PEOPLES BANCORP INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the 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. Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions. These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to: (1) the ever-changing effects of the global COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on 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 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; (5) competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals; (6) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform; (7) the effects of easing restrictions on participants in the financial services industry; (8) local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated; (9) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; 49 Table of Contents (10) changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated; (11) Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral; (12) future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses; (13) changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations; (14) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model; (15) the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; (16) adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities; (17) the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; (18) Peoples' ability to receive dividends from its subsidiaries; (19) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (20) the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity; (21) Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss; (22) Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands; (23) operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent; (24) changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated; (25) the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business; (26) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence; (27) the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts; (28) the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property; (29) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets; (30) Peoples' ability to integrate the NSL and Vantage acquisitions, and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; (31) the risk that expected revenue synergies and cost savings from the merger of Peoples and Premier may not be fully realized or realized within the expected time frame; (32) changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases; (33) the effect of a fall in stock market prices on the asset and wealth management business; (34) Peoples' continued ability to grow deposits; and, (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 and the heading "ITEM 1A. RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10- 50 Table of Contents 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. Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website. All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section. This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 2021 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q. Business Overview The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations. Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples 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. 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. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business. Critical Accounting Policies The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant account policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at 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 The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition: ◦ On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite Agency, Inc. ("Elite"), pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $3.8 million. 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. Peoples Bank acquired assets comprising Vantage's lease business, including $157.5 million in leases and certain third-party debt in the amount of $107.1 million. Peoples paid total consideration of $82.9 million. Based in Excelsior, Minnesota, Vantage offers mid-ticket equipment leases primarily for business essential information technology equipment across a wide array of industries. Peoples recorded 51 Table of Contents 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. (“Premier Bank”) and Citizens Deposit Bank and Trust, Inc. (“Citizens”). Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “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 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 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. ◦ On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021 in which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank, on April 1, 2021. Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus 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. Peoples recorded goodwill in the amount of $24.7 million and other intangibles of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. ◦ Peoples began originating loans during the second quarter of 2020, and continued to originate loans during the first five months of 2021 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). As of 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 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 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. 52 Table of Contents EXECUTIVE SUMMARY 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. 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 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. 53 Table of Contents 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 $6.8 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 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 Net Interest Income Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities. Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on 54 Table of Contents 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Net interest income $ 61,468 $ 54,310 $ 39,660 $ 115,778 $ 75,238 Taxable equivalent adjustment 414 391 324 806 578 Fully tax-equivalent net interest income $ 61,882 $ 54,701 $ 39,984 $ 116,584 $ 75,816 The following tables detail Peoples’ average balance sheets for the periods presented: 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 Short-term investments $ 182,456 $ 299 0.66 % $ 332,098 $ 160 0.20 % $ 180,730 $ 53 0.12 % Investment securities (a)(b): Taxable 1,515,647 7,014 1.85 % 1,465,998 6,096 1.66 % 883,948 3,217 1.45 % Nontaxable 193,112 1,344 2.78 % 204,381 1,316 2.58 % 168,015 1,095 2.61 % Total investment securities 1,708,759 8,358 1.96 % 1,670,379 7,412 1.78 % 1,051,963 4,312 1.64 % Loans (b)(c): Construction 209,822 2,216 4.18 % 225,676 2,155 3.82 % 87,075 979 4.45 % Commercial real estate, other 1,353,201 15,599 4.56 % 1,362,434 14,782 4.34 % 916,604 8,829 3.81 % Commercial and industrial 864,023 8,715 3.99 % 888,598 8,023 3.61 % 887,756 9,241 4.12 % Premium finance 143,898 1,778 4.89 % 132,758 1,164 3.51 % 108,387 1,298 4.74 % Leases 288,360 10,541 14.46 % 162,277 6,102 15.04 % 86,519 4,215 19.27 % Residential real estate (d) 888,809 9,326 4.20 % 913,730 9,766 4.28 % 607,691 6,429 4.23 % Home equity lines of credit 167,935 1,748 4.17 % 163,339 1,612 4.00 % 119,354 1,180 3.97 % Consumer, indirect 541,135 5,243 3.89 % 523,770 5,045 3.91 % 529,180 5,313 4.03 % Consumer, direct 111,541 1,647 5.92 % 106,298 1,595 6.09 % 80,409 1,272 6.35 % Total loans 4,568,724 56,813 4.94 % 4,478,880 50,244 4.50 % 3,422,975 38,756 4.50 % Allowance for credit losses (54,148) (61,947) (46,967) Net loans 4,514,576 56,813 5.00 % 4,416,933 50,244 4.56 % 3,376,008 38,756 4.56 % Total earning assets 6,405,791 65,470 4.06 % 6,419,410 57,816 3.61 % 4,608,701 43,121 3.72 % Goodwill and other intangible assets 329,243 304,124 222,553 Other assets 386,629 344,282 351,892 Total assets $ 7,121,663 $ 7,067,816 $ 5,183,146 55 Table of Contents 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: Savings accounts $ 1,076,028 $ 45 0.02 % $ 1,050,813 $ 34 0.01 % $ 680,825 $ 21 0.01 % Governmental deposit accounts 704,632 471 0.27 % 670,419 447 0.27 % 496,906 551 0.44 % Interest-bearing demand accounts 1,177,751 115 0.04 % 1,171,266 92 0.03 % 733,913 66 0.04 % Money market accounts 641,066 104 0.07 % 650,272 97 0.06 % 564,593 94 0.07 % 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 % Total interest-bearing deposits 4,288,708 2,014 0.19 % 4,261,279 2,053 0.20 % 3,067,625 2,577 0.34 % Borrowed funds: 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 % Total short-term borrowings 150,435 261 0.70 % 154,346 338 0.89 % 70,028 92 0.53 % Long-term FHLB advances 58,498 257 1.76 % 85,653 306 1.45 % 101,161 392 1.55 % Other borrowings 94,097 1,056 4.44 % 43,445 418 3.85 % 7,669 76 3.96 % Total long-term borrowings 152,595 1,313 3.44 % 129,098 724 2.26 % 108,830 468 1.72 % Total borrowed funds 303,030 1,574 2.08 % 283,444 1,062 1.51 % 178,858 560 1.26 % Total interest-bearing liabilities 4,591,738 3,588 0.31 % 4,544,723 3,115 0.28 % 3,246,483 3,137 0.39 % Non-interest-bearing deposits 1,648,067 1,606,665 1,272,623 Other liabilities 90,457 81,676 82,209 Total liabilities 6,330,262 6,233,064 4,601,315 Total stockholders’ equity 791,401 834,752 581,831 Total liabilities and stockholders’ equity $ 7,121,663 $ 7,067,816 $ 5,183,146 Interest rate spread (b) $ 61,882 3.75 % $ 54,701 3.33 % $ 39,984 3.33 % Net interest margin (b) 3.84 % 3.41 % 3.45 % 56 Table of Contents 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 Total assets $ 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 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. (c) Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented. (d) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income. 57 Table of Contents (e) Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered deposits for the periods presented in which FHLB advances and brokered deposits were being utilized. Peoples' average balances compared to prior periods have been impacted by recent acquisitions, which included: (i) Vantage on March 7, 2022, which added to average lease and borrowed funds balances; (ii) Premier on September 17, 2021, which added to average short-term investments, average total investment securities, average total loans and average total deposits; and (iii) NSL on April 1, 2021, which added to average lease balances. Peoples has maintained high cash balances in recent periods due to an influx of deposits, coupled with PPP proceeds. The following table provides an analysis of the changes in FTE net interest income: 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: Rate Volume Total (a) Rate Volume Total (a) Rate Volume Total (a) INTEREST INCOME: Short-term investments $ 598 $ (459) $ 139 $ 255 $ (9) $ 246 $ 277 $ 89 $ 366 Investment Securities (b): Taxable 706 212 918 1,052 2,745 3,797 (8,752) 16,028 7,276 Nontaxable 362 (334) 28 77 172 249 (3,065) 3,858 793 Total investment income 1,068 (122) 946 1,129 2,917 4,046 (11,817) 19,886 8,069 Loans (b) : Construction 728 (667) 61 (400) 1,637 1,237 47 2,351 2,398 Commercial real estate, other 1,428 (611) 817 1,978 4,792 6,770 2,977 9,973 12,950 Commercial and industrial 1,953 (1,261) 692 (283) (243) (526) (2,290) (805) (3,095) Premium finance 506 108 614 41 439 480 (747) 1,094 347 Leases (1,583) 6,022 4,439 (6,910) 13,236 6,326 (3,119) 15,547 12,428 Residential real estate (177) (263) (440) (364) 3,261 2,897 (455) 6,446 5,991 Home equity lines of credit 82 54 136 65 503 568 82 911 993 Consumer, indirect (157) 355 198 (627) 557 (70) (830) 602 (228) Consumer, direct (206) 258 52 (525) 900 375 (418) 1,149 731 Total loan income 2,574 3,995 6,569 (7,025) 25,082 18,057 (4,753) 37,268 32,515 Total interest income $ 4,240 $ 3,414 $ 7,654 $ (5,641) $ 27,990 $ 22,349 $ (16,293) $ 57,243 $ 40,950 INTEREST EXPENSE: Deposits: Savings accounts $ 10 $ 1 $ 11 $ 9 $ 15 $ 24 $ (18) $ 41 $ 23 Governmental deposit accounts (23) 47 24 (939) 859 (80) (1,198) 972 (226) Interest-bearing demand accounts 22 1 23 6 43 49 (13) 89 76 Money market accounts 16 (9) 7 (15) 25 10 (94) 69 (25) Retail certificates of deposit (93) (31) (124) (1,853) 1,620 (233) (2,120) 1,634 (486) Brokered deposits 140 (120) 20 821 (1,154) (333) 651 (1,340) (689) Total deposit cost 72 (111) (39) (1,971) 1,408 (563) (2,792) 1,465 (1,327) Borrowed funds: Short-term borrowings (70) (7) (77) 6 163 169 36 371 407 Long-term borrowings 372 217 589 293 552 845 (413) 1,515 1,102 Total borrowed funds cost 302 210 512 299 715 1,014 (377) 1,886 1,509 Total interest expense 374 99 473 (1,672) 2,123 451 (3,169) 3,351 182 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 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. 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 58 Table of Contents 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 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) Provision For Credit Losses The following table details Peoples’ (recovery of) provision for credit losses: Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 (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) 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) % (a) Presented on an annualized basis. The (recovery of) provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. For the 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 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.” 59 Table of Contents 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Net (loss) gain on investment securities $ (44) $ 130 $ (202) $ 86 $ (538) Net (loss) gain on asset disposals and other transactions: Net loss on other assets $ (119) $ (22) $ (132) $ (141) $ (159) Net (loss) gain on OREO (33) (1) 8 (34) 8 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 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 E-banking income $ 5,419 $ 5,253 $ 4,418 $ 10,672 $ 8,329 Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. E-banking income 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Property and casualty insurance commissions $ 3,039 $ 2,862 $ 2,765 $ 5,901 $ 5,520 Performance-based commissions 10 1,346 35 1,356 1,985 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 60 Table of Contents 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Fiduciary income $ 1,999 $ 1,965 $ 2,095 $ 3,964 $ 3,997 Brokerage income 1,631 1,649 1,494 3,280 2,831 Employee benefit fees 616 662 631 1,278 1,237 Trust and investment income $ 4,246 $ 4,276 $ 4,220 $ 8,522 $ 8,065 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. 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 half of 2021. The following table details Peoples' assets under administration and management: June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 (Dollars in thousands) Trust $ 1,731,454 $ 1,927,828 $ 2,009,871 $ 1,937,123 $ 1,963,884 Brokerage 1,068,261 1,152,530 1,183,927 1,133,668 1,119,247 Total $ 2,799,715 $ 3,080,358 $ 3,193,798 $ 3,070,791 $ 3,083,131 Quarterly average $ 2,927,405 $ 3,106,021 $ 3,126,398 $ 3,077,554 $ 3,051,027 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Overdraft and non-sufficient funds fees $ 2,019 $ 1,902 $ 1,012 $ 3,921 $ 2,009 Account maintenance fees 1,306 1,311 854 2,617 1,664 Other fees and charges 233 213 178 446 356 Deposit account service charges $ 3,558 $ 3,426 $ 2,044 $ 6,984 $ 4,029 The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges 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. 61 Table of Contents The following table details the other items included within Peoples' total non-interest income: Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Mortgage banking income 352 436 820 788 1,960 Bank owned life insurance income 797 431 446 1,228 892 Commercial loan swap fees 270 168 61 438 121 Other non-interest income 1,294 1,326 803 2,620 1,461 Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage banking income declined 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. 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 Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs: Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Base salaries and wages $ 18,408 $ 17,676 $ 13,488 $ 36,084 $ 26,253 Sales-based and incentive compensation 4,913 3,636 4,593 8,549 8,021 Employee benefits 3,321 3,621 2,821 6,942 5,719 Payroll taxes and other employment costs 1,389 2,091 1,343 3,480 2,836 Stock-based compensation 600 1,605 604 2,205 1,819 Deferred personnel costs (1,046) (900) (921) (1,946) (1,961) Salaries and employee benefit costs $ 27,585 $ 27,729 $ 21,928 $ 55,314 $ 42,687 Full-time equivalent employees: Actual at end of period 1,261 1,245 925 1,261 925 Average during the period 1,255 1,215 914 1,241 907 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. 62 Table of Contents 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. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the 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. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Depreciation $ 1,770 $ 1,823 $ 1,398 $ 3,593 $ 2,769 Repairs and maintenance costs 1,245 1,378 903 2,625 1,846 Net rent expense 756 685 382 1,441 722 Property taxes, utilities and other costs 997 1,202 606 2,197 1,279 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, 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Professional fees $ 2,280 $ 3,672 $ 3,565 $ 5,952 $ 7,033 Data processing and software expense 3,033 2,916 2,411 5,949 4,865 E-banking expense 2,727 2,759 2,075 5,486 3,969 Amortization of other intangible assets 2,034 1,708 1,368 3,742 1,988 FDIC insurance premiums 1,018 1,194 326 2,212 789 Marketing expense 860 995 676 1,855 1,587 Other loan expenses 445 832 494 1,277 956 Franchise tax expense 1,102 764 822 1,866 1,677 Communication expense 649 625 386 1,274 668 Other non-interest expense 3,398 3,347 2,559 6,745 5,051 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. 63 Table of Contents 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. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. 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 $6.8 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) Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. 64 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Pre-provision net revenue: Income before income taxes $ 31,735 $ 29,538 $ 12,494 $ 61,273 $ 31,737 Add: provision for credit losses — — 3,088 — — Add: loss on OREO 32 1 — 33 — Add: loss on investment securities 44 — 202 44 538 Add: loss on other assets 119 22 132 141 159 Add: loss on other transactions — 104 — 104 — Less: gain on OREO — — 8 — 8 Less: recovery of credit losses 780 6,807 — 7,587 1,661 Less: gain on investment securities — 130 — 130 — Pre-provision net revenue $ 31,150 $ 22,728 $ 15,908 $ 53,878 $ 30,765 Total average assets $7,121,663 $7,067,816 $5,183,146 $7,094,228 $5,048,360 Pre-provision net revenue to total average assets (annualized) 1.75 % 1.30 % 1.23 % 1.53 % 1.23 % Weighted-average common shares outstanding - diluted 28,061,736 28,129,131 19,461,934 28,041,145 19,448,544 Pre-provision net revenue per common share - diluted $ 1.11 $ 0.81 $ 0.81 $ 1.91 $ 1.63 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, 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 Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Core non-interest expense: Total non-interest expense $ 49,899 $ 51,629 $ 39,899 $ 101,528 $ 77,886 Less: acquisition-related expenses 602 1,373 2,400 1,975 4,311 Less: severance expenses — — 14 — 63 Less: COVID-19-related expenses 29 94 210 123 502 Less: Peoples Bank Foundation, Inc. contribution — — — — 500 Core non-interest expense $ 49,268 $ 50,162 $ 37,275 $ 99,430 $ 72,510 Efficiency Ratio (Non-US GAAP) The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. 65 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Efficiency ratio: Total non-interest expense $ 49,899 $ 51,629 $ 39,899 $ 101,528 $ 77,886 Less: amortization of other intangible assets 2,034 1,708 1,368 3,742 1,988 Adjusted total non-interest expense 47,865 49,921 38,531 97,786 75,898 Total non-interest income 19,386 20,050 15,821 39,436 32,724 Less: net (loss) gain on investment securities (44) 130 (202) 86 (538) Less: 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 Net interest income 61,468 54,310 39,660 115,778 75,238 Add: fully tax-equivalent adjustment (a) 414 391 324 806 578 Net interest income on a fully tax-equivalent basis 61,882 54,701 39,984 116,584 75,816 Adjusted revenue $ 81,464 $ 74,748 $ 56,131 $ 156,213 $ 109,229 Efficiency ratio 58.76 % 66.79 % 68.64 % 62.60 % 69.49 % Efficiency ratio adjusted for non-core items: Core non-interest expense $ 49,268 $ 50,162 $ 37,275 $ 99,430 $ 72,510 Less: amortization of other intangible assets 2,034 1,708 1,368 3,742 1,988 Adjusted core non-interest expense 47,234 48,454 35,907 95,688 70,522 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 Adjusted revenue $ 81,464 $ 74,748 $ 56,131 $ 156,213 $ 109,229 Efficiency ratio adjusted for non-core items 57.98 % 64.82 % 63.97 % 61.25 % 64.56 % (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, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution. 66 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Annualized net income adjusted for non-core items: Net income $ 24,888 $ 23,577 $ 10,103 $ 48,465 $ 25,566 Add: net loss on investment securities 44 — 202 — 538 Less: tax effect of net loss on investment securities (a) 9 — 42 — 113 Less: net gain on investment securities — 130 — 86 — Add: tax effect of net gain on investment securities (a) — 27 — 18 — Add: net loss on asset disposals and other transactions 152 127 124 279 151 Less: tax effect of net loss on asset disposals and other transactions (a) 32 27 26 59 32 Add: acquisition-related expenses 602 1,373 2,400 1,975 4,311 Less: tax effect of acquisition-related expenses (a) 126 288 504 415 905 Add: severance expenses — — 14 — 63 Less: tax effect of severance expenses (a) — — 3 — 13 Add: COVID-19-related expenses 29 94 210 123 502 Less: tax effect of COVID-19-related expenses (a) 6 20 44 26 105 Add: Peoples Bank Foundation, Inc. contribution — — — — 500 Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) — — — — 105 Net income adjusted for non-core items (after tax) $ 25,542 $ 24,733 $ 12,434 $ 50,274 $ 30,358 Days in the period 91 90 91 181 181 Days in the year 365 365 365 365 365 Annualized net income $ 99,825 $ 95,618 $ 40,523 $ 97,733 $ 51,556 Annualized net income adjusted for non-core items (after tax) $ 102,449 $ 100,306 $ 49,873 $ 101,381 $ 61,219 Return on average assets: Annualized net income $ 99,825 $ 95,618 $ 40,523 $ 97,733 $ 51,556 Total average assets 7,121,663 7,067,816 5,183,146 7,094,228 5,048,360 Return on average assets 1.40 % 1.35 % 0.78 % 1.38 % 1.02 % Return on average assets adjusted for non-core items: Annualized net income adjusted for non-core items (after tax) $ 102,449 $ 100,306 $ 49,873 $ 101,381 $ 61,219 Total average assets 7,121,663 7,067,816 5,183,146 7,094,228 5,048,360 Return on average assets adjusted for non-core items 1.44 % 1.42 % 0.96 % 1.43 % 1.21 % (a) Based on a 21% statutory federal corporate income tax rate. 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. 67 Table of Contents Return on Average Tangible Equity Ratio (Non-US GAAP) The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity. Three Months Ended Six Months Ended June 30, 2022 March 31, 2022 June 30, 2021 June 30, (Dollars in thousands) 2022 2021 Annualized net income excluding amortization of other intangible assets: Net income $ 24,888 $ 23,577 $ 10,103 $ 48,465 $ 25,566 Add: amortization of other intangible assets 2,034 1,708 1,368 3,742 1,988 Less: tax effect of amortization of other intangible assets (a) 427 359 287 786 417 Net income excluding amortization of other intangible assets $ 26,495 $ 24,926 $ 11,184 $ 51,421 $ 27,137 Days in the period 91 90 91 181 181 Days in the year 365 365 365 365 365 Annualized net income $ 99,825 $ 95,618 $ 40,523 $ 97,733 $ 51,556 Annualized net income excluding amortization of other intangible assets $ 106,271 $ 101,089 $ 44,859 $ 103,694 $ 54,724 Average tangible equity: Total average stockholders' equity $ 791,401 $ 834,752 $ 581,831 $ 812,956 $ 579,721 Less: average goodwill and other intangible assets 329,243 304,124 222,553 316,753 203,509 Average tangible equity $ 462,158 $ 530,628 $ 359,278 $ 496,203 $ 376,212 Return on average stockholders' equity ratio: Annualized net income $ 99,825 $ 95,618 $ 40,523 $ 97,733 $ 51,556 Average stockholders' equity $ 791,401 $ 834,752 $ 581,831 $ 812,956 $ 579,721 Return on average stockholders' equity 12.61 % 11.45 % 6.96 % 12.02 % 8.89 % Return on average tangible equity ratio: Annualized net income excluding amortization of other intangible assets $ 106,271 $ 101,089 $ 44,859 $ 103,694 $ 54,724 Average tangible equity $ 462,158 $ 530,628 $ 359,278 $ 496,203 $ 376,212 Return on average tangible equity 22.99 % 19.05 % 12.49 % 20.90 % 14.55 % (a) Based on a 21% statutory federal corporate income tax rate. 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 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. 68 Table of Contents FINANCIAL CONDITION Cash and Cash Equivalents 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 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.” Investment Securities The following table provides information regarding Peoples’ investment portfolio: (Dollars in thousands) Weighted Average Yield June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Available-for-sale securities, at fair value: Obligations of: U.S. Treasury and government agencies 2.24 % $ 175,255 $ 167,406 $ 35,604 $ — $ — U.S. government sponsored agencies 1.48 % 82,465 80,654 81,739 78,481 14,235 States and political subdivisions 2.64 % 249,402 231,644 259,319 252,919 223,853 Residential mortgage-backed securities 1.78 % 691,735 753,353 828,517 898,459 579,152 Commercial mortgage-backed securities 1.65 % 58,301 58,112 63,519 62,552 27,631 Bank-issued trust preferred securities 2.83 % 10,440 10,670 6,795 4,679 4,766 Total fair value $ 1,267,598 $ 1,301,839 $ 1,275,493 $ 1,297,090 $ 849,637 Total amortized cost $ 1,389,621 $ 1,381,259 $ 1,283,146 $ 1,294,654 $ 839,682 Net unrealized (loss) gain $ (122,023) $ (79,420) $ (7,653) $ 2,436 $ 9,955 Held-to-maturity securities, at amortized cost: Obligations of: U.S. government sponsored agencies 1.99 % $ 50,990 $ 38,486 $ 36,431 $ 29,995 $ 30,103 States and political subdivisions (a) 2.15 % 151,034 151,217 151,402 124,181 102,224 Residential mortgage-backed securities 1.55 % 112,095 115,613 110,708 41,035 24,067 Commercial mortgage-backed securities 1.69 % 86,601 79,340 75,588 47,889 23,830 Total amortized cost $ 400,720 $ 384,656 $ 374,129 $ 243,100 $ 180,224 Other investment securities $ 41,655 $ 41,840 $ 33,987 $ 34,486 $ 32,584 Total investment securities: Amortized cost $ 1,831,996 $ 1,807,755 $ 1,691,262 $ 1,572,240 $ 1,052,490 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 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. 69 Table of Contents 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. Loans The following table provides information regarding outstanding loan balances: (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Originated loans: Construction $ 144,062 $ 171,934 $ 137,437 $ 108,334 $ 97,424 Commercial real estate, other 899,774 854,721 861,610 838,333 836,613 Commercial real estate 1,043,836 1,026,655 999,047 946,667 934,037 Commercial and industrial 777,050 791,307 779,064 715,169 778,122 Premium finance 152,237 145,813 136,121 134,755 117,039 Leases 149,894 97,168 69,169 49,464 24,217 Residential real estate 373,010 364,989 350,595 334,838 324,321 Home equity lines of credit 115,935 107,414 104,176 98,806 95,376 Consumer, indirect 563,088 524,778 530,532 543,243 537,926 Consumer, direct 95,371 87,994 81,330 80,746 78,736 Consumer 658,459 612,772 611,862 623,989 616,662 Deposit account overdrafts 851 699 756 927 498 Total originated loans $ 3,271,272 $ 3,146,817 $ 3,050,790 $ 2,904,615 $ 2,890,272 Acquired loans (a): Construction $ 58,526 $ 66,371 $ 72,795 $ 66,450 $ 3,175 Commercial real estate, other 560,249 602,511 688,471 790,783 111,647 Commercial real estate 618,775 668,882 761,266 857,233 114,822 Commercial and industrial 81,402 95,844 112,328 143,369 27,629 Premium finance — — 15 — 49 Leases 164,628 169,900 53,339 61,982 71,426 Residential real estate 369,995 391,440 421,123 433,296 242,276 Home equity lines of credit 53,400 54,874 59,417 62,564 23,025 Consumer, indirect — — — 13 — Consumer, direct 16,433 19,396 23,322 27,956 2,700 Consumer 16,433 19,396 23,322 27,969 2,700 Total acquired loans $ 1,304,633 $ 1,400,336 $ 1,430,810 $ 1,586,413 $ 481,927 Total loans $ 4,575,905 $ 4,547,153 $ 4,481,600 $ 4,491,028 $ 3,372,199 Percent of loans to total loans: Construction 4.4 % 5.2 % 4.7 % 3.9 % 3.0 % Commercial real estate, other 32.0 % 32.1 % 34.7 % 36.3 % 28.1 % Commercial real estate 36.4 % 37.3 % 39.4 % 40.2 % 31.1 % Commercial and industrial 18.8 % 19.5 % 19.9 % 19.1 % 23.9 % Premium finance 3.3 % 3.2 % 3.0 % 3.0 % 3.5 % Leases 6.9 % 5.9 % 2.7 % 2.5 % 2.8 % Residential real estate 16.2 % 16.6 % 17.2 % 17.1 % 16.8 % Home equity lines of credit 3.7 % 3.6 % 3.7 % 3.6 % 3.5 % Consumer, indirect 12.3 % 11.5 % 11.8 % 12.1 % 16.0 % Consumer, direct 2.4 % 2.4 % 2.3 % 2.4 % 2.4 % Consumer 14.7 % 13.9 % 14.1 % 14.5 % 18.4 % Total percentage 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Residential real estate loans being serviced for others $ 410,007 $ 420,024 $ 430,597 $ 441,085 $ 454,399 (a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). 70 Table of Contents 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 Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio. Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at June 30, 2022: (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Construction: Apartment complexes $ 64,451 $ 95,898 $ 160,349 36.5 % Mixed-use facilities 39,333 19,205 58,538 13.3 % Assisted living facilities and nursing homes 18,106 15,775 33,881 7.7 % Land only 18,106 12,207 30,313 6.9 % Office buildings and complexes 11,711 10,321 22,032 5.0 % Lodging and lodging related 5,170 1,379 6,549 1.5 % Retail 8,654 2,023 10,677 2.4 % 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 % Total construction $ 202,588 $ 237,129 $ 439,717 100.0 % (a) All other outstanding balances are less than 2% of the total loan portfolio. 71 Table of Contents (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Commercial real estate, other: Office buildings and complexes: Owner occupied $ 75,510 $ 3,243 $ 78,753 5.2 % Non-owner occupied 80,295 4,011 84,306 5.6 % Total office buildings and complexes 155,805 7,254 163,059 10.8 % Retail facilities: Owner occupied 43,491 711 44,202 2.9 % Non-owner occupied 128,410 1,226 129,636 8.6 % Total retail facilities 171,901 1,937 173,838 11.5 % Mixed-use facilities: Owner occupied 51,186 274 51,460 3.4 % Non-owner occupied 58,225 775 59,000 3.9 % Total mixed-use facilities 109,411 1,049 110,460 7.3 % Apartment complexes 109,585 3,825 113,410 7.5 % Light industrial facilities: Owner occupied 96,708 1,610 98,318 6.5 % Non-owner occupied 40,963 3,662 44,625 3.0 % Total light industrial facilities 137,671 5,272 142,943 9.5 % Assisted living facilities and nursing homes 72,498 250 72,748 4.8 % Warehouse facilities: Owner occupied 35,884 1,471 37,355 2.5 % Non-owner occupied 35,681 163 35,844 2.4 % Total warehouse facilities 71,565 1,634 73,199 4.9 % Lodging and lodging related: Owner occupied 13,659 2,553 16,212 1.1 % Non-owner occupied 88,329 430 88,759 5.9 % Total lodging and lodging related 101,988 2,983 104,971 7.0 % Education services: Owner occupied 17,887 98 17,985 1.2 % Non-owner occupied 22,140 4,000 26,140 1.7 % Total education services 40,027 4,098 44,125 2.9 % Healthcare facilities: Owner occupied 24,114 401 24,515 1.6 % Non-owner occupied 10,842 — 10,842 0.7 % Total healthcare facilities 34,956 401 35,357 2.3 % Restaurant/bar facilities: Owner occupied 23,959 74 24,033 1.6 % Non-owner occupied 10,780 298 11,078 0.7 % Total restaurant/bar facilities 34,739 372 35,111 2.3 % Agriculture 26,744 1,474 28,218 1.9 % Other (a) 393,133 18,584 411,717 27.3 % Total commercial real estate, other $ 1,460,023 $ 49,133 $ 1,509,156 100.0 % (a) All other outstanding balances are less than 2% of the total loan portfolio. Peoples' commercial lending activities continue to focus on lending opportunities within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Maryland. In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both 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 is secured by the underlying equipment collateral and not real estate, which mitigates geographic risk. Small Business Administration Paycheck Protection Program In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers 72 Table of Contents and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. Peoples is a PPP participating lender, and the PPP loans originated are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following tables detail Peoples' PPP loans and related income: (Dollars in millions) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 PPP aggregate outstanding principal balances $ 15.2 $ 42.9 $ 89.3 $ 139.8 $ 194.7 PPP net deferred loan origination fees 0.4 1.0 2.2 4.0 7.1 Accretion of net deferred loan origination fees 0.6 1.2 1.8 3.1 3.4 Allowance for Credit Losses The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio. The following details management's allocation of the allowance for credit losses: (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Commercial real estate $ 20,239 $ 23,786 $ 32,146 $ 39,252 $ 18,147 Commercial and industrial 8,572 10,114 11,063 13,378 8,686 Premium finance 311 345 379 1,137 998 Leases 7,585 5,875 4,797 4,505 3,715 Residential real estate 6,332 6,495 7,233 9,568 4,837 Home equity lines of credit 1,699 1,894 2,005 2,224 1,504 Consumer, indirect 6,234 5,172 5,326 6,160 8,841 Consumer, direct 1,321 1,036 961 1,079 1,161 Deposit account overdrafts 53 51 57 79 53 Allowance for credit losses $ 52,346 $ 54,768 $ 63,967 $ 77,382 $ 47,942 As a percent of total loans 1.14 % 1.20 % 1.43 % 1.72 % 1.42 % 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. 73 Table of Contents The following table summarizes Peoples’ net charge-offs and recoveries: Three Months Ended (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Gross charge-offs: Commercial real estate, other $ 22 $ 278 $ 226 $ — $ 4 Commercial and industrial 420 463 105 654 5 Premium finance 30 14 15 7 7 Leases 493 473 478 431 525 Residential real estate 47 309 72 44 136 Home equity lines of credit 25 16 1 180 4 Consumer, indirect 449 385 566 416 269 Consumer, direct 60 136 56 29 31 Consumer 509 521 622 445 300 Deposit account overdrafts 405 259 248 135 89 Total gross charge-offs $ 1,951 $ 2,333 $ 1,767 $ 1,896 $ 1,070 Recoveries: Commercial real estate, other $ 176 $ 49 $ 196 $ 4 $ 4 Commercial and industrial 2 4 4 4 18 Premium finance 8 — — — — Leases 64 176 109 120 110 Residential real estate 14 14 40 48 40 Home equity lines of credit — 29 — 37 — Consumer, indirect 83 86 42 43 63 Consumer, direct 11 11 58 17 11 Consumer 94 97 100 60 74 Deposit account overdrafts 52 54 42 37 44 Total recoveries $ 410 $ 423 $ 491 $ 310 $ 290 Net charge-offs (recoveries): Commercial real estate, other $ (154) $ 229 $ 30 $ (4) $ — Commercial and industrial 418 459 101 650 (13) Premium finance 22 14 15 7 7 Leases 429 297 369 311 415 Residential real estate 33 295 32 (4) 96 Home equity lines of credit 25 (13) 1 143 4 Consumer, indirect 366 299 524 373 206 Consumer, direct 49 125 (2) 12 20 Consumer 415 424 522 385 226 Deposit account overdrafts 353 205 206 98 45 Total net charge-offs $ 1,541 $ 1,910 $ 1,276 $ 1,586 $ 780 Ratio of net charge-offs to average total loans (annualized): Commercial real estate, other (0.01) % 0.02 % — % — % — % Commercial and industrial 0.04 % 0.03 % 0.01 % 0.08 % — % Leases 0.04 % 0.03 % 0.03 % 0.03 % 0.05 % Residential real estate — % 0.03 % — % — % 0.01 % Home equity lines of credit — % — % — % 0.02 % — % Consumer, indirect 0.03 % 0.03 % 0.05 % 0.04 % 0.02 % Consumer, direct 0.01 % 0.01 % — % — % — % Consumer 0.04 % 0.04 % 0.05 % 0.04 % 0.02 % Deposit account overdrafts 0.03 % 0.02 % 0.02 % 0.01 % 0.01 % Total 0.14 % 0.17 % 0.11 % 0.18 % 0.09 % Each with "--%" not meaningful. 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. Compared to 74 Table of Contents 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) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Loans 90+ days past due and accruing: Construction $ — $ — $ 90 $ — $ — Commercial real estate, other 330 603 689 1,912 1,361 Commercial and industrial 89 53 1,139 98 161 Premium finance 304 613 865 368 216 Leases 5,722 3,921 — 1,736 1,522 Residential real estate 1,687 677 805 1,156 342 Home equity lines of credit 89 75 50 61 60 Consumer, indirect 15 17 — — 39 Consumer, direct — — 85 32 40 Consumer 15 17 85 32 79 Total loans 90+ days past due and accruing $ 8,236 $ 5,959 $ 3,723 $ 5,363 $ 3,741 Nonaccrual loans: Construction $ 5 $ 6 $ 6 $ — $ 4 Commercial real estate, other 11,795 14,745 16,849 17,207 7,965 Commercial and industrial 1,748 2,394 2,505 4,133 3,938 Leases 1,573 1,731 1,581 1,411 — Residential real estate 7,463 7,459 8,016 8,046 5,811 Home equity lines of credit 567 604 687 661 572 Consumer, indirect 1,351 1,408 1,302 850 704 Consumer, direct 166 231 273 177 100 Consumer 1,517 1,639 1,575 1,027 804 Total nonaccrual loans $ 24,668 $ 28,578 $ 31,219 $ 32,485 $ 19,094 Nonaccrual troubled debt restructurings ("TDRs"): Commercial real estate, other $ 2,458 $ 197 $ 218 $ 94 99 Commercial and industrial 101 999 1,067 1,223 1,774 Residential real estate 1,731 1,676 1,631 1,689 1,784 Home equity lines of credit 323 333 352 315 129 Consumer, indirect 207 220 272 219 193 Consumer, direct — — 6 9 6 Consumer 207 220 278 228 199 Total nonaccrual TDRs $ 4,820 $ 3,425 $ 3,546 $ 3,549 $ 3,985 Total nonperforming loans ("NPLs") $ 37,724 $ 37,962 $ 38,488 $ 41,397 $ 26,820 OREO: Commercial $ 9,065 $ 9,106 $ 9,105 $ 10,804 $ — Residential 145 301 391 464 239 Total OREO $ 9,210 $ 9,407 $ 9,496 $ 11,268 $ 239 Total nonperforming assets ("NPAs") $ 46,934 $ 47,369 $ 47,984 $ 52,665 $ 27,059 Criticized loans (a) $ 181,395 $ 190,315 $ 194,016 $ 234,845 $ 113,802 Classified loans (b) 115,483 109,530 106,547 142,628 69,166 75 Table of Contents (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Asset Quality Ratios (c): Nonaccrual loans as a percent of total loans (d) 0.64 % 0.70 % 0.78 % 0.80 % 0.68 % NPLs as a percent of total loans (d) 0.82 % 0.83 % 0.86 % 0.92 % 0.79 % NPAs as a percent of total assets (d) 0.64 % 0.65 % 0.68 % 0.75 % 0.53 % 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 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 % Criticized loans as a percent of total loans (a) 3.96 % 4.19 % 4.33 % 5.23 % 3.37 % Classified loans as a percent of total loans (b) 2.52 % 2.41 % 2.38 % 3.18 % 2.05 % (a) Includes loans categorized as special mention, substandard or doubtful. (b) Includes loans categorized as substandard or doubtful. (c) Data presented as of the end of the period indicated. (d) Nonperforming loans ("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 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. On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40. On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers. 76 Table of Contents Deposits The following table details Peoples’ deposit balances: (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Non-interest-bearing deposits (a) $ 1,661,865 $ 1,666,668 $ 1,641,422 $ 1,559,993 $ 1,181,045 Interest-bearing deposits: Interest-bearing demand accounts (a) 1,143,010 1,179,199 1,167,460 1,140,639 732,478 Savings accounts 1,080,053 1,065,678 1,036,738 1,016,755 689,086 Retail certificates of deposit ("CDs") 584,259 612,936 643,759 691,680 417,466 Money market deposit accounts 645,242 656,266 651,169 637,635 547,412 Governmental deposit accounts 728,057 734,784 617,259 679,305 498,390 Brokered deposits 86,739 87,395 104,745 106,013 166,746 Total interest-bearing deposits 4,267,360 4,336,258 4,221,130 4,272,027 3,051,578 Total deposits $ 5,929,225 $ 6,002,926 $ 5,862,552 $ 5,832,020 $ 4,232,623 Demand deposits as a percent of total deposits 47 % 47 % 48 % 46 % 45 % (a) The sum of amounts presented is considered total demand 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 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. This decline was largely due to the increase in deposit balances from customers, which allowed Peoples to reduce its position in the higher-cost brokered CDs during each period. As part of its funding strategy, Peoples hedges 90-day brokered deposits with interest rate swaps. The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits. As of 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. Peoples continually evaluates the overall balance sheet position given the interest rate environment. Borrowed Funds The following table details Peoples’ short-term and long-term borrowings: (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Short-term borrowings: FHLB 90-day advances $ 40,000 $ 40,000 $ 40,000 $ 50,000 $ — Current portion of long-term FHLB advances — 15,000 15,000 15,000 15,000 Retail repurchase agreements 286,442 89,275 111,482 119,693 51,496 Total short-term borrowings $ 326,442 $ 144,275 $ 166,482 $ 184,693 $ 66,496 Long-term borrowings: FHLB advances $ 35,348 $ 85,564 $ 85,825 $ 86,483 $ 87,393 Vantage non-recourse debt 74,622 102,364 — — — Junior subordinated debt securities 13,717 13,682 13,650 12,928 7,688 Total long-term borrowings $ 123,687 $ 201,610 $ 99,475 $ 99,411 $ 95,081 Total borrowed funds $ 450,129 $ 345,885 $ 265,957 $ 284,104 $ 161,577 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 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. 77 Table of Contents Capital/Stockholders’ Equity 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 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) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Capital Amounts: Common Equity Tier 1 $ 564,708 $ 547,215 $ 577,565 $ 567,172 $ 383,502 Tier 1 578,425 560,897 591,215 580,100 391,190 Total (Tier 1 and Tier 2) 622,516 607,493 648,948 637,802 431,424 Net risk-weighted assets $ 4,857,818 $ 4,752,428 $ 4,614,258 $ 4,611,321 $ 3,382,736 Capital Ratios: Common Equity Tier 1 11.62 % 11.51 % 12.52 % 12.30 % 11.34 % Tier 1 11.91 % 11.80 % 12.81 % 12.58 % 11.56 % Total (Tier 1 and Tier 2) 12.81 % 12.78 % 14.06 % 13.83 % 12.75 % Tier 1 leverage ratio 8.38 % 8.29 % 8.67 % 11.20 % 7.87 % 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. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent. 78 Table of Contents The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements: (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Tangible equity: Total stockholders' equity $ 786,824 $ 808,340 $ 845,025 $ 831,882 $ 585,505 Less: goodwill and other intangible assets 328,132 341,865 291,009 295,415 221,576 Tangible equity $ 458,692 $ 466,475 $ 554,016 $ 536,467 $ 363,929 Tangible assets: Total assets $ 7,278,292 $ 7,239,261 $ 7,063,521 $ 7,059,752 $ 5,067,634 Less: goodwill and other intangible assets 328,132 341,865 291,009 295,415 221,576 Tangible assets $ 6,950,160 $ 6,897,396 $ 6,772,512 $ 6,764,337 $ 4,846,058 Tangible book value per common share: Tangible equity $ 458,692 $ 466,475 $ 554,016 $ 536,467 $ 363,929 Common shares outstanding 28,290,115 28,453,175 28,297,771 28,265,791 19,660,877 Tangible book value per common share $ 16.21 $ 16.39 $ 19.58 $ 18.98 $ 18.51 Tangible equity to tangible assets ratio: Tangible equity $ 458,692 $ 466,475 $ 554,016 $ 536,467 $ 363,929 Tangible assets $ 6,950,160 $ 6,897,396 $ 6,772,512 $ 6,764,337 $ 4,846,058 Tangible equity to tangible assets 6.60 % 6.76 % 8.18 % 7.93 % 7.51 % 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 While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources. Interest Rate Risk Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams. Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2021 Form 10-K. 79 Table of Contents The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands): Increase (Decrease) in Interest Rate Estimated Increase (Decrease) in Net Interest Income Estimated Decrease in Economic Value of Equity (in Basis Points) 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) % 200 18,446 7.3 % 16,312 7.7 % (15,790) (1.1) % (16,541) (1.3) % 100 9,148 3.6 % 7,899 3.7 % (9,132) (0.7) % (5,308) (0.4) % (100) (16,168) (6.4) % (8,615) (4.1) % (58,315) (4.2) % (91,568) (7.4) % Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis. With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay. These prepayment speeds affect the amount forecasted for cash flow reinvestment, premium amortization, and discount accretion assumed in interest rate risk modeling results. This prepayment activity is generally the result of refinancing activity and tends to increase as longer term interest rates decline, and decrease as interest rates increase. The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income or asset duration. While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at 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. The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are generally correlated with short-term rates, remain constant, while asset yields, which are correlated with long-term rates, rise. Increased asset yields would not be offset by increases in deposit or funding costs; resulting in an increased amount of net interest income and higher net interest margin. At 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. In such a scenario, Peoples’ deposit and borrowing costs, which are correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall. Asset yields driven lower by increased investment securities premium amortization would not be offset by reductions in deposit or funding costs; resulting in a decreased amount of net interest income and lower net interest margin. At 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 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 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. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2021 was largely attributable to increased effective duration in the investment securities portfolio. 80 Table of Contents Liquidity In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 2021 Form 10-K. At 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. Off-Balance Sheet Activities and Contractual Obligations In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments. Loan Commitments and Standby Letters of Credit Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure. The following table details the total contractual amount of loan commitments and standby letters of credit: (Dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 Home equity lines of credit $ 188,803 $ 184,616 $ 177,262 $ 177,963 $ 134,516 Unadvanced construction loans 237,129 203,719 227,135 271,483 207,403 Other loan commitments 566,624 616,696 577,170 646,374 542,429 Loan commitments $ 992,556 $ 1,005,031 $ 981,567 $ 1,095,820 $ 884,348 Standby letters of credit $ 15,977 $ 12,729 $ 12,805 $ 12,358 $ 10,252