What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-15 compared with 2021-03-01 · 517 added, 578 removed, 1002 unchanged (52% of the section changed)

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Factors that might cause such a difference include, but are not limited to:

(1) the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 - on economies (local, national and international) and markets, and on Peoples' customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs, and other restrictions on travel and commercial, social and other activities), the development, availability and

effectiveness of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

(1) the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), the availability, effectiveness and acceptance of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

(2) changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other factors and/or the fiscal and monetary policy measures undertaken by the U.S.

government and the Federal Reserve Board in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;

(3) the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;

(3) the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and recently-completed acquisitions of NSL and Vantage, and the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;

(4) competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;

(5) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the CARES Act and the follow-up legislation enacted as the CAA, on December 27, 2020, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;

(5) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;

(6) the effects of easing restrictions on participants in the financial services industry;

(7) local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S.

withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S.

withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, closing of border crossings and changes in the relationship of the U.S.

and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;

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(10) Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;

(11) future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses;

(12) changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;

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(16) the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;

(17) the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income and our loan originations;

(18) Peoples' ability to receive dividends from its subsidiaries;

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(25) the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;

(24) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, or violence;

(25) the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest (including any resulting branch closures or damage), military or terrorist activities or international conflicts;

(26) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence;

(27) the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;

(28) the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;

(29) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;

(28) Peoples' ability to identify, acquire, or integrate suitable strategic acquisitions, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(30) changes in law or requirements imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases;

(31) the effect of a fall in stock market prices on the asset and wealth management business;

(32) Peoples' continued ability to grow deposits;

(33) the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;

(31) uncertainty regarding the impact of changes to the U.S.

presidential administration and Congress on the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates and the response to and management of the COVID-19 pandemic;

(34) uncertainty regarding the impact of the current U.S.

(35) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the SEC, including those risk factors included in the disclosures under the heading "ITEM 1A RISK FACTORS" of this Form 10-K.

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The following is a summary of transactions or events that have impacted or are expected by management to impact Peoples’ results of operations or financial condition:

◦ On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of its outstanding common shares.

This program replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of its outstanding common shares, which Peoples' Board of Directors had authorized on February 27, 2020 and which was terminated on January 28, 2021.

During 2020, Peoples repurchased 1,299,577 common shares for $29.3 million compared to 26,427 common shares for $805,000 during 2019.

◦ Peoples originated $489.0 million of PPP loans during 2020 under the loan guarantee program created under the CARES Act.

These loans were targeted to provide small businesses with support to cover payroll and certain other expenses.

Loans made under the PPP are fully guaranteed by the SBA.

Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of December 31, 2020, Peoples had $366.9 million in PPP loans outstanding, which were included in commercial and industrial loan balances.

Peoples recognized interest income of $10.7 million on PPP loans during 2020, which included $7.5 million for deferred fee/cost accretion.

◦ On March 7, 2022, Peoples wholly-owned subsidiary, Peoples Bank, closed on its acquisition of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota.

Under the terms of the agreement, Peoples Bank purchased 100% of the equity of Vantage for total cash consideration of $54.0 million.

Peoples Bank repaid approximately $28.9 million in recourse debt on behalf of Vantage.

Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide array of industries.

Upon completion of the transaction, Vantage became a subsidiary of Peoples Bank.

As a subsidiary, Vantage will continue to operate under the name Vantage Financial, which will leverage Vantage's strong brand recognition within the equipment finance industry.

◦ On September 17, 2021, Peoples completed its merger with Premier Financial Bancorp, Inc.

(“Premier”), in 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 definitive Agreement and Plan of Merger dated March 26, 2021, 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 $68.2 million in goodwill and $4.2 million in other intangible assets in connection with the Merger.

◦ On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc., pursuant to an Asset Purchase Agreement between Peoples Insurance and Justice & Stamper Insurance Agency, Inc.

Total consideration for this transaction was $325,000, with $162,500 paid at closing and the second installment in the amount of $162,500 to be paid on the first anniversary of the closing date, less any adjustments pursuant to adverse claims incurred or sustained by or imposed by Peoples Insurance.

Peoples recorded customer relationship intangible assets of $230,000 and goodwill of $46,000, related to this transaction.

◦ On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021, in 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 preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included a customer relationship intangible, trade name intangible and non-compete agreements related to this transaction.

Peoples recorded an additional $0.6 million in non-interest expense during the last six months of 2021 related to an update to the estimated earn-out provision of $3.0 million.

As of December 31, 2021, equipment leases had grown to $122.5 million.

◦ Peoples began originating loans during the second quarter of 2020 and continued to originate loans during the first five months of 2021 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP").

These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time.

Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA").

Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." 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 $366.9 million at December 31, 2020.

Peoples recognized interest income of $13.0 million for deferred loan fees/cost accretion and $2.3 million of interest income on PPP loans during 2021 compared to $7.5 million for deferred loan fees/cost accretion and $3.2 million of interest income during 2020.

◦ On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares, replacing the share repurchase program which had authorized Peoples to purchase up to an aggregate of $40 million of Peoples' outstanding common shares.

During 2021, Peoples did not repurchase any common shares under the share repurchase program authorized on January 28, 2021.

On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares, replacing the share repurchase program which had authorized Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares.

During 2020, Peoples repurchased 1,299,577 of Peoples' common shares through Peoples' then-effective common share repurchase program for a total of $29.3 million.

◦ During 2021, Peoples recorded a provision for credit losses of $0.7 million, compared to $26.3 million for 2020 and $2.5 million for 2019.

During 2020, Peoples recorded $932,000 of the provision for credit losses to establish the allowance for credit losses for the loans acquired from Triumph Premium Finance.

The increase in the provision for credit losses compared to 2019 was primarily related to the impact of COVID-19 on the CECL model, as well as the implementation of the CECL accounting standard.

◦ Peoples has been providing relief solutions to consumer and commercial borrowers, including forbearance and modifications, during the COVID-19 pandemic.

Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."

◦ Peoples was selected to partner with JobsOhio, a private nonprofit organization charged with economic development.

Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."

◦ Peoples incurred $1.1 million in pension settlement charges in 2020 and $267,000 in 2018, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing settlement charges during the period.

The lower provision for credit losses recognized in 2021 was the result of improvement in loss drivers and Moody's economic outlook published in December 2021.

◦ During 2021, Peoples recorded $1.2 million of expenses related to the COVID-19 pandemic, compared to $1.3 million for 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.

◦ During 2021, Peoples incurred $21.4 million of acquisition-related expenses, compared to $0.5 million for 2020 and $7.3 million for 2019.

The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier acquisition, while the expenses during 2020 and 2019 were due to the Triumph Premium Finance and First Prestonsburg acquisitions, respectively.

◦ Peoples incurred $0.1 million in pension settlement charges in 2021 compared to $1.1 million in 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing settlement charges during the period.

There were no such settlement charges during 2019.

◦ During 2020, Peoples recorded $1.3 million of expenses related to the COVID-19 pandemic.

These expenses were primarily related to donations made to community food banks and pantries, as well as contributions to funds to support employees, including, in the second quarter of 2020, the issuance of unrestricted common share awards totaling $396,000 granted to employees at the Assistant Vice President level and below.

◦ During 2020, Peoples incurred $489,000 of acquisition-related expenses, compared to $7.3 million for each of 2019 and 2018.

The acquisition-related expenses in 2020 were related to the Triumph Premium Finance acquisition, while the expenses during 2019 and 2018 were due to the First Prestonsburg and ASB acquisitions, respectively.

◦ On April 2, 2020, Peoples entered into a First Amendment to the Loan Agreement with U.S.

Bank National Association (the “U.S.

Bank Loan Agreement”), entered into on April 3, 2019, to extend the maturity.

A Second Amendment to the U.S.

Bank Loan Agreement entered into on April 1, 2021 extends the maturity from April 1, 2021 to March 31, 2022.

Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used:

(i) for working capital purposes;

(ii) to finance dividends or other distributions (other than stock dividends and stock splits) on or in respect of Peoples’ capital stock and redemptions, repurchases or other acquisitions of any of Peoples’ capital stock permitted under the U.S.

Bank Loan Agreement;

and (iii) to finance acquisitions permitted under the U.S.

Bank Loan Agreement.

◦ During 2020, Peoples sold restricted Class B Visa stock for a gain of $680,000, which was recorded in other non-interest income.

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These credits were used by Peoples beginning in 2019 and were fully exhausted during the second quarter of 2020.

◦ On April 2, 2020, Peoples entered into a First Amendment to the Loan Agreement with U.S.

Bank National Association (the “U.S.

Bank Loan Agreement”), entered into on April 3, 2019, to extend the maturity.

The First Amendment to Loan Agreement extends the maturity from April 2, 2020 to April 1, 2021.

Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used:

(i) for working capital purposes;

Bank Loan Agreement;

and (iii) to finance acquisitions permitted under the U.S.

Bank Loan Agreement.

◦ During 2020, Peoples recognized $109,000 in bank owned life insurance ("BOLI") income related to tax-free death benefits, compared to $482,000 in 2019.

Peoples recognized no BOLI income related to death benefits in 2021.

◦ In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve Board first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020 and then lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020.

The Federal Funds Target Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of December 31, 2020.

The Federal Funds Target

Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of December 31, 2021.

According to the Chair of the Federal Reserve Board, the Federal Funds Target Rate is not likely to drop below this range.

However, the Federal Reserve Board does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity.

Furthermore, the Federal Reserve Board has indicated it is committed to a target 0% - 0.25% range for Federal Funds through at least 2023.

◦ On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a purchase price amount equal to $866,000, and recorded $735,000 of customer relationship intangibles, and $27,000 of other assets, resulting in $104,000 of goodwill.

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pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

◦ At the close of business on April 12, 2019, Peoples completed the merger with First Prestonsburg.

First Prestonsburg merged into Peoples and First Prestonsburg's wholly-owned subsidiary, The First Commonwealth Bank of Prestonsburg, Inc., which operated nine full-service bank branches in central and eastern Kentucky, merged into Peoples Bank.

First Prestonsburg shareholders received total merger consideration of $43.7 million, of which $11.3 million was in the form of a special cash dividend paid by First Prestonsburg to its shareholders prior to the merger with the remainder being paid in the form of an aggregate of 1,005,478 Peoples common shares by Peoples.

The merger added $129.4 million of total loans and $257.2 million of total deposits at the acquisition date, after fair value adjustments.

Peoples also recorded $4.3 million of other intangible assets and $15.2 million of goodwill.

Refer to "Note 19 Acquisitions" of the Notes to the Consolidated Financial Statements for additional information.

◦ At the close of business on April 13, 2018, Peoples completed the merger with ASB.

ASB merged into Peoples, and ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operated seven full-service bank branches and two loan production offices in southern Ohio and eastern Kentucky, merged into Peoples Bank.

Under the terms of the merger agreement, Peoples paid total merger consideration of $41.5 million.

The merger added an aggregate of $239.2 million of total loans and loans held for sale, and $198.6 million of total deposits at the acquisition date, after fair value adjustments.

Peoples also recorded $2.6 million of other intangible assets and $18.1 million of goodwill.

The impact of these transactions, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Peoples evaluated risk characteristics, including but not limited to:

internal or third-party credit scores or credit ratings, risk ratings or classifications, financial asset type, collateral type, size, effective interest rate, term, geographical location, industry of the borrower, vintage,

historical or credit loss patterns, and reasonable and supportable forecast periods.

Peoples identified 18 segments for which it believes there are similar risk characteristics and utilized a discounted cash flow methodology in determining an allowance for credit losses for each segment.

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If a single variable was not found to be strongly correlated, additional variables were included.

Peoples utilizes the U.S.

unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors in modeling.

Peoples utilizes U.S.

unemployment, Ohio unemployment and Ohio Gross Domestic Product as economic factors in modeling.

In general, Peoples completes a quarterly evaluation based on several qualitative factors to determine if there should be adjustments made to the allowance for credit losses.

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The allowance for credit losses related to specific loans was based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows, (2) the fair value of collateral if the loan is determined to be collateral dependent, or (3) the loan's observable market price.

There can be no assurance that the allowance for credit losses will be adequate to cover all losses, but management believes the allowance for credit losses at December 31, 2020 was adequate to provide for expected losses from existing loans based on information available at that time.

While management uses available information to estimate losses, the ultimate collectability of a substantial portion of the loan portfolio, and the need for future additions to the allowance, will be based on changes in economic conditions and other relevant factors.

As such, adverse changes in economic activity could reduce currently estimated cash flows for both commercial and individual borrowers, which would likely cause Peoples to experience increases in problem assets, delinquencies and losses on loans in the future.

Peoples also completes a quarterly evaluation for unfunded commitments for loans that are not unconditionally cancellable, which includes construction loans, floor plan lines of credit, home equity lines of credit, other credit lines and letters of credit.

Peoples performed a study to determine the historical funding rates of unadvanced portions of loans, and applied these funding rates to the unfunded commitments at period end.

The loss rates, including qualitative factors, in determining the allowance for credit losses were applied at the segment level to the unfunded commitment amounts to determine the allowance for credit loss liability for unfunded commitments.

The loss rates, including qualitative factors, in

determining the allowance for credit losses were applied at the segment level to the unfunded commitment amounts to determine the allowance for credit loss liability for unfunded commitments.

There can be no assurance that the allowance for credit losses will be adequate to cover all losses, but management believes the allowance for credit losses at December 31, 2021 was adequate to provide for expected losses from existing loans based on information available at that time.

As such, adverse changes in economic conditions could reduce currently estimated cash flows for both commercial and consumer borrowers, which would likely cause Peoples to experience increases in problem assets, delinquencies and losses on loans in the future.

To demonstrate the sensitivity to key economic parameters used in the measurement of the allowance for credit losses at December 31, 2021, management calculated the difference between the modeled allowance for credit losses at December 31, 2021, compared to one based on an adverse scenario.

The adverse scenario reflected increases of 100 basis points in both U.S.

and Ohio unemployment, and a decline in Ohio Gross Domestic Product of 100 basis points.

Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in the allowance for credit losses of approximately $3.4 million at December 31, 2021.

Prior to January 1, 2020, Peoples utilized the incurred loss model for estimating its allowance for loan losses.

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These assumptions can have a material impact on the estimated fair value, and as a result, the goodwill recorded in a business combination.

Based on recent acquisitions, loans and leases acquired through business combinations have comprised the majority of purchase accounting adjustments in arriving at the fair values of acquired assets and liabilities, with the most significant adjustments relating to the creditworthiness of the acquired portfolios.

The assumptions and inputs impacting the allowance for credit losses are discussed in the above paragraphs of this section of Management's Discussion and Analysis.

Those same judgments drive the measurement of the credit adjustments of acquired loan and lease portfolios when arriving at fair value.

For further information regarding business combination accounting, please refer to “Note 20 Acquisitions” of the Notes to the Consolidated Financial Statements.

Peoples records goodwill as a result of acquisitions accounted for under the acquisition method of accounting.

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Goodwill represents the excess cost over the fair value of net assets acquired and is not amortized but is tested for impairment when indicators of impairment exist, and, in any case, at least annually.

For further information regarding the fair values of assets and liabilities recently acquired in business combinations, please refer to “Note 20 Acquisitions” of the Notes to the Consolidated Financial Statements.

The value of recorded goodwill is supported by revenue that is driven by the volume of business transacted and Peoples' ability to provide quality, cost-effective services in a competitive market place.

A decline in earnings as a result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill that could adversely impact earnings in future periods.

Goodwill impairment exists when the carrying value of the reporting unit (as defined by US GAAP) exceeds its fair value value and an impairment loss is recognized in earnings in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit.

Goodwill impairment exists when the carrying value of the reporting unit (as defined by US GAAP) exceeds its fair value and an impairment loss is recognized in earnings in an amount equal to that excess, limited to the total amount of goodwill allocated to the reporting unit.

The process of evaluating goodwill for impairment involves highly subjective and complex judgments, estimates and assumptions regarding the fair value of Peoples' reporting unit and, in some cases, goodwill itself.

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Peoples currently maintains a single reporting unit for goodwill impairment testing.

While quoted market prices exist for Peoples' common shares since they are publicly traded, these market prices do not necessarily reflect the value

associated with gaining control of an entity.

While quoted market prices exist for Peoples' common shares since they are publicly traded, these market prices do not necessarily reflect the value associated with gaining control of an entity.

Thus, management takes into account all appropriate fair value measurements in determining the estimated fair value of the reporting unit.

Peoples elected to early adopt Accounting Standards Update (ASU) 2017-04 "Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment" as of January 1, 2019.

The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge.

Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

Peoples performs its required annual impairment test as of October 1st each year.

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In this evaluation, Peoples assesses relevant events and circumstances, which may include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, events specific to Peoples, significant changes in the reporting unit, or a sustained decrease in stock price.

If Peoples determines that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary.

However, Peoples has the option to complete the quantitative impairment test to corroborate the findings of its qualitative analysis.

If Peoples determines that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, Peoples must complete the quantitative impairment test.

At October 1, 2020, management elected to bypass the qualitative assessment and completed a quantitative impairment test due to the COVID-19 pandemic, and its related impact on stock prices during 2020.

This test resulted in management concluding that the fair value of the reporting unit exceeded its carrying value.

If Peoples determines that it is more-

likely-than-not that the fair value of the reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary.

At October 1, 2021, management completed a qualitative assessment of goodwill.

This test resulted in management concluding it was more-likely-than-not that the fair value of the reporting unit exceeded its carrying value.

Peoples is required to perform interim tests for goodwill impairment in subsequent quarters if events occur or circumstances change that indicate potential goodwill impairment exists, such as adverse changes to Peoples' business or a significant decline in Peoples' market capitalization.

For further information regarding goodwill, refer to "Note 7 Goodwill and Other Intangible Assets" of the Notes to the Consolidated Financial Statements.

Income taxes are recorded based on the liability method of accounting, which includes the recognition of deferred tax assets and liabilities for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates.

In general, Peoples records deferred tax assets when the event giving rise to the tax benefit has been recognized in the Consolidated Financial Statements.

A valuation allowance is recognized to reduce any deferred tax asset when, based upon available information, it is more-likely-than-not all, or any portion, of the deferred tax asset will not be realized.

Assessing the need for, and amount of, a valuation allowance for deferred tax assets requires significant judgment and analysis of evidence regarding realization of the deferred tax assets.

In most cases, the realization of deferred tax assets is dependent upon Peoples generating a sufficient level of taxable income in future periods, which can be difficult to predict.

Peoples' largest deferred tax assets involve differences related to Peoples' allowance for credit losses, available-for-sale securities, and accrued employee benefits.

Management determined a valuation allowance of $805,000 at December 31, 2017, to be recorded against the deferred tax assets associated with its investment in a partnership investment.

In 2018, Peoples released the valuation allowance, which reduced income tax expense by $805,000.

Peoples sold $6.7 million of equity investment securities in the second quarter of 2018, which resulted in a capital gain for tax purposes.

This capital gain was large enough to offset an anticipated future capital loss, which was expected to be recognized due to the structure of the historical tax credit investment, resulting in the release of the valuation allowance.

There were no valuation allowances recorded at December 31, 2020 or 2019.

The calculation of tax liabilities is complex and requires the use of estimates and judgment since it involves the application of complex tax laws that are subject to different interpretations by Peoples and the various tax authorities.

Peoples' interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on management's ongoing assessment of facts and evolving case law.

From time-to-time and in the ordinary course of business, Peoples is involved in inquiries and reviews by tax authorities that normally require management to provide supplemental information to support certain tax positions taken by Peoples in its tax returns.

Uncertain tax positions are initially recognized in the Consolidated Financial Statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities.

Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts.

The amount of unrecognized tax benefits was immaterial at both December 31, 2020 and 2019.

Management believes it has taken appropriate positions on its tax returns, although the ultimate outcome of any tax review cannot be predicted with certainty.

Consequently, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the current and historical financial statements.

Fair Value Measurements

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EXECUTIVE SUMMARY

Net income for the year ended December 31, 2020 was $34.8 million, compared to $53.7 million in 2019 and $46.3 million in 2018, representing earnings per diluted common share of $1.73, $2.63 and $2.41, respectively.

The decline in earnings compared to 2019 was driven by a higher provision for credit losses, which was impacted by the new CECL accounting methodology implemented on January 1, 2020, coupled with the effect that COVID-19 had on the economic assumptions used within the CECL model.

Non-core items contained in net income included net gains and losses, COVID-19-related expenses, severance expenses, pension settlement charges and acquisition-related costs.

These non-core items negatively impacted earnings per diluted common share by $0.22 for 2020 compared to $0.30 for 2019 and $0.13 for 2018.

Net interest income declined 1% to $138.9 million for 2020, compared to $140.8 million for 2019, and totaled $129.6 million for 2018.

The decrease compared to 2019 was largely due to the low interest rate environment that began in early 2020 as a result of the COVID-19 pandemic, which had a negative impact on interest income from loans and investment securities, and was partially offset by lower interest expense as Peoples closely managed funding costs.

Net income for the year ended December 31, 2021 was $47.6 million, compared to $34.8 million for 2020 and $53.7 million for 2019, representing earnings per diluted common share of $2.15, $1.73 and $2.63, respectively.

The increase in earnings compared to 2020 was driven by a lower provision for credit losses, which was a result of improved economic factors and updated loss drivers and their impact on assumptions used in the CECL model throughout 2021.

Non-core items, and the related tax effect of each, in net income 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 negatively impacted earnings per diluted common share by $0.85 for 2021 compared to $0.22 for 2020 and $0.30 for 2019.

Net interest income increased 24% to $172.6 million for 2021, compared to $138.9 million for 2020, and totaled $140.8 million for 2019.

Net interest margin was 3.40% in 2021, compared to 3.24% in 2020 and 3.69% in 2019.

The increase in net interest income and net interest margin compared to 2020 was largely due to the impact of PPP loan forgiveness and 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.

Net interest margin compressed during 2020 as loan yields declined due to the low interest rate environment and investment securities yields decreased as premium amortization increased due to higher refinancing activity.

Included in net interest income during 2020 was the impact of the PPP loans, which added $10.7 million in interest income and 2 basis points to net interest margin.

Included in net interest income during 2021 and 2020 was the impact of the PPP loans.

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.

Funding costs were controlled during 2021, and declined 20 basis points compared to 2020.

Net interest income grew during 2019, compared to 2018, largely due to loan growth, which was positively impacted by the First Prestonsburg and ASB acquisitions, and higher loan yields.

Net interest income in 2019 was largely driven by loan growth, which was positively impacted by the First Prestonsburg and ASB acquisitions, and higher loan yields.

Accretion income, net of amortization expense, from acquisitions totaled $3.2 million for 2021, $2.8 million for 2020, and $4.9 million for 2019, adding 7 basis points, 7 basis points, and 12 basis points, respectively, to the net interest margin.

During 2018, proceeds of $0.9 million were received on an investment security that, in prior years, had been written down due to an other-than-temporary impairment, which added 3 basis points to net interest margin.

Provision for credit losses grew to $26.3 million for 2020, compared to $2.5 million for 2019.

This growth was due to the combination of the implementation of the CECL model at the beginning of 2020, and the impact of the COVID-19 pandemic on the economic forecasts utilized within the model.

Provision for credit losses declined during 2019 compared to 2018, reflecting lower net charge-offs, which included a $1.8 million recovery on a previously charged-off loan, and reduced loan growth compared to the prior year.

The provision for credit losses for 2021 was $0.7 million for 2021, compared to $26.3 million for 2020 and $2.5 million for 2019.

Net charge-offs for 2021 were $4.7 million compared to $1.8 million for 2020 and $1.1 million for 2019.

Net charge-offs as a percent of average total loans were 0.13% for 2021, 0.05% for 2020 and 0.04% for 2019.

Total non-interest income declined 1% compared to 2019, and was largely due to a $2.3 million reduction in deposit account service charges, which was driven by the COVID-19 pandemic and the higher balances being maintained by customers throughout 2020.

The decline in deposit account service charges was partially offset by higher mortgage banking income, as a result of higher refinancing activity due to the low interest rate environment during 2020.

Increases in trust and investment income and electronic banking income were more than offset by decreases in insurance income, commercial loan swap fee income and bank owned life insurance income.

Compared to 2018, total non-interest income during 2019 increased 13%, and was mostly due to higher electronic banking income, deposit account service charges and swap fee income.

The lower provision for 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.

The provision for credit losses recognized in 2019 was a result of lower net charge-offs in 2019, which included a $1.8 million recovery on a previously charged-off loan.

Total non-interest income increased 8% compared to 2020.

All non-interest income categories were impacted by the Premier acquisition, with the exception of mortgage banking income and commercial loan swap fees.

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 income for 2020 was largely impacted by deposit account service charges, which was driven by the COVID-19 pandemic and the higher balances being maintained by customers throughout 2020.

The decline in deposit account service charges during 2020, compared to 2019, was partially offset by higher mortgage banking income, as a result of higher refinancing activity in 2020 due to the low interest rate environment.

Increases in trust and investment income and electronic banking income in 2020, compared to 2019,

were more than offset by decreases in insurance income, commercial loan swap fee income and bank owned life insurance income.

Total non-interest income was positively impacted during 2019 due to the additional deposit accounts and cardholders associated with the acquisitions of First Prestonsburg and ASB.

Total non-interest expense decreased $3.6 million, or 3%, from 2019 and was driven by a reduction in acquisition-related expenses.

Total non-interest expense was $183.7 million for 2021, an increase of $50.0 million compared to 2020.

The acquisitions of Premier and NSL increased acquisition-related expenses included in other expenses, professional fees, salaries and employee benefit costs, as well as net occupancy and equipment expenses, and amortization of intangible assets.

Total non-interest expense for 2020 decreased $3.6 million, or 3%, from 2019 and was driven by a reduction in acquisition-related expenses.

Declines in salaries and employee benefit costs, which were mostly due to increased deferred personnel costs associated with the origination of PPP loans, were partially offset by higher data processing and software expense that was largely a result of implementation of new software, coupled with higher core processing costs.

Peoples also recorded higher FDIC insurance expense during 2020 compared to the prior year, as credits had been received and recognized during 2019, and were fully utilized during the second quarter of 2020.

Included in total non-interest expense during 2020 were certain non-core expenses which included COVID-19-related expenses of $1.3 million, severance expenses and pension settlement charges that totaled $1.1 million each, and acquisition-related expenses of $0.5 million.

Peoples also recorded higher FDIC insurance expense during 2020 compared to 2019, as credits had been received and recognized during 2019, and were fully utilized during the second quarter of 2020.

Included in total non-interest expense during 2021 were certain non-core expenses which included acquisition-related expenses of $21.4 million, COVID-19-related expenses of $1.2 million, contract negotiation expenses of $1.2 million and a Peoples Bank Foundation, Inc.

contribution of $0.5 million.

Non-core expenses for 2020 included COVID-19-related expenses of $1.3 million, severance expenses and pension settlement charges that totaled $1.1 million each, and acquisition-related expenses of $0.5 million.

During 2019, non-core expenses included $7.3 million of acquisition-related expenses.

Compared to 2018, total non-interest expense during 2019 grew $11.3 million, or 9%.

This was mostly related to increases in salaries and employee benefit costs, net occupancy and equipment expense, electronic banking expense and data processing and software expense, which were partially offset by lower FDIC insurance expense and professional fees.

The growth in salaries and employee benefit costs compared to 2018 was primarily due to higher base salaries, which were impacted by merit increases, including

continued movement towards a $15 per hour minimum wage throughout Peoples' organization, and the employees added from the acquisitions in 2019 and 2018.

Total non-interest expense for 2019 was mostly impacted by increases in salaries and employee benefit costs, net occupancy and equipment expense, electronic banking expense and data processing and software expense, largely attributable to the acquisitions in 2019, which were partially offset by lower FDIC insurance expense and professional fees.

Peoples' efficiency ratio, which is calculated as total non-interest expense less amortization of other intangible assets divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, was 73.6% for 2021, compared to 63.9% for 2020 and 64.7% for 2019.

The increase in the efficiency ratio during 2021 was caused by increased non-core expenses discussed above.

The improvement in the efficiency ratio during 2020 was mostly due to a reduction in total non-interest expense, which more than offset declines in revenue.

The decline in the efficiency ratio during 2019 was primarily related to higher total revenue, which outpaced increases in total non-interest expense.

The efficiency ratio during 2019 was impacted by higher total revenue, which outpaced increases in total non-interest expense.

The efficiency ratio, when adjusted for non-core items, was 63.5% for 2021, 61.9% for 2020 and 61.1% for 2019.

The increase in the adjusted efficiency ratio for 2020 was mostly due to lower revenue, as a result of the low interest rate environment.

Income tax expense totaled $9.4 million for 2021, compared to $7.9 million for 2020 and $11.7 million for 2019.

The effective tax rate for 2020 was 18.5%, an increase from 17.8% for 2019 and 15.9% for 2018.

Included in income tax expense during 2020 was $863,000 related to a correction for the prior year.

The effective tax rate for 2021 was 16.5%, 18.5% for 2020 and 17.8% for 2019.

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.

Total assets increased 48% to $7.06 billion at December 31, 2021, compared to $4.76 billion at year-end 2020.

The key contributor to the increase was loan growth, which added $500.6 million, and was primarily related to the PPP loans and the premium finance acquisition.

The key contributor to the increase was the assets acquired from the Premier and NSL acquisitions.

The allowance for credit losses increased to $64.0 million or 1.43% of total loans, net of deferred fees and costs, compared to $50.4 million and 1.48%, respectively, at December 31, 2020.

The increase in the allowance for credit losses compared to December 31, 2019 was due to the implementation of ASU 2016-13 on January 1, 2020, coupled with the impact of the COVID-19 pandemic on the underlying assumptions within the CECL model.

Total liabilities were $4.19 billion at December 31, 2020, an increase of $425.3 million since December 31, 2019.

Total deposits increased $619.0 million, to $3.91 billion at December 31, 2020.

The significant growth in deposits compared to December 31, 2019 was largely due to the COVID-19 pandemic, resulting in customers maintaining higher balances due to changed customer habits, coupled with the influx of fiscal stimulus funds and proceeds from PPP loans.

The increase in the allowance for credit losses compared to December 31, 2020 was due to a $16.9 million increase in the allowance for credit losses related to the purchased credit deteriorated loans acquired from Premier, the establishment of an allowance for credit losses for non-purchased credit deteriorated loans of $11.7 million, and a liability for unfunded commitments of $0.4 million.

For the NSL acquisition, Peoples recorded $3.3 million in provision for credit losses during 2021 in order to establish the allowance for credit losses for the acquired leases and $493,000 to establish the allowance for credit losses on purchased credit deteriorated leases.

Total liabilities were $6.22 billion at December 31, 2021, an increase of $2.0 billion since December 31, 2020.

Total deposits increased $2.0 billion, to $5.86 billion at December 31, 2021.

The significant increase in deposits compared to December 31, 2020 was largely due to deposits acquired from Premier.

Total demand deposits comprised 48% of total deposits at December 31, 2021 and were 43% of total deposits at December 31, 2020.

Total stockholders' equity was $575.7 million at December 31, 2020, a decline of 3% from December 31, 2019.

The decrease compared to 2019 was due to combination of the repurchase of common shares in the amount of $29.3 million and dividends paid of $27.5 million, which were partially offset by net income of $34.8 million.

Peoples also had a $3.7 million reduction to retained earnings related to the adoption of the CECL accounting standard on January 1, 2020.

Total stockholders' equity was $845.0 million at December 31, 2021, an increase of 47% from December 31, 2020.

The increase compared to 2020 was due to common shares issued for the Premier acquisition and net income for 2021 of $47.6 million, offset partially by dividends paid of $31.2 million and $13.0 million in accumulated other comprehensive losses.

Peoples continued to exceed the capital required by the Federal Reserve Board to be deemed "well capitalized." Peoples' tier 1 capital ratio was 12.81% at December 31, 2021, versus 13.25% at December 31, 2020, while the total capital ratio was 14.06% at December 31, 2021, versus 14.50% at December 31, 2020.

The common equity tier 1 risk-based capital ratio was 12.52% at December 31, 2021 compared to 13.01% at December 31, 2020.

Regulatory capital declined compared to 2019, mostly due to the impact of the repurchase of common shares during 2020.

Compared to December 31, 2020, the change in the capital ratios was due to a lower provision for credit losses recognized during 2021, partially offset by increased acquisition-related expenses and dividends paid to shareholders.

Peoples' book value and tangible book value per share were $29.86 and $19.58, respectively, at December 31, 2021, compared to $29.43 and $19.99, respectively, at December 31, 2020.

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Net Interest Income

Peoples earns interest income on loans and investments, and incurs interest expense on interest-bearing deposits and borrowed funds.

Peoples earns interest income on investments, loans and leases, and incurs interest expense on interest-bearing deposits and borrowed funds.

Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue and was 71% of total revenue during 2021.

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However, the frequency and/or magnitude of changes in market interest rates are difficult to predict, and may have a greater impact on net interest income than adjustments management is able to make.

As part of the analysis of net interest income, management converts tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using a statutory federal corporate income tax rate of 21% for 2020, 2019 and 2018.

As part of the analysis of net interest income, management converts tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 22.3% for 2021, and a statutory federal corporate income tax rate of 21% for 2020 and 2019.

Management believes the resulting FTE net interest income allows for a more meaningful comparison of tax-exempt income and yields to their taxable equivalents.

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Investment securities (a)(b)(c):

Taxable (d) 868,930 14,370 1.65 % 870,921 23,420 2.69 % 784,108 23,283 2.97 %

Taxable 1,042,419 15,219 1.46 % 868,930 14,370 1.65 % 870,921 23,420 2.69 %

Nontaxable 163,095 4,326 2.65 % 101,965 3,146 3.09 % 106,437 3,331 3.13 %

Total investment securities 1,205,514 19,545 1.62 % 970,895 17,516 1.80 % 977,358 26,751 2.74 %

Loans (b)(c)(e):

Loans (b)(c)(d):

Construction 131,834 5,130 3.84 % 107,862 4,883 4.45 % 111,734 6,008 5.30 %

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Premium finance 118,242 5,872 4.90 % 50,687 2,855 5.54 % — — — %

Residential real estate (f) 660,025 31,155 4.72 % 641,053 30,671 4.78 % 577,858 25,965 4.49 %

Leases 74,442 13,572 17.98 % — — — % — — — %

Residential real estate (e) 700,691 29,686 4.24 % 660,025 31,155 4.72 % 641,053 30,671 4.78 %

Home equity lines of credit 133,340 5,410 4.06 % 127,454 5,799 4.55 % 132,235 7,715 5.83 %

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Retail certificates of deposit 497,181 3,952 0.79 % 473,244 6,748 1.43 % 465,381 8,002 1.72 %

Brokered deposits 223,940 2,480 1.11 % 272,553 6,695 2.46 % 220,109 4,930 2.24 %

Brokered deposits (f) 150,716 3,130 2.08 % 223,940 2,480 1.11 % 272,553 6,695 2.46 %

Total interest-bearing deposits

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Borrowed funds:

Short-term FHLB advances 129,928 2,489 1.92 % 197,987 4,455 2.25 % 219,897 4,494 2.04 %

Short-term FHLB advances (f) 30,289 475 1.57 % 129,928 2,489 1.92 % 197,987 4,455 2.25 %

Repurchase agreements and other 70,674 66 0.09 % 46,706 82 0.18 % 46,812 257 0.55 %

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(a) Average balances are based on carrying value.

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

(c) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities;

an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans;

an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million;

the addition of $1.5 million

unfunded commitment liability included in accrued expense and other liabilities;

and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.

(d) Interest income and yield presented for 2018 includes $0.9 million of proceeds on an investment security for which an other-than-temporary-impairment had been recorded in previous years.

There was no proceeds recorded in 2020 and 2019.

(e) Average balances include nonaccrual, impaired loans, and loans held for sale.

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021, and a statutory federal corporate income tax rate of 21% for 2020 and 2019.

(c) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, recording an adjustment in cost basis of purchased credit deteriorated assets to reflect the addition of $2.6 million to establish the allowance for credit losses;

an increase to the allowance for credit losses (which was the "allowance for loan

losses" prior to January 1, 2020) of $5.8 million;

the addition of $1.5 million unfunded commitment liability included in accrued expenses and other liabilities;

and a cumulative-effect adjustment to reduce retained earnings of $3.7 million, net of statutory corporate federal income tax.

(d) Average balances include nonaccrual, impaired loans, and loans held for sale.

Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status.

Loan fees included in interest income were immaterial for all periods presented.

(f) Loans held for sale are included in the average loan balances listed.

(e) Loans held for sale are included in the average loan balances listed.

Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.

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

On September 17, 2021, Peoples acquired Premier, which included $1.1 billion in loans and $1.8 billion in deposits.

Additionally, Peoples acquired North Star Leasing on April 1, 2021 and an insurance premium finance division on July 1, 2020.

During 2021, Peoples had excess cash which increased short-term investments, due to PPP forgiveness and increased deposit balances.

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

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Premium finance (358) 3,375 3,017 — 2,855 2,855

Leases — 13,572 13,572 — — —

Residential real estate (3,315) 1,846 (1,469) (416) 900 484

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

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

Net interest income decreased $1.9 million, or 1% compared to 2019, and net interest margin declined to 3.24%, compared to 3.69% for 2019.

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020 and 2019.

During 2021, net interest income grew 24%, and the increase was primarily driven by the acquired Premier and leasing divisions, coupled with growth in Peoples' core business.

Net interest margin improved 16 basis points compared to 2020, as loan yields improved and offset declining investment yields, while controlled funding costs benefited net interest margin.

Peoples recorded $15.3 million in PPP income during 2021, which was mostly due to the forgiveness of loans, resulting in accretion of net deferred loan fees and costs, and positively impacted net interest margin by 16 basis points.

Accretion income, net of amortization expense, from acquisitions, added $3.2 million to net interest income and 7 basis points to net interest margin.

For 2020, net interest income decreased $1.9 million, or 1% compared to 2019, and net interest margin declined to 3.24%, compared to 3.69% for 2019.

Net interest income and net interest margin were negatively impacted by the low interest rate environment during 2020, which also led to a $5.0 million increase in premium amortization on Peoples' investment securities portfolio during 2020, compared to 2019.

Peoples recorded $10.7 million in interest income on PPP loans during 2020, which included the impact of accretion of net deferred loan fees and costs, which added 2 basis points to net interest margin.

Premium finance loans added

$2.9 million of interest income during 2020, and 2 basis points to net interest margin.

Premium finance loans added $2.9 million of interest income during 2020, and 2 basis points to net interest margin.

Funding costs declined to 58 basis points compared to 99 basis points for 2019, which was driven by reductions in interest rates on deposits, coupled with controlled borrowing costs.

During 2020, Peoples recognized accretion income, net of amortization expense, from acquisitions of $2.8 million, which added 7 basis points to net interest margin, compared to $4.9 million and 12 basis points in 2019, and $2.2 million and 6 basis points in 2018.

Accretion income during 2020 was impacted by increased prepayment activity.

During 2018, proceeds of $894,000 were received on an investment security that had been, in previous years, written-down due to an other-than-temporary impairment, which added 3 basis points to the net interest margin, while there were no similar proceeds in 2019 and 2020.

Additional interest income in 2021 from prepayment fees and interest recovered on nonaccrual loans was $825,000, compared to $738,000 in 2020 and $564,000 in 2019.

Net interest income grew 9% during 2019, compared to 2018.

The primary driver of the increase in net interest income was higher interest income on loans due to a combination of loan growth, which was boosted by the acquisitions of ASB in 2018 and First Prestonsburg in 2019, and higher yields on loans.

Net interest margin was relatively stable during 2019, compared to 2018, as the increase in loan yields nearly outpaced the reduction in investment yields and higher funding costs.

Detailed information regarding changes in the Consolidated Balance Sheets can be found under appropriate captions of the "FINANCIAL CONDITION" section of this discussion.

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Given the relatively low recent loss history, the incurred loss model was highly dependent on qualitative factors to arrive at an appropriate allowance for loan losses in periods prior to 2020.

These qualitative factors included current economic conditions, and other environmental factors such as changes in real estate market conditions, unemployment, and the economic impact of tariffs.

During 2020, the COVID-19 pandemic caused the economic outlook and assumptions used in the CECL model to be unfavorable, and as a result, caused the need for additional provision for credit losses to be recorded resulting in higher allowance for credit losses for the year, compared to prior years.

The lower provision for loan losses for 2019 compared to 2018 was due to lower charge-offs and less loan growth compared to 2018.

Net charge-offs in 2019 included a recovery of $1.8 million recorded on a previously charged-off commercial loan.

These qualitative factors included current economic conditions, and other environmental factors such as changes in real estate market conditions and unemployment.

During 2021, Peoples recorded a lower provision for credit losses compared to a sizable provision for credit losses during 2020.

2020 was impacted by the COVID-19 pandemic, which drove a higher provision for credit losses.

During 2021 economic factors and loss drivers improved and resulted in a reduction in the allowance for credit losses, resulting in a lower provision for credit losses.

The improvement in economic factors and loss drivers for 2021 were partially offset by the provision for credit losses required to establish the allowance for credit losses for acquired non-purchased credit deteriorated loans and leases during 2021.

During 2020, the COVID-19 pandemic caused the economic outlook and assumptions used in the CECL model to be unfavorable, and as a result, caused the need for additional provision for credit losses to be recorded resulting in a higher allowance for credit losses at the end of the year, compared to 2019.

Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this discussion under the caption "Allowance for Credit Losses."

Net (Losses) Gains Included in Total Non-Interest Income

Net (losses) gains include gains and losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income.

The following table details the net (losses)gains for the years ended December 31 recognized by Peoples:

Net Gains (Losses) Included in Total Non-Interest Income

Net gains (losses) include gains and losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income.

The following table details the net gains (losses) for the years ended December 31 recognized by Peoples:

(Dollars in thousands) 2021 2020 2019

Net (loss) gain on investment securities $ (862) $ (368) $ 164

Net loss on asset disposals and other transactions:

Net gain (loss) on asset disposals and other transactions:

Net loss on other assets $ (460) $ (367) $ (692)

Net loss on debt extinguishment — — (13)

Net loss on OREO (120) (98) (21)

Net gain (loss) on other transactions 197 8 (76)

Net loss on asset disposals and other transactions $ (290) $ (782) $ (334)

Net gain (loss) on OREO 56 (120) (98)

Net gain on other transactions 897 197 8

Net gain (loss) on asset disposals and other transactions $ 493 $ (290) $ (782)

During 2021, net gains on other transactions were driven by the sale of $59.8 million of predominantly purchased credit deteriorated loans acquired in the Premier Merger ($52.9 million of which were criticized or classified) primarily in the hospitality industry.

Peoples recognized a gain of $897,000 related to the discount recorded on those loans when they were acquired from Premier.

The net loss on other assets during 2020 was primarily due to the loss of $145,000 on the sale of a closed branch from the ASB acquisition, and market value write-down of $108,000 related to closed offices that were held for sale.

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The net loss on other assets during 2019 was driven by net losses on repossessed assets of $320,000, the write-offs of fixed assets acquired from First Prestonsburg of $243,000 and market value write-downs related to closed offices that were held for sale.

The net loss on other assets during 2018 was primarily due to the disposal of $190,000 of ASB fixed assets acquired coupled with $198,000 of market value write-downs related to closed offices that were held for sale.

The net loss on other transactions during 2018 was due to the write-down of a limited partnership investment.

Total Non-Interest Income Excluding Net Gains and Losses

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electronic banking income ("e-banking");

insurance income;

trust and investment income;

insurance income;

and deposit account service charges.

1 unchanged sentence

As a result, total non-interest income excluding net gains and losses accounted for 28.6% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) in 2021, compared to 31.7% in 2020 and 31.5% in 2019.

The increase in Peoples' total non-interest income excluding net gains and losses as a percent of total revenue during 2019 from 2018 was due to increases in nearly all non-interest income categories, combined with the interest rate environment and a high amount of loan payoffs constraining net interest income in the latter half of 2019.

The decline in Peoples' total non-interest income excluding net gains and losses, as a percent of total revenue during 2021 compared to 2020, was largely due to the Premier Merger and the North Star Leasing acquisition, which caused improved net interest income, resulting in a smaller portion of total revenue being provided by other revenue sources.

E-banking income comprised the largest portion of Peoples' total non-interest income excluding net gains and losses, for 2021.

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The amount of e-banking income is largely dependent on the timing and volume of customer activity.

During 2020, e-banking income increased $566,000, or 4%, largely due to increased usage of debit cards, coupled with the full year impact of the First Prestonsburg acquired accounts.

The growth in e-banking income in 2019, compared to 2018, was the result of the increased volume of customers and usage of debit cards, which includes the impact of additional customers and accounts added in the acquisition of First Prestonsburg in 2019 and of ASB in 2018.

In 2020, Peoples' customers used their debit cards to complete $1.0 billion of transactions, versus $913.7 million in 2019 and $801.2 million in 2018.

The following table details Peoples’ insurance income for the years ended December 31:

(Dollars in thousands) 2020 2019 2018

Property and casualty insurance commissions

$ 10,240 $ 10,605 $ 10,512

Life and health insurance commissions

1,897 2,065 2,276

Performance-based commissions 1,457 1,530 1,452

Other fees and charges 448 602 572

Insurance income $ 14,042 $ 14,802 $ 14,812

Insurance income declined 5% during 2020, compared to 2019, and decreased across each category of insurance income.

The decrease compared to 2019 was mostly due to the impact of the COVID-19 pandemic.

Compared to 2018, insurance income was relatively flat for 2019.

The majority of performance-based commissions typically is recorded annually in the first quarter and is

based on a combination of factors, such as loss experience of insurance policies sold, production volumes and overall financial performance of the individual insurance carriers.

During 2021, e-banking income increased $3.8 million, or 26%, and was driven by the combination of the addition of the Premier acquired accounts, along with increased usage of debit cards.

The growth in e-banking income in 2020 of $566,000, or 4%, compared to 2019, was largely due to increased usage of debit cards, coupled with the full year impact of the addition of the First Prestonsburg acquired accounts.

In 2021, Peoples' customers used their debit cards to complet e $1.4 billion of transactions, versus $1.0 billion in 2020 and $913.7 million in 2019.

Peoples' fiduciary and brokerage revenues continue to be based primarily upon the value of assets under administration and management.

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Brokerage 5,966 4,560 4,198

Employee benefits fees 2,196 2,200 1,963

Employee benefit plan fees 2,560 2,196 2,200

Trust and investment income $ 16,456 $ 13,662 $ 13,159

For 2021, trust and investment income grew 20%, as Peoples added new accounts and the underlying market values of assets under administration and management grew, compared to 2020.

Peoples also increased its employee benefit plans business during 2021, compared to 2020.

During 2020, trust and investment income increased $503,000, or 4%, compared to 2019, while employee benefit plan fees for 2020 were relatively flat compared to 2019.

The following table details Peoples’ assets under administration and management at year-end December 31:

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Annual average $ 3,053,807 $ 2,510,596 $ 2,382,017

Trust and investment income increased $503,000, or 4%, compared to 2019.

Peoples grew assets under management by 15% during 2020, driving the increase in both fiduciary and brokerage income compared to the prior year.

This increase was partially due to new assets under management, coupled with the improvement in market values of assets under management at December 31, 2020.

Employee benefits fees for 2020 were relatively flat compared to 2019.

During 2019, the increases in fiduciary and brokerage revenues compared to 2018 were due to a combination of an increase in the market value of accounts during the latter part of 2019 and new assets under administration and management.

Average assets under administration and management during 2019 were impacted by the lower balance at the beginning of 2019 as a result of the downward shift in U.S.

financial markets at the end of 2018 and in early 2019.

Income from employee benefit plans in 2019 increased compared to 2018 due to the continued growth in administration of 401(k) plans for businesses.

Peoples has added experienced financial advisors in previously underserved market areas, and generated new business and revenue related to retirement plans for which it manages the assets and provides services.

During 2021, Peoples grew assets under administration and management by over 10%, which was partially due to new accounts as well as improved market values, resulting in increased fiduciary and brokerage income compared to 2020.

For 2020, Peoples grew assets under management by 15% compared to 2019, as a result of new accounts and higher market values, driving the increase in both fiduciary and brokerage income compared to the prior year.

Peoples has had success in recent years in increasing client accounts within its fiduciary and brokerage business, while the market values of existing assets under administration and management have also increased.

The following table details Peoples’ insurance income for the years ended December 31:

(Dollars in thousands) 2021 2020 2019

Property and casualty insurance commissions

$ 11,192 $ 10,240 $ 10,605

Performance-based commissions 2,044 1,457 1,530

Life and health insurance commissions

1,627 1,897 2,065

Other fees and charges 389 448 602

Insurance income $ 15,252 $ 14,042 $ 14,802

Insurance income grew 9% for 2021, compared to 2020.

This increase was driven by higher property and casualty insurance commissions, as Peoples added new accounts, and higher performance-based commissions.

Insurance income declined 5% during 2020, compared to 2019, and decreased across each category of insurance income.

This decline was mostly due to the impact of the COVID-19 pandemic.

The majority of performance-based commissions typically is recorded annually in the first quarter and is based on a combination of factors, such as loss experience of insurance policies sold, production volumes and overall financial performance of the individual insurance carriers.

Deposit account service charges are based on the costs associated with services provided by Peoples.

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The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity.

Management periodically evaluates its fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors.

During 2020, deposit account service charges declined 20% as customer habits changed as a result of the COVID-19 pandemic resulting in customers maintaining higher balances, coupled with fiscal stimulus funds provided by the government to individuals and proceeds from PPP loans to businesses.

Income from deposit account service charges increased in 2019 compared to 2018 primarily due to the First Prestonsburg and ASB acquisitions, respectively, coupled with changes in fee schedules.

Peoples implemented a new deposit account fee schedule in March 2019, which also positively impacted deposit account service charges compared to 2018.

Management periodically evaluates these fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors.

Deposit account service charges were positively impacted during 2021 by the Premier Merger and associated additional accounts, while growth was also experienced within fees on existing accounts, which had previously declined since the beginning of the COVID-19 pandemic.

During 2020, deposit account service charges declined 20% as customer habits changed as a result of the COVID-19 pandemic, with customers maintaining higher

balances, coupled with fiscal stimulus funds provided by the government to individuals and proceeds from PPP loans to businesses compared to 2019.

The following table details the other items included within Peoples' total non-interest income for the years ended December 31:

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Commercial loan swap fees 543 1,741 2,228

Other non-interest income (a) $ 2,745 $ 2,565 $ 2,655

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in a gain in income of $660,000 for 2020, $831,000 for 2019, and $207,000 for 2018.

Other non-interest income $ 3,644 $ 2,745 $ 2,565

Mortgage banking income is comprised mostly of net gains from the origination and sale of long-term, fixed-rate real estate loans in the secondary market, as well as servicing income for sold loans.

As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market.

Mortgage banking income increased significantly during 2020, by 50% compared to 2019, as the low interest rate environment during the year resulted in heavy refinance activity.

Mortgage banking income also increased in 2019, compared to 2018, due to higher customer demand, which was driven by the decline in mortgage interest rates during second half of 2019.

During 2021, mortgage banking declined by 47% and was driven by lower customer demand due to the low rate environment that had been in place since the beginning of 2020.

During 2020, mortgage banking income increased by 50% compared to 2019, as the low interest rate environment during the year resulted in heavy refinance activity.

In 2021, Peoples sold approximately $57.6 million of loans to the secondary market with servicing retained and sold approximately $37.4 million in loans with servicing released, compared to approximately $111.9 million and $150.9 million, respectively, in 2020.

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The volume of sales has a direct impact on the amount of mortgage banking income.

BOLI income declined $453,000 compared to 2019, and the reduction was largely driven by the recognition of $482,000 of tax-free death benefits that exceeded the cash surrender value of the insurance policies during 2019.

These proceeds were also the contributor to the increase in BOLI income during 2019 compared to 2018.

BOLI income declined 11% during 2021, compared to 2020, and was mostly due to the 2020 recognition of a $109,000 tax-free death benefit that exceeded the cash surrender value of the insurance policies.

BOLI income declined $453,000 during 2020, compared to 2019, with the reduction largely driven by the recognition of $482,000 of tax-free death benefits that exceeded the cash surrender value of the insurance policies during 2019.

Peoples purchased no additional BOLI policies during 2021, 2020 and 2019.

Commercial loan swap fees are largely dependent on the timing and volume of customer activity.

During 2020, the low interest rate environment resulted in the $487,000 decrease in commercial loan swap fee income, as customer demand lessened.

Compared to 2018, commercial loan swap fees in 2019 more than tripled, and were also driven by an increase in customer demand as a result of the interest rate declines in the latter half of 2019.

For 2021, commercial loan swap fees declined 69%, as customer demand decreased due to the continued low interest rate environment.

The low interest rate environment also resulted in lower commercial loan swap fees during 2020, which were down $487,000 compared to 2019.

Other non-interest income grew during 2021, and was positively impacted by the non-interest income recognized by the leasing division, which contributed $1.3 million of income.

Other non-interest income during 2020 and 2019 included additional income related to gains recorded on the sale of restricted Class B Visa stock of $680,000 and $787,000, respectively.

Other non-interest income in 2019 also included a decline in SBA income of $559,000, or 80%, compared to 2018 as a result of lower volume of loan originations and sales.

During 2018, other non-interest income also included $207,000 recorded in connection with the implementation of a new accounting standard, which modified how the change in the fair value of equity investment securities was recorded beginning on January 1, 2018.

There were no similar gains recorded during 2021.

Total Non-Interest Expense

Salaries and employee benefit costs remain Peoples’ largest non-interest expense, accounting for over half of the total non-interest expense.

Salaries and employee benefit costs remain Peoples’ largest non-interest expense, accounting for over half of total non-interest expense.

The following table details Peoples’ salaries and employee benefit costs for the years ended December 31:

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Average during the period 1,003 894 900

Base salaries and wages increased in 2021 by $8.6 million, or 17%, compared to 2020, and were impacted by the acquisitions of Premier and North Star Leasing.

During 2021, Peoples incurred $3.8 million of one-time expenses associated with acquisitions, whereas Peoples incurred $1.1 million in severance expenses in 2020, due primarily to a management restructuring that occurred in the latter half of 2020.

Base salaries and wages in 2020 were relatively flat compared to 2019.

Both 2019 and 2018 included $2.2 million of one-time expenses associated with acquisitions, whereas Peoples incurred $1.1 million in severance expenses in 2020, due primarily to a management restructuring that occurred in the latter half of 2020.

Base salaries and wages were impacted by merit increases, as well as continued movement towards a $15 per hour minimum wage throughout Peoples' organization.

The $15 per hour minimum wage was phased in beginning in 2018 and was largely implemented as of January 1, 2020.

Base salaries and wages were also impacted by the addition of employees, primarily as a result of the First Prestonsburg acquisition in 2019 and the ASB acquisition in 2018.

Sales-based and incentive compensation increased in 2020 and 2019 largely due to higher incentive compensation related to the overall company performance measures combined with mortgage banking income growth of real estate loans sold in the secondary market.

The $15 per hour minimum is being phased in and will largely be implemented by January 1, 2023.

Base salaries and wages were also impacted by the addition of employees, primarily as a result of the First Prestonsburg acquisition in 2019.

Sales-based and incentive compensation increased in 2021 compared to 2020, largely due to higher incentive compensation related to the overall company performance measures combined with trust and investment income growth.

During 2020, sales-based and incentive compensation increased compared to 2019 due to mortgage banking income growth from an increase in real estate loans sold in the secondary market.

Peoples' sales-based and incentive compensation plans are designed to grow core earnings while managing risk, and do not encourage unnecessary and excessive risk-taking that could threaten the value of Peoples.

The sales-based and incentive compensation plans reward employees for appropriate behaviors and include provisions addressing inappropriate practices with respect to Peoples and its customers, including clawbacks for executives.

Employee benefit costs increased $2.6 million compared to 2020, and were impacted by the Premier and North Star Leasing acquisitions creating an increase in the number of participants in the insurance plan.

During 2020, employee benefit costs were relatively flat compared to 2019.

The increase in employee benefits in 2019 compared to 2018 was impacted by the First Prestonsburg and ASB acquisitions, and included an increase in medical insurance costs of $1.8 million due primarily to higher medical claims, which was impacted by an increase in the number of participants in the insurance plan.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, and an adjustment is made at the vesting date to reverse expense for non-vested awards.

The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter and based upon Peoples achieving certain performance goals during the prior year.

During the years presented in the table

above, Peoples granted restricted common shares to officers and key employees with performance-based vesting periods and time-based vesting periods, generally with a three-year cliff vesting.

Stock-based compensation was relatively flat for 2020, compared to 2019.

The increase in stock-based compensation during 2019, compared to 2018, correlates to Peoples' improved performance, and was also driven by higher expense related to stock grants made to retirement eligible grantees.

Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than the vesting period.

Additional information regarding Peoples' stock-based compensation plans and awards can be found in "Note 17 Stock-Based Compensation" of the Notes to the Consolidated Financial Statements.

During the years presented in the table above, Peoples granted restricted common shares to officers and key employees with performance-based vesting periods and time-based vesting periods, generally with a three-year cliff vesting.

Stock-based compensation was relatively flat for 2021, compared to 2020 and 2019.

Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs.

These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income.

As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year, which increased in 2020 compared to 2019.

Deferred personnel costs decreased in 2021 compared to 2020.

Materially impacting the comparison was the recognition of $921,000 in deferred personnel costs during 2020 related to the origination of PPP loans.

Increased production in residential real estate and indirect consumer loans resulted in higher deferred personnel costs in 2020 compared to 2019.

Additional information regarding Peoples' loan activity can be found later in this discussion under the caption "Loans."

Payroll taxes and other employee costs decreased during 2020 due to $454,000 in dividends received from Ohio Bureau of Workers' Compensation in an effort to ease the impact of COVID-19 on the state's business community and workforce.

Payroll taxes and other employee costs increased during 2019 as a result of higher base salaries and wages, sales-based and incentive compensation, and employee benefits.

Increased production in residential real estate and indirect consumer loans, coupled with PPP loan originations, resulted in higher deferred personnel costs in 2020 compared to 2019.

Additional information regarding Peoples' loan activity can be found later in this discussion under the caption "Loans" within "FINANCIAL CONDITION."

Payroll taxes and other employee costs increased during 2021 as a result of the higher base salaries, sales-based and incentive compensation, and employee benefits.

During 2020, $454,000 in dividends were received from Ohio Bureau of Workers' Compensation in an effort to ease the impact of COVID-19 on the state's business community and workforce.

Peoples’ net occupancy and equipment expense for the years ended December 31 was comprised of the following:

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Net occupancy and equipment expense $ 14,918 $ 12,808 $ 12,431

Net occupancy and equipment expense grew 16% during 2021, compared to 2020, driven by the recent acquisitions and ongoing costs related to the larger footprint.

During 2020, net occupancy and equipment expense increased primarily due to increased depreciation expense and net rent expense.

Depreciation expense increased due to a full year of depreciation related to the First Prestonsburg acquisition in 2019.

Net rent expense increased due to the addition of new leases for the recent insurance acquisition and premium finance acquisition, as well as a full year of rent expense for the First Prestonsburg branches.

Net occupancy and equipment expense increased during 2019 primarily due to the increased maintenance costs, property taxes, utilities and other costs related to the addition of nine full-service bank branches from the First Prestonsburg acquisition;

a full year of expenses related to the additional locations from the ASB acquisitions in 2018;

and ongoing increased operating costs associated with the expanded footprint.

These increases were partially offset by a reduction in ATM repairs and maintenance costs resulting from a new vendor servicing agreement.

The increase in depreciation expense was due to a full year of depreciation related to the First Prestonsburg acquisition in 2019, while net rent expense increased due to the addition of new leases for the recent insurance acquisition and insurance premium finance acquisition, as well as a full year of rent expense for the First Prestonsburg branches.

The following table details the other items included within Peoples' total non-interest expense for the years ended December 31:

(Dollars in thousands) 2021 2020 2019

E-banking expense $ 7,777 $ 7,186 $ 6,057

Data processing and software expense 7,441 6,332 5,419

Professional fees $ 15,783 $ 6,912 $ 7,095

Franchise tax expense 3,506 3,071 2,771

Data processing and software expense 10,542 7,441 6,332

E-banking expense 8,885 7,777 7,186

Amortization of other intangible assets 4,775 3,223 3,359

Marketing expense 3,658 2,101 2,291

Franchise tax expense 3,357 3,506 3,071

Other loan expenses 2,001 1,584 1,956

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Other non-interest expense $ 21,573 $ 9,546 $ 13,886

Peoples' e-banking expense is comprised of costs associated with debit and ATM cards, as well as Internet and mobile banking costs.

E-banking expense was up for 2020, compared to 2019, due to an increased usage by customers as a result of the COVID-19 pandemic, which in turn increased the volume of transactions involving debit cards and Peoples' internet and mobile banking service.

The increase in 2019, compared to 2018, was due to customers completing a higher volume of transactions using their debit cards, and Peoples' Internet and mobile banking service.

Also contributing to the increase was the addition of accounts related to the acquisitions of First Prestonsburg in 2019 and ASB in 2018, as well as the annual increase in the cost of each unit of service in internet and mobile banking.

The increased volume of customers and usage of debit cards also produced a greater increase in the corresponding e-banking revenues over the same period.

Total non-interest expense during 2021 increased considerably due to acquisition-related expenses, which totaled $21.4 million, and impacted several lines.

Additionally, Peoples had increased ongoing expenses associated with the Premier and North Star Leasing acquisition during 2021, and the full year impact of the Premium Finance acquisition completed during 2020.

Data processing and software expense includes software support, maintenance and depreciation expense.

The increase in data processing and software expense for 2020 was driven by systems and software upgrades, annual contractual increases and overall growth, which included:

During 2021, data processing and software expense grew due to systems and software upgrades, annual contractual increases and overall growth, which included:

the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers;

software upgrades;

and additional network capacity and security features.

The increase in these costs during 2019 was driven by systems and software upgrades and overall growth, which included:

and additional network capacity and security features in the latter part of 2020 and first quarter of 2021.

The higher expense during 2021 also reflected increases related to the Premier acquisition.

The increase in data processing and software expense for 2020 was driven by systems and software upgrades, annual contractual increases and overall growth, which included:

the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers;

increases in customer accounts and customer usage of mobile and online banking tools;

software upgrades;

and additional network capacity and security features.

Professional fees were down compared to 2019, mainly due to lower consulting fees and legal expenses.

Professional fees were lower in 2019 compared to 2018 mainly due to lower legal expenses and consulting work performed during 2018, which was not duplicated in 2019, combined with a decline in acquisition-related expenses of $481,000 compared to 2018.

Peoples' e-banking expense is comprised of costs associated with debit and ATM cards, as well as Internet and mobile banking costs.

E-banking expense increased during 2021, as customer usage increased, coupled with the additional accounts acquired from Premier.

Peoples' amortization of other intangible assets is driven by acquisition-related activity.

During 2021, amortization of other intangible assets increased as a result of the recent acquisitions of Premier and North Star Leasing and the full year impact of premium finance.

Amortization of other intangible assets declined in 2020 due to the reduced amortization from previous acquisitions.

Marketing expense, which includes advertising, donations, marketing campaigns, and other public relations costs, was higher for 2021, compared to 2020, and was mostly due to additional advertising campaigns relating to the addition of the Premier locations.

Additionally, Peoples' donations increased during 2021, which included a $500,000 special contribution to the Peoples Bank Foundation, Inc., and donations to each of Marietta College and the Ohio Valley Museum of Discovery.

Marketing expense decreased slightly in 2020, compared to 2019, due to declines in electronic and print media, ad agency fees and other public relations expenses.

Peoples is subject to state franchise taxes, which are based largely on Peoples' equity at year-end, in the states where Peoples has a physical presence.

Expenses related to state franchise taxes increased in 2020 due to higher equity as of December 31, 2019 compared to December 31, 2018, coupled with additional taxes in Kentucky as a result of the First Prestonsburg acquisition in 2019.

Franchise tax expense declined slightly for 2021, and was driven by a change in the calculation for Kentucky, which become income-based instead of an equity-based calculation, and reduced the related tax expense for 2021, compared to 2020.

During 2020, franchise tax expense increased compared to 2019, due to higher equity as of December 31, 2019, coupled with additional taxes in Kentucky as a result of the First Prestonsburg acquisition in 2019.

Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio.

The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio.

Peoples' amortization of other intangible assets is driven by acquisition-related activity.

Amortization of other intangible assets declined in 2020 due to the reduced amortization from previous acquisitions.

Amortization of other intangible assets increased slightly during 2019 as a result of additional amortization related to the acquisition of First Prestonsburg.

Marketing expense, which includes advertising, donations, marketing campaigns, including the premium finance line of business and other public relations costs, decreased slightly in 2020 due to declines in electronic and print media, ad agency fees and other public relations expenses.

Marketing expense was higher during 2019, compared to 2018, due to overall increases in spending on brand awareness, donations to Peoples Bank Foundation, Inc., and product marketing campaigns.

Peoples Bank Foundation, Inc.

was formed by Peoples in 2004 as a private foundation to make charitable contributions to organizations within Peoples' primary market area.

The increases in marketing expense were also impacted by Peoples' expanded footprint due to the First Prestonsburg acquisition in 2019 and the ASB acquisition in 2018.

Other loan expenses declined during 2020, primarily due to higher deferral of costs associated with increased origination volume of consumer indirect loans.

Other loan expenses increased during 2019 due to higher real estate loan expense, which was driven by the mortgage banking demand due to interest rate declines in the latter half of 2019.

Other loan expenses increased during 2018 due to higher real estate loan expense and collection expenses.

The increase in collection expenses was related to the growth in indirect consumer lending.

During 2021, other loan expenses increased mostly due to the higher volume of indirect consumer loan originations during 2020 and related recognition of deferred costs, which lowered expense during 2020, and was not duplicated during 2021.

Other loan expenses declined during 2020, primarily due to the higher deferral of costs associated with an increase in the origination volume of consumer indirect loans.

FDIC insurance expense increased during 2021, and was partially due to credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium, coupled with a lower leverage ratio during early 2020, which negatively impacted insurance expense for 2021.

Peoples recorded higher FDIC insurance expense during 2020 compared to the prior year, as credits were received and recognized during 2019, and were fully utilized during the second quarter of 2020.

Peoples' FDIC insurance expense declined in 2019 due to two credits received related to its quarterly assessments as a result of the deposit insurance fund reaching its target threshold for smaller banks (banks with total consolidated assets of less than $10 billion) to recognize a credit to their insurance expense.

Peoples cannot reasonably anticipate any future recognition of credits, as the deposit insurance fund is analyzed on a quarterly basis, and is the premise for receiving credits.

The FDIC quarterly assessment rate is applied to average total assets less average tangible equity, and is based on the leverage ratio, net income before taxes, nonperforming loans as a percent of total assets, OREO, loan mix and asset growth.

Peoples experienced improvements in each of these categories during 2018, leading to a reduction in the quarterly FDIC assessment rate in 2018, which offset increases in the expense that were attributable to the asset growth experienced during 2018.

Additional information regarding Peoples' FDIC insurance assessments may be found in "ITEM 1 BUSINESS" of this Form 10-K in the section captioned "Supervision and Regulation."

The decrease in communication expense during 2019 and 2018 was attributable to the re-negotiation of contracts with vendors, as well as the elimination of analog circuits that have been replaced with newer more efficient technology.

Other non-interest expense decreased $4.3 million in 2020 compared to 2019, and increased $140,000 in 2019 compared to 2018.

The decrease during 2020 compared to 2019, and increase during 2019 compared to 2018, were driven by $3.9 million of one-time acquisition-related expenses in 2019 and $3.6 million in 2018.

The 2019 and 2018 acquisition-related expenses related mainly to contract termination fees and other costs related to the system conversion.

Communication expense increased 46% during 2021, compared to 2020, and grew as a result of the upgrading of the network to certain branches (including new branches acquired from Premier coupled with the addition of the NSL location and the full year impact of the location of Premium Finance that was acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.

Communication expense was relatively flat for 2020 compared to 2019.

Other non-interest expense increased $12.0 million in 2021 compared to 2020, and decreased $4.3 million in 2020 compared to 2019.

Other non-interest expense increased considerably during 2021, and was primarily related to acquisition-related expenses recognized.

Income Tax Expense

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In addition to the expense recognized, Peoples receives tax benefits from tax-exempt investments and loans, BOLI, stock awards that settled or vested during the year, and investments in tax credit funds, which reduce Peoples' effective tax rate.

A reconciliation of Peoples' recorded income tax expense/benefit and effective tax rate to the statutory tax rate can be found in "Note 12 Income Taxes" of the Notes to the Consolidated Financial Statements.

A reconciliation of

Peoples' recorded income tax expense/benefit and effective tax rate to the statutory tax rate can be found in "Note 13 Income Taxes" of the Notes to the Consolidated Financial Statements.

For the full year of 2021, income tax expense totaled $9.4 million, compared to $7.9 million in 2020, and $11.7 million in 2019, and the effective tax rate for 2021 was 16.5%, compared to 18.5% for 2020, and 17.8% for 2019.

Income tax expense increased during 2021, and was due to higher pre-tax income, which benefited from the recent acquisitions and reduced provision for credit losses.

The decrease in income tax expense in 2020 compared to 2019 was the result of lower pre-tax income in 2020 related to the increase in the provision for credit losses recorded during 2020.

For 2021, the effective tax rate was down 2% compared to 2020.

Income tax expense for 2021 was impacted by an income tax benefit related to an adjustment from the prior period of $1.1 million.

During 2020, income tax expense and the effective tax rate were positively impacted by tax-exempt interest income, non-taxable BOLI income and the full-year impact of the investment in Peoples Risk Management, Inc., which reduced income tax expense by $412,000.

Income tax expense for 2020 was also impacted by additional income tax expense related to an adjustment from the prior year of $863,000.

During 2019, income tax expense and the effective tax rate were positively impacted by a tax benefit of $508,000 related to non-taxable BOLI income.

In 2018, Peoples released a valuation allowance, which reduced income tax expense by $805,000.

The valuation allowance was related to a historic tax credit that Peoples had invested in during 2015.

Peoples sold $6.7 million of equity investment securities in 2018, which resulted in a capital gain for tax purposes.

This capital gain was large enough to offset an anticipated future capital loss which is expected to be recognized due to the structure of the historic tax credit investment, resulting in the release of the valuation allowance.

During 2018, the final remeasurement of deferred tax assets and deferred tax liabilities at the changed statutory federal corporate income tax rate from the Tax Cuts and Jobs ("TCJ") Act resulted in a reduction to income tax expense of $705,000.

The initial remeasurement at the statutory federal corporate income tax rate resulted in write-down of $897,000 of Peoples' net deferred tax assets, which increased income tax expense recorded during 2017.

Additionally, as of December 31, 2017, Peoples early adopted ASU 2018-02 - Income Statement – Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income and elected to reclassify, from accumulated other comprehensive income to retained earnings, the stranded income tax effects in accumulated other comprehensive loss resulting from the TCJ Act.

Peoples also recorded tax benefits of $5,000 in 2020, $195,000 in 2019, and $332,000 in 2018 related to stock awards that settled or vested during the year, with the majority recorded in the first quarter of each year.

Peoples also recorded a tax expense of $74,000 in 2021, and tax benefits of $5,000 in 2020, and $195,000 in 2019 related to stock awards that settled or vested during the year, with the substantial majority recorded in the first quarter of each year.

Pre-Provision Net Revenue (non-US GAAP)

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provision for credit losses (a) 731 26,254 2,504

net loss on debt extinguishment — — 13 — 707

net loss on OREO — 120 98

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net loss on other assets 252 170 692

net loss on other transactions — — 76 — 204

net gain on OREO 56 — —

net gain on investment securities — — 164

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(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model.

Prior to the adoption of CECL, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes purchased credit deteriorated loans, held-to-maturity investment securities, and the unfunded commitment liability.

Prior to the adoption of CECL, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes held-to-maturity investment securities and the unfunded commitment liability.

During 2021, PPNR declined, and was heavily impacted by the $21.4 million in acquisition-related expenses, which more than offset the positive impact of higher total revenue compared to 2020.

PPNR increased in 2020 mostly due to the reduction in acquisition-related expenses incurred during 2020, compared to 2019, offset by a decrease in net interest income due to the low interest rate environment.

The continued increase in PPNR in recent years has been driven by acquisitions, coupled with the focus of growing revenues at a higher rate than expenses on a percentage basis.

The ratio of PPNR to total average assets for 2018 declined compared to 2017 due to $7.3 million of acquisition-related expenses during 2018, mitigating the increase in PPNR, combined with the growth of average assets during the year, which was partially attributable to the ASB acquisition.

Core Non-Interest Income and Expense (non-US GAAP)

Core non-interest income and core non-interest expense are financial measures used to evaluate Peoples' recurring revenue and expense streams.

These measures are non-US GAAP since they exclude the impact of all gains and/or losses, core banking system conversion revenue and expenses, acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19-related non-recurring expenses.

The following tables provide reconciliations of these non-US GAAP measures to the amounts of total non-interest income and total non-interest expense reported in Peoples' Consolidated Financial Statements for the periods presented:

(Dollars in thousands) 2020 2019 2018 2017 2016

Core non-interest income:

Total non-interest income $ 63,672 $ 64,274 $ 56,754 $ 55,573 $ 50,867

net (loss) gain on investment securities (368) 164 (146) 2,983 930

net loss on asset disposals and other transactions (290) (782) (334) (63) (1,133)

Total non-interest income excluding net losses and gains $ 64,330 $ 64,892 $ 57,234 $ 52,653 $ 51,070

core banking system conversion revenue waived — — — — 85

Core non-interest income excluding net losses and gains $ 64,330 $ 64,892 $ 57,234 $ 52,653 $ 51,155

Core Non-Interest Expense (non-US GAAP)

Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream.

This measure is non-US GAAP financial measure since it excludes the impact of all acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc.

contribution.

The following tables provide reconciliations of these non-US GAAP financial measures to the amounts of total non-interest expense reported in Peoples' Consolidated Financial Statements for the periods presented:

(Dollars in thousands) 2021 2020 2019

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acquisition-related expenses 21,423 489 7,287

system conversion expenses — — — — 1,259

Peoples Bank Foundation, Inc.

contribution 500 — —

contract negotiation expenses 1,248 — —

Core non-interest expense $ 159,096 $ 129,765 $ 129,693

The increase in core non-interest expense for 2021, compared to 2020, was driven by higher ongoing costs associated with recent acquisitions.

This includes the impact of the Premier acquisition since September 17, 2021, North Star Leasing since April 1, 2021, and the full year impact of the Premium Finance acquisition that was completed on July 1, 2020.

Efficiency Ratio (non-US GAAP)

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The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of FTE net interest income plus total non-interest income excluding net gains and losses.

This measure is non-US GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses FTE net interest income.

This financial measure is non-US GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses FTE net interest income.

The following table provides a reconciliation of this non-US GAAP financial measure to the amounts of total non-interest income and total non-interest expense reported in Peoples' Consolidated Financial Statements for the periods presented:

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net (loss) gain on investment securities (862) (368) 164

net loss on asset disposals and other transactions (290) (782) (334) (63) (1,133)

net gain (loss) on asset disposals and other transactions 493 (290) (782)

Total non-interest income excluding net gains and losses 69,254 64,330 64,892

12 unchanged sentences

Efficiency ratio adjusted for non-core items 63.47 % 61.94 % 61.09 %

(a) Based on a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35% statutory federal corporate income tax rate for 2017 and 2016.

(a) Based on 21% statutory federal corporate income tax rate for 2021, 2020 and 2019.

The efficiency ratio increased during 2021, and was largely due to the acquisition-related expenses.

The efficiency ratio, when adjusted for non-core items, increased compared to 2020, and was driven by the higher non-interest expense, coupled with the continued low interest rate environment and related impact to net interest income.

The efficiency ratio for 2020 improved due to a decrease in non-interest expense.

The higher efficiency ratio adjusted for non-core items for 2020, compared to 2019, was driven by lower revenue, while adjusted core non-interest expense was relatively flat.

The decline in the efficiency ratio for 2019 from 2018 was mostly due to higher revenues, which grew at a faster pace than non-interest expense.

The increase in the efficiency ratio between 2018 and 2017 was driven by acquisition-related expenses of $7.3

million in 2018, compared to $341,000 in 2017.

The improvement in the efficiency ratio adjusted for non-core items in 2017 through 2019 was driven by acquisitions, coupled with the focus of growing revenues at a higher rate than expenses on a percentage basis.

Furthermore, managing expenses has been a major focus over recent years;

Managing expenses has been a major focus over recent years;

however, during this time Peoples has continued to make meaningful investments in its infrastructure and systems.

Peoples was also negatively impacted during 2021 and 2020 by the low interest rate environment and the related reduction to net interest income.

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

In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance.

The return on average assets ratio adjusted for non-core items represents a non-US GAAP financial measure since it excludes the release of the deferred tax asset valuation allowance, the impact of the TCJ Act on the remeasurement of deferred tax assets and deferred tax liabilities, and the after-tax impact of all gains and losses, core banking system conversion revenue and expenses, acquisition-related expenses, pension settlement charges, severance expenses, and COVID-19-related non-recurring expenses in earnings.

The return on average assets ratio adjusted for non-core items represents a non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, pension settlement charges, severance expenses, COVID-19-related expenses, Peoples Bank Foundation, Inc.

and contract negotiation non-recurring expenses in earnings.

The following table provides a reconciliation of this non-US GAAP financial measure to the amount of net income reported in Peoples' Consolidated Financial Statements for the periods presented:

2 unchanged sentences

Net income $ 47,555 $ 34,767 $ 53,695

core banking system conversion revenue waived — — — — 85

tax effect of core banking system conversion revenue waived (a)

net loss on investment securities

368 — 146 — —

tax effect of net loss on investment securities (a)

net gain on investment securities

— 164 — 2,983 930

tax effect of net gain on investment securities (a)

— 34 — 1,044 325

net loss on asset disposals and other transactions

290 782 334 63 1,133

tax effect of net loss on asset disposals and other transactions (a)

61 164 70 22 397

system conversion expenses — — — — 1,259

tax effect of system conversion expenses (a)

net gain on asset disposals and other transactions (a) 493 — —

tax effect of net loss on asset disposals and other transactions (a) 104 — —

acquisition-related expenses

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tax effect of severance expenses (a) 17 222 57

pension settlement charges (a)

1,054 — 267 242 —

pension settlement charges

tax effect of pension settlement charges (a)

221 — 56 85 —

release of deferred tax asset valuation allowance — — 805 — —

impact of TCJ Act on deferred tax liability — — 705 — —

impact of TCJ Act on deferred tax assets — — — 897 —

COVID-19-related expenses 1,248 1,332 —

tax effect of COVID-19-related expenses (a) 262 280 —

Peoples Bank Foundation, Inc.

contribution 500 — —

tax effect of Peoples Bank Foundation, Inc.

contribution 105 — —

contract negotiation expenses 1,248 — —

tax effect of contract negotiation expenses 262 — —

Net income adjusted for non-core items (after tax) $ 67,313 $ 39,158 $ 60,345

10 unchanged sentences

1.19 % 0.83 % 1.43 %

(a) Based on a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35% statutory federal corporate income tax rate for 2017 and 2016.

The decreases in return on average assets and return on average assets, adjusted for non-core items for 2020 were driven by a reduction in income due to the implementation of CECL, which was impacted by the COVID-19 pandemic.

The increases in return on average assets and return on average assets adjusted for non-core items from 2016 through 2019 has been driven by the acquisitions in 2019 and 2018, coupled with the focus of growing revenues at a higher rate than expenses on a percentage basis.

Managing expenses has been a major focus over the last four years;

however, during this time Peoples has continued to make meaningful investments in its infrastructure and systems.

The ratios in 2019 and 2018 were also positively impacted by the lower statutory federal corporate income tax rate compared to 2017.

(a) Based on a 21% statutory federal corporate income tax rate for 2021, 2020 and 2019.

The return on average assets and return on average assets adjusted for non-core items, both increased compared to 2020, as Peoples recorded a lower provision for credit losses during 2021 compared to 2020, while net income improved due to recent acquisitions and core growth.

The decreases in return on average assets and return on average assets, adjusted for non-core items for 2020 compared to 2019, were driven by a reduction in income due to the implementation of CECL, which was impacted by the COVID-19 pandemic.

Return on Average Tangible Equity (non-US GAAP)

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Return on average tangible equity 12.16 % 9.47 % 14.35 %

(a) Based on a 21% statutory federal corporate income tax rate for 2020, 2019 and 2018 and a 35% statutory federal corporate income tax rate for 2017 and 2016.

The decrease in return on average tangible equity for 2020 was driven by a reduction in net income due to the implementation of CECL, which was negatively impacted by the COVID-19 pandemic.

The decline in return on average tangible equity ratio in 2019 compared to 2018, was impacted by the First Prestonsburg acquisition, which increased capital.

The return on average stockholders' equity and average tangible equity ratios increased in 2018 compared to 2017, reflecting the increase in net income which outpaced the increases in average stockholders' equity and average tangible equity.

Average stockholders' equity and average tangible equity increased due mainly to net income and the ASB acquisition, partially offset by dividends declared.

(a) Based on a 21% statutory federal corporate income tax rate for 2021, 2020 and 2019.

Return on average stockholders' equity and return on average tangible equity both improved compared to 2020, and were driven by the recent acquisitions, core growth and reduced provision for credit losses.

The decrease in return on average tangible equity for 2020, compared to 2019, was driven by a reduction in net income due to the implementation of CECL, which was negatively impacted by the COVID-19 pandemic.

FINANCIAL CONDITION

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At December 31, 2021, excess cash reserves at the FRB of Cleveland were $318.1 million, compared to $25.1 million at December 31, 2020.

The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances.

Peoples also acquired $248.4 million in cash and cash equivalents from Premier.

The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances, coupled with increased liquidity needs due to the COVID-19 pandemic.

In 2021, Peoples' total cash and cash equivalents increased $263.6 million, as cash provided by operating activities and financing activities of $156.4 million and $181.6 million, respectively, were partially offset by cash used in investing activities of $74.4 million.

Peoples' investing activities reflected a net increase of $444.1 million in loans and $261.4 million in purchases of available-for-sale investment securities, which were partially offset by $444.6 million in net proceeds from sales, principal payments, calls and

prepayments on available-for-sale and held-to-maturity investment securities.

Peoples' investing activities reflected a net decrease of $113.5 million in loans and $852.5 million in purchases of available-for-sale investment securities, which were primarily offset by $849.1 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities.

Financing activities included a $200.8 million net increase in deposits and increase of $14.4 million in short-term borrowings, as well as $31.0 million of cash dividends paid.

In 2020, Peoples' total cash and cash equivalents increased $36.9 million, as cash provided by operating activities and financing activities of $85.5 million and $345.3 million, respectively, were partially offset by cash used in investing activities of $393.9 million.

Financing activities included a $618.9 million net increase in deposits and $50.0 million of proceeds from long-term borrowings, offset partially by a decrease of $263.7 million in short-term borrowings, as well as the purchase of $29.3 million of treasury stock under the share repurchase program and $27.1 million of cash dividends paid.

In 2019, Peoples' total cash and cash equivalents increased $37.6 million, as cash provided by operating activities and financing activities of $67.2 million and $1.1 million, respectively, were largely offset by cash used in financing activities of $30.6 million.

Cash used in financing activities was primarily due to a reduction in short-term borrowings of $76.9 million and dividends paid of $25.9 million, partially offset by the growth in deposit balances of $77.7 million.

The increase in cash provided by operating activities was due primarily to $53.7 million of net income.

Further information regarding the management of Peoples' liquidity position can be found later in this discussion under "Interest Rate Sensitivity and Liquidity."

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The following table provides information regarding Peoples’ investment portfolio at December 31:

(Dollars in thousands) 2020 2019 2018 2017 2016

(Dollars in thousands) Weighted average yield 2021 2020 2019

Available-for-sale securities, at fair value:

Obligations of:

Treasury and government agencies 1.05 % $ 35,604 $ — $ —

government sponsored agencies 0.07 % 81,739 5,363 8,209

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Bank-issued trust preferred securities 3.00 % 6,795 4,730 4,691

Equity investment securities (a) — — — 7,849 8,953

Total fair value $ 1,275,493 $ 753,013 $ 936,101

Total amortized cost $ 1,283,146 $ 734,544 $ 929,395

Net unrealized gain (loss) $ 18,469 $ 6,706 $ (12,764) $ (2,545) $ 923

Net unrealized (loss) gain $ (7,653) $ 18,469 $ 6,706

Held-to-maturity securities, at amortized cost:

Obligations of:

States and political subdivisions (b) $ 35,199 $ 4,346 $ 4,403 $ 3,810 $ 3,820

government sponsored agencies 2.03 % $ 36,431 $ — $ —

States and political subdivisions (a) 2.23 % $ 151,402 $ 35,139 $ 4,346

Residential mortgage-backed securities 1.90 % 110,708 25,890 21,494

1 unchanged sentence

Total amortized cost $ 374,129 $ 66,458 $ 31,747

Other investment securities (a) $ 37,560 $ 42,730 $ 42,985 $ 38,371 $ 38,371

Other investment securities $ 33,987 $ 37,560 $ 42,730

Total investment securities:

1 unchanged sentence

Carrying value $ 1,683,609 $ 857,031 $ 1,010,578

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities.

At December 31, 2018, $277,000 of equity investment securities were included in other investment securities compared to $7.8 million of equity investment securities included in available-for-sale investment securities at December 31, 2017.

(b) A mortized cost is presented net of the allowance for credit losses of $60,000 at December 31, 2020.

(a) A mortized cost is presented net of the allowance for credit losses of $286 at December 31, 2021 and $60 at December 31, 2020.

At December 31, 2021, Peoples' investment securities represented approximately 23.8% of total assets, compared to 18.0% at December 31, 2020.

Investment securities decreased $153.4 million compared to 2019 due to the acceleration of paydowns and maturities.

During 2021, Peoples acquired, in the Premier acquisition, investment securities totaling $552.0 million and subsequently sold $395.2 million of available-for-sale securities.

The increase in investment securities compared to 2020 also reflected Peoples' continued reinvestment of proceeds from available-for-sale investment securities and the investment of excess cash in higher-yielding investment securities.

During 2021, Peoples acquired from Premier, and made investments into, tax-exempt securities, which are included in obligations of state and political subdivisions.

The investments into these securities were made in an effort to reduce exposure to amortizing investment securities, while also maintaining an appropriate level of risk-adjusted yield.

During 2020, Peoples sold $82.6 million of available-for-sale securities and reinvested the majority of the proceeds in held-to-maturity investment securities to minimize the volatility in the securities portfolio, should interest rates begin to rise.

During 2019, Peoples acquired, in the First Prestonsburg acquisition, investment securities totaling $139.7 million and subsequently sold $65.1 million of acquired available-for-sale investment securities.

In April and May of 2019, $53.7 million of the proceeds were reinvested.

Additionally, the fair value of investment securities increased, driven by overall declines in market interest rates during the latter half of 2019.

During 2018, Peoples acquired, in the ASB acquisition, investment securities totaling $18.8 million and subsequently sold $14.6 million of acquired available-for-sale investment securities.

Proceeds from the sale of investment securities were used to reduce overnight borrowing at the FHLB.

Peoples designates certain securities as "held-to-maturity" at the time of their purchase if management determines Peoples would have the intent and ability to hold the purchased securities until maturity.

The unrealized gain or loss related to held-to-maturity

investment securities does not directly impact total stockholders' equity, in contrast to the impact from the available-for-sale investment securities portfolio.

The unrealized gain or loss related to held-to-maturity investment securities does not directly impact total stockholders' equity, in contrast to the impact from the available-for-sale investment securities portfolio.

Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Consolidated Financial Statements.

7 unchanged sentences

Premium finance 136,121 100,571 —

Leases 69,169 — —

Residential real estate 350,595 281,623 314,935

11 unchanged sentences

Premium finance 15 14,187 —

Leases 53,339 — —

Residential real estate 421,123 292,384 346,541

15 unchanged sentences

Premium finance 3.0 % 3.4 % — %

Leases 2.7 % — % — %

Residential real estate 17.2 % 16.9 % 23.0 %

3 unchanged sentences

Consumer 14.1 % 17.1 % 17.2 %

Deposit account overdrafts (b) NM NM NM NM NM

Deposit account overdrafts (b) NM NM NM

Total percentage 100.0 % 100.0 % 100.0 %

1 unchanged sentence

(a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 and thereafter.

Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit).

Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals, and increase in lines of credit).

(b) NM=not meaningful.

As of December 31, 2020, total loans increased $529.4 million, or 18%, compared to December 31, 2019.

As of December 31, 2021, total loans increased 32%, compared to December 31, 2020, which was driven by the Premier and North Star Leasing acquisitions, coupled with core growth.

The Premier acquisition added $1.1 billion in loans at December 31, 2021, which were comprised of $96.1 million in construction;

$534.9 million in commercial real estate, other;

$132.1 million in commercial and industrial;

$331.1 million in residential real estate;

$45.9 million in home equity lines of credit;

and $21.6 million of consumer, direct loan balances.

During 2021, the outstanding balance of SBA PPP loans declined $279.8 million, from $366.9 million at December 31, 2020, to $87.1 million at December 31, 2021, which was mainly due to forgiveness proceeds received from the SBA.

During 2020, total loans grew 18%, or $529.4 million.

The growth compared to December 31, 2019 was mostly driven by PPP loans added during 2020, which are included in commercial and industrial loan balances, and the new loans being originated through the acquired premium finance sector.

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Consumer indirect loans also contributed to the growth during 2020, and were up $86.3 million, or 21%.

During 2019, total loans grew 5%, or $144.7 million.

Total originated loans (excluding acquired loans) grew 5%, or $117.8 million due to an increase in commercial and industrial loans of $92.0 million, or 17%.

The increase in total acquired loans during 2019 was due to the First Prestonsburg acquisition, partially offset by the decline in the loan balances acquired in previous acquisitions.

During 2018, total loans grew 16%, or $371.6 million.

Total originated loans (excluding acquired loans) grew 11%, or $213.7 million, due to increases in all categories except residential real estate and deposit account overdrafts.

The increase in total acquired loans during 2018 was due to the ASB acquisition, partially offset by the decline in the loan balances acquired in previous acquisitions.

During 2017, total loans grew 6%, or $132.2 million.

The increase was primarily the result of commercial loan growth of $95.5 million, or 8%, which includes commercial real estate, and commercial and industrial loan balances.

Additionally, continued emphasis on growing indirect consumer lending led to growth of $87.9 million, or 35%, compared to December 31, 2016, and was partially offset by reductions in residential real estate loans.

The following table details the maturities of Peoples' commercial real estate and commercial and industrial loans at December 31, 2020:

(Dollars in thousands) Due in One Year or Less Due in One to Five Years Due After Five Years Total % of Total

The following table details the maturities of Peoples' loan portfolio at December 31, 2021:

(Dollars in thousands) Due in One Year or Less Due in One to Five Years Due in Five to Fifteen Years Due After Fifteen Years Total % of Total

Construction:

12 unchanged sentences

Fixed 136,136 — — — 136,136 100.0 %

Total commercial loans:

Fixed 122,508 — — — 122,508 100.0 %

Residential real estate:

Fixed 72,874 14,169 174,673 217,831 479,547 62.1 %

Variable 11,655 7,158 93,301 180,057 292,171 37.9 %

Total 84,529 21,327 267,974 397,888 771,718 100.0 %

Home equity lines of credit:

Fixed 5 458 1,019 872 2,354 1.4 %

Variable 1,493 34,292 103,086 22,368 161,239 98.6 %

Total 1,498 34,750 104,105 23,240 163,593 100.0 %

Consumer, indirect:

Fixed 4,070 239,873 286,589 — 530,532 100.0 %

Consumer, direct:

Fixed 3,671 59,469 34,948 291 98,379 94.0 %

Variable 555 2,246 2,945 527 6,273 6.0 %

Total 4,226 61,715 37,893 818 104,652 100.0 %

Loan Concentration

6 unchanged sentences

Apartment complexes $ 69,717 $ 121,583 $ 191,300 44.1 %

Mixed-use facilities 29,419 34,168 63,587 14.7 %

Assisted living facilities and nursing homes 19,183 25,960 45,143 10.4 %

Student housing 14,607 201 14,808 6.1 %

Land only 12,216 351 12,567 5.2 %

Lodging and lodging related 497 9,785 10,282 4.2 %

Office buildings and complexes 7,161 14,438 21,599 5.0 %

Residential property 8,545 11,658 20,203 4.7 %

Lodging and lodging related 12,447 1,635 14,082 3.2 %

Retail 9,132 2,747 11,879 2.7 %

Other (a) 54,628 11,554 65,943 15.2 %

Construction $ 210,232 $ 223,743 $ 433,736 100.0 %

(a) All other outstanding balances are less than 2% of the total loan portfolio.

(Dollars in thousands) Outstanding Balance Available Loan Commitments Total Exposure % of Total

Commercial real estate, other:

Retail facilities:

Owner occupied 55,513 1,965 57,478 3.6 %

Non-owner occupied 134,230 1,736 135,966 8.5 %

Total retail 189,743 3,701 193,444 12.1 %

Office buildings and complexes:

2 unchanged sentences

Total office buildings and complexes 172,237 8,314 180,551 11.3 %

Mixed commercial use facilities:

Light industrial facilities:

Owner occupied 91,329 1,891 93,220 5.8 %

Non-owner occupied 38,666 633 39,299 2.5 %

Total mixed commercial use facilities 92,631 2,349 94,980 9.8 %

Apartment complexes 96,548 3,187 99,735 10.3 %

Retail facilities:

Total light industrial facilities 129,995 2,524 132,519 8.3 %

Mixed commercial use facilities:

Owner occupied 53,673 424 54,097 3.4 %

Non-owner occupied 58,716 4,000 62,716 3.9 %

Total retail 94,903 723 95,626 9.8 %

Light industrial facilities:

Total mixed commercial use facilities 112,389 4,424 116,813 7.3 %

Lodging and lodging related:

Owner occupied 13,941 — 13,941 0.9 %

Non-owner occupied 85,713 150 85,863 5.4 %

Total light industrial facilities 70,937 2,075 73,012 7.5 %

Total lodging and lodging related 99,654 150 99,804 6.3 %

Apartment complexes 93,246 3,508 96,754 6.1 %

Warehouse facilities:

2 unchanged sentences

Total warehouse facilities 80,447 2,864 83,311 5.2 %

(Dollars in thousands) Outstanding Balance Available Loan Commitments Total Exposure % of Total

Assisted living facilities and nursing homes $ 81,349 $ 750 $ 82,099 5.1 %

Owner occupied 34,454 — 34,454 3.5 %

Non-owner occupied 26,786 250 27,036 2.8 %

Total assisted living facilities 61,240 250 61,490 6.3 %

Lodging and lodging related:

Owner occupied 12,454 — 12,454 1.3 %

Non-owner occupied 40,230 — 40,230 4.1 %

Total lodging and lodging related 52,684 — 52,684 5.4 %

Education services:

2 unchanged sentences

Total education services 39,404 4,098 43,502 2.8 %

Gas station facilities:

Restaurant/bar facilities:

Owner occupied 24,482 50 24,532 1.5 %

Non-owner occupied 12,908 253 13,161 0.8 %

Total gas station facilities 27,092 10,873 37,965 3.9 %

Total restaurant/bar facilities 37,390 303 37,693 2.3 %

Owner occupied 26,085 422 26,507 1.7 %

Non-owner occupied 11,482 — 11,482 0.7 %

Total healthcare facilities 37,567 422 37,989 2.4 %

Agriculture 30,792 1,536 32,328 2.0 %

2 unchanged sentences

(a) All other outstanding balances are less than 2% of the total loan portfolio.

Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky and West Virginia.

In all other states, the aggregate outstanding balances of commercial loans in each state were not material at either December 31, 2020 or December 31, 2019.

Additional information regarding Peoples' loan portfolio can be found in "Note 4 Loans" of the Notes to the Consolidated Financial Statements.

Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C.

and Maryland.

In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at either December 31, 2021 or December 31, 2020.

Additional information regarding Peoples' loan portfolio can be found in "Note 4 Loans and Leases" of the Notes to the Consolidated Financial Statements.

COVID-19 Loan Impacts

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The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied.

The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.

Peoples is a PPP participating lender, and as of December 31, 2020, Peoples had aggregate principal balances of PPP loans of $374.8 million, net of payoffs during the year, included in commercial and industrial loans.

Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $7.9 million at December 31, 2020.

Peoples recorded accretion of net deferred loan origination fees of $7.5 million on PPP loans as of December 31, 2020.

The net deferred loan origination fees will be accreted over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.

JobsOhio Partnership

Peoples has also been selected to partner with JobsOhio, a private nonprofit organization charged with economic development.

JobsOhio will provide a 90% guarantee on the first $25 million of increased exposure to small businesses, where customers may obtain up to $200,000 of additional financing, subject to certain eligibility requirements.

Through December 31, 2020, Peoples had assisted 176 Ohio small businesses with approximately $10.0 million in loans.

Payment Relief and Loan Modifications

Peoples is also providing relief solutions to consumer and commercial borrowers.

For consumer borrowers, Peoples is providing interest-only payment options to customers for a period of up to 90 days, with the ability to extend if needed.

Peoples is also providing forbearance to its consumer borrowers which allows them to defer their principal and interest payments for up to 90 days for non-residential real estate consumer loans and up to 180 days for residential real estate consumer loans.

In addition, for commercial borrowers who meet certain criteria, Peoples is providing interest-only payment options, principal and interest deferrals, and increased financing.

Peoples continues to prudently work with borrowers and review any additional requests for deferment more closely.

These requests are maintained within the CARES Act guidance and have not exceeded twelve consecutive months of deferred payment.

At December 31, 2020, Peoples had $17.0 million of commercial loans on deferment, and $4.0 million of consumer loan deferments.

Borrowers within the lodging industry account for nearly two-thirds of the deferments at December 31, 2020.

The lodging industry continues to be impacted by the COVID-19 pandemic, with a negative outlook for travel demand among both business and leisure customers.

Portfolio Exposure

Peoples has evaluated its portfolio exposure to certain industries most impacted by the COVID-19 pandemic, which includes restaurants, lodging and lodging related businesses, floorplans, office and retail facilities, as well as daycare facilities.

Peoples has been proactive in working with clients within these industries, and is keeping in close communication with them.

Peoples has made loan modifications, when it is prudent to do so, and is monitoring early warnings signs of risk within these industry segments.

These segments comprise approximately 61% of the total commercial loan modifications approved in response to COVID-19.

Below is a table detailing Peoples' outstanding balance of loans as of December 31, 2020, within certain industries that have been impacted:

(Dollars in thousands) Outstanding Balance % of Total Loans Loan-to-Value Total Commitment

Restaurants (a) $ 212,351 6.2 % 57.8 % $ 226,165

Multifamily 123,137 3.6 % 63.6 % 195,213

Floorplans (b) 91,586 2.7 % 100.0 % 170,100

Assisted living facilities and nursing homes (c) 99,907 2.9 % 72.6 % 128,760

Lodging and lodging related (d) 73,862 2.2 % 65.9 % 83,846

Total $ 600,843 17.6 % $ 804,084

(a) Restaurants outstanding balance included $55.3 million in PPP loans.

(b) Individual units financed under dealer floor plan agreements are generally financed in line with industry standards at 100% of manufacturer invoice, auction cost, or wholesale value.

(d) Lodging and lodging related outstanding balance included $2.1 million in PPP loans.

Approximately 73% of Peoples' outstanding balance to restaurants was to McDonald's franchise operators, which have additional guarantor support, as well as McDonald's corporate assistance with rent and service fee deferments.

At its peak of deferrals during the second quarter of 2020, Peoples had $116.3 million of deferments to restaurant operators granted due to the pandemic.

Of the $116.3 million of deferments granted, $1.5 million of the deferments remained at December 31, 2020.

The total restaurant portfolio outstanding balance of non-McDonald’s operators was $56.6 million at December 31, 2020, which included $24.9 million of PPP loans.

The loans to non-McDonald's operators included $4.2 million of loans for which there is a government guarantee enhancement through the CARES Act.

In addition, for multifamily loans, Peoples has sponsors with extensive experience and substantial liquidity.

The top five relationships, in terms of aggregate credit exposures, accounted for 47% of the portfolio balances.

The top five relationships consist of five properties with an average loan-to-value of 72%.

Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 80%.

Additional support is provided by guarantor strength on the majority of these relationships.

One of the largest loans in the portfolio accounts for 13% of the portfolio balances.

The loan has notable guarantor support, with a reported unencumbered liquidity level of more than $400 million.

For floorplan loans, Peoples has a detailed monitoring and audit process, and performs collateral audits frequently.

Approximately 80% of the assisted living facilities and nursing homes are private pay and are not dependent upon Medicare, and as of December 31, 2020, Peoples had no requests from these customers for relief.

The majority of Peoples' lodging and lodging related outstanding balances is represented by loans to larger established franchises.

At December 31, 2020, this portfolio included $2.1 million of PPP loans.

The top three relationships, in terms of aggregate credit exposures, account for 46% of the portfolio balance.

Peoples has provided payment relief to 80% of the lodging and lodging related portfolio since the start of the pandemic, which consists of primarily 13 properties, which have an average loan-to-value ratio of 64%.

Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 65%.

These properties include ten nationally franchised locations, while two of the remaining properties are cabin rentals, which have not been as heavily impacted by the pandemic.

The guarantor liquidity is strong on half of the properties securing the lodging and lodging related portfolio.

Peoples' exposure to energy loans was not material at December 31, 2020.

Energy loan balances were $4.8 million, or less than 1% of total loans, as of December 31, 2020, with a total commitment of $8.2 million.

Peoples' energy loans are mostly to operators who provide support services for oil and gas companies.

The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders are not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.

The PPP expired on May 31, 2021 and no new originations will be made under the program;

however, forgiveness proceeds will continue to be received until the loans are paid in full.

Peoples is a PPP participating lender, and the PPP loans originated (including $23.4 million acquired in the merger with Premier) are included in commercial and industrial loans.

Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.

The following tables detail Peoples' PPP loans and related income at December 31:

(Dollars in millions) 2021 2020

PPP aggregate outstanding principal balances $ 89.3 $ 374.8

PPP net deferred loan origination fees 2.2 7.9

Amortization of net deferred loan origination fees 13.0 7.5

Allowance for Credit Losses

9 unchanged sentences

Premium finance 379 1,095 —

Leases 4,797 — —

Residential real estate 7,233 6,044 1,191

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(a) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for credit losses" under the CECL model.

(b) Beginning on January 1, 2020, Peoples calculated the allowance for credit losses using the CECL model, while previous periods used the incurred loss model.

(b) Beginning on January 1, 2020, Peoples calculated the allowance for credit losses using the CECL model, while 2019 used the incurred loss model.

During 2021, the allowance for credit losses grew 27%, which was largely due to the Premier and North Star Leasing acquisitions, and the related need to establish an allowance for credit losses on those portfolios, coupled with organic growth in loan balances during 2021.

The North Star Leasing acquisition added $3.3 million to the allowance for credit losses at the acquisition date, of which $493,000 was established for purchased credit deteriorated loans as part of the acquisition accounting, and the remainder was established through the recording of a provision for credit losses.

The Premier acquisition added $28.6 million to the allowance for credit losses during the third quarter of 2021, of which $16.9 million was established for purchased credit deteriorated loans as part of the acquisition accounting, and the remainder was established using provision for credit losses.

Also during 2021, economic factors and loss drivers improved compared to 2020, and had a positive impact on the CECL model.

The allowance for credit losses as a percent of total loans increased slightly during 2021, compared to 2020.

The allowance for credit losses as a percent of total loans was relatively stable at December 31, 2021 compared to December 31, 2020, and was mostly due to the composition of Peoples' loan and lease portfolio.

The increase in the allowance for credit losses as a percent of total loans grew at December 31, 2020 compared to December 31, 2019, as a result of the implementation of the CECL model, along with the impact of the COVID-19 pandemic on economic forecasts.

Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in the allowance for credit losses.

The remaining significant increase in the allowance for credit losses at December 31, 2020 compared to December 31, 2019 was mostly due to the recent COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model.

Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including U.S.

unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors.

During 2019, the increase in allowance for loan losses was primarily related to continued loan growth in most of the originated loan portfolios.

The allowance for loan losses as a percent of total loans was relatively flat in 2019 compared to 2018 as a result of relatively stable asset quality metrics and trends, combined with loan growth during 2019.

The ratio included all acquired loans, from both First Prestonsburg and previous acquisitions, of $599.7 million and allowance for acquired loan losses of $729,000 at the end of 2019.

During 2018, the increase in allowance for loan losses was primarily related to continued loan growth in most of the originated loan portfolios.

The allowance for loan losses as a percent of total loans decreased six basis points in 2018 compared to 2017 as a result of relatively stable asset quality metrics and trends, and the loans acquired in the ASB acquisition.

During 2017, the increase in allowance for loan losses related primarily to growth in consumer indirect loan balances.

During 2016, the increase of 9% in the allowance for loan losses related to total commercial and consumer indirect balance growth.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" and "Note 4 Loans" of the Notes to the Consolidated Financial Statements.

Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" and "Note 4 Loans and Leases" of the Notes to the Consolidated Financial Statements.

The following table summarizes the changes in the allowance for credit losses for the years ended December 31:

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Gross charge-offs:

Commercial real estate (a)(b) 528 156 849 408 68

Commercial real estate (a) 387 528 156

Commercial and industrial 1,057 1,565 1,062

Premium finance 45 3 —

Residential real estate (c) 353 312 357 637 611

Leases 1,434 — —

Residential real estate 385 353 312

Home equity lines of credit 197 103 55

Consumer, indirect 1,756 1,923 1,829

Consumer, direct (d) 187 211 358 379 583

Consumer, direct 152 187 211

Consumer 1,908 2,110 2,040

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Premium finance — — —

Leases 339 — —

Residential real estate 143 302 229

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Premium finance 45 3 —

Leases 1,095 — —

Residential real estate 242 51 83

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Total net charge-offs $ 4,693 $ 1,763 $ 1,143

Provision for credit losses, December 31 (e)(f) 26,254 2,504 5,448 3,772 3,539

Allowance for credit losses, December 31 (g) $ 50,359 $ 21,556 $ 20,195 $ 18,793 $ 18,429

Net charge-offs (recoveries) as a percent of average total loans (g):

Provision for credit losses, December 31 (b)(c)(d) 731 26,254 2,504

Initial allowance for purchased credit deteriorated assets $ 17,570 $ — $ —

Allowance for credit losses, December 31 (e) $ 63,967 $ 50,359 $ 21,556

Net charge-offs (recoveries) as a percent of average total loans:

Commercial real estate — % 0.01 % — %

1 unchanged sentence

Premium finance — % — % — %

Leases 0.03 % — % — %

Residential real estate 0.01 % — % — %

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Total 0.13 % 0.05 % 0.04 %

(a) Includes purchased credit impaired loan charge-offs of $0 in 2019, $0 in 2018, $0 in 2017, and $44,000 in 2016.

(b) Includes nonimpaired loan charge-offs of $2,000 in 2019 and $0 in 2018, 2017, and 2016.

(d) Includes purchased credit impaired loan charge-offs of $0 in 2019, $0 in 2018, $7,000 in 2017, and $23,000 in 2016

(e) Includes purchased credit impaired loan provision for credit losses of $19,000 in 2019, $0 in 2018, $117,000 in 2017, and $66,000 in 2016.

(f) Includes nonimpaired loan provision for credit losses of $215,000 in 2019, $383,000 in 2018 and $0 in 2017 and 2016.

(g) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for credit losses" under the CECL model.

(a) Includes nonimpaired loan charge-offs of $2 in 2019.

(b) Includes purchased credit impaired loan provision for credit losses of $19 in 2019.

(d) Amount does not include the provision for unfunded commitment liability.

(e) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for credit losses" under the CECL model.

During 2021, net charge-offs as a percent of average total loans increased to 0.13%, compared to 0.05% for 2020.

This increase was driven by the additional net charge-offs related to lease balances, coupled with the impact of a recovery of $2.5 million on a single commercial loan relationship during 2020, which lowered the ratio for that period.

Prior to the acquisition, North Star Leasing was experiencing net charge-off rates of around 3% of average lease balances, and Peoples anticipates that net charge-off levels will increase in future periods as the net charge-offs for the leasing division return to this historical rate.

Net charge-offs for 2020 were $1.8 million, or 0.05% of average total loans, an increase of $0.6 million compared to $1.1 million, or 0.04% of average total loans, for 2019.

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This activity consisted of two larger commercial real estate loans with a total of $200,000 in charge-offs coupled with other smaller commercial real estate charge-offs.

Net charge-offs for 2018 increased $638,000 compared to 2017, driven by a charge-off of $827,000 related to one acquired commercial loan relationship.

Indirect consumer lending provided significant growth during 2018, resulting in the growth in the allowance for loan losses and net charge-offs within that category.

The increase in net charge-offs from 2016 to 2017 was primarily related to a decline in recoveries of commercial loans and an increase in net charge-offs of consumer indirect loans due to higher balances from recent loan growth.

During 2016, net charge-offs were nominal at 0.09% of average total loans and were positively impacted by a $1.0 million recovery of a prior period commercial real estate loan charge-off.

Gross charge-offs totaled $5.2 million in 2016, and were largely associated with the growth in the consumer loan portfolio.

The following table details Peoples’ nonperforming assets at December 31:

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Loans 90+ days past due and accruing (a):

Construction $ 90 $ — $ —

Commercial real estate, other 689 — 907

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Commercial and industrial 2,505 4,017 1,824

Leases 1,581 — —

Residential real estate 8,016 6,080 4,471

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Asset Quality Ratios:

Nonaccrual loans as a percent of total loans (d) 0.78 % 0.76 % 0.62 %

NPLs as a percent of total loans (d)(e) 0.86 % 0.82 % 0.75 %

1 unchanged sentence

NPAs as a percent of total loans and OREO (d)(e) 1.07 % 0.84 % 0.76 %

Allowance for credit losses as a percent of nonaccrual loans (d) 184.00 % 195.24 % 121.23 %

Allowance for credit losses as a percent of NPLs (d)(e) 166.20 % 180.14 % 99.28 %

1 unchanged sentence

Classified loans as a percent of total loans (c)(d) 2.38 % 2.13 % 2.30 %

(a) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020.

(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model.

The accounting for purchased credit deteriorated loans under CECL resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020.

As of December 31, 2019, these loans were presented as 90+ days past due and accruing.

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Nonperforming assets include nonperforming loans and OREO.

The increase in nonperforming assets during 2020 was due to two commercial relationships aggregating $3.2 million and several smaller commercial relationships being placed on nonaccrual.

The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020.

As of December 31, 2019, these loans were presented as 90+ days past due and accruing.

Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting.

Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $29.8 million, or 31%, compared to December 31, 2019.

Classified loans, which are those categorized as substandard or doubtful, grew $6.4 million, or 10%, compared to December 31, 2019.

Nonperforming assets grew 67% during 2021 compared to 2020.

These increases were primarily driven by the Premier acquisition.

At the same time, criticized loans, which are those categorized as special mention, substandard or doubtful, grew $67.4 million, or 53%, while classified loans, which are those categorized as substandard or doubtful, increased $34.0 million, or 47%, compared to December 31, 2020.

These increases were also due to the Premier acquisition.

Nonperforming loans increased in 2020 due to two commercial relationships aggregating $3.2 million and several smaller commercial relationships being placed on nonaccrual.

Criticized loans increased $29.8 million, or 31%, at December 31, 2020, compared to December 31, 2019, while classified loans grew $6.4 million, or 10%, at December 31, 2020, compared to December 31, 2019.

During 2020, Peoples downgraded several relationships due to the COVID-19 pandemic.

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Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.

Nonperforming loans increased in 2019 due to acquired loans from First Prestonsburg, which comprised of $1.9 million of nonperforming assets during 2019.

The increase in loans 90+ days past due and accruing during 2018 was driven primarily by one commercial loan, which was in the process of renewal at December 31, 2018.

During 2018, the growth in nonaccrual loans was driven primarily by one commercial loan that was over 90 days past due.

Nonperforming loans decreased in 2017, largely due to a decrease in nonaccrual loans, coupled with a decline in loans 90+ days past due and accruing.

The decrease in nonaccrual loans was driven by several commercial real estate relationships that were paid off in 2017.

The majority of Peoples' nonaccrual commercial real estate loans consists primarily of owner occupied commercial properties.

11 unchanged sentences

Still, there can be no assurance that the allowance for credit losses will be adequate to cover future losses in Peoples’ loan portfolio.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 4 Loans" of the Notes to the Consolidated Financial Statements.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 4 Loans and Leases" of the Notes to the Consolidated Financial Statements.

The following table details Peoples’ deposit balances at December 31:

11 unchanged sentences

(a) The sum of amounts presented are considered total demand deposits.

At December 31, 2020, the period-end deposit increase of $619.0 million, or 19%, compared to December 31, 2019, was primarily due to an increase of $326.1 million in non-interest-bearing deposits.

The growth in non-interest-bearing deposits was related to customers maintaining higher balances due to changes in customer habits in light of the COVID-19 pandemic, as well as fiscal stimulus funds and PPP loan proceeds.

The significant increase in deposits compared to December 31, 2020 was largely due to deposits acquired from Premier.

Total demand deposits comprised 48% of total deposits at December 31, 2021 and were 43% of total deposits at December 31, 2020.

At December 31, 2021, the period-end deposit increase of $2.0 billion, or 50%, compared to December 31, 2020, was primarily due to deposits acquired from Premier.

Also, throughout 2021 and 2020, customers maintained higher balances due to changes in customer habits in light of the COVID-19 pandemic, as well as fiscal stimulus funds and PPP loan proceeds.

During 2020, Peoples had reduced its reliance on higher-rate brokered deposits, which included one-way buy Certificate of Deposit Account Registry Services.

This was partially offset by the issuance of 90-day brokered

demand and savings deposits to fund interest rate swaps.

As of December 31, 2020, Peoples had seventeen effective interest rate swaps, with an aggregate notional value of $160.0 million, which were funded by $50.0 million in 90-day brokered CDs and $110.0 million in overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.

The increase in total deposits between December 31, 2019 and December 31, 2018 was largely due to deposits of $194.2 million acquired in the First Prestonsburg acquisition.

During 2019, Peoples issued $50.0 million of 90-day brokered CDs to fund five $10.0 million interest rate swaps with a notional value in the aggregate of $50.0 million.

The swaps will pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered CDs.

The brokered CDs are expected to be extended every 90 days through the maturity dates of the swaps.

The increase in total deposits between December 31, 2018 and December 31, 2017 was largely due to $198.6 million of balances in deposit accounts acquired from ASB on April 13, 2018, coupled with higher one-way buy CDARS deposits, which are included in brokered CD balances.

The increase in total deposit balances at December 31, 2017 compared to December 31, 2016 was primarily due to increases of $314.4 million in interest-bearing demand deposits and $120.8 million in brokered CDs, partially offset by a decrease of $178.4 million in non-interest-bearing demand deposits.

Shifts in balances occurred between non-interest-bearing deposits and interest-bearing demand account balances as Peoples migrated consumers to new products during the second half of 2017.

During this migration, customer accounts were evaluated based on certain characteristics, and some accounts that were traditionally non-interest-bearing deposits were converted to interest-bearing demand accounts as Peoples moved to a relationship-based deposit product.

The increase in brokered CDs in 2017 was the result of adding relatively shorter term funding on the balance sheet to secure fixed rate funding in a rising rate environment.

This was partially offset by the issuance of 90-day brokered demand and savings deposits to fund interest rate swaps.

As of December 31, 2021, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, which were funded by $40.0 million in 90-day FHLB advances and $100.0 million in overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.

The increase in total deposits between December 31, 2020 and December 31, 2019 was largely due to an increase of $326.1 million in non-interest bearing deposits.

During 2020, Peoples had reduced its reliance on higher-rate brokered deposits, which included one-way buy Certificate of

Deposit Account Registry Services.

This was partially offset by the issuance of 90-day brokered demand and savings deposits to fund interest rate swaps.

Peoples' governmental deposit accounts represent savings and interest-bearing transaction accounts from state and local governmental entities.

18 unchanged sentences

Repurchase agreements 111,482 53,261 42,968

Unamortized debt issuance costs (a) — — (4) — —

Total short-term borrowings 166,482 73,261 316,977

1 unchanged sentence

FHLB advances 85,825 102,957 75,672

National market repurchase agreements — — — — 40,000

Unamortized debt issuance costs (a) — — — (27) (51)

Junior subordinated debt securities 13,650 7,611 7,451

1 unchanged sentence

Total borrowed funds $ 265,957 $ 183,829 $ 400,100

(a) Unamortized debt issuance costs are related to the costs associated with the Credit Agreement with Raymond James Bank, N.A.

which Peoples terminated as of April 3, 2019.

Total borrowed funds, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances.

Peoples continually evaluates the overall balance sheet position given the interest rate environment.

Long-term FHLB advances increased due to a borrowing of a $50.0 million long-term FHLB putable, non-amortizing fixed rate advance and the reclassification of $20.0 million to short-term borrowings as the time to maturity of these advances had become less than one year.

In years prior to 2020, Peoples' short-term FHLB advances generally consisted of overnight borrowings maintained in connection with the management of Peoples' daily liquidity position.

During 2021, Peoples' repurchase agreements grew mostly due to accounts associated with the Premier acquisition.

Peoples also acquired additional junior subordinated debt securities in the Premier acquisition, leading to the increase in long-term borrowings compared to 2020.

During 2020, long-term FHLB advances increased due to borrowing under a $50.0 million long-term FHLB putable, non-amortizing fixed rate advance and the reclassification of $20.0 million to short-term borrowings as the time to maturity of these advances had become less than one year.

In 2019, Peoples' short-term FHLB advances generally consisted of overnight borrowings maintained in connection with the management of Peoples' daily liquidity position.

During 2019, Peoples had seventeen effective interest rate swaps with an aggregate notional value of $160.0 million, of which $110.0 million were funded by FHLB 90-day advances.

1 unchanged sentence

Long-term FHLB advances declined by $26.7 million due to the reclassification to short-term borrowings as the time to maturity of these advances had become less than one year.

During 2018, Peoples entered into twelve effective interest rate swaps with an aggregate notional value of $110.0 million, all of which were funded by FHLB 90-day advances.

Long-term FHLB advances declined by $30 million due to the reclassification to short-term borrowings as the time to maturity of these advances had become less than one year.

During 2017, $50.6 million of long-term FHLB advances were reclassified to short-term borrowings due to the time to maturity of these advances becoming less than one year.

Of these reclassified borrowings, $30.6 million remained outstanding as of December 31, 2017.

Short-term retail repurchase agreements increased due to the reclassification of these repurchase agreements from long-term borrowings, as the time to maturity had become less than one year.

Effective April 3, 2019, Peoples terminated the Credit Agreement, dated as of March 4, 2016 between Peoples, as Borrower, and Raymond James Bank, N.A., as Lender (the "RJB Credit Agreement"), which provided for a revolving line of credit in the maximum aggregate principal amount of $15.0 million.

On April 3, 2019, Peoples entered into a Loan Agreement (the “U.S.

Bank Loan Agreement”) with U.S.

Bank National Association, the term of which has been extended to April 1, 2021 through an amendment in April 2020.

Bank National Association, the term of which has been extended to March 31, 2022 through an amendment in April 2021.

Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $20.0 million.

1 unchanged sentence

Capital/Stockholders’ Equity

During 2020, Peoples' total stockholders' equity declined $18.7 million, or 3%.

This reduction was driven by repurchases of shares of $29.3 million and dividends paid to shareholders of $27.5 million, which were partially offset by net income of $34.8 million.

During 2021, Peoples' total stockholders' equity grew 47%, mostly due to the issuance of $261.9 million in common shares related to the Premier acquisition.

Peoples also recorded net income of $47.6 million, which exceeded dividends paid of $31.2 million.

At December 31, 2021, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" under banking regulations.

These higher capital levels reflect Peoples' desire to maintain a strong capital position.

During 2020, total stockholders' equity declined mainly due to the repurchase of common shares in the amount of $29.3 million and dividends paid to shareholders of $27.5 million, partially offset by net income of $34.8 million.

Also contributing to the decline was the implementation of ASU 2016-13 on January 1, 2020, in which Peoples recorded a one-time transition adjustment to reduce retained earnings by $3.7 million.

This adjustment reflected the increase in the allowance for credit losses for loans (excluding the gross up of loan balances related to the establishment of an allowance for credit losses for purchased credit deteriorated loans), the allowance for credit losses for held-to-maturity investment securities and the addition of an

unfunded commitment liability, net of statutory federal corporate income taxes.

Based on current accounting guidance, Peoples is electing to utilize the five-year phase-in period for the transition adjustment due to the implementation of ASU 2016-13.

2 unchanged sentences

In year three of the phase-in, 75% of the transition adjustment, and the cumulative 25% increase in the allowance for credit losses compared to January 1, 2020, are excluded from regulatory capital, while 50% and 25% of these amounts are excluded in years four and five, respectively, under this phase-in period.

At December 31, 2020, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" under banking regulations.

These higher capital levels reflect Peoples' desire to maintain a strong capital position.

During 2019, total stockholders' equity increased compared to 2018 mainly due to net income of $53.7 million, $32.4 million of common shares issued in connection with the acquisition of First Prestonsburg, and an increase in the market value of available-for-sale investment securities, partially offset by dividends paid of $26.9 million.

During 2018, Peoples' total stockholders' equity increased compared to 2017 mainly due to $40.9 million of common shares issued in connection with the acquisition of ASB.

Also contributing to the increase in total stockholders' equity was net income of $46.3 million, partially offset by dividends paid of $21.6 million and declines in the market value of available-for-sale investment securities.

In 2017, Peoples' total stockholders' equity increased compared to 2016 due to higher retained earnings offset slightly by declines in the market value of available-for-sale investment securities.

Under the risk-based capital rules, in order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer.

These three minimum required ratios are the common equity tier 1 capital ratio, tier 1 risk-based capital ratio and total risk-based capital ratio.

Peoples had a capital conservation buffer of 6.50% at December 31, 2020, 7.58% at December 31, 2019, 6.43% at December 31, 2017, and 6.11% at December 31, 2016.

Peoples had a capital conservation buffer of 6.06% at December 31, 2021, 6.50% at December 31, 2020 and 7.58% at December 31, 2019.

As such, Peoples exceeded the minimum ratios, including the capital conservation buffer, at December 31, 2021.

34 unchanged sentences

Tangible equity to tangible assets 8.18 % 8.55 % 9.98 %

The tangible equity to tangible assets ratio declined during 2021, compared to 2020.

This reduction was mainly due to the acquisition of North Star Leasing, for which no stockholders' equity was issued and additional goodwill and intangibles were recorded.

The decline in tangible equity to tangible assets at December 31, 2020, compared to 2019, was partially due to the origination of PPP loans during 2020, coupled with the repurchase of common shares completed during the year and dividends paid to shareholders, which exceeded net income for the year.

The increase in the tangible equity to tangible assets ratio for 2019 was the result of higher retained earnings, combined with common shares issued in connection with the First Prestonsburg acquisition and an increase in the market value of available-for-sale investment securities.

The increase in the tangible equity to tangible assets ratio for each of 2018 and 2017 was the result of higher retained earnings, partially offset by the decline in the market value of available-for-sale investment securities.

Also contributing to the increase in 2019 and 2018 was the issuance of common shares in connection with the First Prestonsburg and ASB acquisition, respectively.

Future Outlook

The COVID-19 pandemic had a significant impact on Peoples' business and financial performance during 2020.

The pandemic caused a sudden shift in interest rates to near zero, which negatively impacted net interest income, while increasing expected credit losses under the CECL model, in turn, increasing provision for credit losses during the year.

As a result, Peoples closely monitored its expenses, including deposit and borrowing costs, coupled with non-interest expense.

During 2020, Peoples completed its premium finance acquisition, further diversifying its loan portfolio and future opportunities for growth.

Peoples also participated in the SBA PPP during 2020, originating $489.0 million of loans under the program, which resulted in an additional $10.7 million of interest income.

Peoples spent much of the year supporting its associates and communities during the pandemic, and will continue to do so in the coming periods.

While the future is unpredictable as the pandemic continues, and uncertainty around timing of vaccination of the majority of individuals is still evolving, Peoples is committed to managing through the process with its clients and associates as a priority, in addition to improving shareholder value.

During 2021, Peoples successfully closed the largest acquisition in its history, along with the acquisition of a specialty financing leasing business that has significant growth potential.

During 2022, Peoples will look to expand on the progress made with recent acquisitions, both strengthening the pipeline of referrals between lines of businesses for new clients, as well as growing the specialty finance lending and leasing portfolios.

Net interest income is expected to improve considerably over 2021, as the full year impact of Premier and the acquired leasing business are recognized for 2022.

People also anticipates core growth that will contribute to overall higher net interest income than for 2021, while it anticipates that net interest margin will be between 3.50% and 3.60%, excluding any potential increase to the Federal Funds Target Rate.

Net interest margin for 2022 will be positively impacted by the full year recognition of the accretion income, net of amortization expense, associated with the Premier acquisition.

However, the impact of this improvement will be muted by the lower accretion of net deferred loan fees and costs from the PPP loan forgiveness, which will be much smaller during 2022 than it was during 2021.

During 2021, Peoples has significantly improved its deposit costs, which declined 18 basis points to 29 basis points, but will have less opportunity to further decrease deposit costs during 2022.

Peoples has also had a negative impact to net interest margin during 2021 as a result of excess liquidity, and anticipates that to continue through portions of 2022.

Total non-interest income, excluding net gains and losses, will benefit from both the acquisitions during 2021, as the Premier acquisition will positively impact electronic banking income and deposit account service charges, while the leasing division will continue to provide a boost from its fee-based income.

For 2022, Peoples anticipates growth of 14% to 16% compared to 2021, in total non-interest income, excluding net gains and losses.

This increase includes expected growth within trust and investment income, and insurance income, which increased 20% and 9%, respectively, for 2021, compared to 2020.

Excluding acquisition-related expenses, total non-interest expense is anticipated to grow for 2022, which will be mostly due to the additional ongoing costs associated with the recent acquisitions.

During 2021, Peoples worked to reduce future data processing and software costs associated with its core processor, and will begin to recognize those savings during 2022.

The efficiency ratio for 2022 is expected to improve as Peoples fully recognizes the cost savings associated with the acquisitions, and anticipates an efficiency ratio in the high 50% range.

The balance sheet mix of Peoples will be continually evaluated in an effort to mitigate exposure risk, as interest rates are anticipated to increase during 2022.

Peoples will work to effectively deploy its excess liquidity into higher yielding opportunities, as they arise.

Peoples will continue to place importance on loan growth.

It anticipates that the annual loan growth for 2022, compared to 2021, will be between 6% and 8%.

This growth excludes any PPP loan payoffs, and incorporates the expected increases in specialty finance loan and lease balances.

At the same time, Peoples will focus on maintaining a high credit quality standard when underwriting new business.

While Peoples will focus on asset quality, Peoples anticipates an annual gross charge-off rate, as a percent of average total loans, of between 25 to 40 basis points.

This rate includes the expectation of returning to historical charge-off rates for loans, as well as the addition of the leasing portfolio charge-offs, which are traditionally higher than loan charge-off rates.

Peoples does not anticipate a significant amount of deposit growth for 2022, as deposit balances have remained inflated in recent periods.

The influx of deposits during the COVID-19 pandemic, which was the result of fiscal stimulus, PPP proceeds and changed consumer spending habits, is not expected to continue into 2022.

While Peoples does not anticipate significant runoff of deposits, it does not believe there will be large growth during 2022.

Capital is a key priority for Peoples, and continues to be a source of strength.

Peoples' regulatory capital ratios at December 31, 2021 exceeded the minimums needed to be considered well capitalized.

Peoples intends to make meaningful investments with capital as opportunities arise, such as acquisitions, and return shareholder value in the form of dividends.

For more information regarding risks and uncertainties that could impact the projections described, please refer to "ITEM 1A RISK FACTORS" of this Form 10-K.

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The management of IRR involves either maintaining or changing the level of risk exposure by changing the repricing and maturity characteristics of the cash flows for specific assets or liabilities.

Additional oversight of Peoples' IRR is provided by the Board of Directors of Peoples Bank, who reviews and approves Peoples' IRR management policy at least annually.

Additional oversight of Peoples' IRR is provided by the Board of Directors of Peoples Bank, which reviews and approves Peoples' IRR management policy at least annually.

The ALCO uses various methods to assess and monitor the current level of Peoples' IRR and the impact of potential strategies or other changes.

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Downward parallel shocks of 300 and 200 basis points are excluded from the table as they are not probable given the current interest rate environment.

For the full year 2020, the weighted average rate on Peoples' non-maturity deposits was roughly 14 basis points.

In the event of a parallel downward shift of 100 basis points, the expense on Peoples' non-maturity deposits would reach a floor at

zero, unable to experience the full benefit of falling rates.

This floor at zero is consistent with an assumption of non-negative deposit rates.

On the asset side of the balance sheet, a significant majority of the floating rate loans (primarily tied to LIBOR and prime) would be impacted by the downward 100 basis point shock.

Estimated changes in net interest income and economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates.

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Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above.

Given the shape of market yield curves at December 31, 2020, consideration of the bull flattener scenario provides insights which were not captured by parallel shifts.

The key insight presented by the bull flattener scenario highlights the risk to net interest income when long-term rates fall while short-term rates remain constant.

In such a scenario, Peoples’ deposit costs, which are correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall.

Asset yields being reduced through increased premium amortization of investment securities and lower rates on re-investment would not be offset by reductions in deposit or funding costs, resulting in a decreased amount of net interest income.

Given the shape of market yield curves at December 31, 2021, consideration of the bear steepener and bear flattener scenarios provide insights which were not captured by parallel shifts.

The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise.

In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, remain constant, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, rise.

Increased asset yields would not be offset by increases in deposit or funding costs, resulting in an increased amount of net interest income and higher net interest margin.

At December 31, 2021, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.6% and 4.5%, respectively.

The bear flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates rise while long-term rates remain constant.

In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, increase, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, remain constant.

Increased deposit and funding costs would be more than offset by increased variable rate asset yields;

resulting in an increased amount of net interest income and higher net interest margin.

At December 31, 2021, the bear flattener scenario resulted in an increase in net interest income of 1.0% and a decline in the economic value of equity of 3.7%.

During 2021, Peoples' Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income.

The table illustrates this point as changes to net interest income increase in the rising rate scenarios.

While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the increase in asset sensitivity from December 31, 2019 was largely attributable to greater forecasted impacts of interest rate movements on the amount of premium amortization in the investment portfolio.

The table illustrates this point as net interest income increases in the rising rate scenarios.

Peoples has entered into interest rate swaps as part of its interest rate risk management strategy.

These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments.

As of December 31, 2020, Peoples had seventeen interest rate swap contracts, with an aggregate notional value of $160.0 million.

As of December 31, 2021, Peoples had thirteen interest rate swap contracts, with an aggregate notional value of $125.0 million.

Additional information regarding Peoples' interest rate swaps can be found in "Note 15 Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements.

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however, there can be no assurance that modeled results will be achieved.

The asset/liability model along with key modeling assumptions are subjected to a third-party review annually for effectiveness and regulatory compliance.

In addition to IRR management, another major objective of the ALCO is to ensure sufficient levels of liquidity are maintained.

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An additional strategy used by Peoples in the management of liquidity risk is maintaining a targeted level of liquid assets.

These are assets that can be converted into cash in a relatively short period of time.

Management defines liquid assets as unencumbered cash (including cash on deposit at the FRB of Cleveland), and the market value of U.S.

government and agency

securities that are not pledged.

Management defines liquid assets as unencumbered cash (including cash on deposit at the FRB of Cleveland), and the market value of unpledged U.S.

government and agency securities.

Excluded from this definition are pledged securities, non-government securities, non-agency securities, municipal securities and loans.

Management has established a minimum level of liquid assets in the liquidity management policy, which is expressed as a percentage of total loans and unfunded loan commitments.

At December 31, 2021, Peoples maintained liquid assets of $723.4 million, representing 9.2% of total assets plus unfunded loan commitments.

Peoples has also established a policy limit around the level of liquefiable assets expressed as a percentage of total loans and unfunded loan commitments.

Liquefiable assets are defined as liquid assets plus the market value of unpledged securities not included in the liquid asset measurement.

At December 31, 2021, Peoples maintained liquefiable assets of $991.6 million, representing 12.6% of total assets plus unfunded loan commitments.

An essential element in the management of liquidity risk is a forecast of the sources and uses of anticipated cash flows.

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As of December 31, 2021, Peoples had a ratio of 8.28 times, which was within policy limits.

Peoples maintains multiple contingent sources of liquidity including secured wholesale funding lines and unsecured brokered deposit networks.

Peoples' primary sources of secured wholesale funding are the FHLB of Cincinnati and the FRB of Cleveland.

As of December 31, 2021, Peoples had unused collateral-based borrowing capacities of $427.5 million and $174.4 million, respectively, available with the FHLB of Cincinnati and the FRB of Cleveland.

Together, these unused borrowing capacities

represent 7.6% of total assets and unfunded loan commitments.

Additionally, Peoples had $241.8 million of unpledged loan collateral eligible to secure additional borrowing capacity with the FRB of Cleveland.

Disruptions in the sources and uses of cash can occur which can drastically alter the actual cash flows and negatively impact Peoples' ability to access internal and external sources of cash.

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The LCFP contains various indicators, termed key risk indicators ("KRIs") that are monitored on a monthly basis, at a minimum.

The KRIs include both internal and external indicators and include loan delinquency levels, criticized and classified loan levels, non-performing loans to loans and to total assets, the total loan to total deposit ratio, the level of net non-core funding dependence, the level of contingency funding sources, the liquidity coverage ratio, changes in regulatory capital levels, forecasted operating loss and negative media concerning Peoples, irrational competitor pricing that persists, and an increase in rates for external funding sources.

The KRIs include both internal and external indicators and include loan delinquency levels, criticized and classified loan levels, the ratios of non-performing loans to loans and to total assets, the total loan to total deposit ratio, the level of net non-core funding dependence, the level of contingency funding sources, the liquidity coverage ratio, changes in regulatory capital levels, forecasted operating loss and negative media concerning Peoples, irrational competitor pricing that persists, and an increase in rates for external funding sources.

The LCFP establishes levels that define each of these KRIs under base, mild, moderate and severe scenarios.

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The results are reviewed and discussed and changes or revisions are made to the LCFP accordingly.

Additionally, every two years, the LCFP is subjected to a third-party review for effectiveness and regulatory compliance.

Overall, management believes the current balance of cash and cash equivalents, and anticipated cash flows from the investment portfolio, along with the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

Additionally, the LCFP is subjected to a third-party review annually for effectiveness and regulatory compliance.

Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from fiscal stimulus, the PPP and other government actions.

Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes;

however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement funds are received.

At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit.

This decrease is related to the receipt of PPP loan proceeds and other increased cash flows for certain companies.

Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses.

Overall, management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

Off-Balance Sheet Activities and Contractual Obligations

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These activities are necessary to meet the financing needs of customers and could require Peoples to make cash payments to third parties in the event certain specified future events occur.

The contractual amounts represent the extent of Peoples’ exposure in these off-balance sheet activities.

The contractual amounts represent the extent of Peoples’ exposure in

these off-balance sheet activities.

However, since certain off-balance sheet commitments, particularly standby letters of credit, are expected to expire or be only partially used, the total amount of commitments does not necessarily represent future cash requirements.

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Based on the acquisitions completed to date, management does not expect contingent consideration to have a material impact on Peoples' future performance.

The following table details the aggregate amount of future payments Peoples is required to make under certain contractual obligations as of December 31, 2020:

Payments due by period

(Dollars in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years

Time deposits $ 616,076 $ 461,579 $ 109,249 $ 45,186 $ 62

Long-term borrowings (a) 110,568 1,979 17,678 1,510 89,401

Operating leases 8,425 1,188 1,897 1,120 4,220

Contingent consideration related to acquisitions (b) 339 115 224 — —

Total $ 735,408 $ 464,861 $ 129,048 $ 47,816 $ 93,683

(a) Amounts reflect solely the minimum required principal payments, and do not include interest.

(b) Amounts assume projected revenue metrics are achieved.

Management does not anticipate that Peoples’ current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends.

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In the banking industry, monetary assets typically exceed monetary liabilities.

The current monetary policy targeting low levels of inflation has resulted in relatively stable price levels.

Therefore, inflation has had little impact on Peoples’ net assets.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis