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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-06 · 401 added, 312 removed, 977 unchanged (42% of the section changed)

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

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

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the six months ended June 30, 2022 and June 30, 2021.

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

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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;

(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 Peoples' customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), the 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;

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 market interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;

(3) the effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay;

(4) 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;

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(34) 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;

(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;

(35) 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.

RISK FACTORS" of Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and the heading "ITEM 1A.

RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10-

Q for the quarterly period ended March 31, 2022.

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

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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.

Peoples offers a complete array of insurance products through Peoples Insurance Agency, LLC.

a subsidiary of Peoples Bank.

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.

Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division.

Peoples also offers lease financing through its North Star Leasing division and through Vantage, a subsidiary of Peoples Bank.

As of June 30, 2022, Peoples had 136 locations, including 117 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C.

and Maryland.

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

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

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 June 30, 2022, which have been disclosed in Peoples' 2021 Form 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q.

This Management's Discussion and Analysis should be read in conjunction with the policies disclosed in Peoples’ 2021 Form 10-K.

Summary of Recent Transactions and Events

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Total consideration for this transaction was $3.8 million.

Peoples recognized preliminary intangibles of $2.1 million, primarily comprised of a customer relationship intangible.

◦ 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.

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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.

Peoples recorded

preliminary goodwill in the amount of $24.7 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.

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(“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.

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 “Premier 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.

Peoples acquired $1.2 billion in loans and $1.8 billion in deposits and recorded preliminary goodwill of $66.9 million and other intangible assets of $4.2 million in connection with the Premier Merger as of 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.

Total consideration for this transaction was $325,000, with $162,500 paid at closing and the second installment in the amount of $162,500 was 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.

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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.

Peoples Bank paid total consideration of $116.6 million, plus an 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.

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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.

As of June 30, 2022, Peoples had $15.2 million aggregate principal amount in PPP loans outstanding (including $5.6 million acquired in the Premier Merger), which were included in commercial and industrial loan balances, compared to $41.9 million (including $15.0 million acquired in the Premier Merger) at March 31, 2022.

Peoples recognized interest income of $0.6 million for deferred loan fees/costs and $79,000 of interest income on PPP loans during the second quarter of 2022, compared to $1.2 million and $154,000, respectively, for the first quarter of 2022, and $3.4 million and $0.7 million, respectively, for the second quarter of 2021.

During the first six months of 2022, Peoples recognized interest income of $1.8 million for deferred loan fee/cost accretion and $232,000 of interest income on PPP loans, compared to $8.1 million for deferred loan/ fee costs accretion and $1.6 million of interest income during the first six months of 2021.

◦ During the second quarter of 2022, Peoples recorded a recovery of credit losses of $0.8 million, compared to a recovery of credit losses of $6.8 million in the linked quarter and a provision for credit losses of $3.1 million in the second quarter of 2021.

For the first half of 2022, Peoples recorded a recovery of credit losses of $7.6 million compared to a recovery of credit losses of $1.7 million for 2021.

The release of credit losses for the first two quarters of 2022 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.

◦ During the second quarter of 2022, Peoples incurred $0.6 million of acquisition-related expenses, compared to $1.4 million in the first quarter of 2022 and $2.4 million in the second quarter of 2021.

For the first six months of 2022, Peoples incurred $2.0 million of acquisition-related expenses compared to $4.3 million for 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.

◦ In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve Board lowered the benchmark Federal Funds Target Rate in two separate actions in the first quarter of 2020 to a range of 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, to 0.75% to 1.00% on May 4, 2022, to 1.50% to 1.75% on June 15, 2022, and has stated it anticipates continuing to raise rates throughout 2022.

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

EXECUTIVE SUMMARY

Peoples 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.

Peoples reported net income of $24.9 million for the second quarter of 2022, representing earnings per diluted common share of $0.88.

In comparison, Peoples recognized earnings per diluted common share of $0.84 for the first quarter of 2022, and earnings per diluted common share of $0.51 for the second quarter of 2021.

Peoples recorded net income of $48.5 million, or $1.72 per diluted common share for the six months ended 2022, compared to $25.6 million, or $1.31 per diluted common share, for the six months ended June 30, 2021.

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

Non-core items negatively impacted earnings per diluted common share by $0.02 for the second quarter of 2022, $0.04 for the first quarter of 2022, and $0.10 for the second quarter of 2021.

Non-core items negatively impacted earnings per diluted share by $0.06 and $0.21 for the six months ended June 30, 2022 and 2021, respectively.

Net interest income was $61.5 million for the second quarter of 2022, an increase of $7.2 million, or 13%, compared to the linked quarter.

Net interest margin was 3.84% for the second quarter of 2022, compared to 3.41% for the linked quarter.

The increase in net interest income and net interest margin reflects the positive impact of accretion income, net of amortization expense, coupled with the recent increases in market interest rates, which expanded loan yields by 44 basis points compared to the linked quarter.

Net interest income for the second quarter of 2022 increased $21.8 million, or 55%, compared to the second quarter of 2021.

Net interest margin increased 39 basis points compared to 3.45% for the second quarter of 2021.

The increase in net interest income compared to the second quarter of 2021 was driven by the increases in market interest rates and the acquisitions of Premier and Vantage.

For the first six months of 2022, net interest income increased $40.5 million, or 54%, compared to the first six months of 2021, while net interest margin increased 27 basis points to 3.63%.

The increase in net interest income was driven by the acquisitions of Premier and Vantage, core growth, and an increase in market interest rates.

Accretion income, net of amortization expense, from acquisitions was $3.9 million for the second quarter of 2022, $2.7 million for the first quarter of 2022 and $0.8 million for the second quarter of 2021, which added 25 basis points, 17 basis points and 7 basis points, respectively, to net interest margin.

The increase in accretion income for the current quarter was a result of the acquisition of Vantage.

Accretion income, net of amortization expense, from acquisitions was $6.7 million for the six months ended June 30, 2022, compared to $1.2 million for the six months ended June 30, 2021, which added 21 and 6 basis points, respectively, to net interest margin.

The increase in accretion income for the first six months of 2022 compared to 2021 was a result of the acquisitions of NSL, Premier, and Vantage.

The recovery of credit losses was $0.8 million for the second quarter of 2022, compared to a recovery of credit losses of $6.8 million for the linked quarter and a provision for credit losses of $3.1 million for the second quarter of 2021.

The release of credit losses in the second quarter of 2022 was largely attributable to a reduction in reserves for individually analyzed loans coupled with changes in loss drivers.

Net charge-offs for the second quarter of 2022 were $1.5 million, or 0.14% of average total loans annualized, compared to net charge-offs of $1.9 million, or 0.17% of average total loans annualized, for the linked quarter and net charge-offs of $0.8 million, or 0.09% of average total loans annualized, for the second quarter of 2021.

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.

The recovery of credit losses during the first six months of 2022 was $7.6 million, compared to a recovery of credit losses of $1.7 million for the first six months of 2021.

Net charge-offs for the first six months of 2022 were $3.5 million, or 0.15% of average total loans annualized, compared to net charge-offs of $1.8 million, or 0.11% annualized, for the first six months of 2021.

The recovery of credit losses during the first half of 2022 was primarily due to the impact of economic assumptions used in the CECL model, while the recovery of credit losses during the first half of 2021 was impacted by economic assumptions used in the CECL model, offset by the day-one allowance for credit losses required from the acquisition of NSL in the second quarter of 2021.

Total non-interest income, excluding net gains and losses, for the second quarter of 2022 declined $0.5 million compared to the linked quarter.

The decrease in non-interest income, excluding net gains and losses, was the result of lower insurance income, which included annual performance-based insurance commissions of $1.3 million that are recognized in the first quarter of each year.

The decrease was partially offset by an increase of $0.4 million in bank owned life insurance income, which includes $248,000 recognized on a one-time death benefit and an additional $30.0 million of new investment in bank owned life insurance policies.

Compared to the second quarter of 2021, non-interest income, excluding net gains and losses, increased $3.4 million.

Deposit account service charges increased $1.5 million and electronic banking income increased $1.0 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.

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

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

For the first six months of 2022, total non-interest income, excluding gains and losses, increased $6.2 million, or 19%, compared to the first six months of 2021.

The increase was driven by growth of $3.0 million, or 73%, in deposit account service charges and $2.3 million, or 28%, in electronic banking income.

Total non-interest expense decreased $1.7 million, or 3%, for the three months ended June 30, 2022, compared to the linked quarter.

The decrease in total non-interest expense for the second quarter of 2022 was attributable to decreases in professional fees, acquisition-related expenses, net occupancy and equipment expense, and FDIC insurance premiums.

Total non-interest expense in the second and first quarter of 2022 also contained non-core expenses, including acquisition-related expenses of $0.6 million and $1.4 million, respectively.

Compared to the second quarter of 2021, total non-interest expense increased $10.0 million, or 25%, primarily due to an increase in salaries and employee benefit costs of $5.7 million, an increase in net occupancy and equipment expense of $1.5 million, an increase in amortization of intangible assets of $0.7 million, and an increase in FDIC insurance premiums of $0.7 million.

Those increases were primarily the result of the Premier Merger and the acquisition of the equipment financing business from Vantage.

For the six months ended June 30, 2022, total non-interest expense increased $23.6 million, or 30%, compared to the first six months of 2021.

The variance was driven by an increase of $12.6 million in salaries and employee benefits costs, $3.2 million in net occupancy and equipment expense, $1.8 million in amortization of other intangible assets, and $1.5 million in electronic banking expense.

The efficiency ratio for the second quarter of 2022 was 58.8%, compared to 66.8% for the linked quarter, and 68.6% for the second quarter of 2021.

The change in the efficiency ratio compared to the linked quarter was primarily due to the increases in accretion and market interest rates coupled with decreases in professional fees, acquisition-related expenses, salaries and employee benefits, net occupancy and equipment expense, and FDIC insurance premiums.

The efficiency ratio, adjusted for non-core items, was 58.0% for the second quarter of 2022, compared to 64.8% for the linked quarter and 64.0% for the second quarter of 2021.

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

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

Peoples recorded 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.

Peoples recorded income tax expense of $6.8 million for the second quarter of 2022, compared to income tax expense of $6.0 million for the linked quarter and income tax expense of $2.4 million for the second quarter of 2021.

The increase in income tax expense for the second quarter of 2022, compared to income tax expense for the linked quarter, was due to an increase its pre-tax income and increase in the effective tax rates.

The increase in income tax expense for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, was largely driven by higher pre-tax income and increased effective tax rates.

At June 30, 2022, total assets were $7.28 billion, compared to $7.06 billion at December 31, 2021 and $5.07 billion at June 30, 2021.

The growth in total assets of 3% compared to December 31, 2021 was largely attributable to the Vantage acquisition, which added $157.5 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.

The 44% increase compared to June 30, 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 Vantage of $157.5 million.

The allowance for credit losses at June 30, 2022 decreased to $52.4 million, or 1.14% of total loans, primarily driven by due to continued improvement in economic factors and changes in loss drivers used in the CECL model, compared to $64.0 million and 1.43%, respectively, at December 31, 2021, and $47.9 million and 1.42%, respectively, at June 30, 2021.

Total liabilities were $6.49 billion at June 30, 2022, up from $6.22 billion at December 31, 2021 and $4.48 billion at June 30, 2021.

The increase in total liabilities compared to December 31, 2021 was primarily due to increases of $110.8 million in governmental deposit accounts and $43.3 million in savings accounts, and $74.6 million of long-term borrowings assumed from Vantage.

Also contributing to the increase compared to June 30, 2021 were $1.82 billion in deposits acquired in the Premier Merger.

Total stockholders' equity at June 30, 2022 decreased by $21.5 million compared to March 31, 2022, which reflected an other comprehensive loss of $30.7 million and dividends paid of $10.8 million, partially offset by net income for the quarter of $24.9 million.

Total stockholders' equity at June 30, 2022 decreased by $58.2 million compared to December 31, 2021, which was due to an other comprehensive loss of $81.7 million and dividends paid of $20.9 million, partially offset by net income of $48.5 million for the first six months of 2022.

The other comprehensive losses were the result of the changes in the market value of available-for-sale investment securities, which were driven by changes in market interest rates.

RESULTS OF OPERATIONS

3 unchanged sentences

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%.

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 23.3% for 2022 and using a federal corporate income tax rate of 21% for 2021.

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

For the Three Months Ended

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

June 30, 2022 March 31, 2022 June 30, 2021

( Dollars in thousands)

22 unchanged sentences

$ 7,121,663 $ 7,067,816 $ 5,183,146

For the Three Months Ended

June 30, 2022 March 31, 2022 June 30, 2021

( Dollars in thousands)

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

Interest-bearing deposits:

5 unchanged sentences

Money market accounts 641,066 104 0.07 % 650,272 97 0.06 % 564,593 94 0.07 %

Retail certificates of deposit (e) 626,978 871 0.56 % 665,513 898 0.54 % 439,819 1,123 1.04 %

Retail certificates of deposit 602,225 747 0.50 % 626,978 871 0.56 % 424,279 980 0.93 %

Brokered deposits (e) 87,006 532 2.45 % 91,531 512 2.27 % 167,109 865 2.08 %

2 unchanged sentences

Borrowed funds:

Short-term FHLB advances 55,000 313 2.31 % 64,461 228 1.40 % 20,000 88 1.78 %

Short-term FHLB advances (e) 53,846 237 1.77 % 55,000 313 2.31 % 19,176 81 1.69 %

Repurchase agreements and other 96,589 24 0.10 % 99,346 25 0.10 % 50,852 11 0.09 %

13 unchanged sentences

Net interest margin (b) 3.84 % 3.41 % 3.45 %

For the Six Months Ended

June 30, 2022 June 30, 2021

( Dollars in thousands)

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

Short-term investments $ 256,864 $ 459 0.36 % $ 163,937 $ 93 0.11 %

Investment securities (a)(b):

Taxable 1,490,960 13,110 1.76 % 858,999 5,834 1.36 %

Nontaxable 198,716 2,661 2.68 % 137,527 1,868 2.72 %

Total investment securities 1,689,676 15,771 1.87 % 996,526 7,702 1.55 %

Loans (b)(c):

Construction 217,705 4,371 3.99 % 100,565 1,973 3.90 %

Commercial real estate, other 1,357,792 30,381 4.45 % 898,072 17,431 3.86 %

Commercial and industrial 876,242 16,738 3.80 % 914,542 19,833 4.31 %

Premium finance 138,359 2,942 4.23 % 107,891 2,595 4.78 %

Leases 225,667 16,643 14.67 % 43,499 4,215 19.27 %

Residential real estate (d) 901,201 19,092 4.24 % 611,172 13,101 4.29 %

Home equity lines of credit 165,649 3,360 4.09 % 120,602 2,367 3.96 %

Consumer, indirect 532,501 10,288 3.90 % 519,566 10,516 4.08 %

Consumer, direct 108,934 3,242 6.00 % 79,718 2,511 6.35 %

Total loans 4,524,050 107,057 4.72 % 3,395,627 74,542 4.38 %

Allowance for credit losses

(58,026) (48,403)

Net loans 4,466,024 107,057 4.78 % 3,347,224 74,542 4.45 %

Total earning assets 6,412,564 123,287 3.84 % 4,507,687 82,337 3.65 %

Goodwill and other intangible assets 316,753 203,509

Other assets 364,911 337,164

$ 7,094,228 $ 5,048,360

Interest-bearing deposits:

Savings accounts $ 1,063,490 $ 79 0.01 % $ 663,882 $ 56 0.02 %

Governmental deposit accounts

687,620 919 0.27 % 463,391 1,145 0.50 %

Interest-bearing demand accounts

1,174,526 207 0.04 % 717,129 131 0.04 %

Money market accounts 645,644 201 0.06 % 564,714 226 0.08 %

Retail certificates of deposit

614,533 1,617 0.53 % 432,006 2,103 0.98 %

Brokered deposits (e) 89,256 1,044 2.36 % 171,194 1,733 2.04 %

Total interest-bearing deposits

4,275,069 4,067 0.19 % 3,012,316 5,394 0.36 %

Borrowed funds:

Short-term FHLB advances (e) 54,420 550 2.04 % 19,586 169 1.74 %

Repurchase agreements and other 97,960 49 0.10 % 50,969 23 0.09 %

Total short-term borrowings 152,380 599 0.79 % 70,555 192 0.55 %

Long-term FHLB advances 72,001 563 1.58 % 101,952 782 1.55 %

Repurchase agreement and other borrowings 68,911 1,474 4.25 % 7,650 153 4.00 %

Total long-term borrowings 140,912 2,037 2.90 % 109,602 935 1.72 %

Total borrowed funds 293,292 2,636 1.80 % 180,157 1,127 1.26 %

Total interest-bearing liabilities

4,568,361 6,703 0.29 % 3,192,473 6,521 0.41 %

Non-interest-bearing deposits 1,627,480 1,192,254

Other liabilities 85,431 83,912

Total liabilities 6,281,272 4,468,639

Total stockholders’ equity 812,956 579,721

Total liabilities and stockholders’ equity $ 7,094,228 $ 5,048,360

Interest rate spread (b) $ 116,584 3.55 % $ 75,816 3.24 %

Net interest margin (b) 3.63 % 3.36 %

(a) Average balances are based on carrying value.

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

(b) Interest income and yields are presented on a fully tax-equivalent basis using a blended federal and state corporate income tax rate of 23.3% for 2022 and a federal corporate income tax rate of 21% for 2021.

10 unchanged sentences

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

Three Months Ended June 30, 2022 Compared to

Six Months Ended June 30, 2022 Compared to

(Dollars in thousands) March 31, 2022 June 30, 2021 June 30, 2021

Increase (decrease) in:

1 unchanged sentence

Rate Volume Total (a)

INTEREST INCOME:

29 unchanged sentences

Fully tax-equivalent net interest income $ 3,866 $ 3,315 $ 7,181 $ (3,969) $ 25,867 $ 21,898 $ (13,124) $ 53,892 $ 40,768

(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.

(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.

Compared to the linked quarter, net interest income increased 13% and net interest margin expanded by 43 basis points.

Both increases were driven higher by accretion income from acquisitions and the recent rise in market interest rates.

Loan yields grew by

44 basis points, of which 34 basis points was attributable to higher accretion income.

Deposit costs remained stable, while borrowing costs increased by 57 basis points and was mostly related to the acquired borrowings from the Vantage acquisition.

Net interest income grew 55% over the prior year quarter and net interest margin increased 39 basis points.

The recent acquisitions have positively impacted net interest income, coupled with organic growth and the increase in market interest rates.

During the second quarter of 2022, compared to the prior year quarter, loan yields grew 44 basis points due to the rising interest rate environment, while deposit costs declined 15 basis points driven by a reduction in higher-interest bearing deposits, and borrowing costs increased 82 basis points as a result of the non-recourse debt assumed in the acquisition of Vantage.

For the first half of 2022, net interest income and net interest margin grew 54% and 27 basis points, respectively, compared to 2021.

During that same time, loan yields increased 34 basis points, which was partially offset by higher borrowing costs.

Net interest income has been positively impacted due to the acquisitions in recent periods.

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.

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.

Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $0.6 million, $1.2 million and $3.4 million during the second and first quarters of 2022 and the second quarter of 2021, respectively, along with $79,000, $154,000, and $0.8 million of interest earned on PPP loans, during the respective periods.

For the first half of 2022, interest income recognized on deferred loan fees/costs related to PPP loans was $1.8 million, and interest earned was $232,000, compared to $8.1 million and $1.6 million, respectively, for the first half of 2021.

The interest income recognized on PPP loans added 2 basis points, 5 basis points and 15 basis points to net interest margin for the second and first quarters of 2022 and the second quarter of 2021, respectively, while adding 4 basis points and 21 basis points to net interest margin for the first half of 2022 and 2021, respectively.

Accretion income, net of amortization expense, from acquisitions was $3.9 million for the second quarter of 2022, $2.7 million for the linked quarter and $0.8 million for the second quarter of 2021, which added 25 basis points, 17 basis points and 7 basis points, respectively, to net interest margin.

For the first half of 2022, accretion income totaled $6.7 million and added 21 basis points to net interest margin compared to $1.2 million and 6 basis points for the first half of 2021, with the increase from the prior year due to the acquired loans and leases from the Premier Merger and Vantage acquisition, respectively.

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

(Recovery of) Provision For Credit Losses

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

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

(Recovery of) provision for other credit losses $ (1,135) $ (7,006) $ 3,035 $ (8,141) $ (1,745)

Provision for checking account overdraft credit losses 355 199 53 554 84

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

(Recovery of) provision for credit losses $ (780) $ (6,807) $ 3,088 $ (7,587) $ (1,661)

As a percentage of average total loans (a) (0.07) % (0.62) % 0.36 % (0.34) % (0.10) %

1 unchanged sentence

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 second quarter of 2022, the recovery of credit losses was driven by the reduction in allowance for individually analyzed loans, as well as changes in loss drivers used in the CECL model.

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.

The provision for credit losses recorded during the second quarter of 2021 was primarily due to the day-one allowance for credit losses of $3.3 million related to the leases acquired from NSL.

Excluding leases, the reduction of specific reserves on individually evaluated loans positively impacted the allowance for credit losses for the second quarter of 2021.

For the first half of 2022, the recovery of credit losses was mostly due to improvements in the economic forecast and loss drivers, coupled with releases of allowance for credit losses on individually analyzed loans.

For the first six months of 2021, the recovery of credit losses was associated with improved economic forecasts compared to prior periods, which was partially offset by the establishment of the allowance for credit losses for acquired leases.

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.

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

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

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

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

Net (loss) gain on investment securities $ (44) $ 130 $ (202) $ 86 $ (538)

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

1 unchanged sentence

Net (loss) gain on OREO (33) (1) 8 (34) 8

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

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.

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

Net loss on asset disposals and other transactions $ (152) $ (127) $ (124) $ (279) $ (151)

Losses on asset disposals and other transactions increased in the second quarter relative to the linked and prior year quarters, driven by losses on repossessed assets, losses on the sale of investment securities and losses on the sale of OREO properties acquired from Premier.

During the first three months of 2022, Peoples sold several investment securities, resulting in a net gain on investment securities.

This gain 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 2021, which was driven by changes to the acquisition-date fair value of Premier loans acquired that were subsequently sold.

During the second quarter of 2021, net loss on other assets was due to a market value write-down of $208,000 related to a closed office that was held for sale, which was partially offset by a net gain of $76,000 on repossessed assets.

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

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.

Total non-interest income, excluding net gains and losses, comprised 24% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the second quarter of 2022, compared to 27% for the linked quarter and 29% for the prior year quarter.

For the first half of 2022, total non-interest income, excluding net gains and losses, totaled 26% of total revenues compared to 31% for 2021.

The decline in this ratio compared to the prior periods was primarily due to higher net interest income associated with the recent acquisition of Vantage and Premier Merger, coupled with the increase in the market interest rate environment.

For the second 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

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

2 unchanged sentences

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.

E-banking income increased compared to the linked quarter primarily due to increased customer activity.

Compared to the prior year quarter and first half of 2021, e-banking income grew 23% and 28%, respectively, from increased customer activity, coupled with the addition of the Premier customers during the third quarter of 2021.

The following table details Peoples' insurance income:

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

Life and health insurance commissions

506 452 430 956 852

Other fees and charges

92 72 105 164 199

Insurance income $ 3,647 $ 4,732 $ 3,335 $ 8,377 $ 8,556

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.

Insurance income declined compared to the linked quarter, and was mostly due to the recognition of $1.3 million of annual performance-based insurance commissions recorded during the first quarter of each year.

Compared to the prior year quarter, insurance income grew due to additional customers, while the decline compared to the first half of 2021 was driven by lower performance-based commissions.

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

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

3 unchanged sentences

Trust and investment income $ 4,246 $ 4,276 $ 4,220 $ 8,522 $ 8,065

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.

Fiduciary income and brokerage income were mostly flat in the current quarter relative to the linked quarter, with the timing of brokerage fee income mitigating the decrease in assets under management, and fees for tax preparation and estate services mitigating the decrease in trust assets.

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

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

(Dollars in thousands)

3 unchanged sentences

Quarterly average $ 2,927,405 $ 3,106,021 $ 3,126,398 $ 3,077,554 $ 3,051,027

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.

The declines in assets under administration and management at June 30, 2022, compared to the linked quarter and December 31, 2021, were driven by a decrease in market values during the first half of 2022 due to the recent economic downturn.

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

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

5 unchanged sentences

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

Deposit account service charges 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.

Deposit account service charges increased compared to the linked quarter, prior year quarter and first half of 2021 due to 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.

Also contributing to the increase compared to the prior year quarter and first half of 2021 was the additional customers associated with the Premier Merger.

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

5 unchanged sentences

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

Mortgage banking income declined during the 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.

Mortgage banking income declined compared to the linked quarter, prior year quarter and first half of 2021 due to the increased interest rate environment in recent quarters and a lower volume of new loan originations due to the lack of inventory of homes for sale.

In the second quarter of 2022, Peoples sold $4.6 million in loans to the secondary market with servicing retained and $6.1 million in loans with servicing released, compared to $7.2 million and $7.9 million, respectively, for the first quarter of 2022, and $15.8 million and $7.8 million, respectively, for the second quarter of 2021.

For the first half of 2021, Peoples sold $33.0 million in loans to the secondary market with servicing retained, and $17.4 million in servicing released.

Bank owned life insurance income for the current quarter included a $248,000 death benefit related to the cash surrender value of the underlying policy.

Peoples also invested an additional $30.0 million in bank owned life insurance policies during the second quarter of 2022.

For the first half of 2022, the increased bank owned life insurance income compared to the first half of 2021, was due to the aforementioned death benefit proceeds and additional investment.

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.

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.

During the second quarter of 2022, commercial loan swap fees increased as a result of several new commercial loan swaps in the period, driven by the recent increases in interest rates, compared to less activity in the linked and prior year quarter, and first half of 2021.

Other non-interest income was relatively flat compared to the linked quarter.

Compared to the prior year quarter and first half of 2021, other non-interest income increased 61% and 79%, respectively, due to fee income recognized with the leasing divisions.

Non-Interest Expense

1 unchanged sentence

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

9 unchanged sentences

Average during the period 1,255 1,215 914 1,241 907

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.

Base salaries and wages increased 4% compared to the linked quarter and increased 36% compared to the second quarter of 2021.

The increases for the second quarter of 2022 compared to the linked quarter and the prior year quarter were driven by the additional salaries associated with the acquisition of Vantage, and the Premier Merger, respectively.

The increase in sales-based and incentive compensation for the second quarter of 2022 compared to the linked quarter was primarily due to sales incentives earned by Vantage employees.

The decrease in employee benefits for second quarter of 2022, compared to the linked quarter, was primarily due to annual contributions to employee health benefit accounts which occur primary in the first quarter of each year.

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

Payroll taxes and other employment costs decreased compared to the first quarter of 2022, primarily driven by higher payroll taxes recognized in the first quarter of each year.

Those costs increased for the first half of the year relative to the prior year period due to the additional associates retained from the Premier Merger, and North Star and Vantage acquisitions.

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

2 unchanged sentences

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

Stock-based compensation for the first 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.

Stock-based compensation for the second quarter of 2022 decreased compared to the linked quarter, which included expense related to stock grants to retirement eligible individuals and the annual vesting of prior stock grants.

Stock-based compensation for the first half of the year increased 21% compared to the first half of the prior year due to employees added in the acquisition of Vantage and the Premier Merger.

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

1 unchanged sentence

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

The decrease in deferred personnel costs compared to the 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.

Higher deferred personnel costs compared to the linked quarter was primarily due to an increase in loan origination volume.

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

Net occupancy and equipment expense $ 4,768 $ 5,088 $ 3,289 $ 9,856 $ 6,616

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.

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, coupled with lower repairs and maintenance costs from snow removal expenses compared to the first quarter of 2022.

Compared to the second quarter and first half of 2021, net occupancy and equipment expense increased 45% and 49%, respectively, with the increases 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

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

9 unchanged sentences

Other non-interest expense 3,398 3,347 2,559 6,745 5,051

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Professional fees decreased $1.4 million from the linked quarter and second quarter of 2021 primarily due to lower acquisition-related expenses.

Professional fees for the first half of the year decreased $1.1 million compared to the first half of the prior year, primarily driven by acquisition-related expenses related to the Premier Merger which had been realized in the prior year.

Data processing and software expense increased relative to prior year periods, driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

E-banking expense increased compared to the second quarter of 2021 and first half of 2021, and is correlated to e-banking income, which also increased over those same periods.

Amortization of other intangible assets is associated with acquisition-related activity, and grew 19% compared to the linked quarter, due to the Vantage acquisition.

Compared to the second quarter of 2021, amortization of other intangible assets increased $0.7 million as Peoples merged with Premier, and acquired Vantage on September 17, 2021 and March 7, 2022, respectively.

Amortization of other intangible assets grew 88% versus the first half 2021 due to the Premier Merger, and the acquisitions of North Star and Vantage.

Peoples' FDIC insurance premiums decreased compared to the linked quarter, as Peoples recognized a prior year adjustment in the first quarter relating to its larger assessment base as a result of the liabilities assumed from Premier.

FDIC insurance premiums increased compared to the prior year quarter, as Peoples recorded increased premiums after the acquisition of Premier.

Marketing expense declined 14% compared to the linked quarter, and increased 27% versus the prior year quarter.

The decrease from the linked quarter was mainly due to a vendor credit related to prior year customer debit card spend.

The increase relative to the prior year quarter was driven by higher public relations and media spend associated with the acquisition of Premier, and recent community-based spend in celebration of Peoples' 120th anniversary.

Other loan expenses decreased $0.4 million compared to the linked quarter driven by the timing of the reimbursement of appraisal costs.

Compared to the first half of 2021, other loan expenses grew 34% and were mostly related to higher indirect lending volume and increased collection expense driven by the Premier Merger.

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

1 unchanged sentence

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.

The increase versus the linked quarter was driven by a credit received in the first quarter of 2022 for an overpayment of the prior year's franchise taxes.

Communications expense increased 68% compared to the second quarter of 2021 and 91% compared to the first half of 2021.

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

Other non-interest expense increased 33% compared to the prior year quarter and 34% versus the first half of 2021 driven by higher ongoing costs associated with Peoples' 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.

Peoples recorded an income tax expense of $6.8 million for the second quarter of 2022, compared to income tax expense of $6.0 million for the linked quarter and income tax expense of $2.4 million for the second quarter of 2021.

The increase in income tax expense for the second quarter of 2022, compared to the linked quarter, was due to an increase in Peoples' effective tax rate driven by an expansion of its footprint associated with the acquisition of Vantage, and higher pre-tax income.

The increase in income tax expense for the six months ended June 30, 2022 compared to the six months ended June 30, 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 Consolidated Financial Statements included in Peoples' 2021 Form 10-K.

Pre-Provision Net Revenue (Non-US GAAP)

4 unchanged sentences

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

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

1 unchanged sentence

Income before income taxes $ 31,735 $ 29,538 $ 12,494 $ 61,273 $ 31,737

provision for credit losses — — 3,088 — —

loss on OREO 32 1 — 33 —

5 unchanged sentences

gain on investment securities — 130 — 130 —

gain on other transactions — 903 —

Pre-provision net revenue $ 31,150 $ 22,728 $ 15,908 $ 53,878 $ 30,765

3 unchanged sentences

Pre-provision net revenue per common share - diluted $ 1.11 $ 0.81 $ 0.81 $ 1.91 $ 1.63

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.

The increase in PPNR compared to the linked quarter was driven by increased net interest income reflecting the positive impact of recent increase in market interest rates.

PPNR grew compared to the second quarter of 2021 and first half of 2021, mostly due to the impact of the Premier Merger and the Vantage and NSL acquisitions improving net interest income, the recent increases in market interest rates, and 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.

This measure is Non-US GAAP since it excludes the impact of all acquisition-related expenses, 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

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

6 unchanged sentences

contribution — — — — 500

contract negotiation benefits — 603 —

Core non-interest expense $ 49,268 $ 50,162 $ 37,275 $ 99,430 $ 72,510

4 unchanged sentences

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

Total non-interest income 19,386 20,050 15,821 39,436 32,724

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

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

net (loss) gain on investment securities (44) 130 (202) 86 (538)

net (loss) on asset disposals and other transactions (152) (127) (124) (279) (151)

Total non-interest income excluding net gains and losses 19,582 20,047 16,147 39,629 33,413

8 unchanged sentences

Adjusted core non-interest expense 47,234 48,454 35,907 95,688 70,522

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

Non-interest income excluding net gains and losses 19,582 20,047 16,147 39,629 33,413

Net interest income on a fully tax-equivalent basis 61,882 54,701 39,984 116,584 75,816

1 unchanged sentence

Efficiency ratio adjusted for non-core items 57.98 % 64.82 % 63.97 % 61.25 % 64.56 %

(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.

(a) Based on a tax rate of 23.3% for period ended June 30, 2022, 22.9% for the period ended March 31, 2022, and 21.0% for period ended June 30, 2021.

The efficiency ratio for the second quarter of 2022 decreased compared to the linked quarter, due to higher net interest income driven by increases in market interest rates, coupled with decreases in acquisition-related expenses, salaries and employee benefits, and FDIC insurance premiums.

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

Additionally, compared to the second quarter of 2021 and the first half 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.

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, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc.

contribution.

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

2 unchanged sentences

net loss on investment securities

44 — 202 — 538

tax effect of net loss on investment securities (a)

2 unchanged sentences

net loss on asset disposals and other transactions

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

net gain on asset disposals and other transactions

152 127 124 279 151

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

32 27 26 59 32

acquisition-related expenses

1 unchanged sentence

tax effect of acquisition-related expenses (a)

126 288 504 415 905

severance expenses — — 14 — 63

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contribution (a)

refund of contract negotiation benefits

tax effect of refund of contract negotiation fees (a)

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

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(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

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.

The return on average assets improved compared to the linked quarter, due to higher net interest income driven by increases in market interest rates, coupled with decreases in acquisition-related expenses, salaries and employee benefits, and FDIC insurance premiums.

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

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

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

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

tax effect of amortization of other intangible assets (a)

427 359 287 786 417

Net income excluding amortization of other intangible assets

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Days in the period

91 90 91 181 181

Days in the year

365 365 365 365 365

Annualized net income

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

The return on average stockholders' equity and average tangible equity ratios were 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.

The return on average stockholders' equity and average tangible equity ratios were higher in the current quarter and the first half of 2022 relative to all prior periods, due to higher total net interest income driven by the recent increases in market interest rates and loans and leases added in the Premier Merger and acquisitions of Vantage and NSL, coupled with higher non-interest income.

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.

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

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.

At June 30, 2022, Peoples' interest-bearing deposits in other banks had decreased $35.2 million from December 31, 2021.

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

The total cash and cash equivalents balance included $297.4 million of excess cash reserves being maintained at the FRB of Cleveland at June 30, 2022, compared to $318.1 million at December 31, 2021.

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.

Through the first six months of 2022, Peoples' total cash and cash equivalents decreased $17.3 million as Peoples had net cash used in investing activities of $196.0 million, which more than offset cash provided by financing activities of $116.0 million and by operating activities of $62.7 million.

Peoples' investing activities reflected purchases of available-for-sale investment securities totaling $233.1 million, cash outflows for business combinations of $85.8 million, net of a decrease in loans held for investment of $70.9 million and proceeds from principal payments, calls and prepayments of available-for-sale investment securities of $112.8 million.

The cash provided by financing activities was largely driven by increases in short-term borrowings of $154.9 million, and in interest-bearing deposits of $46.5 million, the latter of which was driven by higher governmental deposits, which are seasonal in nature.

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

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The following table provides information regarding Peoples’ investment portfolio:

(Dollars in thousands) Weighted Average Yield March 31,

(Dollars in thousands) Weighted Average Yield June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Available-for-sale securities, at fair value:

21 unchanged sentences

Carrying value $ 1,709,973 $ 1,728,335 $ 1,683,609 $ 1,574,676 $ 1,062,445

(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.

(a) Amortized cost is presented net of the allowance for credit losses of $286 at June 30, 2022 and December 31, 2021;

$236 at September 30, 2021 and $201 at June 30, 2021.

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

Treasury and government agencies' obligations, in an effort to deploy cash, improve investment yields and reduce risk, partially offset by the reduction in market value of available-for-sale securities driven by the recent increases in market interest rates.

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

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

The following table provides information regarding outstanding loan balances:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Originated loans:

67 unchanged sentences

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

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

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

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

Period-end total loan balances at June 30, 2022 increased $28.8 million compared to March 31, 2022, and were driven by increases of $38.3 million in consumer indirect loans and $47.4 million in leases, $15.5 million of which related to a purchase accounting adjustment on the Vantage portfolio, partially offset by a reduction in construction loans of $35.7 million.

The acquired loan decrease was driven by payoffs of commercial real estate and commercial and industrial loans in the Premier Merger.

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

The increase in leases from December 31, 2021 to March 31,2022, was driven by leases acquired from Vantage.

Loan Concentration

2 unchanged sentences

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:

The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at June 30, 2022:

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

5 unchanged sentences

Office buildings and complexes 11,711 10,321 22,032 5.0 %

Storage facility 5,742 644 6,386 1.5 %

Lodging and lodging related 5,170 1,379 6,549 1.5 %

1 unchanged sentence

Residential property 8,699 7,156 15,855 3.6 %

Industrial 8,393 7,651 16,044 3.6 %

Day care facilities - owner occupied 3,960 4,000 7,960 1.8 %

Other (a) 16,005 61,514 77,519 17.7 %

47 unchanged sentences

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.

In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both June 30, 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.

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

Small Business Administration Paycheck Protection Program

7 unchanged sentences

The following tables detail Peoples' PPP loans and related income:

(Dollars in millions) March 31,

(Dollars in millions) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

PPP aggregate outstanding principal balances $ 15.2 $ 42.9 $ 89.3 $ 139.8 $ 194.7

5 unchanged sentences

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Commercial real estate $ 20,239 $ 23,786 $ 32,146 $ 39,252 $ 18,147

9 unchanged sentences

As a percent of total loans 1.14 % 1.20 % 1.43 % 1.72 % 1.42 %

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

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

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

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

The allowance for credit losses declined at June 30, 2022 compared to March 31, 2022, as a result of improved loss drivers and releases related to individually analyzed loans.

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 loans due to 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-purchase 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 in the amount of $11.0 million in order to establish an allowance for credit losses for non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the Premier Merger.

Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchased 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.

1 unchanged sentence

Three Months Ended

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Gross charge-offs:

45 unchanged sentences

Each with "--%" not meaningful.

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

Net charge-offs during the second quarter of 2022 were 0.14% of average total loans on an annualized basis.

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

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

the prior quarter, both commercial real estate and residential real estate gross charge-offs decreased, while commercial real estate experienced higher recoveries.

The following table details Peoples’ nonperforming assets:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Loans 90+ days past due and accruing:

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Classified loans (b) 115,483 109,530 106,547 142,628 69,166

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Asset Quality Ratios (c):

3 unchanged sentences

NPAs as a percent of total loans and OREO (d) 1.02 % 1.04 % 1.07 % 1.17 % 0.80 %

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 nonaccrual loans 177.52 % 171.13 % 184.00 % 214.75 % 207.73 %

Allowance for credit losses as a percent of NPLs (d) 138.76 % 144.27 % 166.20 % 186.93 % 178.75 %

4 unchanged sentences

(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.

(d) Nonperforming loans ("NPL") include loans 90+ days past due and accruing, TDRs and nonaccrual loans.

Nonperforming assets ("NPA") include nonperforming loans and OREO.

Compared to March 31, 2022, Peoples' NPAs declined to 0.64%, from 0.65%, with the reduction primarily attributable to a reduction in nonaccrual commercial and industrial loans offset by an increase in past due leases.

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 second quarter of 2022, criticized loans, which are those categorized as special mention, substandard or doubtful, declined $8.9 million, while classified loans, which are those categorized as substandard or doubtful, grew $6.0 million.

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

10 unchanged sentences

The following table details Peoples’ deposit balances:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Non-interest-bearing deposits (a) $ 1,661,865 $ 1,666,668 $ 1,641,422 $ 1,559,993 $ 1,181,045

10 unchanged sentences

(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.

At June 30, 2022, period-end deposits decreased $73.7 million, or 1%, compared to March 31, 2022, and increased $1.7 billion, or 40%, compared to June 30, 2021.

The decrease was driven by a decline in interest bearing transaction accounts of $36.2 million, a decrease in retail certificates of deposits of $28.7 million, and a decrease of $11.0 million in money market deposit accounts.

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.

Total deposits in periods presented through March 31, 2022, 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 quarterly periods prior to June 30, 2022, Peoples experienced increases in most low-cost deposit categories.

Peoples reduced its reliance on brokered deposits in each quarterly period, beginning after June 30, 2021.

2 unchanged sentences

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.

As of June 30, 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.

2 unchanged sentences

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Short-term borrowings:

19 unchanged sentences

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

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

Borrowed funds increased compared to March 31, 2022, driven by a large individual customer deposit, thereby increasing retail repurchase agreements at June 30, 2022.

The increase in total borrowed funds at September 30, 2021, compared to June 30, 2021, was primarily due to the addition of $63.8 million retail repurchase agreements from Premier.

Capital/Stockholders’ Equity

At 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.

At June 30, 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%.

At June 30, 2022, Peoples had a capital conservation buffer of 4.81%.

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Capital Amounts:

8 unchanged sentences

Tier 1 leverage ratio 8.38 % 8.29 % 8.67 % 11.20 % 7.87 %

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.

Peoples' regulatory capital and related ratio levels improved during the second quarter of 2022 driven by higher net interest income.

The ratios were negatively impacted in the prior quarter by the cash acquisition of Vantage, for which Peoples recorded goodwill and intangible assets for which the impact was partially offset by net income exceeding dividends declared during the period.

Regulatory capital ratios increased as of September 30, 2021, compared to June 30, 2021, due to the Premier Merger, which included an equity issuance of $261.9 million.

In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity.

4 unchanged sentences

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,

(Dollars in thousands) June 30,

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Tangible equity:

25 unchanged sentences

6.60 % 6.76 % 8.18 % 7.93 % 7.51 %

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.

Tangible book value per common share declined to $16.21 at June 30, 2022, compared to $16.39 at March 31, 2022.

The change in tangible book value per common share was due to tangible equity declining as a result of other comprehensive losses recognized on available-for-sale investment securities, which were driven by changes in market interest rates.

Also contributing to the decline compared to December 31, 2021, was a $81.7 million increase in accumulated other comprehensive loss.

The increase in tangible equity to tangible assets at September 30, 2021, was attributable to the Premier Merger, and related equity issued.

Interest Rate Sensitivity and Liquidity

14 unchanged sentences

Estimated Decrease in Economic Value of Equity

(in Basis Points) March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

(in Basis Points) June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021

300 $ 27,881 11.1 % $ 24,903 11.7 % $ (22,151) (1.6) % $ (24,232) (2.0) %

13 unchanged sentences

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.

Given the shape of market yield curves at June 30, 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.

3 unchanged sentences

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.

At June 30, 2022, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.1% and 2.9%, respectively.

The bull flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates fall.

2 unchanged sentences

resulting in a decreased amount of net interest income and lower net interest margin.

At 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.

At June 30, 2022, the bull flattener scenario resulted in small decreases in net interest income and the economic value of equity of -0.1% and -0.1%, respectively.

Peoples was within its policy limitations for this alternative scenario as of June 30, 2022, which set 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.

As of June 30, 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.

At June 30, 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.

2 unchanged sentences

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.

At June 30, 2022, Peoples Bank had liquid assets of $383.4 million, which represented 4.7% of total assets and unfunded loan commitments.

Peoples also had an additional $248.0 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

16 unchanged sentences

(Dollars in thousands)

2022 March 31,

2022 December 31,

1 unchanged sentence

2021 June 30,

2021 March 31,

Home equity lines of credit $ 188,803 $ 184,616 $ 177,262 $ 177,963 $ 134,516

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis