PEOPLES BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2021 December 31, 2020 (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and balances due from banks $ 129,842 $ 60,902 Interest-bearing deposits in other banks 369,840 91,198 Total cash and cash equivalents 499,682 152,100 Available-for-sale investment securities, at fair value (amortized cost of $ 1,294,654 at September 30, 2021 and $ 734,544 at December 31, 2020) (a) 1,297,090 753,013 Held-to-maturity investment securities, at amortized cost (fair value of $ 240,000 at September 30, 2021 and $ 68,082 at December 31, 2020) (a) 243,100 66,458 Other investment securities 34,486 37,560 Total investment securities (a) 1,574,676 857,031 Loans and leases, net of deferred fees and costs (b) 4,491,028 3,402,940 Allowance for credit losses ( 77,382 ) ( 50,359 ) Net loans 4,413,646 3,352,581 Loans held for sale 2,699 4,659 Bank premises and equipment, net of accumulated depreciation 91,210 60,094 Bank owned life insurance 72,920 71,591 Goodwill 267,015 171,260 Other intangible assets 28,400 13,337 Other assets 109,504 78,111 Total assets $ 7,059,752 $ 4,760,764 Liabilities Deposits: Non-interest-bearing $ 1,559,993 $ 997,323 Interest-bearing 4,272,027 2,913,136 Total deposits 5,832,020 3,910,459 Short-term borrowings 184,693 73,261 Long-term borrowings 99,411 110,568 Accrued expenses and other liabilities 111,746 90,803 Total liabilities 6,227,870 4,185,091 Stockholders’ equity Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2021 and at December 31, 2020 — — Common stock, no par value, 50,000,000 shares authorized, 29,806,435 shares issued at September 30, 2021 and 21,193,402 shares issued at December 31, 2020, including at each date shares held in treasury 685,428 422,536 Retained earnings 189,508 190,691 Accumulated other comprehensive (loss) income, net of deferred income taxes ( 5,888 ) 1,336 Treasury stock, at cost, 1,599,593 shares at September 30, 2021 and 1,686,046 shares at December 31, 2020 ( 37,166 ) ( 38,890 ) Total stockholders’ equity 831,882 575,673 Total liabilities and stockholders’ equity $ 7,059,752 $ 4,760,764 (a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $ 0 and $ 236 , respectively, at September 30, 2021 and $ 0 and $ 60 , respectively, at December 31, 2020. (b) Also referred to throughout this document as "total loans" and "loans held for investment." See Notes to the Unaudited Condensed Consolidated Financial Statements 3 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per share data) 2021 2020 2021 2020 Interest income: Interest and fees on loans and leases $ 40,748 $ 35,580 $ 115,196 $ 104,651 Interest and dividends on taxable investment securities 3,755 2,786 9,497 12,310 Interest on tax-exempt investment securities 882 614 2,358 1,903 Other interest income 82 33 175 317 Total interest income 45,467 39,013 127,226 119,181 Interest expense: Interest on deposits 2,399 2,669 7,793 10,582 Interest on short-term borrowings 91 742 283 2,355 Interest on long-term borrowings 399 483 1,334 1,629 Total interest expense 2,889 3,894 9,410 14,566 Net interest income 42,578 35,119 117,816 104,615 Provision for credit losses 8,994 4,728 7,333 33,531 Net interest income after provision for credit losses 33,584 30,391 110,483 71,084 Non-interest income: Electronic banking income 4,326 3,765 12,655 10,568 Trust and investment income 4,158 3,435 12,223 10,013 Insurance income 3,367 3,608 11,923 10,929 Deposit account service charges 2,549 2,266 6,578 6,995 Mortgage banking income 766 2,658 2,726 4,346 Bank owned life insurance income 437 462 1,329 1,514 Commercial loan swap fees 73 68 194 1,267 Net loss on asset disposals and other transactions ( 308 ) ( 28 ) ( 459 ) ( 237 ) Net (loss) gain on investment securities ( 166 ) 2 ( 704 ) 383 Other non-interest income 1,144 534 2,605 1,393 Total non-interest income 16,346 16,770 49,070 47,171 Non-interest expense: Salaries and employee benefit costs 25,589 19,410 68,276 57,313 Professional fees 6,426 1,720 13,459 5,247 Net occupancy and equipment expense 3,551 3,383 10,167 9,688 Data processing and software expense 2,529 1,838 7,394 5,344 Electronic banking expense 2,037 2,095 6,006 5,839 Amortization of other intangible assets 1,279 857 3,267 2,314 Marketing expense 1,223 456 2,810 1,561 Franchise tax expense 810 882 2,487 2,645 FDIC insurance premium 807 570 1,596 717 Other loan expenses 487 342 1,443 1,255 Communication expense 411 283 1,079 857 Other non-interest expense 12,711 2,479 17,762 7,665 Total non-interest expense 57,860 34,315 135,746 100,445 (Loss) income before income taxes ( 7,930 ) 12,846 23,807 17,810 Income tax (benefit) expense ( 2,172 ) 2,636 3,999 3,616 Net (loss) income $ ( 5,758 ) $ 10,210 $ 19,808 $ 14,194 (Loss) earnings per common share - basic $ ( 0.28 ) $ 0.52 $ 0.99 $ 0.70 (Loss) earnings per common share - diluted $ ( 0.28 ) $ 0.51 $ 0.99 $ 0.70 Weighted-average number of common shares outstanding - basic 20,640,519 19,504,503 19,751,853 19,862,409 Weighted-average number of common shares outstanding - diluted 20,789,271 19,637,689 19,890,672 19,998,353 Cash dividends declared $ 7,093 $ 6,770 $ 20,991 $ 20,622 Cash dividends declared per common share $ 0.36 $ 0.34 $ 1.07 $ 1.02 See Notes to the Unaudited Condensed Consolidated Financial Statements 4 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2021 2020 2021 2020 Net (loss) income $ ( 5,758 ) $ 10,210 $ 19,808 $ 14,194 Other comprehensive (loss) income: Available-for-sale investment securities: Gross unrealized holding (loss) gain arising during the period ( 7,685 ) ( 2,974 ) ( 16,738 ) 15,480 Related tax benefit (expense) 1,592 624 3,493 ( 3,251 ) Reclassification adjustment for net loss (gain) included in net (loss) income 166 ( 2 ) 704 ( 383 ) Related tax (benefit) expense ( 44 ) — ( 157 ) 80 Net effect on other comprehensive (loss) income ( 5,971 ) ( 2,352 ) ( 12,698 ) 11,926 Defined benefit plan: Net gain (loss) arising during the period 1,818 ( 533 ) 1,826 ( 1,054 ) Related tax (expense) benefit ( 407 ) 113 ( 408 ) 222 Amortization of unrecognized gain and service cost on benefit plans 20 33 81 97 Related tax expense ( 5 ) ( 7 ) ( 18 ) ( 21 ) Recognition of gain due to settlement and curtailment 143 531 143 1,050 Related tax expense ( 32 ) ( 112 ) ( 32 ) ( 221 ) Net effect on other comprehensive income 1,537 25 1,592 73 Cash flow hedges: Net gain (loss) arising during the period 858 803 4,800 ( 9,661 ) Related tax (expense) benefit ( 90 ) ( 168 ) ( 918 ) 2,029 Net effect on other comprehensive income (loss) 768 635 3,882 ( 7,632 ) Total other comprehensive (loss) income, net of tax ( 3,666 ) ( 1,692 ) ( 7,224 ) 4,367 Total comprehensive (loss) income $ ( 9,424 ) $ 8,518 $ 12,584 $ 18,561 See Notes to the Unaudited Condensed Consolidated Financial Statements 5 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, June 30, 2021 $ 422,652 $ 202,359 $ ( 2,222 ) $ ( 37,284 ) $ 585,505 Net loss — ( 5,758 ) — — ( 5,758 ) Other comprehensive loss, net of tax — — ( 3,666 ) — ( 3,666 ) Cash dividends declared — ( 7,093 ) — ( 7,093 ) Reissuance of treasury stock for common share awards ( 51 ) — — 51 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 78 ) ( 78 ) Common shares issued under dividend reinvestment plan 277 — — — 277 Common shares issued under compensation plan for Boards of Directors 16 — — 44 60 Common shares issued under employee stock purchase plan 37 — — 101 138 Stock-based compensation 598 — — — 598 Issuance of common shares related to merger with Premier Financial Bancorp, Inc. 261,899 — — — 261,899 Balance, September 30, 2021 $ 685,428 $ 189,508 $ ( 5,888 ) $ ( 37,166 ) $ 831,882 Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, December 31, 2020 $ 422,536 $ 190,691 $ 1,336 $ ( 38,890 ) $ 575,673 Net income — 19,808 — — 19,808 Other comprehensive loss, net of tax — — ( 7,224 ) — ( 7,224 ) Cash dividends declared — ( 20,991 ) — — ( 20,991 ) Reissuance of treasury stock for common share awards ( 2,223 ) — — 2,223 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 74 74 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,076 ) ( 1,076 ) Common shares issued under dividend reinvestment plan 655 — — — 655 Common shares issued under compensation plan for Boards of Directors 81 — — 228 309 Common shares issued under employee stock purchase plan 98 — — 275 373 Stock-based compensation 2,382 — — — 2,382 Issuance of common shares related to merger with Premier Financial Bancorp, Inc. 261,899 — — — 261,899 Balance, September 30, 2021 $ 685,428 $ 189,508 $ ( 5,888 ) $ ( 37,166 ) $ 831,882 6 Table of Contents Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, June 30, 2020 $ 421,236 $ 173,572 $ 4,634 $ ( 30,265 ) $ 569,177 Net income — 10,210 — — 10,210 Other comprehensive income, net of tax — — ( 1,692 ) — ( 1,692 ) Cash dividends declared — ( 6,770 ) — — ( 6,770 ) Reissuance of treasury stock for common share awards ( 321 ) — — 321 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 66 ) ( 66 ) Common shares repurchased under share repurchase program then in effect — — — ( 5,000 ) ( 5,000 ) Common shares issued under dividend reinvestment plan 220 — — — 220 Common shares issued under compensation plan for Boards of Directors ( 11 ) — — 63 52 Common shares issued under employee stock purchase plan ( 23 ) — — 134 111 Stock-based compensation 614 — — — 614 Balance, September 30, 2020 $ 421,715 $ 177,012 $ 2,942 $ ( 34,813 ) $ 566,856 Accumulated Other Comprehensive (Loss) Income Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, December 31, 2019 $ 420,876 $ 187,149 $ ( 1,425 ) $ ( 12,207 ) $ 594,393 Net income — 14,194 — — 14,194 Other comprehensive income, net of tax — — 4,367 — 4,367 Cash dividends declared — ( 20,622 ) — — ( 20,622 ) Reissuance of treasury stock for common share awards ( 2,583 ) — — 2,583 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 59 59 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,052 ) ( 1,052 ) Common shares repurchased under share repurchase program then in effect — — — ( 25,000 ) ( 25,000 ) Common shares issued under dividend reinvestment plan 463 — — — 463 Common shares issued under compensation plan for Boards of Directors 9 — — 316 325 Common shares issued under performance unit awards, net of tax 41 — — 138 179 Common shares issued under employee stock purchase plan ( 40 ) — — 350 310 Stock-based compensation 2,949 — — — 2,949 Impact of adoption of new accounting standard, net of taxes (a) — ( 3,709 ) — — ( 3,709 ) Balance, September 30, 2020 $ 421,715 $ 177,012 $ 2,942 $ ( 34,813 ) $ 566,856 (a) On January 1, 2020, Peoples adopted ASU 2016-13, which resulted in a reduction to retained earnings of $ 3.7 million, net of statutory federal corporate income tax. See Notes to the Unaudited Condensed Consolidated Financial Statements 7 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (Dollars in thousands) 2021 2020 Net cash provided by operating activities $ 66,722 $ 55,992 Investing activities: Available-for-sale investment securities: Purchases ( 715,263 ) ( 171,251 ) Proceeds from sales 480,127 11,582 Proceeds from principal payments, calls and prepayments 227,574 248,021 Held-to-maturity investment securities: Purchases ( 181,331 ) ( 8,404 ) Proceeds from principal payments 3,774 3,834 Other investment securities: Purchases ( 1,221 ) ( 5,901 ) Proceeds from sales 8,552 7,937 Net decrease (increase) in loans held for investment 156,598 ( 505,161 ) Net expenditures for premises and equipment ( 5,893 ) ( 3,702 ) Proceeds from sales of other real estate owned 153 96 Proceeds from bank owned life insurance contracts — 109 Business acquisitions, net of cash received 136,119 ( 94,856 ) Investment in limited partnership and tax credit funds ( 2,900 ) ( 13 ) Net cash provided by (used in) investing activities 106,289 ( 517,709 ) Financing activities: Net increase in non-interest-bearing deposits 69,557 311,704 Net increase in interest-bearing deposits 95,881 348,779 Net increase (decrease) in short-term borrowings 32,625 ( 154,914 ) Proceeds from long-term borrowings — 50,000 Payments on long-term borrowings ( 2,156 ) ( 1,857 ) Cash dividends paid ( 20,915 ) ( 20,147 ) Purchase of treasury stock under share repurchase program — ( 25,000 ) Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock ( 1,076 ) ( 1,052 ) Proceeds from issuance of common shares 655 262 Net cash provided by financing activities 174,571 507,775 Net increase in cash and cash equivalents 347,582 46,058 Cash and cash equivalents at beginning of period 152,100 115,193 Cash and cash equivalents at end of period $ 499,682 $ 161,251 Supplemental cash flow information: Interest paid $ 10,262 $ 15,179 Income taxes paid 6,450 7,500 Supplemental noncash disclosures: Transfers from loans to other real estate owned 210 163 Lease right-of-use assets obtained in exchange for lessee operating lease liabilities 101 38 See Notes to the Unaudited Condensed Consolidated Financial Statements 8 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies Basis of Presentation: The accompanying Unaudited Condensed Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by US GAAP for annual financial statements and should be read in conjunction with Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2020 ("Peoples' 2020 Form 10-K"). The accounting and reporting policies followed in the presentation of the accompanying Unaudited Condensed Consolidated Financial Statements are consistent with those described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2020 Form 10-K, as updated by the information contained in this quarterly report on Form 10-Q for the quarterly period ended September 30, 2021 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 30, 2021 for potential recognition or disclosure in these unaudited condensed consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2020, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2020 Form 10-K. Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers a lease to be past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, the lease is typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged off amounts are credited to the allowance for credit losses. Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. The initial allowance for credit losses determined on a collective basis is allocated to individual leases. The total of the purchase price and the allowance for credit losses is the initial amortized cost basis of these leases. The variance between the initial amortized cost basis and the fair value of a lease is considered an interest premium or discount, which is amortized or accreted into interest income on a level yield method over the life of the lease. Leases acquired by Peoples in a business combination that are not considered purchased credit deteriorated are recorded at the fair value and the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the discount or premium to the leases' cost basis and is accreted or amortized to interest income over the leases' remaining life using the level yield method. The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items. New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following paragraphs related to new pronouncements should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2020 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on Peoples' financial statements taken as a whole. Accounting Standards Update ("ASU") 2021-05 - Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. This ASU addresses stakeholders' concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. This ASU is effective for fiscal years beginning after December 15, 2021, for all entities. Peoples early adopted this ASU as of September 30, 2021. The adoption of this ASU did not have an impact on Peoples' consolidated financial statements. ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU allows relief where the benchmark interest rate is changed on a loan, lease or hedging relationship between March 12, 2020 9 Table of Contents and December 31, 2022. This ASU was early adopted as of September 30, 2021, and is not expected to have a significant impact on Peoples' consolidated financial statements, but is expected to reduce the accounting burden of assessing contracts impacted by reference rate reform. ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance. These amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Peoples adopted this ASU as of January 1, 2021. The adoption of this ASU did not have a material effect on Peoples' consolidated financial statements. Note 2 Fair Value of Assets and Liabilities Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.” Depending on the nature of the asset or the liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2020 Form 10-K. Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented. Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis The following table provides the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy. Recurring Fair Value Measurements at Reporting Date September 30, 2021 December 31, 2020 (Dollars in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets: Available-for-sale investment securities: Obligations of: U.S. government sponsored agencies $ — $ 78,481 $ — $ — $ 5,363 $ — States and political subdivisions — 252,919 — — 114,919 — Residential mortgage-backed securities — 898,459 — — 623,218 — Commercial mortgage-backed securities — 62,552 — — 4,783 — Bank-issued trust preferred securities — 4,679 — — 4,730 — Total available-for-sale securities — 1,297,090 — — 753,013 — Equity investment securities (a) 145 245 — 107 192 — Derivative assets (b) — 15,653 — — 27,332 — Liabilities: Derivative liabilities (c) $ — $ 22,904 $ — $ — $ 39,395 $ — (a) Included in "Other investment securities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. (b) Included in "Other assets" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements. (c) Included in "Accrued expenses and other liabilities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Available-for-Sale Investment Securities: The fair values reported by Peoples are determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, London Interbank Offered Rate ("LIBOR") yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. 10 Table of Contents Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from q uoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2). Derivative Assets and Liabilities : The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on similar products, or other related market input parameters (Level 2). Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy during the nine months ended September 30, 2021 and December 31, 2020. Non-Recurring Fair Value Measurements at Reporting Date September 30, 2021 December 31, 2020 (Dollars in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets: Loans held for sale $ — $ 2,751 $ — $ — $ 4,733 $ — Other real estate owned ("OREO") $ — $ — $ 11,268 $ — $ — $ 134 Servicing rights (a)(b) $ — $ — $ 2,294 $ — $ — $ 2,591 (a) Included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value. (b) Peoples established a valuation allowance on servicing rights of $ 16 at September 30, 2021 and $ 161 at December 31, 2020, as the fair value of the servicing rights was less than the carrying value. Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2). Other Real Estate Owned: OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of OREO quarterly for impairment considering market activity and recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach (Level 3). The increase in OREO for the nine months ended September 30, 2021 was due to the OREO acquired in the Premier Financial Bancorp Inc. ("Premier") acquisition. Servicing Rights : Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). The carrying value of servicing rights is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of servicing rights quarterly for impairment. 11 Table of Contents Financial Instruments Not Required to be Measured or Reported at Fair Value The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Unaudited Consolidated Balance Sheets. Fair Value Measurements of Other Financial Instruments (Dollars in thousands) Fair Value Hierarchy Level September 30, 2021 December 31, 2020 Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents 1 $ 499,682 $ 499,682 $ 152,100 $ 152,100 Held-to-maturity investment securities: Obligations of: U.S. government sponsored agencies 2 29,995 29,147 — — States and political subdivisions 2 124,181 122,435 35,139 35,484 Residential mortgage-backed securities 2 41,035 41,501 25,890 26,742 Commercial mortgage-backed securities 2 47,889 46,917 5,429 5,856 Total held-to-maturity securities 243,100 240,000 66,458 68,082 Other investment securities: Other investment securities at cost: Federal Home Loan Bank ("FHLB") stock n/a 17,918 17,918 21,718 21,718 Federal Reserve Bank ("FRB") stock n/a 13,311 13,311 13,311 13,311 Total other investment securities at cost 31,229 31,229 35,029 35,029 Other investment securities at fair value: Nonqualified deferred compensation (a) 2 2,083 2,083 1,867 1,867 Other investment securities (b) 2 784 784 365 365 Total other investment securities at fair value 2,867 2,867 2,232 2,232 Total other investment securities (b) 34,096 34,096 37,261 37,261 Loans and leases, net of deferred fees and costs 3 4,491,028 4,595,800 3,402,940 3,458,732 Bank owned life insurance 3 72,920 72,920 71,591 71,591 Liabilities: Deposits 2 $ 5,832,020 $ 5,546,935 $ 3,910,459 $ 3,773,602 Short-term borrowings 2 184,693 186,028 73,261 74,170 Long-term borrowings 2 99,411 106,497 110,568 117,364 (a) Nonqualified deferred compensation includes mutual funds as part of the investment. (b) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at September 30, 2021 and at December 31, 2020, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis table above and not included in this table. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instruments. These instruments include cash and cash equivalents, demand and other non-maturity deposits, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments: Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and balances due from banks is a reasonable estimate of fair value (Level 1). Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing service in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. Other Investment Securities: Other investment securities are measured at their respective redemption values due to restrictions placed on their transferability (Level 2). 12 Table of Contents Loans and Leases, Net of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considered interest rate, credit and market factors in estimating the fair value of loans (Level 3). Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loans and other market factors, including liquidity. Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits. Deposits: The fair value of fixed maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level 2). Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). Certain assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These assets and liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples. Note 3 Investment Securities Available-for-sale The following table summarizes Peoples' available-for-sale investment securities: (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2021 Obligations of: U.S. government sponsored agencies $ 78,916 $ 102 $ ( 537 ) $ 78,481 States and political subdivisions 252,706 3,220 ( 3,007 ) 252,919 Residential mortgage-backed securities 894,848 10,453 ( 6,842 ) 898,459 Commercial mortgage-backed securities 63,568 85 ( 1,101 ) 62,552 Bank-issued trust preferred securities 4,616 233 ( 170 ) 4,679 Total available-for-sale securities $ 1,294,654 $ 14,093 $ ( 11,657 ) $ 1,297,090 December 31, 2020 Obligations of: U.S. government sponsored agencies $ 4,960 $ 403 $ — $ 5,363 States and political subdivisions 110,401 4,642 ( 124 ) 114,919 Residential mortgage-backed securities 609,865 15,377 ( 2,024 ) 623,218 Commercial mortgage-backed securities 4,622 161 — 4,783 Bank-issued trust preferred securities 4,696 192 ( 158 ) 4,730 Total available-for-sale securities $ 734,544 $ 20,775 $ ( 2,306 ) $ 753,013 13 Table of Contents The gross gains and losses realized by Peoples from sales of available-for-sale securities for the periods ended September 30 were as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2021 2020 2021 2020 Gross gains realized $ 150 $ 2 $ 786 $ 386 Gross losses realized ( 316 ) — ( 1,490 ) ( 3 ) Net (loss) gain realized $ ( 166 ) $ 2 $ ( 704 ) $ 383 The cost of investment securities sold, and any resulting gain or loss, were based on the specific identification method and recognized as of the trade date. The following table presents a summary of available-for-sale investment securities that had been in a continuous unrealized loss loss position: Less than 12 Months 12 Months or More Total (Dollars in thousands) Fair Value Unrealized Loss No. of Securities Fair Value Unrealized Loss No. of Securities Fair Value Unrealized Loss September 30, 2021 Obligations of: U.S. government sponsored agencies $ 49,570 $ 537 $ 7 $ — $ — $ — $ 49,570 $ 537 States and political subdivisions 128,402 3,007 76 — — — 128,402 3,007 Residential mortgage-backed securities 466,518 6,079 72 36,160 763 16 502,678 6,842 Commercial mortgage-backed securities 48,974 1,101 17 — — — 48,974 1,101 Bank-issued trust preferred securities — — — 1,830 170 2 1,830 170 Total $ 693,464 $ 10,724 172 $ 37,990 $ 933 18 $ 731,454 $ 11,657 December 31, 2020 Obligations of: States and political subdivisions $ 17,651 $ 124 5 $ — $ — — $ 17,651 $ 124 Residential mortgage-backed securities 156,659 1,795 45 9,892 229 13 166,551 2,024 Bank-issued trust preferred securities 494 6 1 1,848 152 2 2,342 158 Total $ 174,804 $ 1,925 51 $ 11,740 $ 381 15 $ 186,544 $ 2,306 Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At September 30, 2021, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At September 30, 2021, Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both September 30, 2021 and December 31, 2020 were largely attributable to changes in market interest rates and spreads since the securities were purchased, and were not credit related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment securities was $ 5.7 million at September 30, 2021 and $ 2.7 million at December 31, 2020. At September 30, 2021, approximately 99 % of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1 %, or two positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Neither of the two positions had a fair value of less than 90 % of its book value. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities. The unrealized losses with respect to the two bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at September 30, 2021 were attributable to the subordinated nature of the debt. 14 Table of Contents The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at September 30, 2021. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. (Dollars in thousands) Within 1 Year 1 to 5 Years 5 to 10 Years Over 10 Years Total Amortized cost Obligations of: U.S. government sponsored agencies $ — $ 1,996 $ 66,436 $ 10,484 $ 78,916 States and political subdivisions 7,314 28,647 67,074 149,671 252,706 Residential mortgage-backed securities 7 981 56,615 837,245 894,848 Commercial mortgage-backed securities 1,887 — 34,169 27,512 63,568 Bank-issued trust preferred securities — — 4,616 — 4,616 Total available-for-sale securities $ 9,208 $ 31,624 $ 228,910 $ 1,024,912 $ 1,294,654 Fair value Obligations of: U.S. government sponsored agencies $ — $ 2,069 $ 66,161 $ 10,251 $ 78,481 States and political subdivisions 7,375 29,538 68,100 147,906 252,919 Residential mortgage-backed securities 7 1,006 56,712 840,734 898,459 Commercial mortgage-backed securities 1,907 — 33,763 26,882 62,552 Bank-issued trust preferred securities — — 4,679 — 4,679 Total available-for-sale securities $ 9,289 $ 32,613 $ 229,415 $ 1,025,773 $ 1,297,090 Total weighted-average yield 2.07 % 2.56 % 1.19 % 1.58 % 1.54 % Held-to-maturity The following table summarizes Peoples’ held-to-maturity investment securities: (Dollars in thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2021 Obligations of: U.S. government sponsored agencies $ 29,995 $ — $ 85 $ ( 933 ) $ 29,147 States and political subdivisions 124,417 ( 236 ) 675 ( 2,421 ) 122,435 Residential mortgage-backed securities 41,035 — 661 ( 195 ) 41,501 Commercial mortgage-backed securities 47,889 — 236 ( 1,208 ) 46,917 Total held-to-maturity securities $ 243,336 $ ( 236 ) $ 1,657 $ ( 4,757 ) $ 240,000 December 31, 2020 Obligations of: States and political subdivisions $ 35,199 $ ( 60 ) $ 510 $ ( 165 ) $ 35,484 Residential mortgage-backed securities 25,890 — 852 — 26,742 Commercial mortgage-backed securities 5,429 — 427 — 5,856 Total held-to-maturity securities $ 66,518 $ ( 60 ) $ 1,789 $ ( 165 ) $ 68,082 There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for any of the three and nine months ended September 30, 2021 and 2020. Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are obligations of states and political subdivisions with the remaining securities issued by U.S. government sponsored agencies. Peoples analyzed these securities using cumulative default rate averages for investment grade municipal securities. Since December 31, 2020, Peoples has purchased securities and designated them as held-to maturity and, as a result, at September 30, 2021, Peoples recorded $ 236,000 of allowance for credit losses for held-to-maturity securities, compared to $ 60,000 at December 31, 2020. 15 Table of Contents The following table presents a summary of held-to-maturity investment securities that had been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total (Dollars in thousands) Fair Value Unrealized Loss No. of Securities Fair Value Unrealized Loss No. of Securities Fair Value Unrealized Loss September 30, 2021 Obligations of: U.S. government sponsored agencies $ 25,587 $ 933 5 — — — $ 25,587 $ 933 States and political subdivisions 89,532 2,421 37 — — — 89,532 2,421 Residential mortgage-backed securities 17,426 195 2 — — — 17,426 195 Commercial mortgage-backed securities 39,641 1,208 11 — — — 39,641 1,208 Total $ 172,186 $ 4,757 55 $ — $ — — $ 172,186 $ 4,757 December 31, 2020 Obligations of: States and political subdivisions $ 18,662 $ 165 5 $ — $ — — $ 18,662 $ 165 Total $ 18,662 $ 165 5 $ — $ — — $ 18,662 $ 165 The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at September 30, 2021. The weighted-average yields are based on the amortized cost and are computed on a fully taxable-equivalent basis using a blended federal and state corporate income tax rate of 22.3 %. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. (Dollars in thousands) Within 1 Year 1 to 5 Years 5 to 10 Years Over 10 Years Total Amortized cost Obligations of: U.S. government sponsored agencies $ — $ — $ — $ 29,995 $ 29,995 States and political subdivisions — 989 2,511 120,917 124,417 Residential mortgage-backed securities — 1,939 — 39,096 41,035 Commercial mortgage-backed securities 355 — 8,655 38,879 47,889 Total held-to-maturity securities $ 355 $ 2,928 $ 11,166 $ 228,887 $ 243,336 Fair value Obligations of: U.S. government sponsored agencies $ — $ — $ — $ 29,147 $ 29,147 States and political subdivisions — 1,132 2,794 118,509 122,435 Residential mortgage-backed securities — 2,015 — 39,486 41,501 Commercial mortgage-backed securities 358 — 8,844 37,715 46,917 Total held-to-maturity securities $ 358 $ 3,147 $ 11,638 $ 224,857 $ 240,000 Total weighted-average yield 2.25 % 2.29 % 2.37 % 2.05 % 2.07 % Other Investment Securities Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB and FRB stock. The following table summarizes the carrying value of Peoples' other investment securities: (Dollars in thousands) September 30, 2021 December 31, 2020 FHLB stock $ 17,918 $ 21,718 FRB stock 13,311 13,311 Nonqualified deferred compensation 2,083 1,867 Equity investment securities 390 299 Other investment securities 784 365 Total other investment securities $ 34,486 $ 37,560 16 Table of Contents During the nine months ended September 30, 2021, Peoples redeemed $ 7.5 million of FHLB stock as requested by the FHLB. During the three months ended September 30, 2021, Peoples acquired $3.7 million in FHLB stock in the Merger with Premier. During the three and nine months ended September 30, 2021 , Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $ 18,000 and $ 91,000 , respectively. During the three and nine months ended September 30, 2020, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $ 1,000 and an unrealized loss of $ 15,000 , respectively. At September 30, 2021, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity. Pledged Securities Peoples has pledged available-for-sale investment securities and held-to-maturity investment securities to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples has also pledged available-for-sale investment securities to secure additional borrowing capacity at the FHLB and the FRB as well as to derivative counterparties as collateral on unrealized interest rate swaps. The following table summarizes the carrying value of Peoples' pledged securities: Carrying Amount (Dollars in thousands) September 30, 2021 December 31, 2020 Securing public and trust department deposits, and repurchase agreements: Available-for-sale $ 851,966 $ 547,244 Held-to-maturity 143,467 28,287 Securing collateral for cash flow hedge swaps: Available-for-sale 36,314 — Securing additional borrowing capacity at the FHLB and the FRB: Available-for-sale 7,036 2,175 Held-to-maturity 556 — Note 4 Loans and Leases Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' footprint. Peoples also originates insurance premium finance loans and leases nationwide through its Peoples Premium Finance and North Star Leasing divisions, respectively. Loans and leases throughout this document are referred to as "total loans" and "loans held for investment". The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows: (Dollars in thousands) September 30, 2021 December 31, 2020 Construction $ 174,784 $ 106,792 Commercial real estate, other 1,629,116 929,853 Commercial and industrial 858,538 973,645 Premium finance 134,755 114,758 Leases 111,446 — Residential real estate 768,134 574,007 Home equity lines of credit 161,370 120,913 Consumer, indirect 543,256 503,527 Consumer, direct 108,702 79,094 Deposit account overdrafts 927 351 Total loans, at amortized cost $ 4,491,028 $ 3,402,940 On September 17, 2021, Peoples completed the merger with Premier effective after the close of the business day. Peoples acquired $ 1.1 billion in loans, of which $ 285.3 million were considered purchased credit deteriorated loans. See "Note 13 17 Table of Contents Acquisitions" for more detail on the merger with Premier. Effective after the close of business on March 31, 2021, Peoples acquired $ 83.3 million in leases from NS Leasing, LLC (" NSL"), of which $ 5.2 million were considered purchase d credit d eteriorated leases. Refer to "Note 13 Acquisitions" for more detail on the acquisition of leases from NSL. Peoples began participating as a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020. Peoples originated PPP loans of $ 159.2 million during the first nine months of 2021 and $ 488.9 million of PPP loans during the full year of 2020. At September 30, 2021, the PPP loans (including $28.2 million acquired from Premier) had an amortized cost of $ 135.8 million, and were included in commercial and industrial loan balance. As of September 30, 2021, deferred loan origination fees, net of deferred origination costs, totaled $ 4.0 million. During the third quarter of 2021, Peoples recorded amortization of net deferred loan origination fees of $ 3.8 million on PPP loans compared to $ 1.9 million for the third quarter of 2020. Peoples recorded accretion of net deferred loan origination fees of $ 11.2 million and $ 3.8 million, for the nine months ended September 30, 2021 and 2020, respectively. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in "Net interest income". Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest receivable on loans was $ 12.4 million at September 30, 2021 and $ 10.9 million at December 31, 2020. Nonaccrual and Past Due Loans A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due. The amortized cost of loans on nonaccrual status and of loans delinquent for 90 days or more and accruing were as follows: September 30, 2021 December 31, 2020 (Dollars in thousands) Nonaccrual (a) Accruing Loans 90+ Days Past Due Nonaccrual (a) Accruing Loans 90+ Days Past Due Construction $ — $ — $ 4 $ — Commercial real estate, other 17,301 1,912 9,111 — Commercial and industrial 5,356 98 6,192 50 Premium finance — 368 — 204 Leases 1,411 1,736 — — Residential real estate 9,735 1,156 8,375 1,975 Home equity lines of credit 976 61 867 82 Consumer, indirect 1,069 — 1,073 39 Consumer, direct 186 32 171 17 Total loans, at amortized cost $ 36,034 $ 5,363 $ 25,793 $ 2,367 (a) There were $ 0.6 million of nonaccrual loans for which there was no allowance for credit losses at September 30, 2021 and $ 1.3 million at December 31, 2020. During the first nine months of 2021, nonaccrual loans increased compared to December 31, 2020, primarily due to the non-accrual loans acquired from Premier, which added $ 13.0 million in nonaccrual loans at the end of the third quarter of 2021. As of September 30, 2021, the short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current borrowers, Peoples had made were insignificant. Under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made in accordance with the CARES Act were not included in Peoples' nonaccrual or accruing loans 90+ days past due at September 30, 2021. During the third quarter of 2021, accruing loans 90+ days past due increased primarily due to the loans acquired from Premier. The amount of interest income recognized on loans past due 90 days or more during the three and nine months ended September 30, 2021 was $ 0.2 million and $ 0.9 million, respectively. 18 Table of Contents The following table presents the aging of the amortized cost of past due loans: Loans Past Due Current Loans Total Loans (Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total September 30, 2021 Construction $ 146 $ 16 $ — $ 162 $ 174,622 $ 174,784 Commercial real estate, other 4,513 2,349 14,116 20,978 1,608,138 1,629,116 Commercial and industrial 924 566 5,324 6,814 851,724 858,538 Premium finance 440 281 368 1,089 133,666 134,755 Leases 393 194 1,736 2,323 109,123 111,446 Residential real estate 4,138 2,649 5,353 12,140 755,994 768,134 Home equity lines of credit 487 166 758 1,411 159,959 161,370 Consumer, indirect 2,977 477 346 3,800 539,456 543,256 Consumer, direct 134 224 101 459 108,243 108,702 Deposit account overdrafts — — — — 927 927 Total loans, at amortized cost $ 14,152 $ 6,922 $ 28,102 $ 49,176 $ 4,441,852 $ 4,491,028 December 31, 2020 Construction $ — $ 344 $ 4 $ 348 $ 106,444 $ 106,792 Commercial real estate, other 1,943 283 8,643 10,869 918,984 929,853 Commercial and industrial 567 552 4,535 5,654 967,991 973,645 Premium finance 928 1,073 204 2,205 112,553 114,758 Residential real estate 6,739 2,688 5,512 14,939 559,068 574,007 Home equity lines of credit 309 58 780 1,147 119,766 120,913 Consumer, indirect 4,362 733 348 5,443 498,084 503,527 Consumer, direct 424 43 123 590 78,504 79,094 Deposit account overdrafts — — — — 351 351 Total loans, at amortized cost $ 15,272 $ 5,774 $ 20,149 $ 41,195 $ 3,361,745 $ 3,402,940 Delinquency trends remained stable, as 98.9 % of Peoples' loan portfolio was considered “current” at September 30, 2021, compared to 98.8 % at December 31, 2020. Pledged Loans Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, home equity lines of credit and commercial real estate loans under a blanket collateral agreement to secure borrowings from the FHLB. Peoples also has pledged eligible commercial and industrial loans to secure borrowings with the FRB. Loans pledged are summarized as follows: (Dollars in thousands) September 30, 2021 December 31, 2020 Loans pledged to FHLB $ 752,382 $ 740,584 Loans pledged to FRB 135,504 107,340 Credit Quality Indicators As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2020 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $ 1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $ 1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, including loans acquired from Premier, is as follows: “Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist. 19 Table of Contents “Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position. “Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the weaknesses are not corrected. “Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of each of these loans as an estimated loss is deferred until its more exact status may be determined. “Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category. Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard,” or “loss” consistent with the regulatory definitions and requirements of these classes. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the prospect of collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as “pass" for disclosure purposes. The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at September 30, 2021: Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Total Loans Construction Pass $ 57,422 $ 73,789 $ 16,624 $ 3,289 $ 1,286 $ 2,829 $ 1,755 $ 4,170 $ 156,994 Special mention 290 — 7,185 1,092 3,805 138 — — 12,510 Substandard — — 957 79 159 4,085 — — 5,280 Total 57,712 73,789 24,766 4,460 5,250 7,052 1,755 4,170 174,784 Commercial real estate, other Pass 195,110 266,264 240,617 153,836 160,057 427,073 23,815 12,128 1,466,772 Special mention 159 10,353 8,398 7,077 8,798 33,558 — 51 68,343 Substandard — 1,679 6,644 2,299 5,668 76,655 371 41 93,316 Doubtful — — — — — 669 — — 669 Loss — — — — — 16 — — 16 Total 195,269 278,296 255,659 163,212 174,523 537,971 24,186 12,220 1,629,116 Commercial and industrial Pass 241,877 135,119 90,671 67,107 30,843 102,471 154,178 14,440 822,266 Special mention 82 1,281 2,327 3,622 164 991 2,702 10 11,169 20 Table of Contents Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Total Loans Substandard 94 2,858 2,739 875 6,921 3,853 5,690 608 23,030 Doubtful — — — — — 1,808 265 187 2,073 Total 242,053 139,258 95,737 71,604 37,928 109,123 162,835 15,245 858,538 Premium finance Pass 131,142 3,613 — — — — — — 134,755 Total 131,142 3,613 — — — — — — 134,755 Leases Pass 56,901 30,875 16,750 4,473 491 26 — — 109,516 Special mention 99 10 68 17 — — — — 194 Substandard 123 502 531 572 8 — — — 1,736 Total 57,123 31,387 17,349 5,062 499 26 — — 111,446 Residential real estate Pass 115,657 75,578 55,305 35,693 46,720 422,673 — — 751,626 Substandard — — — — — 16,079 — — 16,079 Loss — — — — — 429 — — 429 Total 115,657 75,578 55,305 35,693 46,720 439,181 — — 768,134 Home equity lines of credit Pass 25,901 23,840 19,084 17,112 15,625 57,574 2,234 3,164 161,370 Total 25,901 23,840 19,084 17,112 15,625 57,574 2,234 3,164 161,370 Consumer, indirect Pass 195,954 183,489 72,009 53,063 26,499 12,242 — — 543,256 Total 195,954 183,489 72,009 53,063 26,499 12,242 — — 543,256 Consumer, direct Pass 42,124 30,880 15,541 9,863 3,861 6,433 — — 108,702 Total 42,124 30,880 15,541 9,863 3,861 6,433 — — 108,702 Deposit account overdrafts 927 — — — — — — — 927 Total loans, at amortized cost $ 1,063,862 $ 840,130 $ 555,450 $ 360,069 $ 310,905 $ 1,169,602 $ 191,010 $ 34,799 $ 4,491,028 The following table summarizes the risk category of Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at December 31, 2020: (Dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Construction Pass $ 27,670 $ 56,361 $ 554 $ 15,089 $ 824 $ 1,194 $ 3,199 $ 2,003 $ 104,891 Special mention — — 496 — — 143 — — 639 Substandard — — — 186 — 1,076 — — 1,262 Total 27,670 56,361 1,050 15,275 824 2,413 3,199 2,003 106,792 Commercial real estate, other Pass 116,441 125,373 99,522 94,465 99,668 215,385 109,160 9,748 860,014 Special mention 297 5,806 999 5,296 5,125 12,932 3,967 60 34,422 Substandard — 1,191 677 1,709 1,663 27,066 3,033 110 35,339 Doubtful — — — — — 78 — — 78 Total 116,738 132,370 101,198 101,470 106,456 255,461 116,160 9,918 929,853 21 Table of Contents (Dollars in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Commercial and industrial Pass 409,237 97,362 67,284 38,450 45,026 77,009 199,597 30,680 933,965 Special mention 1,034 366 2,018 287 1,453 1,452 12,429 526 19,039 Substandard 2,226 3,569 2,873 2,167 318 4,163 3,436 1,083 18,752 Doubtful — — — — 1,698 191 — 187 1,889 Total 412,497 101,297 72,175 40,904 48,495 82,815 215,462 32,476 973,645 Premium finance Pass 114,758 — — — — — — — 114,758 Total 114,758 — — — — — — — 114,758 Residential real estate Pass 47,147 40,223 24,235 29,142 43,105 309,795 65,168 305 558,815 Substandard — — — — — 15,048 — — 15,048 Loss — — — — — 144 — — 144 Total 47,147 40,223 24,235 29,142 43,105 324,987 65,168 305 574,007 Home equity lines of credit Pass 16,469 13,513 12,548 12,382 11,869 40,626 13,506 4,091 120,913 Total 16,469 13,513 12,548 12,382 11,869 40,626 13,506 4,091 120,913 Consumer, indirect Pass 210,014 92,696 71,807 39,608 17,156 11,563 60,683 — 503,527 Total 210,014 92,696 71,807 39,608 17,156 11,563 60,683 — 503,527 Consumer, direct Pass 31,689 15,923 11,085 4,531 2,529 4,193 9,144 — 79,094 Total 31,689 15,923 11,085 4,531 2,529 4,193 9,144 — 79,094 Deposit account overdrafts 351 — — — — — — — 351 Total loans, at amortized cost $ 977,333 $ 452,383 $ 294,098 $ 243,312 $ 230,434 $ 722,058 $ 483,322 $ 48,793 $ 3,402,940 Collateral Dependent Loans Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans: • Construction loans are typically secured by owner occupied commercial real estate or non-owner occupied investment real estate. Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction. • Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. • Commercial and industrial loans are general secured by equipment, inventory, accounts receivable, and other commercial property. • Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage. • Home equity lines of credit are generally secured by second mortgages on residential real estate property. 22 Table of Contents • Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral. • Leases are secured by commercial equipment and other essential business assets. • Premium finance loans are secured by the unearned portion of the insurance premium being financed. The following table details Peoples' amortized cost of collateral dependent loans: (Dollars in thousands) September 30, 2021 December 31, 2020 Construction $ 4,276 $ — Commercial real estate, other 35,820 8,467 Commercial and industrial 11,446 6,333 Residential real estate 1,321 1,670 Home equity lines of credit 393 403 Total collateral dependent loans $ 53,256 $ 16,873 The increase in collateral dependent loans at September 30, 2021, compared to December 31, 2020, was primarily due to $39.1 million in collateral dependent loans acquired from Premier. Troubled Debt Restructurings The following tables summarize the loans that were modified as troubled debt restructurings ("TDRs") during the three and nine months ended September 30: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment September 30, 2021 Construction 1 $ 6 $ 6 $ 6 Commercial real estate, other 2 14 14 14 Commercial and industrial 3 327 327 327 Leases 2 182 184 178 Residential real estate 46 1,952 1,956 1,955 Home equity lines of credit 5 55 55 55 Consumer, indirect 9 95 95 95 Consumer, direct 3 9 9 9 Consumer 12 104 104 104 Total 71 $ 2,640 $ 2,646 $ 2,639 September 30, 2020 Commercial real estate, other 3 $ 2,214 $ 2,214 $ 1,112 Commercial and industrial 4 3,657 3,657 3,658 Residential real estate 10 608 608 608 Home equity lines of credit 3 68 68 68 Consumer, indirect 11 126 126 126 Consumer, direct 2 16 16 16 Consumer 13 142 142 142 Total 33 $ 6,689 $ 6,689 $ 5,588 (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. 23 Table of Contents Nine Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment September 30, 2021 Construction 2 $ 350 $ 350 $ 350 Commercial real estate, other 3 37 37 37 Commercial and industrial 3 327 327 327 Leases 5 340 348 334 Residential real estate 54 2,367 2,376 2,366 Home equity lines of credit 9 315 315 307 Consumer, indirect 16 200 200 192 Consumer, direct 8 48 48 45 Consumer 24 248 248 237 Total 100 $ 3,984 $ 4,001 $ 3,958 September 30, 2020 Commercial real estate, other 5 $ 2,533 $ 2,533 $ 1,430 Commercial and industrial 5 3,803 3,803 3,804 Residential real estate 16 1,237 1,267 1,261 Home equity lines of credit 7 123 123 121 Consumer, indirect 23 235 235 216 Consumer, direct 5 68 68 63 Consumer 28 303 303 279 Total 61 $ 7,999 $ 8,029 $ 6,895 (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of accounting for TDRs, as defined in ASC 310-40. The following table presents those loans modified into a TDR during the year that subsequently defaulted (i.e., 90 days or more past due following a modification) during the nine-month periods ended September 30: September 30, 2021 September 30, 2020 (Dollars in thousands) Number of Contracts Recorded Investment (a) Impact on the Allowance for Credit Losses Number of Contracts Recorded Investment (a) Impact on the Allowance for Credit Losses Commercial real estate, other — $ — — 1 $ 54 — Residential real estate 3 113 — — — — Total 3 $ 113 $ — 1 $ 54 $ — (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. Peoples had no commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR. 24 Table of Contents Allowance for Credit Losses Changes in the allowance for credit losses for the three months ended September 30, 2021 and September 30, 2020 are summarized below: (Dollars in thousands) Beginning Balance, June 30, 2021 Initial Allowance for Acquired Purchased Credit Deteriorated Assets Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (a) Charge-offs Recoveries Ending Balance, September 30, 2021 Construction $ 914 $ 2,127 $ 638 $ ( 243 ) $ — $ — $ 3,436 Commercial real estate, other 17,233 13,374 5,384 ( 179 ) — 4 35,816 Commercial and industrial 8,686 4,286 1,059 ( 3 ) ( 654 ) 4 13,378 Premium finance 998 — — 146 ( 7 ) — 1,137 Leases 3,715 — — 1,101 ( 431 ) 120 4,505 Residential real estate 4,837 2,394 2,645 ( 312 ) ( 44 ) 48 9,568 Home equity lines of credit 1,504 41 674 148 ( 180 ) 37 2,224 Consumer, indirect 8,841 — — ( 2,308 ) ( 416 ) 43 6,160 Consumer, direct 1,161 112 180 ( 362 ) ( 29 ) 17 1,079 Deposit account overdrafts 53 — — 124 ( 135 ) 37 79 Total $ 47,942 $ 22,334 $ 10,580 $ ( 1,888 ) $ ( 1,896 ) $ 310 $ 77,382 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, June 30, 2020 Initial Allowance for Acquired Purchased Credit Deteriorated Assets Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (a) Charge-offs Recoveries Ending Balance, September 30, 2020 Construction $ 2,662 $ — $ — $ ( 148 ) $ — $ — $ 2,514 Commercial real estate, other 19,148 — — ( 8 ) ( 109 ) 4 19,035 Commercial and industrial 10,106 — — 3,139 ( 146 ) — 13,099 Premium finance — — 990 ( 2 ) ( 2 ) — 986 Residential real estate 6,380 — — ( 371 ) ( 121 ) 100 5,988 Home equity lines of credit 1,755 — — 40 — 2 1,797 Consumer, indirect 12,293 — — 785 ( 370 ) 64 12,772 Consumer, direct 1,941 — — ( 78 ) ( 15 ) 13 1,861 Deposit account overdrafts 77 — — 154 ( 202 ) 47 76 Total $ 54,362 $ — $ 990 $ 3,511 $ ( 965 ) $ 230 $ 58,128 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 25 Table of Contents Changes in the allowance for credit losses for the nine months ended September 30, 2021 and September 30, 2020 are summarized below: (Dollars in thousands) Beginning Balance, December 31, 2020 Initial Allowance for Acquired Purchased Credit Deteriorated Assets Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (a) Charge-offs Recoveries Ending Balance, September 30, 2021 Construction $ 1,887 $ 2,127 $ 638 $ ( 1,216 ) $ — $ — $ 3,436 Commercial real estate, other 17,536 13,374 5,384 ( 325 ) ( 161 ) 8 35,816 Commercial and industrial 12,763 4,286 1,059 ( 3,800 ) ( 952 ) 22 13,378 Premium finance 1,095 — — 72 ( 30 ) — 1,137 Leases — 493 3,288 1,450 ( 956 ) 230 4,505 Residential real estate 6,044 2,394 2,645 ( 1,305 ) ( 313 ) 103 9,568 Home equity lines of credit 1,860 41 674 ( 196 ) ( 196 ) 41 2,224 Consumer, indirect 8,030 — — ( 891 ) ( 1,190 ) 211 6,160 Consumer, direct 1,081 112 180 ( 252 ) ( 96 ) 54 1,079 Deposit account overdrafts 63 — — 208 ( 327 ) 135 79 Total $ 50,359 $ 22,827 $ 13,868 $ ( 6,255 ) $ ( 4,221 ) $ 804 $ 77,382 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, January 1, 2020 (a) Initial Allowance for Acquired Purchased Credit Deteriorated Assets Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets Provision for (Recovery of) Credit Losses (b) Charge-offs Recoveries Ending Balance, September 30, 2020 Construction $ 600 $ 51 $ — $ 1,863 $ — $ — $ 2,514 Commercial real estate, other 7,193 1,356 — 10,614 ( 254 ) 126 19,035 Commercial and industrial 4,960 860 — 6,368 ( 1,098 ) 2,009 13,099 Premium finance — — 990 ( 2 ) ( 2 ) — 986 Residential real estate 3,977 383 — 1,626 ( 255 ) 257 5,988 Home equity lines of credit 1,570 2 — 237 ( 23 ) 11 1,797 Consumer, indirect 5,389 — — 8,549 ( 1,427 ) 261 12,772 Consumer, direct 856 34 — 1,062 ( 128 ) 37 1,861 Deposit account overdrafts 94 — — 360 ( 534 ) 156 76 Total $ 24,639 $ 2,686 $ 990 $ 30,677 $ ( 3,721 ) $ 2,857 $ 58,128 (a) Peoples adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) on January 1, 2020. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. During the third quarter of 2021, Peoples recorded a provision for credit losses of $ 11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $ 10.6 million, and a liability for unfunded commitments of $ 0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $ 22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. During the second quarter of 2021, Peoples recorded provision for credit losses to establish the allowance for credit losses of $ 3.3 million for the acquired non-purchased credit deteriorated leases from NSL along with an increase in allowance for credit loss of $ 0.5 million related to the purchase credit 26 Table of Contents deteriorated leases acquired from NSL. Lastly, economic assumptions and loss drivers used in the CECL model continued to improve in the current year, partially offsetting the increase in allowance driven by the aforementioned acquired loans and leases. The PPP loans originated during 2021 and 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit losses at September 30, 2021 and at December 31, 2020. At September 30, 2021, Peoples had recorded an allowance for unfunded commitments of $ 2.4 million, an increase compared to $ 2.2 million at June 30, 2021, and a decrease compared to $ 2.9 million at December 31, 2020. The total amount of unfunded commitments had increased compared to June 30, 2021 due to the unfunded commitments associated with the Premier acquisition and decreased compared to December 31, 2020 due to the improved economic forecast conditions. The allowance for unfunded commitments (also referred to as "unfunded commitment liability") is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets. The change in the allowance for unfunded commitments is also reflected in the "Provision for (recovery of) credit losses" line of the Unaudited Consolidated Statements of Operations. Note 5 Goodwill and Other Intangible Assets Goodwill The following table details changes in the recorded amount of goodwill: (Dollars in thousands) September 30, 2021 December 31, 2020 Goodwill, beginning of year $ 171,260 $ 165,701 Goodwill recorded from acquisitions 95,755 5,559 Goodwill, end of period $ 267,015 $ 171,260 Peoples Bank entered into the Asset Purchase Agreement, dated March 24, 2021 with NSL. The transaction closed after the close of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. On April 1, 2021, Peoples recorded $ 24.7 million of goodwill related to the acquisition from NSL. On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Peoples recorded $ 46,000 of goodwill from this completed acquisition. On September 17, 2021, Peoples completed the merger with Premier, for which Peoples recorded $ 71.0 million of goodwill. In 2020, Peoples completed its acquisition of Premium Finance, recording $ 5.5 million in goodwill. Also, in 2020 Peoples Insurance completed an acquisition of a property and casualty-focused independent insurance agency for which $ 0.1 million of goodwill was recorded. For additional information on these acquisitions, refer to "Note 13 Acquisitions." Other Intangible Assets Other intangible assets were comprised of the following at end of period, September 30, 2021 and end of year, December 31, 2020: (Dollars in thousands) Core Deposits Customer Relationships Total September 30, 2021 Gross intangibles $ 25,805 $ 25,096 $ 50,901 Accumulated amortization ( 17,813 ) ( 8,256 ) ( 26,069 ) Total acquisition-related intangibles $ 7,992 $ 16,840 $ 24,832 Servicing rights 2,294 Indefinite-lived intangibles 1,274 Total other intangibles $ 28,400 December 31, 2020 Gross intangibles $ 22,233 $ 12,495 $ 34,728 Accumulated amortization ( 17,298 ) ( 6,579 ) ( 23,877 ) Total acquisition-related intangibles $ 4,935 $ 5,916 $ 10,851 Servicing rights 2,486 Total other intangibles $ 13,337 Other intangible assets recorded from the above-mentioned acquisitions year-to-date as of September 30, 2021 were $ 13.0 million of customer relationship intangible assets related to the NSL and Peoples Insurance acquisitions, and $ 4.2 million of core deposit intangible assets related to Premier. Refer to "Note 13 Acquisitions" for additional information. Other intangible assets recorded in 2020 included $ 5.0 million of customer relationship intangible assets from the Premium Finance and Peoples Insurance acquisitions. The following table details estimated aggregate future amortization of other intangible assets at September 30, 2021: 27 Table of Contents (Dollars in thousands) Core Deposits Customer Relationships Total 2021 $ 574 $ 934 $ 1,508 2022 1,620 4,014 5,634 2023 1,257 3,712 4,969 2024 1,058 2,733 3,791 2025 891 1,941 2,832 Thereafter 2,592 3,506 6,098 Total $ 7,992 $ 16,840 $ 24,832 The weighted average amortization period of other intangible assets is 8.1 years. Servicing Rights The following is an analysis of activity of servicing rights for the periods ended September 30,2021 and December 31, 2020: (Dollars in thousands) September 30, 2021 December 31, 2020 Balance, beginning of year $ 2,486 $ 2,742 Amortization ( 591 ) ( 1,121 ) Servicing rights originated 415 1,026 Valuation allowance ( 16 ) ( 161 ) Balance, end of period $ 2,294 $ 2,486 Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of September 30, 2021, Peoples has recorded a valuation allowance of $ 16,000 related to the decrease in the fair value of servicing rights. During 2020, Peoples recorded a valuation allowance of $ 161,000 related to the decrease in the fair value of servicing rights. The following is the breakdown of the discount rates and prepayment speeds of servicing rights for the periods ended September 30,2021 and December 31, 2020: September 30, 2021 December 31, 2020 Minimum Maximum Minimum Maximum Discount rates 8.3 % 10.8 % 8.3 % 10.8 % Prepayment speeds 8.4 % 27.2 % 12.8 % 21.1 % The fair value of servicing rights was $ 2.3 million and $ 2.6 million at September 30, 2021 and December 31, 2020, respectively. 28 Table of Contents Note 6 Deposits Peoples’ deposit balances were comprised of the following: (Dollars in thousands) September 30, 2021 December 31, 2020 Retail CDs: $100 or more $ 343,324 $ 220,532 Less than $100 348,356 225,398 Retail CDs 691,680 445,930 Interest-bearing deposit accounts 1,140,639 692,113 Savings accounts 1,016,755 628,190 Money market deposit accounts 637,635 591,373 Governmental deposit accounts 679,305 385,384 Brokered deposit accounts (a) 106,013 170,146 Total interest-bearing deposits 4,272,027 2,913,136 Non-interest-bearing deposits 1,559,993 997,323 Total deposits $ 5,832,020 $ 3,910,459 (a) At September 30, 2021, brokered deposit accounts included $ 100.0 million of brokered demand deposits. At December 31, 2020, brokered deposit accounts included $ 50.0 million of 90-day brokered CDs and $ 110.0 million of brokered demand deposits Time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") limit of $ 250,000 were $ 134.3 million and $ 89.0 million at September 30, 2021 and December 31, 2020, respectively. The increase compared to December 31, 2020 was mostly due to the deposits acquired from Premier. The contractual maturities of retail CDs and brokered CDs and demand deposits for each of the next five years and thereafter are as follows: (Dollars in thousands) Retail Brokered Total Remaining three months ending December 31, 2021 (a) $ 142,996 $ 101,307 $ 244,303 Year ending December 31, 2022 375,448 4,216 379,664 Year ending December 31, 2023 66,339 490 66,829 Year ending December 31, 2024 62,021 — 62,021 Year ending December 31, 2025 22,021 — 22,021 Thereafter 22,855 — 22,855 Total CDs $ 691,680 $ 106,013 $ 797,693 (a) Brokered deposit accounts include $ 100.0 million of brokered demand deposits. At September 30, 2021, Peoples had sixteen effective interest rate swaps, with an aggregate notional value of $ 150.0 million, of which $ 100.0 million were funded by brokered demand and savings deposits. Brokered demand deposits hedged by interest rate swaps are expected to be extended every 90 days through the maturity dates of the swaps. Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments." 29 Table of Contents Note 7 Stockholders’ Equity The following table details the progression in Peoples’ common shares and treasury stock during the nine months ended September 30, 2021: Common Shares Treasury Stock Shares at December 31, 2020 21,193,402 1,686,046 Changes related to stock-based compensation awards: Release of restricted common shares — 29,135 Cancellation of restricted common shares — 7,168 Grant of restricted common shares — ( 101,926 ) Grant of unrestricted common shares — ( 5,747 ) Changes related to deferred compensation plan for Boards of Directors: Purchase of treasury stock — 5,309 Disbursed out of treasury stock — ( 2,983 ) Common shares issued under dividend reinvestment plan 23,348 — Common shares issued under compensation plan for Boards of Directors — ( 5,535 ) Common shares issued under employee stock purchase plan — ( 11,874 ) Issuance of common shares related to the merger with Premier Financial Bancorp, Inc. 8,589,685 — Shares at September 30, 2021 29,806,435 1,599,593 On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $ 30.0 million of Peoples' outstanding common shares, replacing the February 27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $ 40.0 million of Peoples' outstanding common shares. At September 30, 2021, Peoples had no t repurchased any common shares under the share repurchase program authorized on January 28, 2021. Under Peoples' Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At September 30, 2021, Peoples had no preferred shares issued or outstanding. On October 25, 2021, Peoples' Board of Directors declared a quarterly cash dividend of $ 0.36 per common share, payable on November 22, 2021, to shareholders of record on November 8, 2021. The following table details the cash dividends declared per common share during the four quarters of 2021 and the comparable periods of 2020: 2021 2020 First quarter $ 0.35 0.34 Second quarter 0.36 0.34 Third quarter 0.36 0.34 Fourth quarter $ 0.36 $ 0.35 Total dividends declared $ 1.43 $ 1.37 Accumulated Other Comprehensive (Loss) Income The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the nine months ended September 30, 2021: (Dollars in thousands) Unrealized Gain on Securities Unrecognized Net Pension and Postretirement Costs Unrealized Loss on Cash Flow Hedge Accumulated Other Comprehensive (Loss) Income Balance, December 31, 2020 $ 14,592 $ ( 3,872 ) $ ( 9,384 ) $ 1,336 Reclassification adjustments to net income: Realized gain on sale of securities, net of tax 547 — — 547 Realized loss due to settlement and curtailment, net of tax — 111 — 111 Other comprehensive (loss) income, net of reclassifications and tax ( 13,245 ) 1,481 3,882 ( 7,882 ) Balance, September 30, 2021 $ 1,894 $ ( 2,280 ) $ ( 5,502 ) $ ( 5,888 ) Note 8 Employee Benefit Plans Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2 % of the employee’s annual compensation during the years 2003 through 2009, plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following the date such person makes an election to receive his or her retirement benefits. The expected long-term rate of return on plan assets, which was determined as of January 1, 2021, is 7.0 %. The following table details the components of the net periodic cost for the plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations: Pension Benefits Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2021 2020 2021 2020 Interest cost $ 60 $ 80 $ 194 $ 256 Expected return on plan assets ( 143 ) ( 187 ) ( 492 ) ( 577 ) Amortization of net loss 21 35 84 101 Settlement of benefit obligation 143 531 143 1,050 Net periodic loss (income) $ 81 $ 459 $ ( 71 ) $ 830 Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss. Peoples recorded a settlement charge of $ 143,000 during the three and nine months ended September 30, 2021 under the noncontributory defined benefit pension plan. Peoples recorded settlement charges of $ 531,000 and $ 1.1 million, respectively, during the three and nine months ended September 30, 2020 under the noncontributory defined benefit pension plan. 30 Table of Contents Note 9 Earnings Per Common Share The calculations of basic and diluted (loss) earnings per common share were as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per common share data) 2021 2020 2021 2020 Net (loss) income available to common shareholders $ ( 5,758 ) $ 10,210 $ 19,808 $ 14,194 Less: Dividends paid on unvested shares ( 79 ) ( 96 ) ( 214 ) ( 274 ) Add: Undistributed earnings (loss) allocated to unvested shares 21 ( 2 ) 2 4 Net (loss) earnings allocated to common shareholders $ ( 5,816 ) $ 10,112 $ 19,596 $ 13,924 Weighted-average common shares outstanding 20,640,519 19,504,503 19,751,853 19,862,409 Effect of potentially dilutive common shares 148,752 133,186 138,819 135,944 Total weighted-average diluted common shares outstanding 20,789,271 19,637,689 19,890,672 19,998,353 (Loss) earnings per common share: Basic $ ( 0.28 ) $ 0.52 $ 0.99 $ 0.70 Diluted $ ( 0.28 ) $ 0.51 $ 0.99 $ 0.70 Anti-dilutive common shares excluded from calculation: Restricted shares — 69,459 — 67,759 Note 10 Derivative Financial Instruments Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the "Other assets" and the "Accrued expenses and other liabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, while cash activity related to these derivatives is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows. Derivative Financial Instruments and Hedging Activities - Risk Management Objective of Using Derivative Financial Instruments Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. Peoples also manages interest rate risk through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the values of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate derivative financial instruments that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions. Cash Flow Hedges of Interest Rate Risk Peoples' objectives in using interest rate derivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, 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. At September 30, 2021, Peoples had entered into sixteen interest rate swap contracts with an aggregate notional value of $ 150.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month brokered CDs and brokered demand deposits, which will continue to be rolled through the life of the swaps. At September 30, 2021, the interest rate swaps were designated as cash flow hedges of $ 100.0 million in brokered demand deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $ 50.0 million of interest rate swaps were designated as cash flow hedges of 90-day FHLB Advances. 31 Table of Contents For derivative financial instruments designated as cash flow hedges, the effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest expense as interest payments are made or received on Peoples' variable-rate liabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the 90-day advances or brokered CDs are matched to the reset dates and payment dates on the receipt of the three-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. During the three and nine months ended September 30, 2021, Peoples had reclassifications of losses to earnings of $ 766,000 and $ 2.3 million, respectively. During the three and nine months ended September 30, 2020, Peoples had reclassifications of losses to earnings of $ 732,000 and $ 1.2 million, respectively. During the next twelve months, Peoples estimates that minimal interest expense will be reclassified. The following table summarizes information about the interest rate swaps designated as cash flow hedges: (Dollars in thousands) September 30, 2021 December 31, 2020 Notional amount $ 150,000 $ 160,000 Weighted average pay rates 2.13 % 2.18 % Weighted average receive rates 0.76 % 0.38 % Weighted average maturity 3.8 years 4.4 years Pre-tax unrealized losses included in AOCI $ ( 7,143 ) $ ( 11,879 ) The following table presents net gains or losses recorded in AOCI and in the Unaudited Consolidated Statements of Operations related to the cash flow hedges: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2021 2020 2021 2020 Amount of (gain) loss recognized in AOCI, pre-tax $ ( 858 ) $ ( 803 ) $ ( 4,800 ) $ 9,661 The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: September 30, 2021 December 31, 2020 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Included in "Accrued expenses and other liabilities": Interest rate swaps related to debt $ 150,000 $ 7,252 $ 160,000 $ 12,063 Non-Designated Hedges Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operations or financial condition at or for the three and nine months ended September 30, 2021 and at or for the year ended December 31, 2020. The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: 32 Table of Contents : September 30, 2021 December 31, 2020 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Included in "Other assets": Interest rate swaps related to commercial loans $ 403,208 $ 15,653 $ 415,044 $ 27,332 Included in "Accrued expenses and other liabilities": Interest rate swaps related to commercial loans $ 403,208 $ 15,653 $ 415,044 $ 27,332 Pledged Collateral Peoples pledges or receives collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps is in a net liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps is in a net asset position, the respective counterparties must pledge collateral. At September 30, 2021 and December 31, 2020, Peoples had zero and $ 41.0 million, respectively, of cash pledged, while the counterparties had no amount of cash pledged at either date. Cash pledged was included in "Interest-bearing deposits in other banks" on the Audited Consolidated Balance Sheet as of December 31, 2020. Peoples had pledged $ 36.3 million and zero in investment securities at September 30, 2021 and December 31, 2020, respectively. Note 11 Stock-Based Compensation Under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted common share awards, stock appreciation rights, performance units and unrestricted common share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is 891,340 . The maximum number of common shares that can be issued for incentive stock options is 500,000 common shares. Since February 2009, Peoples has granted restricted common shares to employees, and periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2020 and 2021, Peoples granted unrestricted common shares to non-employee directors (in addition to their directors' fees paid in common shares). In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares. Restricted Common Shares Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on the restricted common shares awarded to employees expire after periods ranging from one to five years . Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first nine months of 2021, Peoples granted an aggregate of 76,819 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant date; provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well-capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date. The following table summarizes the changes to Peoples’ restricted common shares for the nine months ended September 30, 2021: Time-Based Vesting Performance-Based Vesting Number of Common Shares Weighted-Average Grant Date Fair Value Number of Common Shares Weighted-Average Grant Date Fair Value Outstanding at January 1 67,758 $ 23.71 250,992 $ 33.36 Awarded 25,107 32.58 76,819 31.48 Released ( 9,127 ) 35.63 ( 73,611 ) 35.43 Forfeited ( 500 ) 34.75 ( 6,668 ) 32.42 Outstanding at September 30 83,238 $ 25.01 247,532 $ 32.19 For the nine months ended September 30, 2021, the total intrinsic value for restricted common shares released was $ 2.6 million compared to $ 2.0 million for the nine months ended September 30, 2020. Stock-Based Compensation Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares and performance unit awards, as well as purchases made by participants in the employee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of 33 Table of Contents the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. For performance unit awards, Peoples recognizes stock-based compensation over the performance period, based on the portion of the awards that was expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15 %. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2021 2020 2021 2020 Employee stock-based compensation expense: Stock grant expense $ 597 $ 615 $ 2,381 $ 2,950 Employee stock purchase plan expense 21 17 $ 55 $ 47 Performance unit benefit — — $ — $ ( 12 ) Total employee stock-based compensation expense 618 632 $ 2,436 $ 2,985 Non-employee director stock-based compensation expense 60 53 $ 310 $ 288 Total stock-based compensation expense 678 685 $ 2,746 $ 3,273 Recognized tax benefit ( 151 ) ( 144 ) ( 612 ) ( 687 ) Net stock-based compensation expense $ 527 $ 541 $ 2,134 $ 2,586 Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the nine months ended September 30, 2021 and 2020. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares on that date. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was $ 3.0 million at September 30, 2021, which will be recognized over a weighted-average period of 1.9 years. On April 1, 2020, an aggregate of 18,952 unrestricted common shares were granted as a one-time special award to employees under the level of Vice President, with a related stock-based compensation expense of $ 396,000 being recognized. In addition to the portion of directors' fees paid in common shares, non-employee director stock-based compensation expense included $ 135,000 during the first nine months of 2021, and $ 120,000 during the first nine months of 2020, reflecting separate grants of unrestricted common shares aggregating 4,347 and 3,680 common shares, respectively. 34 Table of Contents Note 12 Revenue The following table details Peoples' revenue from contracts with customers: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2021 2020 2021 2020 Insurance income: Commission and fees from sale of insurance policies (a) $ 3,231 $ 3,493 $ 9,603 $ 9,117 Fees related to third-party administration services (a) 76 107 276 375 Performance-based commissions (b) 60 9 2,044 1,437 Trust and investment income (a) 4,158 3,435 12,223 10,013 Electronic banking income: Interchange income (a) 3,280 3,011 9,930 8,255 Promotional and usage income (a) 1,046 755 2,725 2,313 Deposit account service charges: Ongoing maintenance fees for deposit accounts (a) 933 848 2,597 2,677 Transactional-based fees (b) 1,616 1,418 3,981 4,318 Commercial loan swap fees (b) 73 68 194 1,267 Other non-interest income transactional-based fees (b) 207 94 601 624 Total revenue from contracts with customers $ 14,680 $ 13,238 $ 44,174 $ 40,396 Timing of revenue recognition: Services transferred over time $ 12,724 $ 11,649 $ 37,354 $ 32,750 Services transferred at a point in time 1,956 1,589 6,820 7,646 Total revenue from contracts with customers $ 14,680 $ 13,238 $ 44,174 $ 40,396 (a) Services transferred over time. (b) Services transferred at a point in time. Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income and certain insurance income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income. The following table details the changes in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2021: Contract Assets Contract Liabilities (Dollars in thousands) Balance, January 1, 2021 $ 1,247 $ 5,224 Additional income receivable 144 — Receipt of income previously receivable ( 701 ) — Recognition of income previously deferred — ( 488 ) Balance, September 30, 2021 $ 690 $ 4,736 35 Table of Contents Note 13 Acquisitions Premier Financial Bancorp, Inc. On September 17, 2021, Peoples completed its merger with Premier. Premier merged into Peoples, and Premier’s wholly-owned subsidiaries, Premier Bank, Inc., and Citizens Deposit Bank and Trust, Inc., which combined operate 48 branches in Kentucky, Maryland, Ohio, Virginia, West Virginia and Washington, D.C., merged into Peoples’ wholly-owned subsidiary, Peoples Bank. As consideration, Premier shareholders were paid 0.58 common shares of Peoples for each full share of Premier that was owned at the acquisition date, resulting in the issuance of 8,589,685 common shares by Peoples, or $ 261.9 million. Peoples accounted for this transaction as a business combination under the acquisition method. Peoples completed the merger in an effort to diversify and expand its franchise, and further enhance its size and scale. Peoples believes the growth potential, and attractive market areas will benefit its future financial performance. Peoples recorded acquisition-related expenses related to the Premier merger which included $ 9.8 million in other non-interest expense; $ 4.2 million in professional fees; $ 3.7 million in salaries and employee benefit costs; $ 181,000 in marketing expense; and $ 83,000 in data processing and software expense. Peoples recorded the estimate of fair value based on initial valuations available at September 17, 2021. Due to the timing of the transaction closing date and this Form 10-Q, these estimated fair values are considered preliminary as of September 30, 2021, and are subject to adjustment for up to one year after September 17, 2021. Valuations subject to change include, but are not limited to, loans, bank premises, customer deposit intangibles (included in other intangible assets), certain deposits, trust preferred securities, deferred tax assets and liabilities, and certain other assets and other liabilities. The following table provides the preliminary purchase price calculation as of the date of the Merger with Premier, and the assets acquired and liabilities assumed at their estimated fair values. (Dollars in thousands) Unpaid Principal Balance Fair Value Premier common shares 14,811,200 Number of common shares of Peoples issued for each common share of Premier 0.58 Price per Peoples common share, based at closing date $ 30.49 Common share consideration 261,899 Cash paid in lieu of fractional common shares 25 Total consideration $ 261,924 Net assets at fair value Assets Cash and due from banks $ 251,763 Interest-bearing deposits in other banks 1,025 Total cash and cash equivalents 252,788 Available-for-sale investment securities 563,294 Other investment securities 4,159 Total investment securities 567,453 Loans: Construction 97,262 93,819 Commercial real estate, other 544,950 517,315 Commercial and industrial 132,293 127,880 Residential real estate 332,269 327,508 Home equity lines of credit 46,969 45,841 Consumer 21,083 21,527 Total loans 1,174,826 1,133,890 Bank premises and equipment 33,835 Other intangible assets 4,233 OREO 11,101 Other assets 19,671 Total assets $ 2,022,971 36 Table of Contents (Dollars in thousands) Unpaid Principal Balance Fair Value Liabilities Deposits: Non-interest-bearing $ 735,236 Interest-bearing 1,020,887 Total deposits 1,756,123 Short-term borrowings 63,807 Long-term borrowings 6,070 Accrued expenses and other liabilities 6,036 Total liabilities 1,832,036 Net assets 190,935 Goodwill $ 70,989 The recorded goodwill associated with the Premier merger is related to expected synergies and operational efficiencies to be gained from the combination of Premier with Peoples' operations. None of the goodwill associated with the Premier merger is expected to be deductible for tax purposes. The geographic locations of Premier will allow Peoples to continue to grow the loan and deposit portfolios, while also increasing Peoples' ability to penetrate the new markets with wealth management and insurance services, which should benefit Peoples in future periods. Additional information regarding other intangibles recognized in the acquisition can be found in "Note 5 Goodwill and Other Intangible Assets." The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and due from banks is a reasonable estimate of fair value. Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies. Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan, related collateral, classification status, fixed or variable interest rate, term, amortization status and current discount rates. Loans were grouped together according to similar characteristics when applying various valuation techniques. The discount rates used for loans are based on current market rates at the acquisition date for new originations for comparable loans and include adjustments for liquidity. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows. Bank Premises and Equipment: The fair values of premises were based on a market approach, with third-party appraisals and broker opinions of value for land, office and branch space. OREO: The fair values of OREO were based on a market approach, with third-party appraisals and broker opinions of value for land and buildings. Customer Deposit Intangible: The customer deposit intangible represents the low cost of funding acquired core deposits provide relative to a marginal cost of funds. The fair value was estimated based on a discounted cash flow methodology that gave consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The customer deposit intangible is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received. Deposits: The fair values used for the demand and savings deposits equal the amount payable on demand at the acquisition date. The fair values for time deposits were estimated using a discounted cash flow calculation that applies interest rates being offered at the acquisition date to the contractual interest rates on such time deposits. Borrowings: Short-term borrowings consist of overnight repurchase agreements and rates, and given their short-term nature book value approximated fair value. The fair values of long-term borrowings are estimated using discounted cash flow analyses, based on incremental borrowing rates at acquisition date for similar types of instruments. Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. Acquired purchased credit deteriorated loans are reported net of the unamortized fair 37 Table of Contents value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired purchased credit deteriorated loans as of the acquisition date: (Dollars in thousands) Par Value Allowance for Credit Losses Non-Credit (Discount) Premium Fair Value Purchased credit deteriorated loans Construction $ 23,232 $ ( 2,127 ) $ ( 219 ) $ 20,886 Commercial real estate, other 176,122 ( 13,374 ) ( 8,022 ) 154,726 Commercial and industrial 26,341 ( 4,286 ) 281 22,336 Residential real estate 56,005 ( 2,394 ) ( 2,166 ) 51,445 Home equity lines of credit 2,014 ( 41 ) ( 68 ) 1,905 Consumer 1,614 ( 112 ) 63 1,565 Fair value $ 285,328 $ ( 22,334 ) $ ( 10,131 ) $ 252,863 Peoples' operating results for the three-month and nine-month periods ended September 30, 2021 include the operating results of the acquired assets and assumed liabilities of Premier subsequent to the acquisition on September 17, 2021. Due to the conversion of Premier systems during the third quarter of 2021, as well as other streamlining and integration of the operating activities into those of Peoples, historical reporting for the former Premier operations is impracticable and the disclosures of revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to the acquisition. The following table presents unaudited pro forma information as if the acquisition of Premier had occurred on January 1, 2020. The pro forma adjustments include any changes in interest income due to the accretion of discounts, or amortization of premiums, associated with the fair value adjustments to acquired loans, interest-bearing deposits, long-term borrowings, trust preferred securities and customer deposit intangibles that would have resulted had the assets and liabilities been acquired as of January 1, 2020. The pro forma information excludes Peoples' acquisition-related expenses, which primarily included, but were not limited to, salaries and employee benefit costs, severance costs, professional fees, marketing expenses and deconversion costs. Those acquisition-related expenses totaled $16.2 million and $18.1 million for the quarter and year-to-date, respectively. The pro forma information also excludes a provision of credit losses of $11.0 million recorded to establish an allowance for credit losses for non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquired loans. The pro forma information does not necessarily reflect the results of operations that would have occurred had Peoples acquired Premier on January 1, 2020. Additionally, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts. Unaudited Pro Forma For Three Months Ended Nine Months Ended (Dollars in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Net interest income $ 59,248 $ 52,646 $ 168,644 $ 156,285 Non-interest income 19,071 18,967 57,061 53,507 Net income 17,492 16,151 56,862 31,529 Pikeville, Kentucky Insurance Agency On May 4, 2021, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $ 325,000 . Peoples accounted for this transaction as a business combination under the acquisition method. NS Leasing, LLC Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $ 116.5 million, plus a potential earnout payment to NSL of up to $ 3.1 million. Peoples Bank acquired $ 83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $ 69.1 million. NSL underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $ 24.7 million and preliminary other intangibles of $ 14.0 million, which included a customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $ 0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $ 2.7 million. As of 38 Table of Contents September 30, 2021, leases had grown to $ 111.4 million. Peoples accounted for this transaction as a business combination under the acquisition method. The recorded goodwill associated with the NSL acquisition is related to expected synergies and operational efficiencies to be gained from the combination of NSL with Peoples' operations. The employees retained from the NSL acquisition should allow Peoples to continue to grow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill. The bonus earn-out provision recorded by Peoples related to the NSL acquisition was determined based on a weighting of probability of outcomes, at present value. Peoples predominately weighted the outcomes of the factors at around a 100% payout expectation of the base earn-out, which is $ 2.7 million in total. Adjusting weighting into the bonus expectation in the third quarter resulted in an additional $ 625,000 of potential payout. Peoples anticipates that NSL will meet the minimums for the base earn-out payment, and will likely meet the targets set at acquisition for a 100% payout of the base earn-out. The following table provides the preliminary purchase price calculation as of the date of acquisition for NSL and the assets acquired and liabilities assumed at their estimated fair values. (Dollars in thousands) Total purchase price (a) $ 118,846 Net assets at fair value Assets Cash and due from banks $ 216 Net leases 82,833 Bank premises and equipment, net of accumulated depreciation 470 Other intangible assets 14,009 Other assets 1,225 Total assets $ 98,753 Liabilities Accrued expenses and other liabilities $ 4,627 Total liabilities $ 4,627 Net assets $ 94,126 Goodwill $ 24,720 (a) Includes preliminary contingent consideration related to the bonus earn-out provision of $ 2.3 million. Peoples recorded an additional $ 0.4 million in non-interest expense related to an update to the estimated earn-out provision. The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2021, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at September 30, 2021: (Dollars in thousands) Change in fair value Net assets Other intangible assets $ ( 474 ) Other assets ( 380 ) Accrued expenses and other liabilities 380 Change in goodwill $ ( 474 ) Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. Acquired purchased credit deteriorated leases are reported net of the unamortized fair value adjustment. The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date: 39 Table of Contents (Dollars in thousands) NSL Purchased credit deteriorated leases Par value $ 5,248 Allowance for credit losses ( 493 ) Non-credit premium 85 Fair value $ 4,840 Peoples recorded acquisition-related expenses related to the NSL acquisition during the third quarter of 2021, which included $ 13,000 in professional fees. For the first nine months of 2021, Peoples recorded acquisition-related expenses related to the NSL acquisition which included $ 2.1 million in professional fees; $ 209,000 in other non-interest expense; $ 3,000 in salaries and employee benefit costs; $ 3,000 in data processing and software expense; $ 2,000 in net occupancy and equipment expense; and $ 2,000 in marketing expense. Note 14 Leases Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842. Lessor Arrangements Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers leases past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, leases are typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses. Peoples began originating leases with the acquisition of leases from NSL. The leases acquired were determined to be sales-type leases, as the premise for the leases is dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, healthcare, manufacturing, office, restaurant, and other equipment. These sales-type leases do not typically contain residual value guarantees; however, if a lease contains a residual value guarantee, Peoples reduces its residual asset risk by obtaining a security deposit from the lessee. Other non-interest income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' sales-type leases can be found in "Note 4 Loans and Leases." The table below details Peoples' lease income: Three Months Ended Nine Months Ended (Dollars in thousands) September 30, 2021 September 30, 2021 Interest and fees on leases (a) $ 4,810 9,025 Other non-interest income 471 716 Total lease income $ 5,281 $ 9,741 (a) Included in "Interest and fees on loans" on the Unaudited Consolidated Statements of Operations. For additional information, see "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements. 40 Table of Contents The following table summarizes the net investments in sales-type leases, which are included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets: (Dollars in thousands) September 30, 2021 Lease payments receivable, at amortized cost $ 139,445 Estimated residual values 120 Initial direct costs 802 Deferred revenue ( 28,921 ) Total leases, at amortized cost 111,446 Allowance for credit losses - leases ( 4,505 ) Net investment in sales-type leases $ 106,941 The following table summarizes the contractual maturities of leases: (Dollars in thousands) Balance Remaining three months ending December 31, 2021 $ 13,980 Year ending December 31, 2022 46,706 Year ending December 31, 2023 36,524 Year ending December 31, 2024 24,093 Year ending December 31, 2025 13,605 Thereafter 4,537 Lease payments receivable, at amortized cost $ 139,445 Lessee Arrangements Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At September 30, 2021, Peoples did not have any leases that met the criteria for finance leases. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating lease ROU assets exclude lease incentives. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term and do not have a ROU asset or lease liability. The table below details Peoples' lease expense, which is included in "Net occupancy and equipment expense" in the Unaudited Consolidated Statements of Operations: Three Months Ended Nine Months Ended (Dollars in thousands) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Operating lease expense $ 358 $ 334 1,038 995 Short-term lease expense 72 71 244 231 Total lease expense $ 430 $ 405 $ 1,282 $ 1,226 Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date. 41 Table of Contents The following table details the ROU assets, the lease liabilities and other information related to Peoples' operating leases: (Dollars in thousands) September 30, 2021 December 31, 2020 ROU assets: Other assets $ 8,732 $ 6,522 Lease liabilities: Accrued expenses and other liabilities $ 9,040 $ 6,776 Other information: Weighted-average remaining lease term 9.5 years 12.4 years Weighted-average discount rate 2.39 % 3.14 % During the three and nine months ended September 30, 2021, Peoples paid cash of $ 345,000 and $ 1,005,000 , respectively, for operating leases. During the three and nine months ended September 30, 2020, Peoples paid cash of $ 320,000 and $ 960,000 , respectively, for operating leases. The following table summarizes the maturity of remaining lease liabilities: (Dollars in thousands) Balance Remaining three months ending December 31, 2021 $ 728 Year ending December 31, 2022 2,270 Year ending December 31, 2023 1,612 Year ending December 31, 2024 954 Year ending December 31, 2025 765 Thereafter 4,396 Total undiscounted lease payments $ 10,725 Imputed interest $ ( 1,685 ) Total lease liabilities $ 9,040 42 Table of Contents