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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 399 added, 720 removed, 890 unchanged (56% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three and nine months ended September 30, 2021 and September 30, 2020.

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three months ended March 31, 2022 and March 31, 2021.

This MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.

SELECTED FINANCIAL DATA

The following data should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the MD&A that follows:

At or For the Three Months Ended At or For the Nine Months Ended

September 30, September 30,

(Dollars in thousands, expect per share data) 2021 2020 2021 2020

Operating Data (a)

Total interest income $ 45,467 $ 39,013 $ 127,226 $ 119,181

Total interest expense 2,889 3,894 9,410 14,566

Net interest income 42,578 35,119 117,816 104,615

Provision for credit losses 8,994 4,728 7,333 33,531

Net (loss) gain on investment securities (166) 2 (704) 383

Net loss on asset disposals and other transactions (308) (28) (459) (237)

Total non-interest income excluding net gains and losses (b) 16,820 16,796 50,233 47,025

Total non-interest expense 57,860 34,315 135,746 100,445

Net (loss) income (c) (5,758) 10,210 19,808 14,194

Balance Sheet Data (a)

Total investment securities $ 1,574,676 $ 928,560 $ 1,574,676 $ 928,560

Loans and leases, net of deferred fees and costs ("total loans") 4,491,028 3,472,085 4,491,028 3,472,085

Allowance for credit losses 77,382 58,128 77,382 58,128

Goodwill and other intangible assets 295,415 185,397 295,415 185,397

Total assets 7,059,752 4,911,807 7,059,752 4,911,807

Non-interest-bearing deposits 1,559,993 982,912 1,559,993 982,912

Brokered deposits 106,013 260,753 106,013 260,753

Other interest-bearing deposits 4,166,014 2,697,905 4,166,014 2,697,905

Short-term borrowings 184,693 182,063 184,693 182,063

Junior subordinated debentures held by subsidiary trust 12,928 7,571 12,928 7,571

Other long-term borrowings 86,483 103,815 86,483 103,815

Total stockholders' equity 831,882 566,856 831,882 566,856

Tangible assets (d) 6,764,337 4,726,410 6,764,337 4,726,410

Tangible equity (d) 536,467 381,459 536,467 381,459

Per Common Share Data (a)

(Loss) earnings per common share – basic $ (0.28) $ 0.52 $ 0.99 $ 0.70

(Loss) earnings per common share – diluted (0.28) 0.51 0.99 0.70

Cash dividends declared per common share 0.36 0.34 1.07 1.02

Book value per common share (e) 29.43 28.74 29.43 28.74

Tangible book value per common share (d)(e) $ 18.98 $ 19.34 $ 18.98 $ 19.34

Weighted-average number of common shares outstanding – basic 20,640,519 19,504,503 19,751,853 19,862,409

Weighted-average number of common shares outstanding – diluted 20,789,271 19,637,689 19,890,672 19,998,353

Common shares outstanding at end of period (e) 28,265,791 19,721,783 28,265,791 19,721,783

Closing share price at end of period (e) $ 31.61 $ 19.09 $ 31.61 $ 19.09

At or For the Three Months Ended At or For the Nine Months Ended

September 30, September 30,

(Dollars in thousands, expect per share data) 2021 2020 2021 2020

Significant Ratios (a)

Return on average stockholders' equity (f) (3.64) % 7.16 % 4.44 % 3.28 %

Return on average tangible equity (f)(g) (4.76) % 11.36 % 7.82 % 5.38 %

Return on average assets (f) (0.42) % 0.83 % 0.51 % 0.40 %

Return on average assets adjusted for non-core items (f)(h) 0.66 % 0.91 % 1.02 % 0.47 %

Average stockholders' equity to average assets 11.47 % 11.56 % 11.48 % 12.29 %

Average total loans to average deposits 77.17 % 87.44 % 79.48 % 86.15 %

Net interest margin (f)(i) 3.50 % 3.14 % 3.41 % 3.27 %

Efficiency ratio (j) 94.70 % 64.12 % 78.38 % 64.37 %

Efficiency ratio adjusted for non-core items (k) 63.93 % 61.81 % 64.32 % 62.44 %

Pre-provision net revenue to total average assets (l) 0.11 % 1.43 % 0.83 % 1.45 %

Dividend payout ratio (m)(n) NM 66.31 % NM 145.29 %

Total loans to deposits (e) 77.05 % 88.04 % 77.05 % 88.04 %

Total investment securities as percentage of total assets (e) 22.30 % 18.90 % 22.30 % 18.90 %

Asset Quality Ratios (a)

Nonperforming loans as a percent of total loans (e)(o) 0.92 % 0.84 % 0.92 % 0.84 %

Nonperforming assets as a percent of total assets (e)(o) 0.75 % 0.60 % 0.75 % 0.60 %

Nonperforming assets as a percent of total loans and OREO (e)(o) 1.17 % 0.85 % 1.17 % 0.85 %

Criticized loans as a percent of total loans (e)(p) 5.23 % 3.55 % 5.23 % 3.55 %

Classified loans as a percent of total loans (e)(q) 3.18 % 2.19 % 3.18 % 2.19 %

Allowance for credit losses as a percent of total loans (e) 1.72 % 1.67 % 1.72 % 1.67 %

Allowance for credit losses as a percent of nonperforming loans (e)(o) 186.93 % 198.72 % 186.93 % 198.72 %

Provision for credit losses as a percent of average total loans 1.01 % 0.55 % 0.28 % 1.40 %

Net charge-offs as a percentage of average total loans 0.18 % 0.08 % 0.13 % 0.04 %

Capital Information (a)(e)

Common equity tier 1 capital ratio (r) 12.30 % 12.83 % 12.30 % 12.83 %

Tier 1 risk-based capital ratio 12.58 % 13.07 % 12.58 % 13.07 %

Total risk-based capital ratio (tier 1 and tier 2) 13.83 % 14.33 % 13.83 % 14.33 %

Tier 1 leverage ratio 11.20 % 8.62 % 11.20 % 8.62 %

Common equity tier 1 capital $ 567,172 $ 398.553 $ 567,172 $ 398.553

Tier 1 capital 580,100 406,124 580,100 406,124

Total capital (tier 1 and tier 2) 637,802 445,101 637,802 445,101

Total risk-weighted assets $ 4,611,321 $ 3,106,817 $ 4,611,321 $ 3,106,817

Total stockholders' equity to total assets 11.78 % 11.54 % 11.78 % 11.54 %

Tangible equity to tangible assets (d) 7.93 % 8.07 % 7.93 % 8.07 %

(a) Reflects the impact of the acquisitions of Premium Finance on July 1, 2020, NSL beginning April 1, 2021, and of Premier beginning September 17, 2021.

(b) Total non-interest income excluding net gains and losses, is a Non-US GAAP financial measure since it excludes all gains and/or losses included in earnings.

Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found under the caption "Efficiency Ratio (Non-US GAAP)."

Net income for the first nine months of 2021 included non-core non-interest expense totaling $23.8 million.

Net income for the third quarter of 2020 and for the first nine months of 2020, included non-core non-interest expenses of $1.2 million and $3.0 million, respectively.

Additional information regarding the non-core non-interest expense can be found under the caption "Core Non-Interest Expense (Non-US GAAP)."

(d) These amounts represent Non-US GAAP financial measures since they exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity and total assets.

Additional information regarding the calculation of these Non-US GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.”

(e) Data presented as of the end of the period indicated.

(f) Ratios are presented on an annualized basis.

(g) Return on average tangible equity ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity.

Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Return on Average Tangible Equity Ratio (Non-US GAAP).”

(h) Return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc.

contribution, pension settlement

charges and severance expenses included in earnings.

Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)."

(i) Information 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 rate of 21% for 2020.

(j) The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses).

This amount represents a Non-US GAAP financial measure since it excludes amortization of other intangible assets, and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.

Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Efficiency Ratio (Non-US GAAP).”

(k) The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses.

This amount represents a Non-US GAAP financial measure since it excludes the impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc.

contribution, pension settlement charges and severance expenses included in earnings, and uses FTE net interest income.

Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Efficiency Ratio (Non-US GAAP).”

(l) Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense.

This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings.

This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions.

Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Pre-Provision Net Revenue (Non-US GAAP).”

(m) The dividend payout ratio is calculated based on dividends declared during the period divided by net income, where applicable, for the period.

(n) NM = not meaningful.

(o) Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans.

Nonperforming assets include nonperforming loans and other real estate owned.

(p) Includes loans categorized as special mention, substandard and doubtful.

(q) Includes loans categorized as substandard and doubtful.

(r) Peoples' capital conservation buffer was 5.83% at September 30, 2021 and 6.33% at September 30, 2020, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019.

Forward-Looking Statements

Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations.

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These factors 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 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 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 global 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 Board of Governors of the Federal Reserve System (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 completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and the recently-completed acquisition of NSL, 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;

(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 the 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;

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;

(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;

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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;

(13) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;

(13) the discontinuation of the LIBOR and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(14) the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(15) adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;

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(28) 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 integrate the NSL acquisition and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(29) Peoples' ability to integrate the NSL and Vantage acquisitions, and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(30) the risk that expected revenue synergies and cost savings from the merger of Peoples and Premier may not be fully realized or realized within the expected time frame;

(31) changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases;

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

(33) Peoples' continued ability to grow deposits;

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

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

(35) uncertainty regarding the impact of the current 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, infrastructure spending and social programs;

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RISK FACTORS" of Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Peoples encourages readers of this Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance.

Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements.

Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website.

All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements.

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The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.

Peoples is a diversified financial services holding company that makes available a banking products, such as deposit accounts, lending products and trust services.

Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries.

Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking.

Peoples also offers a complete array of insurance products, commercial leasing and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services.

Peoples Insurance Agency, LLC ("Peoples Insurance") also offers a complete array of insurance products, commercial leasing and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services.

Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices.

Peoples Bank also offers insurance premium finance lending nationwide through its Peoples Premium Finance division and, since April 1, 2021, offers lease financing through its North Star Leasing division.

As of September 30, 2021, Peoples has 135 locations, including 119 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C.

Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division, and lease financing through its North Star Leasing division since April 1, 2021, and as of March 7, 2022 through Vantage, a subsidiary of Peoples Bank.

As of March 31, 2022, Peoples has 136 locations, including 119 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C.

and Maryland.

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Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant account policies.

Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at March 31, 2022, which have been updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q, and should be read in conjunction with the policies disclosed in Peoples’ 2021 Form 10-K.

Summary of Recent Transactions and Events

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

◦ 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.

◦ On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite Agency, Inc.

("Elite"), pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite.

Total consideration for this transaction was $3.8 million.

◦ On March 7, 2022, Peoples completed its acquisition of Vantage pursuant to an Asset Purchase Agreement, dated February 16, 2022, in which Peoples Bank purchased 100% of the equity of Vantage.

Peoples Bank acquired assets comprising Vantage's lease business, including $140.2 million in leases and certain third-party debt in the amount of $107.4 million.

Peoples paid total consideration of $82.9 million.

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

Peoples recorded preliminary goodwill in the amount of $40.4 million and preliminary other intangible assets of $13.2 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.

◦ On September 17, 2021, Peoples completed its merger with Premier, in which Peoples acquired, in an all-stock merger, 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.

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Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million.

At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of

Peoples Bank.

Peoples acquired $1.1 billion in loans and $1.8 billion in deposits.

Peoples preliminarily recorded $71.0 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.

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 $1.2 billion in loans, $1.8 billion in deposits and recorded preliminary goodwill of $67.2 million and other intangible assets of $4.2 million in connection with the Merger on September 17, 2021.

◦ On May 4, 2021, 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 preliminary customer relationship intangible assets of $230,000 and preliminary goodwill of $46,000, related to this transaction.

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.

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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 customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction.

Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million.

As of September 30, 2021, equipment leases had grown to $111.4 million.

◦ Peoples began originating loans during the second quarter of 2020 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP").

Peoples recorded goodwill in the amount of $24.7 million and other intangibles of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.

◦ 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 September 30, 2021, Peoples had $135.8 million aggregate principal amount in PPP loans outstanding (including $28.2 million acquired in the merger with Premier), which were included in commercial and industrial loan balances, compared to $187.6 million at June 30, 2021 and $366.9 million at December 31, 2020.

Peoples recognized interest income of $3.1 million for deferred loan fees/cost accretion and $0.4 million of interest income on PPP loans during the third quarter of 2021, compared to $3.4 million and $0.7 million, respectively, for the second quarter of 2021 and $1.9 million and $1.2 million, respectively, for the third quarter of 2020.

During the first nine months of 2021, Peoples recognized interest income of $11.2 million for deferred loan fees/cost accretion and $2.0 million of interest income on PPP loans compared to $3.8 million for deferred loan fees/costs accretion and $2.1 million of interest income during the first nine months of 2020.

◦ Peoples provided 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."

◦ 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 Peoples' outstanding common shares.

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

There were no common share repurchases during the first nine months of 2021, under the existing share repurchase program.

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.

This program had replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares, which Peoples' Board of Directors had approved on November 3, 2015 and which was terminated on February 27, 2020.

During the third quarter of 2020, Peoples repurchased 235,684 of Peoples' common shares through Peoples' then-effective common share repurchase program for a total of $5.0 million.

For the first nine months of 2020, Peoples repurchased 1,119,752 in common shares for a total of $25.0 million.

◦ During the third quarter of 2021, Peoples recorded a provision for credit losses of $9.0 million, compared to a provision for credit losses of $3.1 million in the linked quarter and a provision for credit losses of $4.7 million in the third quarter of 2020.

During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier.

Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier.

The change in the amount of the provision for credit losses compared to the third quarter of 2020 was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to

COVID-19, coupled with the day-one allowances for credit losses required in connection with the acquisitions of loans from Premier in the third quarter of 2021.

◦ For the third quarter of 2021, Peoples recorded $181,000 of expenses related to the COVID-19 pandemic, compared to $210,000 for the second quarter of 2021 and $148,000 for the third quarter of 2020.

These expenses were primarily related to providing Peoples' employees meals in support of local businesses and assisting employees with childcare and elder care needs, as well as taking extra precautions in cleaning facilities.

◦ During the third quarter of 2021, Peoples incurred $16.2 million of acquisition-related expenses, compared to $2.4 million in the second quarter of 2021 and $335,000 in the third quarter of 2020.

Acquisition-related expenses for the nine months ended September 30, 2021 were $20.5 million, compared to $412,000 for the same period last year.

The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier acquisition.

The acquisition-related expenses in 2020 were primarily related to the Triumph Premium Finance acquisition.

◦ Peoples incurred $0.1 million in pension settlement charges for the third quarter of 2021 compared to $0.5 million for the third quarter of 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the relevant period.

Peoples recorded $0.1 million of pension settlement charges for the nine months ended September 30, 2021 and $1.1 million for the nine months ended September 30, 2020.

◦ Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as "Premium Finance acquisition"), a division of TBK Bank, SSB.

Based in Kansas City, Missouri, the division operating as Peoples Premium Finance continues to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide.

Peoples Bank acquired $84.7 million in loans, at the acquisition date, after fair value adjustments.

Peoples also recorded $4.3 million of other intangible assets and $5.5 million of goodwill related to the acquisition.

As of September 30, 2021, Peoples premium finance loans had grown to $134.8 million.

◦ In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020, 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 September 30, 2021.

As of March 31, 2022, Peoples had $41.9 million aggregate principal amount in PPP loans outstanding (including $15.0 million acquired in the merger with Premier), which were included in commercial and industrial loan balances, compared to $87.1 million (including $23.4 million acquired in the merger with Premier) at December 31, 2021.

Peoples recognized interest income of $1.2 million for deferred loan fees/costs and $154,000 of interest income on PPP loans during the first quarter of 2022, compared to $1.8 million and $282,000, respectively, for the fourth quarter of 2021, and $4.7 million and $0.9 million, respectively, for the first quarter of 2021.

◦ During the first quarter of 2022, Peoples recorded a recovery of credit losses of $6.8 million, compared to $6.6 million in the linked quarter and $4.7 million in the first quarter of 2021.

The release of credit losses for these periods was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods.

For more information, please refer to the section titled "RESULTS OF OPERATIONS - (Recovery of) Provision for Credit Losses" found later in this discussion.

◦ During the first quarter of 2022, Peoples incurred $1.4 million of acquisition-related expenses, compared to $0.9 million in the fourth quarter of 2021 and $1.9 million in the first quarter of 2021.

The acquisition-related expenses in 2022 were primarily related to the Vantage acquisition, while the 2021 expenses were primarily related to the NSL acquisition and the Premier merger.

◦ 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, 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 until March 16, 2022.

The Federal Reserve Board increased the Federal Funds Target Rate range to 0.25% to 0.50% on March 16, 2022, and has stated it anticipates continuing to raise rates throughout 2022.

The impact of these transactions and events, where material, is discussed in the applicable sections of this MD&A.

EXECUTIVE SUMMARY

Peoples recorded a net loss of $5.8 million for the third quarter of 2021, or $0.28 per diluted common share, compared to net income of $10.1 million, or $0.51 per diluted common share, for the second quarter of 2021, and net income of $10.2 million, or $0.51 per diluted share, for the third quarter of 2020.

Non-core items, and the related tax effect of each, in net (loss) income included acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses, and gains and losses on investment securities, asset disposals and other transactions.

Non-core items negatively impacted earnings per diluted common share by $0.71 for the third quarter of 2021, $0.10 for the second quarter of 2021, and by $0.05 for the third quarter of 2020.

Net income in the third quarter of 2021 was largely affected by the acquisition of Premier.

For the first nine months of 2021, net income was $19.8 million, or $0.99 per diluted common share, compared to net income of $14.2 million, or $0.70 per diluted common share, for the nine months ended September 30, 2020.

The increase in earnings was impacted primarily by the change in provision for credit losses in 2021 as compared to 2020.

Non-core items negatively impacted earnings per diluted common share by $0.98 and $0.12 for the nine months ended September 30, 2021 and 2020, respectively.

Net interest income was $42.6 million for the third quarter of 2021, up 7% compared to $39.7 million for the second quarter of 2021, and an increase of 21% compared to $35.1 million for the third quarter of 2020.

Net interest margin was 3.50% for the third quarter of 2021, compared to 3.45% for the second quarter of 2021, and 3.14% for the third quarter of 2020.

Compared to the linked quarter and third quarter of 2020, net interest income and margin were improved due to the growth in leases and premium finance loans, coupled with the partial period impact of the Premier acquisition and lower cost of funds.

Net interest income and margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves.

Net interest income and net interest margin continue to be impacted by the low interest rate environment caused by COVID-19 that continued throughout the third quarter of 2021.

For the first nine months of 2021, net interest income increased $13.2 million, or 13%, compared to the first nine months of 2020, while net interest margin increased 14 basis points to 3.41%.

The change in net interest income was the result of lower funding costs due to a shift from higher cost overnight FHLB advances to lower cost brokered deposits, as well as a higher volume of loans and leases due to the Premier, NSL and Premium Finance acquisitions.

Accretion income, net of amortization expense, from acquisitions was $1.0 million for the third quarter of 2021, $0.8 million for the second quarter of 2021, and $0.5 million for the third quarter of 2020, which added 8 basis points, 7 basis points, and 5 basis points, respectively, to net interest margin.

Accretion income, net of amortization expense, from acquisitions was $2.2 million for the nine months ended September 30, 2021, compared to $2.6 million for the nine months ended September 30, 2020, which added 6 and 8 basis points, respectively, to net interest margin.

During the third quarter of 2021, Peoples recorded a provision for credit losses of $9.0 million, compared to a provision for credit losses of $3.1 million for the second quarter of 2021 and a provision for credit losses of $4.7 million for the third quarter of 2020.

Net charge-offs for the third quarter of 2021 were $1.6 million, or 0.18% of average total loans annualized, compared to net charge-offs of $0.8 million, or 0.09% of average total loans annualized, for the linked quarter and net charge-offs of $0.7 million, or 0.08% of average total loans annualized, for the third quarter of 2020.

Net charge-offs for the third quarter of 2021 included one commercial and industrial loan aggregating $0.5 million.

Net charge-offs for the second quarter of 2021 included $0.4 million in leases.

Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier.

Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, offset by the day-one allowances for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.

The provision for credit losses during the first nine months of 2021 was $7.3 million, compared to a provision for credit losses of $33.5 million for the first nine months of 2020.

Net charge-offs for the first nine months of 2021 were $3.4 million, or 0.13% of average total loans annualized, compared to net charge-offs of $0.9 million, or 0.04% annualized, for the first nine months of 2020.

The change in the provision for credit losses compared to the first nine months of 2020 was primarily due to improved economic factors and updated loss drivers and their impact on assumptions used in the CECL model throughout the first nine months of 2021.

For the third quarter of 2021, total non-interest income increased $0.5 million, or 3%, compared to the second quarter of 2021 and decreased $0.4 million, or 3%, from the third quarter of 2020.

The rise in non-interest income compared to the linked quarter was the result of an increase in overdraft fees included in deposit account service charges of $0.5 million and a $0.2 million increase in income recognized on leases related to the early termination of leases and other fees, offset partially by declines in trust and investment income, electronic banking income and mortgage banking income.

Net losses of $0.5 million realized during the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sales of securities during the third quarter of 2021, compared to net losses of $0.3 million for the linked quarter, and net gains of $26,000 for the third quarter of 2020.

For the nine months ended September 30, 2021, total non-interest income increased $1.9 million compared to the nine months ended September 30, 2020.

The increase was driven by higher trust and investment income, associated with new accounts and increased market values of assets under administration and management, coupled with higher electronic banking income and $716,000 of non-interest income contributed by the leasing business.

Total non-interest expense increased $18.0 million, or 45%, for the third quarter of 2021 compared to the second quarter of 2021, and $23.5 million, or 69%, compared to the third quarter of 2020.

The increase in total non-interest expense for the third quarter of 2021 compared to the linked quarter was primarily due to the recognition of $16.5 million of acquisition-related expenses due to the closing of the Premier acquisition during the quarter.

Total non-interest expense in the third quarter of 2021 also contained other non-core expenses such as a one-time expense related to contract renewal negotiations of Peoples Bank's core banking systems of $1.9 million, and $0.2 million in COVID-19-related expenses.

During the second quarter of 2021, non-core expenses included acquisition-related expenses of $2.4 million and $0.2 million in COVID-19-related expenses.

For the third quarter of 2020, non-core expenses included $531,000 of pension settlement charges, $335,000 of acquisition-related expenses, $192,000 of severance expenses and $148,000 of COVID-19-related expenses.

Compared to the third quarter of 2020, the increase in total non-interest expense was primarily due to an increase in acquisition-related expenses of $16.2 million, an increase in salaries and employee benefit costs of $6.2 million and an increase in amortization of intangible assets of $0.4 million.

The increases in salaries and employee benefit costs and amortization of intangible assets were primarily the result of the acquisitions of Premier and NSL.

For the first nine months of 2021, total non-interest expense increased $35.3 million compared to the same period last year.

The variance was driven primarily by increases of $20.5 million in acquisition-related expenses.

The remainder of the increase was largely due to a $7.2 million rise in salaries and employee benefit costs, which was driven by the added ongoing costs of the recent acquisitions, along with higher sales and incentive compensation from increased production, growth in medical insurance and 401(k) costs, while data processing and software costs also increased $2.1 million.

These changes were partially offset by decreases in pension settlement charges and COVID-19-related expenses.

Similar to the quarterly comparisons, the acquisitions of Premier, NSL and Premium Finance increased salaries and employee benefit costs, as well as amortization of intangible assets.

Peoples' efficiency ratio, 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, for the third quarter of 2021 was 94.7%, compared to 68.6% for the second quarter of 2021, and 64.1% for the third quarter of 2020.

The change in the efficiency ratio compared to the linked quarter was primarily due to the acquisition-related expenses mentioned above.

The efficiency ratio, when adjusted for non-core items, was 63.9% for the third quarter of 2021, compared to 64.0% for the second quarter of 2021 and 61.8% for the third quarter of 2020.

The efficiency ratio for the nine months ended September 30, 2021 was 78.4% compared to 64.4% for the nine months ended September 30, 2020.

When adjusted for non-core items, the efficiency ratio was 64.3% for the first nine months of

2021 compared to 62.4% for the first nine months of 2020.

Peoples reported net income of $23.6 million for the first quarter of 2022, representing income per diluted common share of $0.84.

In comparison, Peoples recognized earnings per diluted common share of $0.98 for the fourth quarter of 2021, and earnings per diluted common share of $0.79 for the first quarter of 2021.

Non-core items, and the related tax effect of each, in net income primarily included acquisition-related expenses.

Non-core items negatively impacted earnings per diluted common share by $0.04 for the first quarter of 2022, $0.02 for the fourth quarter of 2021, and $0.13 for the first quarter of 2021.

Net interest income was $54.3 million for the first quarter of 2022, a decrease of $0.4 million, or 1%, compared to the linked quarter.

Net interest margin was 3.41% for the first quarter of 2022, compared to 3.37% for the linked quarter.

The decrease in net interest income was driven primarily by higher funding costs resulting from the Vantage acquisition, partially offset by accretion income recognized on the commercial real estate portfolio.

Net interest income and net interest margin both continue to be impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves.

The impact of the recent increase in the Federal Reserve benchmark interest rate was not meaningful for the current quarter given the proximity of its timing to quarter-end.

Net interest income for the first quarter of 2022 increased $18.7 million, or 53%, compared to the first quarter of 2021.

Net interest margin increased 15 basis points compared to 3.26% for the first quarter of 2021.

The increase in net interest income compared to the first quarter of 2021 was driven by lower funding costs, which were primarily attributable to deposits acquired from Premier.

Accretion income, net of amortization expense, from acquisitions was $2.7 million for the first quarter of 2022, $1.0 million for the fourth quarter of 2021 and $0.4 million for the first quarter of 2021, which added 17 basis points, 6 basis points and 4 basis points, respectively, to net interest margin.

Accretion income for the current quarter was driven by payoffs on several large commercial loans.

The recovery of credit losses was $6.8 million for the first quarter of 2022, compared to $6.6 million for the linked quarter and $4.7 million for the first quarter of 2021.

The changes in the recovery of credit losses compared to the linked quarter and prior year quarter were primarily due to continued improvement in economic factors and changes in loss drivers used in the CECL model.

Net charge-offs for the first quarter of 2022 were $1.9 million, or 0.17% of average total loans annualized, compared to net charge-offs of $1.3 million, or 0.11% of average total loans annualized, for the linked quarter and net charge-offs of $1.1 million, or 0.13% of average total loans annualized, for the first quarter of 2021.

Net charge-offs for the first quarter of 2022 included two commercial and industrial loans aggregating $0.7 million.

For additional information on credit trends and the allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below.

Total non-interest income, excluding net gains and losses, for the first quarter of 2022 was up $1.0 million compared to the linked quarter.

The increase in non-interest income, excluding net gains and losses, was the result of higher insurance income, which included annual performance-based insurance commissions of $1.3 million that are recognized in the first quarter of each year, offset partially by a decline in mortgage banking income.

Compared to the first quarter of 2021, non-interest income, excluding net gains and losses, increased $2.8 million.

Deposit account service charges increased $1.4 million and electronic banking income increased $1.3 million.

The increase in deposit account service charges was primarily attributable to overdraft and NSF fees driven higher by a larger customer base following the merger with Premier.

Electronic banking income increased in the first quarter of 2022 due to an increase in interchange income earned from customers' debit card usage, driven partially by customers added in the Premier merger.

Total non-interest expense was up $3.6 million, or 8%, for the three months ended March 31, 2022, compared to the linked quarter.

The increase in total non-interest expense for the first quarter of 2022 was attributable to increases in salaries and employee benefit costs, professional fees and FDIC insurance premiums.

The increase in salaries and employee benefit costs was driven by merit increases, employer contributions to health savings accounts, stock-based compensation expense and higher payroll taxes, which are generally higher in the first quarter.

Total non-interest expense in the first quarter of 2022 also contained non-core expenses, including acquisition-related expenses of $1.4 million.

During the fourth quarter of 2021, non-core expenses included acquisition-related expenses of $0.9 million.

Compared to the first quarter of 2021, total non-interest expense increased $13.6 million, or 36%, primarily due to an increase in salaries and employee benefit costs of $7.0 million, an increase in net occupancy and equipment costs of $1.8 million, an increase in amortization of intangible assets of $1.1 million, and an increase in the FDIC insurance premiums of $1.0 million.

Those increases were primarily the result of the acquisitions of Premier and NSL.

During the first quarter of 2021, non-core expenses included acquisition-related expenses of $1.9 million and a contribution to the Peoples Bank Foundation, Inc.

of $0.5 million.

The efficiency ratio for the first quarter of 2022 was 66.8%, compared to 62.7% for the linked quarter, and 70.4% for the first quarter of 2021.

The change in the efficiency ratio compared to the linked quarter was primarily due to the increases in salaries and employee benefit costs, professional fees and the FDIC insurance premiums mentioned above.

The efficiency ratio, adjusted for non-core items, was 64.8% for the first quarter of 2022, compared to 61.5% for the linked quarter and 65.2% for the first quarter of 2021.

The efficiency ratio is typically higher in the first quarter of the year driven by the aforementioned salaries and employee benefit costs, and specifically by higher payroll taxes, employer contributions to health savings accounts and stock-based compensation expenses for certain employees.

Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.

Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and $2.6 million for the third quarter of 2020.

The income tax benefit for the third quarter of 2021, compared to the income tax expense for the linked quarter, was due to the net loss recognized in the third quarter of 2021.

The increase in income tax expense for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was due to higher pre-tax income.

At September 30, 2021, total assets were $7.06 billion, compared to $5.07 billion at June 30, 2021 and $4.76 billion at December 31, 2020.

Total assets grew 39% compared to June 30, 2021, and was largely attributable to the Premier acquisition, which added $1.1 billion in loans, $563.3 million in investment securities, and the recognition of goodwill on the transaction of $71.0 million.

The 48% increase compared to December 31, 2020 was also driven by the Premier acquisition, along with the $83.3 million of leases acquired from NSL, subsequent growth in leases of $28.1 million, and organic loan growth of $88.2 million, offset partially by $474.2 million in forgiveness received on PPP loans during the nine months ended September 30, 2021.

The allowance for credit losses at September 30, 2021 increased to $77.4 million, or 1.72% of total loans, compared to $50.4 million and 1.48%, respectively, at December 31, 2020.

Total assets increased $2.0 billion, or 39%, compared to the linked quarter.

The increase was a result of the Premier acquisition.

Total liabilities were $6.23 billion at September 30, 2021, up from $4.48 billion at June 30, 2021 and $4.19 billion at December 31, 2020.

The increase in total liabilities compared to June 30, 2021 was primarily due to deposits acquired from Premier of $1.8 billion, as well as retail repurchase agreements of $63.8 million.

Also contributing to the increase compared to December 31, 2020 was higher total deposits associated with customers maintaining higher balances due primarily to economic stimulus payments provided by the government, as well as changes in customer buying habits.

At September 30, 2021, total stockholders' equity was $831.9 million, an increase of $256.2 million compared to December 31, 2020.

The increase in total stockholders' equity was driven by common shares issued for the acquisition of Premier and net income for the first nine months of 2021, offset by $21.0 million in dividends paid to shareholders and the change in accumulated other comprehensive income to an accumulated other comprehensive loss of $7.2 million.

Peoples recorded income tax expense of $6.0 million for the first quarter of 2022, compared to income tax expense of $5.4 million for the linked quarter and $3.8 million for the first quarter of 2021.

The increase in income tax expense for the first quarter of 2022, compared to the linked quarter, was due to an increase in Peoples' effective tax rate.

The increase for the three months ended March 31, 2022, compared to the three months ended March 30, 2021, was largely driven by higher pre-tax income.

At March 31, 2022, total assets were $7.24 billion, compared to $7.06 billion at December 31, 2021 and $5.14 billion at March 31, 2021.

The growth in total assets of 2% compared to December 31, 2021 was largely attributable to the Vantage acquisition, which added $140.2 million in leases as of the acquisition date.

The 41% increase compared to March 31, 2021 was driven primarily by $1.1 billion of loans and $0.6 billion of investment securities added in the Premier merger as of the merger date, along with leases acquired from North Star and Vantage totaling $223.2 million, both as of the acquisition date.

The allowance for credit losses at March 31, 2022 decreased to $54.8 million, or 1.20% of total loans, compared to $64.0 million and 1.43%, respectively, at December 31, 2021, and $44.9 million and 1.32%, respectively, at March 31, 2021.

Total liabilities were $6.43 billion at March 31, 2022, up from $6.22 billion at December 31, 2021 and $4.56 billion at March 31, 2021.

The increase in total liabilities compared to December 31, 2021 was primarily due to seasonal growth in governmental deposits of $117.5 million, and $107.4 million of long-term borrowings assumed from Vantage.

Also contributing to the increase compared to March 31, 2021 was $1.75 billion in deposits acquired from Premier.

At March 31, 2022, total stockholders' equity was $808.3 million, a decrease of $36.7 million compared to December 31, 2021.

The decrease in total stockholders' equity reflected an other comprehensive loss of $51.0 million and dividends paid during the quarter of $10.2 million, partially offset by net income for the quarter of $23.3 million.

Total stockholders' equity at March 31, 2022 increased $229.2 million, or 40%, compared to March 31, 2021, which was mainly due to common shares issued for the acquisition of Premier and $55.7 million in net income during the prior twelve-month period, offset by an increase in accumulated other comprehensive loss of $57.7 million and dividends paid of $34.5 million.

RESULTS OF OPERATIONS

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Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities.

FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a 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.

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

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

4 unchanged sentences

For the Three Months Ended

September 30, 2021 June 30, 2021 September 30, 2020

March 31, 2022 December 31, 2021 March 31, 2021

( Dollars in thousands)

50 unchanged sentences

Net interest margin (b) 3.41 % 3.37 % 3.26 %

For the Nine Months Ended

September 30, 2021 September 30, 2020

( Dollars in thousands)

Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost

Short-term investments $ 175,755 $ 175 0.13 % $ 111,852 $ 317 0.38 %

Investment securities (a)(b):

Taxable 899,531 9,636 1.43 % 894,008 12,448 1.86 %

Nontaxable 149,636 3,035 2.70 % 103,827 2,409 3.09 %

Total investment securities 1,049,167 12,671 1.61 % 997,835 14,857 1.99 %

Loans (b)(c):

Construction 108,859 3,169 3.84 % 108,426 3,656 4.43 %

Commercial real estate, other 930,150 26,938 3.82 % 848,202 27,784 4.30 %

Commercial and industrial 872,421 28,773 4.35 % 892,483 24,411 3.59 %

Premium finance 112,925 4,137 4.83 % 31,069 1,871 7.91 %

Leases 61,551 9,025 19.34 % — — — %

Residential real estate (d) 624,993 19,749 4.21 % 669,852 24,498 4.88 %

Home equity lines of credit 122,720 3,638 3.96 % 128,540 4,546 4.72 %

Consumer, indirect 526,900 16,025 4.07 % 438,784 14,066 4.28 %

Consumer, direct 82,151 3,896 6.34 % 78,904 3,978 6.73 %

Total loans 3,442,670 115,350 4.44 % 3,196,260 104,810 4.34 %

Allowance for credit losses

(49,483) (44,323)

Net loans 3,393,187 115,350 4.50 % 3,151,937 104,810 4.40 %

Total earning assets 4,618,109 128,196 3.68 % 4,261,624 119,984 3.73 %

Goodwill and other intangible assets 213,232 180,291

Other assets 360,842 264,238

$ 5,192,183 $ 4,706,153

Interest-bearing deposits:

Savings accounts $ 688,782 $ 79 0.02 % $ 558,514 $ 140 0.03 %

Governmental deposit accounts

490,170 1,602 0.44 % 366,139 1,671 0.61 %

Interest-bearing demand accounts

743,562 205 0.04 % 652,198 385 0.08 %

Money market accounts 554,194 294 0.07 % 547,291 1,271 0.31 %

Retail certificates of deposit (e)

440,454 3,054 0.93 % 479,185 5,453 1.52 %

Brokered deposits (e) 166,000 2,559 2.06 % 214,516 1,662 1.03 %

Total interest-bearing deposits

3,083,162 7,793 0.34 % 2,817,843 10,582 0.50 %

Borrowed funds:

Short-term FHLB advances 18,773 246 1.75 % 160,287 2,285 1.90 %

Repurchase agreements and other 55,100 37 0.09 % 45,613 70 0.26 %

Total short-term borrowings 73,873 283 0.51 % 205,900 2,355 1.54 %

Long-term FHLB advances 96,765 1,099 1.52 % 109,536 1,341 1.64 %

Repurchase agreement and other borrowings 7,926 235 3.95 % 9,148 288 5.40 %

Total long-term borrowings 104,691 1,334 1.70 % 118,684 1,629 1.93 %

Total borrowed funds 178,564 1,617 1.21 % 324,584 3,984 1.64 %

Total interest-bearing liabilities

3,261,726 9,410 0.39 % 3,142,427 14,566 0.62 %

Non-interest-bearing deposits 1,248,330 892,301

Other liabilities 86,209 92,986

Total liabilities 4,596,265 4,127,714

Stockholders’ equity 595,918 578,439

Total liabilities and stockholders’ equity $ 5,192,183 $ 4,706,153

Interest rate spread (b) $ 118,786 3.29 % $ 105,418 3.11 %

Net interest margin (b) 3.41 % 3.27 %

(a) Average balances are based on carrying value.

(b) Interest income and yields are presented on a fully tax-equivalent basis, 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.

(b) Interest income and yields are presented on a fully tax-equivalent basis, a blended federal and state corporate income tax rate of 22.9%.

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

Peoples completed the acquisition of Premier on September 17, 2021, which impacted average total loan and deposit balances for the partial period in which the balances were included for the third quarter of 2021.

Compared to the third quarter of 2020, average total loans grew mostly due to the leases acquired.

Compared to the third quarter of 2020, average total deposit balances grew significantly due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers.

In addition, average total loan balances for the first nine months of 2021 were higher than the prior year period due to the lease, Premium Finance and Premier balances acquired, coupled with the PPP loans originated since the start of the pandemic and loan growth.

The average total deposit balances compared to 2020 grew considerably due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers, while the Premier acquired balances had a minimal impact on the period.

Peoples' average balances compared to prior periods have been impacted by recent acquisitions, which included;

(i) Vantage on March 7, 2022, which added to average lease and borrowed funds balances;

(ii) Premier on September 17, 2021, which added to average short-term investments, average total investment securities, average total loans and average total deposits;

and (iii) NSL on April 1, 2021, which added to average lease balances.

Peoples has maintained high cash balances in recent periods due to an influx of deposits, coupled with PPP proceeds.

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

Three Months Ended September 30, 2021 Compared to

Nine Months Ended September 30, 2021 Compared to

(Dollars in thousands) June 30, 2021 September 30, 2020 September 30, 2020

Three Months Ended March 31, 2022 Compared to

(Dollars in thousands) December 31, 2021 March 31, 2021

Increase (decrease) in:

1 unchanged sentence

Rate Volume Total (a)

INTEREST INCOME:

29 unchanged sentences

Fully tax-equivalent net interest income $ (1,007) $ 592 $ (415) $ (494) $ 19,360 $ 18,866

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

(b) Interest income and yields are presented on a fully tax-equivalent basis 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.

Net interest income grew 7% compared to the linked quarter, benefiting from the Premier acquisition, growth in leases and Premium Finance balances, and the overall growth in interest-earning assets, coupled with lower deposit costs.

(a) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the

relationship of the dollar amounts of the change in each.

(b) Interest income and yields are presented on a fully tax-equivalent basis a blended federal and state corporate income tax rate of 22.9%.

Net interest income declined by 1% compared to the linked quarter, and was driven lower by higher funding costs, which were due to the borrowings associated with the Vantage acquisition, which were partially offset by accretion income recognized on the commercial real estate loan portfolio.

Net interest margin increased 4 basis points for the first quarter of 2022, compared to the fourth quarter of 2021, and was driven by higher investment securities and loan yields, which were tempered by increased funding costs.

Net interest income and net interest margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves.

Peoples recognized interest income on deferred loan fees/costs of $3.1 million and $3.4 million during the third and second quarters of 2021, respectively, along with $0.4 million and $0.7 million of interest earned on PPP loans during the third and second quarters of 2021, respectively.

Net interest margin grew five basis points to 3.50% for the third quarter of 2021 compared to 3.45% for the linked quarter.

The increase in net interest margin was driven by the PPP income, which benefited net interest margin by 18 basis points for the third quarter of 2021 compared to 15 basis points for the second quarter of 2021, while excess liquidity resulted in inflated cash balances which reduced net interest margin by 13 basis points compared to 12 basis points for the linked quarter.

Compared to the third quarter of 2020, net interest income increased 21%, which was due to the acquired leases, premium finance loans and additional PPP income from the deferred loan fees recognized, as well as controlled funding costs.

Net interest margin expanded 36 basis points compared to 3.14% for the third quarter of 2020.

The lease portfolio added $4.8 million to net interest income, and 28 basis points to net interest margin, for the third quarter of 2021.

In late March of 2020, the Federal Reserve lowered the Federal Funds effective target range 150 basis points to 0.00% to 0.25%.

The majority of Peoples' variable rate loan portfolio is tied to LIBOR or a prime rate, which continued to be lower than historical levels.

For the first nine months of 2021, net interest income grew 13%, and was driven by the addition of the lease and premium finance portfolios, along with PPP income, coupled with lower funding costs.

Compared to the first nine months of 2020, net interest margin grew by 14 basis points and was driven by the 20 basis point addition of the leasing portfolio, while the PPP income contributed 20 basis points during 2021 compared to 6 basis points for 2020.

Accretion income, net of amortization expense, from acquisitions was $1.0 million for the third quarter of 2021, $0.8 million for the linked quarter and $0.5 million for the third quarter of 2020, which added 8 basis points, 7 basis points and 5 basis points, respectively, to net interest margin.

For the first nine months of 2021, accretion income, net of amortization expense, from acquisitions totaled $2.2 million, and added 6 basis points to net interest margin, compared to $2.6 million, and 8 basis points for 2020.

Peoples recognized interest income on deferred loan fees/costs of $1.2 million, $1.8 million and $4.7 million during the first quarter of 2022 and the fourth and first quarters of 2021, respectively, along with $154,000, $282,000, and $0.8 million of interest earned on PPP loans, respectively.

The recent increase in the Federal Reserve benchmark interest rate did not have a meaningful impact during the first quarter of 2021, given the proximity of its timing to quarter-end.

Compared to the first quarter of 2021, net interest income increased 53%, and was driven by the Vantage and NSL acquisitions, and the Premier merger coupled with organic growth.

Net interest margin expanded by 15 basis points and was primarily due to the leasing portfolio, which added 24 basis points to net interest margin, coupled with lower funding costs.

Accretion income, net of amortization expense, from acquisitions was $2.7 million for the first quarter of 2022, $1.0 million for the linked quarter and $0.4 million for the first quarter of 2021, which added 17 basis points, 6 basis points and 4 basis points, respectively, to net interest margin.

PPP income added $1.4 million for the first quarter of 2022, $2.1 million for the linked quarter and $5.6 million for the first quarter of 2021, which added 5 basis points, 6 basis points and 28 basis points, respectively, to net interest margin.

Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A.

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

Provision for Credit Losses

The following table details Peoples’ provision for credit losses:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Recovery of Credit Losses

The following table details Peoples’ (recovery of) provision for credit losses:

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

Provision for other credit losses $ 8,870 $ 3,035 $ 4,574 $ 7,125 $ 33,171

Recovery of other credit losses $ (7,006) $ (6,786) $ (4,780)

Provision for checking account overdraft credit losses 199 184 31

Provision for credit losses $ 8,994 $ 3,088 $ 4,728 $ 7,333 $ 33,531

Recovery of credit losses $ (6,807) $ (6,602) $ (4,749)

As a percentage of average total loans (a) (0.62) % (0.58) % (0.57) %

(a) Presented on an annualized basis.

The provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates.

Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier.

Excluding the day-one allowance for credit losses related to loans acquired from Premier, the release of allowance for credit losses was based on changes in economic factors and loss drivers used in the CECL model.

Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, coupled with the day-one allowance for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.

Compared to the first nine months of 2020, the provision for credit losses declined significantly, as the economic forecasts utilized within the CECL model experienced notable recovery compared to those utilized during 2020, which had been impacted by the onset of the COVID-19 pandemic.

The (recovery of) provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates.

For the first quarter of 2022, the recovery of credit losses was related to an improvement in the economic forecast, along with payoffs of several loans during the quarter, which were partially offset by $387,000 for the establishment of an allowance for credit losses for the non-purchased credit deteriorated leases from the Vantage acquisition.

The recovery of credit losses during the fourth quarter of 2021 was a result of the sale of acquired Premier loans, which reduced the required allowance for credit losses, coupled with improvements in the economic forecast.

The recovery of credit losses during the first quarter of 2021 was also driven by improvements in the economic forecast compared to the prior period.

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

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

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

The following table details Peoples’ net losses for the periods presented:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

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

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

The following table details Peoples’ net losses and gains for the periods presented:

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

Net (loss) gain on investment securities $ (166) $ (202) $ 2 $ (704) $ 383

Net gain (loss) on investment securities $ 130 $ (158) $ (336)

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

2 unchanged sentences

Net (loss) gain on other transactions (104) 903 —

Net loss on asset disposals and other transactions $ (308) $ (124) $ (28) $ (459) $ (237)

Net losses for the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sale of investment securities during the third quarter of 2021.

During the third quarter of 2021, Peoples sold a portion of its available-for-sale investment securities and reinvested the proceeds into higher-yielding investments.

For the first nine months of 2021, a net loss on investment securities was recorded due to the sale of investment securities in order to reinvest proceeds into higher-yielding investment securities.

During the second quarter of 2021, net loss on other assets was due to a market value write-down of $208,000 related to a closed office that was held for sale.

The first nine months of 2021 included a net loss on other assets related to the write-down of a closed office in the second quarter of 2021 and the disposal of fixed assets acquired from Premier.

The first nine months of 2020 included a net gain on investment securities that was recorded in connection with sales of investment securities.

For the first nine months of 2020, net loss on other assets was driven by losses on repossessed assets.

Net (loss) gain on asset disposals and other transactions $ (127) $ 952 $ (27)

For the first three months of 2022, Peoples sold several investment securities, resulting a net gain on investment securities, which was offset by a net loss on other transactions primarily driven by an adjustment to the gain on sale of loans recognized in the fourth quarter of 2022, and was driven by changes to the acquisition-date fair value of Premier loans acquired that were subsequently sold.

During the first and fourth quarters of 2021, Peoples recognized net losses on investment securities in order to reinvest proceeds into higher yielding investment securities.

During the fourth quarter of 2021, the net gain on other transactions was 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.

Total Non-Interest Income, Excluding Net Gains and Losses

Total non-interest income, excluding net gains and losses, accounted for 28% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the three months ended September 30, 2021 compared to 29% for the linked quarter and 32% for the third quarter of 2020.

The recent decline in this ratio was driven by an increase in net interest income due to the acquisition of leases acquired from NSL.

For the third quarter of 2021, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses.

Total non-interest income, excluding net gains and losses, comprised 27% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the three months ended March 31, 2022, compared to 26% for the linked quarter and 33% for the first quarter of 2021.

The decline in this ratio compared to the first quarter of 2021 was driven by the recent merger with Premier and acquisition of NSL, which increased net interest income.

For the first quarter of 2022, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses.

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

The following table details Peoples' e-banking income:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

2 unchanged sentences

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

The decreases in e-banking income compared to each of the linked quarter and the prior year quarter were driven by the increased usage of debit cards by customers, resulting from the COVID-19 pandemic.

The increased usage has continued through the first nine months of 2021, resulting in higher e-banking income compared to the same period in 2020.

Peoples' fiduciary income and brokerage income continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement

plan services business.

E-banking income declined slightly from the linked quarter, driven by a seasonal decrease typically experienced in the first quarter compared to the fourth quarter;

however, it grew 34% compared to the first quarter of 2021.

This increase was driven by the addition of the Premier customers during the third quarter of 2021, coupled with increased usage of debit cards by customers.

The following table details Peoples' insurance income:

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

Property and casualty insurance commissions

$ 2,862 $ 2,836 $ 2,755

Performance-based commissions

1,346 — 1,950

Life and health insurance commissions

Other fees and charges

Insurance income $ 4,732 $ 3,329 $ 5,221

During the first quarter of 2022, Peoples' insurance income grew 42%.

This increase was mostly due to the recognition of $1.3 million of performance-based insurance commissions, which are annual in nature and typically occur in the first quarter of each year.

Compared to the first quarter of 2021, insurance income declined 9% and was driven by lower performance-based commissions, which are unpredictable, and are related to how much loss is incurred within underlying policies and the overall performance of the insurance carriers.

The following tables detail Peoples’ trust and investment income and related assets under administration and management:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

3 unchanged sentences

Trust and investment income $ 4,276 $ 4,234 $ 3,845

Fiduciary income and brokerage income are mostly driven by the values of assets under administration and management, which have increased in recent periods as the market values of existing accounts have been positively impacted and grown, coupled with new accounts added compared to prior periods.

Employee benefit fees continue to increase compared to prior periods as Peoples focuses on growing the number of employee benefit plans it manages.

Fiduciary income and brokerage income are mostly driven by the values of assets under administration and management, which were relatively stable compared to the linked quarter.

An improvement in the values of assets under administration and management, coupled with new accounts added, contributed to the growth in trust and investment income compared to the first quarter of 2021.

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

2022 December 31,

2021 September 30,

1 unchanged sentence

2021 March 31,

2021 December 31,

2020 September 30,

(Dollars in thousands)

3 unchanged sentences

Quarterly average $ 3,106,021 $ 3,126.398 $ 3,077.554 $ 3,051,027 $ 2,927,458

The slight decline in assets under administration and management at September 30, 2021, compared to each prior period end, was largely driven by the decrease in market values late in the third quarter of 2021, while the quarterly average increased compared to prior quarters.

The following table details Peoples' insurance income:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

(Dollars in thousands) 2021 2020

Property and casualty insurance commissions

$ 2,836 $ 2,765 $ 2,528 $ 8,356 $ 7,624

Life and health insurance commissions

396 430 965 1,248 1,494

Performance-based commissions

59 35 8 2,044 1,437

Other fees and charges

76 105 107 275 374

Insurance income $ 3,367 $ 3,335 $ 3,608 $ 11,923 $ 10,929

For the third quarter of 2021, insurance income was relatively flat compared to the linked quarter.

Compared to the third quarter of 2020, insurance income declined 7%, driven by decreases in life and health insurance commissions, offset partially by an increase in property and casualty insurance commissions.

For the first nine months of 2021, insurance income increased $1.0 million, or 9%.

This increase was driven by higher property and casualty, and performance-based commissions.

Annually Peoples receives performance-based income commissions that are related to how much loss is incurred by underlying policies and the overall performance of the insurance carriers.

The insurance income compared to prior periods was positively impacted by the addition of new customers.

The slight decline in assets under administration and management at March 31, 2022, compared to year-end, was driven by a decrease in market values during the first quarter of 2022 as the market became more volatile.

The improvement compared to March 31, 2021 was mostly due to new accounts added, as well as a recovery in market values from earlier in the COVID-19 pandemic.

Deposit account service charges are based on the recovery of costs associated with services provided.

The following table details Peoples' deposit account service charges:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

5 unchanged sentences

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

Deposit account service charges for the third quarter of 2021 grew compared to the linked quarter and the third quarter of 2020 due largely to an increase in volume of overdraft and non-sufficient fees charged due to customer activity.

Deposit account service charges were negatively impacted during the second quarter of 2021 and the third quarter of 2020, mostly due to fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic.

For the first nine months of 2021, compared to the same period of 2020, deposit account service charges declined and were impacted by the COVID-19 pandemic items already mentioned.

Deposit account service charges decreased 4% compared to the linked quarter, as increases in account maintenance fees were more than offset by reductions in overdraft and non-sufficient funds fees.

Compared to the first quarter of 2021, deposit account service charges increased 73%, resulting from the additional customers associated with the Premier acquisition, coupled with increased customer activity in recent quarters, compared to the very low levels of early 2021 associated with fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic.

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

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

5 unchanged sentences

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 declined during the third quarter of 2021, compared to the linked quarter and the prior year quarter as refinancing activity slowed and a lower volume of new loan originations due to the lack of inventory of homes for sale.

Compared to the first nine months of 2020, mortgage banking income declined 37%, because of lower origination volume caused by a lower inventory of homes for sale and less refinancing activity because of an increase in interest rates above historically low levels experienced as a result of the COVID-19 pandemic.

In the third quarter of 2021, Peoples recognized a gain of $0.4 million on the sale of $11.0 million in loans to the secondary market with servicing retained and $0.2 million on the sale of $10.3 million in loans with servicing released.

In the second quarter of 2021, Peoples recognized a gain of $0.6 million on the sale of $15.8 million in loans with servicing retained and $185,000 on the sale of $7.8 million in loans with servicing released.

In the third quarter of 2020 Peoples recognized a gain of $1.6 million on the sale of $35.2 million in loans sold servicing retained and a gain of $1.0 million on $68.2 million in loans sold servicing released.

For the first nine months of 2021, Peoples recognized a gain of $1.8 million on the sale of $44.0 million in loans to the secondary market with servicing retained and a gain of $0.6 million on the sale of $27.7 million in loans with servicing released.

For the first nine months of 2020, Peoples recognized a gain of $2.5 million on the sale of $78.6 million in loans sold servicing retained and a gain of $1.8 million on the sale of $124.2 million in loans sold servicing released.

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

Bank owned life insurance income was down compared to the linked quarter and the third quarter of 2020.

For the first nine months of 2021, bank owned life insurance declined 12%, primarily due to a $109,000 tax-free death benefit recognized during the first quarter of 2020.

Mortgage banking income declined during the first quarter of 2022, compared to the linked quarter and the first quarter of 2021, as refinancing activity slowed and there was a lower volume of new loan originations due to the lack of inventory of homes for sale.

In the first quarter of 2022, Peoples sold $7.2 million in loans to the secondary market with servicing retained and $7.9 million in loans with servicing released compared to $13.7 million and $9.7 million, respectively, for the fourth quarter of 2021, and $17.2 million and $9.6 million, respectively, for the first quarter of 2021.

Bank owned life insurance income was relatively flat for the first quarter of 2022, fourth quarter of 2021 and first quarter of 2021, as there had been no changes to the underlying assets compared to prior periods.

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

Commercial loan swap fees were up slightly compared to the linked quarter and the third quarter of 2020.

Compared to the first nine months of 2020, commercial loan swap fees declined due to a lower volume of transactions during 2021 compared to the high volume of transactions entered into during the first nine months of 2020.

Other non-interest income increased compared to the linked quarter and the third quarter of 2020 and was driven by other fee income of $0.5 million recognized on leases related to the early termination of leases and other fees in the third quarter of 2021

compared to $0.2 million recognized in the second quarter of 2021.

There was no income related to the early termination of leases in the third quarter of 2020, as NSL was not acquired until the second quarter of 2021.

For the nine months ended September 30, 2021, other non-interest income was higher due to the recognition of $0.6 million related to fees received for the early termination of leases and lease syndications.

Commercial loan swap fees declined compared to the fourth quarter of 2021, mainly due to one large swap entered into during the fourth quarter of 2021.

Commercial loan swap fees were higher during the first quarter of 2022, compared to the first quarter of 2021, and was the result of increased volume of customer activity.

Other non-interest income increased 28% compared to the linked quarter, and was driven by higher fee income associated with the leasing division, which grew $198,000.

Compared to the first quarter of 2021, other non-interest income doubled, and was related to $775,000 of fee income from the leasing division.

Non-Interest Expense

1 unchanged sentence

The following table details Peoples' salaries and employee benefit costs:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

9 unchanged sentences

Average during the period 1,215 1,185 891

Base salaries and wages increased 30% compared to the linked quarter and increased 34% compared to the third quarter of 2020.

The increase for the third quarter of 2021 compared to prior periods was primarily due to the acquisition of Premier, which included $3.4 million in acquisition-related severance expense.

For the first nine months of 2021, base salaries and wages increased 14% compared to the first nine months of 2020 as a result of the acquisition-related severance expense for Premier and additional salaries associated with NSL and a full nine months of Premium Finance.

The decrease in sales-based and incentive compensation for the third quarter of 2021 compared to the linked quarter was primarily due to lower incentive compensation related to insurance and mortgage banking.

For the first nine months of 2021 compared to the same period in 2020, the increase was driven by the overall company performance relative to measures used in calculating incentive awards and higher sales-based compensation from insurance and trust and investments.

The increase in employee benefits for first nine months of 2021, compared to first nine months of 2020, was due to an increase to the employer 401(k) match made during 2021, as well as higher medical costs with the addition of the Premier and NSL employees.

During the second quarter of 2021, Peoples increased the matching contribution to participant's 401(k) accounts, retroactive to January 1, 2021.

This true-up was completed in the second quarter of 2021 and drove the increase in employee benefits for the third quarter of 2021 compared to the third quarter of 2020.

The increase in payroll taxes and other employment costs, compared to linked quarter, was primarily due to the taxes associated with the acquisition-related severance expense recognized in the third quarter of 2021.

The increase in payroll taxes and other employment costs for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily related to higher base salaries and wages, coupled with the additional associates of Premier and NSL.

Base salaries and wages increased 5% compared to the linked quarter and increased 38% compared to the first quarter of 2021.

The increase for the first quarter of 2022 compared to the linked quarter was driven by the annual merit increases.

The key driver of the increase compared to the first quarter of 2021was the additional salaries associated with Premier and NSL.

The decrease in sales-based and incentive compensation for the first quarter of 2022 compared to the linked quarter was primarily due to overall company performance measures used in calculating incentive awards.

The increase in employee benefits for first quarter of 2022, compared to the linked quarter, was primarily due to annual contributions to employee health benefit accounts which resulted in expense of $620,000.

These contributions occur primary in the first quarter of each year.

The increase in employee benefits compared to the first quarter of 2021 was due to higher medical costs with the addition of the Premier and NSL employees.

The increase in payroll taxes and other employment costs compared to the first quarter of 2021, was primarily related to higher base salaries and wages, coupled with the additional associates of Premier and NSL.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, adjusted for an estimate of the portion of awards that will be forfeited.

2 unchanged sentences

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

Stock-based compensation for the first nine months of 2021 decreased compared to the first nine months of 2020 due to an additional $396,000 of unrestricted grants of common share awards to associates at the level of Assistant Vice President or below granted in the second quarter of 2020.

Stock-based compensation for the first quarter of 2022 increased $528,000 compared to the linked quarter, which included expense related to stock grants of retirement eligible individuals and the annual vesting of prior stock grants.

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

1 unchanged sentence

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.

The decrease in deferred personnel costs compared to the linked quarter was due to a reduction loan origination volume.

The decrease in deferred personnel costs in the first

nine months of 2021 compared to first nine months of 2020 was driven by the recognition of $921,000 in deferred personnel costs during the second quarter of 2020 related to the origination of PPP loans.

The decrease in deferred personnel costs compared to the first quarter of 2021 was primarily due to a reduction in loan origination volume as Peoples originated PPP loans during the first quarter of 2021.

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

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

4 unchanged sentences

Net occupancy and equipment expense $ 5,088 $ 4,751 $ 3,327

Depreciation on capitalized assets has declined during the second and third quarters of 2021, compared to both the third quarter of 2020, and the first nine months of 2020 as a result of certain capitalized assets and improvements reaching the end of their depreciable lives.

In addition, Peoples recognized higher building maintenance costs during the first nine months of 2021, compared to 2020 due to various projects including painting, window replacements, drive-thru enhancements and parking lot sealing.

Property taxes, utilities and other costs also increased during the nine months ended September 30, 2021, compared to the first nine months of 2020 as a result of an increase in other costs, primarily driven by low-cost furniture and fixtures not capitalized, offset by a reduction in utilities and property taxes.

Net occupancy and equipment expense increased 5% compared to the first nine months of 2020 mainly due to increased expenses associated with maintaining the Premium Finance location for a full period, the acquisition from NSL in second quarter of 2021 and the partial period impact of the merger with Premier in the third quarter of 2021.

Depreciation on capitalized assets declined compared to the linked quarter as a result of certain capitalized assets and improvements reaching the end of their depreciable lives.

For the first quarter of 2022, compared to the fourth quarter of 2021, repairs and maintenance costs grew as Peoples' experienced increased costs across its footprint, which was partially due to higher snow removal costs.

Compared to the first quarter of 2021, net occupancy and equipment expense increased 53% and was driven by the additional geographic locations from recent acquisitions.

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

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

3 unchanged sentences

Amortization of other intangible assets 1,708 1,508 620

Marketing expense 1,223 676 456 2,810 1,561

Franchise tax expense 810 822 882 2,487 2,645

FDIC insurance premiums 1,194 380 463

Marketing expense 995 848 911

Other loan expenses 832 558 462

Franchise tax expense 764 870 855

Communication expense 625 578 282

Other non-interest expense 3,347 3,811 2,492

Professional fees increased $2.9 million from the linked quarter and $4.7 million from the third quarter of 2020 primarily due to investment banking fees and other acquisition-related expenses, which were related to the purchase of NSL and the merger with Premier.

Professional fees included acquisition-related expenses of $2.4 million for the third quarter of 2021, $1.8 million for the second quarter of 2021, and $319,000 for the third quarter of 2020.

For the first nine months of 2021, professional fees nearly doubled compared to the prior year, and included $6.2 million of acquisition-related expenses for 2021, compared to $363,000 for 2020.

The change in data processing and software expense compared to prior periods 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;

software upgrades;

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

E-banking expense was down slightly compared to the linked quarter, and is directly correlated to e-banking income, with the decrease due to lower costs associated with ATM processing expenses.

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

Amortization of other intangible assets for the third quarter of 2021 was down $89,000 compared to the second quarter of 2021 due to adjustments to the fair value of intangible assets acquired from NSL, and the related changes to intangible amortization post-acquisition.

Amortization of other intangible assets increased $422,000 compared to the third quarter of 2020 as a result of the NSL acquisition effective after the close of business on March 31, 2021.

Marketing expense increased compared to the second quarter of 2021 due primarily to additional advertising campaigns relating to the addition of Premier locations.

Additionally, in giving back to the community, Peoples' contributions increased during the third quarter of 2021 and included a donation to each of Marietta College and the Ohio Valley Museum of Discovery.

Professional fees increased $1.3 million from the linked quarter primarily due to higher exam and audit fees, coupled with investment banking fees and other acquisition-related expenses related to the purchase of Vantage.

Peoples also recorded a benefit of $603,000 for a true-up of expense related to contact negotiations during the fourth quarter of 2021.

Professional fees included acquisition-related expenses of $1.0 million for the first quarter of 2022, $917,000 for the fourth quarter of 2021, and $1.9 million for the first quarter of 2021.

Data processing and software expense declined 7% compared to the linked quarter, and was up 19% compared to the first quarter of 2021.

The decline compared to the linked quarter was related to a negotiated reduction in costs from Peoples' core provider.

The increase compared to the first quarter of 2021 was due to software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

E-banking expense declined compared to the linked quarter, and is directly correlated to e-banking income, which experienced a seasonal decline compared to the fourth quarter of 2021.

Compared to the first quarter of 2021, e-banking expense grew 46%, as customer activity increased and there was a higher number of accounts related to the Premier merger.

Amortization of other intangible assets is associated with acquisition-related activity, and grew 13% compared to the linked quarter, as Peoples completed the Vantage acquisition.

Compared to the first quarter of 2021, amortization of other intangible assets increased $1.1 million as Peoples merged with Premier, and acquired NSL and Vantage on April 1, 2021, September 17, 2021 and March 7, 2022, respectively.

Peoples' FDIC insurance premiums increased compared to the linked quarter and first quarter of 2021, as Peoples recorded the increased premiums after the acquisition of Premier.

Peoples also recorded an adjustment to FDIC insurance premiums during the first quarter of 2022 related to the fourth quarter of 2021, based on an invoice received during the first quarter of 2022.

Marketing expense grew 17% compared to the linked quarter and 9% compared to the first quarter of 2021.

The increase was mainly due to higher media advertising expenses and donations compared to prior periods, which are seasonally higher in the first quarter.

Other loan expenses increased $274,000 compared to the linked quarter and were driven by higher commercial loan expenses.

Compared to the first quarter of 2021, other loan expenses grew $370,000 and were mostly related to higher residential real estate loan expenses.

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

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The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end.

Peoples' FDIC insurance premiums increased compared to the linked quarter, due to a decline in the leverage ratio which was impacted by the NSL acquisition in the second quarter, and decreased compared to December 31, 2020.

Compared to the first nine months of 2020, the FDIC insurance premiums grew as a result of credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium.

The FDIC insurance credits were related to the level of the Federal Deposit Insurance Fund ("DIF") that had continued to be above the target threshold for banks with total consolidated assets of less than $10 billion to recognize credits.

Peoples utilized the remaining credits that had been issued to it in the second quarter of 2020.

Other loan expenses decreased slightly compared to the linked quarter due to lower expenses associated with business loans.

Compared to the third quarter of 2020, other loan expenses increased mostly due to higher expenses associated with real estate loans and home equity lines of credit.

Other loan expenses for the nine months ended September 30, 2021 increased $188,000 compared to the nine months ended September 30, 2020 due to increased loan origination activity.

Compared to the linked quarter, third quarter of 2020, and first nine months of 2020, communications expense grew as a result of upgraded networking to certain branches (including new branches acquired from Premier coupled with the addition of the NSL and Premium Finance locations acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.

Other non-interest expense increased $10.2 million compared to the third quarter of 2020, and was mostly due to $9.6 million in acquisition-related expenses recognized during the third quarter of 2021.

Communications expense increased 8% compared to the linked quarter and was up $343,000 compared to the first quarter of 2021.

The increase compared to the linked quarter was due to a credit received from a communications provider during the fourth quarter of 2021.

The growth compared to the first quarter of 2021 was due to upgraded networking to certain branches (including new branches acquired from Premier coupled with the addition of the NSL location acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.

Other non-interest expense declined 12% compared to the linked quarter and was impacted by lower travel and entertainment expense, coupled with lower postage costs.

Compared to the first quarter of 2021, other non-interest expense grew 34% as Peoples recognized higher ongoing costs after its recent acquisitions, mostly due to increased postage, travel and entertainment, insurance and supplies expense.

Income Tax Expense

Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and income tax expense of $2.6 million for the third quarter of 2020.

The income tax benefit during the third quarter of 2021, and the income tax expense recognized during the linked quarter and the third quarter of 2020 was heavily related to the amount of pre-tax income recognized during each period.

Pretax income was impacted by acquisition-related expenses associated with the Premier acquisition during the third quarter of 2021.

Peoples recorded income tax expense of $4.0 million for the nine months ended September 30, 2021, compared to $3.6 million for the nine months ended September 30, 2020.

Pretax income for the nine months ended September 30, 2021 was largely impacted by acquisition-related expenses, contract negotiation expenses and other non-core expenses.

Peoples recorded an income tax expense of $6.0 million for the first quarter of 2022, compared to income tax expense of $5.4 million for the linked quarter and income tax expense of $3.8 million for the first quarter of 2021.

The increase in income tax expense for the first quarter of 2022, compared to the linked quarter, was due to an increase in Peoples' effective tax rate.

The increase in income tax expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, was largely driven by higher pre-tax income.

Additional information regarding income taxes can be found in "Note 13 Income Taxes" of the Notes to the Condensed Consolidated Financial Statements included in Peoples' 2021 Form 10-K.

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The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

Pre-provision net revenue:

(Loss) income before income taxes $ (7,930) $ 12,494 $ 12,846 $ 23,807 $ 17,810

provision for credit losses 8,994 3,088 4,728 7,333 33,531

Income before income taxes $ 29,538 $ 33,163 $ 19,243

loss on OREO 1 — —

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gain on OREO — 80 —

recovery of credit losses 6,807 6,602 4,749

gain on investment securities 130 — —

gain on other assets 93 106 72 258 22

gain on other transactions — 903 —

Pre-provision net revenue $ 22,728 $ 25,767 $ 14,857

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Pre-provision net revenue per common share - diluted $ 0.81 $ 0.92 $ 0.76

The decrease in PPNR compared to the linked quarter and the third quarter of 2020 was mostly due to higher non-core acquisition-related expenses recognized during the third quarter of 2021.

The decline in PPNR compared to the linked quarter was driven by increased total non-interest expense from higher salaries and employee benefit costs, professional fees and FDIC insurance premiums.

The PPNR grew compared to the first quarter of 2021 and was mostly due to the impact of the Premier merger and Vantage and NSL acquisitions improving net interest income, coupled with higher non-interest income.

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 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.

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

contribution.

The following table provides a reconciliation of this Non-US GAAP measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

2 unchanged sentences

acquisition-related expenses 1,373 903 1,911

pension settlement charges 143 — 531 143 1,050

severance expenses — 16 49

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contribution — — 500

contract negotiation expenses 1,851 — — 1,851 —

contract negotiation benefits — 603 —

Core non-interest expense $ 50,162 $ 47,110 $ 35,235

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Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

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Total non-interest income 20,050 19,815 16,903

net gain on investment securities — — 2 — 383

net loss on investment securities (166) (202) — (704) —

net loss on asset disposals and other transactions (308) (124) (28) (459) (237)

net gain (loss) on investment securities 130 (158) (336)

net (loss) gain on asset disposals and other transactions (127) 952 (27)

Total non-interest income excluding net gains and losses 20,047 19,021 17,266

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Efficiency ratio adjusted for non-core items 64.82 % 61.51 % 65.19 %

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

The efficiency ratio for the third quarter of 2021 was 94.7%, compared to 68.6% for the linked quarter, and 64.1% for the third quarter of 2020.

The change in the efficiency ratio compared to the linked quarter was primarily due to the acquisition-related expenses.

The efficiency ratio, adjusted for non-core items, was 63.9% for the third quarter of 2021, compared to 64.0% for the linked quarter and 61.8% for the third quarter of 2020.

Impacting the adjusted ratios were higher salaries and employee benefits due to the Premier and NSL acquisitions along with higher advertising expenses and increased repair and maintenance expenses.

For the first nine months of 2021, the efficiency ratio grew due to higher total non-interest expense associated with the acquisition-related expenses mentioned above, operating expenses associated with the NSL and Premium Finance acquired divisions, a reduction in deferred loan costs from the PPP loans, and increased sales and incentive-based compensation from higher production.

(a) Based on a tax rate of 22.9% for period ending March, 31, 2022, 22.3% for period ending December 31, 2021, and 21.0% for period ending March 31, 2021.

The efficiency ratio for the first quarter of 2022 increased compared to the linked quarter, as growth in salaries and employee benefit costs, professional fees and FDIC insurance premiums resulted in higher total non-interest expense.

The efficiency ratio, adjusted for non-core items, also grew and was attributable to the items previously mentioned.

Additionally, compared to the first quarter of 2021, the efficiency ratio and adjusted efficiency ratio, both declined due to improvements in net interest income from the recent acquisitions, coupled with higher non-interest income, outpacing increases in total non-interest expense.

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

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

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

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

contribution.

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

Annualized net (loss) income adjusted for non-core items:

Net (loss) income

Annualized net income adjusted for non-core items:

$ 23,577 $ 27,747 $ 15,463

net loss on investment securities

166 202 — 704 —

tax effect of net loss on investment securities (a)

35 42 — 148 —

net gain on investment securities

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net loss on asset disposals and other transactions

308 124 28 459 237

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

65 26 6 96 50

net gain on asset disposals and other transactions

tax effect of net loss on asset disposals and other transactions (a) — 200 —

acquisition-related expenses

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tax effect of acquisition-related expenses (a)

3,404 504 70 4,309 87

pension settlement charges

143 — 531 143 1,050

tax effect of pension settlement charges (a)

30 — 112 30 221

severance expenses — 16 49

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contribution (a)

contract negotiation fees

1,851 — — 1,851 —

tax effect of contract negotiation fees

389 — — 389 —

refund of contract negotiation benefits

tax effect of refund of contract negotiation fees (a)

Net income adjusted for non-core items (after tax)

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Days in the year 365 365 365

Annualized net (loss) income

Annualized net income

$ 95,618 $ 110,083 $ 62,711

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Return on average assets:

Annualized net (loss) income

Annualized net income

$ 95,618 $ 110,083 $ 62,711

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

The return on average assets declined during the third quarter of 2021, compared to the linked quarter and the third quarter of 2020.

The decrease was driven by the provision for credit losses recognized in the third quarter due to the Premier acquisition and higher total non-interest expense recognized during the third quarter of 2021, which was mostly due to acquisition-related expenses.

The return on average assets adjusted for non-core items declined compared to the linked quarter due to the higher salaries and

incentive compensation.

The return on average assets and the return on average assets adjusted for non-core items both grew compared to the first nine months of 2020.

The increases were mostly due to the previously mentioned higher provision for credit losses recorded during the first nine months of 2020.

For additional information related to the changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”

The return on average assets declined compared to the linked quarter, and was primarily due to higher total non-interest expense from increased salaries and employee benefit costs, professional fees and FDIC insurance premiums.

The increase in return on

average assets for the first quarter of 2022, compared to the first quarter of 2021, was attributable to higher net interest income and non-interest income, which were driven by the recent acquisitions.

At the same time, the decline in return on average assets, adjusted for non-core items, was due to the improvement in annualized net income, adjusted for non-core items, not outpacing the higher average total assets.

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

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This measure is Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

Three Months Ended

2022 December 31,

2021 March 31,

(Dollars in thousands)

Annualized net income excluding amortization of other intangible assets:

Net (loss) income

$ 23,577 $ 27,747 $ 15,463

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tax effect of amortization of other intangible assets (a)

269 287 180 686 486

Net income excluding amortization of other intangible assets

1 unchanged sentence

Days in the period

92 91 92 273 274

Days in the year

365 365 366 365 366

Annualized net (loss) income

Annualized net income

$ 95,618 $ 110,083 $ 62,711

Annualized net (loss) income excluding amortization of other intangible assets

Annualized net income excluding amortization of other intangible assets

$ 101,089 $ 114,808 $ 64,698

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

The return on average stockholders' equity and average tangible equity ratios were impacted by the provision for (recovery of) credit losses during each of the respective periods, as well as non-core items recognized during the periods.

Intangible assets grew at September 30, 2021, compared to June 30, 2021, as Peoples recorded the intangibles and goodwill associated with the Premier acquisition, which increased average tangible equity.

Additionally, during the first nine months of 2020, Peoples recorded high amounts of provision for credit losses, which negatively impacted net income, as a result of the COVID-19 pandemic.

For additional information related to changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”

The return on average stockholders' equity and average tangible equity ratios were negatively impacted by higher total non-interest expense during the first quarter of 2022, compared to the linked quarter.

Total non-interest expense is seasonally higher during the first quarter of each year due to annual stock grants resulting in increased stock-based compensation, health saving account employer contributions and payroll taxes.

At the same time, the average tangible equity was negatively impacted by the Vantage acquisition, for which People did not issue any equity, and recorded additional goodwill and other intangible assets.

Additionally, average tangible equity declined compared to the fourth quarter of 2021 due to a higher accumulated other comprehensive loss during the first quarter of 2022 as a result of the impact of the interest rate environment on the available-for-sale investment securities portfolio.

Compared to the first quarter of 2021, the return on average stockholders' equity and average tangible equity ratios were positively impacted by the recent acquisitions, and the related increase in net interest income, coupled with higher non-interest income.

FINANCIAL CONDITION

Cash and Cash Equivalents

At September 30, 2021, Peoples' interest-bearing deposits in other banks had increased $278.6 million from December 31, 2020.

The total cash and cash equivalents balance included $321.0 million of excess cash reserves being maintained at the FRB of Cleveland at September 30, 2021, compared to $25.1 million at December 31, 2020.

Peoples also acquired $252.8 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.

Through the first nine months of 2021, Peoples' total cash and cash equivalents increased $347.6 million as Peoples had net cash provided by investing activities of $106.3 million, financing activities of $174.6 million and operating activities of $66.7 million.

Peoples' investing activities reflected a net decrease of $156.6 million in loans and an aggregate of $896.6 million in purchases of available-for-sale and held-to-maturity investment securities, which were partially offset by an aggregate of $711.5 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 $165.4 million net increase in deposits and an increase of $32.6 million in short-term borrowings, as well as no purchases of treasury stock under the share repurchase program and $20.9 million of cash dividends paid.

At March 31, 2022, Peoples' interest-bearing deposits in other banks decreased $49.8 million from December 31, 2021.

The total cash and cash equivalents balance included $268.7 million of excess cash reserves being maintained at the FRB of Cleveland at March 31, 2022, compared to $318.1 million at December 31, 2021.

Peoples paid $82.9 million for the Vantage acquisition during the first quarter of 2022.

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.

Through the first three months of 2022, Peoples' total cash and cash equivalents decreased $10.0 million as Peoples had net cash used in investing activities of $127.4 million, which more than offset cash provided by financing activities of $101.6 million and by operating activities of $15.7 million.

Peoples' investing activities reflected purchases of available-for-sale investment securities totaling $165.3 million, cash outflows for business combinations of $80.5 million, net of decreases in loans held for investment of $75.7 million and proceeds from principal payments, calls and prepayments of available-for-sale investment securities of $60.5 million.

The cash provided by financing activities was largely driven by increases in interest-bearing deposits of $115.3 million, which was driven by higher governmental deposits, which are seasonal in nature.

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:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) Weighted Average Yield March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Available-for-sale securities, at fair value:

Obligations of:

Treasury and government agencies

1.86 % $ 167,406 $ 35,604 $ — $ — $ —

government sponsored agencies 0.14 % 80,654 81,739 78,481 14,235 18,471

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Total amortized cost $ 1,381,259 $ 1,283,146 $ 1,294,654 $ 839,682 $ 859,120

Net unrealized gain $ 2,436 $ 9,955 $ 6,227 $ 18,469 $ 21,803

Net unrealized (loss) gain $ (79,420) $ (7,653) $ 2,436 $ 9,955 $ 6,227

Held-to-maturity securities, at amortized cost:

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Carrying value $ 1,728,335 $ 1,683,609 $ 1,574,676 $ 1,062,445 $ 1,065,603

(a) Amortized cost is presented net of the allowance for credit losses of $236 at September 30, 2021;

$201 at June 30, 2021;

$182 at March 31, 2021;

$60 at December 31, 2020 and $6 at September 30, 2020.

During the third quarter of 2021, Peoples acquired, in the Premier acquisition, investment securities totaling $563.3 million.

Peoples sold $400.6 million of available-for-sale investment securities and reinvested $358.7 million of the proceeds into higher-yielding investments.

The increase compared to December 31, 2020 was driven by the Premier acquisition and an increase in available-for-sale commercial-mortgage backed securities that were purchased during the first nine months of 2021, coupled with purchases of available for sale and held-to-maturity obligations of state and political subdivisions, which were purchased in an effort to reduce the impact of premium amortization on the securities that were sold.

At December 31, 2020, the investment security portfolio decreased compared to prior periods, as Peoples had worked to execute the strategy to sell securities that had high premium

amortization, and reinvest into investment securities;

however, not all proceeds from those sales had been reinvested by December 31, 2020.

(a) Amortized cost is presented net of the allowance for credit losses of $286 at March 31, 2022 and December 31, 2021;

$236 at September 30, 2021;

$201 at June 30, 2021 and $182 at March 31, 2021.

For the first quarter of 2022, total investment securities increased, and was largely due to investments made in U.S.

Treasury and government agencies' obligations late in the quarter, in an effort to deploy cash, improve investment yields and reduce risk.

At the same time, unrealized losses on the available-for-sale investment securities portfolio were driven by the increased interest rate environment, and was deemed temporary in nature.

During the third quarter of 2021, Peoples acquired investment securities in the Premier acquisition, driving the increase compared to June 30, 2021.

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

The following table provides information regarding outstanding loan balances:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Originated loans:

67 unchanged sentences

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).

Period-end total loan balances at September 30, 2021 increased $1.1 billion compared to June 30, 2021.

The increase compared to June 30, 2021 was mostly driven by $1.1 billion in loans acquired from Premier, coupled with organic growth in premium finance loans of $17.7 million, growth in leases of $15.8 million, and organic loan growth of $14.3 million, offset partially by $132.2 million in forgiveness received on PPP loans during the quarter.

Excluding the PPP loan balances, Peoples' total originated loans grew by 6% annualized compared to June 30, 2021.

The decrease in commercial and industrial loan balances at June 30, 2021 compared to March 31, 2021 was mostly driven by $186.4 million in forgiveness proceeds received on PPP loans during the second quarter.

This decrease was partially offset by $95.6 million in leases acquired from NSL, coupled with growth in in commercial real estate and consumer indirect loans.

The decline in construction loan balances of $28.0 million at March 31, 2021, compared to December 31, 2020, was mainly due to construction projects being completed and construction loans then converting to permanent financing.

Period-end total loan balances at March 31, 2022 increased $65.6 million compared to December 31, 2021, and was driven by leases acquired from Vantage, coupled with originated growth, and was partially offset by payoffs of previously-acquired loans and PPP loan forgiveness.

The originated loan growth was mostly in construction loans, which grew $34.5 million, commercial and industrial balances, which were up $12.2 million, and premium finance loans, which increased $9.7 million.

The increase in loans at September 30, 2021, compared to June 30, 2021, was primarily due to the Premier acquisition, which added $1.1 billion in loans.

Loan Concentration

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Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio.

The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at September 30, 2021:

The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at March 31, 2022:

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

44 unchanged sentences

Total education services 39,404 4,098 43,502 2.9 %

Healthcare facilities:

Owner occupied 26,085 422 26,507 1.8 %

Non-owner occupied 11,482 — 11,482 0.8 %

Total healthcare facilities 37,567 422 37,989 2.6 %

Restaurant/bar facilities:

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(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, West Virginia, Virginia, Washington, D.C.

Peoples' commercial lending activities continue to focus on lending opportunities 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 September 30, 2021 or December 31, 2020.

The repayment of premium finance loans are secured by the underlying insurance policy, and therefore, have no geographical impact from a repayment perspective.

In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both March 31, 2022 and December 31, 2021.

The repayment of premium finance loans are secured by the underlying insurance policy prepaid premium, and therefore, have no geographical impact from a repayment perspective.

The repayment of leases are secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.

COVID-19 Loan Impacts

Small Business Administration Paycheck Protection Program

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

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 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 the PPP loans originated (including $28.2 million acquired in the merger with Premier) are included in commercial and industrial loans.

Peoples is a PPP participating lender, and the PPP loans originated 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:

(Dollars in millions) September 30,

2021 June 30,

2021 March 31,

(Dollars in millions) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

PPP aggregate outstanding principal balances $ 42.9 $ 89.3 $ 139.8 $ 194.7 $ 349.9

PPP net deferred loan origination fees 1.0 2.2 4.0 7.1 9.3

Three Months Ended Nine Months Ended

September 30,

2021 June 30,

2021 September 30,

2020 September 30,

(Dollars in millions) 2021 2020

Amortization of net deferred loan origination fees $ 3.1 $ 3.4 $ 1.9 $ 11.2 $ 3.8

Accretion of net deferred loan origination fees 1.2 1.8 3.1 3.4 4.7

Allowance for Credit Losses

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The following details management's allocation of the allowance for credit losses:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Commercial real estate $ 23,786 $ 32,146 $ 39,252 $ 18,147 $ 18,663

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Leases 5,875 4,797 4,505 3,715 —

Total commercial 58,272 31,546 29,931 33,281 35,634

Residential real estate 6,495 7,233 9,568 4,837 4,935

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Consumer, direct 1,036 961 1,079 1,161 970

Consumer 7,239 10,002 8,492 9,111 14,633

Deposit account overdrafts 51 57 79 53 45

1 unchanged sentence

As a percent of total loans 1.20 % 1.43 % 1.72 % 1.42 % 1.32 %

At March 31, 2022, the reduction in the allowance for credit losses compared to December 31, 2021 was due to improvements in economic forecasts and loss drivers, along with reductions in loan balances from acquired loan from payoffs during the quarter.

Peoples recorded $387,000 of provision for credit losses during the first quarter of 2022 to establish the allowance for credit losses for non-purchased credit deteriorated leases acquired from Vantage.

The increase in the allowance for credit losses at September 30, 2021, compared to June 30, 2021, was related to the provision for credit losses recorded of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier.

Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier.

The increases at September 30, 2021 compared to prior periods are due to the Premier and NSL acquisitions.

During the second quarter, Peoples increased its allowance for credit losses due to the establishment of an allowance for credit losses on the leases acquired from NSL.

Peoples recorded $3.3 million in provision for credit losses during the second quarter of 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 leases identified as purchase credit deteriorated at the acquisition date and added an additional $427,000 in allowance for credit losses on growth in leases during the second quarter of 2021.

The decreases in the allowance for credit losses for March 31, 2021 compared to December 31, 2020, and from December 31, 2020 compared to September 30, 2020, were due to developments related to COVID-19 and the resulting positive impact on the economic assumptions used in estimating the allowance for credit losses under the CECL model.

During much of 2020, Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts that included the impact of COVID-19 on certain economic factors.

These forecasts included higher unemployment rates nationally and in Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL

model, compared to prior periods.

During the third quarter of 2020, Peoples also recorded allowance for credit losses associated with the loans acquired from Triumph Premium Finance on July 1, 2020, which had included $84.7 million in loans at the acquisition date.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2021 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

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Three Months Ended

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Gross charge-offs:

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Total net charge-offs $ 1,910 $ 1,276 $ 1,586 $ 780 $ 1,051

Three Months Ended

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

2021 December 31,

2020 September 30,

Ratio of net charge-offs to average total loans (annualized):

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Each with "--%" not meaningful.

Net charge-offs during the third quarter of 2021 were 0.18% of average total loans on an annualized basis.

Although, gross charge-offs in many loan categories declined compared to the linked quarter, the primary factor in the increase of total gross charge-offs was one commercial and industrial loan charge-off of $500,000 during the quarter.

Peoples recognized a $450,000 charge-off on a commercial and industrial loan relationship, while also recording a $508,000 recovery on a previously charged-off commercial and industrial loan relationship during the fourth quarter of 2020.

During the second quarter of 2020, Peoples recorded a $750,000 recovery on a commercial loan relationship that had been previously charged-off.

Net charge-offs during the first quarter of 2022 were 0.17% of average total loans on an annualized basis.

Peoples has anticipated an increase in the net charge-offs to average total loans, as recent periods have been below historical levels.

Higher residential real estate gross charge-offs contributed to the increase, coupled with lower recoveries experienced on commercial real estate loans.

The following table details Peoples’ nonperforming assets:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Loans 90+ days past due and accruing:

Construction $ — $ 90 $ — $ — $ —

Commercial real estate, other 603 689 1,912 1,361 55

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Commercial real estate, other 14,745 16,849 17,207 7,965 8,084

Commercial real estate 17,207 7,969 8,088 8,748 8,766

Commercial and industrial 2,394 2,505 4,133 3,938 4,067

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Commercial real estate, other $ 197 $ 218 $ 94 99 $ 337

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

2021 December 31,

2020 September 30,

Commercial and industrial 999 1,067 1,223 1,774 2,034

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Classified loans (b) 109,530 106,547 142,628 69,166 76,095

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Asset Quality Ratios (c):

Nonaccrual loans as a percent of total loans (d) 0.70 % 0.78 % 0.80 % 0.68 % 0.73 %

NPLs as a percent of total loans (d) 0.83 % 0.86 % 0.92 % 0.79 % 0.76 %

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NPAs as a percent of total loans and OREO(d) 1.04 % 1.07 % 1.17 % 0.80 % 0.76 %

Allowance for credit losses as a percent of nonaccrual loans (d) 171.13 % 184.00 % 214.75 % 207.73 % 181.45 %

Allowance for credit losses as a percent of NPLs (d) 144.27 % 166.20 % 186.93 % 178.75 % 174.10 %

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Nonperforming assets include nonperforming loans and OREO.

During the third quarter of 2021, nonperforming assets increased $25.6 million, or 95%, compared to June 30, 2021.

The increase in nonperforming assets compared to the prior quarter was primarily attributable to nonperforming loans and other real estate owned acquired from Premier.

The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios both increased compared to June 30, 2021, due to the acquired nonperforming loans.

The increase in nonperforming assets of $1.1 million at June 30, 2021, compared to March 31, 2021, was primarily due to acquisition of NSL.

Nonperforming assets declined $2.3 million at March 31, 2021, compared to December 31, 2020, and was mostly due to several small relationships in both loans 90+ days past due and accruing and nonaccrual loans.

Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $121.0 million, or 106%, compared to June 30, 2021 and increased $111.6 million, or 91%, compared to September 30, 2020.

The increase in the amount of criticized loans compared to June 30, 2021 was the result of criticized loans acquired from Premier, offset by the pay-off of six commercial and industrial loans with an aggregate principal balance of $12.3 million and several smaller loans.

Criticized loans declined $2.6 million at June 30, 2021, which was primarily due to the payoff of several smaller commercial loans.

Classified loans, which are those categorized as substandard or doubtful, increased by $73.5 million, or 106%, compared to June 30, 2021, and were up $66.6 million, or 88%, compared to September 30, 2020.

The increase was driven by loans acquired from Premier.

Compared to December 31, 2021, Peoples' nonperforming assets declined to 0.65%, from 0.68%, with the reduction being driven by decreases in nonaccrual loans, which were partially due to a $1.5 million payoff of one commercial relationship.

Loans 90+ days past due and accruing increased compared to December 31, 2021, mostly due to the Vantage acquisition.

During the first quarter of 2022, criticized loans, which are those categorized as special mention, substandard or doubtful, declined $3.7 million, while classified loans, which are those categorized as substandard or doubtful, grew $3.0 million.

During the third quarter of 2021, nonperforming assets, criticized and classified loans increased due to the Premier merger.

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19.

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The following table details Peoples’ deposit balances:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Non-interest-bearing deposits (a) $ 1,666,668 $ 1,641,422 $ 1,559,993 $ 1,181,045 $ 1,206,034

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(a) The sum of amounts presented is considered total demand deposits.

At September 30, 2021, period-end deposits increased $1.6 billion, or 38%, compared to June 30, 2021, and increased $1.9 billion, or 48%, compared to September 30, 2020.

The increase in total deposits compared to June 30, 2021 was driven primarily by $1.8 billion in deposits acquired in the merger with Premier including $392.2 million in non-interest bearing deposits, $652.9 million in interest-bearing demand accounts, $327.0 million in savings accounts, $285.4 million in retail CDs, $155.6 million in money market accounts and $11.1 million in brokered deposits.

The decrease in total deposits at June 30, 2021 compared to March 31, 2021 was related to declines in money market deposits, non-interest bearing deposits, and retail CDs.

At March 31, 2021, compared to December 31, 2020, Peoples experienced a significant increase in governmental deposit accounts, which was mostly due to seasonal fluctuation within these accounts.

At March 31, 2022, period-end deposits increased $140.4 million, or 2%, compared to December 31, 2021, and increased $1.7 billion, or 39%, compared to March 31, 2021.

The increase compared to December 31, 2021, was driven by seasonal growth in governmental deposits of $117.5 million, an increase in non-interest bearing checking deposits of $30.8 million, and an increase in savings deposits of $28.9 million, offset partially by decreases in retail and brokered certificates of deposits.

The increase in total deposits at September 30, 2021, compared to June 30, 2021, was driven by deposits acquired from Premier.

Total deposits in all periods presented were higher due to customers maintaining larger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic.

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The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits.

As of September 30, 2021, Peoples had sixteen effective interest rate swaps, with an aggregate notional value of $ 150.0 million, of which $ 100.0 million were designated as cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.

As of March 31, 2022, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, of which $85.0 million were designated as cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.

The remaining $40.0 million of interest rate swaps hedged 90-day FHLB advances, which are also expected to be extended every 90 days through the maturity dates of the swaps.

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The following table details Peoples’ short-term and long-term borrowings:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Short-term borrowings:

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$ 85,564 $ 85,825 $ 86,483 $ 87,393 $ 102,645

Vantage non-recourse debt

102,364 — — — —

Junior subordinated debt securities

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Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances.

Total borrowed funds increased 76% compared to June 30, 2021, primarily due to the addition of $63.8 million retail

repurchase agreements from Premier.

The decline in borrowed funds at September 30, 2021, compared to September 30, 2020 was mostly due to swap funding being moved to brokered deposits rather than the use of rolling 90-day advances to fund liquidity needs, which was partially offset by the acquired retail repurchase agreements from Premier during the third quarter of 2021.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $23.8 million, or 27%, compared to June 30, 2021 and increased $12.2 million compared to September 30, 2020.

The increase compared to the end of the second quarter of 2021 was the result of an increase in interest payable and other liabilities offset by with changes related to the fair value of swap derivatives at September 30, 2021.

The increase compared to the end of the third quarter of 2020 was also the result of an increase in accrued interest payable offset by a decrease in the fair value of swap derivatives .

Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Borrowed funds increased compared to December 31, 2021, driven by non-recourse debt assumed in the Vantage acquisition partially offset by a decline in retail repurchase agreements of $22.2 million.

The increase in total borrowed funds at

September 30, 2021, compared to June 30, 2021, was primarily due to the addition of $63.8 million retail repurchase agreements from Premier.

Capital/Stockholders’ Equity

At September 30, 2021, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations.

At March 31, 2022, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations.

These higher capital levels reflect Peoples' desire to maintain a strong capital position.

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 of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio.

At September 30, 2021, Peoples had a capital conservation buffer of 5.83%.

At March 31, 2022, Peoples had a capital conservation buffer of 4.78%.

The following table details Peoples' risk-based capital levels and corresponding ratios:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Capital Amounts:

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Tier 1 leverage ratio 8.29 % 8.67 % 11.20 % 7.87 % 9.00 %

During the third quarter of 2021, Peoples' reported a net loss of $5.8 million and declared dividends of $7.1 million.

However, regulatory capital levels increased due to the merger with Premier.

Net risk-weighted assets grew compared to June 30, 2021 mostly due to the merger with Premier, along with growth in premium finance loans and growth in leases during the quarter.

The NSL acquisition negatively impacted the regulatory capital ratios at March 31, 2021, as the purchase price was included in net risk-weighted assets and there was no capital issued in connection with the NSL acquisition.

In 2020, Peoples repurchased common shares during each quarter of the year, which reduced regulatory capital levels.

Peoples also completed the Premium Finance acquisition on July 1, 2020, which impacted regulatory capital levels due to the recognition of goodwill and intangibles associated with the acquisition.

Peoples did not repurchase any common shares in the first nine months of 2021.

Peoples' regulatory capital and related ratio levels declined during the first quarter of 2022.

The ratios were negatively impacted by the cash acquisition of Vantage, for which Peoples recorded goodwill and intangible assets, which impact was partially offset by net income exceeding dividends declared during the period.

Peoples believes this reduction in regulatory capital and ratios is temporary, and will be recovered in future periods.

As of September 30, 2021, regulatory capital ratios increased compared to June 30, 2021 due to the Premier acquisition, which included an equity issuance of $261.9 million.

At June 30, 2021, regulatory capital ratios declined compared to March 31, 2021, which was the result of the NSL acquisition, for which Peoples paid cash and recorded goodwill and intangible assets.

In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity.

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The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements:

(Dollars in thousands) September 30,

2021 June 30,

2021 March 31,

(Dollars in thousands) March 31,

2022 December 31,

2021 September 30,

2021 June 30,

2021 March 31,

Tangible equity:

25 unchanged sentences

6.76 % 8.18 % 7.93 % 7.51 % 7.96 %

Tangible book value per common share increased to $18.98 at September 30, 2021, compared to $18.51 at June 30, 2021.

The change in tangible book value per common share was due to tangible equity increasing at a higher rate than shares outstanding during the third quarter of 2021.

The increase in tangible book value per common share at December 31, 2020, compared to September 30, 2020, was the result of higher stockholders' equity as net income exceeded dividends declared during the period, as well as a reduction in common shares outstanding as Peoples actively repurchased common shares.

The tangible equity to tangible assets ratio increased at September 30, 2021 compared to June 30, 2021.

This increase was driven by higher tangible assets related to the merger with Premier which provided for increases in loans, investment securities, cash and cash equivalents, and other assets, coupled with the intangible assets recorded during the third quarter of 2021 associated with the merger with Premier and the NSL acquisition.

The decline in the tangible equity to tangible assets ratio at March 31, 2021 compared to December 31, 2020, was largely due to an increase in other assets that was driven by the NSL acquisition, for which the purchase price was paid and recorded on March 31, 2021.

The higher tangible equity to tangible assets ratio at December 31, 2020, compared to September 30, 2020, was attributable to higher tangible equity, while tangible assets declined due to reductions in investment securities and total loans.

Tangible book value per common share declined to $16.39 at March 31, 2022, compared to $19.58 at December 31, 2021.

The change in tangible book value per common share was due to tangible equity declining as the Vantage acquisition included no issuance of equity, coupled with the addition of goodwill and other intangible assets.

Also contributing to the decline compared to December 31, 2021, was a $51.0 million reduction in accumulated other comprehensive loss.

The increase in tangible equity to tangible assets at September 30, 2021, was attributable to the Premier acquisition, and related equity issued.

The decline in tangible equity to tangible assets at June 30, 2021, compared to March 31, 2021, was due to the NSL acquisition.

Interest Rate Sensitivity and Liquidity

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Net Interest Income

Estimated Increase (Decrease) in Economic Value of Equity

(in Basis Points) September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

Estimated Decrease in Economic Value of Equity

(in Basis Points) March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

300 $ 24,211 10.5 % $ 24,903 11.7 % $ (30,884) (2.4) % $ (24,232) (2.0) %

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These prepayment speeds affect the amount forecasted for cash flow reinvestment, premium amortization, and discount accretion assumed in interest rate risk modeling results.

This prepayment activity is generally the result of refinancing activity and tends to increase as longer term interest rates decline, much like the current environment.

This prepayment activity is generally the result of refinancing activity and tends to increase as longer term interest rates decline, and decrease as interest rates increase.

The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income or asset duration.

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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 September 30, 2021, consideration of the bear steepener and bull flattener scenarios provides insights which were not captured by parallel shifts.

Given the shape of market yield curves at March 31, 2022, consideration of the bear steepener and bull flattener scenarios provides insights which were not captured by parallel shifts.

These scenarios were evaluated as the current environment suggests these may be possible outcomes for the trajectory of interest rates.

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' deposit and borrowing costs, which are correlated with short-term rates, remain constant, while asset yields, which are correlated with long-term rates, rise.

In such a scenario, Peoples' deposit and borrowing costs, which are generally correlated with short-term rates, remain constant, while asset yields, which are 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 September 30, 2021, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.8% and 5.5%, respectively.

At March 31, 2022, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.2% and 2.9%, respectively.

The bull flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates fall.

2 unchanged sentences

resulting in a decreased amount of net interest income and lower net interest margin.

At September 30, 2021, the bull flattener scenario resulted in a decrease in both net interest income and the economic value of equity of -0.5% and -0.9%, respectively.

Peoples was within the policy limitations for this alternative scenario as of September 30, 2021, which sets the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of economic value of equity.

At March 31, 2022, the bull flattener scenario resulted in a decrease in net interest income and an increase in the economic value of equity of -0.1% and 0.8%, respectively.

Peoples was within the policy limitations for this alternative scenario as of March 31, 2022, which sets the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of economic value of equity.

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 September 30, 2021, Peoples had entered into sixteen interest rate swap contracts with an aggregate notional value of $150.0 million.

As of March 31, 2022, Peoples had entered into 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 10 Derivative Financial Instruments” of the Notes to the Unaudited Condensed Consolidated Financial Statements.

At September 30, 2021, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income and the economic value of equity.

At March 31, 2022, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income.

The table above illustrates this point as changes to net interest income increase in the rising rate scenarios.

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The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 2021 Form 10-K.

At September 30, 2021, Peoples Bank had liquid assets of $607.8 million, which represented 7.7% of total assets and unfunded loan commitments.

At March 31, 2022, Peoples Bank had liquid assets of $582.5 million, which represented 7.3% of total assets and unfunded loan commitments.

Peoples also had an additional $238.4 million of unpledged investment securities not included in the measurement of liquid assets.

25 unchanged sentences

(Dollars in thousands)

2022 December 31,

2021 September 30,

1 unchanged sentence

2021 March 31,

2021 December 31,

2020 September 30,

Home equity lines of credit $ 184,616 $ 177,262 $ 177,963 $ 134,516 $ 124,027

3 unchanged sentences

Standby letters of credit $ 12,729 $ 12,805 $ 12,358 $ 10,252 $ 10,295

The increase in loan commitments at September 30, 2021 was primarily the result of the Premier acquisition.

Management does not anticipate that Peoples Bank’s 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

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-Q

Item 2. Management’s Discussion and Analysis