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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 467 added, 335 removed, 898 unchanged (47% 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 three months ended March 31, 2023 and March 31, 2022.

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three months and the six months ended June 30, 2023 and June 30, 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 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;

(1) 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.

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

(4) the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the ongoing increasing interest rate policies of the Federal Reserve Board, the completion and successful integration of planned acquisitions, including the recently-completed acquisition of Vantage and the pending Limestone Merger, and the expansion of commercial and consumer lending activities;

(3) 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 Limestone Merger, and the expansion of commercial and consumer lending activities;

(4) competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;

(5) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses;

(6) potential adverse impacts as a result of the Inflation Reduction Act of 2022, which may negatively impact Peoples' operations and financial results;

(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 persistent inflation, supply chain issues or labor shortages, ineffective management of the U.S.

(8) current and future local, regional, national and international economic conditions (including the impact of persistent inflation, supply chain issues or labor shortages, supply-demand imbalances affecting local real estate prices, high unemployment rates in the local or regional economies in which Peoples operates and/or the U.S.

economy generally, ineffective management of the U.S.

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

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

(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;

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

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

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(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, 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;

(20) the impact of larger or similar-sized financial institutions encountering problems, such as the recent closures of Silicon Valley Bank in California, Signature Bank in New York and First Republic Bank in California which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity, including potential increased regulatory requirements, and 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) any misappropriation of the confidential information which Peoples possesses could have an adverse impact on Peoples' business and could result in regulatory actions, litigation and other adverse effects;

(23) 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;

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(32) 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 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;

(33) Peoples' ability to integrate the Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

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

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

(36) the vulnerability of Peoples' network and online banking portals, and the systems of parties with whom Peoples contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches;

(37) Peoples' business may be adversely affected by increased political and regulatory scrutiny of corporate environmental, social and governance ("ESG") practices;

(38) the effect of a fall in stock market prices on the asset and wealth management business;

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

(39) in light of the recent bank failures, Peoples' continued ability to grow deposits or maintain adequate deposit levels may be adversely impacted, and Peoples may experience an unexpected outflow of uninsured deposits, which may require Peoples to sell investment securities at a loss;

(40) 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' 2022 Form 10-K, and under the heading "ITEM 1A.

RISK FACTORS" of Peoples' 2022 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, 2023 and under the heading "ITEM 1A.

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

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Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections.

This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 2022 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.

This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes to the Consolidated Financial Statements, contained in Peoples’ 2022 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.

Business Overview

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Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries.

Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking.

Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking, including through its Limestone division.

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

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

As of June 30, 2023, Peoples had 150 locations, including 129 full-service bank branches in Ohio, Kentucky, West Virginia, 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 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.

Management has identified the accounting

policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at June 30, 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 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.

◦ 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 $177.9 million.

The Limestone Merger closed as of the close of business on April 30, 2023.

Peoples acquired Limestone's loan portfolio totaling $1.1 billion, $1.2 billion of deposits, $172.7 million of total investment securities, an aggregate of $93.7 million of short-term and long term borrowings, and $92.4 million of total cash and cash equivalents.

Peoples also recorded goodwill in the amount of $63.4 million and other intangible assets of $27.7 million, which consisted of core deposit intangibles.

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

Total consideration for this transaction was $4.4 million.

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.

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

Peoples 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 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.

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

◦ During the second quarter of 2023, Peoples recorded a provision for credit losses of $8.0 million, compared to a provision for credit losses of $1.9 million in the linked quarter and a recovery of credit losses of $0.8 million in the second quarter of 2022.

The provision for credit losses in the second quarter of 2023 was due to a provision of $9.4 million for the non-purchased credit deteriorated loans acquired in the Limestone Merger, partially offset by the release of reserves of $1.7 million on individually analyzed loans and a recovery of $1.0 million due to improvements in macro-economic conditions.

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

The recovery of credit losses in the second quarter of 2022 was primarily due to an improvement in economic factors and loss drivers within the CECL model.

For the first half of 2023, Peoples recorded a provision for credit losses of $9.8 million, compared to a recovery of credit losses of $7.6 million for 2022.

The provision for credit losses during the first six months of 2023 was driven by (i) the addition of the provision for the non-purchased credit deteriorated loans acquired in the Limestone Merger, (ii) loan growth and (iii) economic forecast deterioration, partially offset by a reduction in the reserves for individually analyzed loans and the use of updated loss drivers.

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

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

◦ During the 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.

◦ During the second quarter of 2023, Peoples incurred $10.7 million of acquisition-related expenses, compared to $0.6 million in the first quarter of 2023 and $0.6 million in the second quarter of 2022.

For the first six months of 2023, Peoples incurred $11.3 million of acquisition-related expenses compared to $2.0 million for 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 22, 2023, 5.00% to 5.25% on May 3, 2023 and has stated it may continue to raise rates throughout 2023.

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EXECUTIVE SUMMARY

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.

Peoples reported net income of $21.1 million for the second quarter of 2023, representing earnings per diluted common share of $0.64.

In comparison, Peoples reported net income of $26.6 million, representing earnings per diluted common share of $0.94, for the first quarter of 2023, and net income of $24.9 million, representing earnings per diluted common share of $0.88, for the second quarter of 2022.

For the six months ended June 30, 2023, Peoples recorded net income of $47.7 million, or $1.56 per diluted common share, compared to $48.5 million, or $1.72 per diluted common share, for the six months ended June 30, 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.

Non-core items negatively impacted earnings per diluted common share by $0.28 for the second quarter of 2023, $0.07 for the first quarter of 2023, and $0.02 for the second quarter of 2022.

Non-core items negatively impacted earnings per diluted share by $0.37 and $0.06 for the six months ended June 30, 2023 and 2022, respectively.

Net interest income was $84.9 million for the second quarter of 2023, an increase of $12.0 million, or 16%, compared to the linked quarter.

The increase in net interest income was primarily due to net interest income provided by Limestone following the Limestone Merger and increases in market interest rates.

Net interest margin was 4.54% for the second quarter of 2023, compared to 4.53% for the linked quarter.

The increase in net interest margin was primarily driven by the accretion on the acquired Limestone portfolio as well as increases in market interest rates.

Also impacting the increases in net interest income and net interest margin were 43 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 29 basis points of improvement in investment yields when compared to the linked quarter due to sales of lower-yielding investment securities and securities acquired in the Limestone Merger.

Partially offsetting this benefit was a shift in the composition of funding sources combined with an increase in market interest rates for deposits and other funding sources.

Net interest income for the second quarter of 2023 increased $23.4 million, or 38%, compared to the second quarter of 2022.

Net interest margin for the second quarter of 2023 increased 70 basis points compared to 3.84% for the second quarter of 2022.

The increase in net interest income compared to the second quarter of 2022 was driven by increases in market interest rates, the Limestone Merger, and organic growth.

For the first six months of 2023, net interest income increased $42.0 million, or 36%, compared to the first six months of 2022, while net interest margin increased 90 basis points to 4.53%.

The increase in net interest income was driven by increases in market interest rates and the additional net interest income from the Limestone Merger.

Partially offsetting this benefit was a shift in the composition of funding sources combined with an increase in market interest rates for deposits and other funding sources.

Accretion income, net of amortization expense, from acquisitions was $4.5 million for the second quarter of 2023, $2.0 million for the first quarter of 2023 and $3.9 million for the second quarter of 2022, which added 24 basis points, 13 basis points and 25 basis points, respectively, to net interest margin.

The increases in accretion income for the second quarter of 2023 when compared to the linked quarter and the second quarter of 2022 were driven by accretion from the Limestone Merger.

Accretion income, net of amortization expense, from acquisitions was $6.5 million for the six months ended June 30, 2023, compared to $6.7 million for the six months ended June 30, 2022, which added 18 and 21 basis points, respectively, to net interest margin.

The decrease in accretion income for the first six months of 2023 compared to the same period in 2022 was due to more accretion in 2022 from the acquisitions of Vantage and NSL and the Premier Merger, as compared to accretion primarily from the Limestone Merger.

The provision for credit losses was $8.0 million for the second quarter of 2023, compared to a provision for credit losses of $1.9 million for the linked quarter and a recovery of credit losses of $0.8 million for the second quarter of 2022.

The recovery of credit losses in the second quarter of 2022 was primarily due to an improvement in economic factors and loss drivers within the CECL model.

Net charge-offs for the second quarter of 2023 were $1.2 million, or 0.09% of average total loans annualized, compared to net charge-offs of $1.5 million, or 0.13% of average total loans annualized, for the linked quarter and net charge-offs of $1.5 million, or 0.14% of average total loans annualized, for the second 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 provision for credit losses during the first six months of 2023 was $9.8 million, compared to a recovery of credit losses of $7.6 million for the first six months of 2022.

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

Net charge-offs for the first six months of 2023 were $2.7 million, or 0.11% of average total loans annualized, compared to net charge-offs of $3.5 million, or 0.15% annualized, for the first six months of 2022.

For additional information on credit trends and the allowance for credit losses, see the "Asset Quality" section below.

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 $7.0 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 net loss realized during the second quarter of 2023 was $1.8 million, compared to a net loss of $2.2 million for the linked quarter, and a net loss of $196,000 for the second quarter of 2022.

The net loss in the second quarter of 2023 was primarily driven by a $1.6 million write-down of an OREO property due to a potential sale of the property.

The net loss for the linked quarter was primarily due to the $2.0 million pre-tax net loss on the sale of the available-for-sale investment securities mentioned above.

The net loss realized during the first six months of 2023 was $4.0 million, compared to $193,000 for the first six months of 2022.

The net loss for the first six months of 2023 was primarily driven by the $2.0 million pre-tax net loss on the sale of the available-for-sale investment securities mentioned above and the $1.6 million write-down of the OREO property mentioned above.

The net loss recognized in the first six months of 2022 was primarily driven by an adjustment to the gain on sale of loans recognized in the fourth quarter of 2021 due to a measurement period adjustment to the acquisition-date fair value of Premier loans acquired that were subsequently sold.

Total non-interest income, excluding net gains and losses, for the second quarter of 2023 increased $1.6 million compared to the linked quarter.

The increase in non-interest income, excluding net gains and losses, was due to a $1.0 million increase in electronic banking income and a $0.6 million increase in deposit account service charge income, mostly due to the additional customers brought in from the Limestone Merger, and a $0.6 million increase lease income, primarily from residual sales and month-to-month lease income.

Compared to the second quarter of 2022, non-interest income, excluding net gains and losses, increased $3.3 million, primarily due to a $1.0 million increase in electronic banking income and a $0.6 million increase in deposit account service charge income, mostly due to the additional customers brought in from Limestone Merger, and a $1.3 million increase in lease income, primarily from residual sales and month-to-month lease income.

For the first six months of 2023, total non-interest income, excluding gains and losses, increased $4.5 million, or 11%, compared to the first six months of 2022.

The increase was driven by growth of (i) $1.6 million in lease income, primarily due to lease fee income from Vantage, (ii) a $1.2 million increase in electronic banking income, primarily due to the Limestone Merger and (iii) a $1.1 million increase in insurance income due to growth in the commercial insurance line.

Total non-interest expense for the second quarter and the six months ended June 30, 2023 were primarily impacted by the Limestone Merger, which added $10.7 million and $11.3 million of acquisition-related non-interest expenses across various line-items within non-interest expense.

Total non-interest expense increased $14.1 million, or 25%, for the three months ended June 30, 2023, compared to the linked quarter.

The increase in total non-interest expense for the second quarter of 2023 was attributable to increases of $5.1 million and $4.5 million in acquisition-related salaries and employee benefit costs and professional fees, respectively, due to the Limestone Merger.

Excluding acquisition-related expenses, total non-interest expense increased $4.0 million, primarily due to increases of (i) $0.9 million in the amortization of other intangible assets, (ii) $0.9 million in salaries and employee benefit costs, both driven by the Limestone Merger, and (iii) $0.7 million in FDIC insurance expense.

Compared to the second quarter of 2022, total non-interest expense for the second quarter of 2023 increased $20.7 million, or 42%, primarily due to an increase of $10.1 million in acquisition-related expenses.

Excluding acquisition-related expenses, non-interest expenses increased $10.6 million, primarily due to a $5.1 million increase in salaries and employee benefit costs due to additional employees added in the Limestone Merger, and a $1.9 million increase in data processing and software expense due to recent growth, including through acquisitions.

For the six months ended June 30, 2023, total non-interest expense increased $25.6 million, or 25.2%, compared to the first six months of 2022, primarily due to an increase of $9.3 million in acquisition-related expenses.

Excluding acquisition-related expenses, non-interest expenses increased $16.3 million.

This variance was driven by increases of $9.6 million and $3.6 million in salaries and employee benefit costs and data processing and software expense, respectively, due to recent growth, partially offset by a $2.4 million decrease in electronic banking expense driven by reduced costs for Peoples' online banking platform, as well as a reclassification of those costs relative to the prior period.

The efficiency ratio for the second quarter of 2023 was 62.7%, compared to 57.8% for the linked quarter, and 58.8% for the second quarter of 2022.

The increases in the efficiency ratio compared to the linked quarter and prior year quarter were primarily due to the increases in non-interest expenses, primarily from the Limestone Merger, which were partially offset by higher net interest income due to increases in the market interest rates and additional customers from Limestone.

The efficiency ratio, adjusted for non-core items, was 53.3% for the second quarter of 2023, compared to 57.2% for the linked quarter and 58.0% for the second quarter of 2022.

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

Peoples recorded income tax expense of $6.2 million with an effective tax rate of 22.6% for the second quarter of 2023, compared to income tax expense of $7.0 million with an effective tax rate of 21.0% for the linked quarter, and income tax expense of $6.8 million with an effective tax rate of 21.6% for the second quarter of 2022.

Income tax expense for the second quarter of 2023 compared to the linked quarter and the second quarter of 2022, decreased due to less net income before income taxes.

The effective rate increase for the second quarter of 2022 was primarily due to the Limestone Merger.

Peoples recorded income tax expense of $13.2 million with an effective tax rate of 21.7% in the first six months of 2023 and $12.8 million with an effective tax rate of 20.9% in the first six months of 2022.

The increase was driven by higher pre-tax income.

At June 30, 2023, total assets were $8.79 billion, compared to $7.31 billion at March 31, 2023, $7.21 billion at December 31, 2022 and $7.28 billion at June 30, 2022.

Total assets at June 30, 2023 increased compared to all prior periods due to $1.51 billion of assets, primarily loans, acquired in the Limestone Merger.

Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance at June 30, 2023 increased $146.4 million, compared to at March 31, 2023 or 12% annualized, primarily due to increases of (i) $71.3 million in construction loans, (ii) $25.3 million in commercial and industrial loans, (iii) $23.1 million in leases and (iv) $22.9 million in other commercial real estate loans.

Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance at June 30, 2023 increased $199.0 million, or 9% annualized, compared to at December 31, 2022 driven by increases of $80.4 million, $56.6 million, $32.7 million, $24.9 million and $23.8 million in other commercial real estate loans, construction loans, leases, indirect consumer loans and commercial and industrial loans, respectively.

These increases were partially offset by a decrease of $16.3 million in consumer residential real estate loans.

The increase from December 31, 2022 was also impacted by an increase in held-to-maturity investment securities as 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.

Excluding the loans acquired in the Limestone Merger, period-end loan and lease balance at June 30, 2023 increased $330.2 million, or 7% annualized, compared to at June 30, 2022 primarily due to increases of $101.0 million, $91.3 million, $63.3 million, $58.0

million and $43.9 million in construction loans, indirect consumer loans, leases, commercial and industrial loans and other commercial real estate loans, respectively.

These increases were partially offset by a reduction of $36.0 million in consumer residential real estate loans.

Total liabilities were $7.79 billion at June 30, 2023, up from $6.49 billion at March 31, 2023, $6.42 billion at December 31, 2022 and $6.49 billion at June 30, 2022.

The increases in total liabilities were primarily due to $1.14 billion of liabilities, primarily deposits, acquired from Limestone.

Excluding the deposits acquired in the Limestone Merger, deposits at June 30, 2023 increased $88.6 million compared to at March 31, 2023, primarily due to increases of $241.4 million in brokered CDs, which are primarily used as a source of funding, and $139.2 million in retail CDs, partially offset by decreases of $133.9 million, $59.9 million, $50.0 million and $41.1 million in non-interest bearing deposits, savings accounts, governmental deposit accounts, and interest-bearing demand deposit accounts, respectively.

Excluding the deposits acquired in the Limestone Merger, deposits at June 30, 2023 increased $160.1 million compared to at December 31, 2022, primarily due to increases of $389.0 million in brokered CDs and of $231.1 million in retail CDs, partially offset by decreases of $168.3 million, $103.8 million, $116.1 million and $26.6 million in non-interest bearing deposits, savings accounts, interest-bearing demand deposit accounts and governmental deposit accounts, respectively.

Excluding deposits acquired in the Limestone Merger, deposits decreased $52.1 million compared to June 30, 2022.

The decrease was primarily driven by decreases of $240.7 million, $128.7 million, $115.3 million, $98.9 million and $73.4 million in non-interest bearing deposits, governmental deposit accounts, savings accounts, interest-bearing demand deposit accounts and money-market deposit accounts, respectively.

Partially offsetting these decreases in deposit balances, excluding the deposits acquired in the Limestone Merger, were increases of $427.9 million in brokered CDs and of $177.1 million in retail CDs.

Total stockholders' equity at June 30, 2023 increased by $179.4 million, $213.6 million and $212.1 million compared to at March 31, 2023, at December 31, 2022 and at June 30, 2022, primarily due to 6.8 million common shares issued in the Limestone Merger.

The increase when compared to March 31, 2023 was also impacted by net income for the second quarter of 2023 of $21.1 million, partially offset by an increase in accumulated other comprehensive loss of $7.9 million and dividends paid of $13.4 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.

Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $121.5 million and $112.7 million at June 30, 2023 and at March 31, 2023, respectively.

The increase in total stockholders' equity at June 30, 2023 when compared to at December 31, 2022 was also impacted by net income for the first six months of 2023 of $47.7 million and a decrease in accumulated other comprehensive loss of $8.2 million, partially offset by dividends paid of $24.1 million.

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

The increase in total stockholders' equity at June 30, 2023 when compared to at June 30, 2022 was also impacted by net income of $100.5 million in the last twelve months, partially offset by dividends paid of $45.6 million and an increase in accumulated other comprehensive loss of $25.6 million.

The increase in accumulated other comprehensive loss was the result of an increase of $27.8 million in unrealized losses related to the available-for-sale investment securities portfolio from June 30, 2022 to June 30, 2023.

Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $93.6 million at June 30, 2023.

RESULTS OF OPERATIONS

2 unchanged sentences

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

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

FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended corporate income tax rate of 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.

Net interest margin, which is calculated by dividing fully tax-equivalent ("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 23.6% for the three months and the six months ended June 30, 2023 and 23.3% for the three months ended March 31, 2023 and for the three months and the six months ended June 30, 2022.

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

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

1 unchanged sentence

Taxable equivalent adjustment 446 399 414 845 806

Fully tax-equivalent net interest income $ 73,277 $ 71,025 $ 54,701

FTE net interest income $ 85,299 $ 73,277 $ 61,882 $ 158,576 $ 116,584

The following tables detail Peoples’ average balance sheets for the periods presented:

For the Three Months Ended

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

June 30, 2023 March 31, 2023 June 30, 2022

( Dollars in thousands)

29 unchanged sentences

Money market accounts 679,123 2,006 1.18 % 583,574 825 0.57 % 641,066 104 0.07 %

Retail certificates of deposit 576,645 1,750 1.23 % 534,145 717 0.53 % 626,978 871 0.56 %

Brokered deposits (e) 224,325 1,704 3.08 % 87,934 515 2.32 % 91,531 512 2.27 %

Retail CDs 825,155 4,209 2.05 % 576,645 1,750 1.23 % 602,225 747 0.50 %

Brokered CDs (e) 480,640 4,743 3.96 % 224,325 1,704 3.08 % 87,006 532 2.45 %

Total interest-bearing deposits

6 unchanged sentences

Long-term notes payable 44,493 548 4.94 % 50,656 653 5.16 % 80,397 904 4.49 %

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

Other long-term borrowings (f) 53,779 1,094 8.05 % 13,806 296 8.58 % 13,700 152 4.39 %

Total long-term borrowings 132,091 1,847 5.56 % 98,477 1,153 4.69 % 152,595 1,313 3.44 %

9 unchanged sentences

Net interest margin (b) 4.54 % 4.53 % 3.84 %

For the Six Months Ended

June 30, 2023 June 30, 2022

( Dollars in thousands)

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

Short-term investments $ 47,008 $ 1,061 4.55 % $ 256,864 $ 459 0.36 %

Investment securities (a)(b):

Taxable 1,635,773 23,866 2.92 % 1,490,960 13,110 1.76 %

Nontaxable 195,562 2,775 2.84 % 198,716 2,661 2.68 %

Total investment securities 1,831,335 26,641 2.91 % 1,689,676 15,771 1.87 %

Loans (b)(c):

Construction 300,270 10,454 6.92 % 217,705 4,371 3.99 %

Commercial real estate, other 1,538,771 48,034 6.21 % 1,357,792 30,381 4.45 %

Commercial and industrial 975,633 34,179 6.97 % 876,242 16,738 3.80 %

Premium finance 151,244 4,809 6.32 % 138,359 2,942 4.23 %

Leases 350,845 19,918 11.29 % 225,667 16,643 14.67 %

Residential real estate (d) 881,514 20,535 4.66 % 901,201 19,092 4.24 %

Home equity lines of credit 184,337 6,622 7.24 % 165,649 3,360 4.09 %

Consumer, indirect 646,045 15,173 4.74 % 532,501 10,288 3.90 %

Consumer, direct 116,377 3,985 6.91 % 108,934 3,242 6.00 %

Total loans 5,145,036 163,709 6.35 % 4,524,050 107,057 4.72 %

Allowance for credit losses

(53,052) (58,026)

Net loans 5,091,984 163,709 6.41 % 4,466,024 107,057 4.78 %

Total earning assets 6,970,327 191,411 5.48 % 6,412,564 123,287 3.84 %

Goodwill and other intangible assets 356,470 316,753

Other assets 465,782 364,911

$ 7,792,579 $ 7,094,228

Interest-bearing deposits:

Savings accounts $ 1,071,174 $ 719 0.14 % $ 1,063,490 $ 79 0.01 %

Governmental deposit accounts

666,683 3,396 1.03 % 687,620 919 0.27 %

Interest-bearing demand accounts

1,142,648 712 0.13 % 1,174,526 207 0.04 %

Money market accounts 632,561 2,831 0.90 % 645,644 201 0.06 %

Retail CDs 702,809 5,959 1.71 % 614,533 1,617 0.53 %

Brokered CDs (e) 353,760 6,447 3.68 % 89,256 1,044 2.36 %

Total interest-bearing deposits

4,569,635 20,064 0.89 % 4,275,069 4,067 0.19 %

Borrowed funds:

Short-term FHLB advances (e) 382,677 9,251 4.87 % 54,420 550 2.04 %

Repurchase agreements and other 99,966 520 1.04 % 97,960 49 0.10 %

Total short-term borrowings 482,643 9,771 4.08 % 152,380 599 0.79 %

Long-term FHLB advances 33,916 409 2.43 % 72,001 563 1.58 %

Long-term notes payable 47,557 1,201 5.05 % 55,228 1,202 4.35 %

Other long-term borrowings (f) 33,902 1,390 8.15 % 13,683 272 3.94 %

Total long-term borrowings 115,375 3,000 5.24 % 140,912 2,037 2.90 %

Total borrowed funds 598,018 12,771 4.30 % 293,292 2,636 1.80 %

Total interest-bearing liabilities

5,167,653 32,835 1.28 % 4,568,361 6,703 0.29 %

Non-interest-bearing deposits 1,598,985 1,627,480

Other liabilities 149,075 85,431

Total liabilities 6,915,713 6,281,272

Total stockholders’ equity 876,866 812,956

Total liabilities and stockholders’ equity $ 7,792,579 $ 7,094,228

Interest rate spread (b) $ 158,576 4.20 % $ 116,584 3.55 %

Net interest margin (b) 4.53 % 3.63 %

(a) Average balances are based on carrying value.

(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.

(b) Interest income and yields are presented on a FTE basis, using a 23.6% blended corporate income tax rate for the three months and the six months ended June 30, 2023 and 23.3% for the three months ended March 31, 2023 and for the three months and the six months ended June 30, 2022.

3 unchanged sentences

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

(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, 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.

(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 CDs for the periods presented in which FHLB advances and brokered CDs were being utilized.

(f) Included in other long-term borrowings are trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures.

Peoples' average balances compared to prior periods have been impacted by recent acquisitions, including the Limestone Merger as of the close of business on April 30, 2023, which added to average loan, deposit and borrowed funds balances.

Peoples' cash balances have increased primarily due to the increases in market interest rates which have increased asset yields and deposit outflows (which have increased borrowings), as well as the Limestone Merger.

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

Three Months Ended March 31, 2023 Compared to

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

Three Months Ended June 30, 2023 Compared to

Six Months Ended June 30, 2023 Compared to

(Dollars in thousands) March 31, 2023 June 30, 2022 June 30, 2022

Increase (decrease) in:

1 unchanged sentence

Rate Volume Total (a)

INTEREST INCOME:

20 unchanged sentences

Money market accounts 1,020 161 1,181 1,895 7 1,902 2,642 (12) 2,630

Retail certificates of deposit 974 59 1,033 1,355 (476) 879

Brokered deposits 206 983 1,189 236 956 1,192

Retail CDs 1,481 978 2,459 3,090 372 3,462 4,078 264 4,342

Brokered CDs 502 2,537 3,039 446 3,765 4,211 792 4,611 5,403

Total deposit cost 4,948 3,794 8,742 8,306 4,083 12,389 11,244 4,753 15,997

4 unchanged sentences

Total interest expense 5,655 4,638 10,293 10,685 7,291 17,976 13,342 12,790 26,132

Fully tax-equivalent net interest income $ 5,989 $ (3,737) $ 2,252 $ 13,887 $ 4,689 $ 18,576

FTE net interest income $ 1,197 $ 10,822 $ 12,019 $ 10,266 $ 13,148 $ 23,414 $ 22,416 $ 19,576 $ 41,992

(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 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 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.

Compared to the linked quarter, net interest income increased 16% and net interest margin expanded by 1 basis point.

The increase in net interest income was primarily due to net interest income provided by Limestone following the Limestone Merger and increases in market interest rates.

Net interest margin was 4.54% for the second quarter of 2023, compared to 4.53% for the linked quarter.

The increase in net interest margin was primarily driven by the accretion on the acquired Limestone portfolio as well as increases in market interest rates.

Partially offsetting this benefit was a shift in the composition of funding sources combined with an increase in market interest rates for deposits and other funding sources.

Net interest income for the second quarter of 2023 grew 38% over the prior year quarter and net interest margin increased by 70 basis points.

The increase in net interest income compared to the second quarter of 2022 was driven by increases in market interest rates, the Limestone Merger, and organic growth.

Compared to the prior year quarter, loan yields grew 161 basis points due to the rising market interest rate environment and both acquisitive and organic growth, while borrowing costs increased 250 basis points as a result of the increase in long-term borrowings due primarily to a change in the composition of borrowings, and were also impacted by increases in market interest rates.

For the first half of 2023, net interest income and net interest margin grew 36% and 90 basis points, respectively, compared to 2022.

During that same time, loan yields increased 163 basis points, which was partially offset by higher borrowing costs.

The increase in net interest income was driven by increases in market interest rates and the additional net interest income provided by Limestone following the Limestone Merger.

Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $0.6 million during the second quarter of 2022 along with $79,000 of interest earned on PPP loans.

The interest income recognized on PPP loans added 2 basis points to net interest margin for the second quarter of 2022.

For the first half of 2022, interest income recognized on deferred loan fees/costs related to PPP loans was $1.8 million, and interest earned was $232,000.

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

Accretion income, net of amortization expense, from acquisitions was $4.5 million for the second quarter of 2023, $2.0 million for the linked quarter and $3.9 million for the second quarter of 2022, which added 24 basis points, 13 basis points and 25 basis points, respectively, to net interest margin.

The increases in accretion income for the second quarter of 2023 when compared to the linked quarter and the second quarter of 2022 were driven by accretion from the Limestone Merger.

For the first half of 2023, accretion income totaled $6.5 million and added 18 basis points to net interest margin compared to $6.7 million and 21 basis points for the first half of 2022.

The decrease in accretion income for the first six months of 2023 compared to the first six months of 2022 was due to more accretion in 2022 from the acquisitions of Vantage and NSL and the Premier Merger in 2021, as compared to accretion primarily from the Limestone Merger in 2023.

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

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

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.

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.

During the first quarter of 2023, Peoples recorded a provision for credit losses of $1.9 million, which 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.

The recovery of credit losses recorded during the second quarter of 2022 was driven by an improvement in economic factors and loss drivers within the CECL model.

For the first half of 2023, the provision for credit losses was driven by (i) the addition of the provision for the non-purchased credit deteriorated loans acquired in the Limestone Merger, (ii) loan growth and (iii) economic forecast deterioration, partially offset by a reduction in the reserves for individually analyzed loans and the use of updated loss drivers.

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

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

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

5 unchanged sentences

Net loss on asset disposals and other transactions $ (1,665) $ (246) $ (152) $ (1,911) $ (279)

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.

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

The net loss on asset disposals and other transactions increased in the second quarter of 2023 when compared to the linked quarter and the prior year second quarter, and increased for the first six months of 2023, when compared to the first six months of 2022.

During the second quarter of 2023 Peoples recognized a $1.6 million write-down of an OREO property due to the potential sale of the property.

The first six months of 2022 were impacted by a net loss on other transactions primarily driven by an adjustment to the gain on sale of loans recognized in the fourth quarter of 2021, due to a measurement period adjustment to the acquisition-date fair value of Premier loans acquired 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 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.

Total non-interest income, excluding net gains and losses, comprised 21% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the second quarter of 2023, compared to 23% and 24% for the linked quarter and the second quarter of 2022, respectively.

For the first six months of 2023, total non-interest income, excluding net gains and losses, totaled 22% of total revenues compared to 26% for the first six months of 2022.

The decreases in these ratios for the second quarter and the first six months of 2023 when compared to prior periods were primarily due to higher net interest income associated with income from Limestone following the Limestone Merger, coupled with the increases in the market interest rates.

For the second quarter of 2023, 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 customers.

The following table details Peoples' e-banking income:

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

2 unchanged sentences

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

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

E-banking income increased for the second quarter of 2023 compared to each of the linked quarter and the prior year second quarter primarily due to additional income provided by Limestone.

E-banking income for the first half of 2023 was also impacted by increased customer activity when compared to the same period in 2022.

The following table details Peoples' insurance income:

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

Life and health insurance commissions

535 564 506 1,099 956

Other fees and charges

74 82 92 156 164

Insurance income $ 4,004 $ 5,425 $ 3,647 $ 9,429 $ 8,377

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' insurance income for the second quarter of 2023 declined 26% when compared to that for the linked quarter.

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

Compared to the second quarter of 2022, insurance income increased 10% and was driven by higher performance-based property and casualty insurance commissions.

Insurance income in the first half of 2023 increased 13% when compared to the first half of 2022 due to higher commissions and additional customers.

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

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

3 unchanged sentences

Trust and investment income $ 4,414 $ 4,084 $ 4,246 $ 8,498 $ 8,522

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.

Fiduciary income and brokerage income increased slightly in the second quarter of 2023 relative to the linked quarter and the second quarter of 2022, due to an increase in assets under administration and management.

For the first half of 2023, trust and investment income declined when compared to the same period in 2022 due to less fiduciary income, primarily reflecting market volatility.

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

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

(Dollars in thousands)

3 unchanged sentences

Quarterly average $ 3,205,186 $ 3,076,285 $ 2,965,985 $ 2,844,181 $ 2,927,405

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.

The increases in assets under administration and management at June 30, 2023, compared to at March 31, 2023 and at June 30, 2022 were driven by an increase in trust assets and market value fluctuations.

During the first quarter of 2023, brokerage assets increased $30 million due to the 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

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

5 unchanged sentences

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

Deposit account service charges 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.

Deposit account service charges increased for the second quarter of 2023 compared to the linked quarter and prior year second quarter due to additional fee income from Limestone customers.

Year to date deposit account service charges also increased for the first six months of 2023 compared to the same period of 2022 due to increased maintenance fee rates.

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

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

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.

The second quarter of 2023 increase in lease income when compared to the linked quarter was due to residual sales and month-to-month lease income.

The first quarter of 2023 was also impacted by seasonal fluctuations in syndication income.

The second quarter and first six months of 2023 increases in lease income when compared to the same periods of 2022 were due to increases in lease income from Vantage.

Bank owned life insurance income for the second quarter of 2023 increased compared to the linked quarter and the second quarter of 2022 due to additional income from Limestone.

The first half of 2023 increase in bank owned life insurance income when compared to the first half of 2022 was also due to additional investments in bank owned life insurance.

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 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.

Mortgage banking income for the second quarter of 2023 and first six months of 2023 declined when compared to the presented prior periods primarily due to the rising market interest rate environment.

In the second quarter of 2023, Peoples sold $1.1 million in loans into the secondary market with servicing retained and $6.1 million in loans with servicing released, compared to $0.8 million and $7.4 million, respectively, in the first quarter of 2023, and $4.6 million and $6.1 million, respectively, in the second quarter of 2022.

For the first six months of 2023, Peoples sold $1.9 million in loans into the secondary market with servicing retained, and $13.5 million with servicing released, compared to $33.0 million and $17.4 million, respectively, for the first six months of 2022.

Non-Interest Expense

1 unchanged sentence

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

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

9 unchanged sentences

Average during the period 1,393 1,283 1,255 1,305 1,241

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.

Base salaries and wages for the second quarter of 2023 and the first half of 2023 increased compared to the comparative prior periods primarily due to $5.0 million of acquisition-related expenses related to the Limestone Merger and $2.1 million of additional expenses from Limestone employees in the second quarter of 2023.

Base salaries and wages for the first half of 2023 also increased when compared to the same period of 2022 due to a rise in annual merit increases as well as a full six months of expenses related to the additional salaries associated with the acquisition of Vantage compared to four months of expenses in the first half of 2022.

The decrease in employee benefits for the second quarter of 2023 compared to the linked quarter, was primarily due to annual contributions to employee health savings accounts that occur for the most part in the first quarter of each year.

The increases in employee benefits for the second quarter of 2023 and the first half of 2023 compared to the second quarter of 2023 and the first half of 2022 were primarily due to the addition of Limestone employee benefits expenses.

The increase in employee benefits for the first half of 2023 compared to the first half of 2022 was also due to higher medical costs reflecting a full six months of expenses in 2023 for the Vantage employees versus four months of expenses in the first half of 2022.

The increases in sales-based and incentive compensation for the second quarter of 2023 and the first half of 2023 compared to the comparative prior periods presented were primarily due to the overall company performance measures used in calculating incentive awards.

Payroll taxes and other employment costs for the second quarter of 2023 decreased compared to the linked quarter due to seasonal expenses recognized in the first quarter of each year.

The increases for the three months and the six months ended June 30, 2023 when compared to the three months and the six months ended June 30, 2022 were primarily due to $0.2 million of additional Limestone-related expenses and $0.1 million of acquisition-related expenses in the second quarter of 2023.

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.

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 common share 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 and are generally contingent on employment through the vesting period.

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.

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 based upon Peoples achieving certain performance goals during the prior year, and are generally contingent on employment through the vesting period.

Stock-based compensation for the second quarter of 2023 and the first six months of 2023 increased when compared to the second quarter of 2022 and the first six months of 2022 due to additional employees, including the ones added in the Limestone Merger and 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 prior period adjustment of costs to originate leases.

The increase in deferred personnel costs for the second quarter of 2023 compared to the linked quarter was primarily due to a prior period adjustment of costs to originate leases in the first quarter of 2023.

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

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

Net occupancy and equipment expense $ 5,380 $ 4,955 $ 4,768 $ 10,335 $ 9,856

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 second quarter and the first six months of 2023 net occupancy and equipment expense increased when compared to the comparative periods in 2022 due to $0.4 million of Limestone-related net occupancy and equipment expense recorded during the second quarter of 2023.

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

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

Data processing and software expense $ 4,562 $ 5,013 $ 2,916

Professional fees $ 7,438 $ 2,881 $ 2,280 $ 10,319 $ 5,952

Data processing and software expense 4,728 4,562 3,033 9,290 5,949

Amortization of other intangible assets 2,800 1,871 2,034 4,671 3,742

E-banking expense 1,832 1,491 2,727 3,323 5,486

Franchise tax expense 1,034 546 764

Marketing expense 930 737 995

FDIC insurance premiums 1,464 801 1,018 2,265 2,212

Other loan expenses 739 947 832

Marketing expense 1,357 930 860 2,287 1,855

Franchise tax expense 872 1,034 1,102 1,906 1,866

Communication expense 724 613 649 1,337 1,274

Other loan expenses 538 739 445 1,277 1,277

Other non-interest expense 5,465 4,574 3,398 10,039 6,745

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.

Professional fees for the second quarter and the first six months of 2023 increased when compared to the comparative prior periods in 2022 due to $4.8 million and $5.1 million of acquisition-related expenses during the second quarter and first six months of 2023, respectively.

Data processing and software expense for the second quarter of 2023 increased when compared to the linked quarter due to $0.7 million of data processing and software expenses attributable to Limestone.

Data processing and software expense for the second quarter and the first half of 2023 increased when compared to the second quarter and first half of 2022, driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

Amortization of other intangible assets for the second quarter and the first six months of 2023 increased when compared to the comparative prior periods in 2022 due to $0.9 million of Limestone-related expenses during the second quarter of 2023.

Peoples' e-banking expense is comprised of costs associated with debit and ATM cards.

E-banking expense increased during the second quarter of 2023 compared to the linked quarter, and is correlated to e-banking income, which also increased during the second quarter of 2023 from the linked quarter primarily due to additional customers added from the Limestone Merger.

E-banking expense decreased for the second quarter and first six months of 2023 when compared to the same periods of 2022 due to a decline in customer activity in 2023 compared to 2022, as well as reduced costs for Peoples' online banking platform, and a reclassification of those costs relative to the prior period.

Peoples' FDIC insurance premiums for the second quarter and the first six months of 2023 increased when compared to the comparative prior periods in 2022 due to organic and acquisitive growth and an increase in rates assessed by the FDIC.

The first six months of 2022 was also impacted by an adjustment in the first quarter of 2022 relating to prior acquisitions.

Marketing expense and communication expense for the second quarter and the first half of 2023 increased when compared to the comparative prior periods in 2022 due to the Limestone Merger.

There were additional marketing expenses in 2023 due to additional marketing campaigns to promote the Limestone Merger and $0.1 million of Limestone-related marketing expenses during the second quarter of 2023.

Limestone added $0.1 million of communication expense in the second quarter of 2023.

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

Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio.

Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is

imposed on financial institutions organized for profit and doing business in Ohio.

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

The increase versus the linked quarter was driven by a 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.

The decreases for the second quarter of 2023 versus the linked quarter and the second quarter of 2022 were driven by a refund received in the second quarter of 2023.

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

The second quarter of 2023 increase when compared to the second quarter of 2022 was due to Limestone-related expenses.

Other non-interest expense for the second quarter of 2023 and the first six months of 2023 increased when compared to the comparative prior periods in 2022 due to $0.6 million and $0.8 million of acquisition-related expenses, respectively, as well as $0.3 million of additional expenses from Limestone in the second quarter of 2023.

Income Tax Expense

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.

Peoples recorded income tax expense of $6.2 million with an effective tax rate of 22.6% for the second quarter of 2023, compared to income tax expense of $7.0 million with an effective tax rate of 21.0% for the linked quarter and income tax expense of $6.8 million with an effective tax rate of 21.6% for the second quarter of 2022.

Income tax expense for the second quarter of 2023 compared to the linked quarter and second quarter of 2022, decreased due to less income before income taxes.

The increase was driven by higher pre-tax income.

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

6 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

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

13 unchanged sentences

Pre-provision net revenue per common share - diluted $ 1.13 $ 1.34 $ 1.11 $ 2.45 $ 1.91

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.

The decrease in the PPNR for the second quarter of 2023 compared to the first quarter of 2023 was driven by increased non-interest expense, primarily due to the Limestone Merger, mostly offset by increased net interest income due to the positive impact of recent increases in market interest rates.

The increases in PPNR for the second quarter and the first half of 2023 when compared to the same periods in 2022 were due to increased net interest income reflecting the positive impact of recent increases in market interest rates as well as the additional net interest income from Limestone customers after the Limestone Merger.

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 and COVID-19-related expenses.

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

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

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

2 unchanged sentences

acquisition-related expenses 10,709 551 602 11,260 1,975

pension settlement charges — 46 —

COVID-19-related expenses — — 29 — 123

COVID-19 Employee Retention Credit 548 — — 548 —

Core non-interest expense $ 60,462 $ 55,928 $ 49,268 $ 116,390 $ 99,430

1 unchanged sentence

The efficiency ratio is a key financial measure used to monitor performance.

The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses.

This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.

The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of FTE net interest income plus total non-interest income excluding net gains and losses.

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

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

8 unchanged sentences

Net interest income 84,853 72,878 61,468 157,731 115,778

fully tax-equivalent adjustment (a) 399 412 391

Net interest income on a fully tax-equivalent basis 73,277 71,025 54,701

FTE adjustment (a) 446 399 414 845 806

Net interest income on a FTE basis 85,299 73,277 61,882 158,576 116,584

Adjusted revenue $ 108,145 $ 94,518 $ 81,464 $ 202,663 $ 156,213

5 unchanged sentences

Non-interest income excluding net gains and losses 22,846 21,241 19,582 44,087 39,629

Net interest income on a fully tax-equivalent basis 73,277 71,025 54,701

Net interest income on a FTE basis 85,299 73,277 61,882 158,576 116,584

Adjusted revenue $ 108,145 $ 94,518 $ 81,464 $ 202,663 $ 156,213

Efficiency ratio adjusted for non-core items 53.32 % 57.19 % 57.98 % 55.13 % 61.25 %

(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.

(a) Tax effect is calculated using a 23.6% blended corporate income tax rate for the three months and the six months ended June 30, 2023 and a 23.3% blended corporate income tax rate for the three months ended March 31, 2023 and the three months and the six months ended June 30, 2022.

The efficiency ratio increased for the second quarter of 2023 when compared to the first quarter of 2023 and the second quarter of 2022 primarily due to increases in acquisition-related expenses and additional non-interest expenses from Limestone, partially offset by increased net interest income driven by additional income from Limestone customers as well as increases in market interest rates.

The efficiency ratio for the first half of 2023 improved when compared the first half of 2022 due to increased net interest income driven by increases in the market interest rates and additional net interest income provided by Limestone after the Limestone Merger, partially offset by an increase in non-interest expenses due to the Limestone Merger.

The efficiency ratios adjusted for non-core items for the second quarter of 2023 and the first half of 2023 improved when compared to the comparative prior periods of 2022 due to increased net interest income driven by increases in the market interest rates and additional net interest income provided by Limestone after the Limestone Merger, partially offset by an increase in core non-interest expense due to the Limestone Merger.

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 and COVID-19-related expenses.

Three Months Ended

2023 December 31,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

2 unchanged sentences

net loss on investment securities

166 1,935 44 2,101 —

tax effect of net loss on investment securities (a)

35 406 9 441 —

net gain on investment securities

1 unchanged sentence

net loss on asset disposals and other transactions

1,665 246 152 1,911 279

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

349 52 32 401 59

acquisition-related expenses

1 unchanged sentence

tax effect of acquisition-related expenses (a)

pension settlement charges

tax effect of pension settlement charges (a)

2,249 116 126 2,365 415

COVID-19-related expenses — — 29 — 123

tax effect of COVID-19-related expenses (a) — — 6 — 26

COVID-19 Employee Retention Credit 548 — — 548 —

tax effect of COVID-19 Employee Retention Credit (a) 115 — — 115 —

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

20 unchanged sentences

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

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.

The return on average assets for the second quarter of 2023 decreased when compared to the linked quarter, due to an increase in average assets resulting from the Limestone Merger as well as a decrease in annualized net income due to increases in non-interest expenses.

The slight decrease in the return on average assets for the second quarter of 2023, compared to the second quarter of 2022, was attributable to the assets acquired in the Limestone Merger, mostly offset by a decrease in annualized net income due to higher non-interest expenses and a provision for credit losses compared to a recovery of credit losses in the second quarter of 2022.

The return on average assets for the first half of 2023 decreased when compared to the first half of 2022, due to an increase in average assets and higher non-interest expenses and a provision for credit losses compared to a recovery of credit losses in the first half of 2022.

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

2 unchanged sentences

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,

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

tax effect of amortization of other intangible assets (a)

588 393 427 981 786

Net income excluding amortization of other intangible assets

1 unchanged sentence

Days in the period

91 90 91 181 181

Days in the year

365 365 365 365 365

Annualized net income

24 unchanged sentences

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

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.

The return on total average stockholders' equity and average tangible equity ratios were lower in the second quarter of 2023 and the first half of 2023 relative to the comparative prior periods in 2022 due to issuance of 6.8 million common shares as consideration in the Limestone Merger, an increase in acquisition-related expenses, and an increase in the provision for credit losses due to the initial provision for the non-purchased credit deteriorated loans acquired from Limestone.

Factors that partially offset the decreases in the ratios were an increase in total net interest income driven by the recent increases in market interest rates and additional net interest income from Limestone following the Limestone Merger.

FINANCIAL CONDITION

Cash and Cash Equivalents

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.

At June 30, 2023, Peoples' interest-bearing deposits in other banks had decreased $3.0 million from December 31, 2022.

The total cash and cash equivalents balance included $50.7 million of excess cash reserves being maintained at the FRB of Cleveland at June 30, 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 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.

Through the first six months of 2023, Peoples' total cash and cash equivalents decreased $5.5 million as Peoples used $51.2 million of cash in investing activities and $17.6 million of cash in financing activities, mostly offset by $63.2 million of cash provided by operating activities.

Peoples' use of cash in investing activities reflected cash outflows from a $184.2 million net increase in loans held for investment and net cash outflows from held-to-maturity investment securities of $113.7 million, partially offset by net cash inflows from available-for-sale investment securities of $169.8 million and $91.8 million of cash received in the Limestone Merger.

The cash used in financing activities was largely driven by (i) a net decrease in non-interest bearing deposits of $169.5 million, (ii) $24.3 million in cash dividends paid and (iii) $16.6 million in payments on long-term borrowings, which uses of cash were largely offset by a $178.4 million net increase in interest-bearing deposits.

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

1 unchanged sentence

The following table provides information regarding Peoples’ investment portfolio:

(Dollars in thousands) Weighted Average Yield March 31,

(Dollars in thousands) Weighted Average Yield June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Available-for-sale securities, at fair value:

21 unchanged sentences

Carrying value $ 1,870,943 $ 1,796,332 $ 1,743,220 $ 1,616,684 $ 1,709,973

(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.

(a) Amortized cost is presented net of the allowance for credit losses of $241 at June 30, 2023, $241 at December 31, 2022 and $286 at June 30, 2022.

For the second quarter of 2023, total investment securities increased compared to the linked quarter, largely due to available-for-sale securities acquired from Limestone in the Limestone Merger.

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.

3 unchanged sentences

The following table provides information regarding outstanding loan balances:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

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 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.

The increase in the period-end loan and lease balances were primarily driven by loans acquired in the Limestone Merger totaling $1.1 billion.

Excluding the loans acquired in the Limestone Merger, period-end loan and lease balances increased $146.4 million, or 12% annualized, when compared to at March 31, 2023, primarily due to increases of (i) $71.3 million in construction loans, (ii) $25.3 million in commercial and industrial loans, (iii) $23.1 million in leases and (iv) $22.9 million in other commercial real estate loans.

Excluding the loans acquired in the Limestone Merger, period-end loan and lease balances increased $199.0 million, or 9% annualized, when compared to at December 31, 2023, driven by increases of $80.4 million, $56.6 million, $32.7 million, $24.9 million and $23.8 million in other commercial real estate loans, construction loans, leases, indirect consumer loans and commercial and industrial loans, respectively.

These increases were partially offset by a decrease of $16.3 million in consumer residential real estate loans.

Excluding the loans acquired in the Limestone Merger, period-end loan and lease balances increased $330.2 million, or 7% annualized, when compared to at June 30, 2022 primarily due to increases of $101.0 million, $91.3 million, $63.3 million, $58.0 million and $43.9 million in construction loans, indirect consumer loans, leases, commercial and industrial loans and other commercial real estate loans, respectively.

These increases were partially offset by a reduction of $36.0 million in consumer residential real estate loans.

Loan Concentration

2 unchanged sentences

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

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

The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at June 30, 2023:

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

1 unchanged sentence

Apartment complexes $ 193,407 $ 217,650 $ 411,057 51.0 %

Mixed-use facilities 19,478 4,787 24,265 5.2 %

Residential property 19,864 36,511 56,375 6.9 %

Assisted living facilities and nursing homes 18,957 2,662 21,619 2.7 %

Land only 25,950 9,155 35,105 4.4 %

Office buildings and complexes 12,301 4,158 16,459 3.5 %

Retail facilities 29,315 2,783 32,098 4.0 %

Industrial 25,712 15,561 41,273 5.1 %

Land development 34,361 16,889 51,250 6.4 %

Other (a) 71,175 85,869 157,044 19.5 %

33 unchanged sentences

Total education services $ 49,155 $ 4,000 $ 53,155 2.4 %

Healthcare facilities:

Owner occupied 21,855 300 22,155 1.4 %

Non-owner occupied 9,518 — 9,518 0.6 %

Total healthcare facilities 31,373 300 31,673 2.0 %

Restaurant/bar facilities:

2 unchanged sentences

Total restaurant/bar facilities $ 69,974 $ 258 $ 70,232 3.3 %

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) 736,879 50,209 783,879 36.3 %

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 March 31, 2023 and December 31, 2022.

For all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at both June 30, 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.

2 unchanged sentences

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.

Loans made under the PPP are fully guaranteed by the U.S.

Small Business Administration (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.

3 unchanged sentences

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

PPP aggregate outstanding principal balances $ 1,418 $ 2,184 $ 2,458 $ 3,789 $ 15,582

5 unchanged sentences

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Construction $ 1,496 $ 1,273 $ 1,250 $ 1,464 $ 1,531

10 unchanged sentences

As a percent of total loans 1.02 % 1.12 % 1.13 % 1.15 % 1.14 %

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.

The increase in the allowance for credit losses at June 30, 2023 when compared to prior periods was driven by the establishment of an allowance for credit losses for loans acquired in the Limestone Merger that were not considered purchased credit deteriorated.

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) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Gross charge-offs:

3 unchanged sentences

Premium finance 23 23 42 38 30

Three Months Ended

(Dollars in thousands) March 31,

2023 December 31,

2022 September 30,

2022 June 30,

2022 March 31,

Leases 604 469 888 731 493

6 unchanged sentences

Total gross charge-offs $ 2,041 $ 1,855 $ 2,481 $ 1,990 $ 1,951

Three Months Ended

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

2022 September 30,

2022 June 30,

Commercial real estate, other $ 16 $ 27 $ 33 $ 39 $ 176

22 unchanged sentences

Total net charge-offs $ 1,196 $ 1,544 $ 2,133 $ 1,688 $ 1,541

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

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

Construction — % — % — % — % — %

11 unchanged sentences

Each with "--%" not meaningful.

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.

Net charge-offs during the second quarter of 2023 were 0.09% of average total loans on an annualized basis.

The decrease for the second quarter of 2023 when compared to the linked quarter was driven by an increase in recoveries on commercial and industrial loans during the second quarter of 2023, partially offset by higher charge-offs on leases.

The decrease in net charge-offs during the second quarter of 2023 versus the prior year second quarter was primarily attributable to an increase in recoveries, partially offset by increases of charge-offs on indirect consumer loans and leases.

The following table details Peoples’ nonperforming assets:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Loans 90+ days past due and accruing:

40 unchanged sentences

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

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

NPLs in periods prior to March 31, 2023 also included 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.

Compared to at March 31, 2023, Peoples' NPAs decreased from 0.58% to 0.48% of total assets.

Total loans 90+ days past due and accruing increased at June 30, 2023 compared to at March 31, 2023, mostly due to increases in (i) leases, (ii) premium finance and (iii) residential real estate that were 90+ days past due.

During the second quarter of 2023, criticized loans increased $21.1 million, while classified loans increased $17.8 million when compared to at March 31, 2023.

The increases in the amounts of criticized loans and classified loans compared to at March 31, 2023 were primarily related to loans acquired in the Limestone Merger.

The following table details Peoples’ deposit balances:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Non-interest-bearing deposits (a) $ 1,682,634 $ 1,555,064 $ 1,589,402 $ 1,635,953 $ 1,661,865

2 unchanged sentences

Savings accounts 1,116,622 1,024,638 1,068,547 1,077,383 1,080,053

Retail certificates of deposit ("CDs") 622,091 530,236 544,741 584,259 612,936

Retail CDs 950,783 622,091 530,236 544,741 584,259

Money market deposit accounts 718,633 579,106 617,029 624,708 645,242

5 unchanged sentences

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

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.

At June 30, 2023, period-end deposit balances increased $1.2 billion, or 20%, compared to at March 31, 2023, primarily driven by deposits acquired in the Limestone Merger which included $821.3 million of interest-bearing deposits and $261.5 million of non-interest-bearing deposits.

Excluding Limestone deposit balances, deposits at June 30, 2023 increased $88.6 million compared to at March 31, 2023, primarily due to increases of $241.4 million in brokered CDs, which are primarily used as a source of funding, and of $139.2 million in retail CDs, partially offset by decreases of $133.9 million, $59.9 million, $50.0 million and $41.1 million in non-interest bearing deposits, savings accounts, governmental deposit accounts, and interest-bearing demand deposit accounts, respectively.

The decrease in governmental deposit accounts was due to the seasonality of the balances, which are typically higher in the first quarter and third quarter of each year.

Excluding Limestone deposit balances, period-end deposit balances at June 30, 2023 decreased $52.1 million compared to at June 30, 2022.

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.

The interest rate swaps pay a fixed rate of interest while receiving a floating rate component of interest equal to the three-month LIBOR rate through June 30, 2023, after which point three-month LIBOR shall cease publication, and Peoples will pay a fixed rate equal to term SOFR, which offsets the rate on the brokered CDs.

As of June 30, 2023, Peoples had twelve effective interest rate swaps, with an aggregate notional value of $115.0 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 interest rate swaps.

Peoples continually evaluates the overall balance sheet position given the interest rate environment.

Borrowed Funds

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

(Dollars in thousands) March 31,

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

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Short-term borrowings:

3 unchanged sentences

— — — 40,000 40,000

Current portion of long-term FHLB advances

— — — — 15,000

Retail repurchase agreements

7 unchanged sentences

41,963 47,864 53,147 55,781 74,622

Junior subordinated debt securities

Other long-term borrowings

47,861 13,824 13,788 13,753 13,717

3 unchanged sentences

$ 693,514 $ 586,299 $ 601,231 $ 237,807 $ 450,129

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 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.

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

Other long-term borrowings include trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures.

Total borrowed funds at June 30, 2023 increased compared to at March 31, 2023, due to higher overnight borrowings and an increase in other long-term borrowings assumed in the Limestone Merger.

Total short-term borrowings at June 30, 2023 increased when compared to at June 30, 2022 due to there being outstanding FHLB overnight borrowings of $444.0 million at June 30, 2023, while there were no FHLB overnight borrowings at June 30, 2022.

Capital/Stockholders’ Equity

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.

At June 30, 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 March 31, 2023, Peoples had a capital conservation buffer of 5.35%.

At June 30, 2023, Peoples had a capital conservation buffer of 4.92%.

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Capital Amounts:

8 unchanged sentences

Tier 1 leverage ratio 9.64 % 9.02 % 8.92 % 8.64 % 8.38 %

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.

Peoples' risk-risk based capital ratios deteriorated during the second quarter of 2023 when compared to at March 31, 2023 and at December 31, 2022 due to the impact of the intangible assets and the goodwill recognized for the Limestone Merger as well as dividends paid, partially offset by net income during the second quarter of 2023.

The common equity tier 1 risk-based capital ratio at June 30, 2023 decreased compared to at September 30, 2022 and at June 30, 2022 due to the common shares issued in the Limestone Merger.

Peoples' other risk-based capital ratios improved compared to at September 30, 2022 and at June 30, 2022 due to higher net income, the effect of which was partially offset by the impact as consideration in the Limestone Merger and dividends paid.

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

1 unchanged sentence

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.

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.

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

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

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

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

1 unchanged sentence

2022 June 30,

2022 March 31,

Tangible equity:

25 unchanged sentences

7.00 % 7.08 % 6.67 % 6.47 % 6.60 %

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.

Tangible book value per common share decreased to $16.56 at June 30, 2023, compared to $17.37 at March 31, 2023.

The change in tangible book value per common share was due to the 6.8 million common shares issued as consideration in the Limestone Merger.

Tangible book value per common share at June 30, 2023 increased compared to at June 30, 2022 primarily due to net income over the last twelve months, which was partially offset by an increase in accumulated other comprehensive loss as well as the impact of the common shares issued in the Limestone Merger mentioned above.

Interest Rate Sensitivity and Liquidity

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Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples.

IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities.

IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and financial liabilities.

Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities.

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Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR.

The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2022 Form 10-K.

In light of recent bank failures, Peoples revisited the model assumptions, and determined the methods used by the ALCO to assess IRR remain appropriate and are largely unchanged from those disclosed in Peoples' 2022 Form 10-K.

The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands):

Increase (Decrease) in Interest Rate Estimated Increase (Decrease) in

Net Interest Income

Estimated Decrease in Economic Value of Equity

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

Increase (Decrease) in Interest Rate Estimated (Decrease) Increase in

Net Interest Income Estimated (Decrease) Increase in Economic Value of Equity

(in Basis Points) June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

300 $ (128) — % $ 13,000 4.4 % $ (176,587) (10.4) % $ (82,959) (5.4) %

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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 March 31, 2023, consideration of the bear steepener and bear flattener scenarios provide insights which were not captured by parallel shifts.

Given the shape of market yield curves at June 30, 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 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%.

At June 30, 2023, the bear steepener scenario produced an increase in net interest income of 0.10% and a decline in the economic value of equity of 1.70%.

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.

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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.

At June 30, 2023, the bear flattener scenario produced a decline of 1.10% to net interest income and a decline in the economic value of equity of 1.60%.

As of June 30, 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 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.

As of June 30, 2023, this inversion scenario would have resulted in a decline of 1.1008% to net interest income and a decrease in the economic value of equity of 1.60%.

Peoples was within its policy limitations for this alternative scenario as of June 30, 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 March 31, 2023, Peoples had entered into thirteen interest rate swap contracts with an aggregate notional value of $125.0 million.

As of June 30, 2023, Peoples had entered into twelve interest rate swap contracts with an aggregate notional value of $115.0 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 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.

At June 30, 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 March 31, 2023, Peoples Bank had liquid assets of $318.0 million, which represented 3.9% of total assets and unfunded loan commitments.

In light of recent bank failures, Peoples revisited the model assumptions, and determined the methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain appropriate and are largely unchanged from those disclosed in Peoples' 2022 Form 10-K.

At June 30, 2023, Peoples Bank had liquid assets of $264 million, which represented 2.7% of total assets and unfunded loan commitments.

Peoples also had an additional $237 million of unpledged investment securities not included in the measurement of liquid assets.

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(Dollars in thousands)

2023 March 31,

2023 December 31,

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2022 June 30,

2022 March 31,

Home equity lines of credit $ 208,805 $ 201,692 $ 197,995 $ 194,685 $ 188,803

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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