PEOPLES BANCORP INC 10-Q

ITEM 2. 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 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. 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," "continue," "remain," and similar expressions. These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to: (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 acquisitions of NSL and Vantage, and the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition; (4) competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals; (5) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform; (6) the effects of easing restrictions on participants in the financial services industry; (7) local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated; (8) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; 44 Table of Contents (9) changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated; (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; (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; (16) the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; (17) Peoples' ability to receive dividends from its subsidiaries; (18) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (19) the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity; (20) Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss; (21) Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands; (22) operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent; (23) changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated; (24) the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business; (25) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence; (26) the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts; (27) the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property; (28) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets; (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; 45 Table of Contents (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; and, (36) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. 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. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section. This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 2021 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q. Business Overview 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 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 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 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. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business. Critical Accounting Policies The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. 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 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. 46 Table of Contents ◦ 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. (“Citizens”). 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 $1.2 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 customer relationship intangible assets of $230,000 and goodwill of $46,000, related to this transaction. ◦ On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021 in which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus a potential earn-out payment to NSL of up to $3.1 million. Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded 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"). 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. 47 Table of Contents EXECUTIVE SUMMARY 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. 48 Table of Contents 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 Net Interest Income Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities. 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 22.9%. The following table details the calculation of FTE net interest income: Three Months Ended March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Net interest income $ 54,310 $ 54,737 $ 35,578 Taxable equivalent adjustment 391 379 257 Fully tax-equivalent net interest income $ 54,701 $ 55,116 $ 35,835 49 Table of Contents The following tables detail Peoples’ average balance sheets for the periods presented: For the Three Months Ended March 31, 2022 December 31, 2021 March 31, 2021 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 332,098 $ 160 0.20 % $ 350,692 $ 138 0.16 % $ 146,957 $ 40 0.11 % Investment securities (a)(b): Taxable 1,465,998 6,096 1.66 % 1,466,423 5,583 1.52 % 833,769 2,620 1.26 % Nontaxable 204,381 1,316 2.58 % 203,034 1,291 2.54 % 106,698 773 2.90 % Total investment securities 1,670,379 7,412 1.78 % 1,669,457 6,874 1.65 % 940,467 3,393 1.44 % Loans (b)(c): Construction 225,676 2,155 3.82 % 200,009 1,961 3.84 % 114,204 994 3.48 % Commercial real estate, other 1,362,434 14,782 4.34 % 1,450,566 15,370 4.15 % 879,335 8,602 3.91 % Commercial and industrial 888,598 8,023 3.61 % 865,519 8,548 3.86 % 941,625 10,592 4.50 % Premium finance 132,758 1,164 3.51 % 134,023 1,735 5.07 % 107,390 1,297 4.83 % Leases 162,277 6,102 15.04 % 112,694 4,547 15.79 % — — — % Residential real estate (d) 913,730 9,766 4.28 % 925,316 9,937 4.30 % 614,692 6,672 4.34 % Home equity lines of credit 163,339 1,612 4.00 % 164,851 1,772 4.26 % 121,864 1,187 3.95 % Consumer, indirect 523,770 5,045 3.91 % 539,176 5,455 4.01 % 509,845 5,203 4.14 % Consumer, direct 106,298 1,595 6.09 % 107,780 1,605 5.91 % 79,022 1,239 6.36 % Total loans 4,478,880 50,244 4.50 % 4,499,934 50,930 4.46 % 3,367,977 35,786 4.26 % Allowance for credit losses (61,947) (75,488) (49,854) Net loans 4,416,933 50,244 4.56 % 4,424,446 50,930 4.53 % 3,318,123 35,786 4.33 % Total earning assets 6,419,410 57,816 3.61 % 6,444,595 57,942 3.55 % 4,405,547 39,219 3.57 % Goodwill and other intangible assets 304,124 298,276 184,253 Other assets 344,282 356,004 322,276 Total assets $ 7,067,816 $ 7,098,875 $ 4,912,076 Interest-bearing deposits: Savings accounts $ 1,050,813 $ 34 0.01 % $ 1,021,821 $ 33 0.01 % $ 646,750 $ 35 0.02 % Governmental deposit accounts 670,419 447 0.27 % 648,013 433 0.27 % 429,503 594 0.56 % Interest-bearing demand accounts 1,171,266 92 0.03 % 1,159,995 98 0.03 % 700,160 65 0.04 % Money market accounts 650,272 97 0.06 % 637,681 96 0.06 % 564,836 132 0.09 % Retail certificates of deposit (e) 626,978 871 0.56 % 665,513 898 0.54 % 439,819 1,123 1.04 % Brokered deposits (e) 91,531 512 2.27 % 105,364 571 2.15 % 175,326 868 2.01 % Total interest-bearing deposits 4,261,279 2,053 0.20 % 4,238,387 2,129 0.20 % 2,956,394 2,817 0.39 % Borrowed funds: Short-term FHLB advances 55,000 313 2.31 % 64,461 228 1.40 % 20,000 88 1.78 % Repurchase agreements and other 99,346 25 0.10 % 116,887 30 0.10 % 51,089 12 0.09 % Total short-term borrowings 154,346 338 0.89 % 181,348 258 0.56 % 71,089 100 0.57 % Long-term FHLB advances 85,653 306 1.45 % 85,991 314 1.45 % 102,753 390 1.54 % Other borrowings 43,445 418 3.85 % 13,631 125 3.59 % 7,631 77 4.04 % Total long-term borrowings 129,098 724 2.26 % 99,622 439 1.75 % 110,384 467 1.71 % Total borrowed funds 283,444 1,062 1.51 % 280,970 697 0.99 % 181,473 567 1.26 % Total interest-bearing liabilities 4,544,723 3,115 0.28 % 4,519,357 2,826 0.25 % 3,137,867 3,384 0.44 % Non-interest-bearing deposits 1,606,665 1,642,577 1,110,993 Other liabilities 81,676 100,144 85,628 Total liabilities 6,233,064 6,262,078 4,334,488 Total stockholders’ equity 834,752 836,797 577,588 Total liabilities and stockholders’ equity $ 7,067,816 $ 7,098,875 $ 4,912,076 Interest rate spread (b) $ 54,701 3.33 % $ 55,116 3.30 % $ 35,835 3.13 % Net interest margin (b) 3.41 % 3.37 % 3.26 % (a) Average balances are based on carrying value. 50 Table of Contents (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%. (c) Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented. (d) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income. (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' 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. 51 Table of Contents The following table provides an analysis of the changes in FTE net interest income: Three Months Ended March 31, 2022 Compared to (Dollars in thousands) December 31, 2021 March 31, 2021 Increase (decrease) in: Rate Volume Total (a) Rate Volume Total (a) INTEREST INCOME: Short-term investments $ 60 $ (38) $ 22 $ 43 $ 77 $ 120 Investment Securities (b): Taxable 521 (8) 513 1,042 2,434 3,476 Nontaxable 15 10 25 (555) 1,098 543 Total investment income 536 2 538 487 3,532 4,019 Loans (b) : Construction (59) 253 194 105 1,056 1,161 Commercial real estate, other 2,918 (3,506) (588) 1,024 5,156 6,180 Commercial and industrial (1,641) 1,116 (525) (1,999) (570) (2,569) Premium finance (554) (17) (571) (1,388) 1,255 (133) Leases (1,369) 2,924 1,555 — 6,102 6,102 Residential real estate (47) (124) (171) (699) 3,793 3,094 Home equity lines of credit (139) (21) (160) 16 409 425 Consumer, indirect (198) (212) (410) (882) 724 (158) Consumer, direct 114 (124) (10) (345) 701 356 Total loan income (975) 289 (686) (4,168) 18,626 14,458 Total interest income $ (379) $ 253 $ (126) $ (3,638) $ 22,235 $ 18,597 INTEREST EXPENSE: Deposits: Savings accounts $ (2) $ 3 $ 1 $ (70) $ 69 $ (1) Governmental deposit accounts 5 9 14 (1,368) 1,221 (147) Interest-bearing demand accounts (12) 6 (6) (62) 89 27 Money market accounts — 1 1 (139) 104 (35) Retail certificates of deposit 183 (210) (27) (2,135) 1,883 (252) Brokered deposits 158 (217) (59) 643 (999) (356) Total deposit cost 332 (408) (76) (3,131) 2,367 (764) Borrowed funds: Short-term borrowings 289 (209) 80 33 205 238 Long-term borrowings 7 278 285 (46) 303 257 Total borrowed funds cost 296 69 365 (13) 508 495 Total interest expense 628 (339) 289 (3,144) 2,875 (269) 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 22.9%. 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 $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. 52 Table of Contents 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." Recovery of Credit Losses The following table details Peoples’ (recovery of) provision for credit losses: Three Months Ended March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Recovery of other credit losses $ (7,006) $ (6,786) $ (4,780) Provision for checking account overdraft credit losses 199 184 31 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 (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 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Net gain (loss) on investment securities $ 130 $ (158) $ (336) Net (loss) gain on asset disposals and other transactions: Net loss on other assets $ (22) $ (31) $ (27) Net (loss) gain on OREO (1) 80 — Net (loss) gain on other transactions (104) 903 — 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 53 Table of Contents 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, 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) E-banking income $ 5,253 $ 5,355 $ 3,911 Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. 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 March 31, 2022 December 31, 2021 March 31, 2021 (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 452 379 421 Other fees and charges 72 114 95 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. 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. The following tables detail Peoples’ trust and investment income and related assets under administration and management: Three Months Ended March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Fiduciary income $ 1,965 $ 1,989 $ 1,902 Brokerage income 1,649 1,559 1,337 Employee benefit fees 662 686 606 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 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: 54 Table of Contents March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 (Dollars in thousands) Trust $ 1,927,828 $ 2,009.871 $ 1,937.123 $ 1,963,884 $ 1,916,892 Brokerage 1,152,530 1,183.927 1,133.668 1,119,247 1,071,126 Total $ 3,080,358 $ 3,193.798 $ 3,070,791 $ 3,083,131 $ 2,988,018 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 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Overdraft and non-sufficient funds fees $ 1,902 $ 2,099 $ 997 Account maintenance fees 1,311 1,210 810 Other fees and charges 213 256 178 Deposit account service charges $ 3,426 $ 3,565 $ 1,985 The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its 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 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Mortgage banking income 436 713 1,140 Bank owned life insurance income 431 438 446 Commercial loan swap fees 168 349 60 Other non-interest income 1,326 1,039 658 Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. 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 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 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. 55 Table of Contents 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 Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs: Three Months Ended March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Base salaries and wages $ 17,676 $ 16,876 $ 12,765 Sales-based and incentive compensation 3,636 4,634 3,428 Employee benefits 3,621 2,753 2,898 Payroll taxes and other employment costs 2,091 1,940 1,493 Stock-based compensation 1,605 1,078 1,215 Deferred personnel costs (900) (945) (1,040) Salaries and employee benefit costs $ 27,729 $ 26,337 $ 20,759 Full-time equivalent employees: Actual at end of period 1,245 1,188 887 Average during the period 1,215 1,185 891 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. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. 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 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. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. 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. 56 Table of Contents Peoples' net occupancy and equipment expense was comprised of the following: Three Months Ended March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Depreciation $ 1,823 $ 2,009 $ 1,371 Repairs and maintenance costs 1,378 1,108 943 Net rent expense 685 630 340 Property taxes, utilities and other costs 1,202 1,004 673 Net occupancy and equipment expense $ 5,088 $ 4,751 $ 3,327 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Professional fees $ 3,672 $ 2,324 $ 3,468 Data processing and software expense 2,916 3,148 2,454 E-banking expense 2,759 2,879 1,894 Amortization of other intangible assets 1,708 1,508 620 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 $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. 57 Table of Contents 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. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. 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 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. Pre-Provision Net Revenue (Non-US GAAP) Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. 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. 58 Table of Contents 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Pre-provision net revenue: Income before income taxes $ 29,538 $ 33,163 $ 19,243 Add: loss on OREO 1 — — Add: loss on investment securities — 158 336 Add: loss on other assets 22 31 27 Add: loss on other transactions 104 — — Less: gain on OREO — 80 — Less: recovery of credit losses 6,807 6,602 4,749 Less: gain on investment securities 130 — — Less: gain on other transactions — 903 — Pre-provision net revenue $ 22,728 $ 25,767 $ 14,857 Total average assets $7,067,816 $7,098,875 $4,912,076 Pre-provision net revenue to total average assets (annualized) 1.30 % 1.44 % 1.23 % Weighted-average common shares outstanding - diluted 28,129,131 28,114,980 19,436,311 Pre-provision net revenue per common share - diluted $ 0.81 $ 0.92 $ 0.76 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 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Core non-interest expense: Total non-interest expense $ 51,629 $ 47,991 $ 37,987 Less: acquisition-related expenses 1,373 903 1,911 Less: severance expenses — 16 49 Less: COVID-19-related expenses 94 565 292 Less: Peoples Bank Foundation, Inc. contribution — — 500 Add: contract negotiation benefits — 603 — Core non-interest expense $ 50,162 $ 47,110 $ 35,235 Efficiency Ratio (Non-US GAAP) The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. 59 Table of Contents 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Efficiency ratio: Total non-interest expense $ 51,629 $ 47,991 $ 37,987 Less: amortization of other intangible assets 1,708 1,508 620 Adjusted total non-interest expense 49,921 46,483 37,367 Total non-interest income 20,050 19,815 16,903 Less: net gain (loss) on investment securities 130 (158) (336) Less: 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 Net interest income 54,310 54,737 35,578 Add: fully tax-equivalent adjustment (a) 391 379 257 Net interest income on a fully tax-equivalent basis 54,701 55,116 35,835 Adjusted revenue $ 74,748 $ 74,137 $ 53,101 Efficiency ratio 66.79 % 62.70 % 70.37 % Efficiency ratio adjusted for non-core items: Core non-interest expense $ 50,162 $ 47,110 $ 35,235 Less: amortization of other intangible assets 1,708 1,508 620 Adjusted core non-interest expense 48,454 45,602 34,615 Core non-interest income excluding net gains and losses 20,047 19,021 17,266 Net interest income on a fully tax-equivalent basis 54,701 55,116 35,835 Adjusted revenue $ 74,748 $ 74,137 $ 53,101 Efficiency ratio adjusted for non-core items 64.82 % 61.51 % 65.19 % (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 benefits, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution. 60 Table of Contents 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Annualized net income adjusted for non-core items: Net income $ 23,577 $ 27,747 $ 15,463 Add: net loss on investment securities — 158 336 Less: tax effect of net loss on investment securities (a) — 33 71 Less: net gain on investment securities 130 — — Add: tax effect of net gain on investment securities (a) 27 — — Add: net loss on asset disposals and other transactions 127 — 27 Less: tax effect of net loss on asset disposals and other transactions (a) 27 — 6 Less: net gain on asset disposals and other transactions — 953 — Add: tax effect of net loss on asset disposals and other transactions (a) — 200 — Add: acquisition-related expenses 1,373 903 1,911 Less: tax effect of acquisition-related expenses (a) 288 190 401 Add: severance expenses — 16 49 Less: tax effect of severance expenses (a) — 3 10 Add: COVID-19-related expenses 94 565 292 Less: tax effect of COVID-19-related expenses (a) 20 119 61 Add: Peoples Bank Foundation, Inc. contribution — — 500 Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) — — 105 Less: refund of contract negotiation benefits — 603 — Add: tax effect of refund of contract negotiation fees (a) — 127 — Net income adjusted for non-core items (after tax) $ 24,733 $ 27,815 $ 17,924 Days in the period 90 92 90 Days in the year 365 365 365 Annualized net income $ 95,618 $ 110,083 $ 62,711 Annualized net income adjusted for non-core items (after tax) $ 100,306 $ 110,353 $ 72,692 Return on average assets: Annualized net income $ 95,618 $ 110,083 $ 62,711 Total average assets 7,067,816 7,098,875 4,912,076 Return on average assets 1.35 % 1.55 % 1.28 % Return on average assets adjusted for non-core items: Annualized net income adjusted for non-core items (after tax) $ 100,306 $ 110,353 $ 72,692 Total average assets 7,067,816 7,098,875 4,912,076 Return on average assets adjusted for non-core items 1.42 % 1.55 % 1.48 % (a) Based on a 21% statutory federal corporate income tax rate. 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 61 Table of Contents 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) The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. 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 March 31, 2022 December 31, 2021 March 31, 2021 (Dollars in thousands) Annualized net income excluding amortization of other intangible assets: Net income $ 23,577 $ 27,747 $ 15,463 Add: amortization of other intangible assets 1,708 1,508 620 Less: tax effect of amortization of other intangible assets (a) 359 317 130 Net income excluding amortization of other intangible assets $ 24,926 $ 28,938 $ 15,953 Days in the period 90 92 90 Days in the year 365 365 365 Annualized net income $ 95,618 $ 110,083 $ 62,711 Annualized net income excluding amortization of other intangible assets $ 101,089 $ 114,808 $ 64,698 Average tangible equity: Total average stockholders' equity $ 834,752 $ 836,797 $ 577,588 Less: average goodwill and other intangible assets 304,124 298,276 184,253 Average tangible equity $ 530,628 $ 538,521 $ 393,335 Return on average stockholders' equity ratio: Annualized net income $ 95,618 $ 110,083 $ 62,711 Average stockholders' equity $ 834,752 $ 836,797 $ 577,588 Return on average stockholders' equity 11.45 % 13.16 % 10.86 % Return on average tangible equity ratio: Annualized net income excluding amortization of other intangible assets $ 101,089 $ 114,808 $ 64,698 Average tangible equity $ 530,628 $ 538,521 $ 393,335 Return on average tangible equity 19.05 % 21.32 % 16.45 % (a) Based on a 21% statutory federal corporate income tax rate. 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. 62 Table of Contents FINANCIAL CONDITION Cash and Cash Equivalents 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.” Investment Securities The following table provides information regarding Peoples’ investment portfolio: (Dollars in thousands) Weighted Average Yield March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Available-for-sale securities, at fair value: Obligations of: U.S. Treasury and government agencies 1.86 % $ 167,406 $ 35,604 $ — $ — $ — U.S. government sponsored agencies 0.14 % 80,654 81,739 78,481 14,235 18,471 States and political subdivisions 2.20 % 231,644 259,319 252,919 223,853 218,484 Residential mortgage-backed securities 1.62 % 753,353 828,517 898,459 579,152 596,181 Commercial mortgage-backed securities 1.39 % 58,112 63,519 62,552 27,631 27,481 Bank-issued trust preferred securities 1.51 % 10,670 6,795 4,679 4,766 4,730 Total fair value $ 1,301,839 $ 1,275,493 $ 1,297,090 $ 849,637 $ 865,347 Total amortized cost $ 1,381,259 $ 1,283,146 $ 1,294,654 $ 839,682 $ 859,120 Net unrealized (loss) gain $ (79,420) $ (7,653) $ 2,436 $ 9,955 $ 6,227 Held-to-maturity securities, at amortized cost: Obligations of: U.S. government sponsored agencies 1.64 % $ 38,486 $ 36,431 $ 29,995 $ 30,103 $ 30,211 States and political subdivisions (a) 2.24 % 151,217 151,402 124,181 102,224 92,436 Residential mortgage-backed securities 1.87 % 115,613 110,708 41,035 24,067 24,878 Commercial mortgage-backed securities 1.76 % 79,340 75,588 47,889 23,830 18,705 Total amortized cost $ 384,656 $ 374,129 $ 243,100 $ 180,224 $ 166,230 Other investment securities $ 41,840 $ 33,987 $ 34,486 $ 32,584 $ 34,026 Total investment securities: Amortized cost $ 1,807,755 $ 1,691,262 $ 1,572,240 $ 1,052,490 $ 1,059,376 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 $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. 63 Table of Contents Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Loans The following table provides information regarding outstanding loan balances: (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Originated loans: Construction $ 171,934 $ 137,437 $ 108,334 $ 97,424 $ 75,189 Commercial real estate, other 854,721 861,610 838,333 836,613 832,399 Commercial real estate 1,026,655 999,047 946,667 934,037 907,588 Commercial and industrial 791,307 779,064 715,169 778,122 935,150 Premium finance 145,813 136,121 134,755 117,039 109,129 Leases 97,168 69,169 49,464 24,217 — Residential real estate 364,989 350,595 334,838 324,321 306,440 Home equity lines of credit 107,414 104,176 98,806 95,376 92,540 Consumer, indirect 524,778 530,532 543,243 537,926 519,749 Consumer, direct 87,994 81,330 80,746 78,736 75,998 Consumer 612,772 611,862 623,989 616,662 595,747 Deposit account overdrafts 699 756 927 498 298 Total originated loans $ 3,146,817 $ 3,050,790 $ 2,904,615 $ 2,890,272 $ 2,946,892 Acquired loans (a): Construction $ 66,371 $ 72,795 $ 66,450 $ 3,175 $ 3,510 Commercial real estate, other 602,511 688,471 790,783 111,647 132,850 Commercial real estate 668,882 761,266 857,233 114,822 136,360 Commercial and industrial 95,844 112,328 143,369 27,629 29,611 Premium finance — 15 — 49 1,461 Leases 169,900 53,339 61,982 71,426 — Residential real estate 391,440 421,123 433,296 242,276 267,260 Home equity lines of credit 54,874 59,417 62,564 23,025 24,886 Consumer, indirect — — 13 — — Consumer, direct 19,396 23,322 27,956 2,700 3,206 Consumer 19,396 23,322 27,969 2,700 3,206 Total acquired loans $ 1,400,336 $ 1,430,810 $ 1,586,413 $ 481,927 $ 462,784 Total loans $ 4,547,153 $ 4,481,600 $ 4,491,028 $ 3,372,199 $ 3,409,676 Percent of loans to total loans: Construction 5.2 % 4.7 % 3.9 % 3.0 % 2.3 % Commercial real estate, other 32.1 % 34.7 % 36.3 % 28.1 % 28.3 % Commercial real estate 37.3 % 39.4 % 40.2 % 31.1 % 30.6 % Commercial and industrial 19.5 % 19.9 % 19.1 % 23.9 % 28.3 % Premium finance 3.2 % 3.0 % 3.0 % 3.5 % 3.2 % Leases 5.9 % 2.7 % 2.5 % 2.8 % — % Residential real estate 16.6 % 17.2 % 17.1 % 16.8 % 16.8 % Home equity lines of credit 3.6 % 3.7 % 3.6 % 3.5 % 3.5 % Consumer, indirect 11.5 % 11.8 % 12.1 % 16.0 % 15.3 % Consumer, direct 2.4 % 2.3 % 2.4 % 2.4 % 2.3 % Consumer 13.9 % 14.1 % 14.5 % 18.4 % 17.6 % Total percentage 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Residential real estate loans being serviced for others $ 420,024 $ 430,597 $ 441,085 $ 454,399 $ 469,788 (a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). 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. 64 Table of Contents 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 Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio. 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 March 31, 2022: (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Construction: Apartment complexes $ 84,783 $ 103,538 $ 188,321 43.0 % Mixed-use facilities 34,822 26,481 61,303 14.0 % Assisted living facilities and nursing homes 23,464 21,050 44,514 10.2 % Land only 22,415 6,157 28,572 6.5 % Office buildings and complexes 8,587 13,013 21,600 4.9 % Storage facility 5,742 644 6,386 1.5 % Lodging and lodging related 12,596 1,472 14,068 3.2 % Retail 9,167 2,709 11,876 2.7 % Residential property 7,863 9,791 17,654 4.0 % Other (a) 28,866 14,508 43,374 10.0 % Total construction $ 238,305 $ 199,363 $ 437,668 100.0 % (a) All other outstanding balances are less than 2% of the total loan portfolio. 65 Table of Contents (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Commercial real estate, other: Office buildings and complexes: Owner occupied $ 77,603 $ 3,492 $ 81,095 5.4 % Non-owner occupied 94,634 4,822 99,456 6.6 % Total office buildings and complexes 172,237 8,314 180,551 12.0 % Retail facilities: Owner occupied 55,513 1,965 57,478 3.8 % Non-owner occupied 134,230 1,736 135,966 9.0 % Total retail facilities 189,743 3,701 193,444 12.8 % Mixed-use facilities: Owner occupied 53,673 424 54,097 3.6 % Non-owner occupied 58,716 4,000 62,716 4.2 % Total mixed-use facilities 112,389 4,424 116,813 7.8 % Apartment complexes 93,246 3,508 96,754 6.4 % Light industrial facilities: Owner occupied 91,329 1,891 93,220 6.2 % Non-owner occupied 38,666 633 39,299 2.6 % Total light industrial facilities 129,995 2,524 132,519 8.8 % Assisted living facilities and nursing homes 81,349 750 82,099 5.4 % Warehouse facilities: Owner occupied 40,271 2,790 43,061 2.9 % Non-owner occupied 40,176 74 40,250 2.7 % Total warehouse facilities 80,447 2,864 83,311 5.6 % Lodging and lodging related: Owner occupied 13,941 — 13,941 0.9 % Non-owner occupied 85,713 150 85,863 5.7 % Total lodging and lodging related 99,654 150 99,804 6.6 % Education services: Owner occupied 16,896 98 16,994 1.1 % Non-owner occupied 22,508 4,000 26,508 1.8 % 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: Owner occupied 24,482 — 24,482 1.6 % Non-owner occupied 12,908 — 12,908 0.9 % Total restaurant/bar facilities 37,390 — 37,390 2.5 % Agriculture 30,792 1,536 32,328 2.1 % Other (a) 353,019 17,558 370,577 24.5 % Total commercial real estate, other $ 1,457,232 $ 49,849 $ 1,507,081 100.0 % (a) All other outstanding balances are less than 2% of the total loan portfolio. 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 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. Small Business Administration Paycheck Protection Program In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. 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 66 Table of Contents 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 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) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 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 Accretion of net deferred loan origination fees 1.2 1.8 3.1 3.4 4.7 Allowance for Credit Losses The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio. The following details management's allocation of the allowance for credit losses: (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Commercial real estate $ 23,786 $ 32,146 $ 39,252 $ 18,147 $ 18,663 Commercial and industrial 10,114 11,063 13,378 8,686 10,108 Premium finance 345 379 1,137 998 1,160 Leases 5,875 4,797 4,505 3,715 — Residential real estate 6,495 7,233 9,568 4,837 4,935 Home equity lines of credit 1,894 2,005 2,224 1,504 1,494 Consumer, indirect 5,172 5,326 6,160 8,841 7,522 Consumer, direct 1,036 961 1,079 1,161 970 Deposit account overdrafts 51 57 79 53 45 Allowance for credit losses $ 54,768 $ 63,967 $ 77,382 $ 47,942 $ 44,897 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. 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. 67 Table of Contents The following table summarizes Peoples’ net charge-offs and recoveries: Three Months Ended (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Gross charge-offs: Commercial real estate, other $ 278 $ 226 $ — $ 4 $ 157 Commercial and industrial 463 105 654 5 293 Premium finance 14 15 7 7 16 Leases 473 478 431 525 — Residential real estate 309 72 44 136 133 Home equity lines of credit 16 1 180 4 12 Consumer, indirect 385 566 416 269 505 Consumer, direct 136 56 29 31 36 Consumer 521 622 445 300 541 Deposit account overdrafts 259 248 135 89 103 Total gross charge-offs $ 2,333 $ 1,767 $ 1,896 $ 1,070 $ 1,255 Recoveries: Commercial real estate, other $ 49 $ 196 $ 4 $ 4 $ — Commercial and industrial 4 4 4 18 — Premium finance — — — — — Leases 176 109 120 110 — Residential real estate 14 40 48 40 15 Home equity lines of credit 29 — 37 — 4 Consumer, indirect 86 42 43 63 105 Consumer, direct 11 58 17 11 26 Consumer 97 100 60 74 131 Deposit account overdrafts 54 42 37 44 54 Total recoveries $ 423 $ 491 $ 310 $ 290 $ 204 Net charge-offs (recoveries): Commercial real estate, other $ 229 $ 30 $ (4) $ — $ 157 Commercial and industrial 459 101 650 (13) 293 Premium finance 14 15 7 7 16 Leases 297 369 311 415 — Residential real estate 295 32 (4) 96 118 Home equity lines of credit (13) 1 143 4 8 Consumer, indirect 299 524 373 206 400 Consumer, direct 125 (2) 12 20 10 Consumer 424 522 385 226 410 Deposit account overdrafts 205 206 98 45 49 Total net charge-offs $ 1,910 $ 1,276 $ 1,586 $ 780 $ 1,051 Ratio of net charge-offs to average total loans (annualized): Commercial real estate, other 0.02 % — % — % — % 0.02 % Commercial and industrial 0.03 % 0.01 % 0.08 % — % 0.04 % Leases 0.03 % 0.03 % 0.03 % 0.05 % — % Residential real estate 0.03 % — % — % 0.01 % 0.01 % Home equity lines of credit — % — % 0.02 % — % — % Consumer, indirect 0.03 % 0.05 % 0.04 % 0.02 % 0.05 % Consumer, direct 0.01 % — % — % — % — % Consumer 0.04 % 0.05 % 0.04 % 0.02 % 0.05 % Deposit account overdrafts 0.02 % 0.02 % 0.01 % 0.01 % 0.01 % Total 0.17 % 0.11 % 0.18 % 0.09 % 0.13 % Each with "--%" not meaningful. 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. 68 Table of Contents The following table details Peoples’ nonperforming assets: (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Loans 90+ days past due and accruing: Construction $ — $ 90 $ — $ — $ — Commercial real estate, other 603 689 1,912 1,361 55 Commercial and industrial 53 1,139 98 161 — Premium finance 613 865 368 216 109 Leases 3,921 — 1,736 1,522 — Residential real estate 677 805 1,156 342 662 Home equity lines of credit 75 50 61 60 180 Consumer, indirect 17 — — 39 24 Consumer, direct — 85 32 40 14 Consumer 17 85 32 79 38 Total loans 90+ days past due and accruing $ 5,959 $ 3,723 $ 5,363 $ 3,741 $ 1,044 Nonaccrual loans: Construction $ 6 $ 6 $ — $ 4 $ 4 Commercial real estate, other 14,745 16,849 17,207 7,965 8,084 Commercial and industrial 2,394 2,505 4,133 3,938 4,067 Leases 1,731 1,581 1,411 — — Residential real estate 7,459 8,016 8,046 5,811 6,182 Home equity lines of credit 604 687 661 572 624 Consumer, indirect 1,408 1,302 850 704 825 Consumer, direct 231 273 177 100 146 Consumer 1,639 1,575 1,027 804 971 Total nonaccrual loans $ 28,578 $ 31,219 $ 32,485 $ 19,094 $ 19,932 Nonaccrual troubled debt restructurings ("TDRs"): Commercial real estate, other $ 197 $ 218 $ 94 99 $ 337 Commercial and industrial 999 1,067 1,223 1,774 2,034 Residential real estate 1,676 1,631 1,689 1,784 2,064 Home equity lines of credit 333 352 315 129 156 Consumer, indirect 220 272 219 193 206 Consumer, direct — 6 9 6 15 Consumer 220 278 228 199 221 Total nonaccrual TDRs $ 3,425 $ 3,546 $ 3,549 $ 3,985 $ 4,812 Total nonperforming loans ("NPLs") $ 37,962 $ 38,488 $ 41,397 $ 26,820 $ 25,788 OREO: Commercial $ 9,106 $ 9,105 $ 10,804 $ — $ — Residential 301 391 464 239 134 Total OREO $ 9,407 $ 9,496 $ 11,268 $ 239 $ 134 Total nonperforming assets ("NPAs") $ 47,369 $ 47,984 $ 52,665 $ 27,059 $ 25,922 Criticized loans (a) $ 190,315 $ 194,016 $ 234,845 $ 113,802 $ 116,424 Classified loans (b) 109,530 106,547 142,628 69,166 76,095 69 Table of Contents (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 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 % NPAs as a percent of total assets (d) 0.65 % 0.68 % 0.75 % 0.53 % 0.50 % 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 % Criticized loans as a percent of total loans (a) 4.19 % 4.33 % 5.23 % 3.37 % 3.41 % Classified loans as a percent of total loans (b) 2.41 % 2.38 % 3.18 % 2.05 % 2.23 % (a) Includes loans categorized as special mention, substandard or doubtful. (b) Includes loans categorized as substandard or doubtful. (c) Data presented as of the end of the period indicated. (d) Nonperforming loans include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO. 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. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40. On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers. 70 Table of Contents Deposits The following table details Peoples’ deposit balances: (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Non-interest-bearing deposits (a) $ 1,666,668 $ 1,641,422 $ 1,559,993 $ 1,181,045 $ 1,206,034 Interest-bearing deposits: Interest-bearing demand accounts (a) 1,179,199 1,167,460 1,140,639 732,478 722,470 Savings accounts 1,065,678 1,036,738 1,016,755 689,086 676,345 Retail certificates of deposit ("CDs") 612,936 643,759 691,680 417,466 433,214 Money market deposit accounts 656,266 651,169 637,635 547,412 586,099 Governmental deposit accounts 734,784 617,259 679,305 498,390 511,937 Brokered deposits 87,395 104,745 106,013 166,746 168,130 Total interest-bearing deposits 4,336,258 4,221,130 4,272,027 3,051,578 3,098,195 Total deposits $ 6,002,926 $ 5,862,552 $ 5,832,020 $ 4,232,623 $ 4,304,229 Demand deposits as a percent of total deposits 47 % 48 % 46 % 45 % 45 % (a) The sum of amounts presented is considered total demand deposits. 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. In prior quarterly periods in the table above, Peoples experienced increases in most low-cost deposit categories. Peoples reduced its reliance on brokered deposits in each quarterly period, beginning after June 30, 2020. This decline was largely due to the increase in deposit balances from customers, which allowed Peoples to reduce its position in the higher-cost brokered CDs during each period. As part of its funding strategy, Peoples hedges 90-day brokered deposits with interest rate swaps. The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits. 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. Peoples continually evaluates the overall balance sheet position given the interest rate environment. Borrowed Funds The following table details Peoples’ short-term and long-term borrowings: (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Short-term borrowings: FHLB 90-day advances $ 40,000 $ 40,000 $ 50,000 $ — $ — Current portion of long-term FHLB advances 15,000 15,000 15,000 15,000 20,000 Retail repurchase agreements 89,275 111,482 119,693 51,496 47,868 Total short-term borrowings $ 144,275 $ 166,482 $ 184,693 $ 66,496 $ 67,868 Long-term borrowings: FHLB advances $ 85,564 $ 85,825 $ 86,483 $ 87,393 $ 102,645 Vantage non-recourse debt 102,364 — — — — Junior subordinated debt securities 13,682 13,650 12,928 7,688 7,650 Total long-term borrowings $ 201,610 $ 99,475 $ 99,411 $ 95,081 $ 110,295 Total borrowed funds $ 345,885 $ 265,957 $ 284,104 $ 161,577 $ 178,163 Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. 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 71 Table of Contents 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 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 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) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Capital Amounts: Common Equity Tier 1 $ 547,215 $ 577,565 $ 567,172 $ 383,502 $ 418,089 Tier 1 560,897 591,215 580,100 391,190 425,739 Total (Tier 1 and Tier 2) 607,493 648,948 637,802 431,424 463,872 Net risk-weighted assets $ 4,752,428 $ 4,614,258 $ 4,611,321 $ 3,382,736 $ 3,365,637 Capital Ratios: Common Equity Tier 1 11.51 % 12.52 % 12.30 % 11.34 % 12.42 % Tier 1 11.80 % 12.81 % 12.58 % 11.56 % 12.65 % Total (Tier 1 and Tier 2) 12.78 % 14.06 % 13.83 % 12.75 % 13.78 % Tier 1 leverage ratio 8.29 % 8.67 % 11.20 % 7.87 % 9.00 % 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. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent. 72 Table of Contents 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) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Tangible equity: Total stockholders' equity $ 808,340 $ 845,025 $ 831,882 $ 585,505 $ 578,893 Less: goodwill and other intangible assets 341,865 291,009 295,415 221,576 184,007 Tangible equity $ 466,475 $ 554,016 $ 536,467 $ 363,929 $ 394,886 Tangible assets: Total assets $ 7,239,261 $ 7,063,521 $ 7,059,752 $ 5,067,634 $ 5,143,052 Less: goodwill and other intangible assets 341,865 291,009 295,415 221,576 184,007 Tangible assets $ 6,897,396 $ 6,772,512 $ 6,764,337 $ 4,846,058 $ 4,959,045 Tangible book value per common share: Tangible equity $ 466,475 $ 554,016 $ 536,467 $ 363,929 $ 394,886 Common shares outstanding 28,453,175 28,297,771 28,265,791 19,660,877 19,629,633 Tangible book value per common share $ 16.39 $ 19.58 $ 18.98 $ 18.51 $ 20.12 Tangible equity to tangible assets ratio: Tangible equity $ 466,475 $ 554,016 $ 536,467 $ 363,929 $ 394,886 Tangible assets $ 6,897,396 $ 6,772,512 $ 6,764,337 $ 4,846,058 $ 4,959,045 Tangible equity to tangible assets 6.76 % 8.18 % 7.93 % 7.51 % 7.96 % 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 While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources. Interest Rate Risk Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams. Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2021 Form 10-K. 73 Table of Contents The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands): Increase (Decrease) in Interest Rate Estimated Increase (Decrease) in Net Interest Income 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) % 200 15,448 6.7 % 16,312 7.7 % (25,145) (1.9) % (16,541) (1.3) % 100 7,094 3.1 % 7,899 7.1 % (15,656) (1.2) % (5,308) (0.4) % (100) (8,348) (3.6) % (8,615) (4.1) % (41,873) (3.2) % (91,568) (7.4) % Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis. With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay. 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, 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. While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. 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 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 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 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. 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, fall. Asset yields driven lower by increased investment securities premium amortization would not be offset by reductions in deposit or funding costs; resulting in a decreased amount of net interest income and lower net interest margin. 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 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 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. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2021 was largely attributable to increased effective duration in the investment securities portfolio. 74 Table of Contents Liquidity In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. 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 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. Management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments. Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from the government fiscal stimulus, the PPP and other government actions. Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes; however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement funds are received. At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit. This decrease is related to the receipt of PPP loan proceeds and other increased cash flows to certain companies. Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses. The utilization percentage for consumer line of credit products has been relatively steady. Off-Balance Sheet Activities and Contractual Obligations In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments. Loan Commitments and Standby Letters of Credit Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure. The following table details the total contractual amount of loan commitments and standby letters of credit: (Dollars in thousands) March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Home equity lines of credit $ 184,616 $ 177,262 $ 177,963 $ 134,516 $ 124,027 Unadvanced construction loans 203,719 227,135 271,483 207,403 190,715 Other loan commitments 616,696 577,170 646,374 542,429 555,102 Loan commitments $ 1,005,031 $ 981,567 $ 1,095,820 $ 884,348 $ 869,844 Standby letters of credit $ 12,729 $ 12,805 $ 12,358 $ 10,252 $ 10,295