on deferred loan fees/costs of $1.8 million and $3.1 million during the fourth and third quarters of 2021, respectively, along with $0.3 million and $0.4 million of interest earned on PPP loans during the fourth and third quarters of 2021, respectively. At December 31, 2021, Peoples had $2.2 million in net deferred loan fees/costs to recognize over the remaining terms of the PPP loans, which are generally five years or until forgiven by the SBA, whichever occurs first.

Net interest income for the fourth quarter of 2021 increased $20.3 million, or 59%, compared to the fourth quarter of 2020.  Net interest margin increased 24 basis points compared to 3.13% for the fourth quarter of 2020.  The increase in net interest income compared to the fourth quarter of 2020 was driven by a full-quarter impact of interest earning assets acquired from Premier, lease income and premium finance loan income.  Peoples recognized interest income on deferred loan fees/costs of $1.8 million and $3.7 million during the fourth quarters of 2021 and 2020, respectively, and $0.3 million and $1.1 million in interest earned on PPP loans during the fourth quarters of 2021 and 2020, respectively.  Also contributing to the increase in net interest income was an increase in the average balance of investment securities.   

Accretion income, net of amortization expense, from acquisitions was $1.4 million for the fourth quarter of 2021 and $1.0 million for the third quarter of 2021, which added 8 basis points in net interest margin for each period. 

Net interest income increased $33.5 million, or 24%, for 2021 compared to 2020, and net interest margin increased 16 basis points to 3.39%.  For the yearly period, the changes in net interest income and margin were the result of lower funding costs due to customers' maintaining higher cash balances, as well as a higher volume of loans due to the Premier and Premium Finance acquisitions coupled with higher-yielding leases acquired from NSL and organic loan growth.  Peoples recognized interest income on deferred loan fees/costs of $13.0 million and $7.5 million during the 2021 and 2020, respectively, along with $2.3 million and $3.2 million of interest earned on PPP loans during 2021 and 2020, respectively.

Accretion income, net of amortization expense, from acquisitions was $3.5 million for 2021 and $2.8 million for 2020, respectively, which added 7 basis points to net interest margin for both 2021 and 2020. 

(Recovery of) Provision for Credit Losses:
The recovery of credit losses was $7.6 million for the fourth quarter of 2021, compared to a provision for credit losses of $9.0 million for the linked quarter and a recovery of credit losses of $7.3 million for the fourth quarter of 2020.  The change in the provision for credit losses compared to the linked quarter was primarily due to the establishment of the day-one allowance for credit losses of $10.6 million related to the non-purchased credit deteriorated loans acquired from Premier recognized in the third quarter as well as a favorable outlook on Moody's most recent economic forecast.  Also impacting this change was a release of reserves related to the sale of $59.8 million in predominantly purchased credit deteriorated loans acquired from Premier.

The recovery of credit losses for the fourth quarter of 2021 was the result of improvement in loss drivers and Moody's economic outlook published in December 2021 and the release of reserves mentioned above.  The recovery of credit losses of $7.3 million for the fourth quarter of 2020 was due primarily to the improvement in Moody's economic outlook published in December 2020.

Net charge-offs for the fourth quarter of 2021 were $1.3 million, or 0.11% annualized, of average total loans, compared to $1.6 million, or 0.18% annualized, of average total loans, for the linked quarter and $0.9 million, or 0.10% annualized, of average total loans, for the fourth quarter of 2020.  For additional information on credit trends and the allowance for credit losses, see the "Asset Quality" section below.

For the full year of 2021, the recovery of credit losses was $0.3 million, compared to a provision for credit losses of $26.3 million for 2020.  The recovery of credit losses recognized in 2021 was the result of improvement in loss drivers and Moody's economic outlook published in December 2021.  The provision for credit losses recognized in 2020 was due to the impact the COVID-19 pandemic had on the economic forecasts and qualitative factors used in the CECL model.  Net charge-offs for the full year of 2021 were $4.7 million, or 0.13%, of average total loans, compared to $1.7 million, or 0.05%, of average total loans, for 2020.  The decrease in the provision for loan losses was primarily due to improved economic factors and updated loss drivers and their impact on assumptions used in the CECL model throughout 2021.

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 Income.  Net gains during the fourth quarter of 2021 were $1.6 million, compared to net losses of $0.5 million for the linked quarter, and net losses of $0.8 million in the fourth quarter of 2020.  Net gains for the fourth quarter of 2021 were driven primarily by gains of $1.5 million recognized on the sale of $59.8 million in loans acquired from Premier and the disposal of other real estate owned of $0.3 million, offset by a loss on the sale of investment securities.  During the fourth quarter of 2021, Peoples sold $59.8 million of predominantly purchased credit deteriorated loans, ($53.0 million of which were criticized or classified) primarily in the hospitality industry, and recognized a gain related to the acceleration of the discount recorded on those loans when they were acquired. 

Net losses for the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sales of securities during the third quarter of 2021. Net losses for the fourth quarter of 2020 were driven by net losses on the sale of investment securities.  During the fourth quarter of 2020, management felt it was prudent to restructure a portion of the investment securities portfolio to minimize the impact of premium amortization that was experienced due to higher than historical prepayment speeds in that portfolio.  

 For the full year of 2021, net gains were $0.5 million compared to net losses of $0.7 million in 2020.  Net gains during 2021 were driven by the aforementioned activity related to the sale of loans acquired from Premier and gains recognized on the sale of other real estate owned, offset by losses on the sale of investment securities.  Net losses during 2020 were driven by the sale of investment securities. 

Total Non-interest Income, Excluding Net Gains and Losses:
Total non-interest income, excluding net gains and losses, for the fourth quarter of 2021 increased $2.2 million, or 13%, compared to the linked quarter.  The rise in non-interest income, excluding net gains and losses, was the result of increases in electronic banking income of $1.0 million, deposit account service charges of $1.0 million and commercial loan swap fee income of $0.3 million, offset partially by declines in mortgage banking income. 

Compared to the fourth quarter of 2020, total non-interest income, excluding net gains and losses, increased $1.7 million, or 10%.   The increase was driven primarily by increases in electronic banking income of $1.7 million, deposit account service charges of $1.1 million and trust and investment income of $0.6 million.  A decline in mortgage banking income of $1.4 million partially offset those increases and was due to a lower volume of refinance activity in the fourth quarter of 2021, compared to the fourth quarter of 2020. 

For the full year of 2021, total non-interest income, excluding net gains and losses, increased $4.9 million, or 8%, compared to 2020.  The increase was caused by increases in electronic banking income of $3.8 million, trust and investment income of $2.8 million and insurance income of $1.2 million.  These increases were offset by declines in mortgage banking income and commercial loan swap fee income.  Electronic banking income was up due to an increase in debit transactions.  Insurance income was higher as a result of new accounts added during the year.  The increase in trust and investment income was due to an increase in the market value of assets under management along with new accounts added during 2021.  Mortgage banking income was down because of a lower origination volume caused by a lower inventory of homes for sale.

Total Non-interest Expense:
Total non-interest expense was down $9.8 million, or 17%, for the fourth quarter of 2021, compared to the linked quarter, driven by an overall decrease in acquisition-related expenses and other non-core expenses.   During the third quarter of 2021, Peoples recognized $16.2 million of acquisition-related expenses due to the closing of the Premier merger.  Total non-interest expense in the third quarter of 2021 also contained other non-core expenses related to a one-time expense for contract negotiations related to the renewal of Peoples Bank's core banking systems of $1.9 million.  The non-core expenses recognized in the third quarter of 2021 did not recur in the fourth quarter; however, Peoples recorded a benefit of $0.6 million in the fourth quarter of 2021 related to a true-up of expense recognized for contract negotiations.  The decline in non-core expenses in the fourth quarter of 2021 was offset partially by increased salary expenses that are not included in acquisition-related expenses or COVID-19 related expenses. 

Compared to the fourth quarter of 2020, total non-interest expense increased $14.7 million, or 44%, primarily due to higher expenses incurred to manage a larger company.  Most notably, salaries and employee benefits increased due to the addition of full-time equivalent employees that resulted from the Premier and NSL acquisitions.  Additionally, occupancy expense increased due to an increase in the number of retail locations.   

For the full year of 2021, total non-interest expense was $183.7 million, an increase of $50.0 million compared to 2020.  Similar to the quarterly comparisons, the acquisitions of Premier and NSL increased acquisition-related expenses included in other expenses, professional fees, salaries and employee benefit costs, as well as occupancy expenses, and amortization of intangible assets.

The efficiency ratio for the fourth quarter of 2021 was 62.8%, compared to 94.7% for the linked quarter and 62.4%  for the fourth quarter of 2020.  The efficiency ratio improved compared to the linked quarter mainly as the result of the decline in total core non-interest expense and an increase in core non-interest income.  The efficiency ratio, adjusted for non-core items, was 61.6% for the fourth quarter of 2021, compared to 63.9% for the linked quarter, and 60.5% for the fourth quarter of 2020.  For the full year of 2021, the efficiency ratio was 73.7% compared to 63.9% for 2020.  Adjusted for non-core items, the efficiency ratio for the full year of 2021 was 63.5%, compared to 61.9% for 2020. 

Income Tax Expense: 
Peoples recorded income tax expense of $6.9 million for the fourth quarter of 2021, compared to a tax benefit of $2.2 million for the linked quarter and income tax expense of $4.3 million for the fourth quarter of 2020.  The income tax expense recognized during the fourth quarter of 2021 was primarily due to increased pre-tax income caused by the release of a portion of the allowance for credit losses during the current quarter and the impact of a full quarter's income related to the Premier acquisition. The income tax benefit for the third quarter of 2021 was due to the net loss recognized in the third quarter of 2021 due to the acquisition-related expenses and the establishment of the day 1 allowance for credit losses for non-purchased credit deteriorated loans acquired from Premier.  The income tax expense recognized in the fourth quarter of 2020 was due to the level of pre-tax income that resulted from a release of a portion of the allowance for credit losses during that quarter.

Peoples recognized income tax expense of $10.9 million in 2021, compared to $7.9 million in 2020, and the effective tax rate for 2021 remained at 18.6%, consistent with 2020.  The variance in income tax expense for 2021 compared to 2020, was the result of higher pre-tax income in 2021 that resulted from the acquisitions of Premier and NSL.  

Loans:
The period-end total loan balances at December 31, 2021 decreased $12.1 million, compared to September 30, 2021.  During the fourth quarter of 2021, Peoples recognized increases of $32.9 million in commercial and industrial loans, $35.2 million in construction loans and $11.1 million in leases.  This growth was more than offset by the sale of $59.8 million of predominantly purchased credit deteriorated loans acquired from Premier, and the forgiveness of $48.7 million in PPP loans during the quarter.  The loans were sold at par which was done to restore Peoples' exposure in the hospitality industry to pre-acquisition levels and reduce criticized and classified loans.   

Quarterly average total loan balances increased $964.7 million compared to the linked quarter, primarily due to the full-quarter impact of loans acquired from Premier and, to a lesser extent, growth in commercial and industrial loans and construction loans. 

Compared to the fourth quarter of 2020, quarterly average loan balances increased $1.1 billion, or 31%, driven by the Premier and NSL acquisitions, offset by a decline in the amount of PPP loans as a result of those forgiven during 2021. 

Compared to December 31, 2020, total loan balances increased $1.1 billion, or 32%.  The increase in the period-end loan balances was driven by loans acquired from Premier, along with leases acquired and growth in leases of $39.2 million, growth of premium finance loans of $21.4 million, and organic loan growth of $249.6 million, offset partially by a $279.8 million reduction in PPP loans during the year.

Asset Quality:
Overall, asset quality remained relatively stable through the fourth quarter of 2021.  Total nonperforming assets decreased $4.7 million, or 9%, compared to September 30, 2021, and increased $19.3 million, or 67%, compared to December 31, 2020.  The increase in nonperforming assets compared to December 31, 2020 was primarily attributable to nonperforming loans acquired from Premier.  Nonperforming assets as a percent of total loans and OREO was 1.07% at December 31, 2021, down from 1.17% at September 30, 2021 and up from 0.84% at December 31, 2020.

 Criticized loans, which are those categorized as special mention, substandard or doubtful, decreased $40.8 million, or 17%, compared to September 30, 2021 and increased $67.4 million, or 53%, compared to December 31, 2020.  As a percent of total loans, criticized loans were 4.33% at December 31, 2021, compared to 5.23% at September 30, 2021, and 3.72% at December 31, 2020.  The decrease in criticized loans compared to September 30, 2021 was due to the disposal of criticized loans that were included in the sale of $59.8 million of loans acquired from Premier.  The increase in criticized loans compared to December 31, 2020 was driven by the criticized loans acquired from Premier.  Classified loans, which are those categorized as substandard or doubtful, decreased $36.1 million, or 25%, compared to September 30, 2021, and were up $34.0 million, or 47%, compared to December 31, 2020.  As a percent of total loans, classified loans were 2.38% at December 31, 2021, compared to 3.18% at September 30, 2021, and 2.13% at December 31, 2020.  The decrease in classified loans compared to September 30, 2021 was driven by the disposal of classified loans that were included in the sale of $59.8 million of loans acquired from Premier.

Annualized net charge-offs were 0.11% of average total loans during the fourth quarter of 2021, compared to 0.18% in the linked quarter, and 0.10% in the fourth quarter of 2020.  Net charge-offs were 0.13% of average total loans for 2021, compared to 0.05% for 2020.

At December 31, 2021, the allowance for credit losses decreased to $67.5 million, from $77.4 million at September 30, 2021, and increased compared to an allowance for credit losses of $50.4 million at December 31, 2020.  The decrease in the allowance for credit losses compared to September 30, 2021 was due primarily to the sale of $59.8 million of predominantly purchased credit deteriorated loans acquired from Premier as well as a favorable outlook on Moody's most recent economic forecast.  The ratio of the allowance for credit losses as a percent of total loans decreased to 1.51% at December 31, 2021, compared to 1.72% at September 30, 2021, and increased from 1.48% at December 31, 2020.  The ratio of the allowance for credit losses as a percent of total loans includes PPP loans that do not have an allowance for credit losses because of the guarantee by the SBA.  Excluding PPP loans, the ratio of the allowance for credit losses as a percent of total loans would have been 1.54% at December 31, 2021, compared to 1.78% at September 30, 2021, and 1.66% at December 31, 2020.  

Deposits:
As of December 31, 2021, period-end deposits were up $30.8 million, or 1%, compared to September 30, 2021.  The increase was driven primarily by an increase in non-interest bearing deposits, offset by a seasonal decline in governmental deposits and a decline in retail certificates of deposit.

Compared to December 31, 2020, period-end deposit balances grew $2.0 billion, or 50%.  The increase in total deposits compared to the prior year end was a result of deposits acquired from Premier and organic growth of $210.0 million in non-interest bearing deposits.  

Average deposit balances during the fourth quarter of 2021 increased $1.3 billion, or 28%, compared to the linked quarter and increased $1.9 billion, or 48%, compared to the fourth quarter of 2020.  These increases were the result of the full-quarter impact of deposits acquired from Premier and organic growth.  For the full year of 2021, average deposit balances grew $945.6 million, or 25%.  The increase was driven by deposits acquired from Premier coupled with changes in customer buying habits as the pandemic continued throughout 2021.  Total demand deposit accounts comprised 48% of total deposits at December 31, 2021 compared to 46% at September 30, 2021 and to 43% at December 31, 2020.

Stockholders' Equity:
At December 31, 2021, the tier 1 risk-based capital ratio was 12.97%, compared to 12.58% at September 30, 2021 and 13.25% at December 31, 2020.  The common equity tier 1 risk-based capital ratio was 12.67% at December 31, 2021, compared to 12.30% at September 30, 2021 and 13.01% at December 31, 2020.  The total risk-based capital ratio was 14.10% at December 31, 2021, compared to 13.83% at September 30, 2021 and 14.50% at December 31, 2020.  Peoples adopted the five-year transition to phase in the impact of the adoption of CECL on regulatory capital ratios.  Compared to  September 30, 2021, these ratios improved as provision for credit losses declined and Peoples recorded a recovery of credit losses during the quarter, positively impacting stockholders' equity.  Compared to December 31, 2020, the change in the capital ratios was due to the level of provision for credit losses recognized during 2021, offset by increased acquisition-related expenses and dividends paid to shareholders.

Total stockholders' equity at December 31, 2021 increased $13.3 million, or 2%, compared to September 30, 2021.  This change was impacted by net income of $27.9 million during the quarter and the equity award granted to employees at the Assistant Vice President level or below during the fourth quarter, which was partially offset by dividends paid of $10.2 million and an increase in accumulated other comprehensive loss of $5.7 million.  The change in accumulated other comprehensive loss was the result of the changes in the market value of available-for-sale investment securities during the period. 

Total stockholders' equity at December 31, 2021 increased $269.5 million, or 47%, compared to December 31, 2020.  This increase was driven by common shares issued in the acquisition of Premier and net income for the full year of 2021, offset by $31.2 million in dividends paid to shareholders and $13.0 million in other comprehensive losses.

At December 31, 2021, book value per common share and tangible book value per common share, which excludes goodwill and other intangible assets, were $29.87 and $19.39, respectively, compared to $29.43 and $18.98, respectively, at September 30, 2021, and $29.43 and $19.99, respectively, at December 31, 2020.  The ratio of total stockholders' equity to total assets increased 18 basis points compared to September 30, 2021.  The tangible equity to tangible assets ratio, which excludes goodwill and other intangible assets, increased 17 basis points compared to September 30, 2021, due primarily to the changes in equity noted above.  Compared to December 31, 2020, the total stockholders' equity to total assets ratio declined from 12.09% to 11.96%, and the tangible equity to tangible assets ratio declined from 8.55% to 8.10%, respectively.

Peoples Bancorp Inc. ("Peoples", Nasdaq: PEBO) is a diversified financial services holding company and makes available a complete line of banking, trust and investment, insurance and premium financing solutions through its subsidiaries. Headquartered in Marietta, Ohio since 1902, Peoples has established a heritage of financial stability, growth and community impact. Peoples had $7.1 billion in total assets as of December 31, 2021, and 135 locations, including 119 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C. and Maryland. Peoples' vision is to be the Best Community Bank in America and is one of only sixteen banks nationwide to be recognized by Forbes in 2021 as a Best-In-State Bank in more than one state.

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 fourth quarter and full year 2021 results of operations on January 25, 2022 at 11:00 a.m., Eastern 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, COVID-19 related expenses, the contribution to Peoples Bank Foundation, Inc. and contract negotiation 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., contract negotiation expenses, 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 expenses, pension settlement charges, severance expenses, COVID-19-related expenses, the contribution to Peoples Bank Foundation Inc. and contract negotiation 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 expenses, pension settlement charges, severance expenses, COVID-19-related expenses, the contribution to Peoples Bank Foundation, Inc. and contract negotiation 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 U.S. GAAP, Peoples is required to evaluate the impact of subsequent events through the issuance date of its December 31, 2021 consolidated financial statements as part of its Annual Report on Form 10-K 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.