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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 475 added, 367 removed, 998 unchanged (46% of the section changed)

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

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three months and the six months ended June 30, 2023 and June 30, 2022.

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three months and the nine months ended September 30, 2023 and September 30, 2022.

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

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(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;

(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 FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau, including the FDIC’s recently issued notice of proposed rulemaking for a special assessment to recover the uninsured deposit losses from recent bank failures that adversely affect their respective businesses, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements;

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

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(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;

(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 continued elevated interest rates, and may adversely impact the amount of interest income generated;

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

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

(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;

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

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

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

(20) the impact of larger or similar-sized financial institutions encountering problems, such as the recent closures of Silicon Valley Bank in California, 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;

(20) the impact of larger or similar-sized financial institutions encountering problems, such as the closures earlier in 2023 of Silicon Valley Bank in California, Signature Bank in New York, First Republic Bank in California, and Heartland Tri-State Bank in Kansas, 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) 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;

(22) 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;

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(28) 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 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 (including Russia’s war in Ukraine and the recent conflicts involving Israel and Hamas);

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

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(39) 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;

(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 Peoples' Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023 and under the heading "ITEM 1A.

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

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

This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes 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.

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

Business Overview

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

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

Peoples provides services through traditional offices, automated teller machines ("ATMs"), mobile banking, telephone and internet-based banking.

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

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

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

As of September 30, 2023, Peoples had 149 locations, including 132 full-service bank branches in Ohio, Kentucky, West Virginia, Virginia, Washington D.C.

and Maryland.

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

Management has identified the accounting

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

Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at September 30, 2023, which have been disclosed in Peoples' 2022 Form 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q.

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

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

◦ During the third quarter of 2023, Peoples terminated its pension plan by settling the remaining benefit obligation of $7.7 million.

The pension plan had been closed to new entrants since January 1, 2010.

Peoples recorded a settlement charge of $2.4 million in the third quarter of 2023 in relation to the termination of the pension plan.

Peoples does not anticipate further expenses related to the termination.

◦ On October 25, 2022, Peoples announced the Limestone Merger, a transaction valued at $177.9 million.

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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 $93.5 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.

Peoples also recorded preliminary goodwill in the amount of $62.1 million and other intangible assets of $27.7 million, which consisted of core deposit intangibles.

◦ For the third quarter of 2023, Peoples incurred $4.4 million of acquisition-related expenses, compared to $10.7 million for the second quarter of 2023 and $0.3 million for the third quarter of 2022.

For the first nine months of 2023, Peoples incurred $15.7 million of acquisition-related expenses compared to $2.3 million for the first nine months of 2022.The acquisition-related expenses in 2023 were primarily related to the Limestone Merger, while the acquisition-related expenses in 2022 were primarily related to the Vantage acquisition.

◦ During the third quarter of 2023, Peoples recorded a provision for credit losses of $4.1 million, compared to a provision for credit losses of $8.0 million in the linked quarter and a provision for credit losses of $1.8 million in the third quarter of 2022.

The provision for credit losses for the third quarter of 2023 was driven by (i) loan growth, (ii) an increase in net charge-offs, (iii) updates to our prepayment, curtailment and funding rates, and (iv) a deterioration in macro-economic conditions used within the CECL model, partially offset by the release of reserves on individually analyzed loans.

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

The provision for credit losses for the first nine months of 2023 was $13.9 million, compared to a recovery of credit losses of $5.8 million for the first nine months of 2022.

The provision for credit losses during the first nine 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 (ii) 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 for the first nine months of 2022 was primarily due to the impact of economic assumptions used in the CECL model.

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.

◦ 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, to 5.00% to 5.25% on May 3, 2023, and to 5.25% to 5.50% on July 27, 2023 and has signaled it may raise rates again in 2023, if necessary to combat inflation.

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.

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

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

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

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

Also impacting the increases in net interest income and net interest margin were 43 basis points of improvement in loan yields due to recent increases in market interest rates and a shift in the composition of the loan portfolio into higher-yielding leases, and 29 basis points of improvement in investment yields when compared to the linked quarter due to sales of lower-yielding investment securities and securities acquired in the Limestone Merger.

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

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

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

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

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

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

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

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

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

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

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

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

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

Net charge-offs for the second quarter of 2023 were $1.2 million, or 0.09% of average total loans annualized, compared to net charge-offs of $1.5 million, or 0.13% of average total loans annualized, for the linked quarter and net charge-offs of $1.5 million, or 0.14% of average total loans annualized, for the second quarter of 2022.

Peoples reported net income of $31.9 million for the third quarter of 2023, representing earnings per diluted common share of $0.90.

In comparison, Peoples reported net income of $21.1 million, representing earnings per diluted common share of $0.64, for the second quarter of 2023, and net income of $26.0 million, representing earnings per diluted common share of $0.92, for the third

quarter of 2022.

For the nine months ended September 30, 2023, Peoples recorded net income of $79.5 million, or $2.47 per diluted common share, compared to $74.4 million, or $2.65 per diluted common share, for the nine months ended September 30, 2022.

Non-core items, and the related tax effect of each, in net income primarily included acquisition-related expenses and a $2.4 million pension settlement charge recognized in the third quarter of 2023.

Non-core items negatively impacted earnings per diluted common share by $0.16 for the third quarter of 2023, $0.28 for the second quarter of 2023, and $0.01 for the third quarter of 2022.

Non-core items negatively impacted earnings per diluted share by $0.52 and $0.07 for the nine months ended September 30, 2023 and 2022, respectively.

Net interest income was $93.3 million for the third quarter of 2023, an increase of $8.4 million, or 10%, compared to the linked quarter.

The increase in net interest income was primarily due to a full quarter of net interest income provided by the Limestone Merger in the third quarter compared to only two months of net interest income in the linked quarter.

Net interest margin was 4.70% for the third quarter of 2023, compared to 4.54% for the linked quarter.

The increase in net interest margin was primarily driven by a full quarter of the accretion on the acquired Limestone portfolio compared to two months in the linked quarter.

The increase in net interest margin was also impacted by a true-up of $3.6 million in the third quarter of 2023 to the preliminary Limestone-related accretion, $1.9 million of which would have benefited the second quarter of 2023.

Also impacting the increases in net interest income and net interest margin was 6 basis points of improvement in investment yields due to sales of lower-yielding investment securities and a full quarter of yields from the securities acquired in the Limestone Merger compared to two months in the linked quarter.

Partially offsetting these benefits was an increase in interest expense resulting from a shift in the composition of funding sources to retail and brokered CDs from non-interest bearing deposits, combined with an increase in market interest rates for deposits and other funding sources.

Net interest income for the third quarter of 2023 increased $26.2 million, or 39%, compared to the third quarter of 2022.

Net interest margin for the third quarter of 2023 increased 53 basis points compared to 4.17% for the third quarter of 2022.

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

For the first nine months of 2023, net interest income increased $68.2 million, or 37%, compared to the first nine months of 2022, while net interest margin increased 79 basis points to 4.60%.

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

Partially offsetting these benefits was an increase in interest expense resulting from 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 $9.8 million for the third quarter of 2023, $4.5 million for the second quarter of 2023 and $2.8 million for the third quarter of 2022, which added 49 basis points, 24 basis points and 16 basis points, respectively, to net interest margin.

The increases in accretion income for the third quarter of 2023 when compared to the linked quarter and the third quarter of 2022 were driven by accretion from the Limestone Merger and the aforementioned third quarter 2023 true-up to the preliminary Limestone-related accretion.

Accretion income, net of amortization expense, from acquisitions was $16.3 million for the nine months ended September 30, 2023, compared to $9.4 million for the nine months ended September 30, 2022, which added 30 and 20 basis points, respectively, to net interest margin.

The increase in accretion income for the first nine months of 2023 compared to the same period in 2022 was due to higher accretion recognized from the Limestone Merger than was recorded due to the acquisitions of Vantage and NSL, and the merger with Premier in the prior period.

The provision for credit losses was $4.1 million for the third quarter of 2023, compared to a provision for credit losses of $8.0 million for the linked quarter and a provision for credit losses of $1.8 million for the third quarter of 2022.

The provision for credit losses for the linked quarter 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.

Net charge-offs for the third quarter of 2023 were $2.3 million, or 0.15% of average total loans annualized, compared to net charge-offs of $1.2 million, or 0.09% of average total loans annualized, for the linked quarter and net charge-offs of $1.7 million, or 0.15% of average total loans annualized, for the third quarter of 2022.

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

The provision for credit losses during the first six months of 2023 was $9.8 million, compared to a recovery of credit losses of $7.6 million for the first six months of 2022.

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

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

The provision for credit losses for the first nine months of 2023 was $13.9 million, compared to a recovery of credit losses of $5.8 million for the first nine months of 2022.

The provision for credit losses for the first nine 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 for the first nine months of 2022 was primarily due to the impact of economic assumptions used in the CECL model.

Net charge-offs for the first nine months of 2023 were $5.1 million, or 0.12% of average total loans annualized, compared to net charge-offs of $5.1 million, or 0.15% annualized, for the first nine 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.

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.

The net loss realized during the third quarter of 2023 was $0.3 million, compared to a net loss of $1.8 million for the linked quarter, and a net loss of $14,000 for the third quarter of 2022.

The net loss for the third quarter of 2023 was due to $0.3 million of net losses on repossessed assets.

The net loss for the linked quarter was primarily due to the $1.6 million write-down of an OREO property due to a pending sale of the property.

The net loss realized during the first nine months of 2023 was $4.3 million, compared to $207,000 for the first nine months of 2022.

The net loss for the first nine months of 2023 was primarily driven by the $2.0 million pre-tax ($1.6 million after-tax) net loss on the sales of the available-for-sale investment securities during the first quarter of 2023, as mentioned above, and the $1.6 million write-down of the OREO property during the second quarter of 2023, as mentioned above.

The net loss recognized in the first nine months of 2022 was attributable to (i) a $119,000 loss recorded on repossessed assets, (ii) a $44,000 loss on the sale of investment securities in order to reinvest into higher-yielding securities and (iii) an adjustment to the gain on sale of loans recognized in the fourth quarter of 2021 due to a measurement period adjustment to the acquisition-date fair value of Premier loans acquired that were subsequently sold.

Total non-interest income, excluding net gains and losses, for the third quarter of 2023 increased $0.7 million compared to the linked quarter.

The increase in non-interest income, excluding net gains and losses, was due to a $1.4 million increase in other non-interest income and a $0.5 million increase in bank owned life insurance income, mostly offset by a $1.8 million decrease in lease income.

The increase in other non-interest income was attributable to a $1.0 million increase in operating lease income, which was partially offset by a $0.6 million increase in operating lease expense recognized in other non-interest expense when compared to the linked quarter.

Compared to the third quarter of 2022, non-interest income, excluding net gains and losses, increased $3.1 million, due to (i) a $1.5 million increase in other non-interest income, (ii) a $1.2 million increase in electronic banking income, (iii) a $0.7 million increase in deposit account service charges, (iv) a $0.7 million increase in bank owned life insurance income, and (v) a $0.6 million increase in insurance income.

The increase in other non-interest income was due to the increase in operating lease income mentioned above.

Insurance income increased due to new business and market increases for premiums.

The other increases were primarily due to the additional customers brought in from the Limestone Merger when compared to the third quarter of 2022.

For the first nine months of 2023, total non-interest income, excluding gains and losses, increased $7.6 million, or 13%, compared to the first nine months of 2022.

The increase was driven by (i) a $2.4 million increase in electronic banking income, (ii) a $1.7 million increase in insurance income due to growth in the property and casualty insurance line, (iii) a $1.4 million increase in deposit account service charges, (iv) a $1.4 million increase in other non-interest income, and (v) a $1.0 million increase in bank owned life insurance income.

The increase in other non-interest income was due to the increase in operating lease income mentioned above.

Insurance income increased due to new business and market increases for premiums.

The other increases were primarily due to the additional customers brought in from the Limestone Merger when compared to the first nine months of 2022.

Total non-interest expenses for the third quarter and the nine months ended September 30, 2023 were impacted by the Limestone Merger and acquisition-related non-interest expenses.

Total acquisition-related non-interest expenses added $4.4 million and $15.7 million, respectively, across various line-items within non-interest expense.

During the third quarter of 2023, the acquisition-related expenses recognized were primarily attributable to early contract termination fees, system conversion costs, salaries and employee benefit costs, and professional fees attributable to the Limestone Merger.

For the second quarter of 2023, the acquisition-related non-interest expenses were primarily attributable to salaries and employee benefit costs and professional fees related to the Limestone Merger.

The table below summarizes the amount of acquisition-related expenses for each line item that is a component of non-interest expense.

This information is used by Peoples to provide information useful to investors in understanding Peoples' operating performance and trends.

Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30,

(Dollars in thousands) 2023 2023 2022 2023 2022

Non-interest expense:

Salaries and employee benefit costs $ 36,608 $ 38,025 $ 28,618 $ 106,661 $ 83,932

Net occupancy and equipment expense 5,501 5,380 4,813 15,836 14,669

Professional fees 3,456 7,438 2,832 13,775 8,784

Data processing and software expense 6,288 4,728 3,279 15,578 9,228

Amortization of other intangible assets 3,280 2,800 2,023 7,951 5,765

Electronic banking expense 1,836 1,832 2,648 5,159 8,134

Marketing expense 1,267 1,357 1,136 3,554 2,991

FDIC insurance premiums 1,260 1,464 709 3,525 2,921

Franchise tax expense 772 872 1,075 2,678 2,941

Communication expense 752 724 599 2,089 1,873

Other loan expenses 856 538 511 2,133 1,788

Other non-interest expense 9,820 5,465 4,010 19,859 10,755

Total non-interest expense 71,696 70,623 52,253 198,798 153,781

Acquisition-related non-interest expense:

Salaries and employee benefit costs 562 5,125 — 5,708 29

Net occupancy and equipment expense 2 20 7 31 36

Professional fees 429 4,812 221 5,532 1,791

Data processing and software expense 1,289 1 129 1,290 410

Electronic banking expense — 115 — 115 (92)

Marketing expense 38 14 5 61 45

Communication expense 1 — — 1 1

Other loan expenses — 1 — 1 —

Other non-interest expense 2,113 621 (23) 2,955 94

Total acquisition-related non-interest expense 4,434 10,709 339 15,694 2,314

Non-interest expense excluding acquisition-related expense:

Salaries and employee benefit costs 36,046 32,900 28,618 100,953 83,903

Net occupancy and equipment expense 5,499 5,360 4,806 15,805 14,633

Professional fees 3,027 2,626 2,611 8,243 6,993

Data processing and software expense 4,999 4,727 3,150 14,288 8,818

Amortization of other intangible assets 3,280 2,800 2,023 7,951 5,765

Electronic banking expense 1,836 1,717 2,648 5,044 8,226

Marketing expense 1,229 1,343 1,131 3,493 2,946

FDIC insurance premiums 1,260 1,464 709 3,525 2,921

Franchise tax expense 772 872 1,075 2,678 2,941

Communication expense 751 724 599 2,088 1,872

Other loan expenses 856 537 511 2,132 1,788

Other non-interest expense 7,707 4,844 4,033 16,904 10,661

Total non-interest expense excluding acquisition-related expense $ 67,262 $ 59,914 $ 51,914 $ 183,104 $ 151,467

Total non-interest expense increased $1.1 million, or 2%, for the three months ended September 30, 2023, compared to the linked quarter.

Excluding acquisition-related expense, total non-interest expense increased $7.3 million, or 12%, primarily due to increases of (i) $3.1 million in salaries and employee benefit costs, (ii) $2.9 million in other non-interest expense, (iii) $0.5 million in amortization of other intangible assets, and (iv) $0.4 million in professional fees.

The increases in the third quarter of 2023 total non-interest expenses when compared to the linked quarter were due to a full quarter of expenses in the third quarter from the Limestone Merger compared to only two months of expenses in the linked quarter.

Excluding the impact from the Limestone Merger, the increase in other non-interest expenses was also due to the previously discussed pension plan settlement charge as well as a $0.6 million increase

in operating lease depreciation expenses.

The increases in salaries and employee benefit costs and data processing and professional fees were primarily due to growth.

Compared to the third quarter of 2022, total non-interest expense for the third quarter of 2023 increased $19.4 million, or 37%.

Excluding acquisition-related expenses, non-interest expenses increased $15.3 million, or 30%, primarily due to a $7.4 million increase in salaries and employee benefit costs, a $3.7 million increase in other non-interest expense, a $1.8 million increase in data processing and software expense, and a $1.3 million increase in amortization of other intangible assets.

The increases were primarily due to total non-interest expenses attributable to the Limestone Merger, excluding acquisition-related expense.

The increase in other non-interest expenses was also impacted by the previously discussed pension plan settlement charges and a $0.9 million increase in operating lease depreciation expenses.

The increases in salaries and employee benefit costs and in data processing and software expense, excluding non-acquisition-related expenses attributable to the Limestone Merger, were due to growth.

For the nine months ended September 30, 2023, total non-interest expense increased $45.0 million, or 29.3%, compared to the first nine months of 2022.

Excluding acquisition-related expenses, non-interest expenses increased $31.6 million, or 20.9%.

This variance was driven by increases of $17.1 million, $6.2 million, $5.5 million and $2.2 million in salaries and employee benefit costs, other non-interest expense, data processing and software expense and amortization of other intangible assets, respectively, partially offset by a $3.2 million decrease in electronic banking expense.

The increases were impacted by total non-interest expenses attributable to the Limestone Merger, excluding acquisition-related expenses, which impacted various non-interest expense line items.

The increase in other non-interest expenses was also impacted by the previously discussed pension plan settlement charges and a $1.1 million increase in operating lease depreciation expenses, while the other increases were also impacted by growth.

The efficiency ratio for the third quarter of 2023 was 58.4%, compared to 62.7% for the linked quarter, and 57.2% for the third quarter of 2022.

The decrease in the efficiency ratio compared to the linked quarter was primarily due to higher net interest income due to an increase in market interest rates and a full quarter with the additional customers from the Limestone Merger compared to two months in the linked quarter and less acquisition-related expenses, partially offset by an increase in non-acquisition-related non-interest expenses.

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

The efficiency ratio, adjusted for non-core items, was 52.5% for the third quarter of 2023, compared to 53.3% for the linked quarter and 56.6% for the third 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.

Peoples recorded income tax expense of $8.8 million with an effective tax rate of 21.7% for the third quarter of 2023, compared to income tax expense of $6.2 million with an effective tax rate of 22.6% for the linked quarter, and income tax expense of $7.4 million with an effective tax rate of 22.2% for the third quarter of 2022.

Income tax expense for the third quarter of 2023 compared to the linked quarter and third quarter of 2022, increased due to higher net income before income taxes.

The effective rate decrease for the third quarter of 2023 when compared to the linked quarter and the third quarter of 2022 was primarily due to updates to the blended state tax rate.

Peoples recorded income tax expense of $22.1 million with an effective tax rate of 21.7% in the first nine months of 2023 and $20.2 million with an effective tax rate of 21.4% in the first nine months of 2022.

The increase in income tax expense for the first nine months of 2023 when compared to the same 2022 period was driven by higher pre-tax income.

At September 30, 2023, total assets were $8.94 billion, compared to $8.79 billion at June 30, 2023, $7.21 billion at December 31, 2022 and $7.01 billion at September 30, 2022.

Total assets at September 30, 2023 increased when compared to at June 30, 2023 primarily due to an increase in interest-bearing deposits in other banks, mostly with the FRB, and an increase in period-end total loan and lease balances.

The period-end total loan and lease balances at September 30, 2023 increased $109.8 million, or 7% annualized, compared to at June 30, 2023.

The increase in the period-end loan and lease balance was primarily driven by increases of (i) $118.5 million in other commercial real estate loans, (ii) $26.9 million in premium finance loans and (iii) $24.8 million in leases, partially offset by decreases of (i) $44.7 million in construction loans and (ii) $31.5 million in commercial and industrial loans.

Total assets at September 30, 2023 increased compared to December 31, 2022 and September 30, 2022 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 September 30, 2023 increased $358.6 million, or 10% annualized, compared to at December 31, 2022, driven by increases of $182.8 million, $57.5 million, $48.4 million, $38.9 million and $30.1 million in other commercial real estate loans, leases, construction loans, indirect consumer loans, and premium finance loans, respectively.

These increases were partially offset by a decrease of $13.1 million in consumer residential real estate loans.

The increase from December 31, 2022 was also impacted by an increase in held-to-maturity investment securities as management underwent an initiative during the first quarter of 2023 to sell lower yielding available-for-sale investment securities whose proceeds were used to pay down higher cost funding.

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

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

The increase in total assets from at December 31, 2022 was also impacted by purchases of held-to-maturity investment securities.

Management purchased these securities to increase portfolio yield and reduce Peoples' sensitivity to falling intermediate and long-term interest rates.

Excluding the loans acquired in the Limestone Merger, period-end loan and lease balance at September 30, 2023 increased $454.6 million, or 10% annualized, compared to at September 30, 2022 primarily due to increases of $182.9 million, $89.8 million, $79.8 million, $76.1 million and $21.6 million in other commercial real estate loans, leases, construction loans, indirect consumer loans, and premium finance loans, respectively.

These increases were partially offset by a reduction of $23.1 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.

Total liabilities were $7.95 billion at September 30, 2023, up from $7.79 billion at June 30, 2023, $6.42 billion at December 31, 2022 and $6.25 billion at September 30, 2022.

The increase in total liabilities when compared to at June 30, 2023 was primarily due to an increase of $77.6 million, or 1%, in period-end total deposits.

The increase in period-end total deposits when compared to at

June 30, 2023 was primarily driven by increases of (i) $248.0 million in retail CDs, (ii) $56.0 million in governmental deposits and (iii) $49.0 million in brokered deposits, which are primarily used as a source of funding, partially offset by decreases of (a) $129.5 million in savings accounts, (c) $113.5 million in non-interest-bearing demand deposit accounts, and (c) $44.6 million in interest-bearing demand deposit accounts.

The increase 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.

The increases in total liabilities when compared to at December 31, 2022 and at September 30, 2022 were primarily due to $1.14 billion of liabilities, primarily deposits, acquired in the Limestone Merger.

Excluding the deposits acquired in the Limestone Merger, period-end total deposits at September 30, 2023 increased $399.8 million, or 7%, compared to at December 31, 2022, primarily due to increases of $483.3 million in brokered CDs and of $444.1 million in retail CDs, partially offset by decreases of $203.5 million, $180.6 million, and $174.0 million in non-interest bearing deposits, savings accounts, and interest-bearing demand deposit accounts, respectively.

Excluding deposits acquired in the Limestone Merger, period-end total deposits at September 30, 2023 increased $251.1 million, or 4%, compared to at September 30, 2022.

The increase was primarily driven by increases of $522.8 million in brokered deposits and $429.6 million in retail CDs, partially offset by decreases of $250.0 million, $189.5 million, $175.9 million and $78.8 million in non-interest-bearing demand deposit accounts, savings accounts, interest-bearing demand deposit accounts, and governmental deposit accounts, respectively.

Total stockholders' equity at September 30, 2023 decreased by $5.7 million compared to at June 30, 2023, which was primarily due to an increase in accumulated other comprehensive loss of $24.9 million and dividends paid of $13.8 million, partially offset by net income for the third quarter of 2023 of $31.9 million.

The change in accumulated other comprehensive loss was primarily 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 $148.1 million and $121.5 million at September 30, 2023 and at June 30, 2023, respectively.

Total stockholders' equity at September 30, 2023 increased by $207.9 million and $232.7 million compared to at December 31, 2022 and at September 30, 2022, respectively, primarily due to 6.8 million common shares issued in the Limestone Merger.

The increase in total stockholders' equity at September 30, 2023 when compared to at December 31, 2022 was also impacted by net income for the first nine months of 2023 of $79.5 million, partially offset by dividends paid of $37.9 million and an increase in accumulated other comprehensive loss of $16.7 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.

The increase in total stockholders' equity at September 30, 2023 when compared to at September 30, 2022 was also impacted by net income of $106.4 million in the last twelve months, partially offset by dividends paid of $48.7 million and an increase in accumulated other comprehensive loss of $8.9 million.

The increase in accumulated other comprehensive loss was the result of an increase of $10.0 million in unrealized losses related to the available-for-sale investment securities portfolio from September 30, 2022 to September 30, 2023, partially offset by the realization of $2.4 million of pre-tax accumulated losses for the pension plan when it was terminated during the third quarter of 2023.

Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $138.1 million at September 30, 2022.

RESULTS OF OPERATIONS

3 unchanged sentences

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.

FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended corporate income tax rate of 23.3% for the three months and the nine months ended September 30, 2023, 23.6% for the three months ended June 30, 2023, and 23.3% for the three months and the nine months ended September 30, 2022.

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

For the Three Months Ended

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

September 30, 2023 June 30, 2023 September 30, 2022

( Dollars in thousands)

51 unchanged sentences

Net interest margin (b) 4.70 % 4.54 % 4.17 %

For the Six Months Ended

June 30, 2023 June 30, 2022

For the Nine Months Ended

September 30, 2023 September 30, 2022

( Dollars in thousands)

53 unchanged sentences

(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.

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

6 unchanged sentences

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.

Peoples' cash balances have increased primarily due to an increase in interest-bearing deposits in other banks, mostly with the FRB.

The increases in market interest rates have increased asset yields and deposit outflows (which have increased borrowings).

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

Three Months Ended September 30, 2023 Compared to

Nine Months Ended September 30, 2023 Compared to

(Dollars in thousands) June 30, 2023 September 30, 2022 September 30, 2022

Increase (decrease) in:

34 unchanged sentences

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

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

Compared to the linked quarter, net interest income increased 10% and net interest margin expanded by 16 basis points.

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

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

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

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

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

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

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

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

Net interest margin was 4.70% for the third quarter of 2023, compared to 4.54% for the linked quarter.

The increase in net interest margin for the third quarter of 2023 compared to the linked quarter was primarily driven by a full quarter of accretion on the acquired Limestone portfolio in the third quarter compared to only two months in the second quarter.

The third quarter was also impacted by a true-up of $3.6 million to the preliminary Limestone-related accretion, $1.9 million of which would have benefited the second quarter of 2023.

Net interest income for the third quarter of 2023 grew 39% over the prior year quarter and net interest margin increased by 53 basis points.

The increase in net interest income compared to the third 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 187 basis points due to the rising market interest rate environment and both acquisitive and organic growth, while borrowing costs increased 281 basis points due primarily to a change in the composition of borrowings and increases in market interest rates.

For the first nine months of 2023, net interest income and net interest margin grew 37% and 79 basis points, respectively, compared to 2022.

During that same time, loan yields increased 175 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.

Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $0.4 million during the third quarter of 2022 along with $22,000 of interest earned on PPP loans.

The interest income recognized on PPP loans added 1 basis point to net interest margin for the third quarter of 2022.

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

The interest income recognized on PPP loans added 3 basis points to net interest margin for the first nine months of 2022.

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

Accretion income, net of amortization expense, from acquisitions was $9.8 million for the third quarter of 2023, $4.5 million for the linked quarter and $2.8 million for the third quarter of 2022, which added 49 basis points, 24 basis points and 16 basis points, respectively, to net interest margin.

The increases in accretion income for the third quarter of 2023, when compared to the linked quarter and the third quarter of 2022 were driven by accretion from the Limestone Merger and the aforementioned third quarter 2023 true-up to preliminary Limestone-related accretion.

For the first nine months of 2023, accretion income, net of amortization expense, totaled $16.3 million and added 30 basis points to net interest margin compared to $9.4 million and 20 basis points for the first nine months of 2022.

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.

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

5 unchanged sentences

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

During the first quarter of 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.

individually analyzed loans.

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

For the first nine months 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 (ii) 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 for the first nine months of 2022 was primarily due to the impact of economic assumptions used in the CECL model.

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.”

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

Net (loss) gain on investment securities $ (7) $ (166) $ 21 $ (2,108) $ 107

Net loss on asset disposals and other transactions:

Net loss on other assets (44) (229) (119) (273) (141)

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

Net (loss) gain on other assets (284) (44) 94 (557) (47)

Net (loss) on OREO — (1,613) (105) (1,623) (138)

1 unchanged sentence

Net (loss) on asset disposals and other transactions $ (307) $ (1,665) $ (35) $ (2,218) $ (314)

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

During the first quarter of 2023, Peoples executed sales 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.

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

The net loss on asset disposals and other transactions for the third quarter of 2023 was due to $0.3 million of net losses on repossessed assets.

The net loss for the linked quarter was primarily due to the $1.6 million write-down of an OREO property due to a pending sale of the property.

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.

Total non-interest income, excluding net gains and losses, comprised 20% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the third quarter of 2023, compared to 21% and 23% for the linked quarter and the third quarter of 2022, respectively.

For the first nine months of 2023, total non-interest income, excluding net gains and losses, totaled 21% of total revenues compared to 25% for the first nine months of 2022.

The decreases in these ratios for the third quarter and the first nine 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 increases in the market interest rates.

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

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

The following table details Peoples' e-banking income:

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

2 unchanged sentences

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

E-banking income increased 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.

E-banking income increased for the third quarter of 2023 compared to the prior year third quarter primarily due to additional income provided by

E-banking income for the first nine months of 2023 was also impacted by increased customer activity including the additional customers from the Limestone Merger, when compared to the same period in 2022.

The following table details Peoples' insurance income:

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

8 unchanged sentences

Insurance income $ 4,250 $ 4,004 $ 3,618 $ 13,679 $ 11,995

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' insurance income for the third quarter of 2023 increased when compared to that for the linked quarter and the third quarter of 2022, which was driven by higher performance-based property and casualty insurance commissions due to client acquisition efforts and hardening insurance markets.

Insurance income in the first nine months of 2023 increased 14% when compared to the first nine months 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

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

3 unchanged sentences

Trust and investment income $ 4,288 $ 4,414 $ 3,954 $ 12,786 $ 12,476

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.

Fiduciary income and brokerage income decreased slightly in the third quarter of 2023 relative to the linked quarter due to market volatility.

When compared to the third quarter of 2022, fiduciary income and brokerage income increased, which was driven by an increase in brokerage income due to an increase in assets under administration and management.

For the first nine months of 2023, trust and investment income increased when compared to the same period in 2022 due to an increase in brokerage income, partially offset by less fiduciary income, primarily reflecting market volatility.

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

September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

(Dollars in thousands)

3 unchanged sentences

Quarterly average $ 3,319,655 $ 3,205,186 $ 3,076,285 $ 2,965,985 $ 2,844,181

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.

The decreases in assets under administration and management at September 30, 2023 compared to at June 30, 2023 was driven by a decrease in trust assets and market value fluctuations.

The increase in assets under administration and management at September 30, 2023 when compared to at September 30, 2022 was primarily due to the acquisition of an independent financial advisor in January of 2023 which increased brokerage assets by $30 million.

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

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

5 unchanged sentences

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

Deposit account service charges 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.

Deposit account service charges increased for the third quarter of 2023 compared to the linked quarter due to a full quarter of income from Limestone customers compared to only two months in the linked quarter.

Deposit account service charges increased when comparing the third quarter and the year to date of 2023 to the same 2022 periods due to the Limestone Merger and increased maintenance fee rates.

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

Lease income 1,719 1,077 431 2,796 1,206

Other non-interest income 2,452 1,059 967 4,179 2,819

Bank owned life insurance income 1,375 842 694 2,924 1,922

Lease income (66) 1,719 1,725 2,730 2,931

Mortgage banking income 237 189 328 740 1,116

Other non-interest income 1,059 668 1,133 1,727 1,852

The increases in non-interest income when comparing the three and the nine months ended September 30, 2023 to their respective prior periods of 2022 were primarily due to increases in operating lease income.

Bank owned life insurance income for the third quarter of 2023 increased compared to the linked quarter primarily due to a cumulative adjustment related to the acquired Limestone portfolio.

Bank owned life insurance income for the third quarter and year to date of 2023, increased when compared to the same periods of 2022, due to the Limestone Merger as well as additional investments in bank owned life insurance.

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.

The third quarter of 2023 decrease in lease income when compared to the linked quarter and third quarter of 2022 was due to $1.6 million in net losses on the disposition of lease residuals during the quarter, partially offset by other lease income.

The first nine months of 2023 decrease in lease income when compared to the same period of 2022 was also due to lease residual activity in the third quarter of 2023, partially offset by increases in lease income from Vantage.

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.

Mortgage banking income for the third quarter of 2023 and the first nine months of 2023 declined when compared to the comparative prior periods of 2022 primarily due to the rising market interest rate environment.

In the third quarter of 2023, Peoples sold $0.8 million in loans into the secondary market with servicing retained and $9.4 million in loans with servicing released, compared to $1.1 million and $6.1 million, respectively, in the second quarter of 2023, and $4.4 million and $7.6 million, respectively, in the third quarter of 2022.

For the first nine months of 2023, Peoples sold $2.7 million in loans into the secondary market with servicing retained, and $22.8 million in loans with servicing released, compared to $16.1 million and $21.6 million, respectively, for the first nine months of 2022.

Non-Interest Expense

1 unchanged sentence

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

Base salaries and wages $ 24,152 $ 27,407 $ 18,762 $ 71,891 $ 54,846

Employee benefits 3,622 4,115 3,321 7,737 6,942

Sales-based and incentive compensation 6,480 5,502 4,899 15,927 13,448

Employee benefits 4,307 3,622 3,340 12,044 10,282

Payroll taxes and other employment costs 1,949 1,535 1,796 5,854 5,276

5 unchanged sentences

Average during the period 1,494 1,393 1,253 1,359 1,106

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.

Base salaries and wages for the third quarter of 2023 decreased compared to the linked quarter due to a $4.8 million decrease in acquisition-related expenses, partially offset by an increase in non-acquisition related expenses due to growth and a full quarter of expenses from Limestone employees compared to two months of expenses in the linked quarter.

Base salaries and wages for the third quarter of 2023 and the first nine months of 2023 increased compared to the comparative prior periods due to $0.2 million and $5.3 million of acquisition-related expenses related to the Limestone Merger for the third quarter of 2023 and the first nine months of 2023, respectively, and additional expenses from Limestone employees in the third quarter of 2023 and the first nine months of 2023.

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

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

The increase in employee benefits for the third quarter of 2023 compared to the linked quarter, was primarily due to increased medical costs as well as a full quarter of expenses from Limestone employees compared to two months of expenses in the linked quarter.

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

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

Payroll taxes and other employment costs for the third quarter of 2023 increased compared to the linked quarter due to an increase in payroll taxes due to growth and a full quarter of expenses from Limestone employees compared to two months of expenses in the linked quarter.

The increases in payroll taxes and other employment costs for the three months and the nine months ended September 30, 2023, when compared to the three months and the nine months ended September 30, 2022, were primarily due to additional Limestone-related non-acquisition-related expenses and $0.1 million and $0.2 million, respectively, of acquisition-related expenses in the third quarter and first nine months 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.

2 unchanged sentences

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.

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

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

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.

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 increases in deferred personnel costs for the third quarter and the first nine months of 2023 compared to the comparative prior periods were primarily due to an increase in loan origination volume.

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

Net occupancy and equipment expense $ 5,501 $ 5,380 $ 4,813 $ 15,836 $ 14,669

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 third quarter of 2023 net occupancy and equipment expense increased when compared to the linked quarter due to a full quarter of Limestone-related net occupancy and equipment expense compared to two months of expense in the linked quarter.

The third quarter and the first nine months of 2023 net occupancy and equipment expense increased when compared to the comparative periods in 2022 due to additional net occupancy and equipment expense from the Limestone Merger.

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

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

Data processing and software expense $ 6,288 $ 4,728 $ 3,279 $ 15,578 $ 9,228

Professional fees 3,456 7,438 2,832 13,775 8,784

Amortization of other intangible assets 3,280 2,800 2,023 7,951 5,765

E-banking expense 1,836 1,832 2,648 5,159 8,134

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

Marketing expense 1,267 1,357 1,136 3,554 2,991

FDIC insurance premiums 1,260 1,464 709 3,525 2,921

Franchise tax expense 772 872 1,075 2,678 2,941

Communication expense 724 613 649 1,337 1,274

Other loan expenses 856 538 511 2,133 1,788

Communication expense 752 724 599 2,089 1,873

Other non-interest expense 9,820 5,465 4,010 19,859 10,755

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.

Data processing and software expenses for the third quarter and the first nine months of 2023 were impacted by $1.3 million of acquisition-related data processing and software expenses attributable to Limestone in the third quarter of 2023, which was the primary driver of the increase when compared to the linked quarter.

The increases for the third quarter and the first nine months of 2023 when compared to the third quarter and first nine months of 2022 were also driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

Professional fees for the third quarter of 2023 decreased when compared to the linked quarter due to less acquisition-related expenses.

Professional fees for the third quarter and the first nine months of 2023 increased when compared to the comparative prior periods in 2022 due to $0.4 million and $5.5 million of acquisition-related expenses during the third quarter and first nine months of 2023, respectively, related to the Limestone Merger.

Amortization of other intangible assets for the third quarter and the first nine months of 2023 increased when compared to the linked quarter and comparative prior periods in 2022 due to additional expenses attributable to the Limestone Merger during the third quarter and the first nine months of 2023, respectively.

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.

E-banking expense decreased for the third quarter and first nine months of 2023 when compared to the same periods of 2022 due to reduced costs for Peoples' online banking platform and a reclassification of those costs relative to the prior period to data processing and software expense.

Marketing expense and communication expense for the third quarter of 2023 decreased when compared to the linked quarter due to additional marketing campaigns to promote the Limestone Merger in the second quarter of 2023.

Marketing expense and communication expense for the third quarter and the first nine months of 2023 increased when compared to the comparative prior periods in 2022 due to additional marketing campaigns in 2023.

Additionally, Limestone added additional communication expenses in the third quarter and the first nine months of 2023, respectively.

Peoples' FDIC insurance premiums for the third quarter of 2023 decreased when compared to the linked quarter due to a prior period true-up related to an increase in rates assessed by the FDIC.

FDIC insurance premiums for the third quarter and the first nine 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 nine months of 2022 was also impacted by an adjustment in the first quarter of 2022 relating to prior acquisitions.

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

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

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

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

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

The 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.

The decreases for the third quarter and the first nine months of 2023 versus the respective prior comparative periods were driven by a lower apportionment in Ohio compared to all comparative prior periods.

Other loan expenses during the third quarter of 2023 and the first nine months of 2023 increased when compared to the respective prior comparative periods primarily due to increases in miscellaneous loan and collection expenses.

The third quarter and the first nine months of 2023 increases when compared to the same periods of 2022 were also impacted by Limestone-related expenses and increases in business loan expenses and credit bureau expenses.

Other non-interest expense for the third quarter of 2023 and the first nine months of 2023 increased when compared to the linked quarter and comparative prior periods in 2022 due to a $2.4 million settlement charge in relation to the termination of the pension plan and $1.8 million of acquisition-related expenses related to the Limestone Merger, mostly due to early contract termination fees, recorded in the third quarter of 2023.

The increases in other non-interest expense for the third quarter of 2023 and the first nine months of 2023 were also impacted by increases of $0.6 million, $0.9 million, and $1.1 million in operating lease expense when compared to the linked quarter, third quarter of 2022, and first nine months of 2022, respectively.

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.

The increase was driven by higher pre-tax income.

Peoples recorded income tax expense of $8.8 million with an effective tax rate of 21.7% for the third quarter of 2023, compared to income tax expense of $6.2 million with an effective tax rate of 22.6% for the linked quarter and income tax expense of $7.4 million with an effective tax rate of 22.2% for the third quarter of 2022.

Income tax expense for the third quarter of 2023 compared to the linked quarter and the third quarter of 2022, increased due to higher net income before income taxes.

The effective rate decrease for the third quarter of 2023 when compared to the linked quarter and the third quarter of 2022 was primarily due to updates to the blended state tax rate.

The increase in income tax expense for the first nine months of 2023 when compared to the same 2022 period was driven by higher pre-tax income.

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

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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

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

8 unchanged sentences

gain on investment securities — — 21 — 151

gain on other assets — — 94 — 94

Pre-provision net revenue $ 45,096 $ 37,076 $ 35,178 $ 119,812 $ 89,057

3 unchanged sentences

Pre-provision net revenue per common share - diluted $ 1.28 $ 1.13 $ 1.25 $ 3.72 $ 3.17

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.

The increase in the PPNR for the third quarter of 2023 compared to the second quarter of 2023 was driven by increased net interest income due to a full quarter of income from the Limestone Merger compared to two months in the linked quarter and the positive impact of recent increases in market interest rates, partially offset by an increase in non-interest expense, primarily due to the Limestone Merger.

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

Core Non-Interest Expense (Non-US GAAP)

2 unchanged sentences

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

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

2 unchanged sentences

acquisition-related expenses 4,434 10,709 339 15,694 2,314

pension settlement charges 2,424 — 139 2,424 139

COVID-19-related expenses — — 9 — 132

6 unchanged sentences

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

9 unchanged sentences

FTE adjustment (a) 444 446 387 1,289 1,116

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

Net interest income on an FTE basis 93,718 85,299 67,438 252,294 183,945

Adjusted revenue $ 117,236 $ 108,145 $ 87,818 $ 319,899 $ 243,954

5 unchanged sentences

Non-interest income excluding net gains and losses 23,518 22,846 20,380 67,605 60,009

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

Net interest income on an FTE basis 93,718 85,299 67,438 252,294 183,945

Adjusted revenue $ 117,236 $ 108,145 $ 87,818 $ 319,899 $ 243,954

Efficiency ratio adjusted for non-core items 52.51 % 53.32 % 56.64 % 54.17 % 59.61 %

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

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

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

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

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

The efficiency ratio decreased for the third quarter of 2023 when compared to the second quarter of 2023 and increased when compared to the third quarter of 2022.

The efficiency ratio for the first nine months of 2023 improved when compared to the first nine months 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 third quarter of 2023 and the first nine months 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)

2 unchanged sentences

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

4 unchanged sentences

tax effect of net loss on investment securities (a)

35 406 9 441 —

net gain on investment securities

8 unchanged sentences

931 2,249 71 3,296 486

pension settlement charges

2,424 — 139 2,424 139

tax effect of pension settlement charges (a)

509 — 29 509 29

COVID-19-related expenses — — 9 — 132

24 unchanged sentences

(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.

The return on average assets adjusted for non-core items for the third quarter of 2023 increased when compared to the linked quarter, due to an increase in annualized net income resulting from an increase in net interest income and a decrease in acquisition-related expenses, partially offset by an increase in average assets resulting from the Limestone Merger as well as increases in non-interest expenses.

The increase in the return on average assets adjusted for non-core items for the third quarter of 2023, compared to the third quarter of 2022, was attributable to an increase in annualized net income primarily due to an increase in net interest income, partially offset by the assets acquired in the Limestone Merger and an increase in expenses.

The return on average assets adjusted for non-core items for the first nine months of 2023 increased when compared to the first nine months of 2022, due to a higher annualized net income due to an increase in net interest income, partially offset by an increase in average assets, higher non-interest expenses, and a provision for credit losses compared to a recovery of credit losses in the first nine months of 2022.

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

1 unchanged sentence

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

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

2023 March 31,

2023 June 30,

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

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

(Dollars in thousands) 2023 2022

37 unchanged sentences

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

The return on total average stockholders' equity and average tangible equity ratios were lower in the 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.

The return on total average stockholders' equity and average tangible equity ratios increased when compared to the linked quarter due to an increase in annualized net income mainly attributable to an increase in net interest income, partially offset by an increase in acquisition-related expenses and non-acquisition-related expenses.

The decreases in the return on total average stockholders' equity and average tangible equity ratios in the third quarter of 2023 when compared to the same period of 2022 were due to the 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, partially offset by 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.

The decrease in the return on total average stockholders' equity and average tangible equity ratios in the first nine months of 2023 when compared to the same period of 2022 was primarily due to the factors that increased equity mentioned above, partially offset by an increase in net annualized income due to an increase in net interest income.

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.

At September 30, 2023, Peoples' interest-bearing deposits in other banks had increased $131.7 million from December 31, 2022.

The total cash and cash equivalents balance included $167.8 million of excess cash reserves being maintained at the FRB of Cleveland at September 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.

Through the first nine months of 2023, Peoples' total cash and cash equivalents increased $145.1 million, which reflected cash inflows of $113.1 million of cash provided by operating activities and $111.1 million of cash provided by financing activities, partially offset by cash outflows of $79.1 million of cash used in investing activities.

The cash provided by financing activities was largely driven by a $369.6 million net increase in interest-bearing deposits and $70.1 million of proceeds from long-term borrowings, partially offset by (i) a net decrease in non-interest bearing deposits of $283.0 million, (ii) $37.9 million in cash dividends paid and (iii) $32.5 million in payments on long-term borrowings.

Peoples' use of cash in investing activities reflected cash outflows from a $285.2 million net decrease in loans held for investment and net cash outflows from held-to-maturity investment securities of $115.1 million, partially offset by net cash inflows from available-for-sale investment securities of $249.5 million and $93.0 million of cash received in the Limestone Merger.

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

1 unchanged sentence

The following table provides information regarding Peoples’ investment portfolio:

(Dollars in thousands) Weighted Average Yield June 30,

(Dollars in thousands) Weighted Average Yield September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Available-for-sale securities, at fair value:

21 unchanged sentences

Carrying value $ 1,760,322 $ 1,870,943 $ 1,796,332 $ 1,743,220 $ 1,616,684

(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.

(a) Amortized cost is presented net of the allowance for credit losses of $238 at September 30, 2023, $241 at December 31, 2022 and $238 at September 30, 2022.

For the third quarter of 2023, total investment securities decreased compared to the linked quarter, largely due to sales of lower-yielding available-for-sale securities and an increase in unrealized losses on available-for-sale securities due to the rising market interest rate environment.

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.

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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 and Leases

The following table provides information regarding outstanding loan balances:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Originated loans:

Originated loans and leases:

$ 289,657 $ 297,051 $ 222,915 $ 212,869 $ 175,388

18 unchanged sentences

857 830 749 722 597

Total originated loans

Total originated loans and leases

$ 4,158,836 $ 3,942,091 $ 3,734,979 $ 3,598,422 $ 3,425,138

Acquired loans (a):

Acquired loans and leases (a):

$ 84,359 $ 121,690 $ 9,381 $ 34,072 $ 40,233

15 unchanged sentences

20,402 36,233 8,107 9,657 14,032

Total acquired loans

Total acquired loans and leases

$ 1,925,554 $ 2,032,505 $ 1,024,739 $ 1,108,728 $ 1,186,069

Total loans and leases

$ 6,084,390 $ 5,974,596 $ 4,759,718 $ 4,707,150 $ 4,611,207

Percent of loans to total loans:

Percent of loans and leases to total loans and leases:

6.1 % 7.0 % 4.9 % 5.2 % 4.7 %

22 unchanged sentences

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

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

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

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

The period-end total loan and lease balances at September 30, 2023 increased $109.8 million, or 7% annualized, compared to at June 30, 2023.

The increase in the period-end loan and lease balance at September 30, 2023 compared to June 30, 2023 was primarily driven by increases of (i) $118.5 million in other commercial real estate loans, (ii) $26.9 million in premium finance loans and (iii) $24.8 million in leases, partially offset by decreases of $44.7 million in construction loans and $31.5 million in commercial and industrial loans.

The increase in the period-end loan and lease balances at June 30, 2023 compared to at March 31, 2023 was 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 $358.6 million, or 10% annualized, when compared to at December 31, 2022, driven by increases of $182.8 million, $57.5 million, $48.4 million, $38.9 million, and $30.1 million in other commercial real estate loans, leases, construction loans, indirect consumer loans, and premium finance loans, respectively.

These increases were partially offset by a decrease of $13.1 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.

Excluding the loans acquired in the Limestone Merger, period-end loan and lease balances increased $454.6 million, or 10% annualized, when compared to at September 30, 2022 primarily due to increases of $182.9 million, $89.8 million, $79.8 million, $76.1 million and $21.6 million in other commercial real estate loans, leases, construction loans, indirect consumer loans and premium finance loans, respectively.

These increases were partially offset by a reduction of $23.1 million in consumer residential real estate loans.

3 unchanged sentences

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

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

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

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

2 unchanged sentences

Residential property 19,044 32,616 51,660 7.1 %

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

Land only 30,683 4,514 35,197 4.9 %

1 unchanged sentence

Industrial 21,872 13,544 35,416 4.9 %

Student housing 2,640 12,360 15,000 2.1 %

Lodging and lodging related 3,406 16,749 20,155 2.8 %

Land development 35,128 51,559 86,687 11.9 %

34 unchanged sentences

Total education services $ 47,763 $ 4,000 $ 51,763 2.3 %

Healthcare facilities:

Owner occupied $ 22,866 $ 103 $ 22,969 1.0 %

Non-owner occupied 22,863 429 23,292 1.0 %

Total healthcare facilities $ 45,729 $ 532 $ 46,261 2.0 %

Restaurant/bar facilities:

7 unchanged sentences

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.

For all other states, the aggregate outstanding balances of commercial loans in each state were less than 3% of total loans at both September 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.

5 unchanged sentences

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.

The SBA will reimburse PPP lenders for any

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

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

1 unchanged sentence

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

PPP aggregate outstanding principal balances $ 1,129 $ 1,418 $ 2,184 $ 2,458 $ 3,789

5 unchanged sentences

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Construction $ 1,241 $ 1,496 $ 1,273 $ 1,250 $ 1,464

10 unchanged sentences

As a percent of total loans 1.03 % 1.02 % 1.12 % 1.13 % 1.15 %

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 increase in the allowance for credit losses at September 30, 2023 compared to June 30, 2023 was largely attributable to the deterioration in macro-economic conditions used within the CECL model, partially offset by the release of reserves on individually analyzed loans.

The increase in the allowance for credit losses at September 30, 2023 and at June 30, 2023, when compared to the prior periods presented 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.

The following table summarizes Peoples’ net charge-offs and recoveries:

Three Months Ended

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Gross charge-offs:

6 unchanged sentences

Home equity lines of credit 32 55 19 42 5

Three Months Ended

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

2023 December 31,

2022 September 30,

Consumer, indirect 926 941 929 799 600

3 unchanged sentences

Total gross charge-offs $ 2,834 $ 2,041 $ 1,855 $ 2,481 $ 1,990

Three Months Ended

(Dollars in thousands) June 30,

2023 March 31,

2023 December 31,

2022 September 30,

2022 June 30,

Commercial real estate, other $ 97 $ 16 $ 27 $ 33 $ 39

36 unchanged sentences

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.

Total net charge-offs during the third quarter of 2023 were $2.3 million, or 0.15% of average total loans on an annualized basis, compared to $1.2 million, or 0.09% of average total loans on an annualized basis, during the second quarter of 2023 and $1.7 million, or 0.15% of average total loans on an annualized basis, during the third quarter of 2022.

The increase for the third quarter of 2023 when compared to the linked quarter was driven by an increase in net charge-offs on leases, commercial real estate loans and commercial and industrial loans during the third quarter of 2023.

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

The following table details Peoples’ nonperforming assets:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Loans 90+ days past due and accruing:

42 unchanged sentences

NPAs include nonperforming loans and OREO.

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.

Compared to at June 30, 2023, Peoples' NPAs were stable at 0.48% of total assets.

Total loans 90+ days past due and accruing increased at September 30, 2023 compared to at June 30, 2023, mostly due to increases in nonperforming leases and premium finance loans.

Total nonaccrual loans decreased at September 30, 2023 compared to at June 30, 2023, mostly due to a decrease in nonaccrual commercial real estate loans, partially offset by an increase in nonaccrual leases.

During the third quarter of 2023, criticized loans decreased $6.7 million, while classified loans increased $13.9 million when compared to at June 30, 2023.

The decrease in the amounts of criticized loans compared to at June 30, 2023 was primarily driven by criticized loan pay-offs, partially offset by loan downgrades.

The increase in the amount of classified loans compared to at June 30, 2023 was primarily driven by loan downgrades, partially offset by classified loan pay-offs.

The following table details Peoples’ deposit balances:

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Non-interest-bearing deposits (a) $ 1,569,095 $ 1,682,634 $ 1,555,064 $ 1,589,402 $ 1,635,953

10 unchanged sentences

(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.

At September 30, 2023, period-end total deposits increased $77.6 million, or 1%, compared to at June 30, 2023, primarily driven by increases of (i) $248.0 million in retail CDs, (ii) $56.0 million in governmental deposits and (iii) $49.0 million in brokered CDs, which are primarily used as a source of funding, partially offset by decreases of (i) $129.5 million in savings accounts, (ii) $113.5 million in non-interest-bearing demand deposit accounts, and (iii) $44.6 million in interest-bearing demand deposit accounts.

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

At September 30, 2023, period-end total deposits increased $1.2 billion, or 20%, compared to at September 30, 2022, primarily driven by deposits acquired in the Limestone Merger.

Excluding Limestone deposit balances, period-end deposit balances at September 30, 2023 increased $251.1 million compared to at September 30, 2022.

The increase was primarily driven by increases of $522.8 million in brokered deposits and $429.6 million in retail CDs, partially offset by decreases of $250.0 million, $189.5 million, $175.9 million and $78.8 million in non-interest bearing demand deposit accounts, savings accounts, interest-bearing demand deposit accounts and governmental deposit accounts, respectively.

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.

The interest rate swaps pay a fixed rate of interest while receiving a floating rate component of interest tied to term SOFR, which offsets the rate on the brokered CDs.

As of September 30, 2023, Peoples had eleven effective interest rate swaps, with an aggregate notional value of $105.0 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.

1 unchanged sentence

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Short-term borrowings:

20 unchanged sentences

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.

Total borrowed funds at September 30, 2023 increased compared to June 30, 2023, primarily due to an increase in long-term FHLB advances and higher overnight borrowings.

Total short-term borrowings at September 30, 2023 increased when compared to at September 30, 2022 due to outstanding FHLB overnight borrowings of $484.0 million at September 30, 2023, partially offset by a decrease in retail repurchase agreements.

Total long-term borrowings at September 30, 2023 increased when compared to at September 30, 2022 due to an increase in FHLB advances and other long-term borrowings assumed in the Limestone Merger, partially offset by a reduction in Vantage non-recourse debt.

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.

At September 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%.

At September 30, 2023, Peoples had a capital conservation buffer of 5.14%.

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

(Dollars in thousands) June 30,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Capital Amounts:

8 unchanged sentences

Tier 1 leverage ratio 9.34 % 9.64 % 9.02 % 8.92 % 8.64 %

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.

Peoples' risk-risk based capital ratios at September 30, 2023 increased slightly when compared to June 30, 2023, due to higher net income, primarily due to a full quarter of net income from the Limestone Merger compared to only two months of income in the linked quarter, partially offset by an increase in expenses from the Limestone Merger.

Compared to at September 30, 2022 and at December 31, 2022, the tier 1 risk-based capital and the total risk-based capital ratios improved due to higher net income, partially offset by the impact of the Limestone Merger and dividends paid.

The common equity tier 1 risk-based capital ratio at September 30, 2023 decreased compared to at December 31, 2022 and September 30, 2022 due to the common shares issued in the Limestone Merger.

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

4 unchanged sentences

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,

(Dollars in thousands) September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Tangible equity:

25 unchanged sentences

6.85 % 7.00 % 7.08 % 6.67 % 6.47 %

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.

The decrease in tangible book value per common share at September 30, 2023 and at June 30, 2023, compared to at March 31, 2023, was due to the 6.8 million common shares issued as consideration in the Limestone Merger.

Tangible book value per common share at September 30, 2023 increased compared to at September 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

7 unchanged sentences

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.

In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and impact interest costs or 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.

In light of recent bank failures, Peoples revisited the model assumptions during 2023, and determined the methods used by the ALCO to assess IRR remain appropriate and are largely unchanged from those disclosed in Peoples' 2022 Form 10-K.

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

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

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

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

300 $ 7,122 2.1 % $ 13,000 4.4 % $ (182,388) (11.0) % $ (82,959) (5.4) %

15 unchanged sentences

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.

Given the shape of market yield curves at September 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%.

At September 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 2.20%.

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.

2 unchanged sentences

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.

At September 30, 2023, the bear flattener scenario produced a decline of 0.80% to net interest income and a decline in the economic value of equity of 0.90%.

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.

As of September 30, 2023, Peoples had entered into eleven interest rate swap contracts with an aggregate notional value of $105.0 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

the rising interest rate scenarios.

At September 30, 2023, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income.

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

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

1 unchanged sentence

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.

At September 30, 2023, Peoples Bank had liquid assets of $357.6 million, which represented 3.6% of total assets and unfunded loan commitments.

Peoples also had an additional $219.1 million of unpledged investment securities not included in the measurement of liquid assets.

18 unchanged sentences

(Dollars in thousands)

September 30,

2023 June 30,

2023 March 31,

1 unchanged sentence

2022 September 30,

2022 June 30,

Home equity lines of credit $ 245,764 $ 208,805 $ 201,692 $ 197,995 $ 194,685

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis