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Item 7. Management’s Discussion and Analysis

2023-02-27 compared with 2022-03-15 · 403 added, 450 removed, 1069 unchanged (44% of the section changed)

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Certain statements made in this Form 10-K, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995.

Words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements.

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 are intended to identify these forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially.

Factors that might cause such a difference include, but are not limited to:

(1) the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), the availability, effectiveness and acceptance of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

(2) changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other factors and/or the fiscal and monetary policy measures undertaken by the U.S.

(1) the magnitude and continued duration of the recovery from the COVID-19 pandemic and its ongoing impact on the global economy and financial market conditions and Peoples’ businesses, results of operations and financial conditions;

(2) ongoing increasing interest rate policies, 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 Federal Reserve Board in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;

(3) the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and recently-completed acquisitions of NSL and Vantage, and the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;

(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 ongoing increasing interest rate policies of the Federal Reserve Board, 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;

(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;

(5) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;

(6) 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;

(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, closing of border crossings 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;

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.

global trading partners) and the impact these conditions may have on Peoples, Peoples' customers and Peoples' 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;

(9) changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated;

(10) 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 recent inflationary pressures and adversely impact the amount of interest income generated;

(11) Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;

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(14) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;

(14) the discontinuation of LIBOR and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(15) adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;

(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 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;

(17) the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income and our loan originations;

(18) Peoples' ability to receive dividends from its subsidiaries;

(18) Peoples' ability to receive dividends from Peoples' subsidiaries;

(19) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;

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(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;

(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, legislative or regulatory initiatives, 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;

(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, cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;

(28) the potential further deterioration of the U.S.

economy due to financial, political or other shocks;

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

financial markets and economy from the effects of climate change;

(30) the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;

(31) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;

(30) changes in law or requirements imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases;

(32) Peoples' ability to integrate the NS Leasing, LLC ("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;

(33) the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;

(34) uncertainty regarding the impact of the current U.S.

presidential administration and Congress on the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates and the response to and management of the COVID-19 pandemic, infrastructure spending and social programs;

(37) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the SEC, including those risk factors included in the disclosures under the heading "ITEM 1A RISK FACTORS" of this Form 10-K.

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The following is a summary of transactions or events that have impacted or are expected by management to impact Peoples’ results of operations or financial condition:

◦ On March 7, 2022, Peoples wholly-owned subsidiary, Peoples Bank, closed on its acquisition of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota.

Under the terms of the agreement, Peoples Bank purchased 100% of the equity of Vantage for total cash consideration of $54.0 million.

Peoples Bank repaid approximately $28.9 million in recourse debt on behalf of Vantage.

◦ On October 25, 2022, Peoples announced the Limestone Merger, a transaction valued at approximately $208.2 million at the time of the announcement.

The Limestone Merger is expected to close in the second quarter of 2023, subject to the satisfaction of closing conditions, including regulatory approvals.

As of December 31, 2022, Peoples had recognized $0.6 million in acquisition-related expenses associated with this pending transaction.

◦ 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.

Total consideration for this transaction was $4.4 million.

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

◦ On March 7, 2022, Peoples Bank purchased 100% of the equity of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota.

Peoples Bank acquired assets comprising Vantage's lease business, including $154.9 million in leases and certain third-party debt in the amount of $106.9 million.

Peoples Bank paid cash consideration of $54.0 million and also repaid approximately $28.9 million in recourse debt on behalf of Vantage.

Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide array of industries.

Upon completion of the transaction, Vantage became a subsidiary of Peoples Bank.

As a subsidiary, Vantage will continue to operate under the name Vantage Financial, which will leverage Vantage's strong brand recognition within the equipment finance industry.

◦ On September 17, 2021, Peoples completed its merger with Premier Financial Bancorp, Inc.

(“Premier”), in which Peoples acquired, in an all-stock merger, Premier, 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, Premier merged with and into Peoples (the “Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million.

As a subsidiary, Vantage has continued to operate under the name Vantage Financial, which leverages Vantage's strong brand recognition within the equipment finance industry.

Peoples recorded goodwill in the amount of $27.2 million and 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 the Premier Merger.

Premier merged and Premier's wholly-owned subsidiaries, Premier Bank and Citizens Deposit Bank & Trust, subsequently merged into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction resulting in the issuance of 8,589,685 common shares 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 $1.1 billion in loans and $1.8 billion in deposits.

Peoples preliminarily recorded $68.2 million in goodwill and $4.2 million in other intangible assets in connection with the Merger.

◦ On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc., pursuant to an Asset Purchase Agreement between Peoples Insurance and Justice & Stamper Insurance Agency, Inc.

Total consideration for this transaction was $325,000, with $162,500 paid at closing and the second installment in the amount of $162,500 to be paid on the first anniversary of the closing date, less any adjustments pursuant to adverse claims incurred or sustained by or imposed by Peoples Insurance.

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

◦ 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.

Total consideration for this transaction was $325,000, less any adjustments pursuant to adverse claims incurred or sustained by or imposed by Peoples Insurance.

Peoples recorded customer relationship intangible assets of $230,000 and goodwill of $46,000, related to this transaction.

◦ On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021, in which Peoples Bank acquired the equipment finance and leasing business of NSL.

◦ On March 31, 2021, Peoples acquired the equipment finance and leasing business of NSL.

The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank, on April 1, 2021.

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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 preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included a customer relationship intangible, trade name intangible and non-compete agreements related to this transaction.

Peoples recorded an additional $0.6 million in non-interest expense during the last six months of 2021 related to an update to the estimated earn-out provision of $3.0 million.

As of December 31, 2021, equipment leases had grown to $122.5 million.

◦ 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").

Peoples recorded goodwill in the amount of $24.7 million and other intangible assets of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.

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").

Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of December 31, 2021, Peoples had $87.1 million aggregate

principal amount in PPP loans outstanding (including $23.4 million acquired in the Merger with Premier), which were included in commercial and industrial loan balances, compared to $366.9 million at December 31, 2020.

Peoples recognized interest income of $13.0 million for deferred loan fees/cost accretion and $2.3 million of interest income on PPP loans during 2021 compared to $7.5 million for deferred loan fees/cost accretion and $3.2 million of interest income during 2020.

◦ On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares, replacing the share repurchase program which had authorized Peoples to purchase up to an aggregate of $40 million of Peoples' outstanding common shares.

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

Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of December 31, 2022, Peoples had $2.4 million aggregate principal amount, net of deferred fees, in PPP loans outstanding, which were included in commercial and industrial loan balances, compared to $87.1 million at December 31, 2021 (including $23.4 million acquired in the Premier Merger).

Peoples recognized interest income of $2.2 million for deferred loan fees/cost accretion and $0.3 million of interest income on PPP loans during 2022, compared to interest income of $13.0 million for deferred loan fees/cost accretion and $2.3 million of interest income during 2021, and $7.5 million for deferred loan fees/cost accretion and $3.2 million of interest income during 2020.

◦ On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $30.0 million of Peoples' outstanding common shares, replacing the February 27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares.

During 2022, Peoples repurchased 263,183 common shares totaling $7.4 million under the share repurchase program.

During 2021, Peoples did not repurchase any common shares under the share repurchase program authorized on January 28, 2021.

On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares, replacing the share repurchase program which had authorized Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares.

During 2020, Peoples repurchased 1,299,577 of Peoples' common shares through Peoples' then-effective common share repurchase program for a total of $29.3 million.

◦ During 2021, Peoples recorded a provision for credit losses of $0.7 million, compared to $26.3 million for 2020 and $2.5 million for 2019.

The lower provision for credit losses recognized in 2021 was the result of improvement in loss drivers and Moody's economic outlook published in December 2021.

◦ During 2021, Peoples recorded $1.2 million of expenses related to the COVID-19 pandemic, compared to $1.3 million for 2020.

On October 25, 2022, after the announcement of the Limestone Merger, the share repurchase program was paused until the vote to approve the Limestone Merger by shareholders.

◦ During 2022, Peoples recorded a recovery of credit losses of $3.5 million, compared to a provision for credit losses of $0.7 million for 2021 and of $26.3 million for 2020.

The recovery of credit losses during 2022 compared to the provision for credit losses during 2021 was driven by improvements in economic forecasts, coupled with acquired purchased credit deteriorated ("PCD") loan payoffs.

◦ During 2022, Peoples incurred $3.0 million of acquisition-related expenses, compared to $21.4 million for 2021 and $0.5 million for 2020.

The acquisition-related expenses in 2022 were related to the Vantage acquisition, the Premier Merger, and the Limestone Merger.

The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier Merger, and the acquisition-related expenses during 2020 were due to the acquisition of Triumph Premium Finance ("Premium Finance").

◦ Peoples incurred $185,000 in pension settlement charges in 2022, compared to $143,000 in 2021 and $1.1 million in 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing settlement charges during the period.

◦ During 2021, Peoples recorded $1.2 million of expenses related to the COVID-19 pandemic and $1.3 million during 2020.

During the fourth quarter of 2021, Peoples awarded common shares to all associates who were at the Assistant Vice President level or below.

The remainder of the COVID-19-related expenses were primarily related to providing Peoples' employees meals in support of local businesses, assisting employees with childcare and elder care needs, incentivizing employees to be vaccinated and taking extra precautions in cleaning facilities.

◦ During 2021, Peoples incurred $21.4 million of acquisition-related expenses, compared to $0.5 million for 2020 and $7.3 million for 2019.

The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier acquisition, while the expenses during 2020 and 2019 were due to the Triumph Premium Finance and First Prestonsburg acquisitions, respectively.

◦ Peoples incurred $0.1 million in pension settlement charges in 2021 compared to $1.1 million in 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing settlement charges during the period.

There were no such settlement charges during 2019.

◦ On April 2, 2020, Peoples entered into a First Amendment to the Loan Agreement with U.S.

COVID-19 pandemic-related expenses were immaterial for 2022.

◦ On April 3, 2019, Peoples entered into a Loan Agreement with U.S.

Bank National Association (the “U.S.

Bank Loan Agreement”), entered into on April 3, 2019, to extend the maturity.

A Second Amendment to the U.S.

Bank Loan Agreement entered into on April 1, 2021 extends the maturity from April 1, 2021 to March 31, 2022.

Bank Loan Agreement”).

A Fourth Amendment to the U.S.

Bank Loan Agreement, entered into on March 31, 2022, extended the maturity from April 1, 2022 to March 31, 2023.

Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $30.0 million that may be used:

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◦ During 2020, Peoples sold restricted Class B Visa stock for a gain of $680,000, which was recorded in "Other non-interest income."

Peoples also sold restricted Class B Visa stock during 2019, resulting in a gain of $787,000.

◦ Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as the "premium finance acquisition"), a division of TBK Bank, SSB.

Based in Kansas City, Missouri, the division operating as Peoples Premium Finance will continue to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide.

◦ Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Premium Finance (referred to as the "premium finance acquisition"), a division of TBK Bank, SSB.

Based in Kansas City, Missouri, the division operating as Peoples Premium Finance has continued to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide.

Peoples Bank acquired $84.7 million in loans, at acquisition date, after fair value adjustments.

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Total consideration paid for this acquisition was $94.5 million.

As of December 31, 2020, Peoples Premium Finance loans had grown to $114.8 million.

◦ During 2020, Peoples recognized credits to its FDIC insurance expense as the FDIC issued credits to member banks to offset against the quarterly assessment as a result of the deposit insurance fund reaching its target threshold for smaller banks.

These credits were used by Peoples beginning in 2019 and were fully exhausted during the second quarter of 2020.

◦ During 2020, Peoples recognized $109,000 in bank owned life insurance ("BOLI") income related to tax-free death benefits, compared to $482,000 in 2019.

Peoples recognized no BOLI income related to death benefits in 2021.

◦ In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve Board first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020 and then lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020.

The Federal Funds Target

Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of December 31, 2021.

According to the Chair of the Federal Reserve Board, the Federal Funds Target Rate is not likely to drop below this range.

However, the Federal Reserve Board does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity.

◦ On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a purchase price amount equal to $866,000, and recorded $735,000 of customer relationship intangibles, and $27,000 of other assets, resulting in $104,000 of goodwill.

◦ On August 22, 2019, Peoples Risk Management, Inc., a wholly-owned subsidiary of Peoples, was formed.

Peoples Risk Management, Inc.

is a Nevada-chartered captive insurance company which insures against certain risks unique to the operations of Peoples and for which insurance may not be currently available or economically feasible.

Peoples Risk Management, Inc.

pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

These credits were used by Peoples and were fully exhausted during the second quarter of 2020.

◦ In an effort to stimulate an economy that was being adversely impacted by the the COVID-19 pandemic, the Federal Reserve Board first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020 and then lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020.

The Federal Funds Target Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate until March 16, 2022.

The Federal Reserve Board increased the Federal Funds Target Rate range to 0.25% to 0.50% on March 16, 2022, 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, to 3.75% to 4.00% on Nov 2, 2022, to 4.25% to 4.50% on Dec 14, 2022, to 4.50% to 4.75% on February 1, 2023, and has stated it anticipates continuing to raise rates in 2023.

The impact of these transactions, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The accounting and reporting policies of Peoples conform to US GAAP and to general practices within the financial services industry.

A summary of significant accounting policies is contained in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements.

While all of these policies are important to understanding the Consolidated Financial Statements, certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.

A summary of significant accounting policies is contained in "Note 1 Summary of Significant Accounting Policies." While all of these policies are important to understanding the Consolidated Financial Statements, certain accounting policies require management to exercise judgment and make estimates or assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.

These estimates and assumptions are based on information available as of the date of the Consolidated Financial Statements;

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Management has identified four accounting policies as those that, due to the judgments, estimates and assumptions inherent in the policies, are critical to an understanding of Peoples' Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.

The four accounting policies identified were the allowance for credit losses, business combinations, goodwill, and income taxes.

The four accounting policies identified were the allowance for credit losses, business combinations, goodwill and fair value measurements.

These four accounting policies are described in further detail below.

Allowance for Credit Losses

Peoples adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" on January 1, 2020, and began using the CECL model to estimate its allowance for credit losses.

The allowance for credit losses represents Peoples' estimate of expected credit losses over the expected contractual life of the existing loan portfolio.

The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

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These factors include economic conditions, collateral, concentrations, troubled assets, Peoples' loss trends, peer loss trends, delinquency trends, portfolio composition and loan growth, underwriting, and certain other risks.

The allowance for credit losses related to specific loans was based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows, (2) the fair value of collateral if the loan is determined to be collateral dependent, or (3) the loan's observable market price.

Loans that do not share similar risk characteristics are evaluated on an individual basis.

The allowance for credit losses related to these specific loans was based on management's estimate of potential losses as determined by (1) the present value of expected future cash flows, (2) the fair value of collateral if the loan is determined to be collateral dependent, or (3) the loan's observable market price.

Peoples also completes a quarterly evaluation for unfunded commitments for loans that are not unconditionally cancellable, which includes construction loans, floor plan lines of credit, home equity lines of credit, other credit lines and letters of credit.

Peoples performed a study to determine the historical funding rates of unadvanced portions of loans, and applied these funding rates to the unfunded commitments at period end.

The loss rates, including qualitative factors, in

determining the allowance for credit losses were applied at the segment level to the unfunded commitment amounts to determine the allowance for credit loss liability for unfunded commitments.

The loss rates, including qualitative factors, in determining the allowance for credit losses were applied at the segment level to the unfunded commitment amounts to determine the allowance for credit loss liability for unfunded commitments.

There can be no assurance that the allowance for credit losses will be adequate to cover all losses, but management believes the allowance for credit losses at December 31, 2022 was adequate to provide for expected losses from existing loans based on information available at that time.

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Excluding consideration of general reserve adjustments, this sensitivity analysis would result in a hypothetical increase in the allowance for credit losses of approximately $5.0 million at December 31, 2022.

Prior to January 1, 2020, Peoples utilized the incurred loss model for estimating its allowance for loan losses.

Business Combinations

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Those same judgments drive the measurement of the credit adjustments of acquired loan and lease portfolios when arriving at fair value.

For further information regarding business combination accounting, please refer to “Note 20 Acquisitions” of the Notes to the Consolidated Financial Statements.

For further information regarding business combination accounting, please refer to “Note 20 Acquisitions.”

Peoples records goodwill as a result of acquisitions accounted for under the acquisition method of accounting.

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Goodwill represents the excess cost over the fair value of net assets acquired and is not amortized but is tested for impairment when indicators of impairment exist, and, in any case, at least annually.

For further information regarding the fair values of assets and liabilities recently acquired in business combinations, please refer to “Note 20 Acquisitions” of the Notes to the Consolidated Financial Statements.

For further information regarding the fair values of assets and liabilities recently acquired in business combinations, please refer to “Note 20 Acquisitions.”

The value of recorded goodwill is supported by revenue that is driven by the volume of business transacted and Peoples' ability to provide quality, cost-effective services in a competitive market place.

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In this evaluation, Peoples assesses relevant events and circumstances, which may include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, events specific to Peoples, significant changes in the reporting unit, or a sustained decrease in stock price.

If Peoples determines that it is more-

likely-than-not that the fair value of the reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary.

If Peoples determines that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary.

At October 1, 2022, management completed a qualitative assessment of goodwill.

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Peoples is required to perform interim tests for goodwill impairment in subsequent quarters if events occur or circumstances change that indicate potential goodwill impairment exists, such as adverse changes to Peoples' business or a significant decline in Peoples' market capitalization.

For further information regarding goodwill, refer to "Note 7 Goodwill and Other Intangible Assets" of the Notes to the Consolidated Financial Statements.

For further information regarding goodwill, refer to "Note 7 Goodwill and Other Intangible Assets."

Fair Value Measurements

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Given the inherent volatility, the use of fair value measurements may have a significant impact on the carrying value of assets or liabilities, or result in material changes to the Consolidated Financial Statements, from period to period.

Detailed information regarding fair value measurements can be found in "Note 2 Fair Value of Financial Instruments" of the Notes to the Consolidated Financial Statements.

Detailed information regarding fair value measurements can be found in "Note 2 Fair Value of Financial Instruments."

EXECUTIVE SUMMARY

Net income for the year ended December 31, 2022 was $101.3 million, compared to $47.6 million for 2021 and $34.8 million for 2020, representing earnings per diluted common share of $3.60, $2.15 and $1.73, respectively.

The increase in earnings compared to 2020 was driven by a lower provision for credit losses, which was a result of improved economic factors and updated loss drivers and their impact on assumptions used in the CECL model throughout 2021.

Non-core items, and the related tax effect of each, in net income included acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses, losses on investment securities, and gains and losses on asset disposals and other transactions.

Non-core items negatively impacted earnings per diluted common share by $0.85 for 2021 compared to $0.22 for 2020 and $0.30 for 2019.

Net interest income increased 24% to $172.6 million for 2021, compared to $138.9 million for 2020, and totaled $140.8 million for 2019.

The increases in 2022 earnings when compared to 2021 and 2020 were driven by increases in net interest income, partially offset by increases in non-interest expenses.

Non-core items, and the related tax effect of each, negatively impacted earnings per diluted common share by $0.11 for 2022 compared to $0.85 for 2021 and $0.22 for 2020.

Net interest income increased 47% to $253.4 million for 2022, compared to $172.6 million for 2021, and $138.9 million for 2020.

Net interest margin was 3.97% in 2022, compared to 3.40% in 2021 and 3.24% in 2020.

The increase in net interest income and net interest margin compared to 2020 was largely due to the impact of PPP loan forgiveness and lower funding costs due to customers' maintaining higher cash balances, as well as a higher volume of loans due to the Premier and Premium Finance acquisitions coupled with higher-yielding leases acquired from NSL and organic loan growth.

Net interest margin compressed during 2020 as loan yields declined due to the low interest rate environment and investment securities yields decreased as premium amortization increased due to higher refinancing activity.

The increases in net interest income and net interest margin when compared to 2021 were driven by (i) the Premier Merger and the Vantage acquisition, (ii) organic growth and (iii) increases in market interest rates.

Net interest margin increased during 2021 when compared to 2020 largely due to the impact of PPP loan forgiveness and lower funding costs due to customers' maintaining higher cash balances, as well as a higher volume of loans due to the Premier Merger and Premium Finance acquisition coupled with higher-yielding leases acquired from NSL and organic loan growth.

Net interest margin in 2020 was impacted by the low interest rate environment and lower investment securities yields, partially offset by premium amortization due to a high level of refinancing activity.

Accretion income, net of amortization expense, from acquisitions totaled $11.6 million for 2022, $3.2 million for 2021, and $2.8 million for 2020, adding 19 basis points to the 2022 net interest margin and 7 basis points to each of the 2021 and 2020 net interest margins.

Included in net interest income during 2022, 2021 and 2020 was the impact of the PPP loans.

Peoples recognized interest income on deferred loan fees/costs of $13.0 million and $7.5 million during the 2021 and 2020, respectively, along with $2.3 million and $3.2 million of interest earned on PPP loans during 2021 and 2020, respectively.

Funding costs were controlled during 2021, and declined 20 basis points compared to 2020.

Net interest income in 2019 was largely driven by loan growth, which was positively impacted by the First Prestonsburg and ASB acquisitions, and higher loan yields.

Accretion income, net of amortization expense, from acquisitions totaled $3.2 million for 2021, $2.8 million for 2020, and $4.9 million for 2019, adding 7 basis points, 7 basis points, and 12 basis points, respectively, to the net interest margin.

The provision for credit losses for 2021 was $0.7 million for 2021, compared to $26.3 million for 2020 and $2.5 million for 2019.

Peoples recognized interest income on deferred loan fees/costs of $2.2 million, $13.0 million and $7.5 million during 2022, 2021 and 2020, respectively, along with $0.3 million, $2.3 million and $3.2 million of interest earned on PPP loans during 2022, 2021 and 2020, respectively.

The recovery of credit losses for 2022 was $3.5 million, compared to provisions for credit losses of $0.7 million for 2021 and $26.3 million for 2020.

Net charge-offs for 2022 were $7.3 million, compared to $4.7 million for 2021 and $1.8 million for 2020.

Net charge-offs as a percent of average total loans were 0.16% for 2022, 0.13% for 2021 and 0.05% for 2020.

The lower provision for credit losses recognized in 2021 was the result of improvement in loss drivers and Moody's economic outlook published in December 2021.

The recovery of credit losses during 2022 compared to the provision for credit losses during 2021 was driven by improvements in economic forecasts, coupled with loan pay-offs and sales during certain periods.

The lower provision for credit losses recognized in 2021 when compared to 2020 was the result of improvement in loss drivers and Moody's economic outlook published in December 2021.

The provision for credit losses recognized in 2020 was due to the impact the COVID-19 pandemic had on the economic forecasts and qualitative factors used in the CECL model.

The provision for credit losses recognized in 2019 was a result of lower net charge-offs in 2019, which included a $1.8 million recovery on a previously charged-off loan.

Total non-interest income increased 8% compared to 2020.

All non-interest income categories were impacted by the Premier acquisition, with the exception of mortgage banking income and commercial loan swap fees.

Mortgage banking income decreased due to the volume of refinance activity experienced in 2020 when interest rates declined, which was not repeated in 2021.

Swap fee income also decreased as a result of lower customer demand caused by the sustained lower rate environment in 2021.

Total non-interest income for 2020 was largely impacted by deposit account service charges, which was driven by the COVID-19 pandemic and the higher balances being maintained by customers throughout 2020.

The decline in deposit account service charges during 2020, compared to 2019, was partially offset by higher mortgage banking income, as a result of higher refinancing activity in 2020 due to the low interest rate environment.

Increases in trust and investment income and electronic banking income in 2020, compared to 2019,

were more than offset by decreases in insurance income, commercial loan swap fee income and bank owned life insurance income.

Total non-interest income was positively impacted during 2019 due to the additional deposit accounts and cardholders associated with the acquisitions of First Prestonsburg and ASB.

Total non-interest income for 2022 increased $10.0 million, or 14%, when compared to 2021.

The increase was driven by growth of $4.4 million in service charges on deposit accounts and $3.1 million in electronic banking income, primarily attributable to customers added in the Premier Merger.

Also contributing to the growth was a $3.0 million increase in lease income due to the Vantage acquisition.

Partially offsetting the impact of these 2022 increases when compared to 2021 was a $2.0 million decline in mortgage banking income due to the increased market interest rate environment in 2022 resulting in a lower volume of new loan originations.

In 2021, all non-interest income categories were impacted by the Premier Merger, with the exception of mortgage banking income and commercial loan swap fees.

Mortgage banking income in 2021 decreased when compared to 2020 due to the volume of refinance activity experienced in 2020 when interest rates declined, which was not repeated in 2021.

Swap fee income in 2021 also decreased when compared to 2020 as a result of lower customer demand caused by the sustained lower rate environment in 2021.

Total non-interest income for 2020 was largely impacted by a lower level of deposit account service charges, which was driven by the COVID-19 pandemic and the higher balances being maintained by customers throughout 2020.

Total non-interest expense was $207.1 million for 2022, an increase of $23.4 million, or 13%, compared to 2021.

The growth was driven by increases of (i) $18.1 million in salaries and employee benefit costs, (ii) $4.6 million in net occupancy and equipment expense, (iii) $3.7 million in data processing and software expenses, and (iv) $3.0 million in intangible asset amortization.

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

Partially offsetting the impact of these increases on non-interest expense was a decrease in acquisition-related expenses due to the amount of expenses incurred in connection with the Premier Merger in 2021.

Total non-interest expense was $183.7 million for 2021, an increase of $50.0 million compared to 2020.

The acquisitions of Premier and NSL increased acquisition-related expenses included in other expenses, professional fees, salaries and employee benefit costs, as well as net occupancy and equipment expenses, and amortization of intangible assets.

Total non-interest expense for 2020 decreased $3.6 million, or 3%, from 2019 and was driven by a reduction in acquisition-related expenses.

Declines in salaries and employee benefit costs, which were mostly due to increased deferred personnel costs associated with the origination of PPP loans, were partially offset by higher data processing and software expense that was largely a result of implementation of new software, coupled with higher core processing costs.

Peoples also recorded higher FDIC insurance expense during 2020 compared to 2019, as credits had been received and recognized during 2019, and were fully utilized during the second quarter of 2020.

Included in total non-interest expense during 2021 were certain non-core expenses which included acquisition-related expenses of $21.4 million, COVID-19-related expenses of $1.2 million, contract negotiation expenses of $1.2 million and a Peoples Bank Foundation, Inc.

The Premier Merger and the acquisition of NSL increased acquisition-related expenses included in other expenses, professional fees, salaries and employee benefit costs, as well as net occupancy and equipment expenses, and amortization of intangible assets.

Included in total non-interest expense during 2022 were certain non-core expenses which included acquisition-related expenses of $3.0 million.

Non-core expenses for 2021 included acquisition-related expenses of $21.4 million, COVID-19-related expenses of $1.2 million, contract negotiation expenses of $1.2 million and a Peoples Bank Foundation, Inc.

contribution of $0.5 million.

Non-core expenses for 2020 included COVID-19-related expenses of $1.3 million, severance expenses and pension settlement charges that totaled $1.1 million each, and acquisition-related expenses of $0.5 million.

During 2019, non-core expenses included $7.3 million of acquisition-related expenses.

Total non-interest expense for 2019 was mostly impacted by increases in salaries and employee benefit costs, net occupancy and equipment expense, electronic banking expense and data processing and software expense, largely attributable to the acquisitions in 2019, which were partially offset by lower FDIC insurance expense and professional fees.

Peoples' efficiency ratio, which is calculated as total non-interest expense less amortization of other intangible assets divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, was 59.6% for 2022, compared to 73.6% for 2021 and 63.9% for 2020.

The increase in the efficiency ratio during 2021 was caused by increased non-core expenses discussed above.

The improvement in the efficiency ratio during 2020 was mostly due to a reduction in total non-interest expense, which more than offset declines in revenue.

The efficiency ratio during 2019 was impacted by higher total revenue, which outpaced increases in total non-interest expense.

The efficiency ratio, when adjusted for non-core items, was 58.6% for 2022, 63.5% for 2021 and 61.9% for 2020.

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The effective tax rate for 2022 was 21.3%, 16.5% for 2021 and 18.5% for 2020.

The variance in income tax expense for 2021 compared to 2020, was the result of higher pre-tax income in 2021 that resulted from the acquisitions of Premier and NSL.

The increase for 2022 compared to 2021 was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

The variance in income tax expense for 2021 compared to 2020, was the result of higher pre-tax income in 2021 that resulted from the Premier Merger and the NSL acquisition.

Income tax expense for 2021 was also impacted by an income tax benefit related to an adjustment from a prior period of $1.1 million.

Total assets increased 2% to $7.21 billion at December 31, 2022, compared to $7.06 billion at year-end 2021.

The key contributor to the increase was the assets acquired from the Premier and NSL acquisitions.

The allowance for credit losses increased to $64.0 million or 1.43% of total loans, net of deferred fees and costs, compared to $50.4 million and 1.48%, respectively, at December 31, 2020.

The increase in the allowance for credit losses compared to December 31, 2020 was due to a $16.9 million increase in the allowance for credit losses related to the purchased credit deteriorated loans acquired from Premier, the establishment of an allowance for credit losses for non-purchased credit deteriorated loans of $11.7 million, and a liability for unfunded commitments of $0.4 million.

For the NSL acquisition, Peoples recorded $3.3 million in provision for credit losses during 2021 in order to establish the allowance for credit losses for the acquired leases and $493,000 to establish the allowance for credit losses on purchased credit deteriorated leases.

Total liabilities were $6.22 billion at December 31, 2021, an increase of $2.0 billion since December 31, 2020.

Total deposits increased $2.0 billion, to $5.86 billion at December 31, 2021.

The significant increase in deposits compared to December 31, 2020 was largely due to deposits acquired from Premier.

Total demand deposits comprised 48% of total deposits at December 31, 2021 and were 43% of total deposits at December 31, 2020.

Total stockholders' equity was $845.0 million at December 31, 2021, an increase of 47% from December 31, 2020.

The increase compared to 2020 was due to common shares issued for the Premier acquisition and net income for 2021 of $47.6 million, offset partially by dividends paid of $31.2 million and $13.0 million in accumulated other comprehensive losses.

The increase was primarily due to increases of $225.6 million in loan and lease balances and $186.1 million in held-to-maturity investment securities.

The increase in the period-end total loan and lease balances was primarily driven by $154.9 million of leases acquired from Vantage and increases of (i) $98.9 million in indirect consumer loans, (ii) $36.7 million in construction loans and (iii) $23.1 million in premium finance loans, partially offset by reductions of $126.6 million in other commercial real estate loans and $48.4 million in residential real estate loans.

Held-to-maturity investment securities increased due to purchases throughout 2022.

The allowance for credit losses decreased to $53.2 million or 1.13% of total loans, net of deferred fees and costs, compared to $64.0 million and 1.43%, respectively, at December 31, 2021.

The decline in the allowance balance at December 31, 2022 when compared to at December 31, 2021 was driven by decreases in the allowances for individually analyzed loans, as well as changes in qualitative factors period-over-period and the use of updated prepayment speeds.

Those decreases were partially offset by loan growth and deterioration in the economic forecast.

Total liabilities were $6.42 billion at December 31, 2022, an increase of $203.5 million since at December 31, 2021.

Total deposits decreased $145.6 million, to $5.72 billion at December 31, 2022.

The 2022 decline in the total deposit balances from December 31, 2021 was driven by decreases of (i) $113.5 million in retail certificates of deposits, (ii) $52.0 million in total non-interest-bearing deposit accounts and (iii) $34.1 million in money market deposit accounts, partially offset by increases of $31.8 million in savings account deposits and $20.8 million in brokered deposit accounts.

Total demand deposits comprised 48% of total deposits at both December 31, 2022 and December 31, 2021.

Total stockholders' equity was $785.3 million at December 31, 2022, a decrease of 7% from December 31, 2021 due to (i) an other comprehensive loss of $115.5 million, (ii) dividends paid of $42.4 million and (iii) share repurchases of $7.4 million, partially offset by net income of $101.3 million for the full year of 2022.

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

Peoples continued to exceed the capital required by the Federal Reserve Board to be deemed "well capitalized." Peoples' tier 1 capital ratio was 12.19% at December 31, 2022, versus 12.81% at December 31, 2021, while the total capital ratio was 13.06% at December 31, 2022, versus 14.06% at December 31, 2021.

The common equity tier 1 risk-based capital ratio was 11.92% at December 31, 2022 compared to 12.52% at December 31, 2021.

Compared to December 31, 2020, the change in the capital ratios was due to a lower provision for credit losses recognized during 2021, partially offset by increased acquisition-related expenses and dividends paid to shareholders.

Compared to December 31, 2021, the capital ratios decreased due to the Vantage acquisition and other comprehensive losses from unrealized losses on available-for-sale fixed maturities.

Peoples' book value and tangible book value per share were $27.76 and $16.23, respectively, at December 31, 2022, compared to $29.86 and $19.58, respectively, at December 31, 2021.

Additional information regarding capital requirements can be found in "Note 17 Regulatory Matters" of the Notes to the Consolidated Financial Statements.

Additional information regarding capital requirements can be found in "Note 17 Regulatory Matters."

RESULTS OF OPERATIONS

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Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue and was 76% of total revenue during 2022.

The amount of net interest income earned by Peoples is affected by various factors, including changes in market interest rates due to the Federal Reserve Board's monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples' markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.

The amount of net interest income earned by Peoples is affected by various

factors, including changes in market interest rates due to the Federal Reserve Board's monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples' markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.

Peoples monitors net interest income performance and manages its balance sheet composition through regular ALCO meetings.

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However, the frequency and/or magnitude of changes in market interest rates are difficult to predict, and may have a greater impact on net interest income than adjustments management is able to make.

As part of the analysis of net interest income, management converts tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 22.3% for 2021, and a statutory federal corporate income tax rate of 21% for 2020 and 2019.

As part of the analysis of net interest income, management converts tax-exempt income earned on obligations of states and political subdivisions to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 23.3% for 2022, 22.3% for 2021, and a statutory federal corporate income tax rate of 21% for 2020.

Management believes the resulting FTE net interest income allows for a more meaningful comparison of tax-exempt income and yields to their taxable equivalents.

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Short-term investments $ 178,781 $ 1,710 0.96 % $ 219,849 $ 313 0.14 % $ 103,767 $ 343 0.33 %

Investment securities (a)(b)(c):

Investment securities (a)(b):

Taxable 1,481,368 29,091 1.96 % 1,042,419 15,219 1.46 % 868,930 14,370 1.65 %

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Total investment securities 1,680,647 34,535 2.05 % 1,205,514 19,545 1.62 % 970,895 17,516 1.80 %

Loans (b)(c)(d):

Loans (b)(c):

Construction 223,197 10,732 4.74 % 131,834 5,130 3.84 % 107,862 4,883 4.45 %

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Leases 271,349 34,720 12.62 % 74,442 13,572 17.98 % — — — %

Residential real estate (e) 700,691 29,686 4.24 % 660,025 31,155 4.72 % 641,053 30,671 4.78 %

Residential real estate (d) 881,136 37,851 4.30 % 700,691 29,686 4.24 % 660,025 31,155 4.72 %

Home equity lines of credit 170,567 8,300 4.87 % 133,340 5,410 4.06 % 127,454 5,799 4.55 %

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Retail certificates of deposit 580,660 2,978 0.51 % 497,181 3,952 0.79 % 473,244 6,748 1.43 %

Brokered deposits (f) 150,716 3,130 2.08 % 223,940 2,480 1.11 % 272,553 6,695 2.46 %

Brokered deposits (e) 88,234 2,067 2.34 % 150,716 3,130 2.08 % 223,940 2,480 1.11 %

Total interest-bearing deposits

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Long-term FHLB advances 53,102 984 1.85 % 94,050 1,413 1.50 % 107,935 1,740 1.61 %

Long-term notes payable 56,865 2,562 4.51 % — — — % — — — %

Other borrowings 13,718 734 5.27 % 9,364 360 3.79 % 8,757 370 4.23 %

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(a) Average balances are based on carrying value.

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021, and a statutory federal corporate income tax rate of 21% for 2020 and 2019.

(c) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, recording an adjustment in cost basis of purchased credit deteriorated assets to reflect the addition of $2.6 million to establish the allowance for credit losses;

an increase to the allowance for credit losses (which was the "allowance for loan

losses" prior to January 1, 2020) of $5.8 million;

the addition of $1.5 million unfunded commitment liability included in accrued expenses and other liabilities;

and a cumulative-effect adjustment to reduce retained earnings of $3.7 million, net of statutory corporate federal income tax.

(d) Average balances include nonaccrual, impaired loans, and loans held for sale.

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 23.3% for 2022, 22.3% for 2021, and a statutory federal corporate income tax rate of 21% for 2020.

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.

(e) Loans held for sale are included in the average loan balances listed.

(d) Loans held for sale are included in the average loan balances listed.

Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.

(f) 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.

On September 17, 2021, Peoples acquired Premier, which included $1.1 billion in loans and $1.8 billion in deposits.

(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:

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

Additionally, Peoples acquired North Star Leasing on April 1, 2021 and an insurance premium finance division on July 1, 2020.

During 2021, Peoples had excess cash which increased short-term investments, due to PPP forgiveness and increased deposit balances.

Peoples has begun 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:

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(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 changes in each.

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020 and 2019.

During 2021, net interest income grew 24%, and the increase was primarily driven by the acquired Premier and leasing divisions, coupled with growth in Peoples' core business.

Net interest income increased $80.9 million, or 47%, for 2022 when compared to 2021, and net interest margin increased 57 basis points to 3.97%.

The increase in net interest income was driven by (i) the Premier Merger and the Vantage acquisition, (ii) core growth and (iii) increases in market interest rates.

Accretion income, net of amortization expense, from acquisitions was $11.6 million for 2022, which added 19 basis points to net interest margin for 2022.

Accretion income for 2022 was a result of the Premier Merger and the acquisitions of Vantage and NSL.

During 2021, net interest income grew 24% when compared to 2020.

The increase was primarily driven by the Premier Merger and the acquisition of NSL, coupled with growth in Peoples' core business.

Net interest margin improved 16 basis points compared to 2020, as loan yields improved and offset declining investment yields, while controlled funding costs benefited net interest margin.

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Accretion income, net of amortization expense, from acquisitions, added $3.2 million to net interest income and 7 basis points to net interest margin.

For 2020, net interest income decreased $1.9 million, or 1% compared to 2019, and net interest margin declined to 3.24%, compared to 3.69% for 2019.

Net interest income and net interest margin were negatively impacted by the low interest rate environment during 2020, which also led to a $5.0 million increase in premium amortization on Peoples' investment securities portfolio during 2020, compared to 2019.

Peoples recorded $10.7 million in interest income on PPP loans during 2020, which included the impact of accretion of net deferred loan fees and costs, which added 2 basis points to net interest margin.

Premium finance loans added $2.9 million of interest income during 2020, and 2 basis points to net interest margin.

Funding costs declined to 58 basis points compared to 99 basis points for 2019, which was driven by reductions in interest rates on deposits, coupled with controlled borrowing costs.

During 2020, Peoples recognized accretion income, net of amortization expense, from acquisitions of $2.8 million, which added 7 basis points to net interest margin, compared to $4.9 million and 12 basis points in 2019.

Additional interest income in 2022 from prepayment fees and interest recovered on nonaccrual loans was $647,000, compared to $825,000 in 2021 and $738,000 in 2020.

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Measurement of Credit Losses on Financial Instruments", commonly referred to as the CECL model.

Prior to the adoption of the CECL methodology, the provision for credit losses was the "provision for loan losses." The following table details Peoples’ provision for credit losses recognized for the years ended December 31:

The following table details Peoples’ provision for credit losses recognized for the years ended December 31:

(Dollars in thousands) 2022 2021 2020

Provision for other credit losses $ 339 $ 25,798 $ 1,845

(Recovery of) Provision for other credit losses $ (4,560) $ 339 $ 25,798

Provision for checking account overdrafts 1,050 392 456

Provision for credit losses $ 731 $ 26,254 $ 2,504

(Recovery of) Provision for credit losses $ (3,510) $ 731 $ 26,254

As a percent of average total loans (0.08) % 0.02 % 0.81 %

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The CECL methodology utilized by Peoples relies on economic forecasts, as well as other key assumptions including prepayments, probability of default and loss given default.

Under the incurred loss model (the accounting methodology prior to 2020), the process for estimating allowance for loan losses considered various factors that affect losses, such as changes in Peoples’ loan quality and historical loss experience.

Given the relatively low recent loss history, the incurred loss model was highly dependent on qualitative factors to arrive at an appropriate allowance for loan losses in periods prior to 2020.

These qualitative factors included current economic conditions, and other environmental factors such as changes in real estate market conditions and unemployment.

For 2022, the recovery of credit losses compared to a provision for credit losses for 2021 was driven by improvements in economic forecasts, coupled with loan pay-offs during certain periods of 2022.

During 2021, Peoples recorded a lower provision for credit losses compared to a sizable provision for credit losses during 2020.

1 unchanged sentence

During 2021, economic factors and loss drivers improved and resulted in a reduction in the allowance for credit losses, resulting in a lower provision for credit losses.

The improvement in economic factors and loss drivers for 2021 were partially offset by the provision for credit losses required to establish the allowance for credit losses for acquired non-purchased credit deteriorated loans and leases during 2021.

During 2020, the COVID-19 pandemic caused the economic outlook and assumptions used in the CECL model to be unfavorable, and as a result, caused the need for additional provision for credit losses to be recorded resulting in a higher allowance for credit losses at the end of the year, compared to 2019.

Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this discussion under the caption "Allowance for Credit Losses."

Net Gains (Losses) Included in Total Non-Interest Income

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

The following table details the net gains (losses) for the years ended December 31 recognized by Peoples:

Net (Losses) Gains Included in Total Non-Interest Income

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

The following table details the net (losses) gains for the years ended December 31 recognized by Peoples:

(Dollars in thousands) 2022 2021 2020

Net (loss) gain on investment securities $ (862) $ (368) $ 164

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

Net loss on investment securities $ (61) $ (862) $ (368)

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

Net loss on other assets $ (326) $ (460) $ (367)

Net gain (loss) on OREO 56 (120) (98)

Net gain on other transactions 897 197 8

Net gain (loss) on asset disposals and other transactions $ 493 $ (290) $ (782)

During 2021, net gains on other transactions were driven by the sale of $59.8 million of predominantly purchased credit deteriorated loans acquired in the Premier Merger ($52.9 million of which were criticized or classified) primarily in the hospitality industry.

Net (loss) gain on OREO (139) 56 (120)

Net (loss) gain on other transactions (151) 897 197

Net (loss) gain on asset disposals and other transactions $ (616) $ 493 $ (290)

For 2022, Peoples' net loss on asset disposals and other transactions was primarily due to net losses on other assets, which was mainly due to net losses on repossessed assets.

During 2021, net gains on other transactions were driven by the sale of $59.8 million of predominantly PCD loans acquired in the Premier Merger ($52.9 million of which were criticized or classified) primarily in the hospitality industry.

Peoples recognized a gain of $897,000 related to the discount recorded on those loans when they were acquired from Premier.

The net loss on other assets during 2020 was primarily due to the loss of $145,000 on the sale of a closed branch from the ASB acquisition, and market value write-down of $108,000 related to closed offices that were held for sale.

The net loss on other assets during 2020 was primarily due to the loss of $145,000 on the sale of a closed branch from the ASB Financial Corporation ("ASB") acquisition, and market value write-down of $108,000 related to closed offices that were held for sale.

The net gain on other transactions during 2020 was due to receiving $197,000 in funds from a limited partnership investment.

The net loss on other assets during 2019 was driven by net losses on repossessed assets of $320,000, the write-offs of fixed assets acquired from First Prestonsburg of $243,000 and market value write-downs related to closed offices that were held for sale.

Total Non-Interest Income Excluding Net Gains and Losses

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Peoples continues to focus on revenue growth from non-interest income sources in order to maintain a diversified revenue stream through greater reliance on total non-interest income excluding net gains and losses.

As a result, total non-interest income excluding net gains and losses accounted for 28.6% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) in 2021, compared to 31.7% in 2020 and 31.5% in 2019.

The decline in Peoples' total non-interest income excluding net gains and losses, as a percent of total revenue during 2021 compared to 2020, was largely due to the Premier Merger and the North Star Leasing acquisition, which caused improved net interest income, resulting in a smaller portion of total revenue being provided by other revenue sources.

Total non-interest income excluding net gains and losses accounted for 23.9% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) in 2022, compared to 28.6% in 2021 and 31.7% in 2020.

The decline in Peoples' total non-interest income excluding net gains and losses, as a percent of total revenue during 2022 compared to 2021, was largely due to having a full year of the customers gained from the Premier Merger as well as the Vantage acquisition, which caused improved net interest income, resulting in a smaller portion of total revenue being provided by other revenue sources.

E-banking income comprised the largest portion of Peoples' total non-interest income excluding net gains and losses, for 2022.

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

During 2021, e-banking income increased $3.8 million, or 26%, and was driven by the combination of the addition of the Premier acquired accounts, along with increased usage of debit cards.

The growth in e-banking income in 2020 of $566,000, or 4%, compared to 2019, was largely due to increased usage of debit cards, coupled with the full year impact of the addition of the First Prestonsburg acquired accounts.

In 2021, Peoples' customers used their debit cards to complet e $1.4 billion of transactions, versus $1.0 billion in 2020 and $913.7 million in 2019.

For 2022 compared to 2021, e-banking income grew 17%, primarily from a full year's impact of the acquired Premier accounts in addition to increased customer activity.

During 2021, e-banking income increased 26% when compared to 2020 and was driven by the combination of the addition of the Premier acquired accounts, along with increased usage of debit cards.

In 2022, Peoples' customers used their debit cards to complete $1.7 billion of transactions, versus $1.4 billion in 2021 and $1.0 billion in 2020.

Peoples' fiduciary and brokerage revenues continue to be based primarily upon the value of assets under administration and management.

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Trust and investment income $ 16,391 $ 16,456 $ 13,662

For 2021, trust and investment income grew 20%, as Peoples added new accounts and the underlying market values of assets under administration and management grew, compared to 2020.

Peoples also increased its employee benefit plans business during 2021, compared to 2020.

During 2020, trust and investment income increased $503,000, or 4%, compared to 2019, while employee benefit plan fees for 2020 were relatively flat compared to 2019.

The following table details Peoples’ assets under administration and management at year-end December 31:

For 2022, trust and investment income was relatively flat compared to 2021, as the increase in brokerage income was offset by the decrease in fiduciary income.

For 2021, trust and investment income grew 20% when compared to 2020, as Peoples added new

accounts and the underlying market values of assets under administration and management grew.

Peoples also increased its employee benefit plans business during 2021 when compared to 2020.

The following table details Peoples’ assets under administration and management at December 31:

(Dollars in thousands) 2022 2021 2020

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Annual average $ 2,965,985 $ 3,053,807 $ 2,510,596

During 2021, Peoples grew assets under administration and management by over 10%, which was partially due to new accounts as well as improved market values, resulting in increased fiduciary and brokerage income compared to 2020.

For 2020, Peoples grew assets under management by 15% compared to 2019, as a result of new accounts and higher market values, driving the increase in both fiduciary and brokerage income compared to the prior year.

Peoples has had success in recent years in increasing client accounts within its fiduciary and brokerage business, while the market values of existing assets under administration and management have also increased.

The decline in total assets under administration and management at December 31, 2022, compared to December 31, 2021, was driven by a decrease in market values throughout 2022 due to the recent economic downturn.

During 2021, Peoples grew assets under administration and management by over 10% when compared to 2020, which was partially due to new accounts as well as improved market values, resulting in increased fiduciary and brokerage income.

Peoples has had success in recent years in increasing client accounts within its fiduciary and brokerage business.

The following table details Peoples’ insurance income for the years ended December 31:

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Insurance income $ 15,727 $ 15,252 $ 14,042

Insurance income for 2022 was relatively flat when compared to 2021, as the increases in property and casualty insurance commissions and life and health insurance commissions were substantially offset by the decrease in performance-based commissions.

Insurance income grew 9% for 2021, compared to 2020.

This increase was driven by higher property and casualty insurance commissions, as Peoples added new accounts, and higher performance-based commissions.

Insurance income declined 5% during 2020, compared to 2019, and decreased across each category of insurance income.

This decline was mostly due to the impact of the COVID-19 pandemic.

The majority of performance-based commissions typically is recorded annually in the first quarter and is based on a combination of factors, such as loss experience of insurance policies sold, production volumes and overall financial performance of the individual insurance carriers.

Deposit account service charges are based on the costs associated with services provided by Peoples.

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

Deposit account service charges in 2022 increased compared to 2021 due to increased customer activity 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 2022 when compared to 2021 were the additional customers associated with the Premier Merger, as 2022 had a full year of the benefit from the additional Premier accounts, whereas 2021 only had three and a half months of the benefit.

Deposit account service charges were positively impacted during 2021 by the Premier Merger and associated additional accounts, while growth was also experienced within fees on existing accounts, which had previously declined since the beginning of the COVID-19 pandemic.

During 2020, deposit account service charges declined 20% as customer habits changed as a result of the COVID-19 pandemic, with customers maintaining higher

balances, coupled with fiscal stimulus funds provided by the government to individuals and proceeds from PPP loans to businesses compared to 2019.

During 2020, deposit account service charges were down as customer habits changed as a result of the COVID-19 pandemic, with customers maintaining higher balances, coupled with fiscal stimulus funds provided by the government to individuals and proceeds from PPP loans to businesses.

The following table details the other items included within Peoples' total non-interest income for the years ended December 31:

(Dollars in thousands) 2022 2021 2020

Mortgage banking income $ 3,439 $ 6,499 $ 4,328

Lease income $ 4,267 $ 1,293 $ —

Bank owned life insurance income 2,624 1,767 1,977

Commercial loan swap fees 543 1,741 2,228

Mortgage banking income 1,397 3,439 6,499

Other non-interest income $ 3,430 $ 2,894 $ 4,486

Lease income is primarily comprised of (i) gains on the early termination of leases, (ii) fees received for referrals and (iii) gains and losses recognized on the sales of residual assets.

The 2022 increase in lease income when compared to 2021 was due to the Vantage acquisition.

In 2021, Peoples acquired NSL which brought in the lease portfolio to begin recognizing lease income.

Bank owned life insurance income ("BOLI") for 2022, increased when compared to 2021 due to a $248,000 death benefit related to the cash surrender value of the underlying policy in the third quarter of 2022 and $30.0 million of additional investments in policies.

BOLI income declined 11% during 2021, compared to 2020, and was mostly due to the 2020 recognition of a $109,000 tax-free death benefit that exceeded the cash surrender value of the insurance policies.

Peoples purchased no additional BOLI policies during 2021 and 2020.

Mortgage banking income is comprised mostly of net gains from the origination and sale of long-term, fixed-rate real estate loans in the secondary market, as well as servicing income for sold loans.

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.

During 2021, mortgage banking declined by 47% and was driven by lower customer demand due to the low rate environment that had been in place since the beginning of 2020.

During 2020, mortgage banking income increased by 50% compared to 2019, as the low interest rate environment during the year resulted in heavy refinance activity.

Mortgage banking income declined for 2022 when compared to 2021 due to the increased market interest rate environment and a lower volume of new loan originations.

During 2021, mortgage banking income declined by 47% when compared to 2020 and was driven by lower customer demand due to the low rate environment that had been in place since the beginning of 2020.

In 2022, Peoples sold approximately $18.5 million of loans to the secondary market with servicing retained and sold approximately $31.1 million in loans with servicing released, compared to approximately $57.6 million and $37.4 million, respectively, in 2021.

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The volume of sales has a direct impact on the amount of mortgage banking income.

BOLI income declined $453,000 during 2020, compared to 2019, with the reduction largely driven by the recognition of $482,000 of tax-free death benefits that exceeded the cash surrender value of the insurance policies during 2019.

Peoples purchased no additional BOLI policies during 2021, 2020 and 2019.

Commercial loan swap fees are largely dependent on the timing and volume of customer activity.

For 2021, commercial loan swap fees declined 69%, as customer demand decreased due to the continued low interest rate environment.

The low interest rate environment also resulted in lower commercial loan swap fees during 2020, which were down $487,000 compared to 2019.

Other non-interest income grew during 2021, and was positively impacted by the non-interest income recognized by the leasing division, which contributed $1.3 million of income.

Other non-interest income during 2020 and 2019 included additional income related to gains recorded on the sale of restricted Class B Visa stock of $680,000 and $787,000, respectively.

There were no similar gains recorded during 2021.

For 2022, other non-interest income increased when compared to 2021 due primarily to increased other operating income.

Other non-interest income declined during 2021, primarily due to a decline in the fair value of equity securities.

Other non-interest income during 2020 included additional income related to gains recorded on the sale of restricted Class B Visa stock of $680,000.

There were no similar gains recorded during 2022 and 2021.

Total Non-Interest Expense

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Employee benefit costs 13,654 11,091 8,510

Stock-based compensation 3,515 3,607 3,655

Employee stock-based compensation 3,819 3,515 3,607

Deferred personnel costs (4,975) (3,695) (4,342)

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Average during the period 1,245 1,003 894

Base salaries and wages increased in 2021 by $8.6 million, or 17%, compared to 2020, and were impacted by the acquisitions of Premier and North Star Leasing.

During 2021, Peoples incurred $3.8 million of one-time expenses associated with acquisitions, whereas Peoples incurred $1.1 million in severance expenses in 2020, due primarily to a management restructuring that occurred in the latter half of 2020.

Base salaries and wages in 2020 were relatively flat compared to 2019.

Base salaries and wages increased compared to 2021, driven by the additional salaries associated with the acquisition of Vantage, and the Premier Merger.

Base salaries and wages increased in 2021 compared to 2020, and were impacted by the Premier Merger and the acquisition of North Star Leasing.

During 2021, Peoples incurred $3.8 million of one-time expenses associated with acquisitions;

whereas, Peoples incurred $1.1 million in severance expenses in 2020, due primarily to a management restructuring that occurred in the latter half of 2020.

Base salaries and wages were impacted by merit increases, as well as continued movement towards a $15 per hour minimum wage throughout Peoples' organization.

The $15 per hour minimum is being phased in and will largely be implemented by January 1, 2023.

Base salaries and wages were also impacted by the addition of employees, primarily as a result of the First Prestonsburg acquisition in 2019.

Sales-based and incentive compensation increased in 2021 compared to 2020, largely due to higher incentive compensation related to the overall company performance measures combined with trust and investment income growth.

During 2020, sales-based and incentive compensation increased compared to 2019 due to mortgage banking income growth from an increase in real estate loans sold in the secondary market.

The $15 per hour minimum was phased in and fully implemented by January of 2023.

The increase in sales-based and incentive compensation for 2022 compared to 2021 was primarily due to sales incentives earned by Vantage employees.

Sales-based and incentive compensation increased in 2021 compared to 2020, largely due to higher incentive

compensation related to the overall company performance measures combined with trust and investment income growth.

Peoples' sales-based and incentive compensation plans are designed to grow core earnings while managing risk, and do not encourage unnecessary and excessive risk-taking that could threaten the value of Peoples.

The sales-based and incentive compensation plans reward employees for appropriate behaviors and include provisions addressing inappropriate practices with respect to Peoples and its customers, including clawbacks for executives.

Employee benefit costs increased $2.6 million compared to 2020, and were impacted by the Premier and North Star Leasing acquisitions creating an increase in the number of participants in the insurance plan.

During 2020, employee benefit costs were relatively flat compared to 2019.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, and an adjustment is made at the vesting date to reverse expense for non-vested awards.

The increase in employee benefits for 2022 compared to 2021 was due to higher medical costs with the addition of the Premier and Vantage employees.

Employee benefit costs in 2021 increased $2.6 million compared to 2020, and were impacted by the Premier Merger and North Star Leasing acquisition, creating an increase in the number of participants in the insurance plan.

Employee stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, and an adjustment is made at the vesting date to reverse expense for non-vested awards.

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

During the years presented in the table above, Peoples granted restricted common shares to officers and key employees with performance-based vesting periods and time-based vesting periods, generally with a three-year cliff vesting.

Stock-based compensation was relatively flat for 2021, compared to 2020 and 2019.

Employee stock-based compensation for 2022 increased when compared to 2021 due to employees added in the acquisition of Vantage and the Premier Merger.

Employee stock-based compensation was relatively flat for 2021 compared to 2020.

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

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

Higher deferred personnel costs in 2022 compared to 2021 was primarily due to an increase in loan origination volume.

Deferred personnel costs decreased in 2021 compared to 2020.

Materially impacting the comparison was the recognition of $921,000 in deferred personnel costs during 2020 related to the origination of PPP loans.

Increased production in residential real estate and indirect consumer loans, coupled with PPP loan originations, resulted in higher deferred personnel costs in 2020 compared to 2019.

Additional information regarding Peoples' loan activity can be found later in this discussion under the caption "Loans" within "FINANCIAL CONDITION."

For 2022, payroll taxes and other employment costs increased compared to 2021, primarily due to recent mergers and acquisitions.

Payroll taxes and other employee costs increased during 2021 as a result of the higher base salaries, sales-based and incentive compensation, and employee benefits.

During 2020, $454,000 in dividends were received from Ohio Bureau of Workers' Compensation in an effort to ease the impact of COVID-19 on the state's business community and workforce.

During 2020, $454,000 in dividends were received by Peoples from Ohio Bureau of Workers' Compensation in an effort to ease the impact of COVID-19 on the state's business community and workforce.

Peoples’ net occupancy and equipment expense for the years ended December 31 was comprised of the following:

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Net occupancy and equipment expense $ 19,516 $ 14,918 $ 12,808

Net occupancy and equipment expense grew 16% during 2021, compared to 2020, driven by the recent acquisitions and ongoing costs related to the larger footprint.

During 2020, net occupancy and equipment expense increased primarily due to increased depreciation expense and net rent expense.

The increase in depreciation expense was due to a full year of depreciation related to the First Prestonsburg acquisition in 2019, while net rent expense increased due to the addition of new leases for the recent insurance acquisition and insurance premium finance acquisition, as well as a full year of rent expense for the First Prestonsburg branches.

For 2022, net occupancy and equipment expense increased when compared to 2021 due to the additional locations and equipment from recent mergers and acquisitions.

Net occupancy and equipment expense grew during 2021 when compared to 2020, driven by the recent acquisitions and ongoing costs related to the larger footprint.

The following table details the other items included within Peoples' total non-interest expense for the years ended December 31:

(Dollars in thousands) 2022 2021 2020

Professional fees $ 15,783 $ 6,912 $ 7,095

Data processing and software expense $ 14,241 $ 10,542 $ 7,441

Professional fees 12,094 15,783 6,912

E-banking expense 9,231 8,885 7,777

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Marketing expense 3,728 3,658 2,101

FDIC insurance expense 3,702 1,976 1,302

Franchise tax expense 3,487 3,357 3,506

Other loan expenses 2,735 2,001 1,584

FDIC insurance expense 1,976 1,302 602

Communication expense 2,484 1,657 1,134

Other non-interest expense $ 15,476 $ 21,573 $ 9,546

Total non-interest expense during 2021 increased considerably due to acquisition-related expenses, which totaled $21.4 million, and impacted several lines.

Additionally, Peoples had increased ongoing expenses associated with the Premier and North Star Leasing acquisition during 2021, and the full year impact of the Premium Finance acquisition completed during 2020.

Data processing and software expense includes software support, maintenance and depreciation expense.

During 2021, data processing and software expense grew due to systems and software upgrades, annual contractual increases and overall growth, which included:

the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers;

Data processing and software expense for 2022 increased relative to 2021, driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

During 2021, data processing and software expense grew when compared to 2020 due to systems and software upgrades, annual contractual increases and overall growth, which included:

the implementation of enhanced

functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers;

software upgrades;

and additional network capacity and security features in the latter part of 2020 and first quarter of 2021.

The higher expense during 2021 also reflected increases related to the Premier acquisition.

The increase in data processing and software expense for 2020 was driven by systems and software upgrades, annual contractual increases and overall growth, which included:

the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers;

software upgrades;

and additional network capacity and security features.

The higher expense during 2021 when compared to 2020 also reflected increases related to the Premier Merger.

Professional fees decreased for 2022 when compared 2021, primarily driven by acquisition-related expenses related to the Premier Merger which had been realized in 2021.

Professional fees during 2021 increased considerably when compared to 2020 due to acquisition-related expenses associated with the Premier Merger and the NSL acquisition during 2021.

Peoples' e-banking expense is comprised of costs associated with debit and ATM cards, as well as Internet and mobile banking costs.

E-banking expense increased during 2021, as customer usage increased, coupled with the additional accounts acquired from Premier.

E-banking expense was up for 2020, compared to 2019, due to an increased usage by customers as a result of the COVID-19 pandemic, which in turn increased the volume of transactions involving debit cards and Peoples' internet and mobile banking service.

Peoples' amortization of other intangible assets is driven by acquisition-related activity.

During 2021, amortization of other intangible assets increased as a result of the recent acquisitions of Premier and North Star Leasing and the full year impact of premium finance.

Amortization of other intangible assets declined in 2020 due to the reduced amortization from previous acquisitions.

Marketing expense, which includes advertising, donations, marketing campaigns, and other public relations costs, was higher for 2021, compared to 2020, and was mostly due to additional advertising campaigns relating to the addition of the Premier locations.

E-banking expense increased for 2022 when compared to 2021 due to growth, both core and through mergers and acquisitions.

E-banking expense increased during 2021 when compared to 2020, as customer usage increased, coupled with the additional accounts acquired in the Premier Merger.

Amortization of other intangible assets increased for 2022 when compared to 2021 due to the increased intangible assets recognized as a result of the recent mergers and acquisitions.

During 2021, amortization of other intangible assets increased when compared to 2020 as a result of the recent Premier Merger, the North Star Leasing acquisition and the full-year impact of Premium Finance.

Marketing expense, which includes advertising, donations, marketing campaigns, and other public relations costs, for 2022 was relatively flat when compared to 2021.

Marketing expense was higher for 2021, compared to 2020, which increase was mostly due to additional advertising campaigns relating to the addition of the Premier locations.

Additionally, Peoples' donations increased during 2021, which included a $500,000 special contribution to the Peoples Bank Foundation, Inc., and donations to each of Marietta College and the Ohio Valley Museum of Discovery.

Marketing expense decreased slightly in 2020, compared to 2019, due to declines in electronic and print media, ad agency fees and other public relations expenses.

FDIC insurance premiums for 2022 increased when compared to 2021 due to organic and acquisitive growth.

FDIC insurance expense increased during 2021, compared to 2020, which increase was partially due to credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium, coupled with a lower leverage ratio during early 2020, which negatively impacted insurance expense for 2021.

The FDIC quarterly assessment rate is applied to average total assets less average tangible equity, and is based on the leverage ratio, net income before taxes, nonperforming loans as a percent of total assets, OREO, loan mix and asset growth.

Additional information regarding Peoples' FDIC insurance assessments may be found in "ITEM 1 BUSINESS" of this Form 10-K in the section captioned "Supervision and Regulation."

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

Franchise tax expense declined slightly for 2021, and was driven by a change in the calculation for Kentucky, which become income-based instead of an equity-based calculation, and reduced the related tax expense for 2021, compared to 2020.

During 2020, franchise tax expense increased compared to 2019, due to higher equity as of December 31, 2019, coupled with additional taxes in Kentucky as a result of the First Prestonsburg acquisition in 2019.

The 2022 increase versus 2021 was driven by recent growth through acquisitions and organic means.

Franchise tax expense declined slightly for 2021, and was driven by a change in the calculation for Kentucky, which became an income-based instead of an equity-based calculation, and reduced the related tax expense for 2021, compared to 2020.

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.

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

During 2021, other loan expenses increased mostly due to the higher volume of indirect consumer loan originations during 2020 and related recognition of deferred costs, which lowered expense during 2020, and was not duplicated during 2021.

Other loan expenses declined during 2020, primarily due to the higher deferral of costs associated with an increase in the origination volume of consumer indirect loans.

FDIC insurance expense increased during 2021, and was partially due to credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium, coupled with a lower leverage ratio during early 2020, which negatively impacted insurance expense for 2021.

Peoples recorded higher FDIC insurance expense during 2020 compared to the prior year, as credits were received and recognized during 2019, and were fully utilized during the second quarter of 2020.

Additional information regarding Peoples' FDIC insurance assessments may be found in "ITEM 1 BUSINESS" of this Form 10-K in the section captioned "Supervision and Regulation."

Communication expense increased 46% during 2021, compared to 2020, and grew as a result of the upgrading of the network to certain branches (including new branches acquired from Premier coupled with the addition of the NSL location and the full year impact of the location of Premium Finance that was acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.

Communication expense was relatively flat for 2020 compared to 2019.

Other non-interest expense increased $12.0 million in 2021 compared to 2020, and decreased $4.3 million in 2020 compared to 2019.

Other non-interest expense increased considerably during 2021, and was primarily related to acquisition-related expenses recognized.

Communications expense increased during 2022 when compared to 2021 and increased during 2021 when compared to 2020, in each case due to upgraded networking to certain branches (including new branches acquired in acquisitions and mergers) and increased costs compared to the prior period among certain vendors that provide communication services.

Other non-interest expense for 2022 decreased when compared to 2021 primarily due to less acquisition-related expenses.

Other non-interest expense increased considerably during 2021 when compared to 2020, which increase was primarily related to acquisition-related expenses recognized.

Income Tax Expense

A key driver for the amount of income tax expense or benefit recognized by Peoples each year is the amount of pre-tax income.

In addition to the expense recognized, Peoples receives tax benefits from tax-exempt investments and loans, BOLI, stock awards that settled or vested during the year, and investments in tax credit funds, which reduce Peoples' effective tax rate.

A reconciliation of

Peoples' recorded income tax expense/benefit and effective tax rate to the statutory tax rate can be found in "Note 13 Income Taxes" of the Notes to the Consolidated Financial Statements.

In addition to the expense recognized, Peoples receives tax benefits from tax-exempt investments and loans, BOLI income, common share awards that settled or vested during the year, and investments in tax credit funds, which reduce Peoples' effective tax rate.

A reconciliation of Peoples' recorded income tax expense/benefit and effective tax rate to the statutory tax rate can be found in "Note 13 Income Taxes."

For the full year of 2022, income tax expense totaled $27.3 million, compared to $9.4 million in 2021, and $7.9 million in 2020, and the effective tax rate for 2022 was 21.3%, compared to 16.5% for 2021, and 18.5% for 2020.

Income tax expense increased during 2021, and was due to higher pre-tax income, which benefited from the recent acquisitions and reduced provision for credit losses.

The decrease in income tax expense in 2020 compared to 2019 was the result of lower pre-tax income in 2020 related to the increase in the provision for credit losses recorded during 2020.

For 2021, the effective tax rate was down 2% compared to 2020.

Income tax expense for 2021 was impacted by an income tax benefit related to an adjustment from the prior period of $1.1 million.

The 2022 increase in income tax expense when compared to 2021 was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

Income tax expense increased during 2021 when compared to 2020, which was due to higher pre-tax income, benefiting from the recent merger and acquisitions and reduced provision for credit losses.

Income tax expense

for 2021 was impacted by an income tax benefit related to an adjustment from the prior period of $1.1 million.

During 2020, income tax expense and the effective tax rate were positively impacted by tax-exempt interest income, non-taxable BOLI income and the full-year impact of the investment in Peoples Risk Management, Inc., which reduced income tax expense by $412,000.

Income tax expense for 2020 was also impacted by additional income tax expense related to an adjustment from the prior year of $863,000.

Peoples also recorded a tax expense of $74,000 in 2021, and tax benefits of $5,000 in 2020, and $195,000 in 2019 related to stock awards that settled or vested during the year, with the substantial majority recorded in the first quarter of each year.

Peoples also recorded a tax benefit of $5,000 in 2022, a tax expense of $74,000 in 2021, and a tax benefit of $5,000 in 2020 related to common share awards that settled or vested during the year, with the substantial majority recorded in the first quarter of each year.

Pre-Provision Net Revenue (non-US GAAP)

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(Dollars in thousands) 2022 2021 2020

Pre-Provision Net Revenue:

Income before income taxes $ 128,641 $ 56,970 $ 42,646

provision for credit losses (a) 731 26,254 2,504

provision for credit losses — 731 26,254

net loss on OREO 138 — 120

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net loss on other assets 326 252 170

net loss on other transactions 151 — —

recovery of credit losses 3,510 — —

net gain on OREO — 56 —

net gain on investment securities — — 164

net gain on other assets — — 8

net gain on other transactions — 897 —

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Pre-provision net revenue per common share - diluted $ 4.48 $ 2.63 $ 3.49

(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model.

Prior to the adoption of CECL, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes held-to-maturity investment securities and the unfunded commitment liability.

During 2021, PPNR declined, and was heavily impacted by the $21.4 million in acquisition-related expenses, which more than offset the positive impact of higher total revenue compared to 2020.

PPNR increased in 2020 mostly due to the reduction in acquisition-related expenses incurred during 2020, compared to 2019, offset by a decrease in net interest income due to the low interest rate environment.

PPNR grew in 2022 when compared to 2021 mostly due to (i) the impact of the Premier Merger and the Vantage and NSL acquisitions in improving net interest income, (ii) the recent increases in market interest rates, (iii) higher non-interest income, and (iv) lower acquisition-related expenses.

During 2021, PPNR declined when compared to 2020, and was heavily impacted by $21.4 million in acquisition-related expenses, which more than offset the positive impact of higher total revenue compared to 2020.

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 financial measure since it excludes the impact of all acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc.

contribution.

The following tables provide reconciliations of these non-US GAAP financial measures to the amounts of total non-interest expense reported in Peoples' Consolidated Financial Statements for the periods presented:

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

contribution, and contract negotiation expenses.

The following tables provide reconciliations of this non-US GAAP financial measure to the amount of total non-interest expense reported in Peoples' Consolidated Financial Statements for the years presented:

(Dollars in thousands) 2022 2021 2020

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Core non-interest expense $ 203,812 $ 159,096 $ 129,765

The increase in core non-interest expense for 2021, compared to 2020, was driven by higher ongoing costs associated with recent acquisitions.

This includes the impact of the Premier acquisition since September 17, 2021, North Star Leasing since April 1, 2021, and the full year impact of the Premium Finance acquisition that was completed on July 1, 2020.

The 2022 increase in core non-interest expense when compared to 2021 was due to an increase in total non-interest expenses as noted in the above section captioned "Total Non-Interest Expense." The increase in core non-interest expense for 2021, compared to 2020, was driven by higher ongoing costs associated with recent mergers and acquisitions.

This includes the impact of the Premier Merger since September 17, 2021, the North Star Leasing acquisition since April 1, 2021, and the impact of the Premium Finance acquisition since July 1, 2020.

Efficiency Ratio (non-US GAAP)

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This financial measure is non-US GAAP since it excludes amortization of other intangible assets and all gains and/or losses included in earnings, and uses FTE net interest income.

The following table provides a reconciliation of this non-US GAAP financial measure to the amounts of total non-interest income and total non-interest expense reported in Peoples' Consolidated Financial Statements for the periods presented:

The following table provides a reconciliation of this non-US GAAP financial measure to the amount of total non-interest income and total non-interest expense reported in Peoples' Consolidated Financial Statements for the years presented:

(Dollars in thousands) 2022 2021 2020

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Total non-interest income 78,836 68,885 63,672

net (loss) gain on investment securities (862) (368) 164

net gain (loss) on asset disposals and other transactions 493 (290) (782)

net loss on investment securities (61) (862) (368)

net (loss) gain on asset disposals and other transactions (616) 493 (290)

Total non-interest income excluding net gains and losses 79,513 69,254 64,330

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Efficiency ratio adjusted for non-core items 58.59 % 63.47 % 61.94 %

(a) Based on 21% statutory federal corporate income tax rate for 2021, 2020 and 2019.

The efficiency ratio increased during 2021, and was largely due to the acquisition-related expenses.

The efficiency ratio, when adjusted for non-core items, increased compared to 2020, and was driven by the higher non-interest expense, coupled with the continued low interest rate environment and related impact to net interest income.

The efficiency ratio for 2020 improved due to a decrease in non-interest expense.

The higher efficiency ratio adjusted for non-core items for 2020, compared to 2019, was driven by lower revenue, while adjusted core non-interest expense was relatively flat.

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

The efficiency ratio and the efficiency ratio adjusted for non-core items for 2022 improved, when compared to 2021, due to higher net interest income driven by increases in market interest rates.

Additionally, the efficiency ratio and adjusted efficiency ratio for 2022 both improved when compared to 2021 due to improvements in net interest income from the recent acquisitions, coupled with higher non-interest income, outpacing increases in total non-interest expense.

The efficiency ratio increased during 2021 when compared to 2020, and was largely due to the acquisition-related expenses.

The efficiency ratio, when adjusted for non-core items, increased for 2021 compared to 2020, which was driven by the higher non-interest expense, coupled with the continued low interest rate environment and related impact to net interest income.

Managing expenses has been a major focus over recent years;

however, during this time Peoples has continued to make meaningful investments in its infrastructure and systems.

Peoples was also negatively impacted during 2021 and 2020 by the low interest rate environment and the related reduction to net interest income.

Peoples was positively impacted in 2022 by the rising market interest rate environment and the related increase to net interest income;

whereas, 2021 and 2020 net interest incomes were negatively impacted by the lower market interest rate environment.

Return on Average Assets Adjusted for Non-Core Items (non-US GAAP)

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The return on average assets ratio adjusted for non-core items 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, Peoples Bank Foundation, Inc.

and contract negotiation non-recurring expenses in earnings.

The following table provides a reconciliation of this non-US GAAP financial measure to the amount of net income reported in Peoples' Consolidated Financial Statements for the periods presented:

contributions and contract negotiation non-recurring expenses included in net income.

The following table provides a reconciliation of this non-US GAAP financial measure to the amount of net income reported in Peoples' Consolidated Financial Statements for the years presented:

(Dollars in thousands) 2022 2021 2020

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tax effect of net loss on investment securities (a)

net gain on investment securities

tax effect of net gain on investment securities (a)

net loss on asset disposals and other transactions

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net gain on asset disposals and other transactions (a) — 493 —

tax effect of net loss on asset disposals and other transactions (a) 104 — —

tax effect of net gain on asset disposals and other transactions (a) — 104 —

acquisition-related expenses

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pension settlement charges

185 143 1,054

tax effect of pension settlement charges (a)

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1.47 % 1.19 % 0.83 %

(a) Based on a 21% statutory federal corporate income tax rate for 2021, 2020 and 2019.

The return on average assets and return on average assets adjusted for non-core items, both increased compared to 2020, as Peoples recorded a lower provision for credit losses during 2021 compared to 2020, while net income improved due to recent acquisitions and core growth.

The decreases in return on average assets and return on average assets, adjusted for non-core items for 2020 compared to 2019, were driven by a reduction in income due to the implementation of CECL, which was impacted by the COVID-19 pandemic.

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

The increase in the return on average assets for 2022 compared to 2021 was attributable to higher net interest income and non-interest income, which were driven by the recent acquisitions and mergers and increases in market interest rates.

The 2021 return on average assets and return on average assets adjusted for non-core items, both increased compared to 2020, as Peoples recorded a lower provision for credit losses during 2021 compared to 2020, while net income improved due to recent acquisitions and mergers and core growth.

Return on Average Tangible Equity (non-US GAAP)

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Return on average tangible equity 22.60 % 12.16 % 9.47 %

(a) Based on a 21% statutory federal corporate income tax rate for 2021, 2020 and 2019.

Return on average stockholders' equity and return on average tangible equity both improved compared to 2020, and were driven by the recent acquisitions, core growth and reduced provision for credit losses.

The decrease in return on average tangible equity for 2020, compared to 2019, was driven by a reduction in net income due to the implementation of CECL, which was negatively impacted by the COVID-19 pandemic.

(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 2022 relative to 2021, 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 the 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.

Return on average stockholders' equity and return on average tangible equity in 2021 both improved compared to 2020, and were driven by the recent acquisitions and mergers, core growth and reduced provision for credit losses.

FINANCIAL CONDITION

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At December 31, 2022, excess cash reserves at the FRB of Cleveland were $33.1 million, compared to $318.1 million at December 31, 2021.

Peoples also acquired $248.4 million in cash and cash equivalents from Premier.

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, coupled with increased liquidity needs due to the COVID-19 pandemic.

Peoples also acquired $248.4 million in cash and cash equivalents in the Premier Merger in 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.

In 2022, Peoples' total cash and cash equivalents decreased $261.7 million, due to cash used in investing activities of $414.2 million, partially offset by cash provided by operating activities and financing activities of $119.8 million and $32.7 million, respectively.

Peoples' investing activities reflected a net decrease of $58.1 million in loans and $452.9 million in purchases of available-for-sale investment securities and held-to-maturity investment securities, which were primarily offset by $237.8 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities.

Financing activities included a $145.1 million net decrease in deposits and an increase of $328.6 million in short-term borrowings, as well as $42.4 million of cash dividends paid.

In 2021, Peoples' total cash and cash equivalents increased $263.6 million, as cash provided by operating activities and financing activities of $156.4 million and $181.6 million, respectively, were partially offset by cash used in investing activities of $74.4 million.

Peoples' investing activities reflected a net decrease of $113.5 million in loans and $852.5 million in purchases of available-for-sale investment securities, which were primarily offset by $849.1 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities.

Peoples' investing activities reflected a net increase of $113.5 million in loans and $852.5 million in purchases of available-for-sale investment securities, which were partially offset by $849.1 million in net proceeds from sales, principal payments, calls and

prepayments on available-for-sale and held-to-maturity investment securities.

Financing activities included a $200.8 million net increase in deposits and increase of $14.4 million in short-term borrowings, as well as $31.0 million of cash dividends paid.

In 2020, Peoples' total cash and cash equivalents increased $36.9 million, as cash provided by operating activities and financing activities of $85.5 million and $345.3 million, respectively, were partially offset by cash used in investing activities of $393.9 million.

Peoples' investing activities reflected a net increase of $444.1 million in loans and $261.4 million in purchases of available-for-sale investment securities, which were partially offset by $444.6 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities.

Financing activities included a $618.9 million net increase in deposits and $50.0 million of proceeds from long-term borrowings, offset partially by a decrease of $263.7 million in short-term borrowings, as well as the purchase of $29.3 million of treasury stock under the share repurchase program and $27.1 million of cash dividends paid.

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

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Carrying value $ 1,743,220 $ 1,683,609 $ 857,031

(a) A mortized cost is presented net of the allowance for credit losses of $286 at December 31, 2021 and $60 at December 31, 2020.

(a) A mortized cost is presented net of the allowance for credit losses of $241 at December 31, 2022, $286 at December 31, 2021 and $60 at December 31, 2020.

At December 31, 2022, Peoples' investment securities represented approximately 24.2% of total assets, compared to 23.8% at December 31, 2021.

During 2021, Peoples acquired, in the Premier acquisition, investment securities totaling $552.0 million and subsequently sold $395.2 million of available-for-sale securities.

For 2022, total investment securities increased compared to the prior year, largely due to investments made in held-to-maturity securities, in an effort to deploy cash, improve investment yields and reduce risk, partially offset by the reduction in market value of available-for-sale securities driven by the recent increases in market interest rates.

During 2021, Peoples acquired, in the Premier Merger, investment securities totaling $552.0 million and subsequently sold $395.2 million of available-for-sale securities.

The 2021 increase in investment securities compared to 2020 also reflected Peoples' continued reinvestment of proceeds from available-for-sale investment securities and the investment of excess cash in higher-yielding investment securities.

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The unrealized gain or loss related to held-to-maturity investment securities does not directly impact total stockholders' equity, in contrast to the impact from the available-for-sale investment securities portfolio.

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

Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities."

The following table provides information regarding outstanding loan balances at or for the year ended December 31:

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(b) NM=not meaningful.

As of December 31, 2021, total loans increased 32%, compared to December 31, 2020, which was driven by the Premier and North Star Leasing acquisitions, coupled with core growth.

The Premier acquisition added $1.1 billion in loans at December 31, 2021, which were comprised of $96.1 million in construction;

As of December 31, 2022, total loans increased 5%, compared to at December 31, 2021.

The increase in 2022 total loan and lease balances was primarily driven by $89.4 million in leases acquired from Vantage remaining at December 31, 2022 and increases of (i) $98.9 million in indirect consumer loans, (ii) $36.7 million in construction loans and (iii) $23.1 million in premium finance loans, partially offset by reductions of $126.6 million in other commercial real estate loans and $48.4 million in residential real estate loans.

As of December 31, 2021, total loans increased 32%, compared to December 31, 2020, which was driven by the Premier Merger and the North Star Leasing acquisition, coupled with core growth.

The Premier Merger added $1.1 billion in loans at December 31, 2021, which were comprised of $96.1 million in construction;

$534.9 million in commercial real estate, other;

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During 2021, the outstanding balance of SBA PPP loans declined $279.8 million, from $366.9 million at December 31, 2020, to $87.1 million at December 31, 2021, which was mainly due to forgiveness proceeds received from the SBA.

During 2020, total loans grew 18%, or $529.4 million.

The growth compared to December 31, 2019 was mostly driven by PPP loans added during 2020, which are included in commercial and industrial loan balances, and the new loans being originated through the acquired premium finance sector.

At December 31, 2020, PPP loan balances totaled $366.9 million, while the premium finance loans totaled $114.8 million.

Consumer indirect loans also contributed to the growth during 2020, and were up $86.3 million, or 21%.

The following table details the maturities of Peoples' loan portfolio at December 31, 2022:

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The following table provides information regarding the largest concentrations of commercial real estate loans within the loan portfolio at December 31, 2022:

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

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

Construction:

Apartment complexes $ 120,981 $ 181,393 $ 302,374 58.7 %

Mixed-use facilities 29,419 34,168 63,587 14.7 %

Assisted living facilities and nursing homes 37,484 17,508 54,992 10.7 %

Mixed-use facilities 29,282 10,910 40,192 7.8 %

Land only 19,702 11,434 31,136 6.1 %

Office buildings and complexes 10,100 9,180 19,280 3.7 %

Residential property 8,545 11,658 20,203 4.7 %

Lodging and lodging related 12,447 1,635 14,082 3.2 %

Retail 9,132 2,747 11,879 2.7 %

Industrial 5,778 5,277 11,055 2.1 %

Other (a) 23,614 32,274 55,888 10.9 %

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Total warehouse facilities 64,782 2,300 67,082 4.5 %

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

Assisted living facilities and nursing homes 53,333 250 53,583 3.5 %

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Total healthcare facilities 32,142 459 32,601 2.2 %

Agriculture 30,792 1,536 32,328 2.0 %

Other (a) 413,750 16,382 430,092 28.3 %

Commercial real estate, other $ 1,423,518 $ 92,972 $ 1,516,450 100.0 %

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

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

Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas 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 either December 31, 2021 or December 31, 2020.

Additional information regarding Peoples' loan portfolio can be found in "Note 4 Loans and Leases" of the Notes to the Consolidated Financial Statements.

In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both December 31, 2022 and December 31, 2021.

Additional information regarding Peoples' loan portfolio can be found in "Note 4 Loans and Leases."

COVID-19 Loan Impacts

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The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders are not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.

The PPP expired on May 31, 2021 and no new originations will be made under the program;

The PPP expired on May 31, 2021 and no new originations have been or will be made under the program;

however, forgiveness proceeds will continue to be received until the loans are paid in full.

Peoples is a PPP participating lender, and the PPP loans originated (including $23.4 million acquired in the merger with Premier) are included in commercial and industrial loans.

Peoples is a PPP participating lender, and the PPP loans originated (including $23.4 million acquired in the Premier Merger as of the merger date) are included in commercial and industrial loans.

Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.

The following tables detail Peoples' PPP loans and related income at December 31:

(Dollars in millions) 2021 2020

The following table details Peoples' PPP loans and related income at and for the years ended December 31:

(Dollars in thousands) 2022 2021 2020

PPP aggregate outstanding principal balances $ 2,458 $ 89,307 $ 374,753

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Allowance for Credit Losses

On January 1, 2020, Peoples adopted the provisions of ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments", commonly referred to as the CECL model.

Prior to the adoption of the CECL model, the allowance for credit losses was the "allowance for loan losses." The amount of the allowance for credit losses at the end of each period represents management's estimate of expected credit losses from existing loans based upon its formal quarterly analysis of the loan portfolio described in the "Critical Accounting Policies" section of this discussion.

The amount of the allowance for credit losses at the end of each period represents management's estimate of expected credit losses from existing loans based upon its formal quarterly analysis of the loan portfolio described in the "Critical Accounting Policies" section of this discussion.

While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses incurred within the loan portfolio.

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(Dollars in thousands) 2022 2021 2020

Construction $ 1,250 $ 2,999 $ 1,887

Commercial real estate 17,710 29,147 17,536

Commercial and industrial 8,229 11,063 12,763

Total commercial 43,209 32,186 15,765

Premium finance 344 379 1,095

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Consumer, direct 1,575 961 1,081

Consumer 6,287 9,111 3,231

Deposit account overdrafts 61 57 63

Originated allowance for credit losses 63,967 50,359 20,827

Acquired allowance for credit losses (a) — — 729

Allowance for credit losses (b) $ 63,967 $ 50,359 $ 21,556

Allowance for credit losses $ 53,162 $ 63,967 $ 50,359

As a percent of total loans 1.13 % 1.43 % 1.48 %

(a) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for credit losses" under the CECL model.

(b) Beginning on January 1, 2020, Peoples calculated the allowance for credit losses using the CECL model, while 2019 used the incurred loss model.

During 2021, the allowance for credit losses grew 27%, which was largely due to the Premier and North Star Leasing acquisitions, and the related need to establish an allowance for credit losses on those portfolios, coupled with organic growth in loan balances during 2021.

The North Star Leasing acquisition added $3.3 million to the allowance for credit losses at the acquisition date, of which $493,000 was established for purchased credit deteriorated loans as part of the acquisition accounting, and the remainder was established through the recording of a provision for credit losses.

The Premier acquisition added $28.6 million to the allowance for credit losses during the third quarter of 2021, of which $16.9 million was established for purchased credit deteriorated loans as part of the acquisition accounting, and the remainder was established using provision for credit losses.

Those decreases were partially offset by loan growth and deterioration in the economic forecast.

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 allowance for credit losses as a percent of total loans at December 31, 2022 decreased compared to at December 31, 2021, which was mostly due to the composition of Peoples' loan and lease portfolio as well as aforementioned the reduction in the allowance for credit losses.

During 2021, the allowance for credit losses grew 27% when compared to 2020, which was largely due to the Premier Merger and the North Star Leasing acquisition, and the related need to establish an allowance for credit losses on those portfolios, coupled with organic growth in loan balances during 2021.

The North Star Leasing acquisition added $3.3 million to the allowance for credit losses at the acquisition date, of which $493,000 was established for PCD loans as part of the acquisition accounting, and the remainder was established through the recording of a provision for credit losses.

The Premier Merger added $28.6 million to the allowance for credit losses during the third quarter of 2021, of which $16.9 million was established for PCD loans as part of the acquisition accounting, and the remainder was established using provision for credit losses.

Also during 2021, economic factors and loss drivers improved compared to 2020, and had a positive impact on the CECL model.

The allowance for credit losses as a percent of total loans increased slightly during 2021, compared to 2020.

The allowance for credit losses as a percent of total loans was relatively stable at December 31, 2021 compared to December 31, 2020, and was mostly due to the composition of Peoples' loan and lease portfolio.

The increase in the allowance for credit losses as a percent of total loans grew at December 31, 2020 compared to December 31, 2019, as a result of the implementation of the CECL model, along with the impact of the COVID-19 pandemic on economic forecasts.

Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in the allowance for credit losses.

The remaining significant increase in the allowance for credit losses at December 31, 2020 compared to December 31, 2019 was mostly due to the recent COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model.

Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" and "Note 4 Loans and Leases" of the Notes to the Consolidated Financial Statements.

The 2020 allowance for credit losses was impacted by the COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" and "Note 4 Loans and Leases."

The following table summarizes the changes in the allowance for credit losses for the years ended December 31:

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Gross charge-offs:

Commercial real estate (a) 387 528 156

Construction 16 — —

Commercial real estate, other 489 387 528

Commercial and industrial 943 1,057 1,565

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Total gross charge-offs 8,755 5,988 5,335

Commercial real estate 204 200 151

Commercial real estate, other 297 204 200

Commercial and industrial 49 26 2,521

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Net charge-offs (recoveries):

Commercial real estate 183 328 5

Construction 16 — —

Commercial real estate, other 192 183 328

Commercial and industrial 894 1,031 (956)

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Total net charge-offs $ 7,272 $ 4,693 $ 1,763

Provision for credit losses, December 31 (b)(c)(d) 731 26,254 2,504

Initial allowance for purchased credit deteriorated assets $ 17,570 $ — $ —

Allowance for credit losses, December 31 (e) $ 63,967 $ 50,359 $ 21,556

(Recovery of) Provision for credit losses, December 31 (a) (2,904) 731 26,254

Initial allowance for PCD assets $ (629) $ 17,570 $ —

Allowance for credit losses, December 31 $ 53,162 $ 63,967 $ 50,359

Net charge-offs (recoveries) as a percent of average total loans:

Commercial real estate — % 0.01 % — %

Construction — % — % — %

Commercial real estate, other 0.01 % — % 0.01 %

Commercial and industrial 0.02 % 0.03 % (0.03) %

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Total 0.16 % 0.13 % 0.05 %

(a) Includes nonimpaired loan charge-offs of $2 in 2019.

(b) Includes purchased credit impaired loan provision for credit losses of $19 in 2019.

(d) Amount does not include the provision for unfunded commitment liability.

(e) Beginning on January 1, 2020, the amounts previously included in "acquired allowance for credit losses" were included in the "originated allowance for credit losses" under the CECL model.

(a) Amount does not include the provision for unfunded commitment liability.

Net charge-offs as a percent of average total loans for 2022 increased to 0.16% compared to 0.13% at 2021.

The increase was due to increases in net charge-offs related to (i) lease balances, (ii) total consumer loan balances, and (iii) deposit account overdraft balances.

During 2021, net charge-offs as a percent of average total loans increased to 0.13%, compared to 0.05% for 2020.

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Prior to the acquisition, North Star Leasing was experiencing net charge-off rates of around 3% of average lease balances, and Peoples anticipates that net charge-off levels will increase in future periods as the net charge-offs for the leasing division return to this historical rate.

Net charge-offs for 2020 were $1.8 million, or 0.05% of average total loans, an increase of $0.6 million compared to $1.1 million, or 0.04% of average total loans, for 2019.

Net charge-offs in 2020 included a recovery of $2.5 million on a single commercial loan relationship that was previously charged-off;

while in 2019, a $2.4 million recovery occurred on the same relationship.

The increase in commercial real estate net charge-offs in 2020 compared to 2019 was due to an increase in charge-off activity in 2020.

This activity consisted of two larger commercial real estate loans with a total of $200,000 in charge-offs coupled with other smaller commercial real estate charge-offs.

The following table details Peoples’ nonperforming assets at December 31:

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Premium finance 504 865 589

Leases 3,041 — —

Residential real estate 917 805 1,975

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Commercial real estate, other 9,522 16,849 8,744

Commercial real estate 16,855 8,748 7,110

Commercial and industrial 3,145 2,505 4,017

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(a) On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model.

The accounting for purchased credit deteriorated loans under CECL resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020.

As of December 31, 2019, these loans were presented as 90+ days past due and accruing.

Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting.

The accounting for PCD loans under CECL resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020.

(b) Includes loans categorized as special mention, substandard or doubtful.

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Nonperforming assets include nonperforming loans and OREO.

Compared to December 31, 2021, Peoples' NPAs decreased to 0.63% of total assets at December 31, 2022.

Loans 90+ days past due and accruing increased compared to at December 31, 2021, mostly due to the leases acquired in the Vantage acquisition.

During 2022, both criticized and classified loans declined when compared to 2021.

The decrease at December 31, 2022 in the amount of criticized loans when compared to at December 31, 2021 was largely due to a reduction in the criticized loans acquired in the Premier Merger.

The decrease in classified loans when compared to December 31, 2021 was largely attributable to pay-offs and upgrades of classified loans acquired in the Premier Merger.

Nonperforming assets grew 67% during 2021 compared to 2020.

These increases were primarily driven by the Premier acquisition.

At the same time, criticized loans, which are those categorized as special mention, substandard or doubtful, grew $67.4 million, or 53%, while classified loans, which are those categorized as substandard or doubtful, increased $34.0 million, or 47%, compared to December 31, 2020.

These increases were also due to the Premier acquisition.

Nonperforming loans increased in 2020 due to two commercial relationships aggregating $3.2 million and several smaller commercial relationships being placed on nonaccrual.

Criticized loans increased $29.8 million, or 31%, at December 31, 2020, compared to December 31, 2019, while classified loans grew $6.4 million, or 10%, at December 31, 2020, compared to December 31, 2019.

During 2020, Peoples downgraded several relationships due to the COVID-19 pandemic.

The COVID-related downgrades contributed $29.8 million of additional criticized loans and $9.4 million of additional classified loans compared to balances at December 31, 2019.

This increase was primarily driven by the Premier Merger.

These increases were also due to the Premier Merger.

Based on the provisions provided by the CARES Act, 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.

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Interest income on loans classified as nonaccrual and renegotiated at each year-end that would have been recorded under the original terms of the loans was $1.7 million for 2022, $1.3 million for 2021 and $1.6 million for 2020.

No portion of these amounts were recorded during 2021, 2020 or 2019.

No portion of these amounts was recorded during 2022, 2021 or 2020.

Overall, management believes the allowance for credit losses was appropriate at December 31, 2022, based on all significant information currently available.

Still, there can be no assurance that the allowance for credit losses will be adequate to cover future losses in Peoples’ loan portfolio.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 4 Loans and Leases" of the Notes to the Consolidated Financial Statements.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 4 Loans and Leases."

The following table details Peoples’ deposit balances at December 31:

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(a) The sum of amounts presented are considered total demand deposits.

The significant increase in deposits compared to December 31, 2020 was largely due to deposits acquired from Premier.

The decrease in total deposits between December 31, 2022 and December 31, 2021 was due to decreases in both interest-bearing and non-interest-bearing deposits.

Total demand deposits comprised 48% of total deposits at each of December 31, 2022 and December 31, 2021.

The variance was driven by decreases of (i) $113.5 million in retail certificates of deposits, (ii) $52.0 million in total non-interest-bearing deposit accounts and (iii) $34.1 million in money market deposit accounts, partially offset by increases of $31.8 million in savings account deposits and $20.8 million in brokered deposits.

The significant increase in deposits between December 31, 2021 and December 31, 2020 was largely due to deposits acquired in the Premier Merger.

Total demand deposits comprised 48% of total deposits at December 31, 2021 and were 43% of total deposits at December 31, 2020.

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Also, throughout 2021 and 2020, customers maintained higher balances due to changes in customer habits in light of the COVID-19 pandemic, as well as fiscal stimulus funds and PPP loan proceeds.

During 2020, Peoples had reduced its reliance on higher-rate brokered deposits, which included one-way buy Certificate of Deposit Account Registry Services.

This was partially offset by the issuance of 90-day brokered demand and savings deposits to fund interest rate swaps.

As of December 31, 2021, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, which were funded by $40.0 million in 90-day FHLB advances and $100.0 million in overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.

The increase in total deposits between December 31, 2020 and December 31, 2019 was largely due to an increase of $326.1 million in non-interest bearing deposits.

The growth in non-interest-bearing deposits was related to customers maintaining higher balances due to changes in customer habits in light of the COVID-19 pandemic, as well as fiscal stimulus funds and PPP loan proceeds.

During 2020, Peoples had reduced its reliance on higher-rate brokered deposits, which included one-way buy Certificate of

Deposit Account Registry Services.

This was partially offset by the issuance of 90-day brokered demand and savings deposits to fund interest rate swaps.

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 December 31, 2022, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, of which $125.0 million were designated as cash flow hedges of brokered deposits, which are 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.

Peoples' governmental deposit accounts represent savings and interest-bearing transaction accounts from state and local governmental entities.

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Total $ 262,816 $ 319,861 $ 218,818

Additional information regarding Peoples' deposits can be found in "Note 8 Deposits" of the Notes to the Consolidated Financial Statements.

Additional information regarding Peoples' deposits can be found in "Note 8 Deposits."

Borrowed Funds

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Short-term borrowings:

Overnight borrowings $ — $ — $ 141,000

FHLB overnight borrowings $ 400,000 $ — $ —

FHLB 90-day advances — 40,000 —

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FHLB advances 34,158 85,825 102,957

Vantage non-recourse debt 53,147 — —

Junior subordinated debt securities 13,788 13,650 7,611

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Peoples continually evaluates the overall balance sheet position given the interest rate environment.

During 2021, Peoples' repurchase agreements grew mostly due to accounts associated with the Premier acquisition.

Peoples also acquired additional junior subordinated debt securities in the Premier acquisition, leading to the increase in long-term borrowings compared to 2020.

During 2020, long-term FHLB advances increased due to borrowing under a $50.0 million long-term FHLB putable, non-amortizing fixed rate advance and the reclassification of $20.0 million to short-term borrowings as the time to maturity of these advances had become less than one year.

In 2019, Peoples' short-term FHLB advances generally consisted of overnight borrowings maintained in connection with the management of Peoples' daily liquidity position.

During 2019, Peoples had seventeen effective interest rate swaps with an aggregate notional value of $160.0 million, of which $110.0 million were funded by FHLB 90-day advances.

The remaining $50.0 million were funded by 90-day brokered CDs.

Long-term FHLB advances declined by $26.7 million due to the reclassification to short-term borrowings as the time to maturity of these advances had become less than one year.

On April 3, 2019, Peoples entered into a Loan Agreement (the “U.S.

Total borrowed funds increased at December 31, 2022 compared to at December 31, 2021 due to FHLB overnight borrowings of $400.0 million at December 31, 2022.

During 2021, Peoples' repurchase agreements grew when compared to 2020 mostly due to accounts associated with the Premier Merger.

Peoples also acquired additional junior subordinated debt securities in the Premier Merger, leading to the increase in long-term borrowings compared to 2020.

On April 3, 2019, Peoples entered into the U.S.

Bank Loan Agreement with U.S.

Bank National Association, the term of which has been extended to March 31, 2022 through an amendment in April 2021.

Bank National Association, the term of which has been extended to March 31, 2023 through an amendment in March 2022.

Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $30.0 million.

Additional information regarding Peoples' borrowed funds can be found in "Note 9 Short-Term Borrowings" and "Note 10 Long-Term Borrowings" of the Notes to the Consolidated Financial Statements.

Additional information regarding Peoples' borrowed funds can be found in "Note 9 Short-Term Borrowings" and "Note 10 Long-Term Borrowings."

Capital/Stockholders’ Equity

During 2021, Peoples' total stockholders' equity grew 47%, mostly due to the issuance of $261.9 million in common shares related to the Premier acquisition.

Peoples also recorded net income of $47.6 million, which exceeded dividends paid of $31.2 million.

Peoples' total stockholders' equity at December 31, 2022 decreased 7% when compared to at December 31, 2021, which was due to (i) an other comprehensive loss of $115.5 million, (ii) dividends paid of $42.4 million and (iii) common share repurchases of $7.4 million, partially offset by net income of $101.3 million for 2022.

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

At December 31, 2022, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" under banking regulations.

These higher capital levels reflect Peoples' desire to maintain a strong capital position.

During 2020, total stockholders' equity declined mainly due to the repurchase of common shares in the amount of $29.3 million and dividends paid to shareholders of $27.5 million, partially offset by net income of $34.8 million.

Also contributing to the decline was the implementation of ASU 2016-13 on January 1, 2020, in which Peoples recorded a one-time transition adjustment to reduce retained earnings by $3.7 million.

This adjustment reflected the increase in the allowance for credit losses for loans (excluding the gross up of loan balances related to the establishment of an allowance for credit losses for purchased credit deteriorated loans), the allowance for credit losses for held-to-maturity investment securities and the addition of an unfunded commitment liability, net of statutory federal corporate income taxes.

Based on current accounting guidance, Peoples is electing to utilize the five-year phase-in period for the transition adjustment due to the implementation of ASU 2016-13.

During 2021, total stockholders' equity grew 47% when compared to 2020 mostly due to the issuance of $261.9 million in common shares related to the Premier Merger, in addition to net income of $47.6 million, which was partially offset by dividends paid to shareholders of $31.2 million.

Peoples elected to utilize the five-year phase-in period for the transition adjustment due to the implementation of ASU 2016-13.

This phase-in period also includes a 25% deferment of the impact on regulatory capital of the estimated increase in the allowance for credit losses related to the CECL model, which is applied during the first two years of application.

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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' Consolidated Financial Statements at December 31:

The following table reconciles the calculation of the identified non-US GAAP financial measures to amounts reported in Peoples' Consolidated Financial Statements at December 31:

(Dollars in thousands) 2022 2021 2020

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Tangible equity to tangible assets 6.67 % 8.18 % 8.55 %

The decline in tangible book value per common share at December 31, 2022 from December 31, 2021 was due to tangible equity declining as a result of other comprehensive losses recognized on available-for-sale investment securities, which were driven by changes in market interest rates.

The tangible equity to tangible assets ratio declined during 2021, compared to 2020.

This reduction was mainly due to the acquisition of North Star Leasing, for which no stockholders' equity was issued and additional goodwill and intangibles were recorded.

The decline in tangible equity to tangible assets at December 31, 2020, compared to 2019, was partially due to the origination of PPP loans during 2020, coupled with the repurchase of common shares completed during the year and dividends paid to shareholders, which exceeded net income for the year.

Future Outlook

During 2021, Peoples successfully closed the largest acquisition in its history, along with the acquisition of a specialty financing leasing business that has significant growth potential.

During 2022, Peoples will look to expand on the progress made with recent acquisitions, both strengthening the pipeline of referrals between lines of businesses for new clients, as well as growing the specialty finance lending and leasing portfolios.

Net interest income is expected to improve considerably over 2021, as the full year impact of Premier and the acquired leasing business are recognized for 2022.

People also anticipates core growth that will contribute to overall higher net interest income than for 2021, while it anticipates that net interest margin will be between 3.50% and 3.60%, excluding any potential increase to the Federal Funds Target Rate.

Net interest margin for 2022 will be positively impacted by the full year recognition of the accretion income, net of amortization expense, associated with the Premier acquisition.

However, the impact of this improvement will be muted by the lower accretion of net deferred loan fees and costs from the PPP loan forgiveness, which will be much smaller during 2022 than it was during 2021.

During 2021, Peoples has significantly improved its deposit costs, which declined 18 basis points to 29 basis points, but will have less opportunity to further decrease deposit costs during 2022.

Peoples has also had a negative impact to net interest margin during 2021 as a result of excess liquidity, and anticipates that to continue through portions of 2022.

Total non-interest income, excluding net gains and losses, will benefit from both the acquisitions during 2021, as the Premier acquisition will positively impact electronic banking income and deposit account service charges, while the leasing division will continue to provide a boost from its fee-based income.

For 2022, Peoples anticipates growth of 14% to 16% compared to 2021, in total non-interest income, excluding net gains and losses.

This increase includes expected growth within trust and investment income, and insurance income, which increased 20% and 9%, respectively, for 2021, compared to 2020.

Excluding acquisition-related expenses, total non-interest expense is anticipated to grow for 2022, which will be mostly due to the additional ongoing costs associated with the recent acquisitions.

During 2021, Peoples worked to reduce future data processing and software costs associated with its core processor, and will begin to recognize those savings during 2022.

The efficiency ratio for 2022 is expected to improve as Peoples fully recognizes the cost savings associated with the acquisitions, and anticipates an efficiency ratio in the high 50% range.

The balance sheet mix of Peoples will be continually evaluated in an effort to mitigate exposure risk, as interest rates are anticipated to increase during 2022.

Peoples will work to effectively deploy its excess liquidity into higher yielding opportunities, as they arise.

Peoples improved its performance considerably during 2022, recording record annual net income while reaping the benefits of the market interest rate increases and prior acquisitions.

Peoples was recognized by Newsweek as the 2023 Best Small Bank in the state of Ohio as well as a Best Bank To Work For 2022 by American Banker.

Peoples intends to keep this momentum moving into 2023, with a focus on strengthening the pipeline of referrals between lines of businesses for new clients, as well as growing the specialty finance lending and leasing portfolios, while also working to seamlessly integrate the Limestone Merger into Peoples' current operations.

Peoples has been able to capitalize on the recent mergers and acquisitions by (i) substantially reducing its efficiency ratio, (ii) building on its positive operating leverage by growing revenues and (iii) offering state of the art technology to new clients.

Management believes it can continue these trends with the pending Limestone Merger while expanding its business into larger markets in Kentucky to be in position to continue to provide a profitable return for shareholders during 2023.

During 2023, net interest income is expected to grow due to the Limestone Merger and organic growth, as well as the full year benefits of higher market interest rates as loans reprice to the newest rate.

Net interest margin expansion is expected to slow in 2023 when compared to 2022, as Peoples will need to increase its funding costs in future periods.

Net interest margin for 2023 is projected to be between 4.50% and 4.65%, which assumes modest increases in rates for 2023 as compared to year-end 2022.

Peoples projects total revenue growth to be between 20% and 25% in 2023, which includes the impact of the pending Limestone Merger.

Total non-interest income, excluding net gains and losses, growth is projected to be between 10% and 15% in 2023 compared to 2022, which includes the impact of the Limestone Merger.

Total non-interest expenses, excluding acquisition-related expenses, for 2023 are expected to increase 20% compared to 2022.

The efficiency ratio is projected to be between 55% and 57% for 2023, including Limestone.

Peoples will continue to place importance on loan growth.

It anticipates that the annual loan growth for 2022, compared to 2021, will be between 6% and 8%.

This growth excludes any PPP loan payoffs, and incorporates the expected increases in specialty finance loan and lease balances.

At the same time, Peoples will focus on maintaining a high credit quality standard when underwriting new business.

While Peoples will focus on asset quality, Peoples anticipates an annual gross charge-off rate, as a percent of average total loans, of between 25 to 40 basis points.

This rate includes the expectation of returning to historical charge-off rates for loans, as well as the addition of the leasing portfolio charge-offs, which are traditionally higher than loan charge-off rates.

Peoples does not anticipate a significant amount of deposit growth for 2022, as deposit balances have remained inflated in recent periods.

The influx of deposits during the COVID-19 pandemic, which was the result of fiscal stimulus, PPP proceeds and changed consumer spending habits, is not expected to continue into 2022.

While Peoples does not anticipate significant runoff of deposits, it does not believe there will be large growth during 2022.

Capital is a key priority for Peoples, and continues to be a source of strength.

Peoples' regulatory capital ratios at December 31, 2021 exceeded the minimums needed to be considered well capitalized.

Peoples intends to make meaningful investments with capital as opportunities arise, such as acquisitions, and return shareholder value in the form of dividends.

Peoples anticipates that the annual loan growth for 2023, compared to 2022, will be between 25% and 30%, including Limestone balances.

Peoples' annual organic growth without the acquired loans from Limestone, will likely be between 5% and 7%.

Net charge-off rate during 2023, compared to 2022, is expected to increase by roughly 5 basis points.

The balance sheet mix of Peoples will be continually evaluated in an effort to mitigate exposure risk, as interest rates are anticipated to increase during 2023.

Total deposit balances are expected to grow between 20% and 25%, primarily due to the deposits acquired in the Limestone Merger.

Peoples expects annual organic growth without the acquired deposits from Limestone to be between 2% to 4%.

Throughout 2022, deposits balances declined due to customers returning to pre-COVID-19 pandemic balances as well as rising market interest rates due to high levels of inflation.

Management believes Peoples is in position to continue the trend throughout 2022 of meaningfully exceeding all current analyst estimates for 2023 EPS.

The anticipated benefits of the Limestone Merger as well as organic growth are anticipated to put Peoples in an advantageous situation to further improve its performance throughout 2023.

For more information regarding risks and uncertainties that could impact the projections described, please refer to "ITEM 1A RISK FACTORS" of this Form 10-K.

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Simulation modeling also estimates the impact of potential changes in interest rates and balance sheet structures on future earnings and projected economic value of equity.

The methods used by ALCO to assess IRR remain largely unchanged from those disclosed at December 31, 2020.

The methods used by ALCO to assess IRR remain largely unchanged from those disclosed for the year ended December 31, 2021.

The modeling process starts with a base case simulation using the current balance sheet and current interest rates held constant for the next twenty-four months.

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Increase (Decrease) in Interest Rates Estimated Increase (Decrease) in

Net Interest Income Estimated (Decrease) Increase in Economic Value of Equity

Net Interest Income Estimated Decrease in Economic Value of Equity

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

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(100) (11,404) (3.9) % (8,615) (4.1) % (21,124) (1.4) % (91,568) (7.4) %

(200) (27,659) (9.4) % (13,203) (6.2) % (80,484) (5.2) % (170,092) (13.8) %

(300) (43,728) (14.8) % (13,203) (6.2) % (152,152) (9.8) % (170,092) (13.8) %

This table uses a standard, parallel shock analysis for assessing the IRR to net interest income and the economic value of equity.

A parallel shock means all points on the yield curve (one year, two year, three year, etc.) are directionally changed the same amount of basis points.

A parallel shock assumes all points on the yield curve (one year, two year, three year, etc.) are directionally changed by the same degree.

Management regularly assesses the impact of both increasing and decreasing interest rates.

The table above shows the impact of upward parallel shocks and a downward parallel shock of 100 basis points.

Downward parallel shocks of 300 and 200 basis points are excluded from the table as they are not probable given the current interest rate environment.

Estimated changes in net interest income and 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.

The table above shows the impact of upward and downward parallel shocks of 100, 200 and 300 basis points.

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.

These assumptions are monitored closely by Peoples and are reviewed at least semi-annually.

As of December 31, 2021, the actual deposit betas experienced by Peoples in the repricing of non-maturity deposits were lower than those used in Peoples’ interest rate risk modeling.

At December 31, 2022, the actual deposit betas experienced by Peoples in the repricing of non-maturity deposits were lower than those used in Peoples’ interest rate risk modeling.

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 Board increasing short-term interest rates in the future could be offset by an inverse movement in long-term rates, and vice versa.

Thus, any impact that might occur as a result of the Federal Reserve Board increasing short-term interest rates in the future could be offset by an inverse movement in long-term rates, and vice versa.

For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts.

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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.

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 December 31, 2022, Peoples had 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 15 Derivative Financial Instruments" of the Notes to the Consolidated Financial Statements.

Additional information regarding Peoples' interest rate swaps can be found in "Note 15 Derivative Financial Instruments."

An asset/liability model used to produce the analysis above requires assumptions to be made such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits.

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The liquidity management policy establishes a minimum limit of 1.0 times.

As of December 31, 2021, Peoples had a ratio of 7.53 times, which was within policy limits.

At December 31, 2022, Peoples had a ratio of 3.71 times, which was within policy limits.

Peoples also forecasts secondary or contingent sources of cash, and this includes external sources of funding and liquid assets.

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Management has established a minimum ratio of 3.0 times for this liquidity management policy limit.

As of December 31, 2021, Peoples had a ratio of 8.28 times, which was within policy limits.

At December 31, 2022, Peoples had a ratio of 4.18 times, which was within policy limits.

Peoples maintains multiple contingent sources of liquidity including secured wholesale funding lines and unsecured brokered deposit networks.

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As of December 31, 2022, Peoples had unused collateral-based borrowing capacities of $241.1 million and $264.1 million, respectively, available with the FHLB of Cincinnati and the FRB of Cleveland.

Together, these unused borrowing capacities

represent 7.6% of total assets and unfunded loan commitments.

Together, these unused borrowing capacities represent 4.3% of total assets and unfunded loan commitments.

Additionally, Peoples had $107.9 million of unpledged loan collateral eligible to secure additional borrowing capacity with the FRB of Cleveland.

Disruptions in the sources and uses of cash can occur which can drastically alter the actual cash flows and negatively impact Peoples' ability to access internal and external sources of cash.

Such disruptions might occur due to increased withdrawals of deposits, increases in the funding required for loan commitments, a decrease in the ability to access external funding sources and other factors that would increase the need for funding and limit Peoples' ability to access needed funds.

Such disruptions might occur due to increased withdrawals of

deposits, increases in the funding required for loan commitments, a decrease in the ability to access external funding sources and other factors that would increase the need for funding and limit Peoples' ability to access needed funds.

As a result, Peoples maintains a liquidity contingency funding plan ("LCFP") that considers various degrees of disruptions and develops action plans around these scenarios.

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Additionally, the LCFP is subjected to a third-party review annually for effectiveness and regulatory compliance.

Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from fiscal stimulus, the PPP and other government actions.

Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes;

however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement funds are received.

At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit.

This decrease is related to the receipt of PPP loan proceeds and other increased cash flows for certain companies.

Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses.

Starting at March 31, 2020, there was an increase in deposit balances due to the influx of funds from fiscal stimulus, the PPP and other government actions that persisted throughout 2021.

During 2022, deposit balances declined due to customers returning to pre-COVID-19 pandemic balances as well as rising market interest rates due to high levels of inflation.

Overall, management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

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These activities are necessary to meet the financing needs of customers and could require Peoples to make cash payments to third parties in the event certain specified future events occur.

The contractual amounts represent the extent of Peoples’ exposure in

these off-balance sheet activities.

The contractual amounts represent the extent of Peoples’ exposure in these off-balance sheet activities.

However, since certain off-balance sheet commitments, particularly standby letters of credit, are expected to expire or be only partially used, the total amount of commitments does not necessarily represent future cash requirements.

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For certain acquisitions, often those involving insurance businesses and wealth management books of business, a portion of the consideration is contingent upon revenue metrics being achieved.

US GAAP requires that the amounts be recorded upon acquisition based on the best estimate of the future amounts to be paid at the time of acquisition.

Any subsequent adjustment to the estimate is recorded in earnings.

US GAAP requires that the amounts be recorded upon acquisition

based on the best estimate of the future amounts to be paid at the time of acquisition.

Any subsequent adjustment to the estimate is recorded in net income.

Based on the acquisitions completed to date, management does not expect contingent consideration to have a material impact on Peoples' future performance.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis