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 at and for the three months ended March 31, 2024 and March 31, 2023. 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) the effects of 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 Limestone Merger that closed in April 2023, 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, 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) the effects of easing restrictions on participants in the financial services industry; (7) 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, an increasing federal government budget deficit, the failure of the federal government to raise the federal debt ceiling, 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; (8) Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; (9) 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; (10) 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; (11) future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses; 39 Table of Co n tents (12) changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations; (13) the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model; (14) 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; (15) 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; (16) Peoples' ability to receive dividends from Peoples' subsidiaries; (17) Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; (18) the impact of larger or similar-sized financial institutions encountering problems, such as the closures 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; (19) 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; (20) 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; (21) 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; (22) 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; (23) 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; (24) 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; (25) the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence; (26) 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 ongoing conflicts in the Middle East); (27) the potential deterioration of the U.S. economy due to financial, political or other shocks; (28) 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; (29) 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; (30) risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets; (31) Peoples' ability to integrate the Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; (32) 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; 40 Table of Co n tents (33) changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases; (34) 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; (35) Peoples' business may be adversely affected by increased political and regulatory scrutiny of corporate environmental, social and governance ("ESG") practices; (36) the effect of a fall in stock market prices on the asset and wealth management business; and (37) other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' 2023 Form 10-K and under the heading "ITEM 1A. RISK FACTORS" in Part II of this Form 10-Q. Peoples encourages readers of this Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Peoples 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’ 2023 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"), interactive teller machines ("ITMs"), 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 March 31, 2024, Peoples had 152 locations, including 133 full-service bank branches in Ohio, Kentucky, West Virginia, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the FRB of Cleveland and the FDIC. Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business. Critical Accounting Policies The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant accounting policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at March 31, 2024, which have been disclosed in Peoples' 2023 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’ 2023 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: 41 Table of Co n tents ◦ For the first quarter of 2024, Peoples incurred $(0.1) million of acquisition-related expenses, compared to $1.3 million for the fourth quarter of 2023 and $0.6 million for the first quarter of 2023.The acquisition-related expenses in 2024 and 2023 were primarily related to the Limestone Merger. ◦ During the first quarter of 2024, Peoples recorded a provision for credit losses of $6.1 million, compared to a provision for credit losses of $1.3 million in the linked quarter and a provision for credit losses of $1.9 million in the first quarter of 2023. The provision for credit losses for the first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses in the linked quarter was largely attributable to higher net charge-offs, offset by an improvement of macro-economic conditions and the release of reserves on individually analyzed loans. The provision for credit losses in the first quarter of 2023 was largely attributable to a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans. For more information, please refer to the section titled "RESULTS OF OPERATIONS - Provision for Credit Losses" found later in this discussion. ◦ 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 $99.5 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 $68.8 million and other intangible assets of $27.7 million, which consisted of core deposit intangibles. ◦ 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% beginning on March 16, 2022, and continued to raise rates up to 5.50% on July 27, 2023. The Federal Reserve Board has kept rates unchanged since July 2023 but has signaled that it expects to begin reducing rates sometime in 2024. 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 $29.6 million for the first quarter of 2024, representing earnings per diluted common share of $0.84. In comparison, Peoples reported net income of $33.8 million, representing earnings per diluted common share of $0.96, for the fourth quarter of 2023, and net income of $26.6 million, representing earnings per diluted common share of $0.94, for the first quarter of 2023. Non-core items negatively impacted earnings per diluted common share by $0.01 for the first quarter of 2024, $0.08 for the fourth quarter of 2023, and $0.05 for the first quarter of 2023. Net interest income was $86.6 million for the first quarter of 2024, a decrease of $1.7 million, or 2.0%, compared to the linked quarter. Net interest margin was 4.27% for the first quarter of 2024, compared to 4.44% for the linked quarter. The decreases in net interest income and net interest margin were primarily driven by a decrease in accretion income, net of amortization, from our acquisitions. The linked quarter was impacted by a true-up of $1.3 million to the preliminary Limestone-related accretion, which added to net interest income. The small remaining decline in net interest margin, compared to the linked quarter, was mostly due to excess cash on-hand during the quarter for liquidity purposes. Net interest income for the first quarter of 2024 increased $13.8 million, or 18.9%, compared to the first quarter of 2023. Net interest margin for the first quarter of 2024 decreased 26 basis points compared to 4.53% for the first quarter of 2023, driven primarily by an increase in interest expense on deposits. Accretion income, net of amortization expense, from acquisitions was $6.6 million for the first quarter of 2024, $9.0 million for the fourth quarter of 2023 and $2.0 million for the first quarter of 2023, which added 32 basis points, 45 basis points and 13 basis points, respectively, to net interest margin. The decrease in accretion income for the first quarter of 2024 when compared to the linked quarter was driven by a fourth quarter 2023 true-up to the preliminary Limestone-related accretion. The increase in accretion income for the current quarter compared to the first quarter of 2023 was a result of the accretion from the Limestone Merger. The provision for credit losses was $6.1 million for the first quarter of 2024, compared to a provision for credit losses of $1.3 million for the linked quarter and a provision for credit losses of $1.9 million for the first quarter of 2023. The provision for credit losses for the first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses for the fourth quarter of 2023 was largely attributable to higher net charge-offs, offset by an improvement of macro-economic conditions and the release of reserves on individually analyzed loans. Net charge-offs for the first quarter of 2024 were $3.3 million, or 0.22% of average total loans annualized, compared to net charge-offs of $3.5 million, or 0.23% of average total loans annualized, for the linked quarter and net charge-offs of $1.5 million, or 0.13% of average total loans annualized, for the first quarter of 2023. For additional information on credit trends and the allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below. 42 Table of Co n tents Net gains and losses include gains and losses on investment securities, asset disposals and other transactions, which are included in total non-interest income on the Consolidated Statements of Operations. The net loss realized during the first quarter of 2024 was $0.3 million, compared to a net loss of $2.2 million for each of the linked quarter and the first quarter of 2023. The net loss for the first quarter of 2024 was due to $0.3 million of net losses on repossessed assets. The net loss for the linked quarter was primarily due to the sales of $36.5 million of lower yielding available-for-sale investment securities for a pre-tax loss of $1.7 million. The net loss for the first quarter of 2023 was primarily due to a pre-tax net loss of $2.0 million on the sale of $96.7 million of its lower yielding available-for-sale securities. Total non-interest income, excluding net gains and losses, for the first quarter of 2024 decreased $0.2 million compared to the linked quarter. The decrease in non-interest income, excluding net gains and losses, was primarily due to decreases of $1.6 million in lease income and $0.8 million in electronic banking income. The decrease in lease income was due to a large lease buyout in the fourth quarter of 2023, while the decrease in electronic banking income was due to a decline in customer activity. Partially offsetting the decreases was a $2.2 million increase in insurance income due to seasonal performance-based commissions being paid in the first quarter of the year. Compared to the first quarter of 2023, total non-interest income, excluding net gains and losses, increased $4.9 million, primarily due to (i) a $1.1 million increase in insurance income, (ii) a $1.0 million increase in other non-interest income, (iii) a $0.8 million increase in bank owned life insurance income, (iv) a $0.7 million increase in deposit account service charges, (v) a $0.6 million increase in electronic banking income. Insurance income increased due to higher contingency income, new business, and market increases for premiums. Bank owned life insurance increased due to a $0.5 million death benefit in the first quarter of 2024 and additional income from policies acquired in the Limestone Merger. The other increases for the first quarter of 2024, when compared to the first quarter of 2023, were primarily due to the additional customers brought in from the Limestone Merger. Total non-interest expenses for the first three months ended March 31, 2024 were impacted by anticipated annual expenses that occur in the first quarter of each year including annual merit increases, stock-based compensation expenses attributable to retirement-eligible employees and health savings account ("HSA") contributions. Total non-interest expense for the prior periods were impacted by the Limestone Merger and acquisition-related non-interest expense. 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. 43 Table of Co n tents Three Months Ended March 31, December 31, March 31, (Dollars in thousands) 2024 2023 2023 Non-interest expense: Salaries and employee benefit costs $ 38,893 $ 37,370 $ 32,028 Net occupancy and equipment expense 6,283 5,532 4,955 Professional fees 2,967 3,266 2,881 Data processing and software expense 5,769 6,029 4,562 Amortization of other intangible assets 2,788 3,271 1,871 Electronic banking expense 1,781 1,991 1,491 Marketing expense 1,056 1,463 930 FDIC insurance premiums 1,186 1,260 801 Franchise tax expense 881 862 1,034 Communication expense 799 745 613 Other loan expenses 1,076 726 739 Other non-interest expense 4,986 5,174 4,574 Total non-interest expense 68,465 67,689 56,479 Acquisition-related non-interest expense: Salaries and employee benefit costs 16 119 21 Net occupancy and equipment expense — 78 9 Professional fees (38) 530 291 Data processing and software expense (18) 560 — Electronic banking expense (100) — — Marketing expense 10 20 10 Other loan expenses — 1 — Other non-interest expense 46 (32) 220 Total acquisition-related non-interest expense (84) 1,276 551 Non-interest expense excluding acquisition-related expense: Salaries and employee benefit costs 38,877 37,251 32,007 Net occupancy and equipment expense 6,283 5,454 4,946 Professional fees 3,005 2,736 2,590 Data processing and software expense 5,787 5,469 4,562 Amortization of other intangible assets 2,788 3,271 1,871 Electronic banking expense 1,881 1,991 1,491 Marketing expense 1,046 1,443 920 FDIC insurance premiums 1,186 1,260 801 Franchise tax expense 881 862 1,034 Communication expense 799 745 613 Other loan expenses 1,076 725 739 Other non-interest expense 4,940 5,206 4,354 Total non-interest expense excluding acquisition-related expense $ 68,549 $ 66,413 $ 55,928 Total non-interest expense increased $0.8 million, or 1%, for the three months ended March 31, 2024, compared to the linked quarter. Excluding acquisition-related expense, total non-interest expense increased $2.1 million, or 3%, primarily due to increases of $1.6 million in salaries and employee benefit costs. The increase in salaries and employee benefit costs was due to anticipated annual expenses that occur in the first quarter of each year including annual merit increases, stock-based compensation expenses attributable to retirement-eligible employees and HSA contributions. Compared to the first quarter of 2023, total non-interest expense increased $12.0 million, or 21%. Excluding acquisition-related expenses, non-interest expenses increased $12.6 million, or 23%, primarily due to a increases of $6.9 million in salaries and employee 44 Table of Co n tents benefits costs due to additional employees added in the Limestone Merger and $1.3 million and $1.2 million in net occupancy and equipment expense and data processing and software expense, respectively, due to the recent growth, including through acquisitions. The efficiency ratio for the first quarter of 2024 was 58.0%, compared to 56.0% for the linked quarter, and 57.8% for the first quarter of 2023. The increase in the efficiency ratio compared to the linked quarter was largely a result of an increase in interest expense on deposits. The efficiency ratio compared to the prior year quarter was relatively flat. The efficiency ratio, adjusted for non-core items, was 58.1% for the first quarter of 2024, compared to 54.8% for the linked quarter and 57.19% for the first quarter of 2023. Peoples continues to focus on controlling expenses, while recognizing necessary costs in order to continue growing the business. Peoples recorded income tax expense of $8.3 million with an effective tax rate of 21.8% for the first quarter of 2024, compared to income tax expense of $9.7 million with an effective tax rate of 22.3% for the linked quarter, and income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023. Income tax expense for the first quarter of 2024 compared to the linked quarter decreased due to lower pre-tax income. The increase for the first quarter of 2024 compared to the first quarter of 2023, was driven by higher pre-tax income. At March 31, 2024, total assets were $9.27 billion, compared to $9.16 billion at December 31, 2023 and $7.31 billion at March 31, 2023. Total assets at March 31, 2024 increased when compared to at December 31, 2023 primarily due to increases in investment securities and period-end total loan and lease balances. The period-end total loan and lease balances at March 31, 2024 increased $43.6 million, or 3% annualized, compared to at December 31, 2023. The increase in the period-end loan and lease balance was primarily driven by increases of (i) $46.8 million in other commercial real estate loans, (ii)$35.8 million in premium finance loans, and (iii) $29.6 million in commercial and industrial loans, partially offset by reductions of (a) $49.3 million in construction loans, (b) $16.2 million in indirect consumer loans, and (c) $15.2 million in direct consumer loans. Total assets at March 31, 2024 increased compared to March 31, 2023 due to $1.46 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 March 31, 2024 increased $499.3 million, or 10%, driven by increases of $198.1 million, $100.6 million, $80.7 million, $68.1 million, $37.3 million, and $23.5 million in other commercial real estate loans, commercial and industrial loans, premium finance loans, leases, construction loans, and home equity lines of credit, respectively. Total liabilities were $8.21 billion at March 31, 2024, up from $8.10 billion at December 31, 2023 and $6.49 billion at March 31, 2023. The increase in total liabilities when compared to at December 31, 2023 was primarily due to an increase of $174.3 million in period-end total deposits, partially offset by a decrease of $87.6 million in short-term borrowings. The increase in period-end total deposits when compared to at December 31, 2023 was primarily driven by increases of (i) $237.0 million in retail CDs, (ii) $98.5 million in governmental deposits and (iii) $84.5 million in money market deposit accounts, partially offset by decreases of (a) $99.3 million in non-interest bearing deposit accounts, (b) $41.8 million in brokered CDs, (c) $36.6 million in interest-bearing demand deposit accounts, and (d) $17.8 million in savings accounts. The increase in governmental deposit accounts was due to the seasonality of the balances, which are typically higher in the first quarter each year. The increase in total liabilities when compared to at March 31, 2023 was primarily due to $1.35 billion of liabilities, primarily deposits, acquired in the Limestone Merger. Excluding deposits acquired in the Limestone Merger, period-end total deposits at March 31, 2024 increased $784.8 million, or 14%, compared to at March 31, 2023. The increase was primarily driven by increases of $956.9 million in retail CDs, $210.3 million in brokered CDs, and $191.2 million in money market deposit accounts, partially offset by decreases of $270.9 million, $191.8 million, and $158.4 million in non-interest-bearing deposit accounts, savings accounts, and interest-bearing demand deposit accounts, respectively. Total stockholders' equity at March 31, 2024 increased by $8.5 million compared to at December 31, 2023, which was primarily due to net income for the first quarter of 2024 of $29.6 million, partially offset by dividends paid of $13.7 million and a $7.4 million increase in accumulated other comprehensive loss. 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 $111.8 million and $104.2 million at March 31, 2024 and at December 31, 2023, respectively. The increase in total stockholders' equity at March 31, 2024 when compared to at March 31, 2023 was also impacted by net income of $116.4 million in the last twelve months and a decrease in accumulated other comprehensive loss of $2.0 million, partially offset by dividends paid of $55.1 million and share repurchases of $6.0 million. 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 45 Table of Co n tents using a blended corporate income tax rate of 23.2% for the three months ended March 31, 2024, and 23.3% for the three months ended December 31, 2023 and March 31, 2023. The following table details the calculation of FTE net interest income: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Net interest income $ 86,640 $ 88,369 $ 72,878 Taxable equivalent adjustment 400 414 399 FTE net interest income $ 87,040 $ 88,783 $ 73,277 46 Table of Co n tents The following tables detail Peoples’ average balance sheets for the periods presented: For the Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 ( Dollars in thousands) Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Average Balance Income/ Expense Yield/Cost Short-term investments $ 142,381 $ 1,922 5.44 % $ 58,037 $ 901 6.16 % $ 35,223 $ 388 4.47 % Investment securities (a)(b): Taxable 1,657,967 13,967 3.37 % 1,589,980 12,921 3.25 % 1,597,688 11,049 2.77 % Nontaxable 174,632 1,308 3.00 % 178,053 1,388 3.12 % 190,566 1,298 2.72 % Total investment securities 1,832,599 15,275 3.33 % 1,768,033 14,309 3.24 % 1,788,254 12,347 2.76 % Loans (b)(c): Construction 339,448 6,404 7.48 % 387,147 7,396 7.48 % 239,492 3,963 6.62 % Commercial real estate, other 2,076,219 37,242 7.12 % 2,014,824 38,076 7.39 % 1,333,062 19,794 5.94 % Commercial and industrial 1,203,196 23,521 7.75 % 1,144,857 22,728 7.77 % 877,391 14,610 6.66 % Premium finance 210,405 4,564 8.60 % 189,882 3,781 7.79 % 147,895 2,150 5.81 % Leases 409,870 12,067 11.68 % 400,258 11,505 11.25 % 342,583 9,643 11.26 % Residential real estate (d) 930,989 11,322 4.86 % 941,102 11,233 4.77 % 839,822 9,717 4.63 % Home equity lines of credit 216,743 4,297 8.00 % 206,847 4,088 7.84 % 176,327 2,966 6.82 % Consumer, indirect 656,244 9,281 5.70 % 672,042 9,316 5.50 % 640,359 7,231 4.58 % Consumer, direct 124,091 2,098 6.82 % 137,258 2,325 6.72 % 108,488 1,739 6.50 % Total loans 6,167,205 110,796 7.15 % 6,094,217 110,448 7.12 % 4,705,419 71,813 6.12 % Allowance for credit losses (61,236) (62,241) (52,669) Net loans 6,105,969 110,796 7.22 % 6,031,976 110,448 7.20 % 4,652,750 71,813 6.19 % Total earning assets 8,080,949 127,993 6.31 % 7,858,046 125,658 6.30 % 6,476,227 84,548 5.23 % Goodwill and other intangible assets 410,719 411,616 325,545 Other assets 529,983 556,993 420,692 Total assets $ 9,021,651 $ 8,826,655 $ 7,222,464 Interest-bearing deposits: Savings accounts $ 905,713 $ 226 0.10 % $ 939,549 $ 228 0.10 % $ 1,044,392 $ 136 0.05 % Governmental deposit accounts 763,899 5,084 2.68 % 750,030 4,844 2.56 % 637,959 1,066 0.68 % Interest-bearing demand accounts 1,109,033 452 0.16 % 1,145,841 373 0.13 % 1,103,966 180 0.07 % Money market accounts 784,759 4,888 2.51 % 751,503 4,212 2.22 % 583,574 825 0.57 % Retail CDs 1,582,426 15,900 4.05 % 1,336,440 12,079 3.59 % 576,645 1,750 1.23 % Brokered CDs (e) 568,996 6,753 4.79 % 575,203 7,865 5.42 % 224,325 1,704 3.08 % Total interest-bearing deposits 5,714,826 33,303 2.35 % 5,498,566 29,601 2.14 % 4,170,861 5,661 0.55 % Borrowed funds: Short-term FHLB advances (e) 135,072 1,826 5.45 % 294,859 4,089 5.50 % 377,578 4,314 4.63 % Repurchase agreements and other 253,758 2,358 3.72 % 126,357 692 2.19 % 93,848 143 0.61 % Total short-term borrowings 388,830 4,184 4.32 % 421,216 4,781 4.51 % 471,426 4,457 3.83 % Long-term FHLB advances 125,931 1,241 3.97 % 88,840 849 3.79 % 34,015 204 2.43 % Long-term notes payable 50,407 862 6.84 % 45,441 724 6.37 % 50,656 653 5.16 % Other long-term borrowings (f) 53,936 1,363 10.02 % 51,984 920 6.93 % 13,806 296 8.58 % Total long-term borrowings 230,274 3,466 6.04 % 186,265 2,493 5.34 % 98,477 1,153 4.69 % Total borrowed funds 619,104 7,650 4.93 % 607,481 7,274 4.76 % 569,903 5,610 3.98 % Total interest-bearing liabilities 6,333,930 40,953 2.60 % 6,106,047 36,875 2.40 % 4,740,764 11,271 0.96 % Non-interest-bearing deposits 1,501,738 1,570,110 1,556,636 Other liabilities 133,202 147,983 123,599 Total liabilities 7,968,870 7,824,140 6,420,999 Total stockholders’ equity 1,052,781 1,002,515 801,465 Total liabilities and stockholders’ equity $ 9,021,651 $ 8,826,655 $ 7,222,464 Interest rate spread (b) $ 87,040 3.71 % $ 88,783 3.90 % $ 73,277 4.27 % Net interest margin (b) 4.27 % 4.44 % 4.53 % 47 Table of Co n tents (a) Average balances are based on carrying value. (b) Interest income and yields are presented on an FTE basis, using a 23.2% blended corporate income tax rate for the three months ended March 31, 2024, and 23.3% for the three months ended December 31, 2023 and March 31, 2023. (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. (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 March 31, 2024 Compared to (Dollars in thousands) December 31, 2023 March 31, 2023 Increase (decrease) in: Rate Volume Total (a) Rate Volume Total (a) INTEREST INCOME: Short-term investments $ (1,202) $ 2,223 $ 1,021 $ 105 $ 1,429 $ 1,534 Investment Securities (b): Taxable 488 558 1,046 2,489 429 2,918 Nontaxable (54) (26) (80) 477 (467) 10 Total investment income 434 532 966 2,966 (38) 2,928 Loans (b) : Construction 50 (1,042) (992) 582 1,859 2,441 Commercial real estate, other (5,485) 4,651 (834) 4,573 12,875 17,448 Commercial and industrial (267) 1,060 793 2,733 6,178 8,911 Premium finance 385 398 783 1,283 1,131 2,414 Leases 346 216 562 387 2,037 2,424 Residential real estate 672 (583) 89 514 1,091 1,605 Home equity lines of credit 61 148 209 571 760 1,331 Consumer, indirect 1,042 (1,077) (35) 1,862 188 2,050 Consumer, direct 204 (431) (227) 91 268 359 Total loan income (2,992) 3,340 348 12,596 26,387 38,983 Total interest income $ (3,760) $ 6,095 $ 2,335 $ 15,667 $ 27,778 $ 43,445 INTEREST EXPENSE: Deposits: Savings accounts $ 35 $ (37) $ (2) $ 206 $ (116) $ 90 Interest-bearing demand accounts 156 (77) 79 271 1 272 Money market accounts 504 172 676 3,687 376 4,063 Governmental deposit accounts 173 67 240 3,767 251 4,018 Retail CDs 1,583 2,238 3,821 8,036 6,114 14,150 Brokered CDs (1,019) (93) (1,112) 1,338 3,711 5,049 Total deposit cost 1,432 2,270 3,702 17,305 10,337 27,642 Borrowed funds: Short-term borrowings 525 (1,122) (597) 5,971 (6,244) (273) Long-term borrowings 768 205 973 78 2,235 2,313 Total borrowed funds cost 1,293 (917) 376 6,049 (4,009) 2,040 Total interest expense 2,725 1,353 4,078 23,354 6,328 29,682 FTE net interest income $ (6,485) $ 4,742 $ (1,743) $ (7,687) $ 21,450 $ 13,763 48 Table of Co n tents (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 23.2% blended corporate income tax rate for the three months ended March 31, 2024, and 23.3% for the three months ended December 31, 2023 and March 31, 2023. Compared to the linked quarter, net interest income decreased $1.7 million, or 2.0%. Net interest margin was 4.27% for the first quarter of 2024, compared to 4.44% for the linked quarter. The decreases in net interest income and net interest margin were primarily due to a decrease in accretion income, net of amortization, from our acquisitions as well as excess cash on hand during the first quarter of 2024 for liquidity purposes. Net interest income for the first quarter of 2024 grew 18.9% over the prior year quarter and net interest margin decreased by 26 basis points. The increase in net interest income compared to the first quarter of 2023 was driven by increases in market interest rates, the Limestone Merger, and organic growth. The decrease in net interest margin for the first quarter of 2024 compared to the first quarter of 2023, was driven primarily by an increase in interest expense on deposits. Accretion income, net of amortization expense, from acquisitions was $6.6 million for the first quarter of 2024, $9.0 million for the linked quarter and $2.0 million for the first quarter of 2023, which added 32 basis points, 45 basis points and 13 basis points, respectively, to net interest margin. The decrease in accretion income for the first quarter of 2024, when compared to the linked quarter was driven by a fourth quarter 2023 true-up to the preliminary Limestone-related accretion. The increase in accretion income for the first quarter of 2024 compared to the first quarter of 2023 was a result of accretion from the Limestone Merger. 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 Credit Losses The following table details Peoples’ provision for credit losses: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Provision for other credit losses $ 5,834 $ 1,048 $ 1,673 Provision for checking account overdraft credit losses 268 237 180 Provision for credit losses $ 6,102 $ 1,285 $ 1,853 As a percentage of average total loans (a) 0.40 % 0.08 % 0.16 % (a) Presented on an annualized basis. The provision for 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 first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses for the first quarter of 2023 was largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction in reserves for individually analyzed loans. 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.” 49 Table of Co n tents Net Loss Included in Total Non-Interest Income Net loss includes net losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses for the periods presented: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Net loss on investment securities $ (1) $ (1,592) $ (1,935) Net loss on asset disposals and other transactions: Net loss on other assets (309) (586) (229) Net loss on OREO — — (10) Net loss on other transactions (32) (33) (7) Net loss on asset disposals and other transactions $ (341) $ (619) $ (246) During the fourth quarter of 2023, Peoples executed the sale of $36.5 million of lower yielding available-for-sale investment securities. Proceeds from the sales were used to purchase higher yielding agency 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 sales 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 net loss on asset disposals and other transactions for the first quarter of 2024 and the linked quarter was due to $0.3 million of net losses on repossessed assets. Total Non-Interest Income, Excluding Net Gains and Losses Total non-interest income, excluding net gains and losses, comprised 23% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the first quarter of 2024, for the linked quarter, and the for first quarter of 2023. For the first quarter of 2024, insurance income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. The following table details Peoples' insurance income: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Property and casualty insurance commissions $ 3,585 $ 3,655 $ 3,252 Performance-based commissions 2,213 32 1,527 Life and health insurance commissions 614 582 564 Other fees and charges 86 68 82 Insurance income $ 6,498 $ 4,337 $ 5,425 Peoples' insurance income for the first quarter of 2024 increased $2.2 million when compared to linked quarter. This increase in insurance income was due to seasonal performance-based commissions being paid, which are annual in nature and typically occur in the first quarter of each year. Insurance income for the first quarter of 2024 increased $1.1 million when compared to first quarter of 2023, primarily due to new business and market increases for premiums. 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) E-banking income $ 6,046 $ 6,835 $ 5,443 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 decreased for the first quarter of 2024 compared to the linked quarter primarily driven by a decrease in customer activity. 50 Table of Co n tents 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Fiduciary income $ 2,001 $ 1,851 $ 1,805 Brokerage income 1,842 1,789 1,627 Employee benefit fees 756 734 652 Trust and investment income $ 4,599 $ 4,374 $ 4,084 Fiduciary income and brokerage income increased in the first quarter of 2024 relative to the linked quarter due to market volatility. When compared to the first quarter of 2023, fiduciary income and brokerage income increased, which was driven by an increase in fiduciary income due to an increase in assets under administration and management. The following table details Peoples' assets under administration and management: March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 (Dollars in thousands) Trust $ 2,061,402 $ 2,021,249 $ 1,900,488 $ 1,931,789 $ 1,803,887 Brokerage $ 1,530,954 $ 1,473,814 1,364,372 1,379,309 1,318,300 Total $ 3,592,356 $ 3,495,063 $ 3,264,860 $ 3,311,098 $ 3,122,187 Quarterly average $ 3,521,188 $ 3,341,868 $ 3,319,655 $ 3,205,186 $ 3,076,285 The increases in assets under administration and management at March 31, 2024 compared to at December 31, 2023 were driven by market value fluctuations. The increases in assets under administration and management at March 31, 2024 when compared to at March 31, 2023 were primarily due to increases in brokerage income, as Peoples added new accounts and the underlying market values of assets under management grew. 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Overdraft and non-sufficient funds fees $ 2,255 $ 2,437 $ 1,842 Account maintenance fees 1,718 1,764 1,461 Other fees and charges 250 289 220 Deposit account service charges $ 4,223 $ 4,490 $ 3,523 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 decreased for the first quarter of 2024 compared to the linked quarter due to seasonality of customer activity. Deposit account service charges increased when comparing the first quarter of 2024 to the first quarter of 2023 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Other non-interest income 1,698 1,922 668 Bank owned life insurance income 1,500 1,227 707 Lease income 1,236 2,822 1,077 Mortgage banking income 321 338 314 51 Table of Co n tents The decrease in other non-interest income when comparing the three months ended March 31, 2024 to the linked quarter was primarily due to an excess recovery of a previously charged-off loan. The increase in other non-interest income for the first quarter of 2024 when compared to the first quarter of 2023 was driven by increased operating lease income. Bank owned life insurance income for the first quarter of 2024 increased compared to the linked quarter primarily due to a $0.5 million death benefit. Bank owned life insurance income for the first quarter of 2024 increased when compared to the first quarter of 2023, due to the additional insurance policies acquired in the Limestone Merger. Lease income is primarily comprised of (i) gains on the early termination of leases, net of any associated purchase accounting adjustments, (ii) month-to-month lease payments in excess of net investment in the lease, net of any associated purchase accounting adjustment (iii) fees received for referrals, (iv) gains and losses recognized on the sales of residual assets and (v) syndication income. The first quarter of 2024 decrease in lease income when compared to the linked quarter was due to a large lease buyout in the fourth quarter of 2023. 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 first quarter of 2024 was relatively flat when compared to each of the prior periods. In the first quarter of 2024, Peoples sold $0.2 million in loans into the secondary market with servicing retained and $6.9 million in loans with servicing released, compared to $26,000 and $7.9 million, respectively, in the fourth quarter of 2023, and $0.8 million and $7.4 million, respectively, in the first quarter of 2023. 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Base salaries and wages $ 24,797 $ 23,713 $ 20,332 Sales-based and incentive compensation 5,254 7,158 3,945 Employee benefits 3,938 4,205 4,115 Payroll taxes and other employment costs 2,836 2,280 2,370 Stock-based compensation 3,090 1,137 2,189 Deferred personnel costs (1,022) (1,123) (923) Salaries and employee benefit costs $ 38,893 $ 37,370 $ 32,028 Full-time equivalent employees: Actual at end of period 1,498 1,478 1,286 Average during the period 1,492 1,483 1,283 Base salaries and wages for the first quarter of 2024 increased compared to the linked quarter primarily due to annual merit increases. The current quarter increase compared to the first quarter of 2023 was primarily driven by the additional employees added in the Limestone Merger as well as annual merit increases. The decrease in sales-based and incentive compensation for the first quarter of 2024 compared to the linked quarter was primarily due to $1.3 million of Vantage-related sales-based incentive compensation. Sales-based and incentive compensation increased in the first quarter of 2024 when compared to the prior year quarter due to overall company performance measures used in calculating incentive awards. The decrease in employee benefits for the first quarter of 2024 compared to the linked quarter and the first quarter of 2023 was primarily due to decreased medical costs. Payroll taxes and other employment costs for the first quarter of 2024 increased compared to the linked quarter and the first quarter of 2024 and were primarily related to higher base salaries and wages. Also impacting the increase in payroll taxes and other employment costs when compared to the first quarter of 2023 were the additional employees added in the Limestone Merger. 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 52 Table of Co n tents 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 first quarter of 2024 increased when compared to the fourth quarter of 2023 and the first three months of 2023 due to additional employees, including the ones added in the Limestone Merger. Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. Deferred personnel costs for the first quarter of 2024 remained relatively flat when compared to both the fourth quarter of 2023 and the first quarter of 2023. Peoples' net occupancy and equipment expense was comprised of the following: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Depreciation $ 2,170 $ 2,040 $ 1,790 Repairs and maintenance costs 1,821 1,596 1,261 Property taxes, utilities and other costs 1,293 1,330 1,157 Net rent expense 999 566 747 Net occupancy and equipment expense $ 6,283 $ 5,532 $ 4,955 The first quarter of 2024 net occupancy and equipment expense increased when compared to the linked quarter due to a prior period one time benefit to rent expense. The first quarter of 2024 net occupancy and equipment expense increased when compared to the first quarter of 2023 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Data processing and software expense $ 5,769 $ 6,029 $ 4,562 Professional fees 2,967 3,266 2,881 Amortization of other intangible assets 2,788 3,271 1,871 E-banking expense 1,781 1,991 1,491 FDIC insurance premiums 1,186 1,260 801 Other loan expenses 1,076 726 739 Marketing expense 1,056 1,463 930 Franchise tax expense 881 862 1,034 Communication expense 799 745 613 Other non-interest expense 4,986 5,174 4,574 Data processing and software expenses for the first quarter 2024 decreased compared to the linked quarter due to $0.6 million of acquisition-related expense in the linked quarter. The increase for the first quarter 2024 when compared to the first quarter 2023 was driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization. Professional fees for the first quarter of 2024 decreased when compared to the linked quarter due to less acquisition-related expenses. Professional fees for the first quarter of 2024 was relatively flat when compared to the first quarter of 2023. Amortization of other intangible assets for the first quarter of 2024 decreased when compared to the linked quarter due to additional expenses attributable to the Limestone Merger during the fourth quarter of 2023. Amortization of other intangible assets for the current quarter increased when compared to the first quarter of 2023 due to amortization of intangible assets recognized in the Limestone Merger during the first quarter of 2023. Peoples' e-banking expense is comprised of costs associated with debit and ATM cards. The decrease in electronic banking income compared to the linked quarter was due to a decline in customer activity. E-banking expense increased for the first quarter of 2024 when compared to the first quarter of 2023 due to additional customers brought in from the Limestone Merger. 53 Table of Co n tents Peoples' FDIC insurance premiums for the first quarter of 2024 were relatively flat when compared to the linked quarter. FDIC insurance premiums for the first quarter of 2024 increased when compared to the first quarter of 2023 due to organic and acquisitive growth and an increase in rates assessed by the FDIC. Other loan expenses during the first quarter of 2024 increased when compared to the respective prior comparative periods primarily due to increases in miscellaneous loan and collection expenses. Marketing expense for the first quarter of 2024 decreased when compared to the linked quarter due to lower advertising expense. Marketing expense for the first quarter of 2024 increased when compared to the first quarter of 2023 due to higher donations. 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 decrease in franchise tax expense for the first quarter of 2024 when compared to the first quarter of 2023 was driven by a lower apportionment in Ohio. Other non-interest expense for the first quarter of 2024 decreased when compared to the linked quarter due to a decrease in postage expense. The increase for the first quarter of 2024 when compared to the first quarter of 2023 was driven by the increase in depreciation expense for operating leases. Income Tax Expense Peoples recorded income tax expense of $8.3 million with an effective tax rate of 21.8% for the first quarter of 2024, compared to income tax expense of $9.7 million with an effective tax rate of 22.3% for the linked quarter and income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023. The decrease in income tax expense when compared to the fourth quarter of 2023 was primarily due to lower 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' 2023 Form 10-K. Pre-Provision Net Revenue (Non-US GAAP) Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Pre-provision net revenue: Income before income taxes $ 37,852 $ 43,529 $ 33,606 Add: provision for credit losses 6,102 1,285 1,853 Add: loss on OREO — — 10 Add: loss on investment securities 1 1,592 1,935 Add: loss on other assets 309 586 229 Add: loss on other transactions 32 33 7 Pre-provision net revenue $ 44,296 $ 47,025 $ 37,640 Total average assets $9,021,651 $8,826,655 $7,222,464 Pre-provision net revenue to total average assets (annualized) 1.97 % 2.11 % 2.11 % Weighted-average common shares outstanding - diluted 35,051,810 35,089,825 28,021,879 Pre-provision net revenue per common share - diluted $ 1.26 $ 1.34 $ 1.34 The decrease in the PPNR for the first quarter of 2024 compared to the fourth quarter of 2023 was driven by decreased net interest income and lower accretion income. The increase in PPNR for the first quarter of 2024 when compared to the first quarter of 2023 was 54 Table of Co n tents due to increased net interest income reflecting the positive impact of 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. 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Core non-interest expense: Total non-interest expense $ 68,465 $ 67,689 $ 56,479 Less: acquisition-related expenses (84) 1,276 551 Core non-interest expense $ 68,549 $ 66,413 $ 55,928 Efficiency Ratio (Non-US GAAP) The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of FTE net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses FTE net interest income. The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented: Three Months Ended March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Efficiency ratio: Total non-interest expense $ 68,465 $ 67,689 $ 56,479 Less: amortization of other intangible assets 2,788 3,271 1,871 Adjusted total non-interest expense 65,677 64,418 54,608 Total non-interest income 25,779 24,134 19,060 Less: net loss on investment securities (1) (1,592) (1,935) Less: net loss on asset disposals and other transactions (341) (619) (246) Total non-interest income excluding net losses 26,121 26,345 21,241 Net interest income 86,640 88,369 72,878 Add: FTE adjustment (a) 400 414 399 Net interest income on an FTE basis 87,040 88,783 73,277 Adjusted revenue $ 113,161 $ 115,128 $ 94,518 Efficiency ratio 58.04 % 55.95 % 57.78 % Efficiency ratio adjusted for non-core items: Core non-interest expense $ 68,549 $ 66,413 $ 55,928 Less: amortization of other intangible assets 2,788 3,271 1,871 Adjusted core non-interest expense 65,761 63,142 54,057 Non-interest income excluding net losses 26,121 26,345 21,241 Net interest income on an FTE basis 87,040 88,783 73,277 Adjusted revenue $ 113,161 $ 115,128 $ 94,518 Efficiency ratio adjusted for non-core items 58.11 % 54.85 % 57.19 % (a) Tax effect is calculated using a 23.2% blended corporate income tax rate for the three months ended March 31, 2024, and a 23.3% blended corporate income tax rate for the three months ended December 31, 2023 and March 31, 2023. 55 Table of Co n tents The efficiency ratio increased compared to the linked quarter mainly as the result of an increase of interest expense on deposits. The efficiency ratio compared to the prior year quarter was relatively flat. The efficiency ratio, adjusted for non-core items, was 58.1% for the first quarter of 2024, compared to 54.9% for the linked quarter, and 57.2% for the first quarter of 2023. Peoples continues to focus on controlling expenses, while recognizing necessary costs in order to continue growing the business. 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 and acquisition-related expenses.. 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Annualized net income adjusted for non-core items: Net income $ 29,584 $ 33,825 $ 26,560 Add: net loss on investment securities 1 1,592 1,935 Less: tax effect of net loss on investment securities (a) — 334 406 Add: net loss on asset disposals and other transactions 341 619 246 Less: tax effect of net loss on asset disposals and other transactions (a) 72 130 52 Add: acquisition-related expenses (84) 1,276 551 Less: tax effect of acquisition-related expenses (a) (18) 268 116 Net income adjusted for non-core items (after tax) $ 29,788 $ 36,580 $ 28,718 Days in the period 91 92 90 Days in the year 366 365 365 Annualized net income $ 118,986 $ 134,197 $ 107,716 Annualized net income adjusted for non-core items (after tax) $ 119,807 $ 145,127 $ 116,467 Return on average assets: Annualized net income $ 118,986 $ 134,197 $ 107,716 Total average assets 9,021,651 8,826,655 7,222,464 Return on average assets 1.32 % 1.52 % 1.49 % Return on average assets adjusted for non-core items: Annualized net income adjusted for non-core items (after tax) $ 119,807 $ 145,127 $ 116,467 Total average assets 9,021,651 8,826,655 7,222,464 Return on average assets adjusted for non-core items (after tax) 1.33 % 1.64 % 1.61 % (a) Based on a 21% statutory federal corporate income tax rate. The return on average assets adjusted for non-core items for the first quarter of 2024 decreased when compared to the linked quarter, due to a decrease in annualized net income resulting from lower net interest income, partially offset by an increase in average assets resulting from the excess cash held on balance sheet as well as increases in non-interest expenses. The decrease in the return on average assets adjusted for non-core items for the first quarter of 2024, compared to the first quarter of 2023, 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. 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 56 Table of Co n tents 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 March 31, 2024 December 31, 2023 March 31, 2023 (Dollars in thousands) Annualized net income excluding amortization of other intangible assets: Net income $ 29,584 $ 33,825 $ 26,560 Add: amortization of other intangible assets 2,788 3,271 1,871 Less: tax effect of amortization of other intangible assets (a) 585 687 393 Net income excluding amortization of other intangible assets $ 31,787 $ 36,409 $ 28,038 Days in the period 91 92 90 Days in the year 366 365 365 Annualized net income $ 118,986 $ 134,197 $ 107,716 Annualized net income excluding amortization of other intangible assets $ 127,847 $ 144,449 $ 113,710 Average tangible equity: Total average stockholders' equity $ 1,052,781 $ 1,002,515 $ 801,465 Less: average goodwill and other intangible assets 410,719 411,616 325,545 Average tangible equity $ 642,062 $ 590,899 $ 475,920 Return on total average stockholders' equity ratio: Annualized net income $ 118,986 $ 134,197 $ 107,716 Total average stockholders' equity $ 1,052,781 $ 1,002,515 $ 801,465 Return on total average stockholders' equity 11.30 % 13.39 % 13.44 % Return on average tangible equity ratio: Annualized net income excluding amortization of other intangible assets $ 127,847 $ 144,449 $ 113,710 Average tangible equity $ 642,062 $ 590,899 $ 475,920 Return on average tangible equity 19.91 % 24.45 % 23.89 % (a) Based on a 21% statutory federal corporate income tax rate. The return on total average stockholders' equity and average tangible equity ratios decreased when compared to the linked quarter due to a decrease in annualized net income mainly attributable to a decrease in net interest income and an increase in non-interest expense. The decreases in the return on total average stockholders' equity and average tangible equity ratios in the first quarter of 2024 when compared to the same period of 2023 were due to the issuance of 6.8 million common shares as consideration in the Limestone Merger, an increase in acquisition-related expenses, partially offset by an increase in total net interest income driven by the 2023 increases in market interest rates and additional net interest income from Limestone following the Limestone Merger. 57 Table of Co n tents FINANCIAL CONDITION Cash and Cash Equivalents At March 31, 2024, Peoples' interest-bearing deposits in other banks had increased $10.9 million from December 31, 2023. The total cash and cash equivalents balance included $318.5 million of excess cash reserves being maintained at the FRB of Cleveland at March 31, 2024, compared to $309.8 million at December 31, 2023. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances. Through the first three months of 2024, Peoples' total cash and cash equivalents increased $3.0 million, which reflected cash inflows of $37.0 million of cash provided by operating activities and $89.1 million of cash provided by financing activities, mostly offset by cash outflows of $123.1 million of cash used in investing activities. The cash provided by financing activities was largely driven by a $273.6 million net increase in interest-bearing deposits and $26.8 million of proceeds from long-term borrowings, partially offset by a net decrease in non-interest bearing deposits of $99.3 million and a net decrease in short-term borrowings of $87.6 million. Peoples' use of cash in investing activities reflected a net cash outflow from available-for-sale investment securities of $78.7 million and a $43.3 million net increase in loans held for investment. 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 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Available-for-sale securities, at fair value: Obligations of: U.S. Treasury and government agencies 3.10 % $ 28,773 $ 30,296 $ 42,466 $ 75,255 $ 58,438 U.S. government sponsored agencies 4.14 % 200,460 118,607 103,932 98,324 98,311 States and political subdivisions 2.85 % 208,750 213,296 220,460 248,271 224,996 Residential mortgage-backed securities 2.72 % 621,691 628,924 593,104 635,487 605,270 Commercial mortgage-backed securities 1.86 % 50,791 51,234 50,840 52,830 52,153 Bank-issued trust preferred securities 12.44 % 6,001 5,965 7,779 23,272 10,329 Total fair value $ 1,116,466 $ 1,048,322 $ 1,018,581 $ 1,133,439 $ 1,049,497 Total amortized cost $ 1,262,319 $ 1,184,288 $ 1,211,794 $ 1,292,331 $ 1,196,521 Net unrealized loss $ (145,853) $ (135,966) $ (193,213) $ (158,892) $ (147,024) Held-to-maturity securities, at amortized cost: Obligations of: U.S. government sponsored agencies 4.80 % $ 188,423 $ 188,475 $ 174,699 $ 176,027 $ 194,184 States and political subdivisions (a) 2.90 % 144,315 144,258 144,490 144,668 144,844 Residential mortgage-backed securities 3.36 % 246,579 248,559 248,627 243,807 245,294 Commercial mortgage-backed securities 2.53 % 100,427 102,365 107,593 109,423 109,750 Total amortized cost $ 679,744 $ 683,657 $ 675,409 $ 673,925 $ 694,072 Other investment securities $ 62,939 $ 63,421 $ 66,332 $ 63,579 $ 52,763 Total investment securities: Amortized cost $ 2,005,002 $ 1,931,366 $ 1,953,535 $ 2,029,835 $ 1,943,356 Carrying value $ 1,859,149 $ 1,795,400 $ 1,760,322 $ 1,870,943 $ 1,796,332 (a) Amortized cost is presented net of the allowance for credit losses of $238 at March 31, 2024 and at December 31, 2023, and $241 at March 31, 2023. For the first quarter of 2024, total investment securities increased compared to the linked quarter, largely due to purchases of higher yielding government sponsored agency securities which were used to collateralize certain government deposits. During the fourth quarter of 2023, Peoples executed the sales of $36.5 million of lower yielding available-for-sale investment securities for an after-tax loss of $1.3 million. Proceeds from the sales were used to purchase higher yielding agency investment securities. During the first quarter of 2023, Peoples executed the sales of $96.7 million of its lower yielding available-for-sale securities for an after-tax loss of $1.6 million. Proceeds from the sales were used to pay down overnight borrowings. The realized losses recognized due to the first 58 Table of Co n tents quarter of 2023 transactions were earned back within the 2023 fiscal year, and the realized losses recognized due to the fourth quarter of 2023 transactions are expected to be earned back within 14 months of the transaction dates. 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) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Originated loans and leases: Construction $ 262,209 $ 279,335 $ 289,657 $ 297,051 $ 222,915 Commercial real estate, other 1,263,577 1,209,204 1,161,064 1,035,473 995,176 Commercial real estate 1,525,786 1,488,539 1,450,721 1,332,524 1,218,091 Commercial and industrial 972,191 938,659 860,407 873,386 840,194 Premium finance 238,962 203,177 189,251 162,357 158,263 Leases 373,626 357,217 328,365 287,948 251,711 Residential real estate 420,518 418,570 405,917 396,667 386,964 Home equity lines of credit 164,019 148,155 140,787 132,222 132,531 Consumer, indirect 650,228 666,472 668,371 654,371 647,177 Consumer, direct 99,022 112,292 114,160 101,786 99,299 Consumer 749,250 778,764 782,531 756,157 746,476 Deposit account overdrafts 1,306 986 857 830 749 Total originated loans and leases $ 4,445,658 $ 4,334,067 $ 4,158,836 $ 3,942,091 $ 3,734,979 Acquired loans and leases (a): Construction $ 52,478 $ 84,684 $ 84,359 $ 121,690 $ 9,381 Commercial real estate, other 980,203 987,753 1,028,920 1,036,041 485,886 Commercial real estate 1,032,681 1,072,437 1,113,279 1,157,731 495,267 Commercial and industrial 242,424 246,327 268,402 286,924 50,945 Leases 49,068 56,843 74,270 89,843 102,930 Residential real estate 361,370 372,525 386,048 394,775 325,638 Home equity lines of credit 57,060 60,520 63,153 66,999 41,852 Consumer, direct 14,566 16,477 20,402 36,233 8,107 Total acquired loans and leases $ 1,757,169 $ 1,825,129 $ 1,925,554 $ 2,032,505 $ 1,024,739 Total loans and leases $ 6,202,827 $ 6,159,196 $ 6,084,390 $ 5,974,596 $ 4,759,718 Percent of loans and leases to total loans and leases: Construction 5.1 % 5.9 % 6.1 % 7.0 % 4.9 % Commercial real estate, other 36.2 % 35.7 % 36.0 % 34.8 % 31.1 % Commercial real estate 41.3 % 41.6 % 42.1 % 41.8 % 36.0 % Commercial and industrial 19.6 % 19.2 % 18.6 % 19.4 % 18.7 % Premium finance 3.8 % 3.3 % 3.1 % 2.7 % 3.3 % Leases 6.8 % 6.7 % 6.6 % 6.3 % 7.4 % Residential real estate 12.6 % 12.9 % 13.0 % 13.2 % 15.0 % Home equity lines of credit 3.6 % 3.4 % 3.4 % 3.3 % 3.7 % Consumer, indirect 10.5 % 10.8 % 11.0 % 11.0 % 13.6 % Consumer, direct 1.8 % 2.1 % 2.2 % 2.3 % 2.3 % Consumer 12.3 % 12.9 % 13.2 % 13.3 % 15.9 % Total percentage 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Residential real estate loans being serviced for others $ 348,937 $ 356,784 $ 366,996 $ 375,882 $ 384,005 (a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit). The period-end total loan and lease balances at March 31, 2024 increased $43.6 million, or 3% annualized, compared to at December 31, 2023. The increase in the period-end loan and lease balance at March 31, 2024 compared to December 31, 2023 was primarily driven by increases of (i) $46.8 million in other commercial real estate loans, (ii) $35.8 million in premium finance loans and 59 Table of Co n tents (iii) $29.6 million in commercial and industrial loans, partially offset by decreases of (a) $49.3 million in construction loans, (b) $16.2 million in indirect consumer loans and (c) $15.2 million in direct consumer loans. The increase in the period-end loan and lease balances at March 31, 2024 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, the period-end loan and lease balance increased $499.3 million, or 10%, driven by increases of $198.1 million, $100.6 million, $80.7 million, $68.1 million, $37.3 million, and $23.5 million in other commercial real estate loans, commercial and industrial loans, premium finance loans, leases, construction loans, and home equity lines of credit, respectively. 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 10% 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 March 31, 2024: (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Construction: Apartment complexes $ 180,949 $ 202,623 $ 383,572 59.8 % Residential property 19,607 32,085 51,692 8.1 % Land development 36,985 14,583 51,568 8.0 % Land only 24,612 7,674 32,286 5.0 % Assisted living facilities and nursing homes 1,408 19,672 21,080 3.3 % Lodging and lodging related 3,578 16,456 20,034 3.1 % Industrial 10,619 5,287 15,906 2.5 % Student housing 10,107 4,893 15,000 2.4 % Other (a) 26,822 23,223 50,045 7.8 % Total construction $ 314,687 $ 326,496 $ 641,183 100.0 % (a) All other total exposures by industry are less than 2% of the Total Exposure. 60 Table of Co n tents (Dollars in thousands) Outstanding Balance Loan Commitments Total Exposure % of Total Commercial real estate, other: Apartment complexes $ 345,711 $ 3,495 $ 349,206 15.1 % Retail facilities: Owner occupied $ 56,251 $ 1,399 $ 57,650 2.5 % Non-owner occupied 243,285 905 244,190 10.6 % Total retail facilities $ 299,536 $ 2,304 $ 301,840 13.1 % Light industrial facilities: Owner occupied $ 144,172 $ 2,927 $ 147,099 6.4 % Non-owner occupied 97,301 4,594 101,895 4.4 % Total light industrial facilities $ 241,473 $ 7,521 $ 248,994 10.8 % Office buildings and complexes: Owner occupied $ 84,118 $ 3,598 $ 87,716 3.8 % Non-owner occupied 132,981 8,292 141,273 6.1 % Total office buildings and complexes $ 217,099 $ 11,890 $ 228,989 9.9 % Lodging and lodging related: Owner occupied $ 30,235 $ — $ 30,235 1.3 % Non-owner occupied 124,559 — 124,559 5.4 % Total lodging and lodging related $ 154,794 $ — $ 154,794 6.7 % Assisted living facilities and nursing homes $ 140,712 $ 5,167 $ 145,879 6.3 % Warehouse facilities: Owner occupied $ 41,361 $ 592 $ 41,953 1.8 % Non-owner occupied 44,530 128 44,658 1.9 % Total warehouse facilities $ 85,891 $ 720 $ 86,611 3.7 % Restaurant/bar facilities: Owner occupied $ 40,747 $ 20 $ 40,767 1.8 % Non-owner occupied 35,427 — 35,427 1.5 % Total restaurant/bar facilities $ 76,174 $ 20 $ 76,194 3.3 % Mixed-use facilities: Owner occupied $ 37,696 $ 1,233 $ 38,929 1.7 % Non-owner occupied 27,130 1,586 28,716 1.2 % Total mixed-use facilities $ 64,826 $ 2,819 $ 67,645 2.9 % Education services: Owner occupied $ 16,279 $ — $ 16,279 0.7 % Non-owner occupied 29,749 4,000 33,749 1.5 % Total education services $ 46,028 $ 4,000 $ 50,028 2.2 % Other (a) 571,536 31,808 603,344 26.0 % Total commercial real estate, other $ 2,243,780 $ 69,744 $ 2,313,524 100.0 % (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 March 31, 2024 and December 31, 2023. 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. 61 Table of Co n tents 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) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Construction $ 701 $ 699 $ 1,241 $ 1,496 $ 1,273 Commercial real estate, other 21,788 20,915 21,257 19,731 16,474 Commercial and industrial 10,581 10,490 10,205 11,028 8,307 Premium finance 607 484 476 431 433 Leases 12,889 10,850 11,692 10,377 9,109 Residential real estate 5,866 5,937 6,251 6,112 6,504 Home equity lines of credit 1,689 1,588 1,640 1,676 1,717 Consumer, indirect 8,301 8,590 7,516 7,610 7,781 Consumer, direct 2,279 2,343 2,519 2,642 1,619 Deposit account overdrafts 121 115 127 108 86 Allowance for credit losses $ 64,822 $ 62,011 $ 62,924 $ 61,211 $ 53,303 As a percent of total loans 1.05 % 1.01 % 1.03 % 1.02 % 1.12 % The increase in the allowance for credit losses at March 31, 2024 compared to December 31, 2023 was largely attributable to (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. 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. Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2023 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) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Gross charge-offs: Construction $ — $ — $ — $ — $ 9 Commercial real estate, other 212 296 278 7 33 Commercial and industrial 235 640 199 11 1 Premium finance 54 43 33 23 23 Leases 1,270 2,019 905 604 469 Residential real estate 80 20 50 59 41 Home equity lines of credit — 4 32 55 19 Consumer, indirect 1,461 1,234 926 941 929 Consumer, direct 226 142 92 78 104 Consumer 1,687 1,376 1,018 1,019 1,033 Deposit account overdrafts 336 352 319 263 227 Total gross charge-offs $ 3,874 $ 4,750 $ 2,834 $ 2,041 $ 1,855 Recoveries: Commercial real estate, other $ 83 $ 825 $ 97 $ 16 $ 27 Commercial and industrial 7 98 3 451 — Premium finance 8 — 12 3 9 Leases 212 25 168 89 80 Residential real estate 83 67 27 69 29 Home equity lines of credit 7 1 — — — Consumer, indirect 71 130 149 129 79 Consumer, direct 9 12 11 35 15 62 Table of Co n tents Three Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Consumer 80 142 160 164 94 Deposit account overdrafts 74 103 49 53 72 Total recoveries $ 554 $ 1,261 $ 516 $ 845 $ 311 Net charge-offs (recoveries): Construction $ — $ — $ — $ — $ 9 Commercial real estate, other 129 (529) 181 (9) 6 Commercial and industrial 228 542 196 (440) 1 Premium finance 46 43 21 20 14 Leases 1,058 1,994 737 515 389 Residential real estate (3) (47) 23 (10) 12 Home equity lines of credit (7) 3 32 55 19 Consumer, indirect 1,390 1,104 777 812 850 Consumer, direct 217 130 81 43 89 Consumer 1,607 1,234 858 855 939 Deposit account overdrafts 262 249 270 210 155 Total net charge-offs $ 3,320 $ 3,489 $ 2,318 $ 1,196 $ 1,544 Ratio of net charge-offs (recoveries) to average total loans (annualized): Construction — % — % — % — % — % Commercial real estate, other 0.01 % (0.03) % 0.01 % — % — % Commercial and industrial 0.02 % 0.03 % 0.01 % (0.03) % — % Premium finance — % — % — % — % — % Leases 0.07 % 0.13 % 0.05 % 0.04 % 0.04 % Residential real estate — % — % — % — % — % Home equity lines of credit — % — % — % — % — % Consumer, indirect 0.09 % 0.07 % 0.05 % 0.06 % 0.07 % Consumer, direct 0.01 % 0.01 % 0.01 % — % 0.01 % Consumer 0.10 % 0.08 % 0.06 % 0.06 % 0.08 % Deposit account overdrafts 0.02 % 0.02 % 0.02 % 0.02 % 0.01 % Total 0.22 % 0.23 % 0.15 % 0.09 % 0.13 % Each with "--%" not meaningful. Total net charge-offs during the first quarter of 2024 were $3.3 million, or 0.22% of average total loans on an annualized basis, compared to $3.5 million, or 0.23% of average total loans on an annualized basis, during the fourth quarter of 2023 and $1.5 million, or 0.13% of average total loans on an annualized basis, during the first quarter of 2023. The decrease for the first quarter of 2024 when compared to the linked quarter was driven by a decrease in net charge-offs on leases and commercial and industrial loans during the first quarter of 2024. The increase in net charge-offs during the first quarter of 2024 versus the prior year first quarter was primarily attributable to an increase in charge-offs on (i) leases, (ii) indirect consumer loans, (iii) commercial industrial loans, and (iv) other commercial real estate loans, partially offset by an increase in recoveries on leases during the first quarter of 2024. 63 Table of Co n tents The following table details Peoples’ nonperforming assets: (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Loans 90+ days past due and accruing: Commercial real estate, other $ 231 $ 78 $ 487 $ 15 $ 150 Commercial and industrial 10 316 67 — 228 Premium finance 2,208 1,355 1,581 987 764 Leases 4,070 3,826 6,007 3,847 2,491 Residential real estate 780 877 736 856 238 Home equity lines of credit 181 171 177 148 127 Consumer, indirect 134 68 47 40 13 Consumer, direct 48 25 15 31 3 Consumer 182 93 62 71 16 Total loans 90+ days past due and accruing $ 7,662 $ 6,716 $ 9,117 $ 5,924 $ 4,014 Nonaccrual loans: Construction $ — $ — $ — $ — $ 1 Commercial real estate, other 3,773 2,816 3,661 8,987 11,345 Commercial and industrial 6,205 2,758 3,116 3,438 3,064 Leases 10,136 8,436 7,929 4,800 3,884 Residential real estate 7,450 7,921 8,454 8,393 8,641 Home equity lines of credit 1,134 1,022 1,026 841 793 Consumer, indirect 2,506 2,412 1,904 1,982 2,147 Consumer, direct 157 112 97 355 105 Consumer 2,663 2,524 2,001 2,337 2,252 Total nonaccrual loans $ 31,361 $ 25,477 $ 26,187 $ 28,796 $ 29,980 Total nonperforming loans ("NPLs") $ 39,023 $ 32,193 $ 35,304 $ 34,720 $ 33,994 OREO: Commercial $ 7,118 $ 7,118 $ 7,118 $ 7,118 $ 8,730 Residential 120 56 56 48 48 Total OREO $ 7,238 $ 7,174 $ 7,174 $ 7,166 $ 8,778 Total nonperforming assets ("NPAs") $ 46,261 $ 39,367 $ 42,478 $ 41,886 $ 42,772 Criticized loans (a) $ 256,565 $ 235,239 $ 213,156 $ 219,885 $ 198,812 Classified loans (b) $ 147,518 $ 120,027 $ 124,836 $ 110,972 $ 93,168 Asset Quality Ratios (c): Nonaccrual loans as a percent of total loans (d) 0.51 % 0.41 % 0.43 % 0.48 % 0.63 % NPLs as a percent of total loans (d) 0.63 % 0.52 % 0.58 % 0.58 % 0.71 % NPAs as a percent of total assets (d) 0.50 % 0.43 % 0.48 % 0.48 % 0.58 % NPAs as a percent of total loans and OREO (d) 0.74 % 0.64 % 0.70 % 0.70 % 0.90 % Allowance for credit losses as a percent of nonaccrual loans 206.70 % 245.79 % 240.29 % 212.57 % 177.80 % Allowance for credit losses as a percent of NPLs (d) 166.11 % 194.38 % 178.23 % 176.30 % 156.80 % Criticized loans as a percent of total loans (a) 4.14 % 3.82 % 3.50 % 3.68 % 4.18 % Classified loans as a percent of total loans (b) 2.38 % 1.95 % 2.05 % 1.86 % 1.96 % (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. NPAs include nonperforming loans and OREO. 64 Table of Co n tents Compared to at December 31, 2023, Peoples' NPAs increased from 0.43% of total assets to 0.50% at March 31, 2024. Total loans 90+ days past due and accruing increased at March 31, 2024 compared to at December 31, 2023, mostly due to increases in nonperforming premium finance loans. Total nonaccrual loans increased at March 31, 2024 compared to at December 31, 2023, mostly due to increases in nonaccrual commercial and industrial loans and leases. During the first quarter of 2024, criticized loans increased $21.3 million, while classified loans increased $27.5 million when compared to at December 31, 2023. The increase in the amounts of criticized loans compared to at December 31, 2023 was primarily driven by loan downgrades, partially offset by loan upgrades and criticized loan pay-offs. The increase in the amount of classified loans compared to at December 31, 2023 was primarily driven by loan downgrades, partially offset by loan upgrades and classified loan pay-offs. Deposits The following table details Peoples’ deposit balances: (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Non-interest-bearing deposits (a) $ 1,468,363 $ 1,567,649 $ 1,569,095 $ 1,682,634 $ 1,555,064 Interest-bearing deposits: Interest-bearing demand accounts (a) 1,107,712 1,144,357 1,181,079 1,225,646 1,085,169 Savings accounts 901,493 919,244 987,170 1,116,622 1,024,638 Retail CDs 1,680,413 1,443,417 1,198,733 950,783 622,091 Money market deposit accounts 859,961 775,488 730,902 718,633 579,106 Governmental deposit accounts 825,170 726,713 761,625 705,596 649,303 Brokered CDs 483,444 575,429 608,914 559,955 273,156 Total interest-bearing deposits 5,858,193 5,584,648 5,468,423 5,277,235 4,233,463 Total deposits $ 7,326,556 $ 7,152,297 $ 7,037,518 $ 6,959,869 $ 5,788,527 Demand deposits as a percent of total deposits 35 % 38 % 39 % 42 % 46 % (a) The sum of amounts presented is considered total demand deposits. At March 31, 2024, period-end total deposits increased $174.3 million, or 2%, compared to at December 31, 2023, primarily driven by increases of (i) $237.0 million in retail CDs, (ii) $98.5 million in governmental deposits, partially offset by decreases of (a) $99.3 million in non-interest-bearing demand deposit accounts, (b) $92.0 million in brokered CDs, (c) $36.6 million in interest-bearing demand deposit accounts, and (d) $17.8 million in savings 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 March 31, 2024, period-end total deposits increased $1.5 billion, or 27%, compared to at March 31, 2023, primarily driven by deposits acquired in the Limestone Merger. Excluding Limestone deposit balances, total deposits at March 31, 2024 increased $784.8 million, or 14%, compared to at March 31,2023, primarily due to increases of $956.9 million in retail CDs, $210.3 million in brokered CDs, and $191.2 million in money market deposit accounts, partially offset by decreases of $270.9 million, $191.8 million, and $158.4 million in non-interest bearing deposits, savings accounts, and interest-bearing demand 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 March 31, 2024, Peoples had 11 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. 65 Table of Co n tents Borrowed Funds The following table details Peoples’ short-term borrowings and long-term borrowings: (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Short-term borrowings: FHLB Overnight borrowings $ 260,192 $ 369,000 $ 484,000 $ 444,000 $ 390,000 Retail repurchase agreements 90,304 99,121 101,437 125,935 100,670 Bank Term Funding Program ("BTFP") 163,000 133,000 — — — Total short-term borrowings $ 513,496 $ 601,121 $ 585,437 $ 569,935 $ 490,670 Long-term borrowings: FHLB advances $ 132,683 $ 112,865 $ 83,247 $ 33,755 $ 33,941 Vantage non-recourse debt 49,529 49,572 41,783 41,963 47,864 Other long-term borrowings 54,071 53,804 48,282 47,861 13,824 Total long-term borrowings $ 236,283 $ 216,241 $ 173,312 $ 123,579 $ 95,629 Total borrowed funds $ 749,779 $ 817,362 $ 758,749 $ 693,514 $ 586,299 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 March 31, 2024 decreased compared to at December 31, 2023, primarily due to lower overnight borrowings. Total long-term borrowings at March 31, 2024 increased when compared to at March 31, 2023 due to an increase in FHLB advances and other long-term borrowings assumed in the Limestone Merger as well as additional borrowings under the BTFP. Capital/Stockholders’ Equity At March 31, 2024, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. In order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At March 31, 2024, Peoples had a capital conservation buffer of 5.60%. The following table details Peoples' risk-based capital levels and corresponding ratios: (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Capital Amounts: Common Equity Tier 1 $ 780,017 $ 766,691 $ 752,728 $ 728,892 $ 624,292 Tier 1 834,089 820,495 801,010 776,753 638,116 Total (Tier 1 and Tier 2) 894,662 873,225 855,054 828,910 682,477 Net risk-weighted assets $ 6,674,114 $ 6,524,577 $ 6,505,779 $ 6,417,511 $ 5,110,318 Capital Ratios: Common Equity Tier 1 11.69 % 11.75 % 11.57 % 11.36 % 12.22 % Tier 1 12.50 % 12.58 % 12.31 % 12.10 % 12.49 % Total (Tier 1 and Tier 2) 13.40 % 13.38 % 13.14 % 12.92 % 13.35 % Tier 1 leverage ratio 9.43 % 9.57 % 9.34 % 9.64 % 9.02 % Peoples' risk-risk based capital ratios at March 31, 2024 decreased slightly when compared to December 31, 2023, due to lower net income, partially offset by an increase in expenses from the Limestone Merger. Compared to at March 31, 2023, 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 March 31, 2024 decreased compared to at March 31, 2023 due to the common shares issued in the Limestone Merger. In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. 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, 66 Table of Co n tents 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) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Tangible equity: Total stockholders' equity $ 1,062,002 $ 1,053,534 $ 993,219 $ 998,907 $ 819,543 Less: goodwill and other intangible assets 409,285 412,172 408,494 413,172 324,562 Tangible equity $ 652,717 $ 641,362 $ 584,725 $ 585,735 $ 494,981 Tangible assets: Total assets $ 9,270,774 $ 9,157,382 $ 8,942,534 $ 8,786,635 $ 7,311,520 Less: goodwill and other intangible assets 409,285 412,172 408,494 413,172 324,562 Tangible assets $ 8,861,489 $ 8,745,210 $ 8,534,040 $ 8,373,463 $ 6,986,958 Tangible book value per common share: Tangible equity $ 652,717 $ 641,362 $ 584,725 $ 585,735 $ 494,981 Common shares outstanding 35,486,234 35,314,745 35,395,990 35,374,916 28,488,158 Tangible book value per common share $ 18.39 $ 18.16 $ 16.52 $ 16.56 $ 17.37 Tangible equity to tangible assets ratio: Tangible equity $ 652,717 $ 641,362 $ 584,725 $ 585,735 $ 494,981 Tangible assets $ 8,861,489 $ 8,745,210 $ 8,534,040 $ 8,373,463 $ 6,986,958 Tangible equity to tangible assets 7.37 % 7.33 % 6.85 % 7.00 % 7.08 % Tangible book value per common share increased to $18.39 at March 31, 2024 compared to $18.16 at December 31, 2023. The change in tangible book value per common share was due to tangible equity increasing during the first quarter of 2024 primarily due to net income over the last three months, which was partially offset by an increase in other comprehensive losses recognized on available-for-sale securities. Tangible book value per common share at March 31, 2024 increased compared to at March 31, 2023 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. 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, including the review of assumptions used in modeling IRR. 67 Table of Co n tents 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) March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 300 $ 14,508 4.3 % $ 15,063 4.6 % $ (164,796) (9.5) % $ (157,625) (9.4) % 200 9,732 2.9 % 10,282 3.1 % (112,780) (6.5) % (107,620) (6.4) % 100 4,932 1.5 % 5,468 1.7 % (56,684) (3.3) % (53,585) (3.2) % (100) (7,892) (2.3) % (7,427) (2.3) % 34,400 2.0 % 31,722 1.9 % (200) (16,888) (5.0) % (15,446) (4.7) % 47,397 2.7 % 46,537 2.8 % (300) (20,705) (6.1) % (16,822) (5.1) % 47,323 2.7 % 47,198 2.8 % 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 March 31, 2024, consideration of the bear steepener and bear flattener scenarios provide insights which were not captured by parallel shifts. The bear steepener scenario highlights the risk to net interest income and economic value of equity when short-term interest rates remain constant while long-term interest rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are generally correlated with short-term interest rates, remain constant, while asset yields, which are correlated with long-term interest rates, rise. At March 31, 2024, the bear steepener scenario produced an increase in net interest income of 0.7% and a decline in the economic value of equity of 0.7%. The bear flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates rise while long-term rates remain constant. In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, increase, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, remain constant. Increased deposit and funding costs would be more than offset by increased variable rate asset yields; resulting in an increased amount of net interest income and a higher net interest margin. At March 31, 2024, the bear flattener scenario produced an increase of 3.0% to net interest income and a decline in the economic value of equity of 1.0%. Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of March 31, 2024, Peoples had entered into 11 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 March 31, 2024, 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. Liquidity In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. In light of the bank failures in 2023, Peoples revisited the model assumptions, and determined the methods used by the ALCO to monitor 68 Table of Co n tents and evaluate the adequacy of Peoples Bank's liquidity position remain appropriate and are largely unchanged from those disclosed in Peoples' 2023 Form 10-K. At March 31, 2024, Peoples Bank had liquid assets of $565.4 million, which represented 5.4% of total assets and unfunded loan commitments. Peoples also had an additional $158.7 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) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Home equity lines of credit $ 246,035 $ 244,367 $ 245,764 $ 208,805 $ 201,692 Unadvanced construction loans 349,850 349,850 351,473 293,662 241,225 Other loan commitments 714,513 769,759 768,788 597,285 717,149 Loan commitments $ 1,310,398 $ 1,363,976 $ 1,366,025 $ 1,099,752 $ 1,160,066 Standby letters of credit $ 13,131 $ 14,318 $ 15,452 $ 14,760 $ 15,046 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.