PEOPLES BANCORP INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the 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. Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions. These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These 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 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 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; (6) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform; (7) the effects of easing restrictions on participants in the financial services industry; (8) local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated; (9) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; (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; 44 Table of Contents (11) Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral; (12) future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses; (13) changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations; (14) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model; (15) the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; (16) adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and 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; (18) Peoples' ability to receive dividends from its subsidiaries; (19) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (20) the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity; (21) Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss; (22) Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands; (23) operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent; (24) changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated; (25) the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business; (26) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence; (27) the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts; (28) the 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; (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; (35) the effect of a fall in stock market prices on the asset and wealth management business; (36) Peoples' continued ability to grow deposits; and (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' 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 45 Table of Contents 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. This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 2021 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q. Business Overview The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations. Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples offers a complete array of insurance products through Peoples Insurance, a subsidiary of Peoples Bank. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division. Peoples also offers lease financing through its North Star Leasing division and through Vantage, a subsidiary of Peoples Bank. As of 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 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. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business. Critical Accounting Policies The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant 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 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. ◦ 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, pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $3.8 million. Peoples recognized preliminary intangibles of $2.1 million, primarily comprised of a customer relationship intangible. ◦ On March 7, 2022, Peoples completed its acquisition of Vantage pursuant to an 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 46 Table of Contents 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. (“Premier Bank”) and Citizens Deposit Bank and Trust, Inc. (“Citizens”). Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “Premier Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million. At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of Peoples Bank. Peoples acquired $1.2 billion in loans and $1.8 billion in deposits and recorded 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 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 NSL pursuant to an Asset Purchase Agreement, dated March 24, 2021 in which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank, on April 1, 2021. Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus an earn-out payment to NSL of up to $3.0 million. Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded goodwill in the amount of $24.7 million and other intangibles of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. ◦ Peoples began originating loans during the second quarter of 2020, and continued to originate loans during the first five months of 2021 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). As of 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, 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. 47 Table of Contents 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 $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 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. 48 Table of Contents 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 $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 49 Table of Contents 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 Net Interest Income Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities. Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended 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 Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Net interest income $ 67,051 $ 61,468 $ 42,578 $ 182,829 $ 117,816 Taxable equivalent adjustment 387 414 351 1,116 970 Fully tax-equivalent net interest income $ 67,438 $ 61,882 $ 42,929 $ 183,945 $ 118,786 50 Table of Contents The following tables detail Peoples’ average balance sheets for the periods presented: For the Three Months Ended September 30, 2022 June 30, 2022 September 30, 2021 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 159,522 $ 847 2.11 % $ 182,456 $ 299 0.66 % $ 199,007 $ 82 0.16 % Investment securities (a)(b): Taxable 1,483,984 7,604 2.05 % 1,515,647 7,014 1.85 % 979,278 3,799 1.55 % Nontaxable 201,150 1,405 2.79 % 193,112 1,344 2.78 % 173,459 1,136 2.62 % Total investment securities 1,685,134 9,009 2.13 % 1,708,759 8,358 1.96 % 1,152,737 4,935 1.71 % Loans (b)(c): Construction 222,966 2,765 4.85 % 209,822 2,216 4.18 % 125,178 1,196 3.74 % Commercial real estate, other 1,300,173 16,593 4.99 % 1,353,201 15,599 4.56 % 993,259 9,507 3.75 % Commercial and industrial 865,436 11,140 5.04 % 864,023 8,715 3.99 % 789,555 8,933 4.43 % Premium finance 162,057 1,949 4.71 % 143,898 1,778 4.89 % 122,828 1,542 4.91 % Leases 307,459 9,628 12.25 % 288,360 10,541 14.46 % 97,068 4,810 19.39 % Residential real estate (d) 869,444 9,439 4.34 % 888,809 9,326 4.20 % 652,184 6,648 4.08 % Home equity lines of credit 173,032 2,217 5.08 % 167,935 1,748 4.17 % 126,888 1,271 3.97 % Consumer, indirect 576,826 5,907 4.06 % 541,135 5,243 3.89 % 541,329 5,509 4.04 % Consumer, direct 113,609 1,764 6.16 % 111,541 1,647 5.92 % 86,935 1,385 6.32 % Total loans 4,591,002 61,402 5.26 % 4,568,724 56,813 4.94 % 3,535,224 40,801 4.55 % Allowance for credit losses (52,719) (54,148) (51,610) Net loans 4,538,283 61,402 5.33 % 4,514,576 56,813 5.00 % 3,483,614 40,801 4.61 % Total earning assets 6,382,939 71,258 4.40 % 6,405,791 65,470 4.06 % 4,835,358 45,818 3.74 % Goodwill and other intangible assets 329,482 329,243 232,361 Other assets 411,687 386,629 407,428 Total assets $ 7,124,108 $ 7,121,663 $ 5,475,147 Interest-bearing deposits: Savings accounts $ 1,079,580 $ 139 0.05 % $ 1,076,028 $ 45 0.02 % $ 737,771 $ 23 0.01 % Governmental deposit accounts 741,836 543 0.29 % 704,632 471 0.27 % 542,855 458 0.33 % Interest-bearing demand accounts 1,158,970 190 0.07 % 1,177,751 115 0.04 % 795,565 74 0.04 % Money market accounts 623,144 292 0.19 % 641,066 104 0.07 % 533,497 67 0.05 % Retail certificates of deposit 560,532 644 0.46 % 602,225 747 0.50 % 457,073 951 0.83 % Brokered deposits (e) 86,524 508 2.33 % 87,006 532 2.45 % 155,779 826 2.10 % Total interest-bearing deposits 4,250,586 2,316 0.22 % 4,288,708 2,014 0.19 % 3,222,540 2,399 0.30 % Borrowed funds: Short-term FHLB advances (e) 41,696 266 2.53 % 53,846 237 1.77 % 17,174 78 1.80 % Repurchase agreements and other 161,069 127 0.32 % 96,589 24 0.10 % 63,226 13 0.08 % Total short-term borrowings 202,765 393 0.77 % 150,435 261 0.70 % 80,400 91 0.45 % Long-term FHLB advances 34,727 212 2.42 % 58,498 257 1.76 % 86,561 316 1.45 % Other borrowings 77,155 899 4.56 % 94,097 1,056 4.44 % 8,470 83 3.92 % Total long-term borrowings 111,882 1,111 3.97 % 152,595 1,313 3.44 % 95,031 399 1.67 % Total borrowed funds 314,647 1,504 1.91 % 303,030 1,574 2.08 % 175,431 490 1.11 % Total interest-bearing liabilities 4,565,233 3,820 0.33 % 4,591,738 3,588 0.31 % 3,397,971 2,889 0.34 % Non-interest-bearing deposits 1,655,888 1,648,067 1,358,652 Other liabilities 105,128 90,457 90,741 Total liabilities 6,326,249 6,330,262 4,847,364 Total stockholders’ equity 797,859 791,401 627,783 Total liabilities and stockholders’ equity $ 7,124,108 $ 7,121,663 $ 5,475,147 Interest rate spread (b) $ 67,438 4.07 % $ 61,882 3.75 % $ 42,929 3.40 % Net interest margin (b) 4.17 % 3.84 % 3.50 % 51 Table of Contents For the Nine Months Ended September 30, 2022 September 30, 2021 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 224,060 $ 1,306 0.78 % $ 175,755 $ 175 0.13 % Investment securities (a)(b): Taxable 1,488,609 20,712 1.86 % 899,531 9,636 1.43 % Nontaxable 199,515 3,991 2.67 % 149,636 3,035 2.70 % Total investment securities 1,688,124 24,703 1.95 % 1,049,167 12,671 1.61 % Loans (b)(c): Construction 219,478 7,136 4.29 % 108,859 3,169 3.84 % Commercial real estate, other 1,338,375 46,974 4.63 % 930,150 26,938 3.82 % Commercial and industrial 872,601 27,878 4.21 % 872,421 28,773 4.35 % Premium finance 146,345 4,891 4.41 % 112,925 4,137 4.83 % Leases 253,231 26,271 13.68 % 61,551 9,025 19.34 % Residential real estate (d) 890,499 28,531 4.27 % 624,993 19,749 4.21 % Home equity lines of credit 168,137 5,577 4.43 % 122,720 3,638 3.96 % Consumer, indirect 547,438 16,195 3.96 % 526,900 16,025 4.07 % Consumer, direct 110,509 5,006 6.06 % 82,151 3,896 6.34 % Total loans 4,546,613 168,459 4.91 % 3,442,670 115,350 4.44 % Allowance for credit losses (56,237) (49,483) Net loans 4,490,376 168,459 4.97 % 3,393,187 115,350 4.50 % Total earning assets 6,402,560 194,468 4.03 % 4,618,109 128,196 3.68 % Goodwill and other intangible assets 321,043 213,232 Other assets 380,376 360,842 Total assets $ 7,103,979 $ 5,192,183 Interest-bearing deposits: Savings accounts $ 1,068,912 $ 218 0.03 % $ 688,782 $ 79 0.02 % Governmental deposit accounts 705,891 1,462 0.28 % 490,170 1,602 0.44 % Interest-bearing demand accounts 1,169,284 397 0.05 % 743,562 205 0.04 % Money market accounts 638,061 492 0.10 % 554,194 294 0.07 % Retail certificates of deposit 596,335 2,262 0.51 % 440,454 3,054 0.93 % Brokered deposits (e) 88,336 1,552 2.35 % 166,000 2,559 2.06 % Total interest-bearing deposits 4,266,819 6,383 0.20 % 3,083,162 7,793 0.34 % Borrowed funds: Short-term FHLB advances (e) 50,132 816 2.18 % 18,773 246 1.75 % Repurchase agreements and other 119,228 176 0.20 % 55,100 37 0.09 % Total short-term borrowings 169,360 992 0.78 % 73,873 283 0.51 % Long-term FHLB advances 59,440 775 1.74 % 96,765 1,099 1.52 % Repurchase agreement and other borrowings 71,689 2,373 4.37 % 7,926 235 3.95 % Total long-term borrowings 131,129 3,148 3.20 % 104,691 1,334 1.70 % Total borrowed funds 300,489 4,140 1.83 % 178,564 1,617 1.21 % Total interest-bearing liabilities 4,567,308 10,523 0.31 % 3,261,726 9,410 0.39 % Non-interest-bearing deposits 1,637,053 1,248,330 Other liabilities 91,749 86,209 Total liabilities 6,296,110 4,596,265 Total stockholders’ equity 807,869 595,918 Total liabilities and stockholders’ equity $ 7,103,979 $ 5,192,183 Interest rate spread (b) $ 183,945 3.72 % $ 118,786 3.29 % Net interest margin (b) 3.81 % 3.41 % (a) Average balances are based on carrying value. (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. (c) Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented. (d) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income. 52 Table of Contents (e) Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered deposits for the periods presented in which FHLB advances and brokered deposits were being utilized. Peoples' average balances compared to prior periods have been impacted by recent acquisitions, which included: 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 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: Rate Volume Total (a) Rate Volume Total (a) Rate Volume Total (a) INTEREST INCOME: Short-term investments $ 871 $ (323) $ 548 $ 873 $ (108) $ 765 $ 1,058 $ 73 $ 1,131 Investment Securities (b): Taxable 1,473 (883) 590 1,454 2,351 3,805 3,592 7,484 11,076 Nontaxable 12 49 61 79 190 269 (14) 970 956 Total investment income 1,485 (834) 651 1,533 2,541 4,074 3,578 8,454 12,032 Loans (b) : Construction 396 153 549 433 1,136 1,569 409 3,558 3,967 Commercial real estate, other 4,128 (3,134) 994 3,679 3,407 7,086 6,524 13,512 20,036 Commercial and industrial 2,413 12 2,425 1,300 907 2,207 (904) 9 (895) Premium finance (366) 537 171 (396) 803 407 (566) 1,320 754 Leases (4,488) 3,575 (913) (11,144) 15,962 4,818 (4,884) 22,130 17,246 Residential real estate 1,068 (955) 113 456 2,335 2,791 279 8,503 8,782 Home equity lines of credit 412 57 469 411 535 946 471 1,468 1,939 Consumer, indirect 271 393 664 36 362 398 (618) 788 170 Consumer, direct 80 37 117 (229) 608 379 (315) 1,425 1,110 Total loan income 3,914 675 4,589 (5,454) 26,055 20,601 396 52,713 53,109 Total interest income $ 6,270 $ (482) $ 5,788 $ (3,048) $ 28,488 $ 25,440 $ 5,032 $ 61,240 $ 66,272 INTEREST EXPENSE: Deposits: Savings accounts $ 94 $ — $ 94 $ 101 $ 15 $ 116 $ 81 $ 58 $ 139 Governmental deposit accounts 44 28 72 (331) 416 85 (920) 780 (140) Interest-bearing demand accounts 86 (11) 75 73 43 116 55 137 192 Money market accounts 209 (21) 188 212 13 225 149 49 198 Retail certificates of deposit (56) (47) (103) (1,339) 1,032 (307) (2,067) 1,275 (792) Brokered deposits (22) (2) (24) 505 (823) (318) 505 (1,512) (1,007) Total deposit cost 355 (53) 302 (779) 696 (83) (2,197) 787 (1,410) Borrowed funds: Short-term borrowings 380 (248) 132 111 191 302 143 566 709 Long-term borrowings 495 (697) (202) 756 (44) 712 254 1,560 1,814 Total borrowed funds cost 875 (945) (70) 867 147 1,014 397 2,126 2,523 Total interest expense 1,230 (998) 232 88 843 931 (1,800) 2,913 1,113 Fully tax-equivalent net interest income $ 5,040 $ 516 $ 5,556 $ (3,136) $ 27,645 $ 24,509 $ 6,832 $ 58,327 $ 65,159 (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 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. 53 Table of Contents 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 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 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." 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 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 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 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. 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.” 54 Table of Contents Net (Loss) Gain Included in Total Non-Interest Income 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 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) 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 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 Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 E-banking income $ 5,261 $ 5,419 $ 4,326 $ 15,933 $ 12,655 Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. E-banking income 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. 55 Table of Contents 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 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 Fiduciary income $ 1,752 $ 1,999 $ 1,944 $ 5,716 $ 5,941 Brokerage income 1,578 1,631 1,577 4,858 4,408 Employee benefit fees 624 616 637 1,902 1,874 Trust and investment income $ 3,954 $ 4,246 $ 4,158 $ 12,476 $ 12,223 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, 2022 December 31, 2022 September 30, 2021 (Dollars in thousands) Trust $ 1,682,334 $ 1,731,454 $ 1,927,828 $ 2,009,871 $ 1,937,123 Brokerage 1,127,831 1,068,261 1,152,530 1,183,927 1,133,668 Total $ 2,810,165 $ 2,799,715 $ 3,080,358 $ 3,193,798 $ 3,070,791 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 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 Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Overdraft and non-sufficient funds fees $ 2,233 $ 2,019 $ 1,420 $ 6,154 $ 3,429 Account maintenance fees 1,353 1,306 934 3,971 2,598 Other fees and charges 247 233 195 692 551 Deposit account service charges $ 3,833 $ 3,558 $ 2,549 $ 10,817 $ 6,578 The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges increased 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 56 Table of Contents 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 Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 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 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 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. 57 Table of Contents Non-Interest Expense Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs: Three Months Ended Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Base salaries and wages $ 18,762 $ 18,408 $ 17,493 $ 54,846 $ 43,746 Sales-based and incentive compensation 4,899 4,913 4,013 13,448 12,034 Employee benefits 3,340 3,321 2,619 10,282 8,338 Payroll taxes and other employment costs 1,796 1,389 1,635 5,276 4,471 Stock-based compensation 782 600 618 2,987 2,437 Deferred personnel costs (961) (1,046) (789) (2,907) (2,750) Salaries and employee benefit costs $ 28,618 $ 27,585 $ 25,589 $ 83,932 $ 68,276 Full-time equivalent employees: Actual at end of period 1,244 1,261 1,181 1,244 1,181 Average during the period 1,253 1,255 990 1,106 942 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. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the first 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. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. The decrease in deferred personnel costs for the current quarter compared to the linked quarter was primarily due to a decrease in loan origination volume. 58 Table of Contents Peoples' net occupancy and equipment expense was comprised of the following: Three Months Ended Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Depreciation $ 1,722 $ 1,770 $ 1,365 $ 5,315 $ 4,134 Repairs and maintenance costs 1,333 1,245 1,017 3,959 2,863 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 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 Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 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 Marketing expense 1,136 860 1,223 2,991 2,810 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 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 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. 59 Table of Contents Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. The 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 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 income tax expense for the linked quarter, was due to an increase in Peoples' 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 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. Pre-Provision Net Revenue (Non-US GAAP) Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. 60 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Pre-provision net revenue: Income (loss) before income taxes $ 33,388 $ 31,735 $ (7,930) $ 94,661 $ 23,807 Add: provision for credit losses 1,776 — 8,994 1,776 7,333 Add: loss on OREO 105 32 32 138 32 Add: loss on investment securities — 44 316 44 1,490 Add: loss on other assets — 120 363 142 687 Add: loss on other transactions 24 — 6 128 6 Less: gain on OREO — — — — 8 Less: recovery of credit losses — 780 — 7,587 — Less: gain on investment securities 21 — 150 151 786 Less: gain on other assets 94 — 93 94 258 Pre-provision net revenue $ 35,178 $ 31,151 $ 1,538 $ 89,057 $ 32,303 Total average assets $7,124,108 $7,121,663 $5,475,147 $7,103,979 $5,192,183 Pre-provision net revenue to total average assets (annualized) 1.96 % 1.75 % 0.11 % 1.68 % 0.83 % Weighted-average common shares outstanding - diluted 27,973,255 28,061,736 20,789,271 28,009,263 19,890,672 Pre-provision net revenue per common share - diluted $ 1.25 $ 1.11 $ 0.07 $ 3.17 $ 1.61 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, 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 Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Core non-interest expense: Total non-interest expense $ 52,253 $ 49,899 $ 57,860 $ 153,781 $ 135,746 Less: acquisition-related expenses 339 602 16,209 2,314 20,520 Less: pension settlement charges 139 — 143 139 143 Less: severance expenses — — — — 63 Less: COVID-19-related expenses 9 29 181 132 683 Less: Peoples Bank Foundation, Inc. contribution — — — — 500 Less: contract negotiation expenses — — 1,851 — 1,851 Core non-interest expense $ 51,766 $ 49,268 $ 39,476 $ 151,196 $ 111,986 61 Table of Contents Efficiency Ratio (Non-US GAAP) The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Efficiency ratio: Total non-interest expense $ 52,253 $ 49,899 $ 57,860 $ 153,781 $ 135,746 Less: amortization of other intangible assets 2,023 2,034 1,279 5,765 3,267 Adjusted total non-interest expense 50,230 47,865 56,581 148,016 132,479 Total non-interest income 20,366 19,386 16,346 59,802 49,070 Less: net gain (loss) on investment securities 21 (44) (166) 107 (704) Less: net loss on asset disposals and other transactions (35) (152) (308) (314) (459) Total non-interest income excluding net gains and losses 20,380 19,582 16,820 60,009 50,233 Net interest income 67,051 61,468 42,578 182,829 117,816 Add: fully tax-equivalent adjustment (a) 387 414 351 1,116 970 Net interest income on a fully tax-equivalent basis 67,438 61,882 42,929 183,945 118,786 Adjusted revenue $ 87,818 $ 81,464 $ 59,749 $ 243,954 $ 169,019 Efficiency ratio 57.20 % 58.76 % 94.70 % 60.67 % 78.38 % Efficiency ratio adjusted for non-core items: Core non-interest expense $ 51,766 $ 49,268 $ 39,476 $ 151,196 $ 111,986 Less: amortization of other intangible assets 2,023 2,034 1,279 5,765 3,267 Adjusted core non-interest expense 49,743 47,234 38,197 145,431 108,719 Non-interest income excluding net gains and losses 20,380 19,582 16,820 60,009 50,233 Net interest income on a fully tax-equivalent basis 67,438 61,882 42,929 183,945 118,786 Adjusted revenue $ 87,818 $ 81,464 $ 59,749 $ 243,954 $ 169,019 Efficiency ratio adjusted for non-core items 56.64 % 57.98 % 63.93 % 59.61 % 64.32 % (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, pension settlement charges, severance expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution and contract negotiation expenses. 62 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Annualized net income (loss) adjusted for non-core items: Net income (loss) $ 25,978 $ 24,888 $ (5,758) $ 74,443 $ 19,808 Add: net loss on investment securities — 44 166 — 704 Less: tax effect of net loss on investment securities (a) — 9 35 — 148 Less: net gain on investment securities 21 — — 107 — Add: tax effect of net gain on investment securities (a) 4 — — 22 — Add: net loss on asset disposals and other transactions 35 152 308 314 459 Less: tax effect of net loss on asset disposals and other transactions (a) 7 32 65 66 96 Add: acquisition-related expenses 339 602 16,209 2,314 20,520 Less: tax effect of acquisition-related expenses (a) 71 126 3,404 486 4,309 Add: pension settlement charges 139 — 143 139 143 Less: tax effect of pension settlement charges (a) 29 — 30 29 30 Add: severance expenses — — — — 63 Less: tax effect of severance expenses (a) — — — — 13 Add: COVID-19-related expenses 9 29 181 132 683 Less: tax effect of COVID-19-related expenses (a) 2 6 38 28 143 Add: Peoples Bank Foundation, Inc. contribution — — — — 500 Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) — — — — 105 Add: contract negotiation expenses — — 1,851 — 1,851 Less: tax effect of contract negotiation expenses (a) — — 389 — 389 Net income adjusted for non-core items (after tax) $ 26,374 25,542 9,139 76,648 39,498 Days in the period 92 91 92 273 273 Days in the year 365 365 365 365 365 Annualized net income (loss) $ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483 Annualized net income adjusted for non-core items (after tax) $ 104,636 $ 102,449 $ 36,258 $ 102,478 $ 52,809 Return on average assets: Annualized net income (loss) $ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483 Total average assets 7,124,108 7,121,663 5,475,147 7,103,979 5,192,183 Return on average assets 1.45 % 1.40 % (0.42) % 1.40 % 0.51 % Return on average assets adjusted for non-core items: Annualized net income adjusted for non-core items (after tax) $ 104,636 $ 102,449 $ 36,258 $ 102,478 $ 52,809 Total average assets 7,124,108 7,121,663 5,475,147 7,103,979 5,192,183 Return on average assets adjusted for non-core items 1.47 % 1.44 % 0.66 % 1.44 % 1.02 % (a) Based on a 21% statutory federal corporate income tax rate. 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 63 Table of Contents 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) The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity. Three Months Ended Nine Months Ended September 30, 2022 June 30, 2022 September 30, 2021 September 30, (Dollars in thousands) 2022 2021 Annualized net income (loss) excluding amortization of other intangible assets: Net income (loss) $ 25,978 $ 24,888 $ (5,758) $ 74,443 $ 19,808 Add: amortization of other intangible assets 2,023 2,034 1,279 5,765 3,267 Less: tax effect of amortization of other intangible assets (a) 425 427 269 1,211 686 Net income (loss) excluding amortization of other intangible assets $ 27,576 $ 26,495 $ (4,748) $ 78,997 $ 22,389 Days in the period 92 91 92 273 273 Days in the year 365 365 365 365 365 Annualized net income (loss) $ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483 Annualized net income (loss) excluding amortization of other intangible assets $ 109,405 $ 106,271 $ (18,837) $ 105,619 $ 29,934 Average tangible equity: Total average stockholders' equity $ 797,859 $ 791,401 $ 627,783 $ 807,869 $ 595,918 Less: average goodwill and other intangible assets 329,482 329,243 232,361 321,043 213,232 Average tangible equity $ 468,377 $ 462,158 $ 395,422 $ 486,826 $ 382,686 Return on total average stockholders' equity ratio: Annualized net income $ 103,065 $ 99,825 $ (22,844) $ 99,530 $ 26,483 Total average stockholders' equity $ 797,859 $ 791,401 $ 627,783 $ 807,869 $ 595,918 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 (loss) excluding amortization of other intangible assets $ 109,405 $ 106,271 $ (18,837) $ 105,619 $ 29,934 Average tangible equity $ 468,377 $ 462,158 $ 395,422 $ 486,826 $ 382,686 Return on average tangible equity 23.36 % 22.99 % (4.76) % 21.70 % 7.82 % (a) Based on a 21% statutory federal corporate income tax rate. 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. 64 Table of Contents FINANCIAL CONDITION Cash and Cash Equivalents 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 $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 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.” Investment Securities The following table provides information regarding Peoples’ investment portfolio: (Dollars in thousands) Weighted Average Yield September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Available-for-sale securities, at fair value: Obligations of: U.S. Treasury and government agencies 2.79 % $ 172,055 $ 175,255 $ 167,406 $ 35,604 $ — U.S. government sponsored agencies 1.47 % 80,915 82,465 80,654 81,739 78,481 States and political subdivisions 2.74 % 230,022 249,402 231,644 259,319 252,919 Residential mortgage-backed securities 1.77 % 624,061 691,735 753,353 828,517 898,459 Commercial mortgage-backed securities 1.79 % 52,504 58,301 58,112 63,519 62,552 Bank-issued trust preferred securities 3.29 % 10,287 10,440 10,670 6,795 4,679 Total fair value $ 1,169,844 $ 1,267,598 $ 1,301,839 $ 1,275,493 $ 1,297,090 Total amortized cost $ 1,349,800 $ 1,389,621 $ 1,381,259 $ 1,283,146 $ 1,294,654 Net unrealized (loss) gain $ (179,956) $ (122,023) $ (79,420) $ (7,653) $ 2,436 Held-to-maturity securities, at amortized cost: Obligations of: U.S. government sponsored agencies 2.12 % $ 59,871 $ 50,990 $ 38,486 $ 36,431 $ 29,995 States and political subdivisions (a) 2.34 % 145,252 151,034 151,217 151,402 124,181 Residential mortgage-backed securities 1.84 % 111,707 112,095 115,613 110,708 41,035 Commercial mortgage-backed securities 2.02 % 90,971 86,601 79,340 75,588 47,889 Total amortized cost $ 407,801 $ 400,720 $ 384,656 $ 374,129 $ 243,100 Other investment securities $ 39,039 $ 41,655 $ 41,840 $ 33,987 $ 34,486 Total investment securities: Amortized cost $ 1,796,640 $ 1,831,996 $ 1,807,755 $ 1,691,262 $ 1,572,240 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 $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. 65 Table of Contents Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Loans The following table provides information regarding outstanding loan balances: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Originated loans: Construction $ 175,388 $ 144,062 $ 171,934 $ 137,437 $ 108,334 Commercial real estate, other 891,576 899,774 854,721 861,610 838,333 Commercial real estate 1,066,964 1,043,836 1,026,655 999,047 946,667 Commercial and industrial 814,593 777,050 791,307 779,064 715,169 Premium finance 167,682 152,237 145,813 136,121 134,755 Leases 178,083 149,894 97,168 69,169 49,464 Residential real estate 381,104 373,010 364,989 350,595 334,838 Home equity lines of credit 124,524 115,935 107,414 104,176 98,806 Consumer, indirect 592,309 563,088 524,778 530,532 543,243 Consumer, direct 99,282 95,371 87,994 81,330 80,746 Consumer 691,591 658,459 612,772 611,862 623,989 Deposit account overdrafts 597 851 699 756 927 Total originated loans $ 3,425,138 $ 3,271,272 $ 3,146,817 $ 3,050,790 $ 2,904,615 Acquired loans (a): Construction $ 40,233 $ 58,526 $ 66,371 $ 72,795 $ 66,450 Commercial real estate, other 531,903 560,249 602,511 688,471 790,783 Commercial real estate 572,136 618,775 668,882 761,266 857,233 Commercial and industrial 62,879 81,402 95,844 112,328 143,369 Premium finance — — — 15 — Leases 134,764 164,628 169,900 53,339 61,982 Residential real estate 352,257 369,995 391,440 421,123 433,296 Home equity lines of credit 50,001 53,400 54,874 59,417 62,564 Consumer, indirect — — — — 13 Consumer, direct 14,032 16,433 19,396 23,322 27,956 Consumer 14,032 16,433 19,396 23,322 27,969 Total acquired loans $ 1,186,069 $ 1,304,633 $ 1,400,336 $ 1,430,810 $ 1,586,413 Total loans $ 4,611,207 $ 4,575,905 $ 4,547,153 $ 4,481,600 $ 4,491,028 Percent of loans to total loans: Construction 4.7 % 4.4 % 5.2 % 4.7 % 3.9 % Commercial real estate, other 30.9 % 32.0 % 32.1 % 34.7 % 36.3 % Commercial real estate 35.6 % 36.4 % 37.3 % 39.4 % 40.2 % Commercial and industrial 19.0 % 18.8 % 19.5 % 19.9 % 19.1 % Premium finance 3.6 % 3.3 % 3.2 % 3.0 % 3.0 % Leases 6.8 % 6.9 % 5.9 % 2.7 % 2.5 % Residential real estate 15.9 % 16.2 % 16.6 % 17.2 % 17.1 % Home equity lines of credit 3.8 % 3.7 % 3.6 % 3.7 % 3.6 % Consumer, indirect 12.8 % 12.3 % 11.5 % 11.8 % 12.1 % Consumer, direct 2.5 % 2.4 % 2.4 % 2.3 % 2.4 % Consumer 15.3 % 14.7 % 13.9 % 14.1 % 14.5 % Total percentage 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Residential real estate loans being serviced for others $ 400,736 $ 410,007 $ 420,024 $ 430,597 $ 441,085 (a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). Period-end total loan balances at 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 66 Table of Contents 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 Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio. Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at September 30, 2022: (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Construction: Apartment complexes $ 84,808 $ 116,756 $ 201,564 41.9 % Mixed-use facilities 29,776 13,881 43,657 9.1 % Assisted living facilities and nursing homes 21,364 12,449 33,813 7.0 % Land only 12,644 16,864 29,508 6.1 % Office buildings and complexes 10,728 8,546 19,274 4.0 % Industrial 7,553 5,525 13,078 2.7 % 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 total exposures by industry are less than 2% of the Total Exposure. 67 Table of Contents (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Commercial real estate, other: Office buildings and complexes: Owner occupied $ 74,674 $ 2,508 $ 77,182 5.2 % Non-owner occupied 81,492 3,973 85,465 5.8 % Total office buildings and complexes 156,166 6,481 162,647 11.0 % Retail facilities: Owner occupied 42,985 730 43,715 3.0 % Non-owner occupied 126,910 2,126 129,036 8.8 % Total retail facilities 169,895 2,856 172,751 11.8 % Mixed-use facilities: Owner occupied 57,598 232 57,830 3.9 % Non-owner occupied 57,577 761 58,338 4.0 % Total mixed-use facilities 115,175 993 116,168 7.9 % Apartment complexes 91,766 2,257 94,023 6.4 % Light industrial facilities: Owner occupied 103,689 1,730 105,419 7.2 % Non-owner occupied 38,917 3,261 42,178 2.8 % Total light industrial facilities 142,606 4,991 147,597 10.0 % Assisted living facilities and nursing homes 53,757 250 54,007 3.7 % Warehouse facilities: Owner occupied 35,924 1,852 37,776 2.5 % Non-owner occupied 28,561 211 28,772 2.0 % Total warehouse facilities 64,485 2,063 66,548 4.5 % Lodging and lodging related: Owner occupied 14,298 1,690 15,988 1.1 % Non-owner occupied 88,942 430 89,372 6.0 % Total lodging and lodging related 103,240 2,120 105,360 7.1 % Education services: Owner occupied 17,465 98 17,563 1.2 % Non-owner occupied 21,952 4,000 25,952 1.8 % Total education services 39,417 4,098 43,515 3.0 % Healthcare facilities: Owner occupied 23,670 559 24,229 1.6 % Non-owner occupied 10,269 — 10,269 0.7 % Total healthcare facilities 33,939 559 34,498 2.3 % Restaurant/bar facilities: Owner occupied 21,943 50 21,993 1.5 % Non-owner occupied 11,007 298 11,305 0.8 % Total restaurant/bar facilities 32,950 348 33,298 2.3 % 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 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 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. The repayment of leases is secured by the underlying equipment collateral and not real estate, which mitigates geographic risk. Small Business Administration Paycheck Protection Program In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The 68 Table of Contents 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 table details Peoples' PPP loan balances and related income: (Dollars in millions) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 PPP aggregate outstanding principal balances $ 3.8 $ 15.2 $ 42.9 $ 89.3 $ 139.8 PPP net deferred loan origination fees 0.1 0.4 1.0 2.2 4.0 Accretion of net deferred loan origination fees 0.4 0.6 1.2 1.8 3.1 Allowance for Credit Losses The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio. The following details management's allocation of the allowance for credit losses: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 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 Premium finance 553 311 345 379 1,137 Leases 7,890 7,585 5,875 4,797 4,505 Residential real estate 6,464 6,332 6,495 7,233 9,568 Home equity lines of credit 1,644 1,699 1,894 2,005 2,224 Consumer, indirect 6,912 6,234 5,172 5,326 6,160 Consumer, direct 1,592 1,321 1,036 961 1,079 Deposit account overdrafts 41 53 51 57 79 Allowance for credit losses $ 52,866 $ 52,346 $ 54,768 $ 63,967 $ 77,382 As a percent of total loans 1.15 % 1.14 % 1.20 % 1.43 % 1.72 % 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. Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2021 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements. 69 Table of Contents The following table summarizes Peoples’ net charge-offs and recoveries: Three Months Ended (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Gross charge-offs: Commercial real estate, other $ 57 $ 22 $ 278 $ 226 $ — Commercial and industrial 36 420 463 105 654 Premium finance 38 30 14 15 7 Leases 731 493 473 478 431 Residential real estate 168 47 309 72 44 Home equity lines of credit 5 25 16 1 180 Consumer, indirect 600 449 385 566 416 Consumer, direct 81 60 136 56 29 Consumer 681 509 521 622 445 Deposit account overdrafts 274 405 259 248 135 Total gross charge-offs $ 1,990 $ 1,951 $ 2,333 $ 1,767 $ 1,896 Recoveries: Commercial real estate, other $ 39 $ 176 $ 49 $ 196 $ 4 Commercial and industrial 3 2 4 4 4 Premium finance 1 8 — — — Leases 99 64 176 109 120 Residential real estate 36 14 14 40 48 Home equity lines of credit — — 29 — 37 Consumer, indirect 71 83 86 42 43 Consumer, direct 9 11 11 58 17 Consumer 80 94 97 100 60 Deposit account overdrafts 44 52 54 42 37 Total recoveries $ 302 $ 410 $ 423 $ 491 $ 310 Net charge-offs (recoveries): Commercial real estate, other $ 18 $ (154) $ 229 $ 30 $ (4) Commercial and industrial 33 418 459 101 650 Premium finance 37 22 14 15 7 Leases 632 429 297 369 311 Residential real estate 132 33 295 32 (4) Home equity lines of credit 5 25 (13) 1 143 Consumer, indirect 529 366 299 524 373 Consumer, direct 72 49 125 (2) 12 Consumer 601 415 424 522 385 Deposit account overdrafts 230 353 205 206 98 Total net charge-offs $ 1,688 $ 1,541 $ 1,910 $ 1,276 $ 1,586 Ratio of net charge-offs to average total loans (annualized): Commercial real estate, other — % (0.01) % 0.02 % — % — % Commercial and industrial — % 0.04 % 0.03 % 0.01 % 0.08 % Leases 0.06 % 0.04 % 0.03 % 0.03 % 0.03 % Residential real estate 0.01 % — % 0.03 % — % — % Home equity lines of credit — % — % — % — % 0.02 % Consumer, indirect 0.05 % 0.03 % 0.03 % 0.05 % 0.04 % Consumer, direct 0.01 % 0.01 % 0.01 % — % — % Consumer 0.06 % 0.04 % 0.04 % 0.05 % 0.04 % Deposit account overdrafts 0.02 % 0.03 % 0.02 % 0.02 % 0.01 % Total 0.15 % 0.14 % 0.17 % 0.11 % 0.18 % Each with "--%" not meaningful. 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 increase for the current quarter when compared to the linked quarter was driven by higher charge-offs on leases, consumer loans, and other 70 Table of Contents 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) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Loans 90+ days past due and accruing: Construction $ — $ — $ — $ 90 $ — Commercial real estate, other 1,472 330 603 689 1,912 Commercial and industrial 266 89 53 1,139 98 Premium finance 308 304 613 865 368 Leases 4,654 5,722 3,921 — 1,736 Residential real estate 1,499 1,687 677 805 1,156 Home equity lines of credit 23 89 75 50 61 Consumer, indirect 195 15 17 — — Consumer, direct 7 — — 85 32 Consumer 202 15 17 85 32 Total loans 90+ days past due and accruing $ 8,424 $ 8,236 $ 5,959 $ 3,723 $ 5,363 Nonaccrual loans: Construction $ 2 $ 5 $ 6 $ 6 $ — Commercial real estate, other 9,513 11,795 14,745 16,849 17,207 Commercial and industrial 2,055 1,748 2,394 2,505 4,133 Leases 2,094 1,573 1,731 1,581 1,411 Residential real estate 7,113 7,463 7,459 8,016 8,046 Home equity lines of credit 615 567 604 687 661 Consumer, indirect 1,455 1,351 1,408 1,302 850 Consumer, direct 158 166 231 273 177 Consumer 1,613 1,517 1,639 1,575 1,027 Total nonaccrual loans $ 23,005 $ 24,668 $ 28,578 $ 31,219 $ 32,485 Nonaccrual troubled debt restructurings ("TDRs"): Commercial real estate, other $ 2,403 $ 2,458 $ 197 $ 218 $ 94 Commercial and industrial 330 101 999 1,067 1,223 Residential real estate 1,615 1,731 1,676 1,631 1,689 Home equity lines of credit 306 323 333 352 315 Consumer, indirect 172 207 220 272 219 Consumer, direct — — — 6 9 Consumer 172 207 220 278 228 Total nonaccrual TDRs $ 4,826 $ 4,820 $ 3,425 $ 3,546 $ 3,549 Total nonperforming loans ("NPLs") $ 36,255 $ 37,724 $ 37,962 $ 38,488 $ 41,397 OREO: Commercial $ 8,730 $ 9,065 $ 9,106 $ 9,105 $ 10,804 Residential 110 145 301 391 464 Total OREO $ 8,840 $ 9,210 $ 9,407 $ 9,496 $ 11,268 Total nonperforming assets ("NPAs") $ 45,095 $ 46,934 $ 47,369 $ 47,984 $ 52,665 Criticized loans (a) $ 164,775 $ 181,395 $ 190,315 $ 194,016 $ 234,845 Classified loans (b) 94,848 115,483 109,530 106,547 142,628 71 Table of Contents (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Asset Quality Ratios (c): Nonaccrual loans as a percent of total loans (d) 0.60 % 0.64 % 0.70 % 0.78 % 0.80 % NPLs as a percent of total loans (d) 0.79 % 0.82 % 0.83 % 0.86 % 0.92 % NPAs as a percent of total assets (d) 0.64 % 0.64 % 0.65 % 0.68 % 0.75 % NPAs as a percent of total loans and OREO (d) 0.98 % 1.02 % 1.04 % 1.07 % 1.17 % Allowance for credit losses as a percent of nonaccrual loans 189.95 % 177.52 % 171.13 % 184.00 % 214.75 % Allowance for credit losses as a percent of NPLs (d) 145.82 % 138.76 % 144.27 % 166.20 % 186.93 % Criticized loans as a percent of total loans (a) 3.57 % 3.96 % 4.19 % 4.33 % 5.23 % Classified loans as a percent of total loans (b) 2.06 % 2.52 % 2.41 % 2.38 % 3.18 % (a) Includes loans categorized as special mention, substandard or doubtful. (b) Includes loans categorized as substandard or doubtful. (c) Data presented as of the end of the period indicated. (d) Nonperforming loans ("NPL") include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets ("NPA") include nonperforming loans and OREO. Compared to 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 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. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40. On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers. Deposits The following table details Peoples’ deposit balances: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Non-interest-bearing deposits (a) $ 1,635,953 $ 1,661,865 $ 1,666,668 $ 1,641,422 $ 1,559,993 Interest-bearing deposits: Interest-bearing demand accounts (a) 1,162,012 1,143,010 1,179,199 1,167,460 1,140,639 Savings accounts 1,077,383 1,080,053 1,065,678 1,036,738 1,016,755 Retail certificates of deposit ("CDs") 544,741 584,259 612,936 643,759 691,680 Money market deposit accounts 624,708 645,242 656,266 651,169 637,635 Governmental deposit accounts 734,734 728,057 734,784 617,259 679,305 Brokered deposits 86,089 86,739 87,395 104,745 106,013 Total interest-bearing deposits 4,229,667 4,267,360 4,336,258 4,221,130 4,272,027 Total deposits $ 5,865,620 $ 5,929,225 $ 6,002,926 $ 5,862,552 $ 5,832,020 Demand deposits as a percent of total deposits 48 % 47 % 47 % 48 % 46 % (a) The sum of amounts presented is considered total demand deposits. 72 Table of Contents 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. 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 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. Peoples continually evaluates the overall balance sheet position given the interest rate environment. Borrowed Funds The following table details Peoples’ short-term and long-term borrowings: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Short-term borrowings: FHLB 90-day advances $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 50,000 Current portion of long-term FHLB advances — — 15,000 15,000 15,000 Retail repurchase agreements 98,611 286,442 89,275 111,482 119,693 Total short-term borrowings $ 133,611 $ 326,442 $ 144,275 $ 166,482 $ 184,693 Long-term borrowings: FHLB advances $ 34,662 $ 35,348 $ 85,564 $ 85,825 $ 86,483 Vantage non-recourse debt 55,781 74,622 102,364 — — Junior subordinated debt securities 13,753 13,717 13,682 13,650 12,928 Total long-term borrowings $ 104,196 $ 123,687 $ 201,610 $ 99,475 $ 99,411 Total borrowed funds $ 237,807 $ 450,129 $ 345,885 $ 265,957 $ 284,104 Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. 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 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 September 30, 2022, Peoples had a capital conservation buffer of 4.98%. 73 Table of Contents The following table details Peoples' risk-based capital levels and corresponding ratios: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Capital Amounts: Common Equity Tier 1 $ 584,880 $ 564,708 $ 547,215 $ 577,565 $ 567,172 Tier 1 598,633 578,425 560,897 591,215 580,100 Total (Tier 1 and Tier 2) 643,189 622,516 607,493 648,948 637,802 Net risk-weighted assets $ 4,955,627 $ 4,857,818 $ 4,752,428 $ 4,614,258 $ 4,611,321 Capital Ratios: Common Equity Tier 1 11.80 % 11.62 % 11.51 % 12.52 % 12.30 % Tier 1 12.08 % 11.91 % 11.80 % 12.81 % 12.58 % Total (Tier 1 and Tier 2) 12.98 % 12.81 % 12.78 % 14.06 % 13.83 % Tier 1 leverage ratio 8.64 % 8.38 % 8.29 % 8.67 % 11.20 % 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. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent. The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Tangible equity: Total stockholders' equity $ 760,511 $ 786,824 $ 808,340 $ 845,025 $ 831,882 Less: goodwill and other intangible assets 328,428 328,132 341,865 291,009 295,415 Tangible equity $ 432,083 $ 458,692 $ 466,475 $ 554,016 $ 536,467 Tangible assets: Total assets $ 7,005,854 $ 7,278,292 $ 7,239,261 $ 7,063,521 $ 7,059,752 Less: goodwill and other intangible assets 328,428 328,132 341,865 291,009 295,415 Tangible assets $ 6,677,426 $ 6,950,160 $ 6,897,396 $ 6,772,512 $ 6,764,337 Tangible book value per common share: Tangible equity $ 432,083 $ 458,692 $ 466,475 $ 554,016 $ 536,467 Common shares outstanding 28,278,078 28,290,115 28,453,175 28,297,771 28,265,791 Tangible book value per common share $ 15.28 $ 16.21 $ 16.39 $ 19.58 $ 18.98 Tangible equity to tangible assets ratio: Tangible equity $ 432,083 $ 458,692 $ 466,475 $ 554,016 $ 536,467 Tangible assets $ 6,677,426 $ 6,950,160 $ 6,897,396 $ 6,772,512 $ 6,764,337 Tangible equity to tangible assets 6.47 % 6.60 % 6.76 % 8.18 % 7.93 % 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, 74 Table of Contents 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 While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources. Interest Rate Risk Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams. Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2021 Form 10-K. The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands): Increase (Decrease) in Interest Rate Estimated Increase (Decrease) in Net Interest Income Estimated Decrease in Economic Value of Equity (in Basis Points) 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) % 200 14,165 5.0 % 16,312 7.7 % (25,394) (1.7) % (16,541) (1.3) % 100 7,036 2.5 % 7,899 3.7 % (13,399) (0.9) % (5,308) (0.4) % (100) (14,926) (5.3) % (8,615) (4.1) % (46,191) (3.1) % (91,568) (7.4) % Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis. With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay. These prepayment speeds affect the 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. The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income or asset duration. While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term 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 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 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%. 75 Table of Contents 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 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 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. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2021 was largely attributable to increased effective duration in the investment securities portfolio. Liquidity In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 2021 Form 10-K. At 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 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 In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments. Loan Commitments and Standby Letters of Credit Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure. 76 Table of Contents The following table details the total contractual amount of loan commitments and standby letters of credit: (Dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Home equity lines of credit $ 194,685 $ 188,803 $ 184,616 $ 177,262 $ 177,963 Unadvanced construction loans 320,825 237,129 203,719 227,135 271,483 Other loan commitments 653,384 566,624 616,696 577,170 646,374 Loan commitments $ 1,168,894 $ 992,556 $ 1,005,031 $ 981,567 $ 1,095,820 Standby letters of credit $ 15,096 $ 15,977 $ 12,729 $ 12,805 $ 12,358 ITEM 3. 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.