PEOPLES BANCORP INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the 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. Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions. These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, but are not limited to: (1) ongoing increasing interest rate policies, changes in the interest rate environment due to economic conditions and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Federal Reserve Board, including changes in the Federal Funds Target Rate, in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity; (2) the effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay; (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) 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. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and U.S. global trading partners) and the impact these conditions may have on Peoples, Peoples' customers and Peoples' counterparties, and Peoples' assessment of the impact, which may be different than anticipated; (9) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; (10) changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of recent inflationary pressures and adversely impact the amount of interest income generated; (11) Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral; (12) future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses; 43 Table of Contents (13) changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations; (14) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model; (15) the replacement of the LIBOR with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; (16) adverse changes in the conditions and trends in the financial markets, including recent inflationary pressures, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities; (17) the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; (18) Peoples' ability to receive dividends from Peoples' subsidiaries; (19) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (20) the impact of larger or similar-sized financial institutions encountering problems, 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; (24) operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and Peoples' subsidiaries are highly dependent; (25) changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated; (26) the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business; (27) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence; (28) the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics, cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts; (29) the potential further deterioration of the U.S. economy due to financial, political or other shocks; (30) the potential influence on the U.S. financial markets and economy from the effects of climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs; (31) the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property; (32) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets; (33) Peoples' ability to integrate the Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; 44 Table of Contents (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; (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; and (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, 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. Peoples encourages readers of this Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Peoples undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the filing of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section. All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. 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 The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations. Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking, including through its Limestone division. Peoples offers a complete array of insurance products through Peoples Insurance, a subsidiary of Peoples Bank. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division. Peoples also offers lease financing through its North Star Leasing division and through Vantage, a subsidiary of Peoples Bank. As of June 30, 2023, Peoples had 150 locations, including 129 full-service bank branches in Ohio, Kentucky, West Virginia, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the FRB of Cleveland and the FDIC. Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business. Critical Accounting Policies The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant accounting policies. Management has identified the accounting 45 Table of Contents 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. Summary of Recent Transactions and Events The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition: ◦ On October 25, 2022, Peoples announced the 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 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 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. The impact of these transactions and events, where material, is discussed in the applicable sections of this MD&A. EXECUTIVE SUMMARY Peoples reported net income of $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 $0.28 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. 46 Table of Contents 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 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. 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 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. 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 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. 47 Table of Contents 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 48 Table of Contents 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 $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 Net Interest Income Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities. Net interest margin, which is calculated by dividing 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Net interest income $ 84,853 $ 72,878 $ 61,468 $ 157,731 $ 115,778 Taxable equivalent adjustment 446 399 414 845 806 FTE net interest income $ 85,299 $ 73,277 $ 61,882 $ 158,576 $ 116,584 49 Table of Contents The following tables detail Peoples’ average balance sheets for the periods presented: For the Three Months Ended June 30, 2023 March 31, 2023 June 30, 2022 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 58,245 $ 673 4.63 % $ 35,223 $ 388 4.47 % $ 182,456 $ 299 0.66 % Investment securities (a)(b): Taxable 1,673,441 12,817 3.06 % 1,597,688 11,049 2.77 % 1,515,647 7,014 1.85 % Nontaxable 200,503 1,477 2.95 % 190,566 1,298 2.72 % 193,112 1,344 2.78 % Total investment securities 1,873,944 14,294 3.05 % 1,788,254 12,347 2.76 % 1,708,759 8,358 1.96 % Loans (b)(c): Construction 358,732 6,491 7.16 % 239,492 3,963 6.62 % 209,822 2,216 4.18 % Commercial real estate, other 1,735,466 28,240 6.44 % 1,333,062 19,794 5.94 % 1,353,201 15,599 4.56 % Commercial and industrial 1,069,529 19,569 7.24 % 877,391 14,610 6.66 % 864,023 8,715 3.99 % Premium finance 154,557 2,659 6.81 % 147,895 2,150 5.81 % 143,898 1,778 4.89 % Leases 359,016 10,275 11.32 % 342,583 9,643 11.26 % 288,360 10,541 14.46 % Residential real estate (d) 921,012 10,818 4.70 % 839,822 9,717 4.63 % 888,809 9,326 4.20 % Home equity lines of credit 191,915 3,656 7.64 % 176,327 2,966 6.82 % 167,935 1,748 4.17 % Consumer, indirect 651,669 7,942 4.89 % 640,359 7,231 4.58 % 541,135 5,243 3.89 % Consumer, direct 123,899 2,246 7.27 % 108,488 1,739 6.50 % 111,541 1,647 5.92 % Total loans 5,565,795 91,896 6.55 % 4,705,419 71,813 6.12 % 4,568,724 56,813 4.94 % Allowance for credit losses (53,427) (52,669) (54,148) Net loans 5,512,368 91,896 6.62 % 4,652,750 71,813 6.19 % 4,514,576 56,813 5.00 % Total earning assets 7,444,557 106,863 5.70 % 6,476,227 84,548 5.23 % 6,405,791 65,470 4.06 % Goodwill and other intangible assets 387,055 325,545 329,243 Other assets 511,271 420,692 386,629 Total assets $ 8,342,883 $ 7,222,464 $ 7,121,663 Interest-bearing deposits: Savings accounts $ 1,095,713 $ 583 0.21 % $ 1,044,392 $ 136 0.05 % $ 1,076,028 $ 45 0.02 % Governmental deposit accounts 693,725 2,330 1.35 % 637,959 1,066 0.68 % 704,632 471 0.27 % Interest-bearing demand accounts 1,178,614 532 0.18 % 1,103,966 180 0.07 % 1,177,751 115 0.04 % Money market accounts 679,123 2,006 1.18 % 583,574 825 0.57 % 641,066 104 0.07 % 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 4,952,970 14,403 1.17 % 4,170,861 5,661 0.55 % 4,288,708 2,014 0.19 % Borrowed funds: Short-term FHLB advances (e) 387,543 4,938 5.11 % 377,578 4,314 4.63 % 53,846 237 1.77 % Repurchase agreements and other 106,018 376 1.42 % 93,848 143 0.61 % 96,589 24 0.10 % Total short-term borrowings 493,561 5,314 4.32 % 471,426 4,457 3.83 % 150,435 261 0.70 % Long-term FHLB advances 33,819 205 2.43 % 34,015 204 2.43 % 58,498 257 1.76 % Long-term notes payable 44,493 548 4.94 % 50,656 653 5.16 % 80,397 904 4.49 % 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 % Total borrowed funds 625,652 7,161 4.58 % 569,903 5,610 3.98 % 303,030 1,574 2.08 % Total interest-bearing liabilities 5,578,622 21,564 1.55 % 4,740,764 11,271 0.96 % 4,591,738 3,588 0.31 % Non-interest-bearing deposits 1,637,671 1,556,636 1,648,067 Other liabilities 175,152 123,599 90,457 Total liabilities 7,391,445 6,420,999 6,330,262 Total stockholders’ equity 951,438 801,465 791,401 Total liabilities and stockholders’ equity $ 8,342,883 $ 7,222,464 $ 7,121,663 Interest rate spread (b) $ 85,299 4.15 % $ 73,277 4.27 % $ 61,882 3.75 % Net interest margin (b) 4.54 % 4.53 % 3.84 % 50 Table of Contents 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 Total assets $ 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 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. (c) Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented. 51 Table of Contents (d) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income. (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 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: Rate Volume Total (a) Rate Volume Total (a) Rate Volume Total (a) INTEREST INCOME: Short-term investments $ (470) $ 755 $ 285 $ 1,602 $ (1,228) $ 374 $ 1,916 $ (1,314) $ 602 Investment Securities (b): Taxable 1,229 540 1,769 5,009 795 5,804 359 10,397 10,756 Nontaxable 105 70 175 83 45 128 107 7 114 Total investment income 1,334 610 1,944 5,092 840 5,932 466 10,404 10,870 Loans (b) : Construction 338 2,190 2,528 2,124 2,152 4,276 4,016 2,067 6,083 Commercial real estate, other 2,249 6,197 8,446 7,895 4,746 12,641 13,658 3,995 17,653 Commercial and industrial 1,639 3,320 4,959 8,578 2,276 10,854 15,541 1,900 17,441 Premium finance 403 106 509 741 140 881 1,572 295 1,867 Leases 66 566 632 (9,721) 9,455 (266) (9,850) 13,125 3,275 Residential real estate 194 907 1,101 1,189 303 1,492 2,702 (1,259) 1,443 Home equity lines of credit 394 296 690 1,626 282 1,908 2,848 414 3,262 Consumer, indirect 563 148 711 1,506 1,193 2,699 2,456 2,429 4,885 Consumer, direct 142 365 507 319 280 599 433 310 743 Total loan income 5,988 14,095 20,083 14,257 20,827 35,084 33,376 23,276 56,652 Total interest income $ 6,852 $ 15,460 $ 22,312 $ 20,951 $ 20,439 $ 41,390 $ 35,758 $ 32,366 $ 68,124 INTEREST EXPENSE: Deposits: Savings accounts $ 440 $ 7 $ 447 $ 537 $ 1 $ 538 $ 640 $ — $ 640 Governmental deposit accounts 1,166 98 1,264 1,922 (63) 1,859 2,569 (92) 2,477 Interest-bearing demand accounts 339 13 352 416 1 417 523 (18) 505 Money market accounts 1,020 161 1,181 1,895 7 1,902 2,642 (12) 2,630 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 Borrowed funds: Short-term borrowings 576 281 857 1,393 3,660 5,053 2,052 7,120 9,172 Long-term borrowings 131 563 694 986 (452) 534 46 917 963 Total borrowed funds cost 707 844 1,551 2,379 3,208 5,587 2,098 8,037 10,135 Total interest expense 5,655 4,638 10,293 10,685 7,291 17,976 13,342 12,790 26,132 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 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. 52 Table of Contents 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. 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 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. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this MD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity." Provision for (Recovery of) Credit Losses The following table details Peoples’ provision for (recovery of) credit losses: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Provision for (recovery of) other credit losses $ 7,751 $ 1,673 $ (1,135) $ 9,424 $ (8,141) Provision for checking account overdraft credit losses 232 180 355 412 554 Provision for (recovery of) credit losses $ 7,983 $ 1,853 $ (780) $ 9,836 $ (7,587) As a percentage of average total loans (a) 0.58 % 0.16 % (0.07) % 0.39 % (0.34) % (a) Presented on an annualized basis. The provision for (recovery of) credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. 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. 53 Table of Contents 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.” Net (Loss) Gain Included in Total Non-Interest Income Net (loss) gain includes net losses and net gains on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses and net gains for the periods presented: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Net (loss) gain on investment securities $ (166) $ (1,935) $ (44) $ (2,101) $ 86 Net loss on asset disposals and other transactions: Net loss on other assets (44) (229) (119) (273) (141) Net loss on OREO (1,613) (10) (33) (1,623) (34) Net loss on other transactions (8) (7) — (15) (104) 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 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 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 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 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: 54 Table of Contents Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 E-banking income $ 6,466 $ 5,443 $ 5,419 $ 11,909 $ 10,672 Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. E-banking income 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Property and casualty insurance commissions $ 3,360 $ 3,252 $ 3,039 $ 6,612 $ 5,901 Performance-based commissions 35 1,527 10 1,562 1,356 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 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Fiduciary income $ 2,046 $ 1,805 $ 1,999 $ 3,851 $ 3,964 Brokerage income 1,667 1,627 1,631 3,294 3,280 Employee benefit fees 701 652 616 1,353 1,278 Trust and investment income $ 4,414 $ 4,084 $ 4,246 $ 8,498 $ 8,522 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: June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 (Dollars in thousands) Trust $ 1,931,789 $ 1,803,887 $ 1,764,639 $ 1,682,334 $ 1,731,454 Brokerage 1,379,309 1,318,300 1,211,868 1,127,831 1,068,261 Total $ 3,311,098 $ 3,122,187 $ 2,976,507 $ 2,810,165 $ 2,799,715 Quarterly average $ 3,205,186 $ 3,076,285 $ 2,965,985 $ 2,844,181 $ 2,927,405 55 Table of Contents 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Overdraft and non-sufficient funds fees $ 2,276 $ 1,842 $ 2,019 $ 4,118 $ 3,921 Account maintenance fees 1,623 1,461 1,306 3,084 2,617 Other fees and charges 254 220 233 474 446 Deposit account service charges $ 4,153 $ 3,523 $ 3,558 $ 7,676 $ 6,984 The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges increased for the 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Lease income 1,719 1,077 431 2,796 1,206 Bank owned life insurance income 842 707 797 1,549 1,228 Mortgage banking income 189 314 352 503 788 Other non-interest income 1,059 668 1,133 1,727 1,852 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 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 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. 56 Table of Contents Non-Interest Expense Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Base salaries and wages $ 27,407 $ 20,332 $ 18,408 $ 47,739 $ 36,084 Employee benefits 3,622 4,115 3,321 7,737 6,942 Sales-based and incentive compensation 5,502 3,945 4,913 9,447 8,549 Payroll taxes and other employment costs 1,535 2,370 1,389 3,905 3,480 Stock-based compensation 1,043 2,189 600 3,232 2,205 Deferred personnel costs (1,084) (923) (1,046) (2,007) (1,946) Salaries and employee benefit costs $ 38,025 $ 32,028 $ 27,585 $ 70,053 $ 55,314 Full-time equivalent employees: Actual at end of period 1,500 1,286 1,261 1,500 1,261 Average during the period 1,393 1,283 1,255 1,305 1,241 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 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 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. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. The 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. 57 Table of Contents Peoples' net occupancy and equipment expense was comprised of the following: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Depreciation $ 1,876 $ 1,790 $ 1,770 $ 3,666 $ 3,593 Repairs and maintenance costs 1,334 1,261 1,245 2,595 2,625 Property taxes, utilities and other costs 1,182 1,157 997 2,339 2,197 Net rent expense 988 747 756 1,735 1,441 Net occupancy and equipment expense $ 5,380 $ 4,955 $ 4,768 $ 10,335 $ 9,856 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 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 FDIC insurance premiums 1,464 801 1,018 2,265 2,212 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 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 58 Table of Contents 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 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 $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. 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. Additional information regarding income taxes can be found in "Note 13. Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2022 Form 10-K. Pre-Provision Net Revenue (Non-US GAAP) Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Pre-provision net revenue: Income before income taxes $ 27,262 $ 33,606 $ 31,735 $ 60,868 $ 61,273 Add: provision for credit losses 7,983 1,853 — 9,836 — Add: loss on OREO 1,612 10 32 1,622 33 Add: loss on investment securities 166 1,935 44 2,101 44 Add: loss on other assets 45 229 119 274 141 Add: loss on other transactions 8 7 — 15 104 Less: recovery of credit losses — — 780 — 7,587 Less: gain on investment securities — — — — 130 Pre-provision net revenue $ 37,076 $ 37,640 $ 31,150 $ 74,716 $ 53,878 Total average assets $8,342,883 $7,222,464 $7,121,663 $7,792,579 $7,094,228 Pre-provision net revenue to total average assets (annualized) 1.78 % 2.11 % 1.75 % 1.93 % 1.53 % Weighted-average common shares outstanding - diluted 32,649,976 28,021,879 28,061,736 30,314,504 28,041,145 Pre-provision net revenue per common share - diluted $ 1.13 $ 1.34 $ 1.11 $ 2.45 $ 1.91 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. 59 Table of Contents 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, 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 Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Core non-interest expense: Total non-interest expense $ 70,623 $ 56,479 $ 49,899 $ 127,102 $ 101,528 Less: acquisition-related expenses 10,709 551 602 11,260 1,975 Less: COVID-19-related expenses — — 29 — 123 Add: COVID-19 Employee Retention Credit 548 — — 548 — Core non-interest expense $ 60,462 $ 55,928 $ 49,268 $ 116,390 $ 99,430 Efficiency Ratio (Non-US GAAP) The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of 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. The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Efficiency ratio: Total non-interest expense $ 70,623 $ 56,479 $ 49,899 $ 127,102 $ 101,528 Less: amortization of other intangible assets 2,800 1,871 2,034 4,671 3,742 Adjusted total non-interest expense 67,823 54,608 47,865 122,431 97,786 Total non-interest income 21,015 19,060 19,386 40,075 39,436 Less: net (loss) gain on investment securities (166) (1,935) (44) (2,101) 86 Less: net loss on asset disposals and other transactions (1,665) (246) (152) (1,911) (279) Total non-interest income excluding net gains and losses 22,846 21,241 19,582 44,087 39,629 Net interest income 84,853 72,878 61,468 157,731 115,778 Add: 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 Efficiency ratio 62.71 % 57.78 % 58.76 % 60.41 % 62.60 % Efficiency ratio adjusted for non-core items: Core non-interest expense $ 60,462 $ 55,928 $ 49,268 $ 116,390 $ 99,430 Less: amortization of other intangible assets 2,800 1,871 2,034 4,671 3,742 Adjusted core non-interest expense 57,662 54,057 47,234 111,719 95,688 Non-interest income excluding net gains and losses 22,846 21,241 19,582 44,087 39,629 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 23.6% 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. 60 Table of Contents 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, COVID-19-related expenses and the COVID-19 Employee Retention Credit. 61 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Annualized net income adjusted for non-core items: Net income $ 21,096 $ 26,560 $ 24,888 $ 47,656 $ 48,465 Add: net loss on investment securities 166 1,935 44 2,101 — Less: tax effect of net loss on investment securities (a) 35 406 9 441 — Less: net gain on investment securities — — — — 86 Add: tax effect of net gain on investment securities (a) — — — — 18 Add: net loss on asset disposals and other transactions 1,665 246 152 1,911 279 Less: tax effect of net loss on asset disposals and other transactions (a) 349 52 32 401 59 Add: acquisition-related expenses 10,709 551 602 11,260 1,975 Less: tax effect of acquisition-related expenses (a) 2,249 116 126 2,365 415 Add: COVID-19-related expenses — — 29 — 123 Less: tax effect of COVID-19-related expenses (a) — — 6 — 26 Less: COVID-19 Employee Retention Credit 548 — — 548 — Add: tax effect of COVID-19 Employee Retention Credit (a) 115 — — 115 — Net income adjusted for non-core items (after tax) $ 30,570 $ 28,718 $ 25,542 $ 59,288 $ 50,274 Days in the period 91 90 91 181 181 Days in the year 365 365 365 365 365 Annualized net income $ 84,616 $ 107,716 $ 99,825 $ 96,102 $ 97,733 Annualized net income adjusted for non-core items (after tax) $ 122,616 $ 116,467 $ 102,449 $ 119,559 $ 101,381 Return on average assets: Annualized net income $ 84,616 $ 107,716 $ 99,825 $ 96,102 $ 97,733 Total average assets 8,342,883 7,222,464 7,121,663 7,792,579 7,094,228 Return on average assets 1.01 % 1.49 % 1.40 % 1.23 % 1.38 % Return on average assets adjusted for non-core items: Annualized net income adjusted for non-core items (after tax) $ 122,616 $ 116,467 $ 102,449 $ 119,559 $ 101,381 Total average assets 8,342,883 7,222,464 7,121,663 7,792,579 7,094,228 Return on average assets adjusted for non-core items (after tax) 1.47 % 1.61 % 1.44 % 1.53 % 1.43 % (a) Based on a 21% statutory federal corporate income tax rate. 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) The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This 62 Table of Contents measure is Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity. Three Months Ended Six Months Ended June 30, 2023 March 31, 2023 June 30, 2022 June 30, (Dollars in thousands) 2023 2022 Annualized net income excluding amortization of other intangible assets: Net income $ 21,096 $ 26,560 $ 24,888 $ 47,656 $ 48,465 Add: amortization of other intangible assets 2,800 1,871 2,034 4,671 3,742 Less: tax effect of amortization of other intangible assets (a) 588 393 427 981 786 Net income excluding amortization of other intangible assets $ 23,308 $ 28,038 $ 26,495 $ 51,346 $ 51,421 Days in the period 91 90 91 181 181 Days in the year 365 365 365 365 365 Annualized net income $ 84,616 $ 107,716 $ 99,825 $ 96,102 $ 97,733 Annualized net income excluding amortization of other intangible assets $ 93,488 $ 113,710 $ 106,271 $ 103,543 $ 103,694 Average tangible equity: Total average stockholders' equity $ 951,438 $ 801,465 $ 791,401 $ 876,866 $ 812,956 Less: average goodwill and other intangible assets 387,055 325,545 329,243 356,470 316,753 Average tangible equity $ 564,383 $ 475,920 $ 462,158 $ 520,396 $ 496,203 Return on total average stockholders' equity ratio: Annualized net income $ 84,616 $ 107,716 $ 99,825 $ 96,102 $ 97,733 Total average stockholders' equity $ 951,438 $ 801,465 $ 791,401 $ 876,866 $ 812,956 Return on total average stockholders' equity 8.89 % 13.44 % 12.61 % 10.96 % 12.02 % Return on average tangible equity ratio: Annualized net income excluding amortization of other intangible assets $ 93,488 $ 113,710 $ 106,271 $ 103,543 $ 103,694 Average tangible equity $ 564,383 $ 475,920 $ 462,158 $ 520,396 $ 496,203 Return on average tangible equity 16.56 % 23.89 % 22.99 % 19.90 % 20.90 % (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 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. 63 Table of Contents FINANCIAL CONDITION Cash and Cash Equivalents 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 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.” Investment Securities The following table provides information regarding Peoples’ investment portfolio: (Dollars in thousands) Weighted Average Yield June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Available-for-sale securities, at fair value: Obligations of: U.S. Treasury and government agencies 2.72 % $ 75,255 $ 58,438 $ 152,422 $ 172,055 $ 175,255 U.S. government sponsored agencies 2.10 % 98,324 98,311 88,115 80,915 82,465 States and political subdivisions 2.57 % 248,271 224,996 225,882 230,022 249,402 Residential mortgage-backed securities 2.08 % 635,487 605,270 604,653 624,061 691,735 Commercial mortgage-backed securities 1.92 % 52,830 52,153 50,049 52,504 58,301 Bank-issued trust preferred securities 8.11 % 23,272 10,329 10,278 10,287 10,440 Total fair value $ 1,133,439 $ 1,049,497 $ 1,131,399 $ 1,169,844 $ 1,267,598 Total amortized cost $ 1,292,331 $ 1,196,521 $ 1,300,719 $ 1,349,800 $ 1,389,621 Net unrealized loss $ (158,892) $ (147,024) $ (169,320) $ (179,956) $ (122,023) Held-to-maturity securities, at amortized cost: Obligations of: U.S. government sponsored agencies 4.31 % $ 176,027 $ 194,184 $ 132,366 $ 59,871 $ 50,990 States and political subdivisions (a) 2.23 % 144,668 144,844 145,022 145,252 151,034 Residential mortgage-backed securities 3.83 % 243,807 245,294 176,215 111,707 112,095 Commercial mortgage-backed securities 2.48 % 109,423 109,750 106,609 90,971 86,601 Total amortized cost $ 673,925 $ 694,072 $ 560,212 $ 407,801 $ 400,720 Other investment securities $ 63,579 $ 52,763 $ 51,609 $ 39,039 $ 41,655 Total investment securities: Amortized cost $ 2,029,835 $ 1,943,356 $ 1,912,540 $ 1,796,640 $ 1,831,996 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 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. 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. 64 Table of Contents Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Loans The following table provides information regarding outstanding loan balances: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Originated loans: Construction $ 297,051 $ 222,915 $ 212,869 $ 175,388 $ 144,062 Commercial real estate, other 1,035,473 995,176 919,531 891,576 899,774 Commercial real estate 1,332,524 1,218,091 1,132,400 1,066,964 1,043,836 Commercial and industrial 873,386 840,194 835,178 814,593 777,050 Premium finance 162,357 158,263 159,197 167,682 152,237 Leases 287,948 251,711 226,438 178,083 149,894 Residential real estate 396,667 386,964 384,262 381,104 373,010 Home equity lines of credit 132,222 132,531 132,093 124,524 115,935 Consumer, indirect 654,371 647,177 629,426 592,309 563,088 Consumer, direct 101,786 99,299 98,706 99,282 95,371 Consumer 756,157 746,476 728,132 691,591 658,459 Deposit account overdrafts 830 749 722 597 851 Total originated loans $ 3,942,091 $ 3,734,979 $ 3,598,422 $ 3,425,138 $ 3,271,272 Acquired loans (a): Construction $ 121,690 $ 9,381 $ 34,072 $ 40,233 $ 58,526 Commercial real estate, other 1,036,041 485,886 503,987 531,903 560,249 Commercial real estate 1,157,731 495,267 538,059 572,136 618,775 Commercial and industrial 286,924 50,945 57,456 62,879 81,402 Premium finance — — — — — Leases 89,843 102,930 118,693 134,764 164,628 Residential real estate 394,775 325,638 339,098 352,257 369,995 Home equity lines of credit 66,999 41,852 45,765 50,001 53,400 Consumer, indirect — — — — — Consumer, direct 36,233 8,107 9,657 14,032 16,433 Consumer 36,233 8,107 9,657 14,032 16,433 Total acquired loans $ 2,032,505 $ 1,024,739 $ 1,108,728 $ 1,186,069 $ 1,304,633 Total loans $ 5,974,596 $ 4,759,718 $ 4,707,150 $ 4,611,207 $ 4,575,905 Percent of loans to total loans: Construction 7.0 % 4.9 % 5.2 % 4.7 % 4.4 % Commercial real estate, other 34.8 % 31.1 % 30.2 % 30.9 % 32.0 % Commercial real estate 41.8 % 36.0 % 35.4 % 35.6 % 36.4 % Commercial and industrial 19.4 % 18.7 % 19.0 % 19.0 % 18.8 % Premium finance 2.7 % 3.3 % 3.4 % 3.6 % 3.3 % Leases 6.3 % 7.4 % 7.3 % 6.8 % 6.9 % Residential real estate 13.2 % 15.0 % 15.4 % 15.9 % 16.2 % Home equity lines of credit 3.3 % 3.7 % 3.8 % 3.8 % 3.7 % Consumer, indirect 11.0 % 13.6 % 13.4 % 12.8 % 12.3 % Consumer, direct 2.3 % 2.3 % 2.3 % 2.5 % 2.4 % Consumer 13.3 % 15.9 % 15.7 % 15.3 % 14.7 % Total percentage 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Residential real estate loans being serviced for others $ 375,882 $ 384,005 $ 392,364 $ 400,736 $ 410,007 (a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). 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. 65 Table of Contents 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 Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 11% of Peoples' total loan portfolio. Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at June 30, 2023: (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Construction: Apartment complexes $ 193,407 $ 217,650 $ 411,057 51.0 % 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 % 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 % Total construction $ 418,741 $ 387,080 $ 805,821 100.0 % (a) All other total exposures by industry are less than 2% of the Total Exposure. 66 Table of Contents (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Commercial real estate, other: Office buildings and complexes: Owner occupied $ 87,016 $ 2,695 $ 89,711 4.2 % Non-owner occupied 118,562 6,247 124,809 5.8 % Total office buildings and complexes $ 205,578 $ 8,942 $ 214,520 10.0 % Retail facilities: Owner occupied $ 46,064 $ 1,988 $ 48,052 2.2 % Non-owner occupied 228,625 1,429 230,054 10.7 % Total retail facilities $ 274,689 $ 3,417 $ 278,106 12.9 % Mixed-use facilities: Owner occupied $ 19,094 $ 539 $ 19,633 0.9 % Non-owner occupied 22,806 233 23,039 1.1 % Total mixed-use facilities $ 41,900 $ 772 $ 42,672 2.0 % Apartment complexes 125,614 3,981 129,595 6.0 % Light industrial facilities: Owner occupied 126,977 4,006 130,983 6.1 % Non-owner occupied $ 92,804 $ 3,423 $ 96,227 4.5 % Total light industrial facilities 219,781 7,429 227,210 10.6 % Assisted living facilities and nursing homes $ 76,496 $ 5,151 $ 81,647 3.8 % Warehouse facilities: Owner occupied $ 47,415 $ 1,378 $ 48,793 2.3 % Non-owner occupied 45,247 236 45,483 2.1 % Total warehouse facilities $ 92,662 $ 1,614 $ 94,276 4.4 % Lodging and lodging related: Owner occupied $ 30,023 $ 979 $ 31,002 1.4 % Non-owner occupied 148,763 1 148,764 6.9 % Total lodging and lodging related $ 178,786 $ 980 $ 179,766 8.3 % Education services: Owner occupied $ 17,856 $ — $ 17,856 0.8 % Non-owner occupied 31,299 4,000 35,299 1.6 % Total education services $ 49,155 $ 4,000 $ 53,155 2.4 % Restaurant/bar facilities: Owner occupied $ 36,270 $ 9 $ 36,279 1.7 % Non-owner occupied 33,704 249 33,953 1.6 % Total restaurant/bar facilities $ 69,974 $ 258 $ 70,232 3.3 % Other (a) 736,879 50,209 783,879 36.3 % Total commercial real estate, other $ 2,071,514 $ 83,544 $ 2,155,058 100.0 % (a) All other total exposures by industry are less than 2% of the Total Exposure. Peoples' commercial lending activities continue to focus on lending opportunities within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Maryland. 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. The repayment of leases is secured by the underlying equipment collateral and not real estate, which mitigates geographic risk. Small Business Administration Paycheck Protection Program ("PPP") In March 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the 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. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. 67 Table of Contents Peoples is a PPP participating lender, and the PPP loans originated are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following table details Peoples' PPP loan balances and related income: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 PPP aggregate outstanding principal balances $ 1,418 $ 2,184 $ 2,458 $ 3,789 $ 15,582 PPP net deferred loan origination fees 11 25 27 61 421 Accretion of net deferred loan origination fees 14 2 34 360 574 Allowance for Credit Losses The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio. The following details management's allocation of the allowance for credit losses: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Construction $ 1,496 $ 1,273 $ 1,250 $ 1,464 $ 1,531 Commercial real estate, other 19,731 16,474 17,710 17,695 18,708 Commercial and industrial 11,028 8,307 8,229 8,611 8,572 Premium finance 431 433 344 553 311 Leases 10,377 9,109 8,495 7,890 7,585 Residential real estate 6,112 6,504 6,357 6,464 6,332 Home equity lines of credit 1,676 1,717 1,693 1,644 1,699 Consumer, indirect 7,610 7,781 7,448 6,912 6,234 Consumer, direct 2,642 1,619 1,575 1,592 1,321 Deposit account overdrafts 108 86 61 41 53 Allowance for credit losses $ 61,211 $ 53,303 $ 53,162 $ 52,866 $ 52,346 As a percent of total loans 1.02 % 1.12 % 1.13 % 1.15 % 1.14 % 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. The following table summarizes Peoples’ net charge-offs and recoveries: Three Months Ended (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Gross charge-offs: Construction $ — $ 9 $ 16 $ — $ — Commercial real estate, other 7 33 132 57 22 Commercial and industrial 11 1 24 36 420 Premium finance 23 23 42 38 30 Leases 604 469 888 731 493 Residential real estate 59 41 144 168 47 Home equity lines of credit 55 19 42 5 25 Consumer, indirect 941 929 799 600 449 Consumer, direct 78 104 86 81 60 Consumer 1,019 1,033 885 681 509 Deposit account overdrafts 263 227 308 274 405 Total gross charge-offs $ 2,041 $ 1,855 $ 2,481 $ 1,990 $ 1,951 68 Table of Contents Three Months Ended (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Recoveries: Commercial real estate, other $ 16 $ 27 $ 33 $ 39 $ 176 Commercial and industrial 451 — 40 3 2 Premium finance 3 9 4 1 8 Leases 89 80 81 99 64 Residential real estate 69 29 20 36 14 Home equity lines of credit — — 16 — — Consumer, indirect 129 79 88 71 83 Consumer, direct 35 15 16 9 11 Consumer 164 94 104 80 94 Deposit account overdrafts 53 72 50 44 52 Total recoveries $ 845 $ 311 $ 348 $ 302 $ 410 Net charge-offs (recoveries): Construction $ — $ 9 $ 16 $ — $ — Commercial real estate, other (9) 6 99 18 (154) Commercial and industrial (440) 1 (16) 33 418 Premium finance 20 14 38 37 22 Leases 515 389 807 632 429 Residential real estate (10) 12 124 132 33 Home equity lines of credit 55 19 26 5 25 Consumer, indirect 812 850 711 529 366 Consumer, direct 43 89 70 72 49 Consumer 855 939 781 601 415 Deposit account overdrafts 210 155 258 230 353 Total net charge-offs $ 1,196 $ 1,544 $ 2,133 $ 1,688 $ 1,541 Ratio of net charge-offs (recoveries) to average total loans (annualized): Construction — % — % — % — % — % Commercial real estate, other — % — % 0.01 % — % (0.01) % Commercial and industrial (0.03) % — % — % — % 0.04 % Premium finance — % — % — % — % — % Leases 0.04 % 0.04 % 0.07 % 0.06 % 0.04 % Residential real estate — % — % 0.01 % 0.01 % — % Home equity lines of credit — % — % — % — % — % Consumer, indirect 0.06 % 0.07 % 0.06 % 0.05 % 0.03 % Consumer, direct — % 0.01 % 0.01 % 0.01 % 0.01 % Consumer 0.06 % 0.08 % 0.07 % 0.06 % 0.04 % Deposit account overdrafts 0.02 % 0.01 % 0.02 % 0.02 % 0.03 % Total 0.09 % 0.13 % 0.18 % 0.15 % 0.14 % Each with "--%" not meaningful. 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. 69 Table of Contents The following table details Peoples’ nonperforming assets: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Loans 90+ days past due and accruing: Commercial real estate, other $ 15 $ 150 $ 167 $ 1,472 $ 330 Commercial and industrial — 228 130 266 89 Premium finance 987 764 504 308 304 Leases 3,847 2,491 3,041 4,654 5,722 Residential real estate 856 238 917 1,499 1,687 Home equity lines of credit 148 127 58 23 89 Consumer, indirect 40 13 — 195 15 Consumer, direct 31 3 25 7 — Consumer 71 16 25 202 15 Total loans 90+ days past due and accruing $ 5,924 $ 4,014 $ 4,842 $ 8,424 $ 8,236 Nonaccrual loans: Construction $ — $ 1 $ 12 $ 2 $ 5 Commercial real estate, other 8,987 11,345 12,121 11,916 14,253 Commercial and industrial 3,438 3,064 3,462 2,385 1,849 Leases 4,800 3,884 3,178 2,094 1,573 Residential real estate 8,393 8,641 9,496 8,728 9,194 Home equity lines of credit 841 793 820 921 890 Consumer, indirect 1,982 2,147 2,176 1,627 1,558 Consumer, direct 355 105 208 158 166 Consumer 2,337 2,252 2,384 1,785 1,724 Total nonaccrual loans $ 28,796 $ 29,980 $ 31,473 $ 27,831 $ 29,488 Total nonperforming loans ("NPLs") $ 34,720 $ 33,994 $ 36,315 $ 36,255 $ 37,724 OREO: Commercial $ 7,118 $ 8,730 $ 8,730 $ 8,730 $ 9,065 Residential 48 48 165 110 145 Total OREO $ 7,166 $ 8,778 $ 8,895 $ 8,840 $ 9,210 Total nonperforming assets ("NPAs") $ 41,886 $ 42,772 $ 45,210 $ 45,095 $ 46,934 Criticized loans (a) $ 219,885 $ 198,812 $ 191,355 $ 164,775 $ 181,395 Classified loans (b) $ 110,972 $ 93,168 $ 89,604 $ 94,848 $ 115,483 Asset Quality Ratios (c): Nonaccrual loans as a percent of total loans (d) 0.48 % 0.63 % 0.67 % 0.60 % 0.64 % NPLs as a percent of total loans (d) 0.58 % 0.71 % 0.77 % 0.79 % 0.82 % NPAs as a percent of total assets (d) 0.48 % 0.58 % 0.63 % 0.64 % 0.64 % NPAs as a percent of total loans and OREO (d) 0.70 % 0.90 % 0.96 % 0.98 % 1.02 % Allowance for credit losses as a percent of nonaccrual loans 212.57 % 177.80 % 168.91 % 189.95 % 177.52 % Allowance for credit losses as a percent of NPLs (d) 176.30 % 156.80 % 146.39 % 145.82 % 138.76 % Criticized loans as a percent of total loans (a) 3.68 % 4.18 % 4.07 % 3.57 % 3.96 % Classified loans as a percent of total loans (b) 1.86 % 1.96 % 1.90 % 2.06 % 2.52 % (a) Includes loans categorized as special mention, substandard or doubtful. (b) Includes loans categorized as substandard or doubtful. (c) Data presented as of the end of the period indicated. (d) NPLs include loans 90+ days past due and accruing and nonaccrual loans. NPLs in periods prior to March 31, 2023 also included TDRs. NPAs include nonperforming loans and OREO. 70 Table of Contents 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. Deposits The following table details Peoples’ deposit balances: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Non-interest-bearing deposits (a) $ 1,682,634 $ 1,555,064 $ 1,589,402 $ 1,635,953 $ 1,661,865 Interest-bearing deposits: Interest-bearing demand accounts (a) 1,225,646 1,085,169 1,160,182 1,162,012 1,143,010 Savings accounts 1,116,622 1,024,638 1,068,547 1,077,383 1,080,053 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 Governmental deposit accounts 705,596 649,303 625,965 734,734 728,057 Brokered CDs 559,955 273,156 125,580 86,089 86,739 Total interest-bearing deposits 5,277,235 4,233,463 4,127,539 4,229,667 4,267,360 Total deposits $ 6,959,869 $ 5,788,527 $ 5,716,941 $ 5,865,620 $ 5,929,225 Demand deposits as a percent of total deposits 42 % 46 % 48 % 48 % 47 % (a) The sum of amounts presented is considered total demand 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. 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. As part of its funding strategy, Peoples hedges 90-day brokered CDs with interest rate 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. 71 Table of Contents Borrowed Funds The following table details Peoples’ short-term borrowings and long-term borrowings: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Short-term borrowings: Overnight borrowings $ 444,000 $ 390,000 $ 400,000 $ (5,000) $ — FHLB 90-day advances — — — 40,000 40,000 Retail repurchase agreements 125,935 100,670 100,138 98,611 286,442 Total short-term borrowings $ 569,935 $ 490,670 $ 500,138 $ 133,611 $ 326,442 Long-term borrowings: FHLB advances $ 33,755 $ 33,941 $ 34,158 $ 34,662 $ 35,348 Vantage non-recourse debt 41,963 47,864 53,147 55,781 74,622 Other long-term borrowings 47,861 13,824 13,788 13,753 13,717 Total long-term borrowings $ 123,579 $ 95,629 $ 101,093 $ 104,196 $ 123,687 Total borrowed funds $ 693,514 $ 586,299 $ 601,231 $ 237,807 $ 450,129 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 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 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) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Capital Amounts: Common Equity Tier 1 $ 728,892 $ 624,292 $ 604,566 $ 584,880 $ 564,708 Tier 1 776,753 638,116 618,354 598,633 578,425 Total (Tier 1 and Tier 2) 828,910 682,477 662,421 643,189 622,516 Net risk-weighted assets $ 6,417,511 $ 5,110,318 $ 5,071,240 $ 4,955,627 $ 4,857,818 Capital Ratios: Common Equity Tier 1 11.36 % 12.22 % 11.92 % 11.80 % 11.62 % Tier 1 12.10 % 12.49 % 12.19 % 12.08 % 11.91 % Total (Tier 1 and Tier 2) 12.92 % 13.35 % 13.06 % 12.98 % 12.81 % Tier 1 leverage ratio 9.64 % 9.02 % 8.92 % 8.64 % 8.38 % 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. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. 72 Table of Contents Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent. The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Tangible equity: Total stockholders' equity $ 998,907 $ 819,543 $ 785,328 $ 760,511 $ 786,824 Less: goodwill and other intangible assets 413,172 324,562 326,329 328,428 328,132 Tangible equity $ 585,735 $ 494,981 $ 458,999 $ 432,083 $ 458,692 Tangible assets: Total assets $ 8,786,635 $ 7,311,520 $ 7,207,304 $ 7,005,854 $ 7,278,292 Less: goodwill and other intangible assets 413,172 324,562 326,329 328,428 328,132 Tangible assets $ 8,373,463 $ 6,986,958 $ 6,880,975 $ 6,677,426 $ 6,950,160 Tangible book value per common share: Tangible equity $ 585,735 $ 494,981 $ 458,999 $ 432,083 $ 458,692 Common shares outstanding 35,374,916 28,488,158 28,287,837 28,278,078 28,290,115 Tangible book value per common share $ 16.56 $ 17.37 $ 16.23 $ 15.28 $ 16.21 Tangible equity to tangible assets ratio: Tangible equity $ 585,735 $ 494,981 $ 458,999 $ 432,083 $ 458,692 Tangible assets $ 8,373,463 $ 6,986,958 $ 6,880,975 $ 6,677,426 $ 6,950,160 Tangible equity to tangible assets 7.00 % 7.08 % 6.67 % 6.47 % 6.60 % 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 While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources. Interest Rate Risk Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and financial liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams. Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. 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. 73 Table of Contents 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 (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) % 200 (42) — % 8,716 3.0 % (120,035) (7.1) % (55,809) (3.6) % 100 (5) — % 4,380 1.5 % (60,439) (3.6) % (28,157) (1.8) % (100) (1,446) (0.4) % (11,404) (3.9) % 54,365 3.2 % (21,124) (1.4) % (200) (8,172) (2.4) % (27,659) (9.4) % 77,088 4.5 % (80,484) (5.2) % (300) (18,723) (5.6) % (43,728) (14.8) % 44,759 2.6 % (152,152) (9.8) % This table uses a standard, parallel shock analysis for assessing the IRR to net interest income and the economic value of equity. A parallel shock assumes all points on the yield curve (one year, two year, three year, etc.) are directionally changed by the same degree. Management regularly assesses the impact of both increasing and decreasing interest rates. The table above shows the impact of upward and downward parallel shocks of 100, 200 and 300 basis points. Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis. While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any impact that might occur as a result of the Federal Reserve Board increasing short-term interest rates in the future could be offset by an inverse movement in long-term interest rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term interest rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at June 30, 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 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. In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, increase, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, remain constant. Increased deposit and funding costs would be more than offset by increased variable rate asset yields; resulting in an increased amount of net interest income and a higher net interest margin. At 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 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 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 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 74 Table of Contents 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. Liquidity In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. 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. Management believes the current mix of short-term liquidity sources, loan and security portfolio cash flows, and availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments. Off-Balance Sheet Activities and Contractual Obligations In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments. Loan Commitments and Standby Letters of Credit Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure. The following table details the total contractual amount of loan commitments and standby letters of credit: (Dollars in thousands) June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 Home equity lines of credit $ 208,805 $ 201,692 $ 197,995 $ 194,685 $ 188,803 Unadvanced construction loans 293,662 241,225 270,229 320,825 237,129 Other loan commitments 597,285 717,149 730,015 653,384 566,624 Loan commitments $ 1,099,752 $ 1,160,066 $ 1,198,239 $ 1,168,894 $ 992,556 Standby letters of credit $ 14,760 $ 15,046 $ 15,451 $ 15,096 $ 15,977 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Form 10-Q, and is incorporated herein by reference. 75 Table of Contents