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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 432 added, 397 removed, 981 unchanged (46% of the section changed)

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

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

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

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

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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;

These risks and uncertainties 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 or mutations thereof - on economies (local, national and international), supply chains and financial markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on Peoples' customers (including potential changes to their bank preferences and behaviors), 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, 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;

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

(3) the 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;

(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 Premier Merger, the recently-completed acquisition of Vantage and the pending Limestone Merger, and the expansion of commercial and consumer lending activities, in light of the potential 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;

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(9) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;

(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;

(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 recent inflationary pressures 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;

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(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;

(16) adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and recent inflationary pressures, 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;

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(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 potential further deterioration of the U.S.

economy due to financial, political or other shocks;

(29) the potential influence on the U.S.

financial markets and economy from the effects of climate change;

(30) 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;

(31) 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) Peoples' ability to integrate the NSL and Vantage acquisitions, the Premier Merger, and the pending Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(33) the risk that expected revenue synergies and cost savings from the Premier Merger or the pending Limestone Merger, may not be fully realized or realized within the expected time frame;

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

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(37) 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-

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.

RISK FACTORS" of Peoples' 2021 Form 10-K, under the heading "ITEM 1A.

RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, and under the head "ITEM 1A.

RISK FACTORS" in Part II of this Form 10-Q.

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 any forward-looking statements to reflect events or circumstances after the filing 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 – www.peoplesbancorp.com under the “Investor Relations” section.

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.

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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.

Peoples offers a complete array of insurance products through Peoples Insurance, a subsidiary of Peoples Bank.

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

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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.

As of September 30, 2022, Peoples had 130 locations, including 113 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 is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the FRB of Cleveland and 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.

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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.

Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant accounting 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 September 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 MD&A 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.

◦ On October 25, 2022, Peoples announced the signing of a definitive agreement and plan of merger pursuant to which Peoples will acquire, in an all-stock merger, Limestone, a bank holding company headquartered in Louisville, Kentucky, and the parent company of Limestone Bank.

Under the terms of the agreement and plan of merger, Limestone will merge with and into Peoples, and Limestone Bank will subsequently merge with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at approximately $208.2 million.

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.

◦ On March 7, 2022, Peoples completed its acquisition of Vantage pursuant to an Equity 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 $154.9 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

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.

Based in Excelsior, Minnesota, Vantage offers mid-ticket equipment leases

primarily for business essential information technology equipment across a wide array of industries.

Peoples recorded preliminary goodwill in the amount of $27.2 million and preliminary other intangible assets of $13.2 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.

◦ On September 17, 2021, Peoples completed its merger with Premier, in which Peoples acquired, in an all-stock merger, a bank holding company headquartered in Huntington, West Virginia, and the parent company of Premier Bank, Inc.

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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.

Peoples acquired $1.2 billion in loans and $1.8 billion in deposits and recorded 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.

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

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.

◦ On March 31, 2021, Peoples completed its acquisition of 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.

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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.

As of September 30, 2022, Peoples had $3.7 million aggregate principal amount in PPP loans outstanding (including $1.7 million acquired in the Premier Merger), which were included in commercial and industrial loan balances, compared to $15.2 million (including $5.6 million acquired in the Premier Merger) at June 30, 2022.

Peoples recognized interest income of $0.4 million for deferred loan fees/costs and $22,000 of interest income on PPP loans during the third quarter of 2022, compared to $0.6 million and $79,000, respectively, for the second quarter of 2022, and $3.1 million and $0.4 million, respectively, for the third quarter of 2021.

During the first nine months of 2022, Peoples recognized interest income of $2.1 million for deferred loan fee/cost accretion and $0.3 million of interest income on PPP loans, compared to $11.2 million for deferred loan/ fee costs accretion and $2.0 million of interest income during the first nine months of 2021.

◦ During the third quarter of 2022, Peoples recorded a provision for credit losses of $1.8 million, compared to a recovery of credit losses of $0.8 million in the linked quarter and a provision for credit losses of $9.0 million in the third quarter of 2021.

For the first nine months of 2022, Peoples recorded a recovery of credit losses of $5.8 million compared to a provision for credit losses of $7.3 million for 2021.

The release of credit losses for the first three 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 - Provision for (Recovery of) Credit Losses" found later in this discussion.

◦ During the third quarter of 2022, Peoples incurred $0.3 million of acquisition-related expenses, compared to $0.6 million in the second quarter of 2022 and $16.2 million in the third quarter of 2021.

For the first nine months of 2022, Peoples incurred $2.3 million of acquisition-related expenses compared to $20.5 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 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, to 2.25% to 2.50% on July 27, 2022, to 3.00% to 3.25% on September 21, 2022, and has stated it anticipates continuing to raise rates throughout 2022.

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

EXECUTIVE SUMMARY

Peoples reported net income of $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.

Peoples reported net income of $26.0 million for the third quarter of 2022, representing earnings per diluted common share of $0.92.

In comparison, Peoples recognized earnings per diluted common share of $0.88 for the second quarter of 2022, and a loss per diluted common share of $0.28 for the third quarter of 2021.

Peoples recorded net income of $74.4 million, or $2.65 per diluted common share for the nine months ended September 30, 2022, compared to $19.8 million, or $0.99 per diluted common share, for the nine months ended September 30, 2021.

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

Non-core items negatively impacted earnings per diluted common share by $0.01 for the third quarter of 2022, $0.02 for the second quarter of 2022, and $0.71 for the third quarter of 2021.

Non-core items negatively impacted earnings per diluted share by $0.07 and $0.98 for the nine months ended September 30, 2022 and 2021, respectively.

Net interest income was $67.1 million for the third quarter of 2022, an increase of $5.6 million, or 9%, compared to the linked quarter.

Net interest margin was 4.17% for the third quarter of 2022, compared to 3.84% for the linked quarter.

The increase in net interest income and net interest margin reflects the recent increases in market interest rates, which expanded loan yields and investment yields by 33 basis points and 18 basis points, respectively, when compared to the linked quarter.

Net interest income for the third quarter of 2022 increased $24.5 million, or 57% , compared to the third quarter of 2021.

Net interest margin increased 67 basis points compared to 3.50% for the third quarter of 2021.

For the first nine months of 2022, net interest income increased $65.0 million, or 55%, compared to the first nine months of 2021, while net interest margin increased 40 basis points to 3.81%.

The increases in net interest income compared to the third quarter and the first nine months of 2021 were driven by the (i) the Premier Merger and Vantage acquisition, (ii) organic growth and (iii) increases in market interest rates.

Accretion income, net of amortization expense, from acquisitions was $2.8 million for the third quarter of 2022, $3.9 million for the second quarter of 2022 and $1.0 million for the third quarter of 2021, which added 16 basis points, 25 basis points and 8 basis points, respectively, to net interest margin.

The decrease in accretion income when compared to the linked quarter was driven by less loan accretion due to lower payoffs and less accretion from the Premier Merger.

The increase in accretion income for the current quarter compared to the third quarter of 2021 was a result of the acquisition of Vantage and a full quarter of accretion from the Premier Merger.

Accretion income, net of amortization expense, from acquisitions was $9.4 million for the nine months ended September 30, 2022, compared to $2.2 million for the nine months ended September 30, 2021, which added 20 and 6 basis points, respectively, to net interest margin.

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

The provision for credit losses was $1.8 million for the third quarter of 2022, compared to a recovery of credit losses of $0.8 million for the linked quarter and a provision for credit losses of $9.0 million for the third quarter of 2021.

The provision for credit losses in the third quarter of 2022 was largely attributable to a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans.

Net charge-offs for the third quarter of 2022 were $1.7 million, or 0.15% of average total loans annualized, compared to net charge-offs of $1.5 million, or 0.14% of average total loans annualized, for the linked quarter and net charge-offs of $1.6 million, or 0.18% of average total loans annualized, for the third 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.

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.

The recovery of credit losses during the first nine months of 2022 was $5.8 million, compared to a provision for credit losses of $7.3 million for the first nine months of 2021.

Net charge-offs for the first nine months of 2022 were $5.1 million, or 0.15% of average total loans annualized, compared to net charge-offs of $3.4 million, or 0.13% annualized, for the first nine months of 2021.

The recovery of credit losses during the first nine months of 2022 was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods.

The provision for credit losses during the first nine months of 2021 was due to recording a provision for credit losses for the Premier Merger of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million in the third quarter of 2021.

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

Total non-interest income, excluding net gains and losses, for the third quarter of 2022 increased $0.8 million compared to the linked quarter.

The increase in non-interest income, excluding net gains and losses, was primarily impacted by an increase in other non-interest income due to a $1.3 million increase in lease income.

Also impacting the third quarter increase was an increase of $0.3 million in deposit account service charges primarily due to customer activity.

Partially offsetting these increases in non-interest income, excluding net gains and losses, were declines of $0.3 million, $0.2 million, and $103,000 in trust and investment income, electronic banking income, and bank owned life insurance income, respectively.

The decrease in trust and investment income was primarily due to lower market values of trust and investment assets managed.

The decrease in electronic banking income was due to less customer activity than in the linked quarter.

The lower bank owned life insurance income was primarily driven by $0.2 million recognized on a one-time death benefit during the linked quarter.

Compared to the third quarter of 2021, non-interest income, excluding net gains and losses, increased $3.6 million.

Lease income, deposit account service charges, and electronic banking income increased $1.7 million, $1.3 million, and $0.9 million, respectively.

The increases in deposit account service charges and electronic banking income were primarily attributable to the acquired Premier accounts as well as increased customer activity in recent periods.

For the first nine months of 2022, total non-interest income, excluding gains and losses, increased $9.8 million, or 19%, compared to the first nine months of 2021.

The increase was driven by growth of $4.2 million, or 64%, in service charges on deposit accounts, and $3.3 million, or 26%, in electronic banking income, primarily attributable to customers added in the Premier Merger.

Also contributing to the growth was a $2.9 million increase in lease income.

Partially offsetting the 2022 increase when compared to the same 2021 period was a $1.6 million decline in mortgage banking income due to the increased market interest rate environment in the first nine months of 2022 and a lower volume of new loan originations.

Total non-interest expense increased $2.4 million, or 5%, for the three months ended September 30, 2022, compared to the linked quarter.

The increase in total non-interest expense for the third quarter of 2022 was attributable to increases in (i) salaries and employee benefit costs, (ii) professional fees, (iii) marketing expense and (iv) data processing and software expense.

Partially offsetting the increase in non-interest expenses was a decrease in electronic banking expense.

The increases in non-interest expenses were primarily driven by growth as well as sales incentives and minimum wage increases at Premier in regards to salaries and employee benefit costs.

Total non-interest expense in the third and second quarters of 2022 also contained non-core expenses, including acquisition-related expenses of $0.3 million and $0.6 million, respectively.

Compared to the third quarter of 2021, total non-interest expense decreased $5.6 million, or 10%, primarily due to decreases in acquisition-related expenses and professional fees, due to the Premier Merger, which totaled $16.2 million for the third quarter of 2021.

Partially offsetting these decreases in non-interest expense were increases in (i) salaries and employee benefit costs, (ii) net occupancy and equipment expense, (iii) data processing and software expense, (iv) amortization of other intangible assets, and (v) electronic banking expense.

The increases were due to the recent growth, including through mergers and acquisitions.

For the nine months ended September 30, 2022, total non-interest expense increased $18.0 million, or 13%, compared to the first nine months of 2021.

The variance was driven by increases of (i) $15.7 million in salaries and employee benefit costs, (ii) $4.5 million in net occupancy and equipment expense, (iii) $2.5 million in intangible asset amortization, (iv) $2.1 million in electronic banking expense, (v) $1.8 million in data processing and software expenses, and (vi) $1.3 million in FDIC insurance premiums.

These increases were primarily due to growth over the last year, driven by mergers and acquisitions.

Partially offsetting the increase in non-interest expense was a decrease in acquisition-related expenses.

The efficiency ratio for the third quarter of 2022 was 57.2%, compared to 58.8% for the linked quarter, and 94.7% for the third quarter of 2021.

The change in the efficiency ratio compared to the linked quarter was primarily due to the increases in market interest rates coupled with decreases in acquisition-related expenses.

The efficiency ratio, adjusted for non-core items, was 56.6% for the third quarter of 2022, compared to 58.0% for the linked quarter and 63.9% for the third quarter of 2021.

The change in the efficiency ratio, adjusted for non-core items, was primarily due to the increases in interest rates coupled with decreases in acquisition-related expenses.

The efficiency ratio the nine months ended September 30, 2022 was 60.7%, compared to 78.4% for the nine months ended September 30, 2021.

The efficiency ratio, adjusted for non-core items, was 59.6% for the first nine months of 2022, compared to 64.3% for the same period of 2021.

The changes in the efficiency ratios were primarily due to the increases in interest income due to higher market interest rates as well as decreases in acquisition-related expenses.

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.

Peoples recorded income tax expense of $7.4 million with an effective tax rate of 22.2% for the third quarter of 2022, compared to income tax expense of $6.8 million with an effective tax rate of 21.6% for the linked quarter and income tax benefit of $2.2 million with an effective tax rate of 27.4% for the third quarter of 2021.

The increase in income tax expense for the third quarter of 2022, compared to the linked quarter, was due to higher pre-tax income.

The increase in income tax expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was driven by net income in the third quarter of 2022 versus a net loss in the same period of 2021.

Peoples recorded income tax expense of $20.2 million with an effective tax rate of 21.4% in the first nine months of 2022 and $4.0 million with an effective tax rate of 16.8% in the first nine months of 2021.

The increase was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

At September 30, 2022, total assets were $7.01 billion, compared to $7.28 billion at June 30, 2022 and $7.06 billion at December 31, 2021 and at September 30, 2021.

The 4% decline in total assets compared to June 30, 2022 was primarily due to decreases in interest-bearing deposits at other banks and available-for-sale investment securities, partially offset by an increase in other assets due to increases in the deferred tax asset and derivative assets and loan and lease balances.

The increase in the loan and lease balances when compared to June 30, 2022 was primarily driven by increases of (i) $29.2 million in consumer indirect loans, (ii) $19.0 million in commercial and industrial loans, (iii) $15.4 million in premium finance loans and (iv) $13.0 million in construction loans, partially offset by a reduction in other commercial real estate loans of $36.5 million.

The 1% decline in total assets compared to December 31, 2021 was largely attributable to decreases in interest-bearing deposits at other banks and available-for-sale investment securities, partially offset by an increase in leases due primarily to the acquired Vantage leases.

Total liabilities were $6.25 billion at September 30, 2022, down from $6.49 billion at June 30, 2022 and up from $6.22 billion at December 31, 2021 and $6.23 billion at September 30, 2021.

The decrease in total liabilities compared to June 30, 2022 was attributable to decreases in short-term borrowings and total deposits.

The decline in total deposits when compared to June 30, 2022 was primarily driven by reductions of (i) $39.5 million in retail certificates of deposits, (ii) $20.5 million in money market deposit

accounts, and (iii) $16.5 million in non-interest bearing checking accounts.

The increase in total liabilities compared to December 31, 2021 was primarily due to increases in accrued expenses and other liabilities, partially offset by decreases in deposits.

Total deposits are declining due to customers returning to pre-COVID-19 pandemic balances.

In the 2021 periods presented, deposits 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.

Total stockholders' equity at September 30, 2022 decreased by $26.3 million compared to June 30, 2022, which reflected an other comprehensive loss of $41.6 million, dividends paid of $10.8 million, and share repurchases of $1.2 million, partially offset by net income for the quarter of $26.0 million.

Total stockholders' equity at September 30, 2022 decreased by $84.5 million compared to December 31, 2021, which was due to (i) an other comprehensive loss of $123.3 million, (ii) dividends paid of $31.7 million and (iii) share repurchases of $7.1 million, partially offset by net income of $74.4 million for the first nine months of 2022.

The other comprehensive loss in all periods of 2022 was the result of changes in the market value of available-for-sale investment securities, which were driven by changes in market interest rates.

RESULTS OF OPERATIONS

3 unchanged sentences

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

FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on

obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 23.3% for 2022 and using a federal corporate income tax rate of 21% for 2021.

FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended corporate income tax rate of 21.4% for September 30, 2022, a 23.3% blended corporate income tax rate for June 30, 2022, and 22.3% blended corporate income tax rate for September 30, 2021.

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

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

For the Three Months Ended

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

September 30, 2022 June 30, 2022 September 30, 2021

( Dollars in thousands)

22 unchanged sentences

$ 7,124,108 $ 7,121,663 $ 5,475,147

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:

26 unchanged sentences

Net interest margin (b) 4.17 % 3.84 % 3.50 %

For the Six Months Ended

June 30, 2022 June 30, 2021

For the Nine Months Ended

September 30, 2022 September 30, 2021

( Dollars in thousands)

53 unchanged sentences

(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.

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a 21.4% blended corporate income tax rate for September 30, 2022, a 23.3% blended corporate income tax rate for June 30, 2022, and a 22.3% blended corporate income tax rate for September 30, 2021.

5 unchanged sentences

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.

Vantage on March 7, 2022, which added to average lease and borrowed funds balances, and Premier on September 17, 2021, which added to average short-term investments, average total investment securities, average total loans and average total deposits.

Peoples has began to reduce cash balances after previously maintaining high cash balances in recent prior 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

Three Months Ended September 30, 2022 Compared to

Nine Months Ended September 30, 2022 Compared to

(Dollars in thousands) June 30, 2022 September 30, 2021 September 30, 2021

Increase (decrease) in:

34 unchanged sentences

(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 21.4% blended corporate income tax rate for September 30, 2022, a 23.3% blended corporate income tax rate for June 30, 2022, and a 22.3% blended corporate income tax rate for September 30, 2021.

Compared to the linked quarter, net interest income increased 9% and net interest margin expanded by 33 basis points.

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

Loan yields grew by

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

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

Both increases were primarily driven by 32 basis points of improvement in loan yields and 17 basis points of improvement in investment yields due to the recent increases in market interest rates.

Both deposit costs and borrowing costs remained stable.

Net interest income grew 57% over the prior year quarter and net interest margin increased 67 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.

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

Compared to the prior year quarter, loan yields grew 71 basis points due to the rising interest rate environment and both acquisitive and organic growth, while borrowing costs increased 80 basis points as a result of the non-recourse debt assumed in the acquisition of Vantage.

For the first nine months of 2022, net interest income and net interest margin grew 55% and 40 basis points, respectively, compared to 2021.

During that same time, loan yields increased 47 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.

Net interest income has been positively impacted by (i) the Premier Merger and Vantage acquisition, (ii) core growth and (iii) increases in market interest rates.

Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $0.4 million, $0.6 million and $3.1 million during the third and second quarters of 2022 and the third quarter of 2021, respectively, along with $22,000, $79,000 and $0.4 million of interest earned on PPP loans, during the respective periods.

For the first nine months of 2022, interest income recognized on deferred loan fees/costs related to PPP loans was $2.2 million, and interest earned was $0.3 million, compared to $11.2 million and $2.0 million, respectively, for the nine months of 2021.

The interest income recognized on PPP loans added 1 basis point, 2 basis points and 18 basis points to net interest margin for the third and second quarters of 2022 and the third quarter of 2021, respectively, while adding 3 basis points and 20 basis points to net interest margin for the first nine months of 2022 and 2021, respectively.

Accretion income, net of amortization expense, from acquisitions was $2.8 million for the third quarter of 2022, $3.9 million for the linked quarter and $1.0 million for the third quarter of 2021, which added 16 basis points, 25 basis points and 8 basis points, respectively, to net interest margin.

The decrease in accretion income when compared to the linked quarter was driven by less loan accretion due to lower payoffs and less accretion from the Premier Merger.

The increase in accretion income for the current quarter compared to the third quarter of 2021 was a result of the acquisition of Vantage and a full quarter of accretion from the Premier Merger.

For the first nine months of 2022, accretion income totaled $9.4 million and added 20 basis points to net interest margin compared to $2.2 million and 6 basis points for the first nine months of 2021, with the increase from the prior year due to the acquired loans and leases from the Premier Merger and Vantage acquisition.

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

2022 March 31,

2022 June 30,

Provision for (Recovery of) Credit Losses

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 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 (recovery of) other credit losses $ 1,558 $ (1,135) $ 8,870 $ (6,583) $ 7,125

Provision for checking account overdraft credit losses 218 355 124 772 208

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

Provision for (recovery of) credit losses $ 1,776 $ (780) $ 8,994 $ (5,811) $ 7,333

As a percentage of average total loans (a) 0.15 % (0.07) % 1.01 % (0.17) % 0.28 %

(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.

The provision for (recovery of) 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 third quarter of 2022, the provision for credit losses was primarily attributable to a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans.

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.

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

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

For the first nine months of 2022, the recovery of credit losses was primarily due to the impact of economic assumptions used in the CECL model.

For the first nine months of 2021, the provision of credit losses was due to the day-one allowance for credit losses for the Premier Merger described above.

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

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

Net (loss) 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

2022 March 31,

2022 June 30,

Net (loss) gain includes net losses and net 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 net gains for the periods presented:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 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 gain (loss) on investment securities $ 21 $ (44) $ (166) $ 107 $ (704)

Net loss on asset disposals and other transactions:

Net gain (loss) on other assets $ 94 $ (119) $ (270) $ (47) $ (429)

Net loss on OREO (105) (33) (32) (138) (24)

Net loss on other transactions (24) — (6) (129) (6)

Net loss on asset disposals and other transactions $ (35) $ (152) $ (308) $ (314) $ (459)

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.

The net loss on asset disposals and other transactions decreased in the third quarter relative to the linked and prior year quarters.

The net loss for the linked quarter was attributable to a $119,000 loss recorded on repossessed assets coupled with a $44,000 loss on the sale of investment securities in order to reinvest into higher-yielding investment securities.

The net loss for the third quarter of 2021 was driven primarily by net losses on the disposal of fixed assets acquired in the Premier Merger and the sale of investment securities during the third quarter of 2021.

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

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

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

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

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.

Total non-interest income, excluding net gains and losses, comprised 23% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the third quarter of 2022, compared to 24% for the linked quarter and 28% for the prior year quarter.

For the first nine months of 2022, total non-interest income, excluding net gains and losses, totaled 25% of total revenues compared to 30% for the same period of 2021.

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

For the third 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

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

2 unchanged sentences

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

E-banking income 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

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

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.

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

For the current quarter compared to the prior year quarter and the first nine months of 2022 compared to the first nine months of 2021, e-banking income grew 22% and 26%, respectively, from the impact of the acquired Premier accounts in addition to increased customer activity in recent periods.

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

2022 March 31,

2022 June 30,

The following table details Peoples’ trust and investment income:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

3 unchanged sentences

Trust and investment income $ 3,954 $ 4,246 $ 4,158 $ 12,476 $ 12,223

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.

Fiduciary income and brokerage income decreased in the current quarter relative to the linked quarter, due to a decrease in assets under administration and management.

For the first nine months of 2022, new accounts drove the growth in trust and investment income when compared to the same period of 2021.

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

September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2022 September 30,

2021 June 30,

(Dollars in thousands)

3 unchanged sentences

Quarterly average $ 2,844,181 $ 2,927,405 $ 3,106,021 $ 3,126,398 $ 3,077,554

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.

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

The following table details Peoples' insurance income:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Property and casualty insurance commissions

$ 2,958 $ 3,039 $ 2,836 $ 8,859 $ 8,356

Performance-based commissions

64 10 59 1,420 2,044

Life and health insurance commissions

508 506 396 1,464 1,248

Other fees and charges

88 92 76 252 275

Insurance income $ 3,618 $ 3,647 $ 3,367 $ 11,995 $ 11,923

Insurance income for the current quarter grew by $0.3 million compared to the third quarter of 2021 due to additional customers.

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

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

5 unchanged sentences

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

Deposit account service charges 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.

Deposit account service charges increased for the current quarter compared to the linked quarter, and the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021 due to increased customer activity in recent quarters, compared to the very low levels of early 2021, which had been impacted by 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 increases in the current quarter compared to the prior year quarter and

the first nine months of 2022 compared to the first nine months of 2021 were the additional customers associated with the Premier Merger.

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

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Mortgage banking income 352 436 820 788 1,960

Bank owned life insurance income 694 797 437 1,922 1,329

Mortgage banking income 328 352 766 1,116 2,726

Commercial loan swap fees 224 270 73 662 194

Other non-interest income 2,468 1,294 1,144 5,088 2,605

Bank owned life insurance income for the current quarter was down compared to the linked quarter primarily due to a $248,000 death benefit related to the cash surrender value of the underlying policy in the linked quarter.

Partially offsetting the decline, was the fact that Peoples invested an additional $30.0 million in bank owned life insurance policies during the second quarter of 2022.

For the first nine months of 2022, the increased bank owned life insurance income when compared to the same period of 2021 was due to the aforementioned death benefit proceeds and additional investment in policies.

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.

Mortgage banking income for the current quarter was mostly flat when compared to the linked quarter.

Mortgage banking income declined for the current year quarter compared to the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021 due to the increased market interest rate environment in recent quarters and a lower volume of new loan originations.

In the third quarter of 2022, Peoples sold $4.4 million in loans to the secondary market with servicing retained and $7.6 million in loans with servicing released, compared to $4.6 million and $6.1 million, respectively, for the second quarter of 2022, and $11.0 million and $10.3 million, respectively, for the third quarter of 2021.

For the first nine months of 2022, Peoples sold $16.1 million in loans to the secondary market with servicing retained, and $21.6 million with servicing released, compared to $44.0 million and $27.7 million, respectively, for the first nine months of 2021 .

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.

During the third quarter of 2022, commercial loan swap fees decreased slightly for the current quarter as a result of several new commercial loan swaps in the linked period.

The commercial loan swap fees increased in the current quarter when compared to third quarter of 2021 and for the first nine months of 2022 compared to the first nine months of 2021 primarily due to the recent increases in market interest rates and increased activity.

Other non-interest income for the current quarter increased primarily due to $1.3 million and $1.7 million increases in lease income when compared to the linked quarter and the prior year quarter, respectively, and for the first nine months of 2022 compared to the first nine months of 2021 due to an increase of $2.9 million in lease income.

Non-Interest Expense

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

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

9 unchanged sentences

Average during the period 1,253 1,255 990 1,106 942

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

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

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

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

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

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

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

Base salaries and wages for the current quarter increased compared to the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021, driven by the additional salaries associated with the acquisition of Vantage, and the Premier Merger.

The increases in sales-based and incentive compensation for the current quarter compared to the linked quarter and third quarter of 2021, and for the first nine months of 2022 compared to the first nine months of 2021 were primarily due to sales incentives earned by Vantage employees.

The increases in employee benefits for the current quarter compared to the third quarter of 2021 and the first nine months of 2021 were due to higher medical costs with the addition of the Premier and Vantage employees.

Payroll taxes and other employment costs increased compared to the second quarter of 2022 and the third quarter of 2021, and for the first nine months of 2022 compared to the first nine months of 2021, in each case primarily driven by recent mergers and 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.

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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.

Stock-based compensation for the first nine months of 2022 increased when compared to the first nine months of 2021 due to employees added in the acquisition of Vantage and the Premier Merger.

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

1 unchanged sentence

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

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

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

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

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

1 unchanged sentence

Repairs and maintenance costs 1,333 1,245 1,017 3,959 2,863

Net rent expense 756 685 382 1,441 722

Property taxes, utilities and other costs 994 997 798 3,190 2,077

Net rent expense 764 756 371 2,205 1,093

Net occupancy and equipment expense $ 4,813 $ 4,768 $ 3,551 $ 14,669 $ 10,167

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.

For the third quarter and first nine months of 2022, net occupancy and equipment expense increased when compared to the third quarter and the first nine months of 2021, respectively, due to the additional locations and equipment from recent mergers and acquisitions.

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

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Professional fees $ 2,280 $ 3,672 $ 3,565 $ 5,952 $ 7,033

Data processing and software expense 3,279 3,033 2,529 9,228 7,394

Professional fees $ 2,832 $ 2,280 $ 6,426 $ 8,784 $ 13,459

E-banking expense 2,648 2,727 2,037 8,134 6,006

Amortization of other intangible assets 2,023 2,034 1,279 5,765 3,267

FDIC insurance premiums 1,018 1,194 326 2,212 789

Marketing expense 1,136 860 1,223 2,991 2,810

Other loan expenses 445 832 494 1,277 956

Franchise tax expense 1,075 1,102 810 2,941 2,487

FDIC insurance premiums 709 1,018 807 2,921 1,596

Communication expense 599 649 411 1,873 1,079

Other loan expenses 511 445 487 1,788 1,443

Other non-interest expense 4,010 3,398 12,711 10,755 17,762

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.

Professional fees increased for the current quarter compared to the linked quarter primarily due to increased fees to third parties to assist with process improvements to support the operational teams, partially offset by lower acquisition-related expenses.

Professional fees decreased for the third quarter of 2022 when compared to the third quarter of 2021 and for first nine months of 2022 when compared to the first nine months of 2021, primarily driven by acquisition-related expenses related to the Premier Merger which had been realized in 2021.

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.

E-banking expense decreased during the current quarter compared to the linked quarter, and is correlated to e-banking income, which also decreased from the linked quarter primarily due to less customer activity.

E-banking expense increased for the third quarter of 2022 when compared to the third quarter of 2021 and for the first nine months of 2022 when compared to the first nine months of 2021 due to growth, both organic and through mergers and acquisitions.

Amortization of other intangible assets for the current quarter increased when compared to the third quarter of 2021 and during the first nine months of 2022 when compared to the first nine months of 2021, due to the increased intangible assets recognized as a result of the recent mergers and acquisitions.

Peoples' FDIC insurance premiums decreased for the current quarter compared to the linked quarter due to an adjustment related to the most recent FDIC invoice.

FDIC insurance premiums for the first nine months of 2022 increased compared to the first nine months of 2021 due to organic and acquisitive growth.

Marketing expense increased during the current quarter compared to the linked quarter due to increased advertising and donations.

The decrease during the current quarter when compared to the third quarter of 2021 was due to additional advertising campaigns relating to the addition of Premier locations in the third quarter of 2021.

Other loan expenses during the first nine months of 2022 increased when compared to the first nine months of 2021 primarily due to higher indirect lending volume and increased collection expense driven by the Premier Merger.

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

1 unchanged sentence

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

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.

The increases versus the 2021 comparative periods were driven by recent growth through acquisitions and organic means.

Communications expense increased during the first nine months of 2022 when compared to the first nine months of 2021 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 period among certain vendors that provide communication services.

Other non-interest expense increased during the current quarter when compared to the linked quarter due to increased insurance expenses.

Other non-interest expense for the third quarter of 2022 and the first nine months of 2022 decreased when compared to their respective 2021 periods primarily due to less acquisition-related expenses.

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.

The increase in income tax expense for the third quarter of 2022, compared to income tax expense for the linked quarter, was due to an increase in Peoples' pre-tax income.

Peoples recorded income tax expense of $20.2 million with an effective tax rate of 21.4% in the first nine months of 2022 and income tax expense of $4.0 million with an effective tax rate of 16.8% in the first nine months of 2021.

The increase was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

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.

5 unchanged sentences

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

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Pre-provision net revenue:

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

Income (loss) before income taxes $ 33,388 $ 31,735 $ (7,930) $ 94,661 $ 23,807

provision for credit losses 1,776 — 8,994 1,776 7,333

6 unchanged sentences

gain on investment securities 21 — 150 151 786

gain on other assets 94 — 93 94 258

Pre-provision net revenue $ 35,178 $ 31,151 $ 1,538 $ 89,057 $ 32,303

3 unchanged sentences

Pre-provision net revenue per common share - diluted $ 1.25 $ 1.11 $ 0.07 $ 3.17 $ 1.61

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.

The increase PPNR in the third quarter of 2022 compared to the linked quarter was driven by increased net interest income reflecting the positive impact of recent increases in market interest rates.

PPNR grew in the third quarter of 2022 and the first nine months of 2022 when compared to the third quarter of 2021 and the first nine months of 2021, respectively, mostly due to the impact of the Premier Merger and the Vantage and NSL acquisitions in improving net interest income, the recent increases in market interest rates, higher non-interest income, and lower acquisition-related expenses.

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.

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

contribution and contract negotiation expenses.

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

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

2 unchanged sentences

acquisition-related expenses 339 602 16,209 2,314 20,520

pension settlement charges 139 — 143 139 143

severance expenses — — — — 63

2 unchanged sentences

contribution — — — — 500

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

Core non-interest expense $ 51,766 $ 49,268 $ 39,476 $ 151,196 $ 111,986

4 unchanged sentences

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

4 unchanged sentences

Total non-interest income 20,366 19,386 16,346 59,802 49,070

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

net gain (loss) on investment securities 21 (44) (166) 107 (704)

net loss on asset disposals and other transactions (35) (152) (308) (314) (459)

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Efficiency ratio adjusted for non-core items 56.64 % 57.98 % 63.93 % 59.61 % 64.32 %

(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.

(a) Tax effect is calculated using a 21.4% blended corporate income tax rate for September 30, 2022, 23.3% blended corporate income tax rate for June 30, 2022, and 22.3% blended corporate income tax rate for September 30, 2021.

The efficiency ratio and the efficiency ratio adjusted for non-core items for the third quarter of 2022 improved when compared to the linked quarter, due to higher net interest income driven by increases in market interest rates.

Additionally, for the third quarter of 2022 and the first nine months of 2022 compared to the third quarter of 2021 and the first nine months of 2021, respectively, the efficiency ratio and adjusted efficiency ratio both improved 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.

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, pension settlement charges, severance expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc.

contribution and contract negotiation expenses.

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Annualized net income adjusted for non-core items:

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

Net income (loss)

$ 25,978 $ 24,888 $ (5,758) $ 74,443 $ 19,808

12 unchanged sentences

71 126 3,404 486 4,309

pension settlement charges

139 — 143 139 143

tax effect of pension settlement charges (a)

29 — 30 29 30

severance expenses — — — — 63

5 unchanged sentences

contribution (a)

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

tax effect of contract negotiation expenses (a) — — 389 — 389

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

2 unchanged sentences

Days in the year 365 365 365 365 365

Annualized net income

Annualized net income (loss)

$ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483

2 unchanged sentences

Return on average assets:

Annualized net income

Annualized net income (loss)

$ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483

10 unchanged sentences

(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.

The return on average assets for the current quarter improved when compared to the linked quarter, due to higher net interest income driven by increases in market interest rates.

The increases in the return on average assets for the third quarter of 2022, compared to the third quarter of 2021 and for the first nine months of 2022 compared to the first nine months of 2021, were

attributable to higher net interest income and non-interest income, which were driven by the recent acquisitions and increases in market interest rates.

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

2 unchanged sentences

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

2022 March 31,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Annualized net income excluding amortization of other intangible assets:

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

Net income (loss)

$ 25,978 $ 24,888 $ (5,758) $ 74,443 $ 19,808

3 unchanged sentences

425 427 269 1,211 686

Net income excluding amortization of other intangible assets

Net income (loss) excluding amortization of other intangible assets

$ 27,576 $ 26,495 $ (4,748) $ 78,997 $ 22,389

3 unchanged sentences

365 365 365 365 365

Annualized net income

Annualized net income (loss)

$ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483

Annualized net income excluding amortization of other intangible assets

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

$ 109,405 $ 106,271 $ (18,837) $ 105,619 $ 29,934

6 unchanged sentences

$ 468,377 $ 462,158 $ 395,422 $ 486,826 $ 382,686

Return on average stockholders' equity ratio:

Return on total average stockholders' equity ratio:

Annualized net income

$ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483

Average stockholders' equity

Total average stockholders' equity

$ 797,859 $ 791,401 $ 627,783 $ 807,869 $ 595,918

Return on average stockholders' equity

Return on total average stockholders' equity

12.92 % 12.61 % (3.64) % 12.32 % 4.44 %

Return on average tangible equity ratio:

Annualized net income excluding amortization of other intangible assets

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

$ 109,405 $ 106,271 $ (18,837) $ 105,619 $ 29,934

4 unchanged sentences

(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.

The return on total average stockholders' equity and average tangible equity ratios were higher in the current quarter and the first nine months 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.

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.

At September 30, 2022, Peoples' interest-bearing deposits in other banks had decreased $290.1 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 total cash and cash equivalents balance included $36.0 million of excess cash reserves being maintained at the FRB of Cleveland at September 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.

Through the first nine months of 2022, Peoples' total cash and cash equivalents decreased $270.5 million as Peoples had $201.6 million and $171.5 million of cash used in investing activities and financing activities, respectively, partially offset by cash provided by operating activities of $102.5 million.

Peoples' cash used in investing activities reflected (i) cash outflows for business combinations of $85.8 million, (ii) net cash outflows from available-for-sale investment securities of $74.1 million, (iii) net cash outflows from held-to-maturity investment securities of $35.0 million, and (iv) purchases of bank owned life insurance of $30.0 million, partially offset by cash inflows from a $36.2 million net decrease in loans held for investment.

The cash used in financing activities was largely driven by cash outflows from (i) payments on long-term borrowings of $116.4 million, (ii) a net decrease in short-term borrowings of $37.9 million and (iii) cash dividends paid of $31.7 million, partially offset by cash inflows from proceeds on long-term borrowings of $19.0 million.

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

1 unchanged sentence

The following table provides information regarding Peoples’ investment portfolio:

(Dollars in thousands) Weighted Average Yield June 30,

(Dollars in thousands) Weighted Average Yield September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Available-for-sale securities, at fair value:

21 unchanged sentences

Carrying value $ 1,616,684 $ 1,709,973 $ 1,728,335 $ 1,683,609 $ 1,574,676

(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.

(a) Amortized cost is presented net of the allowance for credit losses of $238 at September 30, 2022, $286 at December 31, 2021 and $236 at September 30, 2021.

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

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

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

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

The following table provides information regarding outstanding loan balances:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Originated loans:

67 unchanged sentences

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

Period-end total loan balances at 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.

Period-end total loan balances at September 30, 2022 increased $35.3 million compared to June 30, 2022.

The increase in the period-end loan and lease balances was primarily driven by increases of (i) $29.2 million in consumer indirect loans, (ii) $19.0 million in commercial and industrial loans, (iii) $15.4 million in premium finance loans and (iv) $13.0 million in construction loans, partially offset by a reduction in other commercial real estate loans of $36.5 million.

The acquired loan decrease was driven by pay-offs of

commercial real estate and commercial and industrial loans acquired in the Premier Merger.

The increase of $129.6 million in the period-end loan and lease balances when compared to December 31, 2021 was primarily driven by $154.9 million of leases acquired from Vantage and an increase of $61.8 million in indirect consumer loans, partially offset by a reduction of $126.6 million in other commercial real estate loans.

The increase of $120.2 million in the period-end loan and lease balances when compared to September 30, 2021 was driven by increases of (i) $201.4 million in leases, primarily due to the leases acquired from Vantage and growth from the North Star Leasing division, (ii) $49.1 million in indirect consumer loans and (iii) $40.8 million in construction loans, partially offset by a reduction of $205.6 million in other commercial real estate loans.

Loan Concentration

2 unchanged sentences

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

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

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

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

5 unchanged sentences

Office buildings and complexes 10,728 8,546 19,274 4.0 %

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 7,553 5,525 13,078 2.7 %

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

Education Services 7,355 2,826 10,181 2.1 %

Other (a) 41,393 88,760 130,153 27.1 %

Total construction $ 215,621 $ 265,607 $ 481,228 100.0 %

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

(a) All other total exposures by industry are less than 2% of the Total Exposure.

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

38 unchanged sentences

Total restaurant/bar facilities 32,950 348 33,298 2.3 %

Agriculture 26,744 1,474 28,218 1.9 %

Other (a) 420,083 22,117 442,200 30.0 %

Total commercial real estate, other $ 1,423,479 $ 49,133 $ 1,472,612 100.0 %

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

(a) All other total exposures by industry are less than 2% of the Total Exposure.

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.

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

3 unchanged sentences

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

The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers

and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied.

The 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.

The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied.

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,

The following table details Peoples' PPP loan balances and related income:

(Dollars in millions) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

PPP aggregate outstanding principal balances $ 3.8 $ 15.2 $ 42.9 $ 89.3 $ 139.8

5 unchanged sentences

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

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

Construction $ 1,464 $ 1,531 $ 2,731 $ 2,999 $ 3,436

Commercial real estate, other 17,695 18,708 21,055 29,147 35,816

Commercial and industrial 8,611 8,572 10,114 11,063 13,378

8 unchanged sentences

As a percent of total loans 1.15 % 1.14 % 1.20 % 1.43 % 1.72 %

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.

The increase in the allowance for credit losses at September 30, 2022 compared to June 30, 2022, was largely attributable to the deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans.

The reduction in the allowance for credit losses at September 30, 2022 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 pay-offs during the quarter.

Peoples recorded $0.8 million of provision for credit losses to establish the allowance for credit losses for non-purchase credit deteriorated leases acquired from Vantage.

The higher allowance for credit losses at September 30, 2021 when compared to all other comparative periods 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.

2 unchanged sentences

Three Months Ended

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Gross charge-offs:

45 unchanged sentences

Each with "--%" not meaningful.

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

Net charge-offs during the third quarter of 2022 were 0.15% 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.

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

The increase for the current quarter when compared to the linked quarter was driven by higher charge-offs on leases, consumer loans, and other

commercial real estate loans, substantially offset by less charge-offs on commercial and industrial loans and deposit account overdrafts.

The decrease in net charge-offs during the current quarter versus the prior year quarter was primarily attributable to one commercial and industrial loan charge-off of $500,000 during the third quarter of 2021.

The following table details Peoples’ nonperforming assets:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Loans 90+ days past due and accruing:

37 unchanged sentences

Classified loans (b) 94,848 115,483 109,530 106,547 142,628

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Asset Quality Ratios (c):

12 unchanged sentences

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.

Compared to June 30, 2022, Peoples' NPAs remained at 0.64% of total assets.

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.

During the third quarter of 2022, criticized loans declined $16.6 million, while classified loans declined $20.6 million when compared to the linked quarter.

The third quarter of 2021 was impacted by NPAs, criticized loans and classified loans acquired in 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.

9 unchanged sentences

The following table details Peoples’ deposit balances:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Non-interest-bearing deposits (a) $ 1,635,953 $ 1,661,865 $ 1,666,668 $ 1,641,422 $ 1,559,993

10 unchanged sentences

(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.

At September 30, 2022, period-end deposits decreased $63.6 million, or 1%, compared to June 30, 2022, and increased $33.6 million, or 1%, compared to September 30, 2021.

The decrease when compared to the linked period was primarily driven by a reduction of (i) $39.5 million in retail certificates of deposits, (ii) $20.5 million in money market deposits, and (iii) $25.9 million in non-interest bearing checking accounts.

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.

As of September 30, 2022, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, of which $85.0 million were designated as cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.

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

2 unchanged sentences

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Short-term borrowings:

19 unchanged sentences

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

Borrowed funds increased compared to 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.

Total borrowed funds decreased compared to June 30, 2022, due to a large individual customer deposit during the period ended June 30, 2022, thereby increasing retail repurchase agreements at June 30, 2022.

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.

At September 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%.

At September 30, 2022, Peoples had a capital conservation buffer of 4.98%.

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Capital Amounts:

8 unchanged sentences

Tier 1 leverage ratio 8.64 % 8.38 % 8.29 % 8.67 % 11.20 %

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.

Peoples' regulatory capital and related ratio levels improved during the third quarter of 2022 when compared to the linked quarter driven by higher net interest income.

The ratios were negatively impacted at March 31, 2022 by the cash acquisition of Vantage, for which Peoples recorded goodwill and intangible assets.

The impact of the Vantage acquisition was partially offset by net income exceeding dividends declared during the period ended March 31, 2022.

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

4 unchanged sentences

The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

1 unchanged sentence

2021 September 30,

2021 June 30,

Tangible equity:

25 unchanged sentences

6.47 % 6.60 % 6.76 % 8.18 % 7.93 %

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.

Tangible book value per common share declined to $15.28 at September 30, 2022, compared to $16.21 at June 30, 2022.

The change in tangible book value per common share was due to tangible equity declining during the three months ended September 30, 2022 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 declines in tangible book value per common share when compared to December 31, 2021 and September 30, 2021, were $123.3 million and $129.0 million increases in accumulated other comprehensive losses,

respectively.

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.

Interest Rate Sensitivity and Liquidity

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Estimated Decrease in Economic Value of Equity

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

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

300 $ 21,345 7.6 % $ 24,903 11.7 % $ (37,180) (2.5) % $ (24,232) (2.0) %

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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.

These prepayment speeds affect the amounts forecasted for cash flow reinvestment, premium amortization, and discount accretion 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.

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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.

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 interest 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.

These include various flattening and steepening scenarios in which short-term and long-term interest 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.

Given the shape of market yield curves at September 30, 2022, consideration of the bear steepener or inversion scenarios provide insights which are not captured by parallel shifts.

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

In such a scenario, Peoples' deposit and borrowing costs, which are generally correlated with short-term interest rates, remain constant, while asset yields, which are correlated with long-term interest rates, rise.

At September 30, 2022 the bear steepener scenario produced no change to net interest income and increased the economic value of equity by 3.4%.

As of September 30, 2022, the yield curve was relatively flat with some inversion.

A notable non-parallel shift scenario would be a continued increase in short-term interest rates relative to long-term interest rates in which the yield curve would further invert.

As of September 30, 2022 this inversion scenario would have resulted in an increase in net interest income and decrease the economic value of equity of 1.1% and (1.9)%, respectively.

Peoples was within its policy limitations for this alternative scenario as of September 30, 2022, which set the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of the 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.

As of September 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.

At September 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.

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The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 2021 Form 10-K.

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

At September 30, 2022, Peoples Bank had liquid assets of $171.2 million, which represented 2.2% of total assets and unfunded loan commitments.

Peoples also had an additional $231.0 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.

Management believes the current mix of short-term liquidity sources, loan and security portfolio cash flows, and availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

Off-Balance Sheet Activities and Contractual Obligations

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(Dollars in thousands)

September 30,

2022 June 30,

2022 March 31,

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2021 September 30,

2021 June 30,

Home equity lines of credit $ 194,685 $ 188,803 $ 184,616 $ 177,262 $ 177,963

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Standby letters of credit $ 15,096 $ 15,977 $ 12,729 $ 12,805 $ 12,358

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Form 10-Q, and is incorporated herein by reference.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis