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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 395 added, 575 removed, 838 unchanged (54% of the section changed)

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

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

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three months ended March 31, 2023 and March 31, 2022.

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

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These risks and uncertainties include, but are not limited to:

(1) the ever-changing effects of the global COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants or mutations thereof - on economies (local, national and international), supply chains and financial markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on Peoples' customers (including potential changes to their bank preferences and behaviors), counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

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

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

(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 and/or the fiscal and monetary policy measures undertaken by the U.S.

government and the Federal Reserve Board, including changes in the Federal Funds Target Rate, in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;

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

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

(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 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;

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

(7) the effects of easing restrictions on participants in the financial services industry;

(8) local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S.

(8) local, regional, national and international economic conditions (including the impact of persistent inflation, supply chain issues or labor shortages, ineffective management of the U.S.

federal budget or debt, potential or imposed tariffs, a U.S.

withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S.

and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;

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;

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

(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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(15) the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(16) adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and recent inflationary pressures, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;

(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;

(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;

(20) the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;

(20) the impact of larger or similar-sized financial institutions encountering problems, such as the recent closures of Silicon Valley Bank in California and Signature Bank in New York, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity, including potential increased regulatory requirements and costs, increased reputational risk and potential impacts to macroeconomic conditions;

(21) Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;

(22) Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;

(23) operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent;

(24) changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated;

(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.

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

financial markets and economy from the effects of climate change;

financial markets and economy from the effects of climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs;

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

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

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

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

(32) Peoples' ability to integrate 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 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;

(36) Peoples' continued ability to grow deposits or maintain adequate deposit levels in light of the recent bank failures;

(37) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A.

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

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

RISK FACTORS" of Peoples' 2022 Form 10-K, and under the heading "ITEM 1A.

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

Peoples encourages readers of this Form

10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance.

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

Peoples undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the filing of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements.

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

As of September 30, 2022, Peoples had 130 locations, including 113 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C.

As of March 31, 2023, Peoples had 130 locations, including 113 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C.

and Maryland.

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

Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at September 30, 2022, which have been disclosed in Peoples' 2021 Form 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q.

Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at March 31, 2023, which have been disclosed in Peoples' 2022 Form 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q.

This MD&A should be read in conjunction with the policies disclosed in Peoples’ 2022 Form 10-K.

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

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

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

◦ On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite, pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite.

◦ 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 closed on April 30, 2023.

As of March 31, 2023, Peoples had recognized $1.0 million in acquisition-related expenses associated with this pending transaction.

maintained by Elite, pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite.

Total consideration for this transaction was $4.4 million.

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

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

◦ On March 7, 2022, Peoples completed its acquisition of Vantage pursuant to an Equity Purchase Agreement, dated February 16, 2022, in which Peoples Bank purchased 100% of the equity of Vantage.

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Peoples paid total consideration of $82.9 million.

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

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

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

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

(“Premier Bank”) and Citizens Deposit Bank and Trust, Inc.

(“Citizens”).

Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “Premier Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million.

At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of Peoples Bank.

Peoples acquired $1.2 billion in loans and $1.8 billion in deposits and recorded goodwill of $66.9 million and other intangible assets of $4.2 million in connection with the Premier Merger as of September 17, 2021.

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

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

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

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

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

Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million.

Peoples Bank paid total consideration of $116.6 million, plus an earn-out payment to NSL of up to $3.0 million.

Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States.

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

◦ Peoples began originating loans during the second quarter of 2020, and continued to originate loans during the first five months of 2021 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP").

These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time.

Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA").

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

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

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

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

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

The release of credit losses for the first three quarters of 2022 was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods.

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

Peoples recorded 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.

◦ During the first quarter of 2023, Peoples recorded a provision for credit losses of $1.9 million, compared to a provision for credit losses of $2.3 million in the linked quarter and a recovery of credit losses of $6.8 million in the first quarter of 2022.

The provision for credit losses in the first quarter of 2023 was largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction in reserves for individually analyzed loans.

For more information, please refer to the section titled "RESULTS OF OPERATIONS - Provision for (Recovery of) Credit Losses" found later in this discussion.

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

For the first nine months of 2022, Peoples incurred $2.3 million of acquisition-related expenses compared to $20.5 million for 2021.

The acquisition-related expenses in 2022 were primarily related to the Vantage acquisition, while the 2021 expenses were primarily related to the NSL acquisition and the Premier Merger.

◦ In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve Board lowered the benchmark Federal Funds Target Rate in two separate actions in the first quarter of 2020 to a range of 0% - 0.25% as of March 31, 2020 and maintained this rate until March 16, 2022.

The Federal Reserve Board increased the Federal Funds Target Rate range to 0.25% to 0.50% on March 16, 2022, to 0.75% to 1.00% on May 4, 2022, to 1.50% to 1.75% on June 15, 2022, to 2.25% to 2.50% on July 27, 2022, to 3.00% to 3.25% on September 21, 2022, and has stated it anticipates continuing to raise rates throughout 2022.

◦ During the first quarter of 2023, Peoples incurred $0.6 million of acquisition-related expenses, compared to $0.7 million in the fourth quarter of 2022 and $1.4 million in the first quarter of 2022.

The acquisition-related expenses in 2023 were primarily related to the Limestone Merger, while the acquisition-related expenses in 2022 were primarily related to the Vantage acquisition.

◦ To combat the effects of ongoing inflationary pressures, 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 November 2, 2022, to 4.25% to 4.50% on December 14, 2022, to 4.50% to 4.75% on February 1, 2023, to 4.75% to 5.00% on March 23, 2023, 5.00% to 5.25% on May 3, 2023 and has stated it may continue to raise rates throughout 2023.

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

EXECUTIVE SUMMARY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net charge-offs for the third quarter of 2022 were $1.7 million, or 0.15% of average total loans annualized, compared to net charge-offs of $1.5 million, or 0.14% of average total loans annualized, for the linked quarter and net charge-offs of $1.6 million, or 0.18% of average total loans annualized, for the third quarter of 2021.

Peoples reported net income of $26.6 million for the first quarter of 2023, representing earnings per diluted common share of $0.94.

In comparison, Peoples reported earnings per diluted common share of $0.95 for the fourth quarter of 2022, and of $0.84 for the first quarter of 2022.

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

Non-core items negatively impacted earnings per diluted common share by $0.05 for the first quarter of 2023, $0.03 for the fourth quarter of 2022, and $0.04 for the first quarter of 2022.

Net interest income was $72.9 million for the first quarter of 2023, an increase of $2.3 million, or 3%, compared to the linked quarter.

Net interest margin was 4.53% for the first quarter of 2023, compared to 4.44% for the linked quarter.

The increases in net interest income and net interest margin were driven by 50 basis points of improvement in loan yields due to recent increases in market interest rates and a shift in the composition of the loan portfolio into higher-yielding leases, and 41 basis points of improvement in investment yields when compared to the linked quarter due to purchases of investment securities with higher interest rates and sales of lower-yielding investment securities.

Net interest income for the first quarter of 2023 increased $18.6 million, or 34%, compared to the first quarter of 2022.

Net interest margin increased 112 basis points compared to 3.41% for the first quarter of 2022.

The increase in net interest income compared to the first quarter of 2022 was driven by increases in market interest rates and a full quarter of income from the Vantage acquisition.

Accretion income, net of amortization expense, from acquisitions was $2.0 million for the first quarter of 2023, $2.2 million for the fourth quarter of 2022 and $2.7 million for the first quarter of 2022, which added 13 basis points, 14 basis points and 17 basis points, respectively, to net interest margin.

The decreases in accretion income for the first quarter of 2023 when compared to the linked quarter and the first quarter of 2022 were driven by less loan accretion due to lower pay-offs and less accretion from the merger with Premier Financial Bancorp, Inc.

("Premier") and the Vantage acquisition.

The provision for credit losses was $1.9 million for the first quarter of 2023, compared to a provision for credit losses of $2.3 million for the linked quarter and a recovery of credit losses of $6.8 million for the first quarter of 2022.

The provisions for credit losses in the first quarter of 2023 and the linked quarter were largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction in reserves for individually analyzed loans.

The recovery of credit losses in the first quarter of 2022 was attributable to an improvement in economic factors and loss drivers within the current expected credit loss ("CECL") model.

Net charge-offs for the first quarter of 2023 were $1.5 million, or 0.13% of average total loans annualized, compared to net charge-offs of $2.1 million, or 0.18% of average total loans annualized, for the linked quarter and net charge-offs of $1.9 million, or 0.17% of average total loans annualized, for the first quarter of 2022.

For additional information on credit trends and the allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net gains and losses include gains and losses on investment securities, asset disposals and other transactions, which are included in total non-interest income on the Consolidated Statements of Operations.

The net loss realized during the first quarter of 2023 was $2.2 million, compared to a net loss of $0.5 million for the linked quarter, and a net gain of $3,000 for the first quarter of 2022.

During the first quarter of 2023, Peoples executed the sale of $96.7 million of its lower yielding available-for-sale securities for a pre-tax net loss of $2.0 million.

Proceeds from the sale were used to pay down overnight borrowings.

The realized losses recognized due to these transactions are projected to be earned back within the 2023 fiscal year.

The net loss for the linked quarter was primarily due to net losses on repossessed assets and net losses on sales of investment securities.

Total non-interest income, excluding net gains and losses, for the first quarter of 2023 increased $1.7 million compared to the linked quarter.

The increase in non-interest income, excluding net gains and losses, was due to a $1.7 million increase in insurance income due to seasonal performance-based commissions being earned in the first quarter of each year.

Compared to the first quarter of 2022, non-interest income, excluding net gains and losses, increased $1.2 million, primarily due to a $0.7 million increase in insurance income which was attributable to an increase in property and casualty insurance commissions.

Total non-interest expense increased $3.1 million, or 6%, for the three months ended March 31, 2023, compared to the linked quarter.

The increase in total non-interest expense for the first quarter of 2023 was attributable to an increase in salaries and employee benefit costs.

The increase in salaries and employee benefit costs was due to anticipated additional expenses typically recognized in the first quarter of each year.

These expenses included annual merit increases, stock-based compensation expenses attributable to retirement-eligible employees, and employer health savings account ("HSA") contributions.

Compared to the first quarter of 2022, total non-interest expense increased $4.9 million, or 9%, primarily due to increases in (i) salaries and employee benefit costs, (ii) data processing and software expense and (iii) other non-interest expense.

The increases were due to growth, including through acquisitions.

Partially offsetting these increases were decreases in electronic banking expense and professional fees.

The efficiency ratio for the first quarter of 2023 was 57.8%, compared to 56.7% for the linked quarter, and 66.8% for the first quarter of 2022.

The increase in the efficiency ratio compared to the linked quarter was primarily due to the increases in non-interest expenses, which were partially offset by higher net interest income due to increases in the market interest rates.

The decrease in the efficiency ratio compared to the prior year quarter was primarily due to a decrease in acquisition-related expenses.

The efficiency ratio, adjusted for non-core items, was 57.2% for the first quarter of 2023, compared to 55.9% for the linked quarter and 64.8% for the first quarter of 2022.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In the 2021 periods presented, deposits were higher due to customers maintaining larger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic.

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

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

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

Peoples recorded income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023, compared to income tax expense of $7.1 million with an effective tax rate of 21.0% for the linked quarter, and income tax expense of $6.0 million with an effective tax rate of 20.2% for the first quarter of 2022.

The increase in income tax expense for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was driven by higher income before income taxes.

At March 31, 2023, total assets were $7.31 billion, compared to $7.21 billion at December 31, 2022 and $7.24 billion at March 31, 2022.

The $104.2 million increase in total assets compared to at December 31, 2022 was primarily due to increases in held-to-maturity investment securities and loans and leases, net of deferred fees and costs, partially offset by a decrease in available-for-sale investment securities.

Management underwent an initiative during the first quarter of 2023 to sell lower yielding available-for-sale investment securities whose proceeds were used to pay down higher cost funding.

Separately, the increase in the period-end loan and lease balances was primarily driven by increases of (i) $57.5 million in other commercial real estate loans, (ii) $17.8 million in indirect consumer loans and (iii) $9.5 million in leases, partially offset by a reductions of $14.6 million in construction loans and $10.8 million in residential real estate loans.

The $72.3 million increase in total assets compared to at March 31, 2022 was largely attributable to increases in loans and leases as well as the aforementioned net increase in investment securities, partially offset by decreases in interest-bearing deposits at other banks.

The increase in the period-end loan and lease balances when compared to at March 31, 2022 was primarily driven by increases of $122.4 million in indirect consumer loans and $87.6 million in leases, partially offset by a reduction of $43.8 million in residential real estate loans.

Total liabilities were $6.49 billion at March 31, 2023, up from $6.42 billion at December 31, 2022 and $6.43 billion at March 31, 2022.

The increase in total liabilities compared to at December 31, 2022 was attributable to an increase in total deposits and long-term

The increase in total deposits when compared to at December 31, 2022 was primarily driven by an increase of $147.6 million in brokered certificates of deposits, which are primarily used as a source of funding.

Excluding the increase in brokered certificates of deposits, total deposits at March 31, 2023 decreased $76.0 million when compared to at December 31, 2022, primarily due to reductions of (i) $75.0 million in interest-bearing deposit accounts (ii) $43.9 million in savings accounts, (iii) $37.9 million in money market deposit accounts, and (iv) $34.3 million in non-interest bearing deposit accounts, partially offset by an increase of $91.9 million in retail certificates of deposit.

The increase in total liabilities compared to at March 31, 2022 was primarily due to an increase in short-term borrowings, partially offset decreases in total deposits and long-term borrowings.

Deposits decreased primarily due to reductions in non-interest-bearing deposits, interest-bearing demand deposit accounts, governmental deposit accounts, and money market deposit accounts of $111.6 million, $94.0 million, $85.5 million and $77.2 million, respectively, partially offset by an increase of $185.8 million in brokered certificates of deposits.

Total stockholders' equity at March 31, 2023 increased by $34.2 million compared to at December 31, 2022, which reflected net income for the quarter of $26.6 million and a decrease in accumulated other comprehensive loss of $16.2 million, partially offset by dividends paid of $10.7 million.

The change in accumulated other comprehensive loss was the result of the changes in the market value of available-for-sale investment securities during the period.

Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $112.7 million and $129.9 million at March 31, 2023 and at December 31, 2022, respectively.

Total stockholders' equity at March 31, 2023 increased by $11.2 million compared to at March 31, 2022, which was primarily due to net income of $104.3 million in the last twelve months partially offset by an increase in accumulated other comprehensive loss of $48.3 million.

The increase in accumulated other comprehensive loss was the result of an increase of $51.5 million in unrealized losses related to the available-for-sale investment securities portfolio from March 31, 2022 to March 31, 2023.

RESULTS OF OPERATIONS

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

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

FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended corporate income tax rate of 23.3% for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9% blended corporate income tax rate for the three months ended March 31, 2022.

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

4 unchanged sentences

For the Three Months Ended

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

March 31, 2023 December 31, 2022 March 31, 2022

( Dollars in thousands)

38 unchanged sentences

Long-term FHLB advances 34,015 204 2.43 % 34,297 210 2.43 % 85,653 306 1.45 %

Other borrowings 77,155 899 4.56 % 94,097 1,056 4.44 % 8,470 83 3.92 %

Total long-term borrowings 111,882 1,111 3.97 % 152,595 1,313 3.44 % 95,031 399 1.67 %

Total borrowed funds 314,647 1,504 1.91 % 303,030 1,574 2.08 % 175,431 490 1.11 %

Total interest-bearing liabilities

4,565,233 3,820 0.33 % 4,591,738 3,588 0.31 % 3,397,971 2,889 0.34 %

Non-interest-bearing deposits 1,655,888 1,648,067 1,358,652

Other liabilities 105,128 90,457 90,741

Total liabilities 6,326,249 6,330,262 4,847,364

Total stockholders’ equity 797,859 791,401 627,783

Total liabilities and stockholders’ equity $ 7,124,108 $ 7,121,663 $ 5,475,147

Interest rate spread (b) $ 67,438 4.07 % $ 61,882 3.75 % $ 42,929 3.40 %

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

For the Nine Months Ended

September 30, 2022 September 30, 2021

( Dollars in thousands)

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

Short-term investments $ 224,060 $ 1,306 0.78 % $ 175,755 $ 175 0.13 %

Investment securities (a)(b):

Taxable 1,488,609 20,712 1.86 % 899,531 9,636 1.43 %

Nontaxable 199,515 3,991 2.67 % 149,636 3,035 2.70 %

Total investment securities 1,688,124 24,703 1.95 % 1,049,167 12,671 1.61 %

Loans (b)(c):

Construction 219,478 7,136 4.29 % 108,859 3,169 3.84 %

Commercial real estate, other 1,338,375 46,974 4.63 % 930,150 26,938 3.82 %

Commercial and industrial 872,601 27,878 4.21 % 872,421 28,773 4.35 %

Premium finance 146,345 4,891 4.41 % 112,925 4,137 4.83 %

Leases 253,231 26,271 13.68 % 61,551 9,025 19.34 %

Residential real estate (d) 890,499 28,531 4.27 % 624,993 19,749 4.21 %

Home equity lines of credit 168,137 5,577 4.43 % 122,720 3,638 3.96 %

Consumer, indirect 547,438 16,195 3.96 % 526,900 16,025 4.07 %

Consumer, direct 110,509 5,006 6.06 % 82,151 3,896 6.34 %

Total loans 4,546,613 168,459 4.91 % 3,442,670 115,350 4.44 %

Allowance for credit losses

(56,237) (49,483)

Net loans 4,490,376 168,459 4.97 % 3,393,187 115,350 4.50 %

Total earning assets 6,402,560 194,468 4.03 % 4,618,109 128,196 3.68 %

Goodwill and other intangible assets 321,043 213,232

Other assets 380,376 360,842

$ 7,103,979 $ 5,192,183

Interest-bearing deposits:

Savings accounts $ 1,068,912 $ 218 0.03 % $ 688,782 $ 79 0.02 %

Governmental deposit accounts

705,891 1,462 0.28 % 490,170 1,602 0.44 %

Interest-bearing demand accounts

1,169,284 397 0.05 % 743,562 205 0.04 %

Money market accounts 638,061 492 0.10 % 554,194 294 0.07 %

Retail certificates of deposit

596,335 2,262 0.51 % 440,454 3,054 0.93 %

Brokered deposits (e) 88,336 1,552 2.35 % 166,000 2,559 2.06 %

Total interest-bearing deposits

4,266,819 6,383 0.20 % 3,083,162 7,793 0.34 %

Borrowed funds:

Short-term FHLB advances (e) 50,132 816 2.18 % 18,773 246 1.75 %

Repurchase agreements and other 119,228 176 0.20 % 55,100 37 0.09 %

Total short-term borrowings 169,360 992 0.78 % 73,873 283 0.51 %

Long-term FHLB advances 59,440 775 1.74 % 96,765 1,099 1.52 %

Repurchase agreement and other borrowings 71,689 2,373 4.37 % 7,926 235 3.95 %

Long-term notes payable 50,656 653 5.16 % 53,528 661 4.94 % 29,780 298 4.02 %

Trust Preferred 13,806 296 8.58 % 13,771 261 7.42 % 13,665 120 3.51 %

Total long-term borrowings 98,477 1,153 4.69 % 101,596 1,132 4.45 % 129,098 724 2.26 %

10 unchanged sentences

(a) Average balances are based on carrying value.

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

(b) Interest income and yields are presented on a fully tax-equivalent basis, using a 23.3% blended corporate income tax rate for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9% blended corporate income tax rate for the three months ended March 31, 2022.

4 unchanged sentences

(e) Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered deposits for the periods presented in which FHLB advances and brokered deposits were being utilized.

Peoples' average balances compared to prior periods have been impacted by recent acquisitions, which included:

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

Peoples has began to reduce cash balances after previously maintaining high cash balances in recent prior periods due to an influx of deposits, coupled with PPP proceeds.

Peoples' average balances compared to prior periods have been impacted by recent acquisitions, including Vantage on March 7, 2022, which added to average lease and borrowed funds balances.

Peoples has begun to reduce cash balances after previously maintaining high cash balances in recent prior periods due to an influx of deposits.

The following table provides an analysis of the changes in FTE net interest income:

Three Months Ended September 30, 2022 Compared to

Nine Months Ended September 30, 2022 Compared to

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

Three Months Ended March 31, 2023 Compared to

(Dollars in thousands) December 31, 2022 March 31, 2022

Increase (decrease) in:

1 unchanged sentence

Rate Volume Total (a)

INTEREST INCOME:

30 unchanged sentences

(a) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the dollar amounts of the change in each.

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

(b) Interest income and yields are presented on a fully tax-equivalent basis using a 23.3% blended corporate income tax rate for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9% blended corporate income tax rate for the three months ended March 31, 2022.

Compared to the linked quarter, net interest income increased 3% and net interest margin expanded by 9 basis points.

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

Both deposit costs and borrowing costs remained stable.

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

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

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

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

During that same time, loan yields increased 47 basis points, which was partially offset by higher borrowing costs.

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

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

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

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

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

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

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

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

Both increases were primarily driven by 50 basis points of improvement in loan yields due to recent increases in market interest rates and a shift in the composition of the loan portfolio into higher-yielding leases, which resulted in 41 basis points of improvement in investment yields when compared to the linked quarter due to purchases of investment securities with higher interest rates and sales of lower-yielding investment securities.

Borrowing costs increased 105 basis points as a result of increase in short-term borrowings due to utilizing overnight FHLB advances and brokered certificates of deposits in recent quarters.

Net interest income grew 34% over the prior year quarter and net interest margin increased by 112 basis points.

The increase in net interest income compared to the first quarter of 2022 was driven by increases in market interest rates and a full quarter of income from the Vantage acquisition.

Compared to the prior year quarter, loan yields grew 162 basis points due to the rising interest rate environment and both acquisitive and organic growth, while borrowing costs increased 247 basis points as a result of increase in short-term borrowings due to the utilization of FHLB overnight advances mentioned above.

Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $1.2 million during the first quarter of 2022 along with $154,000 of interest earned on PPP loans.

The interest income recognized on PPP loans added 5 basis points to net interest margin for the first quarter of 2022.

The deferred loan fees/costs associated with PPP loans and interest earned on PPP loans were minimal for the first quarter of 2023 and the linked quarter.

Accretion income, net of amortization expense, from acquisitions was $2.0 million for the first quarter of 2023, $2.2 million for the linked quarter and $2.7 million for the first quarter of 2022, which added 13 basis points, 14 basis points and 17 basis points, respectively, to net interest margin.

Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A.

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

5 unchanged sentences

The provision for (recovery of) credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates.

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

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

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

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

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

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

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

During the first quarter of 2022, Peoples recorded a recovery of credit losses of $6.8 million due to an improvement in the economic forecast, along with payoffs of several loans during the quarter, which were partially offset by $0.4 million for the establishment of an allowance for credit losses for the non-purchased credit deteriorated leases from the Vantage acquisition.

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

2 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

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

Net (loss) gain on investment securities $ (1,935) $ (168) $ 130

Net loss on asset disposals and other transactions:

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

Net loss on other assets $ (229) $ (278) $ (22)

Net loss on OREO (10) — (1)

1 unchanged sentence

Net loss on asset disposals and other transactions $ (246) $ (301) $ (127)

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

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

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

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

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

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

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

The net loss on investment securities in the first quarter of 2023 due to a $2.0 million pre-tax net loss on the sale of the available-for-sale investment securities.

During the first quarter of 2023, Peoples executed the sale of $96.7 million of its lower yielding available-for-sale securities which were used to pay down overnight borrowings.

The loss on the sale of the securities had a nominal impact on tangible book value as such loss was previously reflected in capital through accumulated other comprehensive loss.

The realized losses recognized due to these transactions are projected to be earned back within the 2023 fiscal year.

The net loss on asset disposals and other transactions decreased slightly in the first quarter of 2023 when compared to the linked quarter and increased when compared to the prior year quarter.

The net loss for the first quarter of 2023 was primarily due to net losses on furniture and fixture disposals.

The net loss for the linked quarter was primarily due to net losses on other assets, which was mainly due to net losses on repossessed assets.

During the first three months of 2022, Peoples sold several investment securities, resulting in a net gain on investment securities, which was offset by a net loss on other transactions primarily driven by an adjustment to the gain on sale of loans recognized in the fourth quarter of 2022, and was driven by changes to the acquisition-date fair value of loans acquired in the merger with Premier that were subsequently sold.

Total Non-Interest Income, Excluding Net Gains and Losses

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

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

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

For the third quarter of 2022, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses.

Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients.

Total non-interest income, excluding net gains and losses, comprised 23% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the first quarter of 2023, compared to 22% for the linked quarter and 27% for the prior year quarter.

The increase in this ratio compared to the linked quarter was due to an increase in insurance income due to seasonal performance-based commissions being earned in the first quarter of each year.

The decline in this ratio compared to the prior year quarter was primarily due to higher net interest income associated with a full quarter of income from the acquisition of Vantage coupled with the increases in the market interest rates.

For the first quarter of 2023, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses.

The following table details Peoples' e-banking income:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

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

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

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

E-banking income increased compared to each of the linked quarter and the prior year quarter primarily due to more customer activity.

The following table details Peoples' insurance income:

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

Property and casualty insurance commissions

$ 3,252 $ 3,127 $ 2,862

Performance-based commissions

1,527 4 1,346

Life and health insurance commissions

Other fees and charges

Insurance income $ 5,425 $ 3,732 $ 4,731

During the first quarter of 2023, Peoples' insurance income grew 45% when compared to the linked quarter.

This increase in insurance income was due to seasonal performance-based commissions being earned, which are annual in nature and typically occur in the first quarter of each year.

Compared to the first quarter of 2022, insurance income increased 15% and was driven by higher performance-based property and casualty insurance commissions.

Peoples' fiduciary income and brokerage income continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement plan services business.

The following table details Peoples’ trust and investment income:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

3 unchanged sentences

Trust and investment income $ 4,084 $ 3,915 $ 4,276

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

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

Fiduciary income and brokerage income increased slightly in the current quarter relative to the linked quarter, due to an increase in assets under administration and management.

When compared to the first quarter of 2022, trust and investment income declined due to less fiduciary income, primarily due to market volatility.

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

2023 December 31,

2022 September 30,

1 unchanged sentence

2022 March 31,

2022 December 31,

2022 September 30,

(Dollars in thousands)

3 unchanged sentences

Quarterly average $ 3,076,285 $ 2,965,985 $ 2,844,181 $ 2,927,405 $ 3,106,021

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

The following table details Peoples' insurance income:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

(Dollars in thousands) 2022 2021

Property and casualty insurance commissions

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

Performance-based commissions

64 10 59 1,420 2,044

Life and health insurance commissions

508 506 396 1,464 1,248

Other fees and charges

88 92 76 252 275

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

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

The increases in assets under administration and management at March 31, 2023, compared to at December 31, 2022 and March 31, 2022 were driven by market value fluctuations and a $30 million increase in brokerage assets due to an acquisition of an independent financial advisor in January of 2023.

Deposit account service charges are based on the recovery of costs associated with services provided.

The following table details Peoples' deposit account service charges:

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

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

Deposit account service charges increased for the current quarter compared to the linked quarter, and the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021 due to increased customer activity in recent quarters, compared to the very low levels of early 2021, which had been impacted by fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic.

Also contributing to the increases in the current quarter compared to the prior year quarter and

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

Deposit account service charges decreased

for the current quarter compared to the linked quarter due to a decline in overdraft and non-sufficient funds fees.

Deposit account service charges increased slightly for the current quarter compared to the prior year quarter due to increased maintenance fee rates.

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

Lease income 1,077 1,336 775

Bank owned life insurance income 707 702 431

Mortgage banking income 314 281 436

Commercial loan swap fees 224 270 73 662 194

Other non-interest income 668 611 719

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

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

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

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

The first quarter of 2023 decrease in lease income when compared to the linked quarter was due to seasonal fluctuations in syndication income, as the fourth quarter of each year typically has a higher volume of originations.

The first quarter of 2023 increase in lease income when compared to the first quarter of 2022 was due to a full quarter of income from the Vantage acquisition in 2023 versus only a month of income in 2022.

Bank owned life insurance income for the current quarter was relatively flat compared to the linked quarter and increased when compared to the same 2022 period.

The first quarter of 2023 increase in bank owned life insurance income when compared to the first quarter of 2022 was due to an additional $30.0 million of investments in bank owned life insurance policies during the second quarter of 2022.

Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained.

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

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

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

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

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

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

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

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

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

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

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

In the first quarter of 2023, Peoples sold $0.8 million in loans to the secondary market with servicing retained and $7.4 million in loans with servicing released, compared to $2.5 million and $9.5 million, respectively, in the fourth quarter of 2022, and $7.2 million and $7.9 million, respectively, in the first quarter of 2022.

Non-Interest Expense

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

Base salaries and wages $ 20,332 $ 19,747 $ 17,676

Sales-based and incentive compensation 4,899 4,913 4,013 13,448 12,034

Employee benefits 4,115 3,372 3,621

Sales-based and incentive compensation 3,945 5,284 3,636

Payroll taxes and other employment costs 2,370 1,591 2,091

5 unchanged sentences

Average during the period 1,283 1,261 1,215

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

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

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

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

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

At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate.

Base salaries and wages for the current quarter increased compared to linked quarter primarily due to annual merit increases.

The current quarter increase compared to the prior year quarter was primarily driven by a rise in annual merit increases as well as a full quarter of expenses related to the additional salaries associated with the acquisition of Vantage.

The increases in employee benefits for the current quarter compared to the linked quarter, was primarily due to annual contributions to employee health savings accounts that occur primarily in the first quarter of each year.

The increase in employee

benefits for the current quarter compared to the first quarter of 2022 was due to higher medical costs reflecting a full quarter of expenses in 2023 for the Vantage employees versus a month of expenses in the first quarter of 2022.

The decrease in sales-based and incentive compensation for the current quarter compared to the linked quarter was primarily due to the overall company performance measures used in calculating retail incentive awards.

Payroll taxes and other employment costs increased compared to the prior quarter and the first quarter of 2022 and were primarily related to higher base salaries and wages.

Also impacting the increase in payroll taxes and other employment costs when compared to the linked quarter were seasonal expenses recognized in the first quarter of each year.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years.

An adjustment is made at the vesting date to reverse expense relating to forfeitures for performance awards, and at the date of forfeiture to reverse expense for non-vested restricted awards.

Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years.

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

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

Stock-based compensation for the first three months of 2023 increased when compared to the first three months of 2022 due to additional employees, including the ones added in the acquisition of Vantage.

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

1 unchanged sentence

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

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

The decrease in deferred personnel costs for the current quarter compared to the linked quarter was primarily due to a prior period adjustment of costs to originate leases.

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

4 unchanged sentences

Net occupancy and equipment expense $ 4,955 $ 4,847 $ 5,088

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

The first quarter of 2023 net occupancy and equipment expense increased slightly when compared to the linked quarter due to increases in depreciation and property taxes, utilities and other costs, partially offset by reductions in repairs and maintenance costs and net rent expense.

When compared to the first quarter of 2022, net occupancy and equipment expense decreased due to less depreciation, repairs and maintenance costs and property taxes, utilities and other costs due to having less geographic locations as of the first quarter of 2023.

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

1 unchanged sentence

Professional fees 2,881 3,310 3,672

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

Amortization of other intangible assets 1,871 1,998 1,708

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

E-banking expense 1,491 1,097 2,759

Franchise tax expense 1,034 546 764

Marketing expense 930 737 995

FDIC insurance premiums 801 781 1,194

Communication expense 599 649 411 1,873 1,079

Other loan expenses 739 947 832

Communication expense 613 611 625

Other non-interest expense 4,574 4,721 3,347

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

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

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

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

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

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

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

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

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

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

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

Data processing and software expense increased when compared to the first quarter of 2022, driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

Professional fees decreased for the current quarter compared to the comparative periods due to less acquisition-related expenses being reported when compared to those periods.

Amortization of other intangible assets for the current quarter decreased when compared to the linked quarter due to decreased amortization of intangible assets recognized as a result of recent acquisitions.

Amortization of other intangible assets for the current quarter increased when compared to the first quarter of 2022 due to amortization of intangible assets recognized in the Vantage acquisition.

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 the current quarter compared to the linked quarter, and is correlated to e-banking income, which also increased from the linked quarter primarily due to more customer activity.

E-banking expense decreased for the first quarter of 2023 when compared to the first quarter of 2022 due to a decline in customer activity compared to last year.

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

1 unchanged sentence

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

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

Communications expense increased during the first nine months of 2022 when compared to the first nine months of 2021 due to upgraded networking to certain branches (including new branches acquired from Premier coupled with the addition of the NSL and Vantage locations acquired) and increased costs compared to the prior period among certain vendors that provide communication services.

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

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

The increase versus the linked quarter was driven by a refund received in the linked quarter.

The increase from the first quarter of 2022 was driven by recent growth through acquisitions and organic means.

Marketing expense increased for the first quarter of 2023 when compared to the linked quarter primarily due to higher media advertising expenses and donations compared to the prior period.

Peoples' FDIC insurance premiums decreased for the current quarter compared to the first quarter of 2022 due to an adjustment in the first quarter of 2022 relating to prior acquisitions.

Other loan expenses during the first three months of 2023 decreased when compared to the linked quarter primarily due to lower indirect lending volume and decreased collection expense.

Other non-interest expense increased during the current quarter when compared to the first quarter of 2022 due to an increase in acquisition-related expenses related to the Limestone Merger.

Income Tax Expense

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

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

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

Additional information regarding income taxes can be found in "Note 13 Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 Form 10-K.

Peoples recorded income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023, compared to income tax expense of $7.1 million with an effective tax rate of 21.0% for the linked quarter and income tax expense of $6.0 million with an effective tax rate of 20.2% for the first quarter of 2022.

Income tax expense for the first quarter of 2023, compared to the linked quarter, was relatively flat due to similar income before income taxes.

The increase in income tax expense for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was driven by a higher income before income taxes.

Additional information regarding income taxes can be found in "Note 13.

Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2022 Form 10-K.

Pre-Provision Net Revenue (Non-US GAAP)

4 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

Pre-provision net revenue:

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

Income before income taxes $ 33,606 $ 33,980 $ 29,538

provision for credit losses 1,853 2,301 —

3 unchanged sentences

loss on other transactions 7 23 104

gain on OREO — — — — 8

recovery of credit losses — — 6,807

gain on investment securities — — 130

gain on other assets 94 — 93 94 258

Pre-provision net revenue $ 37,640 $ 36,750 $ 22,728

3 unchanged sentences

Pre-provision net revenue per common share - diluted $ 1.34 $ 1.31 $ 0.81

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

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

The increase in the PPNR for the first quarter of 2023 compared to the first quarter of 2022 was driven by increased net interest income reflecting the positive impact of recent increases in market interest rates as well as a provision for credit losses in the first quarter of 2023 compared to the recovery of credit losses in the first quarter of 2022.

Core Non-Interest Expense (Non-US GAAP)

Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream.

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

contribution and contract negotiation expenses.

This measure is Non-US GAAP since it excludes the impact of all acquisition-related expenses, pension settlement charges and COVID-19-related expenses.

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

3 unchanged sentences

pension settlement charges — 46 —

severance expenses — — — — 63

COVID-19-related expenses — 2 94

Peoples Bank Foundation, Inc.

contribution — — — — 500

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

Core non-interest expense $ 55,928 $ 52,616 $ 50,162

4 unchanged sentences

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

4 unchanged sentences

Total non-interest income 19,060 19,034 20,050

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

net (loss) gain on investment securities (1,935) (168) 130

net loss on asset disposals and other transactions (246) (302) (127)

13 unchanged sentences

Efficiency ratio adjusted for non-core items 57.19 % 55.91 % 64.82 %

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

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

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

(a) Tax effect is calculated using a 23.3% blended corporate income tax rate for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9% blended corporate income tax rate for the three months ended March 31, 2022.

The efficiency ratio and the efficiency ratio adjusted for non-core items for the first quarter of 2023 increased when compared to the linked quarter, primarily due to the increases in non-interest expenses due to seasonal first quarter expenses partially offset by higher net interest income driven by increases in the market interest rates.

The improvements in the efficiency ratio and the efficiency ratio adjusted for non-core items compared to the prior year quarter were driven by higher net interest income due to increases in market interest rates over the last twelve months.

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

In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance.

The return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, pension settlement charges, severance expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc.

contribution and contract negotiation expenses.

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

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

Net income (loss)

Annualized net income adjusted for non-core items:

$ 26,560 $ 26,849 $ 23,577

net loss on investment securities

— 44 166 — 704

tax effect of net loss on investment securities (a)

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net loss on asset disposals and other transactions

35 152 308 314 459

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

7 32 65 66 96

acquisition-related expenses

1 unchanged sentence

tax effect of acquisition-related expenses (a)

71 126 3,404 486 4,309

pension settlement charges

139 — 143 139 143

tax effect of pension settlement charges (a)

29 — 30 29 30

severance expenses — — — — 63

tax effect of severance expenses (a) — — — — 13

COVID-19-related expenses — 2 94

tax effect of COVID-19-related expenses (a) — — 20

Peoples Bank Foundation, Inc.

tax effect of Peoples Bank Foundation, Inc.

contribution (a)

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

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

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

2 unchanged sentences

Days in the year 365 365 365

Annualized net income (loss)

Annualized net income

$ 107,716 $ 106,520 $ 95,618

2 unchanged sentences

Return on average assets:

Annualized net income (loss)

Annualized net income

$ 107,716 $ 106,520 $ 95,618

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7,222,464 7,067,193 7,067,816

Return on average assets adjusted for non-core items

Return on average assets adjusted for non-core items (after tax)

1.61 % 1.56 % 1.42 %

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

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

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

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

The return on average assets for the current quarter decreased slightly when compared to the linked quarter, due to an increase in average assets.

The increase in the return on average assets for the first quarter of 2023, compared to the first quarter of 2022, was attributable to higher net interest income and non-interest income, which were driven by the increases in market interest rates.

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

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This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity.

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

Three Months Ended Nine Months Ended

September 30,

2022 June 30,

2022 September 30,

2021 September 30,

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

Three Months Ended

2023 December 31,

2022 March 31,

(Dollars in thousands)

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

Net income (loss)

Annualized net income excluding amortization of other intangible assets:

$ 26,560 $ 26,849 $ 23,577

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tax effect of amortization of other intangible assets (a)

425 427 269 1,211 686

Net income (loss) excluding amortization of other intangible assets

Net income excluding amortization of other intangible assets

$ 28,038 $ 28,427 $ 24,926

Days in the period

92 91 92 273 273

Days in the year

365 365 365 365 365

Annualized net income (loss)

Annualized net income

$ 107,716 $ 106,520 $ 95,618

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

Annualized net income excluding amortization of other intangible assets

$ 113,710 $ 112,781 $ 101,089

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Return on average tangible equity ratio:

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

Annualized net income excluding amortization of other intangible assets

$ 113,710 $ 112,781 $ 101,089

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

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

At the same time, the average tangible equity was negatively impacted by the Vantage acquisition, for which People did not issue any equity, and recorded additional goodwill and other intangible assets.

The return on total average stockholders' equity and average tangible equity ratios were lower in the current quarter relative to the linked quarter, due to issuance of treasury stock for employee stock awards in the first quarter as well as decreases in accumulated other comprehensive losses on available-for-sale investment securities, partially offset by an increase in total net interest income driven by the recent increases in market interest rates.

The return on total average stockholders' equity and average tangible equity ratios were higher in the current quarter when compared to the same 2022 period due to greater accumulated other comprehensive losses on available-for-sale investment securities in 2023, which reduced average tangible equity.

FINANCIAL CONDITION

Cash and Cash Equivalents

At September 30, 2022, Peoples' interest-bearing deposits in other banks had decreased $290.1 million from December 31, 2021.

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

The total cash and cash equivalents balance included $36.0 million of excess cash reserves being maintained at the FRB of Cleveland at September 30, 2022, compared to $318.1 million at December 31, 2021.

At March 31, 2023, Peoples' interest-bearing deposits in other banks had increased $0.7 million from December 31, 2022.

The total cash and cash equivalents balance included $53.7 million of excess cash reserves being maintained at the FRB of Cleveland at March 31, 2023, compared to $33.1 million at December 31, 2022.

The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances.

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

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

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

Through the first three months of 2023, Peoples' total cash and cash equivalents increased $3.1 million as Peoples had $48.0 million of cash provided by operating activities and $45.1 million of cash provided by financing activities, substantially offset by $90.0 million of cash used in investing activities.

Peoples' cash used in investing activities reflected net cash outflows from held-to-maturity investment securities of $133.8 million and cash outflows from a $52.4 million net increase in loans held for investment, partially offset by net cash inflows from available-for-sale investment securities of $100.4 million.

The cash provided by financing activities was largely driven by a $106.0 million net increase in interest-bearing deposits, partially offset by net cash outflows of $34.3 million, $11.0 million and $9.5 million from a net decrease in non-interest-bearing deposits, cash dividends paid, and payments on long-term borrowings, respectively.

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

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

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The following table provides information regarding Peoples’ investment portfolio:

(Dollars in thousands) Weighted Average Yield September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) Weighted Average Yield March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Available-for-sale securities, at fair value:

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Total amortized cost $ 1,196,521 $ 1,300,719 $ 1,349,800 $ 1,389,621 $ 1,381,259

Net unrealized (loss) gain $ (179,956) $ (122,023) $ (79,420) $ (7,653) $ 2,436

Net unrealized loss $ (147,024) $ (169,320) $ (179,956) $ (122,023) $ (79,420)

Held-to-maturity securities, at amortized cost:

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Carrying value $ 1,796,332 $ 1,743,220 $ 1,616,684 $ 1,709,973 $ 1,728,335

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

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

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

(a) Amortized cost is presented net of the allowance for credit losses of $241 at March 31, 2023, $241 at December 31, 2022 and $286 at March 31, 2022.

For the first quarter of 2023, total investment securities increased compared to the prior quarter, largely due to investments made in held-to-maturity residential mortgage-backed securities and obligations of U.S.

government sponsored agencies, in an effort to improve investment yields and reduce risk, partially offset by the reduction in available-for-sale securities.

During the first quarter of 2023, Peoples executed the sale of $96.7 million of its lower yielding available-for-sale securities for an after-tax loss of $1.6 million.

Proceeds from the sale were used to pay down overnight borrowings.

The realized losses recognized due to these transactions are projected to be earned back within the 2023 fiscal year.

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

The following table provides information regarding outstanding loan balances:

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Originated loans:

67 unchanged sentences

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

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

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

The acquired loan decrease was driven by pay-offs of

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

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

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

Period-end total loan balances at March 31, 2023 increased $52.6 million, or 4% annualized, compared to at December 31, 2022.

The increase in the period-end loan and lease balances was primarily driven by increases of (i) $57.5 million in other commercial real estate loans, (ii) $17.8 million in indirect consumer loans and (iii) $9.5 million in leases, partially offset by a reductions of $14.6 million in construction loans and $10.8 million in residential real estate loans.

The increase of $212.6 million in the period-end loan

and lease balances when compared to March 31, 2022 was primarily driven by increases of $122.4 million in indirect consumer loans and $87.6 million in leases, partially offset by a reduction of $43.8 million in residential real estate loans.

The increases in the period-end loan and lease balances when compared to the prior periods was due to growth.

The reduction in the period-end residential real estate loans balance when compared to all comparative prior periods was due to a lower inventory of homes for sale.

Loan Concentration

2 unchanged sentences

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

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

The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at March 31, 2023:

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

6 unchanged sentences

Industrial 6,734 4,047 10,781 2.3 %

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

Other (a) 34,713 30,391 65,104 13.9 %

41 unchanged sentences

Total restaurant/bar facilities 39,179 257 39,436 2.5 %

Owner occupied 6,143 339 6,482 0.4 %

Non-owner occupied 32,257 — 32,257 2.1 %

Total land only 38,400 339 38,739 2.5 %

Other (a) 430,380 15,645 446,025 28.5 %

3 unchanged sentences

and Maryland.

In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both September 30, 2022 and December 31, 2021.

The repayment of premium finance loans are secured by the underlying insurance policy prepaid premium, and therefore, have no geographical impact from a repayment perspective.

In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both March 31, 2023 and December 31, 2022.

The repayment of premium finance loans is secured by the underlying insurance policy prepaid premium, and therefore, has no geographical impact from a repayment perspective.

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

Small Business Administration Paycheck Protection Program

In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses.

Small Business Administration Paycheck Protection Program ("PPP")

In March 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses.

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

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

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

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

Peoples is a PPP participating lender, and the PPP loans originated are included in commercial and industrial loans.

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

(Dollars in millions) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

PPP aggregate outstanding principal balances $ 2,184 $ 2,458 $ 3,789 $ 15,582 $ 42,871

5 unchanged sentences

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

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Construction $ 1,273 $ 1,250 $ 1,464 $ 1,531 $ 2,731

10 unchanged sentences

As a percent of total loans 1.12 % 1.13 % 1.15 % 1.14 % 1.20 %

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

The reduction in the allowance for credit losses at September 30, 2022 compared to December 31, 2021 was due to improvements in economic forecasts and loss drivers, along with reductions in loan balances from acquired loans due to pay-offs during the quarter.

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

The higher allowance for credit losses at September 30, 2021 when compared to all other comparative periods was related to the provision for credit losses recorded in the amount of $11.0 million in order to establish an allowance for credit losses for non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the Premier Merger.

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

The reduction in the allowance for credit losses at March 31, 2023 compared to March 31, 2022 was driven by decreases in the allowances for individually analyzed loans, offset by loan growth and deterioration in the economic forecast.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2022 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

Three Months Ended

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Gross charge-offs:

Construction $ 9 $ 16 $ — $ — $ —

Commercial real estate, other $ 33 132 57 22 278

1 unchanged sentence

Premium finance 23 42 38 30 14

Three Months Ended

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Leases 469 888 731 493 473

18 unchanged sentences

Net charge-offs (recoveries):

Construction $ 9 $ 16 $ — $ — $ —

Commercial real estate, other 6 99 18 (154) 229

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Ratio of net charge-offs to average total loans (annualized):

Construction — % — % — % — % — %

Commercial real estate, other — % 0.01 % — % (0.01) % 0.02 %

Commercial and industrial — % — % — % 0.04 % 0.03 %

Premium finance — % — % — % — % — %

Leases 0.04 % 0.07 % 0.06 % 0.04 % 0.03 %

7 unchanged sentences

Each with "--%" not meaningful.

Net charge-offs during the third quarter of 2022 were 0.15% of average total loans on an annualized basis.

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

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

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

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

Net charge-offs during the first quarter of 2023 were 0.13% of average total loans on an annualized basis.

The decrease for the current quarter when compared to the linked quarter was driven by a decrease in charge-offs on leases, residential real estate loans and deposit account overdrafts, partially offset by an increase in charge-offs on indirect consumer loans.

The decrease in net charge-offs during the current quarter versus the prior year quarter was primarily attributable to decreases in net charge-offs in (i) commercial and

industrial loans, (ii) residential real estate loans, and (iii) other commercial real estate loans, partially offset by an increase in net charge-offs in indirect consumer loans.

The following table details Peoples’ nonperforming assets:

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Loans 90+ days past due and accruing:

Construction $ — $ — $ — $ 90 $ —

Commercial real estate, other 150 167 1,472 330 603

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Total nonaccrual loans $ 29,980 $ 31,473 $ 27,831 $ 29,488 $ 32,003

Nonaccrual troubled debt restructurings ("TDRs"):

Commercial real estate, other $ 2,403 $ 2,458 $ 197 $ 218 $ 94

Commercial and industrial 330 101 999 1,067 1,223

Residential real estate 1,615 1,731 1,676 1,631 1,689

Home equity lines of credit 306 323 333 352 315

Consumer, indirect 172 207 220 272 219

Consumer, direct — — — 6 9

Consumer 172 207 220 278 228

Total nonaccrual TDRs $ 4,826 $ 4,820 $ 3,425 $ 3,546 $ 3,549

Total nonperforming loans ("NPLs") $ 33,994 $ 36,315 $ 36,255 $ 37,724 $ 37,962

5 unchanged sentences

Classified loans (b) 93,168 89,604 94,848 115,483 109,530

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

2022 December 31,

2021 September 30,

Asset Quality Ratios (c):

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

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

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

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

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

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

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19.

In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs.

This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant.

Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented.

In addition, modification or deferral programs mandated by the U.S.

federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40.

On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period.

In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term.

These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower.

Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.

(d) NPLs include loans 90+ days past due and accruing and nonaccrual loans.

NPLs in periods prior to March 31, 2023 also include TDRs.

NPAs include nonperforming loans and OREO.

Compared to December 31, 2022, Peoples' NPAs decreased from 0.63% to 0.58% of total assets.

Loans 90+ days past due and accruing decreased compared to at December 31, 2022, mostly due to declines in residential real estate loans and leases that were 90+ days past due, partially offset by an increase in premium finance loans that that were 90+ days past due.

During the first quarter of 2023, criticized loans increased $7.5 million, while classified loans increased $3.6 million when compared to at December 31, 2022.

The increase in the amount of criticized loans compared to at December 31, 2022 was primarily related to downgrades of three commercial and industrial relationships.

The increase in classified loans compared to the linked quarter was driven by the downgrade of one commercial and industrial relationship.

The following table details Peoples’ deposit balances:

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Non-interest-bearing deposits (a) $ 1,555,064 $ 1,589,402 $ 1,635,953 $ 1,661,865 $ 1,666,668

5 unchanged sentences

Governmental deposit accounts 649,303 625,965 734,734 728,057 734,784

Brokered deposits 86,089 86,739 87,395 104,745 106,013

Brokered CDs 273,156 125,580 86,089 86,739 87,395

Total interest-bearing deposits 4,233,463 4,127,539 4,229,667 4,267,360 4,336,258

2 unchanged sentences

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

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

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

Total deposits in periods presented through March 31, 2022, were higher due to customers maintaining larger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic.

In quarterly periods prior to June 30, 2022, Peoples experienced increases in most low-cost deposit categories.

As part of its funding strategy, Peoples hedges 90-day brokered deposits with interest rate swaps.

The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits.

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

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

At March 31, 2023, period-end deposits increased $71.6 million, or 1%, compared to at December 31, 2022.

The increase when compared to at December 31, 2022 was primarily driven by an increase of $147.6 million in brokered certificates of deposits, which are primarily used as a source of funding.

Excluding the increase in brokered certificates of deposits, total deposits at March 31, 2023 decreased $76.0 million, or 1%, when compared to at December 31, 2022 due to reductions of (i) $75.0 million in interest-bearing deposit accounts, (ii) $43.9 million in savings accounts, (iii) $37.9 million in money market deposit accounts, and (iv) $34.3 million in non-interest bearing deposit accounts, partially offset by an increase of $91.9 million in retail certificates of deposit.

Period-end deposit balances decreased $214.4 million, or 4%, compared to at March 31, 2022.

Deposits decreased primarily due to reductions in non-interest-bearing deposits, interest-bearing deposit accounts, governmental deposit accounts, and money market deposit accounts of $111.6 million, $94.0 million, $85.5 million and $77.2 million, respectively, partially offset by an increase of $185.8 million in brokered certificates of deposits.

As part of its funding strategy, Peoples hedges 90-day brokered CDs with interest rate swaps.

The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered CDs.

As of March 31, 2023, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, which were designated as cash flow hedges of overnight brokered CDs and 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.

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

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Short-term borrowings:

Overnight borrowings

$ 390,000 $ 400,000 $ (5,000) $ — $ —

FHLB 90-day advances

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

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

Total borrowed funds decreased compared to at December 31, 2022, due to lower overnight borrowings.

Total short-term borrowings at March 31, 2023 increased when compared to at March 31, 2022 due to outstanding FHLB overnight borrowings of $390.0 million at March 31, 2023, while there were no FHLB overnight borrowings at March 31, 2022.

Capital/Stockholders’ Equity

At September 30, 2022, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations.

At March 31, 2023, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations.

These higher capital levels reflect Peoples' desire to maintain a strong capital position.

In order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio.

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

At March 31, 2023, Peoples had a capital conservation buffer of 5.35%.

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

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Capital Amounts:

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Tier 1 leverage ratio 9.02 % 8.92 % 8.64 % 8.38 % 8.29 %

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

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

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

Peoples' regulatory capital and related ratio levels improved during the first quarter of 2023 when compared to at December 31, 2022 and at March 31, 2022 due to net income during the first quarter of 2023, partially offset by dividends paid.

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

The impact of the Vantage acquisition on Peoples' regularity capital and related ratios levels at March 31, 2022, was partially offset by net income exceeding dividends declared during the period ended March 31, 2022.

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

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Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples.

Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value.

intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value.

As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent.

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

(Dollars in thousands) September 30,

2022 June 30,

2022 March 31,

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Tangible equity:

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7.08 % 6.67 % 6.47 % 6.60 % 6.76 %

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

The change in tangible book value per common share was due to tangible equity declining during the three months ended September 30, 2022 as a result of other comprehensive losses recognized on available-for-sale investment securities, which were driven by changes in market interest rates.

Also contributing to the declines in tangible book value per common share when compared to December 31, 2021 and September 30, 2021, were $123.3 million and $129.0 million increases in accumulated other comprehensive losses,

respectively.

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

Tangible book value per common share increased to $17.37 at March 31, 2023, compared to $16.23 at December 31, 2022.

The change in tangible book value per common share was due to tangible equity increasing during the first quarter of 2023 as a result of a decrease in other comprehensive losses recognized on available-for-sale investment securities, which the decrease was driven by sales during the quarter.

Tangible book value per common share increased compared to at March 31, 2022 primarily due to net income over the last twelve months, partially offset by an increase in accumulated other comprehensive loss.

Interest Rate Sensitivity and Liquidity

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Estimated Decrease in Economic Value of Equity

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

(in Basis Points) March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

300 $ 10,891 3.7 % $ 13,000 4.4 % $ (110,529) (7.5) % $ (82,959) (5.4) %

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(100) (8,608) (2.9) % (11,404) (3.9) % 6,268 0.4 % (21,124) (1.4) %

(200) (23,095) (7.8) % (27,659) (9.4) % (35,500) (2.4) % (80,484) (5.2) %

(300) (38,575) (13.1) % (43,728) (14.8) % (105,742) (7.1) % (152,152) (9.8) %

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 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 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, as well as assumptions regarding prepayment speeds on mortgage-backed securities.

These and other modeling assumptions are monitored closely by Peoples on an ongoing basis.

With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay.

These prepayment speeds affect the amounts forecasted for cash flow reinvestment, premium amortization, and discount accretion in interest rate risk modeling results.

This prepayment activity is generally the result of refinancing activity and tends to increase as longer-term interest rates decline, and decrease as interest rates increase.

The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income or asset duration.

While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates.

Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term interest rates, and vice versa.

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 interest rates, and vice versa.

For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts.

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Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above.

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

Given the shape of market yield curves at March 31, 2023, consideration of the bear steepener and bear flattener scenarios provide insights which were not captured by parallel shifts.

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

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

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

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

At March 31, 2023, the bear steepener scenario produced an increase in net interest income of 0.1% and a decline in the economic value of equity of 1.4%.

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

In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, increase, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, remain constant.

Increased deposit and funding costs would be more than offset by increased variable rate asset yields;

resulting in an increased amount of net interest income and a higher net interest margin.

At March 31, 2023, the bear flattener scenario produced no change to net interest income and a decline in the economic value of equity of 0.8%.

As of March 31, 2023, the yield curve was inverted.

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

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

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

As of March 31, 2023, this inversion scenario would have resulted in no change to net interest income and a decrease in the economic value of equity of (0.8)%.

Peoples was within its policy limitations for this alternative scenario as of March 31, 2023, which set the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of the economic value of equity.

Peoples has entered into interest rate swaps as part of its interest rate risk management strategy.

These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments.

As of September 30, 2022, Peoples had entered into thirteen interest rate swap contracts with an aggregate notional value of $125.0 million.

As of March 31, 2023, Peoples had entered into thirteen interest rate swap contracts with an aggregate notional value of $125.0 million.

Additional information regarding Peoples’ interest rate swaps can be found in “Note 10 Derivative Financial Instruments” of the Notes to the Unaudited Condensed Consolidated Financial Statements.

At September 30, 2022, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income.

The table above illustrates this point as changes to net interest income increase in the rising rate scenarios.

While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2021 was largely attributable to increased effective duration in the investment securities portfolio.

At March 31, 2023, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income.

The table above illustrates this point as changes to net interest income

increase in the rising interest rate scenarios.

While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2022 was largely attributable to increased effective duration within the investment securities portfolio.

In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity.

The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 2022 Form 10-K.

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

At March 31, 2023, Peoples Bank had liquid assets of $318.0 million, which represented 3.9% of total assets and unfunded loan commitments.

Peoples also had an additional $231.4 million of unpledged investment securities not included in the measurement of liquid assets.

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(Dollars in thousands)

2023 December 31,

2022 September 30,

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2022 March 31,

2022 December 31,

2021 September 30,

Home equity lines of credit $ 201,692 $ 197,995 $ 194,685 $ 188,803 $ 184,616

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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-Q

Item 2. Management’s Discussion and Analysis