PEOPLES BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2022 December 31, 2021 (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and balances due from banks $ 92,207 $ 74,354 Interest-bearing deposits in other banks 306,178 341,373 Total cash and cash equivalents 398,385 415,727 Available-for-sale investment securities, at fair value (amortized cost of $ 1,389,621 at June 30, 2022 and $ 1,283,146 at December 31, 2021) (a) 1,267,598 1,275,493 Held-to-maturity investment securities, at amortized cost (fair value of $ 341,088 at June 30, 2022 and $ 369,955 at December 31, 2021) (a) 400,720 374,129 Other investment securities 41,655 33,987 Total investment securities (a) 1,709,973 1,683,609 Loans and leases, net of deferred fees and costs (b) 4,575,905 4,481,600 Allowance for credit losses ( 52,346 ) ( 63,967 ) Net loans and leases (c) 4,523,559 4,417,633 Loans held for sale 2,128 3,791 Bank premises and equipment, net of accumulated depreciation 86,523 89,260 Bank owned life insurance 104,339 73,358 Goodwill 289,976 264,193 Other intangible assets 38,156 26,816 Other assets 125,253 89,134 Total assets $ 7,278,292 $ 7,063,521 Liabilities Deposits: Non-interest-bearing $ 1,661,865 $ 1,641,422 Interest-bearing 4,267,360 4,221,130 Total deposits 5,929,225 5,862,552 Short-term borrowings 326,442 166,482 Long-term borrowings 123,687 99,475 Accrued expenses and other liabilities 112,114 89,987 Total liabilities 6,491,468 6,218,496 Stockholders’ equity Preferred shares, no par value, 50,000 shares authorized, no shares issued at June 30, 2022 and at December 31, 2021 — — Common stock, no par value, 50,000,000 shares authorized, 29,836,491 shares issued at June 30, 2022 and 29,814,401 shares issued at December 31, 2021, including at each date shares held in treasury 684,416 686,282 Retained earnings 234,608 207,076 Accumulated other comprehensive loss, net of deferred income taxes ( 93,359 ) ( 11,619 ) Treasury stock, at cost, 1,610,525 shares at June 30, 2022 and 1,577,359 shares at December 31, 2021 ( 38,841 ) ( 36,714 ) Total stockholders’ equity 786,824 845,025 Total liabilities and stockholders’ equity $ 7,278,292 $ 7,063,521 (a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $ 0 and $ 286 , respectively, at June 30, 2022 and $ 0 and $ 286 , respectively, at December 31, 2021. (b) Also referred to throughout this Quarterly Report on Form 10-Q as "total loans" and "loans held for investment." (c) Also referred to throughout this Quarterly Report on Form 10-Q as "net loans" 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 Six Months Ended June 30, June 30, (Dollars in thousands, except per share data) 2022 2021 2022 2021 Interest income: Interest and fees on loans and leases $ 56,764 $ 38,711 $ 106,964 $ 74,448 Interest and dividends on taxable investment securities 6,967 3,168 13,017 5,742 Interest on tax-exempt investment securities 1,026 865 2,041 1,476 Other interest income 299 53 459 93 Total interest income 65,056 42,797 122,481 81,759 Interest expense: Interest on deposits 2,014 2,577 4,067 5,394 Interest on short-term borrowings 261 92 599 192 Interest on long-term borrowings 1,313 468 2,037 935 Total interest expense 3,588 3,137 6,703 6,521 Net interest income 61,468 39,660 115,778 75,238 (Recovery of) provision for credit losses ( 780 ) 3,088 ( 7,587 ) ( 1,661 ) Net interest income after (recovery of) provision for credit losses 62,248 36,572 123,365 76,899 Non-interest income: Electronic banking income 5,419 4,418 10,672 8,329 Insurance income 3,646 3,335 8,377 8,556 Trust and investment income 4,246 4,220 8,522 8,065 Deposit account service charges 3,558 2,044 6,984 4,029 Mortgage banking income 352 820 788 1,960 Bank owned life insurance income 797 446 1,228 892 Commercial loan swap fees 270 61 438 121 Net loss on asset disposals and other transactions ( 152 ) ( 124 ) ( 279 ) ( 151 ) Net (loss) gain on investment securities ( 44 ) ( 202 ) 86 ( 538 ) Other non-interest income 1,294 803 2,620 1,461 Total non-interest income 19,386 15,821 39,436 32,724 Non-interest expense: Salaries and employee benefit costs 27,585 21,928 55,314 42,687 Net occupancy and equipment expense 4,768 3,289 9,856 6,616 Professional fees 2,280 3,565 5,952 7,033 Data processing and software expense 3,033 2,411 5,949 4,865 Electronic banking expense 2,727 2,075 5,486 3,969 Amortization of other intangible assets 2,034 1,368 3,742 1,988 FDIC insurance premiums 1,018 326 2,212 789 Marketing expense 860 676 1,855 1,587 Other loan expenses 445 494 1,277 956 Franchise tax expense 1,102 822 1,866 1,677 Communication expense 649 386 1,274 668 Other non-interest expense 3,398 2,559 6,745 5,051 Total non-interest expense 49,899 39,899 101,528 77,886 Income before income taxes 31,735 12,494 61,273 31,737 Income tax expense 6,847 2,391 12,808 6,171 Net income $ 24,888 $ 10,103 $ 48,465 $ 25,566 Earnings per common share - basic $ 0.89 $ 0.52 $ 1.73 $ 1.32 Earnings per common share - diluted $ 0.88 $ 0.51 $ 1.72 $ 1.31 Weighted-average number of common shares outstanding - basic 27,919,133 19,317,454 27,962,405 19,300,156 Weighted-average number of common shares outstanding - diluted 28,061,736 19,461,934 28,041,145 19,448,544 Cash dividends declared $ 10,757 $ 7,065 $ 20,933 $ 13,898 Cash dividends declared per common share $ 0.38 $ 0.36 $ 0.74 $ 0.71 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 Six Months Ended June 30, June 30, (Dollars in thousands) 2022 2021 2022 2021 Net income $ 24,888 $ 10,103 $ 48,465 $ 25,566 Other comprehensive (loss) income: Available-for-sale investment securities: Gross unrealized holding (loss) gain arising during the period ( 42,648 ) 3,525 ( 114,284 ) ( 9,053 ) Related tax benefit (expense) 10,238 ( 741 ) 26,686 1,901 Reclassification adjustment for net gain (loss) included in net income 44 202 ( 86 ) 538 Related tax (expense) benefit ( 10 ) ( 42 ) 20 ( 113 ) Net effect on other comprehensive (loss) income ( 32,376 ) 2,944 ( 87,664 ) ( 6,727 ) Defined benefit plan: Net gain arising during the period 75 3 61 8 Related tax expense ( 17 ) — ( 14 ) ( 1 ) Amortization of unrecognized gain and service cost on benefit plans 17 31 38 61 Related tax expense ( 4 ) ( 6 ) ( 9 ) ( 13 ) Net effect on other comprehensive income 71 28 76 55 Cash flow hedges: Net gain (loss) arising during the period 2,104 ( 294 ) 7,560 3,942 Related tax (expense) benefit ( 492 ) 62 ( 1,712 ) ( 828 ) Net effect on other comprehensive income (loss) 1,612 ( 232 ) 5,848 3,114 Total other comprehensive (loss) income, net of tax ( 30,693 ) 2,740 ( 81,740 ) ( 3,558 ) Total comprehensive (loss) income $ ( 5,805 ) $ 12,843 $ ( 33,275 ) $ 22,008 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, March 31, 2022 $ 684,243 $ 220,477 $ ( 62,666 ) $ ( 33,713 ) $ 808,341 Net income — 24,888 — — 24,888 Other comprehensive loss, net of tax — — ( 30,693 ) — ( 30,693 ) Cash dividends declared — ( 10,757 ) — ( 10,757 ) Reissuance of treasury stock for common share awards ( 727 ) — — 727 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 78 78 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 206 ) ( 206 ) Common shares repurchased under share repurchase program then in effect — — — ( 5,987 ) ( 5,987 ) Common shares issued under dividend reinvestment plan 296 — — — 296 Common shares issued under compensation plan for Boards of Directors 13 — — 115 128 Common shares issued under employee stock purchase plan 15 — — 145 160 Stock-based compensation 576 — — — 576 Balance, June 30, 2022 $ 684,416 $ 234,608 $ ( 93,359 ) $ ( 38,841 ) $ 786,824 Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, December 31, 2021 $ 686,282 $ 207,076 $ ( 11,619 ) $ ( 36,714 ) $ 845,025 Net income — 48,465 — — 48,465 Other comprehensive loss, net of tax — — ( 81,740 ) — ( 81,740 ) Cash dividends declared — ( 20,933 ) — — ( 20,933 ) Reissuance of treasury stock for common share awards ( 4,725 ) — — 4,725 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 78 78 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,436 ) ( 1,436 ) Common shares repurchased under share repurchase program then in effect — — — ( 5,987 ) ( 5,987 ) Common shares issued under dividend reinvestment plan 601 — — — 601 Common shares issued under compensation plan for Boards of Directors 44 — — 208 252 Common shares issued under employee stock purchase plan 61 — — 285 346 Stock-based compensation 2,153 — — — 2,153 Balance, June 30, 2022 $ 684,416 $ 234,608 $ ( 93,359 ) $ ( 38,841 ) $ 786,824 6 Table of Contents Accumulated Other Comprehensive (Loss) Income Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, March 31, 2021 $ 422,370 $ 199,321 $ ( 4,962 ) $ ( 37,836 ) $ 578,893 Net income — 10,103 — — 10,103 Other comprehensive income, net of tax — — 2,740 — 2,740 Cash dividends declared — ( 7,065 ) — — ( 7,065 ) Reissuance of treasury stock for common share awards ( 432 ) — — 432 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 72 72 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 87 ) ( 87 ) Common shares issued under dividend reinvestment plan 90 — — — 90 Common shares issued under compensation plan for Boards of Directors 12 — — 43 55 Common shares issued under employee stock purchase plan 26 — — 92 118 Stock-based compensation 586 — — — 586 Balance, June 30, 2021 $ 422,652 $ 202,359 $ ( 2,222 ) $ ( 37,284 ) $ 585,505 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 — 25,566 — — 25,566 Other comprehensive loss, net of tax — — ( 3,558 ) — ( 3,558 ) Cash dividends declared — ( 13,898 ) — — ( 13,898 ) Reissuance of treasury stock for common share awards ( 2,172 ) — — 2,172 — 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 — — — ( 998 ) ( 998 ) Common shares issued under dividend reinvestment plan 378 — — — 378 Common shares issued under compensation plan for Boards of Directors 65 — — 184 249 Common shares issued under employee stock purchase plan 61 — — 174 235 Stock-based compensation 1,784 — — — 1,784 Balance, June 30, 2021 $ 422,652 $ 202,359 $ ( 2,222 ) $ ( 37,284 ) $ 585,505 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) Six Months Ended June 30, (Dollars in thousands) 2022 2021 Net cash provided by operating activities $ 62,708 $ 38,675 Investing activities: Available-for-sale investment securities: Purchases ( 233,126 ) ( 317,502 ) Proceeds from sales 8,732 58,483 Proceeds from principal payments, calls and prepayments 112,795 146,148 Held-to-maturity investment securities: Purchases ( 38,622 ) ( 116,941 ) Proceeds from principal payments 11,109 2,586 Other investment securities: Purchases ( 11,013 ) ( 541 ) Proceeds from sales 3,101 5,696 Net decrease in loans held for investment 70,872 116,441 Net expenditures for premises and equipment ( 3,462 ) ( 2,850 ) Proceeds from sales of other real estate owned 307 113 Purchase of bank owned life insurance ( 30,000 ) — Proceeds from bank owned life insurance contracts 248 — Business acquisitions, net of cash received ( 85,793 ) ( 116,644 ) Investment in limited partnership and tax credit funds ( 1,151 ) ( 4,996 ) Net cash used in investing activities ( 196,003 ) ( 230,007 ) Financing activities: Net increase in non-interest-bearing deposits 20,443 183,722 Net increase in interest-bearing deposits 46,485 138,442 Net increase (decrease) in short-term borrowings 154,915 ( 21,765 ) Proceeds from long-term borrowings 11,255 — Payments on long-term borrowings ( 89,217 ) ( 563 ) Cash dividends paid ( 21,081 ) ( 13,898 ) Purchase of treasury stock under share repurchase program ( 5,987 ) — Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock ( 1,436 ) ( 998 ) Proceeds from issuance of common shares 576 365 Net cash provided by financing activities 115,953 285,305 Net (decrease) increase in cash and cash equivalents ( 17,342 ) 93,973 Cash and cash equivalents at beginning of period 415,727 152,100 Cash and cash equivalents at end of period $ 398,385 $ 246,073 Supplemental cash flow information: Interest paid $ 6,585 $ 7,374 Income taxes paid 1,797 5,250 Supplemental noncash disclosures: Transfers from total loans to other real estate owned 55 210 Lease right-of-use assets obtained in exchange for lessee operating lease liabilities 27 79 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, 2021 ("Peoples' 2021 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’ 2021 Form 10-K, as updated by the information contained in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after June 30, 2022 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, 2021, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2021 Form 10-K. 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’ 2021 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 Updated ("ASU") ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance was further updated by ASU 2021-01. This update is effective as of March 12, 2020 through December 31, 2022. This ASU was early adopted as of September 30, 2021, and does not 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 2022-01 - Fair Value Hedging - Portfolio Layer Method - Derivatives and Hedging (Topic 815). This ASU clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. For entities that have already adopted ASU 2017-12, as Peoples has, the amendments in ASU 2022-01 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU may also be early adopted, including adoption in any interim period. Peoples is currently evaluating the impact of the amendments in this ASU on Peoples' consolidated financial statements. ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors and amends the guidance on disclosures to include current-period gross write-offs by year of origination. This ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. For entities that have already adopted ASU 2016-13, as Peoples has, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU may also be early adopted, including adoption in any interim period. Peoples is currently evaluating the impact of the amendments in this ASU on Peoples' consolidated financial statements. Note 2 Fair Value of Assets and Liabilities 9 Table of Contents 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' 2021 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 June 30, 2022 December 31, 2021 (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. Treasury and government agencies $ 175,255 $ — $ — $ 35,604 $ — $ — U.S. government sponsored agencies — 82,465 — — 81,739 — States and political subdivisions — 249,402 — — 259,319 — Residential mortgage-backed securities — 691,735 — — 828,517 — Commercial mortgage-backed securities — 58,301 — — 63,519 — Bank-issued trust preferred securities — 10,440 — — 6,795 — Total available-for-sale securities $ 175,255 $ 1,092,343 $ — $ 35,604 $ 1,239,889 $ — Equity investment securities (a) 135 192 — 160 184 — Derivative assets (b) — 20,145 — — 12,163 — Liabilities: Derivative liabilities (c) $ — $ 17,602 $ — $ — $ 17,183 $ — (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 used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR (or other relevant) 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. 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 : Derivative assets and liabilities are recognized on the Unaudited Consolidated Balance Sheets at their fair value within "Other assets", and "Accrued expenses and other liabilities", respectively. The fair value for derivative financial instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2). 10 Table of Contents 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 at June 30, 2022 and December 31, 2021. Non-Recurring Fair Value Measurements at Reporting Date June 30, 2022 December 31, 2021 (Dollars in thousands) Level 2 Level 3 Level 2 Level 3 Assets: Collateral dependent loans $ — $ 1,021 $ — $ 430 Loans held for sale (a) $ 749 $ — $ 418 $ — Other real estate owned ("OREO") $ — $ — $ — $ 87 Servicing rights (b)(c) $ — $ 24 $ — $ 22 (a) Loans held for sale are presented gross of a valuation allowance of $ 52 and $ 0 as of June 30, 2022 and December 31, 2021, respectively. (b) Included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value. (c) Peoples established a valuation allowance on servicing rights of $ 6 at June 30, 2022 and $ 12 at December 31, 2021. The fair value of the servicing rights on 10-year fixed rate loans was less than the carrying value. Collateral Dependent Loans: Loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty are considered collateral dependent. Peoples utilizes outside third-party appraisal services to value the underlying collateral, for which Peoples uses to report the loans at their fair value (Level 3). Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally one-to-four 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, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3). 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 June 30, 2022 December 31, 2021 Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents 1 $ 398,385 $ 398,385 $ 415,727 $ 415,727 Held-to-maturity investment securities: Obligations of: U.S. government sponsored agencies 2 50,990 44,438 36,431 35,513 States and political subdivisions (a) 2 151,320 122,078 151,688 150,138 Residential mortgage-backed securities 2 112,095 99,970 110,708 110,159 Commercial mortgage-backed securities 2 86,601 74,602 75,588 74,145 Total held-to-maturity securities 401,006 341,088 374,415 369,955 Other investment securities: Other investment securities at cost: Federal Home Loan Bank ("FHLB") stock N/A 17,308 17,308 17,308 17,308 Federal Reserve Bank ("FRB") stock N/A 21,226 21,226 13,311 13,311 Total other investment securities at cost 38,534 38,534 30,619 30,619 Other investment securities at fair value: Nonqualified deferred compensation (b) 1 2,016 2,016 2,240 2,240 Other investment securities (c) 2 779 779 784 784 Total other investment securities 41,329 41,329 33,643 33,643 Loans and leases, net of deferred fees and costs (d) 3 4,575,905 4,350,080 4,481,600 4,510,605 Bank owned life insurance 2 104,339 104,339 73,358 73,358 Liabilities: Deposits 2 $ 5,929,225 $ 5,039,094 $ 5,862,552 $ 5,546,552 Short-term borrowings 2 326,442 329,191 166,482 164,990 Long-term borrowings 2 123,687 124,728 99,475 101,664 (a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $ 286 as of June 30, 2022 and December 31, 2021. (b) Nonqualified deferred compensation includes mutual funds as part of the investment. (c) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at June 30, 2022 and at December 31, 2021, 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. (d) Loans and leases, net of deferred fees and costs, are presented gross of an allowance for credit losses of $ 52.3 million and $ 64.0 million as of June 30, 2022 and December 31, 2021, respectively. For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These financial instruments include cash and cash equivalents, 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 on hand 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, relevant 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. 12 Table of Contents Other Investment Securities: Other investment securities at cost are not recorded at fair value as they are not marketable securities. Other investment securities at fair value are valued using quoted prices in an active market (Level 1) or quoted prices in less active markets (Level 2). 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 and leases (Level 3). Fair values for loans and leases are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans and leases with similar terms, the credit risk associated with the loans and leases and other market factors, including liquidity. Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 2). 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). Demand and other non-fixed-maturity deposits are estimated using a discounted cash flow calculation based on maturity, attrition and re-pricing assumptions. 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 financial 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 financial assets and liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value, which 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 June 30, 2022 Obligations of: U.S. Treasury and government agencies $ 179,095 $ — $ ( 3,840 ) $ 175,255 U.S. government sponsored agencies 92,245 4 ( 9,784 ) 82,465 States and political subdivisions 278,567 250 ( 29,415 ) 249,402 Residential mortgage-backed securities 762,511 1,678 ( 72,454 ) 691,735 Commercial mortgage-backed securities 66,465 5 ( 8,169 ) 58,301 Bank-issued trust preferred securities 10,738 63 ( 361 ) 10,440 Total available-for-sale securities $ 1,389,621 $ 2,000 $ ( 124,023 ) $ 1,267,598 December 31, 2021 Obligations of: U.S. Treasury and government agencies $ 35,609 $ 12 $ ( 17 ) $ 35,604 U.S. government sponsored agencies 83,019 58 ( 1,338 ) 81,739 States and political subdivisions 259,508 3,187 ( 3,376 ) 259,319 Residential mortgage-backed securities 833,328 6,565 ( 11,376 ) 828,517 Commercial mortgage-backed securities 64,971 42 ( 1,494 ) 63,519 Bank-issued trust preferred securities 6,711 215 ( 131 ) 6,795 Total available-for-sale securities $ 1,283,146 $ 10,079 $ ( 17,732 ) $ 1,275,493 13 Table of Contents The gross gains and losses realized by Peoples from sales of available-for-sale securities for the periods ended June 30 were as follows: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2022 2021 2022 2021 Gross gains realized $ 14 $ 297 $ 160 $ 636 Gross losses realized ( 58 ) ( 499 ) ( 74 ) ( 1,174 ) Net (loss) gain realized $ ( 44 ) $ ( 202 ) $ 86 $ ( 538 ) 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 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 June 30, 2022 Obligations of: U.S. Treasury and government agencies $ 175,255 $ 3,840 31 $ — $ — — $ 175,255 $ 3,840 U.S. government sponsored agencies 69,803 8,146 19 6,658 1,638 2 76,461 9,784 States and political subdivisions 143,145 18,282 141 47,152 11,133 21 190,297 29,415 Residential mortgage-backed securities 575,723 57,557 207 91,863 14,897 24 667,586 72,454 Commercial mortgage-backed securities 40,586 5,112 18 16,608 3,057 6 57,194 8,169 Bank-issued trust preferred securities 7,221 280 4 919 81 1 8,140 361 Total $ 1,011,733 $ 93,217 420 $ 163,200 $ 30,806 54 $ 1,174,933 $ 124,023 December 31, 2021 Obligations of: U.S. Treasury and government agencies $ 16,914 $ 17 6 $ — $ — — $ 16,914 $ 17 U.S. government sponsored agencies 72,406 1,192 13 4,854 146 1 77,260 1,338 States and political subdivisions 101,397 2,075 71 30,853 1,301 11 132,250 3,376 Residential mortgage-backed securities 573,139 9,051 113 51,103 2,325 14 624,242 11,376 Commercial mortgage-backed securities 60,134 1,494 21 — — — 60,134 1,494 Bank-issued trust preferred securities 2,991 9 1 878 122 1 3,869 131 Total $ 826,981 $ 13,838 225 $ 87,688 $ 3,894 27 $ 914,669 $ 17,732 Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At June 30, 2022, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At June 30, 2022, 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 June 30, 2022 and December 31, 2021 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 $ 6.3 million at June 30, 2022 and $ 5.5 million at December 31, 2021. At June 30, 2022, 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 three positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. All three positions had a fair value of less than 90 % of its book value. Management analyzed the underlying credit quality of these mortgage- 14 Table of Contents 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 loss with respect to the one bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at June 30, 2022 was attributable to the subordinated nature of the debt. The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at June 30, 2022. 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. Treasury and government agencies $ 10,071 $ 169,024 $ — $ — $ 179,095 U.S. government sponsored agencies 2,807 29,294 51,848 8,296 92,245 States and political subdivisions 19,729 55,670 69,708 133,460 278,567 Residential mortgage-backed securities 30 2,033 62,316 698,132 762,511 Commercial mortgage-backed securities 5,531 909 34,741 25,284 66,465 Bank-issued trust preferred securities — 4,238 6,500 — 10,738 Total available-for-sale securities $ 38,168 $ 261,168 $ 225,113 $ 865,172 $ 1,389,621 Fair value Obligations of: U.S. Treasury and government agencies $ 9,972 $ 165,283 $ — $ — $ 175,255 U.S. government sponsored agencies 2,802 27,614 45,391 6,658 82,465 States and political subdivisions 19,757 54,919 63,328 111,398 249,402 Residential mortgage-backed securities 30 1,999 58,905 630,801 691,735 Commercial mortgage-backed securities 5,529 876 30,501 21,395 58,301 Bank-issued trust preferred securities — 4,294 6,146 — 10,440 Total available-for-sale securities $ 38,090 $ 254,985 $ 204,271 $ 770,252 $ 1,267,598 Total weighted-average yield 3.70 % 2.18 % 1.60 % 1.96 % 1.99 % 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 June 30, 2022 Obligations of: U.S. government sponsored agencies $ 50,990 $ — $ 12 $ ( 6,564 ) $ 44,438 States and political subdivisions 151,320 ( 286 ) 153 ( 29,109 ) 122,078 Residential mortgage-backed securities 112,095 — — ( 12,125 ) 99,970 Commercial mortgage-backed securities 86,601 — — ( 11,999 ) 74,602 Total held-to-maturity securities $ 401,006 $ ( 286 ) $ 165 $ ( 59,797 ) $ 341,088 December 31, 2021 Obligations of: U.S. government sponsored agencies $ 36,431 $ — $ 86 $ ( 1,004 ) $ 35,513 States and political subdivisions 151,688 ( 286 ) 1,006 ( 2,270 ) 150,138 Residential mortgage-backed securities 110,708 — 370 ( 919 ) 110,159 Commercial mortgage-backed securities 75,588 — 182 ( 1,625 ) 74,145 Total held-to-maturity securities $ 374,415 $ ( 286 ) $ 1,644 $ ( 5,818 ) $ 369,955 There were no sales of held-to-maturity securities for either of the six months ended June 30, 2022 or 2021. 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. Peoples recorded $ 286,000 of allowance for credit losses for held-to-maturity securities at each of June 30, 2022, and December 31, 2021. 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 June 30, 2022 Obligations of: U.S. government sponsored agencies $ 10,845 $ 1,300 4 20,958 5,264 5 $ 31,803 $ 6,564 States and political subdivisions 87,008 20,941 58 26,097 8,168 9 113,105 29,109 Residential mortgage-backed securities 99,944 12,125 26 — — — 99,944 12,125 Commercial mortgage-backed securities 69,102 10,015 30 6,407 1,984 1 75,509 11,999 Total $ 266,899 $ 44,381 118 $ 53,462 $ 15,416 15 $ 320,361 $ 59,797 December 31, 2021 Obligations of: U.S. government sponsored agencies $ 17,328 $ 504 6 14,635 500 2 $ 31,963 $ 1,004 States and political subdivisions 61,954 1,041 34 27,328 1,229 6 89,282 2,270 Residential mortgage-backed securities 88,937 919 17 — — — 88,937 919 Commercial mortgage-backed securities 67,338 1,625 21 — — — 67,338 1,625 Total $ 235,557 $ 4,089 78 $ 41,963 $ 1,729 8 $ 277,520 $ 5,818 The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at June 30, 2022. 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 23.3 % and 22.3 % for the periods ending June 30, 2022 and December 31, 2021, respectively. 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 $ — $ 19,151 $ 2,174 $ 29,665 $ 50,990 States and political subdivisions — 5,207 9,241 136,872 151,320 Residential mortgage-backed securities — 1,308 — 110,787 112,095 Commercial mortgage-backed securities 336 12,966 21,399 51,900 86,601 Total held-to-maturity securities $ 336 $ 38,632 $ 32,814 $ 329,224 $ 401,006 Fair value Obligations of: U.S. government sponsored agencies $ — $ 18,707 $ 1,918 $ 23,813 $ 44,438 States and political subdivisions — 4,943 8,067 109,068 122,078 Residential mortgage-backed securities — 1,302 — 98,668 99,970 Commercial mortgage-backed securities 335 12,893 19,065 42,309 74,602 Total held-to-maturity securities $ 335 $ 37,845 $ 29,050 $ 273,858 $ 341,088 Total weighted-average yield 1.46 % 2.11 % 1.65 % 1.85 % 1.85 % Other Investment Securities Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB stock and FRB stock. 16 Table of Contents The following table summarizes the carrying value of Peoples' other investment securities: (Dollars in thousands) June 30, 2022 December 31, 2021 FHLB stock $ 17,308 $ 17,308 FRB stock 21,226 13,311 Nonqualified deferred compensation 2,016 2,240 Equity investment securities 326 344 Other investment securities 779 784 Total other investment securities $ 41,655 $ 33,987 During the six months ended June 30, 2022, Peoples purchased $ 7.9 million of FRB stock as requested by the FRB as a result of the Premier Financial Bancorp, Inc. ("Premier") acquisition on September 17, 2021. During the three months ended June 30, 2022 and 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 loss of $ 11,000 and an unrealized gain of $ 18,000 . For the six months ended June 30, 2022 and 2021, Peoples recognized a loss of $ 18,000 and a gain of $ 73,000 , respectively, for the change in fair value of equity securities in "Other non-interest income". At June 30, 2022, 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) June 30, 2022 December 31, 2021 Securing public and trust department deposits, and repurchase agreements: Available-for-sale $ 1,002,333 $ 795,496 Held-to-maturity 297,880 160,643 Securing collateral for cash flow hedge swaps: Available-for-sale — 18,208 Held-to-maturity — 9,936 Securing additional borrowing capacity at the FHLB and the FRB: Available-for-sale 4,818 6,504 Held-to-maturity 1,828 549 17 Table of Contents 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, and Vantage Financial, LLC ("Vantage") subsidiary, 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) June 30, 2022 December 31, 2021 Construction $ 202,588 $ 210,232 Commercial real estate, other 1,460,023 1,550,081 Commercial and industrial 858,452 891,392 Premium finance 152,237 136,136 Leases 314,522 122,508 Residential real estate 743,005 771,718 Home equity lines of credit 169,335 163,593 Consumer, indirect 563,088 530,532 Consumer, direct 111,804 104,652 Deposit account overdrafts 851 756 Total loans, at amortized cost $ 4,575,905 $ 4,481,600 On March 7, 2022, Peoples completed the acquisition of Vantage, which included $ 157.5 million of leases. During the first six months of 2022, Peoples experienced elevated levels of payoffs and amortization of previously-acquired loans, which partially offset organic loan growth. Peoples is a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender. At June 30, 2022, the PPP loans had an amortized cost of $ 15.2 million, and were included in the commercial and industrial loan balances. As of June 30, 2022, deferred loan origination fees, net of deferred origination costs, totaled $ 0.4 million for PPP loans. During the second quarter of 2022, Peoples recorded amortization of net deferred loan origination fees of $ 0.6 million on PPP loans compared to $ 3.4 million for the second quarter of 2021. 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 $ 12.0 million at both June 30, 2022 and December 31, 2021. 18 Table of Contents 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 was as follows: June 30, 2022 December 31, 2021 (Dollars in thousands) Nonaccrual (a) Accruing Loans 90+ Days Past Due Nonaccrual (a) Accruing Loans 90+ Days Past Due Construction $ 5 $ — $ 6 $ 90 Commercial real estate, other 14,253 330 17,067 689 Commercial and industrial 1,849 89 3,572 1,139 Premium finance — 304 — 865 Leases 1,573 5,722 1,581 — Residential real estate 9,194 1,687 9,647 805 Home equity lines of credit 890 89 1,039 50 Consumer, indirect 1,558 15 1,574 — Consumer, direct 166 — 279 85 Total loans, at amortized cost $ 29,488 $ 8,236 $ 34,765 $ 3,723 (a) There were $ 2.3 million of nonaccrual loans for which there was no allowance for credit losses at June 30, 2022 and $ 2.6 million at December 31, 2021. During the first six months of 2022, nonaccrual loans declined compared to December 31, 2021, which was primarily due to the payoff of one commercial relationship, coupled with other smaller reductions. The increase in accruing loans 90+ days past due, compared to December 31, 2021, was the result of the additional leases acquired in the Vantage acquisition, the majority of which related to in-process renewals. As of June 30, 2022, 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 are considered current if they 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 June 30, 2022. The amount of interest income recognized on loans past due 90 days or more during the six months ended June 30, 2022 was $ 0.7 million. 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 June 30, 2022 Construction $ 5 $ — $ — $ 5 $ 202,583 $ 202,588 Commercial real estate, other 2,294 4,133 10,804 17,231 1,442,792 1,460,023 Commercial and industrial 2,385 200 1,938 4,523 853,929 858,452 Premium finance 444 190 304 938 151,299 152,237 Leases 789 7,665 3,936 12,390 302,132 314,522 Residential real estate 4,465 2,091 5,516 12,072 730,933 743,005 Home equity lines of credit 927 290 554 1,771 167,564 169,335 Consumer, indirect 3,859 776 495 5,130 557,958 563,088 Consumer, direct 357 48 34 439 111,365 111,804 Deposit account overdrafts — — — — 851 851 Total loans, at amortized cost $ 15,525 $ 15,393 $ 23,581 $ 54,499 $ 4,521,406 $ 4,575,905 19 Table of Contents Loans Past Due Current Loans Total Loans (Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total December 31, 2021 Construction $ 658 $ — $ 90 $ 748 $ 209,484 $ 210,232 Commercial real estate, other 2,891 1,600 12,561 17,052 1,533,029 1,550,081 Commercial and industrial 1,132 1,278 3,595 6,005 885,387 891,392 Premium finance 751 266 865 1,882 134,254 136,136 Leases 426 247 1,581 2,254 120,254 122,508 Residential real estate 8,276 2,241 5,188 15,705 756,013 771,718 Home equity lines of credit 1,137 619 625 2,381 161,212 163,593 Consumer, indirect 4,220 895 615 5,730 524,802 530,532 Consumer, direct 457 135 200 792 103,860 104,652 Deposit account overdrafts — — — — 756 756 Total loans, at amortized cost $ 19,948 $ 7,281 $ 25,320 $ 52,549 $ 4,429,051 $ 4,481,600 Delinquency trends remained stable, as 98.8 % of Peoples' loan portfolio was considered “current” at June 30, 2022, compared to 98.8 % at December 31, 2021. 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) June 30, 2022 December 31, 2021 Loans pledged to FHLB $ 797,689 $ 769,863 Loans pledged to FRB 354,119 294,728 Credit Quality Indicators As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 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 and leases acquired from Vantage and 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. “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 20 Table of Contents 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 June 30, 2022: Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Total Loans Construction Pass $ 25,664 $ 115,352 $ 39,773 $ 17,453 $ 432 $ 397 $ 1,805 $ 9,668 $ 200,876 Special mention — 289 — — — 133 — — 422 Substandard — — — — 72 1,218 — — 1,290 Total 25,664 115,641 39,773 17,453 504 1,748 1,805 9,668 202,588 Commercial real estate, other Pass 96,447 224,101 251,620 215,276 116,977 424,176 21,434 10,296 1,350,031 Special mention — 201 3,211 7,214 3,755 27,180 87 45 41,648 Substandard — 680 1,683 1,834 758 62,844 359 33 68,158 Doubtful — — — — — 170 — — 170 Loss — — — — — 16 — — 16 Total 96,447 224,982 256,514 224,324 121,490 514,386 21,880 10,374 1,460,023 Commercial and industrial Pass 62,032 199,826 92,972 82,546 47,802 113,990 208,432 14,528 807,600 Special mention — 110 12,090 1,231 257 5,098 3,953 7 22,739 Substandard 46 413 1,765 3,123 2,996 8,802 10,751 143 27,896 Doubtful — — — — — 217 — 100 217 Total 62,078 200,349 106,827 86,900 51,055 128,107 223,136 14,778 858,452 Premium finance Pass 125,587 26,650 — — — — — — 152,237 Total 125,587 26,650 — — — — — — 152,237 Leases Pass 110,206 109,865 50,679 26,496 5,945 2,034 — — 305,225 Special mention 918 4,326 46 67 72 — — — 5,429 Substandard 127 1,529 460 471 1,281 — — — 3,868 Total 111,251 115,720 51,185 27,034 7,298 2,034 — — 314,522 21 Table of Contents Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Total Loans Residential real estate Pass 47,234 141,838 64,003 46,524 31,153 396,348 — — 727,100 Substandard — — — — — 15,698 — — 15,698 Loss — — — — — 207 — — 207 Total 47,234 141,838 64,003 46,524 31,153 412,253 — — 743,005 Home equity lines of credit Pass 18,117 37,484 21,488 16,056 14,615 60,756 419 4,443 168,935 Substandard — — — — — 400 — — 400 Total 18,117 37,484 21,488 16,056 14,615 61,156 419 4,443 169,335 Consumer, indirect Pass 149,613 185,660 128,044 47,675 32,493 19,603 — — 563,088 Total 149,613 185,660 128,044 47,675 32,493 19,603 — — 563,088 Consumer, direct Pass 33,346 37,122 20,084 9,154 5,692 6,406 — — 111,804 Total 33,346 37,122 20,084 9,154 5,692 6,406 — — 111,804 Deposit account overdrafts 851 — — — — — — — 851 Total loans, at amortized cost $ 670,188 $ 1,085,446 $ 687,918 $ 475,120 $ 264,300 $ 1,145,693 $ 247,240 $ 39,263 $ 4,575,905 The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the then most recent analysis performed at December 31, 2021: Term Loans at Amortized Cost by Origination Year (Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Construction Pass $ 85,276 $ 78,026 $ 29,514 $ 3,498 $ 1,233 $ 2,982 $ 2,411 $ 6,948 $ 202,940 Special mention 290 — — 735 3,850 137 — — 5,012 Substandard — — 947 77 153 1,103 — — 2,280 Total 85,566 78,026 30,461 4,310 5,236 4,222 2,411 6,948 210,232 Commercial real estate, other Pass 253,259 259,113 217,938 143,094 143,975 392,212 21,320 11,940 1,430,911 Special mention 157 2,716 7,875 3,839 6,292 31,626 — 49 52,505 Substandard — 1,675 824 691 3,124 59,415 371 37 66,100 Doubtful — — — — — 542 — — 542 Loss — — — — — 23 — — 23 Total 253,416 263,504 226,637 147,624 153,391 483,818 21,691 12,026 1,550,081 Commercial and industrial Pass 299,117 105,646 84,144 56,361 22,182 100,030 174,848 15,888 842,328 Special mention 82 11,745 2,559 2,179 132 5,445 7,563 9 29,705 Substandard 465 2,059 2,691 812 4,995 3,342 3,085 367 17,449 Doubtful — — — — — 1,648 262 100 1,910 Total 299,664 119,450 89,394 59,352 27,309 110,465 185,758 16,364 891,392 22 Table of Contents Term Loans at Amortized Cost by Origination Year (Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Premium finance Pass 135,896 240 — — — — — — 136,136 Total 135,896 240 — — — — — — 136,136 Leases Pass 78,048 25,954 13,368 2,972 337 — — — 120,679 Special mention 34 29 22 159 4 — — — 248 Substandard 196 438 462 479 6 — — — 1,581 Total 78,278 26,421 13,852 3,610 347 — — — 122,508 Residential real estate Pass 141,845 74,169 53,434 33,690 44,377 407,541 — — 755,056 Substandard — — — — — 16,302 — — 16,302 Loss — — — — — 360 — — 360 Total 141,845 74,169 53,434 33,690 44,377 424,203 — — 771,718 Home equity lines of credit Pass 35,898 23,276 18,035 16,124 14,991 53,302 1,967 3,287 163,593 Total 35,898 23,276 18,035 16,124 14,991 53,302 1,967 3,287 163,593 Consumer, indirect Pass 226,287 163,830 63,353 45,672 21,754 9,636 — — 530,532 Total 226,287 163,830 63,353 45,672 21,754 9,636 — — 530,532 Consumer, direct Pass 47,308 26,792 13,293 8,411 3,218 5,630 — — 104,652 Total 47,308 26,792 13,293 8,411 3,218 5,630 — — 104,652 Deposit account overdrafts 756 — — — — — — — 756 Total loans, at amortized cost $ 1,304,914 $ 775,708 $ 508,459 $ 318,793 $ 270,623 $ 1,091,276 $ 211,827 $ 38,625 $ 4,481,600 23 Table of Contents 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 generally 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. • 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) June 30, 2022 December 31, 2021 Construction $ 342 $ 1,291 Commercial real estate, other 11,196 37,220 Commercial and industrial 2,310 8,340 Residential real estate 1,946 2,877 Home equity lines of credit 385 391 Total collateral dependent loans $ 16,179 $ 50,119 The decrease in collateral dependent loans at June 30, 2022, compared to December 31, 2021, was primarily due to three large commercial relationships that were no longer considered collateral dependent at June 30, 2022. 24 Table of Contents Troubled Debt Restructurings The following tables summarize the loans that were modified as TDRs during the three and six months ended June 30: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment June 30, 2022 Commercial real estate, other 2 $ 184 $ 184 $ 184 Commercial and industrial 5 1,422 1,426 1,031 Residential real estate 11 438 463 457 Home equity lines of credit 2 110 110 110 Consumer, indirect 7 108 108 108 Consumer, direct 1 31 31 31 Consumer 8 139 139 139 Total 28 $ 2,293 $ 2,322 $ 1,921 June 30, 2021 Commercial real estate, other 1 $ 23 $ 23 $ 23 Leases 4 225 233 233 Residential real estate 5 245 245 245 Home equity lines of credit 4 260 260 258 Consumer, indirect 6 62 62 62 Consumer, direct 5 38 38 38 Consumer 11 100 100 100 Total 25 $ 853 $ 861 $ 859 (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. 25 Table of Contents Six Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment June 30, 2022 Commercial real estate, other 3 $ 287 $ 287 $ 284 Commercial and industrial 5 1,422 1,427 1,031 Residential real estate 26 1,333 1,378 1,367 Home equity lines of credit 4 178 178 177 Consumer, indirect 16 210 210 210 Consumer, direct 3 44 44 44 Consumer 19 254 254 254 Total 57 $ 3,474 $ 3,524 $ 3,113 June 30, 2021 Construction 1 $ 344 $ 344 344 Commercial real estate, other 1 23 23 $ 23 Leases 4 225 233 233 Residential real estate 8 415 419 416 Home equity lines of credit 4 260 260 258 Consumer, indirect 10 140 140 135 Consumer, direct 7 50 50 50 Consumer 17 190 190 185 Total 35 $ 1,457 $ 1,469 $ 1,459 (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, the borrowers that are considered to be 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. Peoples had two loans totaling $ 16,000 that were modified as TDRs during the past twelve months that subsequently defaulted (i.e., 90 days or more past due following a modification during the year). Peoples had no commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR. 26 Table of Contents Allowance for Credit Losses Changes in the allowance for credit losses for the three and six months ended June 30, 2022 and June 30, 2021 are summarized below: (Dollars in thousands) Beginning Balance, March 31, 2022 Initial Allowance for Acquired Purchased Credit Deteriorated Assets (a) Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, June 30, 2022 Construction $ 2,731 $ — $ — $ ( 1,200 ) $ — $ — $ 1,531 Commercial real estate, other 21,055 ( 234 ) — ( 2,267 ) ( 22 ) 176 18,708 Commercial and industrial 10,114 ( 253 ) — ( 871 ) ( 420 ) 2 8,572 Premium finance 345 — — ( 12 ) ( 30 ) 8 311 Leases 5,875 292 — 1,847 ( 493 ) 64 7,585 Residential real estate 6,495 12 — ( 142 ) ( 47 ) 14 6,332 Home equity lines of credit 1,894 — — ( 170 ) ( 25 ) — 1,699 Consumer, indirect 5,172 — — 1,428 ( 449 ) 83 6,234 Consumer, direct 1,036 — — 334 ( 60 ) 11 1,321 Deposit account overdrafts 51 — — 355 ( 405 ) 52 53 Total $ 54,768 $ ( 183 ) $ — $ ( 698 ) $ ( 1,951 ) $ 410 $ 52,346 (a) Includes purchase price adjustments related to acquisitions previously completed but within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, March 31, 2021 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 (a) Charge-offs Recoveries Ending Balance, June 30, 2021 Construction $ 829 $ — $ — $ 85 $ — $ — $ 914 Commercial real estate, other 17,834 — — ( 601 ) ( 4 ) 4 17,233 Commercial and industrial 10,108 — — ( 1,435 ) ( 5 ) 18 8,686 Premium finance 1,160 — — ( 155 ) ( 7 ) — 998 Leases — 493 3,288 349 ( 525 ) 110 3,715 Residential real estate 4,935 — — ( 2 ) ( 136 ) 40 4,837 Home equity lines of credit 1,494 — — 14 ( 4 ) — 1,504 Consumer, indirect 7,522 — — 1,525 ( 269 ) 63 8,841 Consumer, direct 970 — — 211 ( 31 ) 11 1,161 Deposit account overdrafts 45 — — 53 ( 89 ) 44 53 Total $ 44,897 $ 493 $ 3,288 $ 44 $ ( 1,070 ) $ 290 $ 47,942 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 27 Table of Contents Changes in the allowance for credit losses for the six months ended June 30, 2022 and June 30, 2021 are summarized below: (Dollars in thousands) Beginning Balance, December 31, 2021 Initial Allowance for Acquired Purchased Credit Deteriorated Assets (a) Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, June 30, 2022 Construction $ 2,999 $ — $ — $ ( 1,468 ) $ — $ — $ 1,531 Commercial real estate, other 29,147 ( 451 ) — ( 9,913 ) ( 300 ) 225 18,708 Commercial and industrial 11,063 ( 418 ) — ( 1,196 ) ( 883 ) 6 8,572 Premium finance 379 — — ( 32 ) ( 44 ) 8 311 Leases 4,797 424 — 3,090 ( 966 ) 240 7,585 Residential real estate 7,233 ( 509 ) — ( 64 ) ( 356 ) 28 6,332 Home equity lines of credit 2,005 ( 11 ) — ( 283 ) ( 41 ) 29 1,699 Consumer, indirect 5,326 ( 41 ) — 1,614 ( 834 ) 169 6,234 Consumer, direct 961 — — 534 ( 196 ) 22 1,321 Deposit account overdrafts 57 — — 554 ( 664 ) 106 53 Total $ 63,967 $ ( 1,006 ) $ — $ ( 7,164 ) $ ( 4,284 ) $ 833 $ 52,346 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (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, June 30, 2021 Construction $ 1,887 $ — $ — $ ( 973 ) $ — $ — $ 914 Commercial real estate, other 17,536 — — ( 146 ) ( 161 ) 4 17,233 Commercial and industrial 12,763 — — ( 3,797 ) ( 298 ) 18 8,686 Premium finance 1,095 — — ( 74 ) ( 23 ) — 998 Leases — 493 3,288 349 ( 525 ) 110 3,715 Residential real estate 6,044 — — ( 993 ) ( 269 ) 55 4,837 Home equity lines of credit 1,860 — — ( 344 ) ( 16 ) 4 1,504 Consumer, indirect 8,030 — — 1,417 ( 774 ) 168 8,841 Consumer, direct 1,081 — — 110 ( 67 ) 37 1,161 Deposit account overdrafts 63 — — 84 ( 192 ) 98 53 Total $ 50,359 $ 493 $ 3,288 $ ( 4,367 ) $ ( 2,325 ) $ 494 $ 47,942 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. s adopted ASU 2016-13 - Financial Instruments (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments During the second quarter of 2022, Peoples recorded a recovery of credit losses for loans of $ 0.7 million driven by a reduction in allowance for individually analyzed loans, as well as changes in loss drivers used in the CECL model. Leases designated as purchased 28 Table of Contents credit deteriorated ("PCD") acquired from Vantage increased the allowance for credit losses by $ 292,000 . Net charge-offs for the second quarter of 2022 were $ 1.5 million, and included charge-offs of three leases aggregating $ 0.5 million. At June 30, 2022, Peoples had recorded an allowance for unfunded commitments of $ 2.1 million, a decrease compared to $ 2.2 million at March 31, 2022 and $ 2.5 million at December 31, 2021. 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 "(Recovery of) provision for 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) June 30, 2022 December 31, 2021 Goodwill, beginning of year $ 264,193 $ 171,260 Goodwill recorded from acquisitions 25,783 92,933 Goodwill, end of period $ 289,976 $ 264,193 On March 11, 2022, Peoples Insurance Agency, Inc. entered into an Asset Purchase Agreement with Elite Insurance Agency and consummated the acquisition on April 1, 2022. In the second quarter of 2022 , Peoples recorded $ 2.3 million of preliminary goodwill related to this acquisition. Peoples Bank entered into an Asset Purchase Agreement, dated March 7, 2022 with Vantage, at which point Vantage became a legal subsidiary of Peoples Bank. In the first half of 2022, Peoples preliminarily recorded $ 24.7 million of goodwill related to this acquisition, which was offset partially by adjustments of $ 1.2 million to Premier's goodwill balance during the measurement period. On April 1, 2021, Peoples recorded $ 24.7 million of goodwill related to the acquisition of NS Leasing, LLC ("NSL"). On May 4, 2021, Peoples Insurance recorded $ 46,000 of goodwill from the acquisition of an insurance agency. On September 17, 2021, Peoples completed the merger with Premier, for which Peoples preliminarily recorded $ 66.9 million of goodwill. For additional information on these acquisitions, refer to "Note 13 Acquisitions." 29 Table of Contents Other Intangible Assets Other intangible assets were comprised of the following at June 30, 2022, and at December 31, 2021: (Dollars in thousands) Core Deposits Customer Relationships Total June 30, 2022 Gross intangibles $ 26,466 $ 25,173 $ 51,639 Intangibles recorded from acquisitions (a) — 14,067 14,067 Accumulated amortization ( 19,879 ) ( 12,178 ) ( 32,057 ) Total acquisition-related intangibles $ 6,587 $ 27,062 $ 33,649 Servicing rights 2,016 Indefinite-lived intangibles (b) 2,491 Total other intangibles $ 38,156 December 31, 2021 Gross intangibles $ 22,233 $ 12,495 $ 34,728 Intangibles recorded from acquisitions (c) 4,233 13,014 17,247 Accumulated amortization ( 19,048 ) ( 9,603 ) ( 28,651 ) Total acquisition-related intangibles $ 7,418 $ 15,906 $ 23,324 Servicing rights 2,218 Indefinite-lived intangibles (d) 1,274 Total other intangibles $ 26,816 (a) Customer relationship intangible assets included $ 1.2 million of non-compete intangible assets related to the Vantage acquisition and $ 0.1 million of non-compete intangible assets related to the Elite insurance agency acquisition. (b) Included $ 1.2 million of trade name intangible assets related to the Vantage acquisition and $ 1.3 million of trade name intangible assets related to the NSL acquisition. (c) Customer relationship intangible assets consisted of $ 0.3 million of non-compete intangible assets related to the NSL acquisition. (d) Included $ 1.3 million of trade name intangible assets related to the NSL acquisition. Other intangible assets preliminarily recorded for the six months ended June 30, 2022 included $ 10.8 million of customer relationship intangible assets, and $ 1.2 million of non-compete intangible assets related to the Vantage acquisition. Peoples also recorded $ 2.0 million of customer relationship intangible assets and $ 0.1 million of non-compete intangible assets related to the acquisition of Elite Insurance Agency. Other intangible assets recorded in 2021 included $ 12.7 million of customer relationship intangible assets related to the NSL acquisition, $ 4.2 million of core deposit intangible assets related to the Premier merger, and $ 0.3 million of non-compete intangible assets, and $ 1.3 million of trade name intangible assets, both related to the NSL acquisition. Refer to "Note 13 Acquisitions" for additional information. The following table details estimated aggregate future amortization of other intangible assets at June 30, 2022: (Dollars in thousands) Core Deposits Customer Relationships Total Remaining six months of 2022 $ 788 $ 3,234 $ 4,022 2023 1,257 6,269 7,526 2024 1,058 5,325 6,383 2025 891 4,255 5,146 2026 731 3,114 3,845 Thereafter 1,862 4,865 6,727 Total $ 6,587 $ 27,062 $ 33,649 The weighted average amortization period of other intangible assets is 9.8 years. 30 Table of Contents Servicing Rights The following is an analysis of activity of servicing rights for the periods ended June 30, 2022 and December 31, 2021: (Dollars in thousands) June 30, 2022 December 31, 2021 Balance, beginning of year $ 2,218 $ 2,486 Amortization ( 318 ) ( 775 ) Servicing rights originated 110 519 Change in valuation allowance 6 ( 12 ) Balance, end of period $ 2,016 $ 2,218 Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of June 30, 2022, Peoples recorded a reduction to the valuation allowance of $ 6,000 related to changes in the fair value of servicing rights. During 2021, Peoples had recorded a valuation allowance of $ 12,000 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 June 30, 2022 and December 31, 2021: June 30, 2022 December 31, 2021 Minimum Maximum Minimum Maximum Discount rates 9.8 % 12.3 % 8.3 % 10.8 % Prepayment speeds 7.8 % 23.2 % 8.9 % 27.1 % The fair value of servicing rights was $ 3.3 million and $ 2.6 million at June 30, 2022 and December 31, 2021, respectively. 31 Table of Contents Note 6 Deposits Peoples’ deposit balances were comprised of the following: (Dollars in thousands) June 30, 2022 December 31, 2021 Retail CDs: $100 or more $ 293,783 $ 320,574 Less than $100 290,476 323,185 Retail CDs 584,259 643,759 Interest-bearing deposit accounts 1,143,010 1,167,460 Savings accounts 1,080,053 1,036,738 Money market deposit accounts 645,242 651,169 Governmental deposit accounts 728,057 617,259 Brokered deposit accounts (a) 86,739 104,745 Total interest-bearing deposits 4,267,360 4,221,130 Non-interest-bearing deposits 1,661,865 1,641,422 Total deposits $ 5,929,225 $ 5,862,552 (a) Brokered deposit accounts include $ 85.0 million of brokered demand deposits. Time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") limit of $ 250,000 were $ 129.8 million and $ 121.3 million at June 30, 2022 and December 31, 2021, respectively. The contractual maturities of retail CDs, brokered CDs and demand deposits for each of the next five years, including the remainder of 2022, and thereafter are as follows: (Dollars in thousands) Retail Brokered Total Remaining six months ending December 31, 2022 (a) $ 354,213 $ 86,245 $ 440,458 Year ending December 31, 2023 110,249 494 110,743 Year ending December 31, 2024 58,361 — 58,361 Year ending December 31, 2025 25,332 — 25,332 Year ending December 31, 2026 27,648 — 27,648 Thereafter 8,456 — 8,456 Total CDs $ 584,259 $ 86,739 $ 670,998 (a) Brokered deposit accounts include $ 85.0 million of brokered demand deposits. At June 30, 2022, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $ 125.0 million, of which $ 85.0 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." 32 Table of Contents Note 7 Stockholders’ Equity The following table details the progression in Peoples’ common shares and treasury stock during the six months ended June 30, 2022: Common Shares Treasury Stock Shares at December 31, 2021 29,814,401 1,577,359 Changes related to stock-based compensation awards: Release of restricted common shares — 38,010 Cancellation of restricted common shares — 1,880 Grant of restricted common shares — ( 203,081 ) Grant of unrestricted common shares — ( 700 ) Changes related to deferred compensation plan for Boards of Directors: Purchase of treasury stock — 6,459 Disbursed out of treasury stock — ( 3,039 ) Common shares repurchased under share repurchase program — 214,220 Common shares issued under dividend reinvestment plan 22,090 — Common shares issued under compensation plan for Boards of Directors — ( 8,738 ) Common shares issued under employee stock purchase plan — ( 11,845 ) Shares at June 30, 2022 29,836,491 1,610,525 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. At June 30, 2022, Peoples had repurchased 214,220 common shares totaling $ 6.0 million 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 June 30, 2022, Peoples had no preferred shares issued or outstanding. On July 25, 2022 , Peoples' Board of Directors declared a quarterly cash dividend of $ 0.38 per common share, payable on August 22, 2022 , to shareholders of record on August 8, 2022 . The following table details the cash dividends declared per common share during the three quarters of 2022 and the comparable periods of 2021: 2022 2021 First quarter $ 0.36 $ 0.35 Second quarter 0.38 0.36 Third quarter 0.38 0.36 Total dividends declared $ 1.12 $ 1.07 Accumulated Other Comprehensive (Loss) Income The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the six months ended June 30, 2022: (Dollars in thousands) Unrealized Loss on Securities Unrecognized Net Pension and Postretirement Costs (Benefit) Unrealized (Loss) Gain on Cash Flow Hedge Accumulated Other Comprehensive (Loss) Balance, December 31, 2021 $ ( 5,946 ) $ ( 1,881 ) $ ( 3,792 ) $ ( 11,619 ) Reclassification adjustments to net income: Realized loss on sale of securities, net of tax ( 66 ) — — ( 66 ) Other comprehensive (loss) income, net of reclassifications and tax ( 87,598 ) 76 5,848 ( 81,674 ) Balance, June 30, 2022 $ ( 93,610 ) $ ( 1,805 ) $ 2,056 $ ( 93,359 ) 33 Table of Contents 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. Peoples also provides post-retirement health and life insurance benefits to certain former employees and directors. Only those individuals who retired before January 27, 2012 were eligible for life insurance benefits. As of January 1, 2011, all retirees who desire to participate in the Peoples Bank medical plan do so by electing COBRA, which provides up to 18 months of coverage; retirees over the age of 65 also have the option to pay to participate in a group Medicare supplemental plan. Peoples only pays 100 % of the cost of health benefits for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for most, if not all, of the cost of the health benefits. Peoples’ policy is to fund the cost of the benefits as they arise. The expected long-term rate of return on plan assets, which was determined as of January 1, 2022, 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 Six Months Ended June 30, June 30, (Dollars in thousands) 2022 2021 2022 2021 Interest cost $ 66 $ 67 $ 132 $ 134 Expected return on plan assets ( 168 ) ( 175 ) ( 336 ) ( 349 ) Amortization of net loss 20 32 40 63 Net periodic income $ ( 82 ) $ ( 76 ) $ ( 164 ) $ ( 152 ) 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 did not record a settlement charge for the six months ended June 30, 2022 or June 30, 2021 under the noncontributory defined benefit pension plan. 34 Table of Contents Note 9 Earnings Per Common Share The calculations of basic and diluted earnings per common share were as follows: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands, except per common share data) 2022 2021 2022 2021 Net income available to common shareholders $ 24,888 $ 10,103 $ 48,465 $ 25,566 Less: Dividends paid on unvested common shares ( 102 ) ( 81 ) ( 150 ) ( 150 ) Add: Undistributed loss allocated to unvested common shares ( 19 ) ( 5 ) ( 40 ) ( 15 ) Net earnings allocated to common shareholders $ 24,767 $ 10,017 $ 48,275 $ 25,401 Weighted-average common shares outstanding 27,919,133 19,317,454 27,962,405 19,300,156 Effect of potentially dilutive common shares 142,603 144,480 78,740 148,388 Total weighted-average diluted common shares outstanding 28,061,736 19,461,934 28,041,145 19,448,544 Earnings per common share: Basic $ 0.89 $ 0.52 $ 1.73 $ 1.32 Diluted $ 0.88 $ 0.51 $ 1.72 $ 1.31 Anti-dilutive common shares excluded from calculation: Restricted common shares 188,468 — 906 — 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 derivative financial instruments 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 June 30, 2022, Peoples had entered into thirteen interest rate swap contracts with an aggregate notional value of $ 125.0 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 90-day FHLB Advances, which will continue to be rolled through the life of the swaps. At June 30, 2022, the interest rate swaps were designated as cash flow hedges of $ 85.0 million in brokered demand deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $ 40.0 million of interest rate swaps were designated as cash flow hedges of 90-day FHLB Advances. 35 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 months ended June 30, 2022, and 2021, Peoples had recorded reclassifications of losses to earnings of $ 0.4 million and $ 0.8 million, respectively. For the six months ended June 30, 2022 and 2021, Peoples recorded reclassifications of losses to earnings of $ 1.0 million and $ 1.6 million, respectively. During the next twelve months, Peoples estimates that $ 1.2 million of AOCI will be reclassified as a reduction to interest expense. The following table summarizes information about the interest rate swaps designated as cash flow hedges: (Dollars in thousands) June 30, 2022 December 31, 2021 Notional amount $ 125,000 $ 125,000 Weighted average pay rates 2.26 % 2.26 % Weighted average receive rates 3.00 % 1.10 % Weighted average maturity 3.1 years 3.6 years Pre-tax unrealized gains (losses) included in AOCI $ 2,680 $ ( 4,879 ) The following table presents net (gains) losses recorded in AOCI and in the Unaudited Consolidated Statements of Operations related to the cash flow hedges: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2022 2021 2022 2021 Amount of (gains) losses recognized in AOCI, pre-tax $ ( 2,104 ) $ 294 $ ( 7,560 ) $ ( 3,942 ) The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: June 30, 2022 December 31, 2021 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Included in "Other assets": Interest rate swaps related to debt $ 115,000 $ 2,547 $ — $ — Included in "Accrued expenses and other liabilities": Interest rate swaps related to debt $ 10,000 $ 3 $ 125,000 $ 5,020 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 six months ended June 30, 2022 and as of or for the year ended December 31, 2021. The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: 36 Table of Contents : 37 Table of Contents June 30, 2022 December 31, 2021 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Included in "Other assets": Interest rate swaps related to commercial loans $ 430,406 $ 17,599 $ 419,733 $ 12,163 Included in "Accrued expenses and other liabilities": Interest rate swaps related to commercial loans $ 430,406 $ 17,599 $ 419,733 $ 12,163 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 liabilit y 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 June 30, 2022 and December 31, 2021, Peoples had no cash pledged, while the counterparties had $ 10.0 million of cash pledged at June 30, 2022 and none pledged at December 31, 2021. Peoples had no pledged investment securities and $ 28.1 million in investment securities at June 30, 2022 and December 31, 2021, respectively, while the counterparties had pledged $ 3.2 million at June 30, 2022 and none at December 31, 2021. 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 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 six months of 2022, Peoples granted an aggregate of 154,645 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 six months ended June 30, 2022: 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, 2022 88,922 $ 25.44 247,346 $ 32.19 Awarded 48,436 31.58 154,645 32.21 Released ( 8,041 ) 32.89 ( 100,091 ) 32.20 Forfeited — — ( 1,880 ) 32.15 Outstanding at June 30, 2022 129,317 $ 27.28 300,020 $ 32.19 For the six months ended June 30, 2022, the total intrinsic value for restricted common shares released was $ 3.5 million compared to $ 2.5 million for the six months ended June 30, 2021. 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, 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 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 38 Table of Contents 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 Six Months Ended June 30, June 30, (Dollars in thousands) 2022 2021 2022 2021 Employee stock-based compensation expense: Stock grant expense $ 576 $ 585 $ 2,153 $ 1,784 Employee stock purchase plan expense 24 18 52 34 Total employee stock-based compensation expense 600 603 $ 2,205 $ 1,818 Non-employee director stock-based compensation expense 127 55 $ 251 $ 250 Total stock-based compensation expense 727 658 $ 2,456 $ 2,068 Recognized tax benefit ( 166 ) ( 138 ) ( 560 ) ( 434 ) Net stock-based compensation expense $ 561 $ 520 $ 1,896 $ 1,634 Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the six months ended June 30, 2022 and 2021. 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 $ 5.3 million at June 30, 2022, which will be recognized over a weighted-average period of 2.2 years. 39 Table of Contents Note 12 Revenue The following table details Peoples' revenue from contracts with customers: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2022 2021 2022 2021 Insurance income: Commission and fees from sale of insurance policies (a) $ 3,544 $ 3,195 $ 6,587 $ 6,371 Fees related to third-party administration services (a) 92 106 163 200 Performance-based commissions (b) 10 34 1,356 1,985 Trust and investment income (a) 4,246 4,220 8,522 8,065 Electronic banking income: Interchange income (a) 4,302 3,603 8,415 6,650 Promotional and usage income (a) 1,117 815 2,257 1,679 Deposit account service charges: Ongoing maintenance fees for deposit accounts (a) 1,307 853 2,618 1,664 Transaction-based fees (b) 2,251 1,191 4,366 2,366 Commercial loan swap fees (b) 270 61 438 121 Other non-interest income transaction-based fees (b) 315 249 572 393 Total revenue from contracts with customers $ 17,454 $ 14,327 $ 35,294 $ 29,494 Timing of revenue recognition: Services transferred over time $ 14,608 $ 12,792 $ 28,562 $ 24,629 Services transferred at a point in time 2,846 1,535 6,732 4,865 Total revenue from contracts with customers $ 17,454 $ 14,327 $ 35,294 $ 29,494 (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 six-month period ended June 30, 2022: Contract Assets Contract Liabilities (Dollars in thousands) Balance, January 1, 2022 $ 743 $ 4,811 Additional income receivable 149 — Additional deferred income — 305 Recognition of income previously deferred — ( 63 ) Balance, June 30, 2022 $ 892 $ 5,053 40 Table of Contents Note 13 Acquisitions Elite Agency, Inc On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite Agency, Inc. ("Elite"), pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $ 3.8 million. Peoples recognized preliminary intangibles of $ 2.1 million, primarily comprised of a customer relationship intangible. Vantage Financial, LLC On March 7, 2022, Peoples Bank purchased 100 % of the equity of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota. Peoples Bank acquired assets comprising Vantage's lease business, including $ 157.5 million in leases and certain third-party debt in the amount of $ 107.1 million. Under the terms of the agreement, Peoples Bank paid cash consideration of $ 54.0 million, and also repaid $ 28.9 million in recourse debt on behalf of Vantage, for total consideration of $ 82.9 million. Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide-array of industries. Peoples recorded acquisition-related expenses during the first six months of 2022 of $ 1.5 million related to the Vantage acquisition, which included $ 1.1 million in professional fees. The following table provides the preliminary purchase price calculation as of the date of the acquisition of Vantage, and the assets acquired and liabilities assumed at their estimated fair values, and the amounts are subject to adjustment for up to one year after March 7, 2022. Valuations subject to change include leases, other intangible assets and borrowings. (Dollars in thousands) Fair Value Total purchase price $ 82,893 Net assets at fair value Assets Cash and due from banks $ 1,444 Leases 157,941 Allowance for credit losses (on PCD leases) ( 424 ) Net leases 157,517 Bank premises and equipment 116 Other intangible assets 13,207 Other assets 1,506 Total assets $ 173,790 Liabilities Borrowings $ 107,089 Accrued expenses and other liabilities $ 8,550 Total liabilities $ 115,639 Net assets $ 58,151 Goodwill $ 24,742 The goodwill recorded in connection with the Vantage acquisition is related to expected synergies to be gained from the combination of Vantage with Peoples' operations. The employees retained from the Vantage 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. 41 Table of Contents The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended June 30, 2022, 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 June 30, 2022: (Dollars in thousands) Change in fair value Net assets Net leases $ 17,303 Bank premises and equipment ( 1,810 ) Other assets ( 97 ) Change in total assets $ 15,396 Borrowings ( 320 ) Accrued expenses and other liabilities 71 Change in total liabilities $ ( 249 ) Change in net assets $ 15,645 Change in goodwill $ ( 15,645 ) The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date: (Dollars in thousands) Par Value Allowance for Credit Losses Non-Credit (Discount) Premium Fair Value Purchased credit deteriorated leases Leases $ 3,501 $ ( 424 ) $ 737 $ 3,814 Fair value $ 3,501 $ ( 424 ) $ 737 $ 3,814 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 operated 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 during the first six months of 2022 of $ 427,000 . Peoples recorded the estimate of fair value based on initial valuations available at September 17, 2021, and has revised fair values of the acquired assets and liabilities in the periods since based on subsequent information obtained where those facts and circumstances existed as of the acquisition date. The estimates of fair value are subject to adjustment for up to one year after September 17, 2021. Valuations subject to change include loans and deferred tax assets and liabilities. 42 Table of Contents 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 $ 248,360 Interest-bearing deposits in other banks 1,025 Total cash and cash equivalents 249,385 Available-for-sale investment securities 551,953 Other investment securities 4,159 Total investment securities 556,112 Loans: Construction 97,262 96,025 Commercial real estate, other 544,950 534,869 Commercial and industrial 132,293 131,979 Residential real estate 332,269 331,544 Home equity lines of credit 46,969 45,910 Consumer 20,961 21,513 Total loans 1,174,704 1,161,840 Allowance for credit losses (on PCD loans) ( 15,513 ) Net loans 1,146,327 Bank premises and equipment 30,098 Other intangible assets 4,233 OREO 11,081 Other assets 26,982 Total assets $ 2,024,218 Liabilities Deposits: Non-interest-bearing $ 733,157 Interest-bearing 1,018,387 Total deposits 1,751,544 Short-term borrowings 63,807 Long-term borrowings 6,070 Accrued expenses and other liabilities 7,813 Total liabilities 1,829,234 Net assets 194,984 Goodwill $ 66,940 43 Table of Contents The estimated fair values presented in the above table reflect additional information that was obtained during the six months ended June 30, 2022, 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 June 30, 2022: (Dollars in thousands) Change in fair value Net assets Net loans $ 1,580 Other assets ( 353 ) Change in total assets $ 1,227 Change in net assets $ 1,227 Change in goodwill $ ( 1,227 ) 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 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 $ 20,143 $ ( 2,005 ) $ ( 214 ) $ 17,924 Commercial real estate, other 97,193 ( 9,053 ) ( 2,123 ) 86,017 Commercial and industrial 9,948 ( 3,630 ) 113 6,431 Residential real estate 18,349 ( 696 ) ( 251 ) 17,402 Home equity lines of credit 1,291 ( 55 ) ( 72 ) 1,164 Consumer 929 ( 74 ) 37 892 Fair value $ 147,853 $ ( 15,513 ) $ ( 2,510 ) $ 129,830 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 goodwill in the amount of $ 24.7 million and other intangibles of $ 14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. Peoples also recorded and paid an earn-out provision of approximately $ 3.0 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. 44 Table of Contents The following table provides the purchase price calculation as of the date of acquisition for NSL and the assets acquired and liabilities assumed at their recorded 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 $ 0.7 million in non-interest expense related to an update to the estimated earn-out provision. 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: (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 first six months of 2022 of $ 90,000 . 45 Table of Contents Note 14 Leases Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). As a lessor, Peoples has made an accounting policy election to exclude from consideration in the contract, and from variable payments not included in the consideration in the contract, all sales and other similar taxes assessed. 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 in the second quarter of 2021, and expanded its lease portfolio with the acquisition of Vantage in the first quarter of 2022. The leases acquired from NSL 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. These 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. The leases acquired from Vantage were determined to be either sales-type or direct financing leases based primarily on whether they included a dollar buy-out or a fair market value buy-out, respectively. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, health care, manufacturing, office, restaurant, information technology and other equipment. These leases include estimated residual value, which are assessed for impairment as part of the allowance for credit losses. 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' leases can be found in "Note 4 Loans and Leases." The table below details Peoples' lease income: Three Months Ended Six Months Ended (Dollars in thousands) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Interest and fees on leases (a) $ 10,541 $ 4,215 $ 16,643 $ 4,215 Other non-interest income 431 245 1,206 245 Total lease income $ 10,972 $ 4,460 $ 17,849 $ 4,460 (a) Included in "Interest and fees on loans and leases" 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. 46 Table of Contents The following table summarizes the net investment in leases, which is included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets: (Dollars in thousands) June 30, 2022 Lease payments receivable, at amortized cost $ 325,643 Estimated residual values 37,171 Initial direct costs 2,549 Deferred revenue ( 50,841 ) Net investment in leases 314,522 Allowance for credit losses - leases ( 7,585 ) Net investment in leases, after allowance for credit losses $ 306,937 The following table summarizes the contractual maturities of leases: (Dollars in thousands) Balance Remaining six months ending December 31, 2022 $ 52,258 Year ending December 31, 2023 73,212 Year ending December 31, 2024 79,314 Year ending December 31, 2025 68,007 Year ending December 31, 2026 35,707 Thereafter 17,145 Lease payments receivable, at amortized cost $ 325,643 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 June 30, 2022, 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 Six Months Ended (Dollars in thousands) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Operating lease expense $ 660 $ 350 1,263 680 Short-term lease expense 179 100 347 172 Total lease expense $ 839 $ 450 $ 1,610 $ 852 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. 47 Table of Contents The following table details the ROU assets, the lease liabilities and other information related to Peoples' operating leases at the dates shown: (Dollars in thousands) June 30, 2022 December 31, 2021 ROU assets: Other assets $ 7,501 $ 7,911 Lease liabilities: Accrued expenses and other liabilities $ 8,226 $ 8,674 Other information: Weighted-average remaining lease term 8.9 years 9.5 years Weighted-average discount rate 2.37 % 2.36 % During the three months ended June 30, 2022 and 2021, Peoples paid cash of $ 650,000 and $ 340,000 , respectively, for operating leases. For the six months ended June 30, 2022 and 2021, Peoples paid cash of $ 1.2 million and $ 0.7 million, respectively, for operating leases. The following table summarizes the maturity of remaining lease liabilities: (Dollars in thousands) Balance Remaining six months ending December 31, 2022 $ 1,483 Year ending December 31, 2023 2,033 Year ending December 31, 2024 1,210 Year ending December 31, 2025 750 Year ending December 31, 2026 579 Thereafter 3,383 Total undiscounted lease payments $ 9,438 Imputed interest $ ( 1,212 ) Total lease liabilities $ 8,226 48 Table of Contents