PEOPLES BANCORP INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three months and the 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. Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions. These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, but are not limited to: (1) ongoing increasing interest rate policies, changes in the interest rate environment due to economic conditions and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Federal Reserve Board, including changes in the Federal Funds Target Rate, in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity; (2) the effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay; (3) the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the ongoing increasing interest rate policies of the Federal Reserve Board, the completion and successful integration of planned acquisitions, including the recently-completed acquisition of Vantage and the Limestone Merger, and the expansion of commercial and consumer lending activities; (4) competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals; (5) uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the 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; (7) the effects of easing restrictions on participants in the financial services industry; (8) current and future local, regional, national and international economic conditions (including the impact of persistent inflation, supply chain issues or labor shortages, supply-demand imbalances affecting local real estate prices, high unemployment rates in the local or regional economies in which Peoples operates and/or the U.S. economy generally, ineffective management of the U.S. federal budget or debt, potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and U.S. global trading partners) and the impact these conditions may have on Peoples, Peoples' customers and Peoples' counterparties, and Peoples' assessment of the impact, which may be different than anticipated; (9) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; (10) changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of recent inflationary pressures and 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; 44 Table of Contents (12) future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses; (13) changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations; (14) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model; (15) the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies; (16) adverse changes in the conditions and trends in the financial markets, including recent inflationary pressures, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities; (17) the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors; (18) Peoples' ability to receive dividends from Peoples' subsidiaries; (19) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (20) the impact of larger or similar-sized financial institutions encountering problems, such as the 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; (23) any misappropriation of the confidential information which Peoples possesses could have an adverse impact on Peoples' business and could result in regulatory actions, litigation and other adverse effects; (24) Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands; (25) operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and Peoples' subsidiaries are highly dependent; (26) changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated; (27) the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business; (28) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence; (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. economy due to financial, political or other shocks; (31) the potential influence on the U.S. financial markets and economy from the effects of climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs; 45 Table of Contents (32) the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property; (33) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets; (34) Peoples' ability to integrate the Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; (35) the risk that expected revenue synergies and cost savings from the Limestone Merger, may not be fully realized or realized within the expected time frame; (36) changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases; (37) the vulnerability of Peoples' network and online banking portals, and the systems of parties with whom Peoples contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (38) Peoples' business may be adversely affected by increased political and regulatory scrutiny of corporate environmental, social and governance ("ESG") practices; (39) the effect of a fall in stock market prices on the asset and wealth management business; and (40) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' 2022 Form 10-K, under the heading "Item 1A. RISK FACTORS" in Part II of Peoples' Quarterly 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. Peoples encourages readers of this Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Peoples undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the filing of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section. All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes to the 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 The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations. Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, 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. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division. Peoples also offers lease financing through its North Star Leasing division and through Vantage, a subsidiary of Peoples Bank. As of September 30, 2023, Peoples had 149 locations, including 132 full-service bank branches in Ohio, Kentucky, West Virginia, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the FRB of Cleveland and the FDIC. Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business. 46 Table of Contents Critical Accounting Policies The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant accounting policies. Management has identified the accounting 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. Summary of Recent Transactions and Events The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition: ◦ 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. The Limestone Merger closed as of the close of business on April 30, 2023. Peoples acquired Limestone's loan portfolio totaling $1.1 billion, $1.2 billion of deposits, $172.7 million of total investment securities, an aggregate of $93.7 million of short-term and long term borrowings, and $93.5 million of total cash and cash equivalents. 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. ◦ 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 $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 47 Table of Contents 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 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 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. 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 for individually analyzed loans. 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 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. 48 Table of Contents 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 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. 49 Table of Contents 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 50 Table of Contents 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 $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 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 $7.95 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 51 Table of Contents 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 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 Net Interest Income Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities. Net interest margin, which is calculated by dividing fully tax-equivalent ("FTE") net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended corporate income tax rate of 23.3% 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Net interest income $ 93,274 $ 84,853 $ 67,051 $ 251,005 $ 182,829 Taxable equivalent adjustment 444 446 387 1,289 1,116 FTE net interest income $ 93,718 $ 85,299 $ 67,438 $ 252,294 $ 183,945 52 Table of Contents The following tables detail Peoples’ average balance sheets for the periods presented: For the Three Months Ended September 30, 2023 June 30, 2023 September 30, 2022 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 62,609 $ 801 5.08 % $ 58,245 $ 673 4.63 % $ 159,522 $ 847 2.11 % Investment securities (a)(b): Taxable 1,626,342 12,682 3.12 % 1,673,441 12,817 3.06 % 1,483,984 7,604 2.05 % Nontaxable 192,906 1,480 3.07 % 200,503 1,477 2.95 % 201,150 1,405 2.79 % Total investment securities 1,819,248 14,162 3.11 % 1,873,944 14,294 3.05 % 1,685,134 9,009 2.13 % Loans (b)(c): Construction 400,396 9,983 9.76 % 358,732 6,491 7.16 % 222,966 2,765 4.85 % Commercial real estate, other 1,965,927 34,369 6.84 % 1,735,466 28,240 6.44 % 1,300,173 16,593 4.99 % Commercial and industrial 1,128,420 22,568 7.83 % 1,069,529 19,569 7.24 % 865,436 11,140 5.04 % Premium finance 179,390 3,565 7.78 % 154,557 2,659 6.81 % 162,057 1,949 4.71 % Leases 384,606 11,508 11.71 % 359,016 10,275 11.32 % 307,459 9,628 12.25 % Residential real estate (d) 952,863 11,879 4.99 % 921,012 10,818 4.70 % 869,444 9,439 4.34 % Home equity lines of credit 201,973 4,012 7.88 % 191,915 3,656 7.64 % 173,032 2,217 5.08 % Consumer, indirect 662,462 8,774 5.25 % 651,669 7,942 4.89 % 576,826 5,907 4.06 % Consumer, direct 139,595 2,416 6.87 % 123,899 2,246 7.27 % 113,609 1,764 6.16 % Total loans 6,015,632 109,074 7.13 % 5,565,795 91,896 6.55 % 4,591,002 61,402 5.26 % Allowance for credit losses (60,724) (53,427) (52,719) Net loans 5,954,908 109,074 7.20 % 5,512,368 91,896 6.62 % 4,538,283 61,402 5.33 % Total earning assets 7,836,765 124,037 6.23 % 7,444,557 106,863 5.70 % 6,382,939 71,258 4.40 % Goodwill and other intangible assets 411,229 387,055 329,482 Other assets 558,415 511,271 411,687 Total assets $ 8,806,409 $ 8,342,883 $ 7,124,108 Interest-bearing deposits: Savings accounts $ 1,058,606 $ 447 0.17 % $ 1,095,713 $ 583 0.21 % $ 1,079,580 $ 139 0.05 % Governmental deposit accounts 758,409 4,012 2.10 % 693,725 2,330 1.35 % 741,836 543 0.29 % Interest-bearing demand accounts 1,198,100 520 0.17 % 1,178,614 532 0.18 % 1,158,970 190 0.07 % Money market accounts 717,765 2,943 1.63 % 679,123 2,006 1.18 % 623,144 292 0.19 % Retail CDs 1,043,579 7,161 2.72 % 825,155 4,209 2.05 % 560,532 644 0.46 % Brokered CDs (e) 631,410 7,399 4.65 % 480,640 4,743 3.96 % 86,524 508 2.33 % Total interest-bearing deposits 5,407,869 22,482 1.65 % 4,952,970 14,403 1.17 % 4,250,586 2,316 0.22 % Borrowed funds: Short-term FHLB advances (e) 344,978 4,717 5.42 % 387,543 4,938 5.11 % 41,696 266 2.53 % Repurchase agreements and other 113,484 452 1.59 % 106,018 376 1.42 % 161,069 127 0.32 % Total short-term borrowings 458,462 5,169 4.48 % 493,561 5,314 4.32 % 202,765 393 0.77 % Long-term FHLB advances 60,486 521 3.42 % 33,819 205 2.43 % 34,727 212 2.42 % Long-term notes payable 39,680 635 6.40 % 44,493 548 4.94 % 63,420 698 4.40 % Other long-term borrowings (f) 48,068 1,512 12.31 % 53,779 1,094 8.05 % 13,735 201 5.73 % Total long-term borrowings 148,234 2,668 7.19 % 132,091 1,847 5.56 % 111,882 1,111 3.97 % Total borrowed funds 606,696 7,837 4.72 % 625,652 7,161 4.58 % 314,647 1,504 1.91 % Total interest-bearing liabilities 6,014,565 30,319 1.96 % 5,578,622 21,564 1.55 % 4,565,233 3,820 0.33 % Non-interest-bearing deposits 1,627,231 1,637,671 1,655,888 Other liabilities 159,755 175,152 105,128 Total liabilities 7,801,551 7,391,445 6,326,249 Total stockholders’ equity 1,004,858 951,438 797,859 Total liabilities and stockholders’ equity $ 8,806,409 $ 8,342,883 $ 7,124,108 Interest rate spread (b) $ 93,718 4.27 % $ 85,299 4.15 % $ 67,438 4.07 % Net interest margin (b) 4.70 % 4.54 % 4.17 % 53 Table of Contents For the Nine Months Ended September 30, 2023 September 30, 2022 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 57,271 $ 1,862 4.35 % $ 224,060 $ 1,306 0.78 % Investment securities (a)(b): Taxable 1,632,594 36,548 2.98 % 1,488,609 20,712 1.86 % Nontaxable 194,667 4,255 2.91 % 199,515 3,991 2.67 % Total investment securities 1,827,261 40,803 2.98 % 1,688,124 24,703 1.95 % Loans (b)(c): Construction 333,895 20,437 8.07 % 219,478 7,136 4.29 % Commercial real estate, other 1,671,019 82,403 6.50 % 1,338,375 46,974 4.63 % Commercial and industrial 1,021,573 56,747 7.33 % 872,601 27,878 4.21 % Premium finance 160,729 8,374 6.87 % 146,345 4,891 4.41 % Leases 362,222 31,426 11.44 % 253,231 26,271 13.68 % Residential real estate (d) 903,622 32,414 4.78 % 890,499 28,531 4.27 % Home equity lines of credit 190,225 10,634 7.47 % 168,137 5,577 4.43 % Consumer, indirect 651,578 23,947 4.91 % 547,438 16,195 3.96 % Consumer, direct 125,826 6,401 6.80 % 110,509 5,006 6.06 % Total loans 5,420,689 272,783 6.66 % 4,546,613 168,459 4.91 % Allowance for credit losses (55,757) (56,237) Net loans 5,364,932 272,783 6.73 % 4,490,376 168,459 4.97 % Total earning assets 7,249,464 315,448 5.76 % 6,402,560 194,468 4.03 % Goodwill and other intangible assets 374,924 321,043 Other assets 496,497 380,376 Total assets $ 8,120,885 $ 7,103,979 Interest-bearing deposits: Savings accounts $ 1,066,783 $ 1,166 0.15 % $ 1,068,912 $ 218 0.03 % Governmental deposit accounts 696,359 7,408 1.42 % 705,891 1,462 0.28 % Interest-bearing demand accounts 1,160,698 1,232 0.14 % 1,169,284 397 0.05 % Money market accounts 661,272 5,774 1.17 % 638,061 492 0.10 % Retail CDs 817,512 13,120 2.15 % 596,335 2,262 0.51 % Brokered CDs (e) 452,574 13,846 4.09 % 88,336 1,552 2.35 % Total interest-bearing deposits 4,855,198 42,546 1.17 % 4,266,819 6,383 0.20 % Borrowed funds: Short-term FHLB advances (e) 373,304 13,969 5.00 % 50,132 816 2.18 % Repurchase agreements and other 104,522 971 1.24 % 119,228 176 0.20 % Total short-term borrowings 477,826 14,940 4.18 % 169,360 992 0.78 % Long-term FHLB advances 42,870 930 2.90 % 59,440 775 1.74 % Long-term notes payable 44,903 1,837 5.45 % 57,989 1,900 4.37 % Other long-term borrowings (f) 38,676 2,901 9.89 % 13,700 473 4.55 % Total long-term borrowings 126,449 5,668 5.98 % 131,129 3,148 3.20 % Total borrowed funds 604,275 20,608 4.14 % 300,489 4,140 1.83 % Total interest-bearing liabilities 5,459,473 63,154 1.50 % 4,567,308 10,523 0.31 % Non-interest-bearing deposits 1,607,411 1,637,053 Other liabilities 134,003 91,749 Total liabilities 7,200,887 6,296,110 Total stockholders’ equity 919,998 807,869 Total liabilities and stockholders’ equity $ 8,120,885 $ 7,103,979 Interest rate spread (b) $ 252,294 4.26 % $ 183,945 3.72 % Net interest margin (b) 4.60 % 3.81 % (a) Average balances are based on carrying value. (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. (c) Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented. 54 Table of Contents (d) Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income. (e) Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered CDs for the periods presented in which FHLB advances and brokered CDs were being utilized. (f) Included in other long-term borrowings are trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures. Peoples' average balances compared to prior periods have been impacted by recent acquisitions, including the Limestone Merger as of the close of business on April 30, 2023, which added to average loan, deposit and borrowed funds balances. Peoples' cash balances have increased primarily due to 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 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: Rate Volume Total (a) Rate Volume Total (a) Rate Volume Total (a) INTEREST INCOME: Short-term investments $ 702 $ (574) $ 128 $ 2,816 $ (2,862) $ (46) $ 2,723 $ (2,167) $ 556 Investment Securities (b): Taxable 1,049 (1,184) (135) 4,287 791 5,078 (163) 15,999 15,836 Nontaxable 247 (244) 3 395 (320) 75 255 9 264 Total investment income 1,296 (1,428) (132) 4,682 471 5,153 92 16,008 16,100 Loans (b) : Construction 2,676 816 3,492 4,038 3,180 7,218 8,362 4,939 13,301 Commercial real estate, other 1,410 4,719 6,129 7,455 10,321 17,776 21,955 13,474 35,429 Commercial and industrial 1,492 1,507 2,999 7,364 4,064 11,428 23,450 5,419 28,869 Premium finance 426 480 906 1,388 228 1,616 2,962 521 3,483 Leases 398 835 1,233 (2,569) 4,449 1,880 (6,847) 12,002 5,155 Residential real estate 627 434 1,061 1,483 957 2,440 3,457 426 3,883 Home equity lines of credit 137 219 356 1,377 418 1,795 4,243 814 5,057 Consumer, indirect 680 152 832 1,904 963 2,867 4,343 3,409 7,752 Consumer, direct (222) 392 170 218 434 652 656 739 1,395 Total loan income 7,624 9,554 17,178 22,658 25,014 47,672 62,581 41,743 104,324 Total interest income $ 9,622 $ 7,552 $ 17,174 $ 30,156 $ 22,623 $ 52,779 $ 65,396 $ 55,584 $ 120,980 INTEREST EXPENSE: Deposits: Savings accounts $ (117) $ (19) $ (136) $ 327 $ (19) $ 308 $ 949 $ (1) $ 948 Governmental deposit accounts 1,431 251 1,682 3,457 12 3,469 5,979 (33) 5,946 Interest-bearing demand accounts (61) 49 (12) 323 7 330 840 (5) 835 Money market accounts 820 117 937 2,600 51 2,651 5,263 19 5,282 Retail CDs 1,655 1,297 2,952 5,554 963 6,517 9,742 1,116 10,858 Brokered CDs 1,182 1,474 2,656 941 5,950 6,891 1,873 10,421 12,294 Total deposit cost 4,910 3,169 8,079 13,202 6,964 20,166 24,646 11,517 36,163 Borrowed funds: Short-term borrowings 2,073 (2,218) (145) 1,188 3,588 4,776 3,040 10,908 13,948 Long-term borrowings 1,802 (981) 821 1,225 332 1,557 1,355 1,165 2,520 Total borrowed funds cost 3,875 (3,199) 676 2,413 3,920 6,333 4,395 12,073 16,468 Total interest expense 8,785 (30) 8,755 15,615 10,884 26,499 29,041 23,590 52,631 FTE net interest income $ 837 $ 7,582 $ 8,419 $ 14,541 $ 11,739 $ 26,280 $ 36,355 $ 31,994 $ 68,349 (a) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the dollar amounts of the change in each. (b) Interest income and yields are presented on 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. 55 Table of Contents 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 4.70% 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. 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 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 $0.4 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. 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, NSL and Premier in the prior period. Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this MD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity." Provision for (Recovery of) Credit Losses The following table details Peoples’ provision for (recovery of) credit losses: Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Provision for (recovery of) other credit losses $ 3,764 $ 7,751 $ 1,558 $ 13,188 $ (6,583) Provision for checking account overdraft credit losses 289 232 218 701 772 Provision for (recovery of) credit losses $ 4,053 $ 7,983 $ 1,776 $ 13,889 $ (5,811) As a percentage of average total loans (a) 0.27 % 0.58 % 0.15 % 0.34 % (0.17) % (a) Presented on an annualized basis. The provision for (recovery of) credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. The provision for credit losses 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 56 Table of Contents individually analyzed loans. 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. 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.” Net (Loss) Gain Included in Total Non-Interest Income Net (loss) gain includes net losses and net gains on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses and net gains for the periods presented: Three Months Ended 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) 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) Net (loss) on other transactions (23) (8) (24) (38) (129) Net (loss) on asset disposals and other transactions $ (307) $ (1,665) $ (35) $ (2,218) $ (314) 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 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 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 E-banking income $ 6,466 $ 6,466 $ 5,261 $ 18,375 $ 15,933 Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. E-banking income increased for the third quarter of 2023 compared to the prior year third quarter primarily due to additional income provided by 57 Table of Contents Limestone. 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Property and casualty insurance commissions $ 3,585 $ 3,360 $ 2,958 $ 10,197 $ 8,859 Performance-based commissions 40 35 64 1,602 1,420 Life and health insurance commissions 548 535 508 1,647 1,464 Other fees and charges 77 74 88 233 252 Insurance income $ 4,250 $ 4,004 $ 3,618 $ 13,679 $ 11,995 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Fiduciary income $ 1,835 $ 2,046 $ 1,752 $ 5,686 $ 5,716 Brokerage income 1,782 1,667 1,578 5,076 4,858 Employee benefit fees 671 701 624 2,024 1,902 Trust and investment income $ 4,288 $ 4,414 $ 3,954 $ 12,786 $ 12,476 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, 2023 December 31, 2022 September 30, 2022 (Dollars in thousands) Trust $ 1,900,488 $ 1,931,789 $ 1,803,887 $ 1,764,639 $ 1,682,334 Brokerage 1,364,372 1,379,309 1,318,300 1,211,868 1,127,831 Total $ 3,264,860 $ 3,311,098 $ 3,122,187 $ 2,976,507 $ 2,810,165 Quarterly average $ 3,319,655 $ 3,205,186 $ 3,076,285 $ 2,965,985 $ 2,844,181 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. 58 Table of Contents Deposit account service charges are based on the recovery of costs associated with services provided. The following table details Peoples' deposit account service charges: Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Overdraft and non-sufficient funds fees $ 2,461 $ 2,276 $ 2,233 $ 6,579 $ 6,154 Account maintenance fees 1,577 1,623 1,353 4,661 3,971 Other fees and charges 478 254 247 952 692 Deposit account service charges $ 4,516 $ 4,153 $ 3,833 $ 12,192 $ 10,817 The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges increased for the 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 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 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 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 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. 59 Table of Contents Non-Interest Expense Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs: Three Months Ended 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 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 Stock-based compensation 1,107 1,043 782 4,339 2,987 Deferred personnel costs (1,387) (1,084) (961) (3,394) (2,907) Salaries and employee benefit costs $ 36,608 $ 38,025 $ 28,618 $ 106,661 $ 83,932 Full-time equivalent employees: Actual at end of period 1,482 1,500 1,244 1,482 1,244 Average during the period 1,494 1,393 1,253 1,359 1,106 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. An adjustment is made at the vesting date to reverse expense relating to forfeitures for performance awards, and at the date of forfeiture to reverse expense for non-vested restricted common share awards. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year based upon Peoples achieving certain performance goals during the prior year, and are generally contingent on employment through the vesting period. Stock-based compensation for the 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 60 Table of Contents 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Depreciation $ 2,018 $ 1,876 $ 1,722 $ 5,684 $ 5,315 Repairs and maintenance costs 1,846 1,334 1,333 4,441 3,959 Property taxes, utilities and other costs 1,158 1,182 994 3,497 3,190 Net rent expense 479 988 764 2,214 2,205 Net occupancy and equipment expense $ 5,501 $ 5,380 $ 4,813 $ 15,836 $ 14,669 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 Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 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 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 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 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 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. 61 Table of Contents 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. 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 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 $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. 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. Additional information regarding income taxes can be found in "Note 13. Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2022 Form 10-K. Pre-Provision Net Revenue (Non-US GAAP) Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. 62 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Pre-provision net revenue: Income before income taxes $ 40,729 $ 27,262 $ 33,388 $ 101,597 $ 94,661 Add: provision for credit losses 4,053 7,983 1,776 13,889 1,776 Add: loss on OREO 1 1,612 105 1,623 138 Add: loss on investment securities 7 166 — 2,108 44 Add: loss on other assets 283 45 — 557 142 Add: loss on other transactions 23 8 24 38 128 Less: recovery of credit losses — — — — 7,587 Less: gain on investment securities — — 21 — 151 Less: gain on other assets — — 94 — 94 Pre-provision net revenue $ 45,096 $ 37,076 $ 35,178 $ 119,812 $ 89,057 Total average assets $8,806,409 $8,342,883 $7,124,108 $8,120,885 $7,103,979 Pre-provision net revenue to total average assets (annualized) 2.03 % 1.78 % 1.96 % 1.97 % 1.68 % Weighted-average common shares outstanding - diluted 35,061,897 32,649,976 27,973,255 31,977,486 28,009,263 Pre-provision net revenue per common share - diluted $ 1.28 $ 1.13 $ 1.25 $ 3.72 $ 3.17 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) Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream. This measure is Non-US GAAP since it excludes the impact of all acquisition-related expenses, pension settlement charges, COVID-19-related expenses and the COVID-19 Employee Retention Credit. The following table provides a reconciliation of this Non-US GAAP measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Core non-interest expense: Total non-interest expense $ 71,696 $ 70,623 $ 52,253 $ 198,798 $ 153,781 Less: acquisition-related expenses 4,434 10,709 339 15,694 2,314 Less: pension settlement charges 2,424 — 139 2,424 139 Less: COVID-19-related expenses — — 9 — 132 Add: COVID-19 Employee Retention Credit — 548 — 548 — Core non-interest expense $ 64,838 $ 60,462 $ 51,766 $ 181,228 $ 151,196 Efficiency Ratio (Non-US GAAP) The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of FTE net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses FTE net interest income. 63 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Efficiency ratio: Total non-interest expense $ 71,696 $ 70,623 $ 52,253 $ 198,798 $ 153,781 Less: amortization of other intangible assets 3,280 2,800 2,023 7,951 5,765 Adjusted total non-interest expense 68,416 67,823 50,230 190,847 148,016 Total non-interest income 23,204 21,015 20,366 63,279 59,802 Less: net (loss) gain on investment securities (7) (166) 21 (2,108) 107 Less: net loss on asset disposals and other transactions (307) (1,665) (35) (2,218) (314) Total non-interest income excluding net gains and losses 23,518 22,846 20,380 67,605 60,009 Net interest income 93,274 84,853 67,051 251,005 182,829 Add: FTE adjustment (a) 444 446 387 1,289 1,116 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 58.36 % 62.71 % 57.20 % 59.66 % 60.67 % Efficiency ratio adjusted for non-core items: Core non-interest expense $ 64,838 $ 60,462 $ 51,766 $ 181,228 $ 151,196 Less: amortization of other intangible assets 3,280 2,800 2,023 7,951 5,765 Adjusted core non-interest expense 61,558 57,662 49,743 173,277 145,431 Non-interest income excluding net gains and losses 23,518 22,846 20,380 67,605 60,009 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 23.3% 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 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 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) In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance. The return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, pension settlement charges, COVID-19-related expenses and the COVID-19 Employee Retention Credit. 64 Table of Contents The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, (Dollars in thousands) 2023 2022 Annualized net income adjusted for non-core items: Net income $ 31,882 $ 21,096 $ 25,978 $ 79,538 $ 74,443 Add: net loss on investment securities 7 166 — 2,108 — Less: tax effect of net loss on investment securities (a) 2 35 — 443 — Less: net gain on investment securities — — 21 — 107 Add: tax effect of net gain on investment securities (a) — — 4 — 22 Add: net loss on asset disposals and other transactions 307 1,665 35 2,218 314 Less: tax effect of net loss on asset disposals and other transactions (a) 65 349 7 466 66 Add: acquisition-related expenses 4,434 10,709 339 15,694 2,314 Less: tax effect of acquisition-related expenses (a) 931 2,249 71 3,296 486 Add: pension settlement charges 2,424 — 139 2,424 139 Less: tax effect of pension settlement charges (a) 509 — 29 509 29 Add: COVID-19-related expenses — — 9 — 132 Less: tax effect of COVID-19-related expenses (a) — — 2 — 28 Less: COVID-19 Employee Retention Credit — 548 — 548 — Add: tax effect of COVID-19 Employee Retention Credit (a) — 115 — 115 — Net income adjusted for non-core items (after tax) $ 37,547 $ 30,570 $ 26,374 $ 96,835 $ 76,648 Days in the period 92 91 92 273 273 Days in the year 365 365 365 365 365 Annualized net income $ 126,488 $ 84,616 $ 103,065 $ 106,342 $ 99,530 Annualized net income adjusted for non-core items (after tax) $ 148,964 $ 122,616 $ 104,636 $ 129,468 $ 102,478 Return on average assets: Annualized net income $ 126,488 $ 84,616 $ 103,065 $ 106,342 $ 99,530 Total average assets 8,806,409 8,342,883 7,124,108 8,120,885 7,103,979 Return on average assets 1.44 % 1.01 % 1.45 % 1.31 % 1.40 % Return on average assets adjusted for non-core items: Annualized net income adjusted for non-core items (after tax) $ 148,964 $ 122,616 $ 104,636 $ 129,468 $ 102,478 Total average assets 8,806,409 8,342,883 7,124,108 8,120,885 7,103,979 Return on average assets adjusted for non-core items (after tax) 1.69 % 1.47 % 1.47 % 1.59 % 1.44 % (a) Based on a 21% statutory federal corporate income tax rate. 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. 65 Table of Contents Return on Average Tangible Equity Ratio (Non-US GAAP) The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This 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 Annualized net income excluding amortization of other intangible assets: Net income $ 31,882 $ 21,096 $ 25,978 $ 79,538 $ 74,443 Add: amortization of other intangible assets 3,280 2,800 2,023 7,951 5,765 Less: tax effect of amortization of other intangible assets (a) 689 588 425 1,670 1,211 Net income excluding amortization of other intangible assets $ 34,473 $ 23,308 $ 27,576 $ 85,819 $ 78,997 Days in the period 92 91 92 273 273 Days in the year 365 365 365 365 365 Annualized net income $ 126,488 $ 84,616 $ 103,065 $ 106,342 $ 99,530 Annualized net income excluding amortization of other intangible assets $ 136,768 $ 93,488 $ 109,405 $ 114,740 $ 105,619 Average tangible equity: Total average stockholders' equity $ 1,004,858 $ 951,438 $ 797,859 $ 919,998 $ 807,869 Less: average goodwill and other intangible assets 411,229 387,055 329,482 374,924 321,043 Average tangible equity $ 593,629 $ 564,383 $ 468,377 $ 545,074 $ 486,826 Return on total average stockholders' equity ratio: Annualized net income $ 126,488 $ 84,616 $ 103,065 $ 106,342 $ 99,530 Total average stockholders' equity $ 1,004,858 $ 951,438 $ 797,859 $ 919,998 $ 807,869 Return on total average stockholders' equity 12.59 % 8.89 % 12.92 % 11.56 % 12.32 % Return on average tangible equity ratio: Annualized net income excluding amortization of other intangible assets $ 136,768 $ 93,488 $ 109,405 $ 114,740 $ 105,619 Average tangible equity $ 593,629 $ 564,383 $ 468,377 $ 545,074 $ 486,826 Return on average tangible equity 23.04 % 16.56 % 23.36 % 21.05 % 21.70 % (a) Based on a 21% statutory federal corporate income tax rate. 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. 66 Table of Contents FINANCIAL CONDITION Cash and Cash Equivalents 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 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.” Investment Securities The following table provides information regarding Peoples’ investment portfolio: (Dollars in thousands) Weighted Average Yield September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Available-for-sale securities, at fair value: Obligations of: U.S. Treasury and government agencies 3.11 % $ 42,466 $ 75,255 $ 58,438 $ 152,422 $ 172,055 U.S. government sponsored agencies 2.40 % 103,932 98,324 98,311 88,115 80,915 States and political subdivisions 2.54 % 220,460 248,271 224,996 225,882 230,022 Residential mortgage-backed securities 2.08 % 593,104 635,487 605,270 604,653 624,061 Commercial mortgage-backed securities 1.83 % 50,840 52,830 52,153 50,049 52,504 Bank-issued trust preferred securities 6.49 % 7,779 23,272 10,329 10,278 10,287 Total fair value $ 1,018,581 $ 1,133,439 $ 1,049,497 $ 1,131,399 $ 1,169,844 Total amortized cost $ 1,211,794 $ 1,292,331 $ 1,196,521 $ 1,300,719 $ 1,349,800 Net unrealized loss $ (193,213) $ (158,892) $ (147,024) $ (169,320) $ (179,956) Held-to-maturity securities, at amortized cost: Obligations of: U.S. government sponsored agencies 4.36 % $ 174,699 $ 176,027 $ 194,184 $ 132,366 $ 59,871 States and political subdivisions (a) 2.23 % 144,490 144,668 144,844 145,022 145,252 Residential mortgage-backed securities 3.89 % 248,627 243,807 245,294 176,215 111,707 Commercial mortgage-backed securities 2.47 % 107,593 109,423 109,750 106,609 90,971 Total amortized cost $ 675,409 $ 673,925 $ 694,072 $ 560,212 $ 407,801 Other investment securities $ 66,332 $ 63,579 $ 52,763 $ 51,609 $ 39,039 Total investment securities: Amortized cost $ 1,953,535 $ 2,029,835 $ 1,943,356 $ 1,912,540 $ 1,796,640 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 $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- 67 Table of Contents for-sale securities for an after-tax loss of $1.6 million. Proceeds from the sale were used to pay down overnight borrowings. The realized losses recognized due to these transactions are projected to be earned back within the 2023 fiscal year. Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Loans and Leases The following table provides information regarding outstanding loan balances: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Originated loans and leases: Construction $ 289,657 $ 297,051 $ 222,915 $ 212,869 $ 175,388 Commercial real estate, other 1,161,064 1,035,473 995,176 919,531 891,576 Commercial real estate 1,450,721 1,332,524 1,218,091 1,132,400 1,066,964 Commercial and industrial 860,407 873,386 840,194 835,178 814,593 Premium finance 189,251 162,357 158,263 159,197 167,682 Leases 328,365 287,948 251,711 226,438 178,083 Residential real estate 405,917 396,667 386,964 384,262 381,104 Home equity lines of credit 140,787 132,222 132,531 132,093 124,524 Consumer, indirect 668,371 654,371 647,177 629,426 592,309 Consumer, direct 114,160 101,786 99,299 98,706 99,282 Consumer 782,531 756,157 746,476 728,132 691,591 Deposit account overdrafts 857 830 749 722 597 Total originated loans and leases $ 4,158,836 $ 3,942,091 $ 3,734,979 $ 3,598,422 $ 3,425,138 Acquired loans and leases (a): Construction $ 84,359 $ 121,690 $ 9,381 $ 34,072 $ 40,233 Commercial real estate, other 1,028,920 1,036,041 485,886 503,987 531,903 Commercial real estate 1,113,279 1,157,731 495,267 538,059 572,136 Commercial and industrial 268,402 286,924 50,945 57,456 62,879 Premium finance — — — — — Leases 74,270 89,843 102,930 118,693 134,764 Residential real estate 386,048 394,775 325,638 339,098 352,257 Home equity lines of credit 63,153 66,999 41,852 45,765 50,001 Consumer, indirect — — — — — Consumer, direct 20,402 36,233 8,107 9,657 14,032 Consumer 20,402 36,233 8,107 9,657 14,032 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 and leases to total loans and leases: Construction 6.1 % 7.0 % 4.9 % 5.2 % 4.7 % Commercial real estate, other 36.0 % 34.8 % 31.1 % 30.2 % 30.9 % Commercial real estate 42.1 % 41.8 % 36.0 % 35.4 % 35.6 % Commercial and industrial 18.6 % 19.4 % 18.7 % 19.0 % 19.0 % Premium finance 3.1 % 2.7 % 3.3 % 3.4 % 3.6 % Leases 6.6 % 6.3 % 7.4 % 7.3 % 6.8 % Residential real estate 13.0 % 13.2 % 15.0 % 15.4 % 15.9 % Home equity lines of credit 3.4 % 3.3 % 3.7 % 3.8 % 3.8 % Consumer, indirect 11.0 % 11.0 % 13.6 % 13.4 % 12.8 % Consumer, direct 2.2 % 2.3 % 2.3 % 2.3 % 2.5 % Consumer 13.2 % 13.3 % 15.9 % 15.7 % 15.3 % Total percentage 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Residential real estate loans being serviced for others $ 366,996 $ 375,882 $ 384,005 $ 392,364 $ 400,736 (a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). 68 Table of Contents 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 $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. Loan Concentration Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 13% of Peoples' total loan portfolio. Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at September 30, 2023: (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Construction: Apartment complexes $ 208,738 $ 196,191 $ 404,929 55.8 % Residential property 19,044 32,616 51,660 7.1 % Land only 30,683 4,514 35,197 4.9 % Retail facilities 22,576 1,545 24,121 3.3 % 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 % Other (a) 29,929 22,396 52,325 7.2 % Total construction $ 374,016 $ 351,474 $ 725,490 100.0 % (a) All other total exposures by industry are less than 2% of the Total Exposure. 69 Table of Contents (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Commercial real estate, other: Office buildings and complexes: Owner occupied $ 83,274 $ 3,274 $ 86,548 3.8 % Non-owner occupied 134,771 8,477 143,248 6.3 % Total office buildings and complexes $ 218,045 $ 11,751 $ 229,796 10.1 % Retail facilities: Owner occupied $ 58,461 $ 3,027 $ 61,488 2.7 % Non-owner occupied 232,105 522 232,627 10.2 % Total retail facilities $ 290,566 $ 3,549 $ 294,115 12.9 % Mixed-use facilities: Owner occupied $ 22,035 $ 467 $ 22,502 1.0 % Non-owner occupied 22,749 1,084 23,833 1.0 % Total mixed-use facilities $ 44,784 $ 1,551 $ 46,335 2.0 % Apartment complexes 280,260 4,812 285,072 12.6 % Light industrial facilities: Owner occupied 128,085 3,124 131,209 5.8 % Non-owner occupied $ 99,875 $ 2,130 $ 102,005 4.5 % Total light industrial facilities 227,960 5,254 233,214 10.3 % Assisted living facilities and nursing homes $ 129,912 $ 6,994 $ 136,906 6.0 % Warehouse facilities: Owner occupied $ 56,796 $ 1,495 $ 58,291 2.6 % Non-owner occupied 44,760 420 45,180 2.0 % Total warehouse facilities $ 101,556 $ 1,915 $ 103,471 4.6 % Lodging and lodging related: Owner occupied $ 27,674 $ 3,165 $ 30,839 1.4 % Non-owner occupied 141,540 1 141,541 6.2 % Total lodging and lodging related $ 169,214 $ 3,166 $ 172,380 7.6 % Education services: Owner occupied $ 17,547 $ — $ 17,547 0.8 % Non-owner occupied 30,216 4,000 34,216 1.5 % 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: Owner occupied $ 39,163 $ 245 $ 39,408 1.7 % Non-owner occupied 35,473 — 35,473 1.6 % Total restaurant/bar facilities $ 74,636 $ 245 $ 74,881 3.3 % Other (a) 559,559 36,758 596,317 26.3 % Total commercial real estate, other $ 2,189,984 $ 80,527 $ 2,270,511 100.0 % (a) All other total exposures by industry are less than 2% of the Total Exposure. Peoples' commercial lending activities continue to focus on lending opportunities within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Maryland. For all other states, the aggregate outstanding balances of commercial loans in each state were less than 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. The repayment of leases is secured by the underlying equipment collateral and not real estate, which mitigates geographic risk. Small Business Administration Paycheck Protection Program ("PPP") In March 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the U.S. Small Business Administration (the "SBA"). The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any 70 Table of Contents 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. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following table details Peoples' PPP loan balances and related income: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 PPP aggregate outstanding principal balances $ 1,129 $ 1,418 $ 2,184 $ 2,458 $ 3,789 PPP net deferred loan origination fees 9 11 25 27 61 Accretion of net deferred loan origination fees 1 14 2 34 360 Allowance for Credit Losses The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio. The following details management's allocation of the allowance for credit losses: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Construction $ 1,241 $ 1,496 $ 1,273 $ 1,250 $ 1,464 Commercial real estate, other 21,257 19,731 16,474 17,710 17,695 Commercial and industrial 10,205 11,028 8,307 8,229 8,611 Premium finance 476 431 433 344 553 Leases 11,692 10,377 9,109 8,495 7,890 Residential real estate 6,251 6,112 6,504 6,357 6,464 Home equity lines of credit 1,640 1,676 1,717 1,693 1,644 Consumer, indirect 7,516 7,610 7,781 7,448 6,912 Consumer, direct 2,519 2,642 1,619 1,575 1,592 Deposit account overdrafts 127 108 86 61 41 Allowance for credit losses $ 62,924 $ 61,211 $ 53,303 $ 53,162 $ 52,866 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 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. 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 in this Form 10-Q. The following table summarizes Peoples’ net charge-offs and recoveries: Three Months Ended (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Gross charge-offs: Construction $ — $ — $ 9 $ 16 $ — Commercial real estate, other 278 7 33 132 57 Commercial and industrial 199 11 1 24 36 Premium finance 33 23 23 42 38 Leases 905 604 469 888 731 Residential real estate 50 59 41 144 168 Home equity lines of credit 32 55 19 42 5 71 Table of Contents Three Months Ended (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Consumer, indirect 926 941 929 799 600 Consumer, direct 92 78 104 86 81 Consumer 1,018 1,019 1,033 885 681 Deposit account overdrafts 319 263 227 308 274 Total gross charge-offs $ 2,834 $ 2,041 $ 1,855 $ 2,481 $ 1,990 Recoveries: Commercial real estate, other $ 97 $ 16 $ 27 $ 33 $ 39 Commercial and industrial 3 451 — 40 3 Premium finance 12 3 9 4 1 Leases 168 89 80 81 99 Residential real estate 27 69 29 20 36 Home equity lines of credit — — — 16 — Consumer, indirect 149 129 79 88 71 Consumer, direct 11 35 15 16 9 Consumer 160 164 94 104 80 Deposit account overdrafts 49 53 72 50 44 Total recoveries $ 516 $ 845 $ 311 $ 348 $ 302 Net charge-offs (recoveries): Construction $ — $ — $ 9 $ 16 $ — Commercial real estate, other 181 (9) 6 99 18 Commercial and industrial 196 (440) 1 (16) 33 Premium finance 21 20 14 38 37 Leases 737 515 389 807 632 Residential real estate 23 (10) 12 124 132 Home equity lines of credit 32 55 19 26 5 Consumer, indirect 777 812 850 711 529 Consumer, direct 81 43 89 70 72 Consumer 858 855 939 781 601 Deposit account overdrafts 270 210 155 258 230 Total net charge-offs $ 2,318 $ 1,196 $ 1,544 $ 2,133 $ 1,688 Ratio of net charge-offs (recoveries) to average total loans (annualized): Construction — % — % — % — % — % Commercial real estate, other 0.01 % — % — % 0.01 % — % Commercial and industrial 0.01 % (0.03) % — % — % — % Premium finance — % — % — % — % — % Leases 0.05 % 0.04 % 0.04 % 0.07 % 0.06 % Residential real estate — % — % — % 0.01 % 0.01 % Home equity lines of credit — % — % — % — % — % Consumer, indirect 0.05 % 0.06 % 0.07 % 0.06 % 0.05 % Consumer, direct 0.01 % — % 0.01 % 0.01 % 0.01 % Consumer 0.06 % 0.06 % 0.08 % 0.07 % 0.06 % Deposit account overdrafts 0.02 % 0.02 % 0.01 % 0.02 % 0.02 % Total 0.15 % 0.09 % 0.13 % 0.18 % 0.15 % Each with "--%" not meaningful. 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. 72 Table of Contents The following table details Peoples’ nonperforming assets: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Loans 90+ days past due and accruing: Commercial real estate, other $ 487 $ 15 $ 150 $ 167 $ 1,472 Commercial and industrial 67 — 228 130 266 Premium finance 1,581 987 764 504 308 Leases 6,007 3,847 2,491 3,041 4,654 Residential real estate 736 856 238 917 1,499 Home equity lines of credit 177 148 127 58 23 Consumer, indirect 47 40 13 — 195 Consumer, direct 15 31 3 25 7 Consumer 62 71 16 25 202 Total loans 90+ days past due and accruing $ 9,117 $ 5,924 $ 4,014 $ 4,842 $ 8,424 Nonaccrual loans: Construction $ — $ — $ 1 $ 12 $ 2 Commercial real estate, other 3,661 8,987 11,345 12,121 11,916 Commercial and industrial 3,116 3,438 3,064 3,462 2,385 Leases 7,929 4,800 3,884 3,178 2,094 Residential real estate 8,454 8,393 8,641 9,496 8,728 Home equity lines of credit 1,026 841 793 820 921 Consumer, indirect 1,904 1,982 2,147 2,176 1,627 Consumer, direct 97 355 105 208 158 Consumer 2,001 2,337 2,252 2,384 1,785 Total nonaccrual loans $ 26,187 $ 28,796 $ 29,980 $ 31,473 $ 27,831 Total nonperforming loans ("NPLs") $ 35,304 $ 34,720 $ 33,994 $ 36,315 $ 36,255 OREO: Commercial $ 7,118 $ 7,118 $ 8,730 $ 8,730 $ 8,730 Residential 56 48 48 165 110 Total OREO $ 7,174 $ 7,166 $ 8,778 $ 8,895 $ 8,840 Total nonperforming assets ("NPAs") $ 42,478 $ 41,886 $ 42,772 $ 45,210 $ 45,095 Criticized loans (a) $ 213,156 $ 219,885 $ 198,812 $ 191,355 $ 164,775 Classified loans (b) $ 124,836 $ 110,972 $ 93,168 $ 89,604 $ 94,848 Asset Quality Ratios (c): Nonaccrual loans as a percent of total loans (d) 0.43 % 0.48 % 0.63 % 0.67 % 0.60 % NPLs as a percent of total loans (d) 0.58 % 0.58 % 0.71 % 0.77 % 0.79 % NPAs as a percent of total assets (d) 0.48 % 0.48 % 0.58 % 0.63 % 0.64 % NPAs as a percent of total loans and OREO (d) 0.70 % 0.70 % 0.90 % 0.96 % 0.98 % Allowance for credit losses as a percent of nonaccrual loans 240.29 % 212.57 % 177.80 % 168.91 % 189.95 % Allowance for credit losses as a percent of NPLs (d) 178.23 % 176.30 % 156.80 % 146.39 % 145.82 % Criticized loans as a percent of total loans (a) 3.50 % 3.68 % 4.18 % 4.07 % 3.57 % Classified loans as a percent of total loans (b) 2.05 % 1.86 % 1.96 % 1.90 % 2.06 % (a) Includes loans categorized as special mention, substandard or doubtful. (b) Includes loans categorized as substandard or doubtful. (c) Data presented as of the end of the period indicated. (d) NPLs include loans 90+ days past due and accruing and nonaccrual loans. NPLs in periods prior to March 31, 2023 also included TDRs. NPAs include nonperforming loans and OREO. 73 Table of Contents 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. Deposits The following table details Peoples’ deposit balances: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Non-interest-bearing deposits (a) $ 1,569,095 $ 1,682,634 $ 1,555,064 $ 1,589,402 $ 1,635,953 Interest-bearing deposits: Interest-bearing demand accounts (a) 1,181,079 1,225,646 1,085,169 1,160,182 1,162,012 Savings accounts 987,170 1,116,622 1,024,638 1,068,547 1,077,383 Retail CDs 1,198,733 950,783 622,091 530,236 544,741 Money market deposit accounts 730,902 718,633 579,106 617,029 624,708 Governmental deposit accounts 761,625 705,596 649,303 625,965 734,734 Brokered CDs 608,914 559,955 273,156 125,580 86,089 Total interest-bearing deposits 5,468,423 5,277,235 4,233,463 4,127,539 4,229,667 Total deposits $ 7,037,518 $ 6,959,869 $ 5,788,527 $ 5,716,941 $ 5,865,620 Demand deposits as a percent of total deposits 39 % 42 % 46 % 48 % 48 % (a) The sum of amounts presented is considered total demand deposits. 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 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. 74 Table of Contents Borrowed Funds The following table details Peoples’ short-term borrowings and long-term borrowings: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Short-term borrowings: Overnight borrowings $ 484,000 $ 444,000 $ 390,000 $ 400,000 $ (5,000) FHLB 90-day advances — — — — 40,000 Retail repurchase agreements 101,437 125,935 100,670 100,138 98,611 Total short-term borrowings $ 585,437 $ 569,935 $ 490,670 $ 500,138 $ 133,611 Long-term borrowings: FHLB advances $ 83,247 $ 33,755 $ 33,941 $ 34,158 $ 34,662 Vantage non-recourse debt 41,783 41,963 47,864 53,147 55,781 Other long-term borrowings 48,282 47,861 13,824 13,788 13,753 Total long-term borrowings $ 173,312 $ 123,579 $ 95,629 $ 101,093 $ 104,196 Total borrowed funds $ 758,749 $ 693,514 $ 586,299 $ 601,231 $ 237,807 Total borrowed funds, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. Other long-term borrowings include trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures. Total borrowed funds at 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 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 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) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Capital Amounts: Common Equity Tier 1 $ 752,728 $ 728,892 $ 624,292 $ 604,566 $ 584,880 Tier 1 801,010 776,753 638,116 618,354 598,633 Total (Tier 1 and Tier 2) 855,054 828,910 682,477 662,421 643,189 Net risk-weighted assets $ 6,505,779 $ 6,417,511 $ 5,110,318 $ 5,071,240 $ 4,955,627 Capital Ratios: Common Equity Tier 1 11.57 % 11.36 % 12.22 % 11.92 % 11.80 % Tier 1 12.31 % 12.10 % 12.49 % 12.19 % 12.08 % Total (Tier 1 and Tier 2) 13.14 % 12.92 % 13.35 % 13.06 % 12.98 % Tier 1 leverage ratio 9.34 % 9.64 % 9.02 % 8.92 % 8.64 % 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. 75 Table of Contents In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent. The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Tangible equity: Total stockholders' equity $ 993,219 $ 998,907 $ 819,543 $ 785,328 $ 760,511 Less: goodwill and other intangible assets 408,494 413,172 324,562 326,329 328,428 Tangible equity $ 584,725 $ 585,735 $ 494,981 $ 458,999 $ 432,083 Tangible assets: Total assets $ 8,942,534 $ 8,786,635 $ 7,311,520 $ 7,207,304 $ 7,005,854 Less: goodwill and other intangible assets 408,494 413,172 324,562 326,329 328,428 Tangible assets $ 8,534,040 $ 8,373,463 $ 6,986,958 $ 6,880,975 $ 6,677,426 Tangible book value per common share: Tangible equity $ 584,725 $ 585,735 $ 494,981 $ 458,999 $ 432,083 Common shares outstanding 35,395,990 35,374,916 28,488,158 28,287,837 28,278,078 Tangible book value per common share $ 16.52 $ 16.56 $ 17.37 $ 16.23 $ 15.28 Tangible equity to tangible assets ratio: Tangible equity $ 584,725 $ 585,735 $ 494,981 $ 458,999 $ 432,083 Tangible assets $ 8,534,040 $ 8,373,463 $ 6,986,958 $ 6,880,975 $ 6,677,426 Tangible equity to tangible assets 6.85 % 7.00 % 7.08 % 6.67 % 6.47 % 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 While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources. Interest Rate Risk Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and financial liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and 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 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. 76 Table of Contents The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands): Increase (Decrease) in Interest Rate Estimated Increase (Decrease) in Net Interest Income Estimated (Decrease) Increase in Economic Value of Equity (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) % 200 4,789 1.4 % 8,716 3.0 % (126,355) (7.7) % (55,809) (3.6) % 100 2,410 0.7 % 4,380 1.5 % (66,132) (4.0) % (28,157) (1.8) % (100) (4,475) (1.3) % (11,404) (3.9) % 44,731 2.7 % (21,124) (1.4) % (200) (12,836) (3.9) % (27,659) (9.4) % 76,791 4.7 % (80,484) (5.2) % (300) (22,460) (6.8) % (43,728) (14.8) % 100,065 6.1 % (152,152) (9.8) % This table uses a standard, parallel shock analysis for assessing the IRR to net interest income and the economic value of equity. A parallel shock assumes all points on the yield curve (one year, two year, three year, etc.) are directionally changed by the same degree. Management regularly assesses the impact of both increasing and decreasing interest rates. The table above shows the impact of upward and downward parallel shocks of 100, 200 and 300 basis points. Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis. While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any impact that might occur as a result of the Federal Reserve Board increasing short-term interest rates in the future could be offset by an inverse movement in long-term interest rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term interest rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at 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 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. In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, increase, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, remain constant. Increased deposit and funding costs would be more than offset by increased variable rate asset yields; resulting in an increased amount of net interest income and a higher net interest margin. At 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 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 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. 77 Table of Contents Liquidity In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. In light of recent bank failures, Peoples revisited the model assumptions, and determined the methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain appropriate and are largely unchanged from those disclosed in Peoples' 2022 Form 10-K. At 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. Management believes the current mix of short-term liquidity sources, loan and security portfolio cash flows, and availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments. Off-Balance Sheet Activities and Contractual Obligations In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments. Loan Commitments and Standby Letters of Credit Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure. The following table details the total contractual amount of loan commitments and standby letters of credit: (Dollars in thousands) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Home equity lines of credit $ 245,764 $ 208,805 $ 201,692 $ 197,995 $ 194,685 Unadvanced construction loans 351,473 293,662 241,225 270,229 320,825 Other loan commitments 768,788 597,285 717,149 730,015 653,384 Loan commitments $ 1,366,025 $ 1,099,752 $ 1,160,066 $ 1,198,239 $ 1,168,894 Standby letters of credit $ 15,452 $ 14,760 $ 15,046 $ 15,451 $ 15,096 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Form 10-Q, and is incorporated herein by reference.