PEOPLES BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2022 December 31, 2021 (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and balances due from banks $ 93,908 $ 74,354 Interest-bearing deposits in other banks 51,276 341,373 Total cash and cash equivalents 145,184 415,727 Available-for-sale investment securities, at fair value (amortized cost of $ 1,349,800 at September 30, 2022 and $ 1,283,146 at December 31, 2021) (a) 1,169,844 1,275,493 Held-to-maturity investment securities, at amortized cost (fair value of $ 326,457 at September 30, 2022 and $ 369,955 at December 31, 2021) (a) 407,801 374,129 Other investment securities 39,039 33,987 Total investment securities (a) 1,616,684 1,683,609 Loans and leases, net of deferred fees and costs (b) 4,611,207 4,481,600 Allowance for credit losses ( 52,866 ) ( 63,967 ) Net loans and leases (c) 4,558,341 4,417,633 Loans held for sale 2,649 3,791 Bank premises and equipment, net of accumulated depreciation 83,863 89,260 Bank owned life insurance 104,591 73,358 Goodwill 292,397 264,193 Other intangible assets 36,031 26,816 Other assets 166,114 89,134 Total assets $ 7,005,854 $ 7,063,521 Liabilities Deposits: Non-interest-bearing $ 1,635,953 $ 1,641,422 Interest-bearing 4,229,667 4,221,130 Total deposits 5,865,620 5,862,552 Short-term borrowings 133,611 166,482 Long-term borrowings 104,196 99,475 Accrued expenses and other liabilities 141,916 89,987 Total liabilities 6,245,343 6,218,496 Stockholders’ equity Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2022 and at December 31, 2021 — — Common stock, no par value, 50,000,000 shares authorized, 29,845,795 shares issued at September 30, 2022 and 29,814,401 shares issued at December 31, 2021, including at each date shares held in treasury 685,351 686,282 Retained earnings 249,833 207,076 Accumulated other comprehensive loss, net of deferred income taxes ( 134,923 ) ( 11,619 ) Treasury stock, at cost, 1,638,574 shares at September 30, 2022 and 1,577,359 shares at December 31, 2021 ( 39,750 ) ( 36,714 ) Total stockholders’ equity 760,511 845,025 Total liabilities and stockholders’ equity $ 7,005,854 $ 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 $ 238 , respectively, at September 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 Nine Months Ended September 30, September 30, (Dollars in thousands, except per share data) 2022 2021 2022 2021 Interest income: Interest and fees on loans and leases $ 61,370 $ 40,748 $ 168,334 $ 115,196 Interest and dividends on taxable investment securities 7,559 3,755 20,576 9,497 Interest on tax-exempt investment securities 1,095 882 3,136 2,358 Other interest income 847 82 1,306 175 Total interest income 70,871 45,467 193,352 127,226 Interest expense: Interest on deposits 2,316 2,399 6,383 7,793 Interest on short-term borrowings 393 91 992 283 Interest on long-term borrowings 1,111 399 3,148 1,334 Total interest expense 3,820 2,889 10,523 9,410 Net interest income 67,051 42,578 182,829 117,816 Provision for (recovery of) credit losses 1,776 8,994 ( 5,811 ) 7,333 Net interest income after provision for (recovery of) credit losses 65,275 33,584 188,640 110,483 Non-interest income: Electronic banking income 5,261 4,326 15,933 12,655 Trust and investment income 3,954 4,158 12,476 12,223 Insurance income 3,618 3,367 11,995 11,923 Deposit account service charges 3,833 2,549 10,817 6,578 Bank owned life insurance income 694 437 1,922 1,329 Mortgage banking income 328 766 1,116 2,726 Commercial loan swap fees 224 73 662 194 Net gain (loss) on investment securities 21 ( 166 ) 107 ( 704 ) Net loss on asset disposals and other transactions ( 35 ) ( 308 ) ( 314 ) ( 459 ) Other non-interest income 2,468 1,144 5,088 2,605 Total non-interest income 20,366 16,346 59,802 49,070 Non-interest expense: Salaries and employee benefit costs 28,618 25,589 83,932 68,276 Net occupancy and equipment expense 4,813 3,551 14,669 10,167 Data processing and software expense 3,279 2,529 9,228 7,394 Professional fees 2,832 6,426 8,784 13,459 Electronic banking expense 2,648 2,037 8,134 6,006 Amortization of other intangible assets 2,023 1,279 5,765 3,267 Marketing expense 1,136 1,223 2,991 2,810 Franchise tax expense 1,075 810 2,941 2,487 FDIC insurance premiums 709 807 2,921 1,596 Communication expense 599 411 1,873 1,079 Other loan expenses 511 487 1,788 1,443 Other non-interest expense 4,010 12,711 10,755 17,762 Total non-interest expense 52,253 57,860 153,781 135,746 Income (loss) before income taxes 33,388 ( 7,930 ) 94,661 23,807 Income tax expense (benefit) 7,410 ( 2,172 ) 20,218 3,999 Net income (loss) $ 25,978 $ ( 5,758 ) $ 74,443 $ 19,808 Earnings (loss) per common share - basic $ 0.93 $ ( 0.28 ) $ 2.65 $ 0.99 Earnings (loss) per common share - diluted $ 0.92 $ ( 0.28 ) $ 2.65 $ 0.99 Weighted-average number of common shares outstanding - basic 27,865,416 20,640,519 27,929,720 19,751,853 Weighted-average number of common shares outstanding - diluted 27,973,255 20,789,271 28,009,263 19,890,672 Cash dividends declared $ 10,753 $ 7,093 $ 31,686 $ 20,991 Cash dividends declared per common share $ 0.38 $ 0.36 $ 1.12 $ 1.07 See Notes to the Unaudited Condensed Consolidated Financial Statements 4 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Net income (loss) $ 25,978 $ ( 5,758 ) $ 74,443 $ 19,808 Other comprehensive (loss) income: Available-for-sale investment securities: Gross unrealized holding loss arising during the period ( 57,911 ) ( 7,685 ) ( 172,195 ) ( 16,738 ) Related tax benefit 13,484 1,592 40,170 3,493 Reclassification adjustment for net (gain) loss included in net income ( 21 ) 166 ( 107 ) 704 Related tax benefit (expense) 5 ( 44 ) 25 ( 157 ) Net effect on other comprehensive (loss) income ( 44,443 ) ( 5,971 ) ( 132,107 ) ( 12,698 ) Defined benefit plan: Net gain arising during the period 203 1,818 264 1,826 Related tax expense ( 48 ) ( 407 ) ( 62 ) ( 408 ) Amortization of unrecognized gain and service cost on benefit plans 23 20 61 81 Related tax expense ( 5 ) ( 5 ) ( 14 ) ( 18 ) Recognition of gain due to settlement and curtailment 139 143 139 143 Related tax expense ( 32 ) ( 32 ) ( 32 ) ( 32 ) Net effect on other comprehensive (loss) income 280 1,537 356 1,592 Cash flow hedges: Net gain arising during the period 3,388 858 10,948 4,800 Related tax expense ( 789 ) ( 90 ) ( 2,501 ) ( 918 ) Net effect on other comprehensive (loss) income 2,599 768 8,447 3,882 Total other comprehensive loss, net of tax ( 41,564 ) ( 3,666 ) ( 123,304 ) ( 7,224 ) Total comprehensive (loss) income $ ( 15,586 ) $ ( 9,424 ) $ ( 48,861 ) $ 12,584 See Notes to the Unaudited Condensed Consolidated Financial Statements 5 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, June 30, 2022 $ 684,416 $ 234,608 $ ( 93,359 ) $ ( 38,841 ) $ 786,824 Net income — 25,978 — — 25,978 Other comprehensive loss, net of tax — — ( 41,564 ) — ( 41,564 ) Cash dividends declared — ( 10,753 ) — ( 10,753 ) Reissuance of treasury stock for common share awards ( 219 ) — — 219 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 235 ) ( 235 ) Common shares repurchased under share repurchase program then in effect — — — ( 1,168 ) ( 1,168 ) Common shares issued under dividend reinvestment plan 320 — — — 320 Common shares issued under compensation plan for Boards of Directors 20 — — 106 126 Common shares issued under employee stock purchase plan 34 — — 169 203 Stock-based compensation 780 — — — 780 Balance, September 30, 2022 $ 685,351 $ 249,833 $ ( 134,923 ) $ ( 39,750 ) $ 760,511 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 — 74,443 — — 74,443 Other comprehensive loss, net of tax — — ( 123,304 ) — ( 123,304 ) Cash dividends declared — ( 31,686 ) — — ( 31,686 ) Reissuance of treasury stock for common share awards ( 4,944 ) — — 4,944 — 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 — — — ( 1,671 ) ( 1,671 ) Common shares repurchased under share repurchase program then in effect — — — ( 7,155 ) ( 7,155 ) Common shares issued under dividend reinvestment plan 921 — — — 921 Common shares issued under compensation plan for Boards of Directors 64 — — 314 378 Common shares issued under employee stock purchase plan 95 — — 454 549 Stock-based compensation 2,933 — — — 2,933 Balance, September 30, 2022 $ 685,351 $ 249,833 $ ( 134,923 ) $ ( 39,750 ) $ 760,511 6 Table of Contents Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, June 30, 2021 $ 422,652 $ 202,359 $ ( 2,222 ) $ ( 37,284 ) $ 585,505 Net loss — ( 5,758 ) — — ( 5,758 ) Other comprehensive loss, net of tax — — ( 3,666 ) — ( 3,666 ) Cash dividends declared — ( 7,093 ) — — ( 7,093 ) Reissuance of treasury stock for common share awards ( 51 ) — — 51 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — — — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 78 ) ( 78 ) Common shares issued under dividend reinvestment plan 277 — — — 277 Common shares issued under compensation plan for Boards of Directors 16 — — 44 60 Common shares issued under employee stock purchase plan 37 — — 101 138 Stock-based compensation 598 — — — 598 Issuance of common shares related to merger with Premier Financial Bancorp , Inc. 261,899 — — — 261,899 Balance, September 30, 2021 $ 685,428 $ 189,508 $ ( 5,888 ) $ ( 37,166 ) $ 831,882 Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, December 31, 2020 $ 422,536 $ 190,691 $ 1,336 $ ( 38,890 ) $ 575,673 Net income — 19,808 — — 19,808 Other comprehensive loss, net of tax — — ( 7,224 ) — ( 7,224 ) Cash dividends declared — ( 20,991 ) — — ( 20,991 ) Reissuance of treasury stock for common share awards ( 2,223 ) — — 2,223 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 74 74 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,076 ) ( 1,076 ) Common shares issued under dividend reinvestment plan 655 — — — 655 Common shares issued under compensation plan for Boards of Directors 81 — — 228 309 Common shares issued under employee stock purchase plan 98 — — 275 373 Stock-based compensation 2,382 — — — 2,382 Issuance of common shares related to merger with Premier Financial Bancorp , Inc. 261,899 — — — 261,899 Balance, September 30, 2021 $ 685,428 $ 189,508 $ ( 5,888 ) $ ( 37,166 ) $ 831,882 See Notes to the Unaudited Condensed Consolidated Financial Statements 7 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (Dollars in thousands) 2022 2021 Net cash provided by operating activities $ 102,500 $ 66,722 Investing activities: Available-for-sale investment securities: Purchases ( 237,930 ) ( 715,263 ) Proceeds from sales 8,730 480,127 Proceeds from principal payments, calls and prepayments 155,070 227,574 Held-to-maturity investment securities: Purchases ( 51,060 ) ( 181,331 ) Proceeds from principal payments 16,080 3,774 Other investment securities: Purchases ( 11,110 ) ( 1,221 ) Proceeds from sales 5,885 8,552 Net decrease in loans held for investment 36,158 156,598 Net expenditures for premises and equipment ( 7,008 ) ( 5,893 ) Proceeds from sales of other real estate owned 572 153 Purchase of bank owned life insurance ( 30,000 ) — Proceeds from bank owned life insurance contracts 689 — Business acquisitions, net of cash received ( 85,791 ) 136,119 Investment in limited partnership and tax credit funds ( 1,857 ) ( 2,900 ) Net cash (used in) provided by investing activities ( 201,572 ) 106,289 Financing activities: Net (decrease) increase in non-interest-bearing deposits ( 5,469 ) 69,557 Net increase in interest-bearing deposits 8,919 95,881 Net (decrease) increase in short-term borrowings ( 37,916 ) 32,625 Proceeds from long-term borrowings 19,001 — Payments on long-term borrowings ( 116,354 ) ( 2,156 ) Cash dividends paid ( 31,704 ) ( 20,915 ) Purchase of treasury stock under share repurchase program ( 7,155 ) — Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock ( 1,671 ) ( 1,076 ) Proceeds from issuance of common shares 878 655 Net cash (used in) provided by financing activities ( 171,471 ) 174,571 Net (decrease) increase in cash and cash equivalents ( 270,543 ) 347,582 Cash and cash equivalents at beginning of period 415,727 152,100 Cash and cash equivalents at end of period $ 145,184 $ 499,682 Supplemental cash flow information: Interest paid $ 11,006 $ 10,262 Income taxes paid 1,947 6,450 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 27 101 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 September 30, 2022 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 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 Update ("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 by Peoples 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 the Accounting Standards Codification ("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. 9 Table of Contents Note 2 Fair Value of Assets and Liabilities Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.” Depending on the nature of the asset or the liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 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 September 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 $ 172,055 $ — $ — $ 35,604 $ — $ — U.S. government sponsored agencies — 80,915 — — 81,739 — States and political subdivisions — 230,022 — — 259,319 — Residential mortgage-backed securities — 624,061 — — 828,517 — Commercial mortgage-backed securities — 52,504 — — 63,519 — Bank-issued trust preferred securities — 10,287 — — 6,795 — Total available-for-sale securities $ 172,055 $ 997,789 $ — $ 35,604 $ 1,239,889 $ — Equity investment securities (a) 134 198 — 160 184 — Derivative assets (b) — 37,167 — — 12,163 — Liabilities: Derivative liabilities (c) $ — $ 31,234 $ — $ — $ 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 September 30, 2022 and December 31, 2021. Non-Recurring Fair Value Measurements at Reporting Date September 30, 2022 December 31, 2021 (Dollars in thousands) Level 2 Level 3 Level 2 Level 3 Assets: Collateral dependent loans $ — $ 2,706 $ — $ 430 Loans held for sale (a) $ 1,302 $ — $ 418 $ — Other real estate owned ("OREO") $ — $ — $ — $ 87 Servicing rights (b)(c) $ — $ 25 $ — $ 22 (a) Loans held for sale are presented gross of a valuation allowance of $ 0 and $ 0 as of September 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 September 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 September 30, 2022 December 31, 2021 Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents 1 $ 145,184 $ 145,184 $ 415,727 $ 415,727 Held-to-maturity investment securities: Obligations of: U.S. government sponsored agencies 2 59,871 50,908 36,431 35,513 States and political subdivisions (a) 2 145,490 107,453 151,688 150,138 Residential mortgage-backed securities 2 111,707 93,885 110,708 110,159 Commercial mortgage-backed securities 2 90,971 74,211 75,588 74,145 Total held-to-maturity securities 408,039 326,457 374,415 369,955 Other investment securities: Other investment securities at cost: Federal Home Loan Bank ("FHLB") stock N/A 14,683 14,683 17,308 17,308 Federal Reserve Bank ("FRB") stock N/A 21,237 21,237 13,311 13,311 Total other investment securities at cost 35,920 35,920 30,619 30,619 Other investment securities at fair value: Nonqualified deferred compensation (b) 1 2,008 2,008 2,240 2,240 Other investment securities (c) 2 779 779 784 784 Total other investment securities 38,707 38,707 33,643 33,643 Loans and leases, net of deferred fees and costs (d) 3 4,611,207 4,359,959 4,481,600 4,510,605 Bank owned life insurance 2 104,591 104,591 73,358 73,358 Liabilities: Deposits 2 $ 5,865,620 $ 4,797,388 $ 5,862,552 $ 5,546,552 Short-term borrowings 2 133,611 135,268 166,482 164,990 Long-term borrowings 2 104,196 105,490 99,475 101,664 (a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $ 238 and $ 286 as of September 30, 2022 and December 31, 2021, respectively. (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 September 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 $ 52.9 million and $ 64.0 million as of September 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 considers 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. Demand and other non-fixed-maturity deposits are estimated using a discounted cash flow calculation based on maturity, attrition and re-pricing assumptions (Level 2). Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). Certain 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 September 30, 2022 Obligations of: U.S. Treasury and government agencies $ 178,824 $ — $ ( 6,769 ) $ 172,055 U.S. government sponsored agencies 94,517 4 ( 13,606 ) 80,915 States and political subdivisions 270,761 21 ( 40,760 ) 230,022 Residential mortgage-backed securities 731,125 1,140 ( 108,204 ) 624,061 Commercial mortgage-backed securities 63,821 1 ( 11,318 ) 52,504 Bank-issued trust preferred securities 10,752 49 ( 514 ) 10,287 Total available-for-sale securities $ 1,349,800 $ 1,215 $ ( 181,171 ) $ 1,169,844 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 September 30 were as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Gross gains realized $ 29 $ 150 $ 189 $ 786 Gross losses realized ( 8 ) ( 316 ) ( 82 ) ( 1,490 ) Net gain (loss) realized $ 21 $ ( 166 ) $ 107 $ ( 704 ) 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 September 30, 2022 Obligations of: U.S. Treasury and government agencies $ 172,056 $ 6,769 26 $ — $ — — $ 172,056 $ 6,769 U.S. government sponsored agencies 15,861 436 16 64,479 13,170 17 80,340 13,606 States and political subdivisions 127,364 14,607 175 94,650 26,153 70 222,014 40,760 Residential mortgage-backed securities 218,695 25,434 163 393,315 82,770 84 612,010 108,204 Commercial mortgage-backed securities 6,739 543 4 44,669 10,775 19 51,408 11,318 Bank-issued trust preferred securities 7,040 460 4 946 54 1 7,986 514 Total $ 547,755 $ 48,249 388 $ 598,059 $ 132,922 191 $ 1,145,814 $ 181,171 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 September 30, 2022, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At September 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 September 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 $ 7.3 million at September 30, 2022 and $ 5.5 million at December 31, 2021. At September 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 four positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Of the four positions, three positions had a fair value of less than 90 % of its book value. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these 14 Table of Contents investments and the low remaining number of loans underlying these securities. U.S. treasury and government agencies, U.S. government sponsored agencies, and obligations of states and political subdivisions were issued by the U.S. Treasury Department or Federal government-sponsored entities. The decline in fair values was attributable to changes in interest rates and not credit quality. Therefore, management does not consider these impaired 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 September 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 September 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 $ 50,639 $ 128,185 $ — $ — $ 178,824 U.S. government sponsored agencies 4,542 29,812 51,880 8,283 94,517 States and political subdivisions 27,288 46,871 76,138 120,464 270,761 Residential mortgage-backed securities 23 1,657 60,007 669,438 731,125 Commercial mortgage-backed securities 3,509 901 34,262 25,149 63,821 Bank-issued trust preferred securities — 4,252 6,500 — 10,752 Total available-for-sale securities $ 86,001 $ 211,678 $ 228,787 $ 823,334 $ 1,349,800 Fair value Obligations of: U.S. Treasury and government agencies $ 49,673 $ 122,382 $ — $ — $ 172,055 U.S. government sponsored agencies 4,499 27,373 42,907 6,136 80,915 States and political subdivisions 27,100 44,620 64,592 93,710 230,022 Residential mortgage-backed securities 23 1,599 53,896 568,543 624,061 Commercial mortgage-backed securities 3,501 857 28,362 19,784 52,504 Bank-issued trust preferred securities — 4,284 6,003 — 10,287 Total available-for-sale securities $ 84,796 $ 201,115 $ 195,760 $ 688,173 $ 1,169,844 Total weighted-average yield 2.52 % 2.78 % 2.29 % 1.81 % 2.09 % Held-to-maturity The following table summarizes Peoples’ held-to-maturity investment securities: (Dollars in thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2022 Obligations of: U.S. government sponsored agencies $ 59,871 $ — $ — $ ( 8,963 ) $ 50,908 States and political subdivisions 145,490 ( 238 ) 170 ( 37,969 ) 107,453 Residential mortgage-backed securities 111,707 — — ( 17,822 ) 93,885 Commercial mortgage-backed securities 90,971 — — ( 16,760 ) 74,211 Total held-to-maturity securities $ 408,039 $ ( 238 ) $ 170 $ ( 81,514 ) $ 326,457 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 nine months ended September 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 15 Table of Contents municipal securities. Peoples recorded $ 238,000 and $ 286,000 of allowance for credit losses for held-to-maturity securities as of September 30, 2022, and December 31, 2021, respectively. The following table presents a summary of held-to-maturity investment securities that had been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total (Dollars in thousands) Fair Value Unrealized Loss No. of Securities Fair Value Unrealized Loss No. of Securities Fair Value Unrealized Loss September 30, 2022 Obligations of: U.S. government sponsored agencies $ 31,574 $ 2,172 12 19,333 6,791 4 $ 50,907 $ 8,963 States and political subdivisions 61,133 20,820 45 42,935 17,149 22 104,068 37,969 Residential mortgage-backed securities 44,505 6,159 15 49,380 11,663 12 93,885 17,822 Commercial mortgage-backed securities 34,496 6,386 18 34,968 10,374 12 69,464 16,760 Total $ 171,708 $ 35,537 90 $ 146,616 $ 45,977 50 $ 318,324 $ 81,514 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 September 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 September 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 $ — $ 19,144 $ 11,172 $ 29,555 $ 59,871 States and political subdivisions — 5,209 9,235 131,046 145,490 Residential mortgage-backed securities — 1,176 — 110,531 111,707 Commercial mortgage-backed securities — 12,172 21,312 57,487 90,971 Total held-to-maturity securities $ — $ 37,701 $ 41,719 $ 328,619 $ 408,039 Fair value Obligations of: U.S. government sponsored agencies $ — $ 18,288 $ 10,622 $ 21,998 $ 50,908 States and political subdivisions — 4,812 7,638 95,003 107,453 Residential mortgage-backed securities — 1,152 — 92,733 93,885 Commercial mortgage-backed securities — 11,954 17,841 44,416 74,211 Total held-to-maturity securities $ — $ 36,206 $ 36,101 $ 254,150 $ 326,457 Total weighted-average yield — % 2.70 % 2.58 % 1.97 % 2.10 % 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) September 30, 2022 December 31, 2021 FHLB stock $ 14,683 $ 17,308 FRB stock 21,237 13,311 Nonqualified deferred compensation 2,008 2,240 Equity investment securities 332 344 Other investment securities 779 784 Total other investment securities $ 39,039 $ 33,987 During the nine months ended September 30, 2022, Peoples purchased $ 7.9 million of FRB stock as requested by the FRB as a result of the merger with Premier Financial Bancorp, Inc. ("Premier") on September 17, 2021. During the three months ended September 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 gain of $ 6,000 and $ 18,000 , respectively. For the nine months ended September 30, 2022 and 2021, Peoples recognized a loss of $ 12,000 and a gain of $ 91,000 , respectively, for the change in fair value of equity securities in "Other non-interest income". At September 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) September 30, 2022 December 31, 2021 Securing public and trust department deposits, and repurchase agreements: Available-for-sale $ 891,050 $ 795,496 Held-to-maturity 285,207 160,643 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 4,223 6,504 Held-to-maturity 1,284 549 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 nationwide through its Peoples Premium Finance division, and originates leases nationwide through its North Star Leasing division and its Vantage Financial, LLC ("Vantage") subsidiary. Loans and leases throughout this document are referred to as "total loans" and "loans held for investment". 17 Table of Contents The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows: (Dollars in thousands) September 30, 2022 December 31, 2021 Construction $ 215,621 $ 210,232 Commercial real estate, other 1,423,479 1,550,081 Commercial and industrial 877,472 891,392 Premium finance 167,682 136,136 Leases 312,847 122,508 Residential real estate 733,361 771,718 Home equity lines of credit 174,525 163,593 Consumer, indirect 592,309 530,532 Consumer, direct 113,314 104,652 Deposit account overdrafts 597 756 Total loans, at amortized cost $ 4,611,207 $ 4,481,600 On March 7, 2022, Peoples completed the acquisition of Vantage, which included $ 154.9 million of leases. During the first nine 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 September 30, 2022, the PPP loans had an amortized cost of $ 3.7 million, and were included in the commercial and industrial loan balances. As of September 30, 2022, deferred loan origination fees, net of deferred origination costs, totaled $ 61,000 for PPP loans. During the third quarter of 2022, Peoples recorded amortization of net deferred loan origination fees of $ 0.4 million on PPP loans compared to $ 3.8 million for the third 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 $ 13.1 million at September 30, 2022 and $ 12.0 million at December 31, 2021. 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: September 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 $ 2 $ — $ 6 $ 90 Commercial real estate, other 11,916 1,472 17,067 689 Commercial and industrial 2,385 266 3,572 1,139 Premium finance — 308 — 865 Leases 2,094 4,654 1,581 — Residential real estate 8,728 1,499 9,647 805 Home equity lines of credit 921 23 1,039 50 Consumer, indirect 1,627 195 1,574 — Consumer, direct 158 7 279 85 Total loans, at amortized cost $ 27,831 $ 8,424 $ 34,765 $ 3,723 (a) There were $ 2.0 million of nonaccrual loans for which there was no allowance for credit losses at September 30, 2022 and $ 2.6 million at December 31, 2021. 18 Table of Contents During the first nine 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 September 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 September 30, 2022. The amount of interest income recognized on loans past due 90 days or more during the nine months ended September 30, 2022 was $ 1.1 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 September 30, 2022 Construction $ 334 $ 25 $ — $ 359 $ 215,262 $ 215,621 Commercial real estate, other 2,710 878 11,668 15,256 1,408,223 1,423,479 Commercial and industrial 1,742 870 2,630 5,242 872,230 877,472 Premium finance 312 287 308 907 166,775 167,682 Leases 786 2,972 6,749 10,507 302,340 312,847 Residential real estate 3,413 1,814 5,723 10,950 722,411 733,361 Home equity lines of credit 1,640 102 513 2,255 172,270 174,525 Consumer, indirect 3,912 744 628 5,284 587,025 592,309 Consumer, direct 395 54 83 532 112,782 113,314 Deposit account overdrafts — — — — 597 597 Total loans, at amortized cost $ 15,244 $ 7,746 $ 28,302 $ 51,292 $ 4,559,915 $ 4,611,207 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 98.9 % of Peoples' loan portfolio was considered “current” at September 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) September 30, 2022 December 31, 2021 Loans pledged to FHLB $ 793,115 $ 769,863 Loans pledged to FRB 405,652 294,728 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 19 Table of Contents 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 important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of each of these loans as an estimated loss is deferred until its more exact status may be determined. “Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category. Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard,” or “loss” consistent with the regulatory definitions and requirements of these classes. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the prospect of collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as “pass" for disclosure purposes. The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at September 30, 2022: 20 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 Construction Pass $ 50,403 $ 109,791 $ 30,078 $ 18,033 $ 427 $ 3,251 $ 2,222 $ 81 $ 214,205 Special mention — — — — — 825 — — 825 Substandard — — 136 — 69 386 — — 591 Total 50,403 109,791 30,214 18,033 496 4,462 2,222 81 215,621 Commercial real estate, other Pass 124,239 227,395 230,082 206,722 114,512 395,451 21,768 6,337 1,320,169 Special mention — 195 1,225 5,514 3,198 36,761 93 — 46,986 Substandard 120 9,059 2,342 1,908 1,025 41,356 341 — 56,151 Doubtful — — — — — 173 — — 173 Total 124,359 236,649 233,649 214,144 118,735 473,741 22,202 6,337 1,423,479 Commercial and industrial Pass 116,058 173,932 86,010 77,871 44,821 99,146 224,418 2,529 822,256 Special mention — 28 11,098 985 274 4,987 3,333 25 20,705 Substandard 59 9,453 2,627 2,975 2,920 4,563 11,702 142 34,299 Doubtful — — — — — 212 — — 212 Total 116,117 183,413 99,735 81,831 48,015 108,908 239,453 2,696 877,472 Premium finance Pass 162,713 4,969 — — — — — — 167,682 Total 162,713 4,969 — — — — — — 167,682 Leases Pass 139,715 98,250 40,078 19,569 4,440 1,513 — 303,565 Special mention 1,639 3,776 73 24 78 — 5,590 Substandard 575 1,693 537 424 463 — 3,692 Total 141,929 103,719 40,688 20,017 4,981 1,513 — — 312,847 Residential real estate Pass 65,666 140,597 62,306 44,469 29,790 375,024 — — 717,852 Substandard — — — — — 15,355 — — 15,355 Loss — — — — — 154 — — 154 Total 65,666 140,597 62,306 44,469 29,790 390,533 — — 733,361 Home equity lines of credit Pass 29,784 36,483 21,432 15,451 14,072 56,586 340 2,191 174,148 Substandard — — — — — 377 — — 377 Total 29,784 36,483 21,432 15,451 14,072 56,963 340 2,191 174,525 Consumer, indirect Pass 229,831 165,711 112,435 41,315 27,327 15,690 — — 592,309 Total 229,831 165,711 112,435 41,315 27,327 15,690 — — 592,309 Consumer, direct Pass 45,117 32,606 17,426 7,874 4,738 5,553 — — 113,314 Total 45,117 32,606 17,426 7,874 4,738 5,553 — — 113,314 Deposit account overdrafts 597 — — — — — — — 597 Total loans, at amortized cost $ 966,516 $ 1,013,938 $ 617,885 $ 443,134 $ 248,154 $ 1,057,363 $ 264,217 $ 11,305 $ 4,611,207 21 Table of Contents 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 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 22 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) September 30, 2022 December 31, 2021 Construction $ 340 $ 1,291 Commercial real estate, other 9,380 37,220 Commercial and industrial 2,590 8,340 Residential real estate 2,196 2,877 Home equity lines of credit 379 391 Total collateral dependent loans $ 14,885 $ 50,119 The decrease in collateral dependent loans at September 30, 2022, compared to December 31, 2021, was primarily due to three large commercial relationships that were no longer considered collateral dependent at September 30, 2022. 23 Table of Contents Troubled Debt Restructurings The following tables summarize the loans that were modified as TDRs during the three and nine months ended September 30: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment September 30, 2022 Commercial and industrial 1 $ 20 $ 20 $ 19 Residential real estate 7 323 361 354 Home equity lines of credit 2 119 119 119 Consumer, indirect 6 79 79 79 Consumer, direct 3 20 20 20 Consumer 9 99 99 99 Total 19 $ 561 $ 599 $ 591 September 30, 2021 Construction 1 $ 6 $ 6 $ 6 Commercial real estate, other 2 14 14 14 Commercial and industrial 3 327 327 327 Leases 2 182 184 178 Residential real estate 46 1,952 1,956 1,955 Home equity lines of credit 5 55 55 55 Consumer, indirect 9 95 95 95 Consumer, direct 3 9 9 9 Consumer 12 104 104 104 Total 71 $ 2,640 $ 2,646 $ 2,639 (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. 24 Table of Contents Nine Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment September 30, 2022 Commercial real estate, other 3 $ 282 $ 282 $ 276 Commercial and industrial 6 1,309 1,313 801 Residential real estate 30 1,478 1,562 1,536 Home equity lines of credit 5 251 251 247 Consumer, indirect 19 237 237 237 Consumer, direct 6 63 63 63 Consumer 25 300 300 300 Total 69 $ 3,620 $ 3,708 $ 3,160 September 30, 2021 Construction 2 $ 350 $ 350 $ 350 Commercial real estate, other 3 37 37 37 Commercial and industrial 3 327 327 327 Leases 5 340 348 334 Residential real estate 54 2,367 2,376 2,366 Home equity lines of credit 9 315 315 307 Consumer, indirect 16 200 200 192 Consumer, direct 8 48 48 45 Consumer 24 248 248 237 Total 100 $ 3,984 $ 4,001 $ 3,958 (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 five loans totaling $ 202,000 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. Allowance for Credit Losses 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' estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. In management's estimation of expected credit losses, Peoples' uses a one year reasonable and supportable period across all segments. 25 Table of Contents Following the reasonable and supportable period, Peoples' reverts the macroeconomic variables to their long run average over a four quarter reversion period. Changes in the allowance for credit losses for the three months ended September 30, 2022 and September 30, 2021 are summarized below: (Dollars in thousands) Beginning Balance, June 30, 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, September 30, 2022 Construction $ 1,531 $ — $ — $ ( 67 ) $ — $ — $ 1,464 Commercial real estate, other 18,708 — — ( 995 ) ( 57 ) 39 17,695 Commercial and industrial 8,572 — — 72 ( 36 ) 3 8,611 Premium finance 311 — — 279 ( 38 ) 1 553 Leases 7,585 377 — 560 ( 731 ) 99 7,890 Residential real estate 6,332 — — 264 ( 168 ) 36 6,464 Home equity lines of credit 1,699 — — ( 50 ) ( 5 ) — 1,644 Consumer, indirect 6,234 — — 1,207 ( 600 ) 71 6,912 Consumer, direct 1,321 — — 343 ( 81 ) 9 1,592 Deposit account overdrafts 53 — — 218 ( 274 ) 44 41 Total $ 52,346 $ 377 $ — $ 1,831 $ ( 1,990 ) $ 302 $ 52,866 (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, June 30, 2021 Initial Allowance for Acquired Purchased Credit Deteriorated Assets Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (a) Charge-offs Recoveries Ending Balance, September 30, 2021 Construction $ 914 $ 2,127 $ 638 $ ( 243 ) $ — $ — $ 3,436 Commercial real estate, other 17,233 13,374 5,384 ( 179 ) — 4 35,816 Commercial and industrial 8,686 4,286 1,059 ( 3 ) ( 654 ) 4 13,378 Premium finance 998 — — 146 ( 7 ) — 1,137 Leases 3,715 — — 1,101 ( 431 ) 120 4,505 Residential real estate 4,837 2,394 2,645 ( 312 ) ( 44 ) 48 9,568 Home equity lines of credit 1,504 41 674 148 ( 180 ) 37 2,224 Consumer, indirect 8,841 — — ( 2,308 ) ( 416 ) 43 6,160 Consumer, direct 1,161 112 180 ( 362 ) ( 29 ) 17 1,079 Deposit account overdrafts 53 — — 124 ( 135 ) 37 79 Total $ 47,942 $ 22,334 $ 10,580 $ ( 1,888 ) $ ( 1,896 ) $ 310 $ 77,382 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 26 Table of Contents Changes in the allowance for credit losses for the nine months ended September 30, 2022 and September 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, September 30, 2022 Construction $ 2,999 $ — $ — $ ( 1,535 ) $ — $ — $ 1,464 Commercial real estate, other 29,147 ( 451 ) — ( 10,908 ) ( 357 ) 264 17,695 Commercial and industrial 11,063 ( 418 ) — ( 1,124 ) ( 919 ) 9 8,611 Premium finance 379 — — 247 ( 82 ) 9 553 Leases 4,797 801 — 3,650 ( 1,697 ) 339 7,890 Residential real estate 7,233 ( 509 ) — 200 ( 524 ) 64 6,464 Home equity lines of credit 2,005 ( 11 ) — ( 333 ) ( 46 ) 29 1,644 Consumer, indirect 5,326 ( 41 ) — 2,821 ( 1,434 ) 240 6,912 Consumer, direct 961 — — 877 ( 277 ) 31 1,592 Deposit account overdrafts 57 — — 772 ( 938 ) 150 41 Total $ 63,967 $ ( 629 ) $ — $ ( 5,333 ) $ ( 6,274 ) $ 1,135 $ 52,866 (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, September 30, 2021 Construction $ 1,887 $ 2,127 $ 638 $ ( 1,216 ) $ — $ — $ 3,436 Commercial real estate, other 17,536 13,374 5,384 ( 325 ) ( 161 ) 8 35,816 Commercial and industrial 12,763 4,286 1,059 ( 3,800 ) ( 952 ) 22 13,378 Premium finance 1,095 — — 72 ( 30 ) — 1,137 Leases — 493 3,288 1,450 ( 956 ) 230 4,505 Residential real estate 6,044 2,394 2,645 ( 1,305 ) ( 313 ) 103 9,568 Home equity lines of credit 1,860 41 674 ( 196 ) ( 196 ) 41 2,224 Consumer, indirect 8,030 — — ( 891 ) ( 1,190 ) 211 6,160 Consumer, direct 1,081 112 180 ( 252 ) ( 96 ) 54 1,079 Deposit account overdrafts 63 — — 208 ( 327 ) 135 79 Total $ 50,359 $ 22,827 $ 13,868 $ ( 6,255 ) $ ( 4,221 ) $ 804 $ 77,382 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 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 third quarter of 2022, Peoples recorded a provision for credit losses for loans of $ 1.8 million, driven by a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans. Leases designated as 27 Table of Contents purchased credit deteriorated ("PCD") acquired from Vantage increased the allowance for credit losses by $ 377,000 . Net charge-offs for the third quarter of 2022 were $ 1.7 million, and included charge-offs of three leases aggregating $ 0.6 million. Peoples had recorded an allowance for unfunded commitments of $ 2.1 million as of September 30, 2022, a decrease compared to $ 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 "Provision for (recovery of) credit losses" line of the Unaudited Consolidated Statements of Operations. Note 5 Goodwill and Other Intangible Assets Goodwill The following table details changes in the recorded amount of goodwill: (Dollars in thousands) September 30, 2022 December 31, 2021 Goodwill, beginning of year $ 264,193 $ 171,260 Goodwill recorded from acquisitions 28,204 92,933 Goodwill, end of period $ 292,397 $ 264,193 On March 11, 2022, Peoples Insurance Agency, LLC ("Peoples Insurance") entered into an Asset Purchase Agreement with Elite Agency, Inc. ("Elite"), and consummated the acquisition on April 1, 2022. In the second quarter of 2022 , Peoples preliminarily recorded $ 2.3 million of 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 nine months of 2022, Peoples preliminarily recorded $ 27.2 million of goodwill related to this acquisition, which was offset partially by adjustments of $ 1.2 million to the goodwill balance related to the Premier Merger 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 recorded $ 66.9 million of goodwill. For additional information on these acquisitions, refer to "Note 13 Acquisitions." Other Intangible Assets Other intangible assets were comprised of the following at September 30, 2022, and at December 31, 2021: (Dollars in thousands) Core Deposits Customer Relationships Total September 30, 2022 Gross intangibles $ 26,464 $ 25,173 $ 51,637 Intangibles recorded from acquisitions (a) — 14,067 14,067 Accumulated amortization ( 20,286 ) ( 13,795 ) ( 34,081 ) Total acquisition-related intangibles $ 6,178 $ 25,445 $ 31,623 Servicing rights 1,917 Indefinite-lived intangibles (b) 2,491 Total other intangibles $ 36,031 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 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. 28 Table of Contents Other intangible assets preliminarily recorded for the nine months ended September 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. 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 September 30, 2022: (Dollars in thousands) Core Deposits Customer Relationships Total Remaining three months of 2022 $ 382 $ 1,617 $ 1,999 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 1,859 4,865 6,724 Total $ 6,178 $ 25,445 $ 31,623 The weighted average amortization period of other intangible assets is 9.8 years. Servicing Rights The following is an analysis of activity of servicing rights for the periods ended September 30, 2022 and December 31, 2021: (Dollars in thousands) September 30, 2022 December 31, 2021 Balance, beginning of year $ 2,218 $ 2,486 Amortization ( 460 ) ( 775 ) Servicing rights originated 153 519 Change in valuation allowance 6 ( 12 ) Balance, end of period $ 1,917 $ 2,218 Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of September 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 September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 Minimum Maximum Minimum Maximum Discount rates 11.3 % 13.8 % 8.3 % 10.8 % Prepayment speeds 7.7 % 20.0 % 8.9 % 27.1 % The fair value of servicing rights was $ 3.5 million and $ 2.6 million at September 30, 2022 and December 31, 2021, respectively. 29 Table of Contents Note 6 Deposits Peoples’ deposit balances were comprised of the following: (Dollars in thousands) September 30, 2022 December 31, 2021 Retail CDs: $100 or more $ 269,145 $ 320,574 Less than $100 275,596 323,185 Retail CDs 544,741 643,759 Interest-bearing deposit accounts 1,162,012 1,167,460 Savings accounts 1,077,383 1,036,738 Money market deposit accounts 624,708 651,169 Governmental deposit accounts 734,734 617,259 Brokered deposit accounts (a) 86,089 104,745 Total interest-bearing deposits 4,229,667 4,221,130 Non-interest-bearing deposits $ 1,635,953 1,641,422 Total deposits $ 5,865,620 $ 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 $ 116.4 million and $ 121.3 million at September 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 three months ending December 31, 2022 (a) $ 114,371 $ 85,595 $ 199,966 Year ending December 31, 2023 258,615 494 259,109 Year ending December 31, 2024 98,555 — 98,555 Year ending December 31, 2025 29,032 — 29,032 Year ending December 31, 2026 23,328 — 23,328 Thereafter 20,840 — 20,840 Total CDs $ 544,741 $ 86,089 $ 630,830 (a) Brokered deposit accounts include $ 85.0 million of brokered demand deposits. At September 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." 30 Table of Contents Note 7 Stockholders’ Equity The following table details the progression in Peoples’ common shares and treasury stock during the nine months ended September 30, 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 — 39,445 Cancellation of restricted common shares — 3,647 Grant of restricted common shares — ( 213,065 ) Grant of unrestricted common shares — ( 1,500 ) Changes related to deferred compensation plan for Boards of Directors: Purchase of treasury stock — 13,167 Disbursed out of treasury stock — ( 3,039 ) Common shares repurchased under share repurchase program — 254,519 Common shares issued under dividend reinvestment plan 31,394 — Common shares issued under compensation plan for Boards of Directors — ( 13,127 ) Common shares issued under employee stock purchase plan — ( 18,832 ) Shares at September 30, 2022 29,845,795 1,638,574 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 September 30, 2022, Peoples had repurchased 254,519 common shares totaling $ 7.2 million under the share repurchase program. Under Peoples' Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At September 30, 2022, Peoples had no preferred shares issued or outstanding. O n October 24, 2022, Peoples' Board of Directors declared a quarterly cash dividend of $ 0.38 per common share, payable on November 21, 2022, to shareholders of record on November 7, 2022. Th e following table details the cash dividends declared per common share during the four 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 Fourth quarter 0.38 0.36 Total dividends declared $ 1.50 $ 1.43 Accumulated Other Comprehensive (Loss) Income The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the nine months ended September 30, 2022: (Dollars in thousands) Unrealized Loss on Securities Unrecognized Net Pension and Postretirement Costs Unrealized (Loss) Gain on Cash Flow Hedge Accumulated Other Comprehensive (Loss) Income Balance, December 31, 2021 $ ( 5,946 ) $ ( 1,881 ) $ ( 3,792 ) $ ( 11,619 ) Reclassification adjustments to net income: Realized gain on sale of securities, net of tax ( 82 ) — — ( 82 ) Realized gain due to settlement and curtailment, net of tax — 107 — 107 Other comprehensive (loss) income, net of reclassifications and tax ( 132,025 ) 249 8,447 ( 123,329 ) Balance, September 30, 2022 $ ( 138,053 ) $ ( 1,525 ) $ 4,655 $ ( 134,923 ) 31 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 noncontributory defined benefit pension plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations: Pension Benefits Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Interest cost $ 65 $ 60 $ 197 $ 194 Expected return on plan assets ( 168 ) ( 143 ) ( 504 ) ( 492 ) Amortization of net loss 21 21 61 84 Settlement of benefit obligation 139 143 139 143 Net periodic income (loss) $ 57 $ 81 $ ( 107 ) $ ( 71 ) Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss. Peoples recorded settlement charges under the noncontributory defined benefit pension plan of $ 139,000 during the three and nine months ended September 30, 2022 and $ 143,000 during the three and nine months ended September 30, 2021. 32 Table of Contents Note 9 Earnings Per Common Share The calculations of basic and diluted earnings (loss) per common share were as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per common share data) 2022 2021 2022 2021 Net income (loss) available to common shareholders $ 25,978 $ ( 5,758 ) $ 74,443 $ 19,808 Less: Dividends paid on unvested common shares ( 102 ) ( 79 ) ( 252 ) ( 214 ) Add: Undistributed (loss) earnings allocated to unvested common shares ( 24 ) 21 ( 65 ) 2 Net earnings (loss) allocated to common shareholders $ 25,852 $ ( 5,816 ) $ 74,126 $ 19,596 Weighted-average common shares outstanding 27,865,416 20,640,519 27,929,720 19,751,853 Effect of potentially dilutive common shares 107,839 148,752 79,543 138,819 Total weighted-average diluted common shares outstanding 27,973,255 20,789,271 28,009,263 19,890,672 Earnings (loss) per common share: Basic $ 0.93 $ ( 0.28 ) $ 2.65 $ 0.99 Diluted $ 0.92 $ ( 0.28 ) $ 2.65 $ 0.99 Anti-dilutive common shares excluded from calculation: Restricted common shares 1,832 — — — 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 September 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 September 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 33 Table of Contents 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. 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 September 30, 2022, and 2021, Peoples had recorded reclassifications of losses to earnings of $ 0.2 million and $ 0.8 million, respectively. For the nine months ended September 30, 2022 and 2021, Peoples recorded reclassifications of losses to earnings of $ 1.3 million and $ 2.3 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) September 30, 2022 December 31, 2021 Notional amount $ 125,000 $ 125,000 Weighted average pay rates 2.26 % 2.26 % Weighted average receive rates 4.16 % 1.10 % Weighted average maturity 2.8 years 3.6 years Pre-tax unrealized gains (losses) included in AOCI $ 6,068 $ ( 4,879 ) The following table presents net gains recorded in AOCI and in the Unaudited Consolidated Statements of Operations related to the cash flow hedges: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Amount of net gains recognized in AOCI, pre-tax $ ( 3,388 ) $ ( 858 ) $ ( 10,948 ) $ ( 4,800 ) The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: September 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 $ 125,000 $ 5,934 $ — $ — Included in "Accrued expenses and other liabilities": Interest rate swaps related to debt $ — $ — $ 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 nine months ended September 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: 34 Table of Contents September 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 $ 414,192 $ 31,234 $ 419,733 $ 12,163 Included in "Accrued expenses and other liabilities": Interest rate swaps related to commercial loans $ 414,192 $ 31,234 $ 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 liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps is in a net asset position, the respective counterparties must pledge collateral. At September 30, 2022 and December 31, 2021, Peoples had no cash pledged, while counterparties had $ 22.0 million of cash pledged at September 30, 2022 and none pledged at December 31, 2021. Peoples had no pledged investment securities and $ 28.1 million in pledged investment securities at September 30, 2022 and December 31, 2021, respectively, while the counterparties had pledged $ 3.2 million at September 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 nine 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 nine months ended September 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 58,420 30.94 154,645 32.21 Released ( 12,424 ) 32.37 ( 100,664 ) 32.20 Forfeited — — ( 3,647 ) 32.17 Outstanding at September 30, 2022 134,918 $ 27.18 297,680 $ 32.20 For the nine months ended September 30, 2022, the total intrinsic value for restricted common shares released was $ 3.7 million compared to $ 2.6 million for the nine months ended September 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 35 Table of Contents performance unit awards, Peoples recognizes stock-based compensation over the performance period, based on the portion of the awards that was expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15 %. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Employee stock-based compensation expense: Stock grant expense $ 780 $ 597 $ 2,933 $ 2,381 Employee stock purchase plan expense 2 21 54 55 Total employee stock-based compensation expense 782 618 $ 2,987 $ 2,436 Non-employee director stock-based compensation expense 127 60 $ 378 $ 310 Total stock-based compensation expense 909 678 $ 3,365 $ 2,746 Recognized tax benefit ( 195 ) ( 151 ) ( 721 ) ( 612 ) Net stock-based compensation expense $ 714 $ 527 $ 2,644 $ 2,134 Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the nine months ended September 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 $ 4.8 million at September 30, 2022, which will be recognized over a weighted-average period of 2.1 years. Note 12 Revenue The following table details Peoples' revenue from contracts with customers: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2022 2021 2022 2021 Insurance income: Commission and fees from sale of insurance policies (a) $ 3,465 $ 3,231 $ 10,323 $ 9,603 Fees related to third-party administration services (a) 88 76 252 276 Performance-based commissions (b) 65 60 1,420 2,044 Trust and investment income (a) 3,954 4,158 12,476 12,223 Electronic banking income: Interchange income (a) 4,150 3,280 12,564 9,930 Promotional and usage income (a) 1,111 1,046 3,369 2,725 Deposit account service charges: Ongoing maintenance fees for deposit accounts (a) 1,353 933 3,971 2,597 Transaction-based fees (b) 2,480 1,616 6,846 3,981 Commercial loan swap fees (b) 224 73 662 194 Other non-interest income transaction-based fees (b) 255 207 826 601 Total revenue from contracts with customers $ 17,145 $ 14,680 $ 52,709 $ 44,174 Timing of revenue recognition: Services transferred over time $ 14,121 $ 12,724 $ 42,955 $ 37,354 Services transferred at a point in time 3,024 1,956 9,754 6,820 Total revenue from contracts with customers $ 17,145 $ 14,680 $ 52,709 $ 44,174 (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 36 Table of Contents performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income. The following table details the changes in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2022: Contract Assets Contract Liabilities (Dollars in thousands) Balance, January 1, 2022 $ 743 $ 4,811 Additional income receivable 159 — Additional deferred income — 487 Recognition of income previously deferred — ( 95 ) Balance, September 30, 2022 $ 902 $ 5,203 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, 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 $ 154.9 million in leases and certain third-party debt in the amount of $ 106.9 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 three and nine months ended September 30, 2022 of $ 120,000 and $ 1.6 million related to the Vantage acquisition, respectively. For the nine months ended September 30, 2022, the Vantage acquisition-related expenses included $ 1.3 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 155,726 Allowance for credit losses (on PCD leases) ( 801 ) Net Leases 154,925 Bank premises and equipment 116 Other intangible assets 13,207 Other assets 1,506 37 Table of Contents (Dollars in thousands) Fair Value Total assets $ 171,198 Liabilities Borrowings $ 106,919 Accrued expenses and other liabilities 8,550 Total liabilities $ 115,469 Net assets $ 55,729 Goodwill $ 27,164 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. The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 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 September 30, 2022: (Dollars in thousands) Change in fair value Net assets Leases $ ( 2,215 ) Allowance for credit losses (on PCD leases) ( 377 ) Net leases $ ( 2,592 ) Change in total assets $ ( 2,592 ) Borrowings ( 170 ) Change in total liabilities $ ( 170 ) Change in net assets $ ( 2,422 ) Change in goodwill $ 2,422 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 Premium Fair Value Purchased credit deteriorated leases Leases $ 3,412 $ ( 801 ) $ 1,120 $ 3,731 Fair value $ 3,412 $ ( 801 ) $ 1,120 $ 3,731 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 in total consideration. 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 three and nine months ended September 30, 2022 of $ 18,000 and $ 445,000 . The following table provides the purchase price calculation as of the date of the merger with Premier, and the assets acquired and liabilities assumed at their estimated fair values. 38 Table of Contents (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 and leases: 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 and leases 1,174,704 1,161,840 Allowance for credit losses (on PCD loans) ( 15,513 ) Net loans and leases 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 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: 39 Table of Contents (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. 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 loans and 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. 40 Table of Contents 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 nine months of 2022 of $ 90,000 . Note 14 Leases Peoples has elected certain practical expedients, in accordance with ASC 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 Nine Months Ended (Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Interest and fees on leases (a) $ 9,628 $ 4,810 $ 26,271 $ 9,025 Other non-interest income 1,725 471 2,931 716 Total lease income $ 11,353 $ 5,281 $ 29,202 $ 9,741 (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. 41 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) September 30, 2022 Lease payments receivable, at amortized cost $ 331,572 Estimated residual values 34,566 Initial direct costs 3,084 Deferred revenue ( 56,375 ) Net investment in leases 312,847 Allowance for credit losses - leases ( 7,890 ) Net investment in leases, after allowance for credit losses $ 304,957 The following table summarizes the contractual maturities of leases: (Dollars in thousands) Balance Remaining three months ending December 31, 2022 $ 19,853 Year ending December 31, 2023 76,972 Year ending December 31, 2024 77,615 Year ending December 31, 2025 77,524 Year ending December 31, 2026 48,855 Thereafter 30,753 Lease payments receivable, at amortized cost $ 331,572 Lessee Arrangements Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years . Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At September 30, 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 Nine Months Ended (Dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Operating lease expense $ 630 $ 358 1,893 1,038 Short-term lease expense 208 72 555 244 Total lease expense $ 838 $ 430 $ 2,448 $ 1,282 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. 42 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) September 30, 2022 December 31, 2021 ROU assets: Other assets $ 7,975 $ 7,911 Lease liabilities: Accrued expenses and other liabilities $ 8,257 $ 8,674 Other information: Weighted-average remaining lease term 9.0 years 9.5 years Weighted-average discount rate 2.72 % 2.36 % During the three months ended September 30, 2022 and 2021, Peoples paid cash of $ 0.7 million and $ 345,000 , respectively, for operating leases. During the nine months ended September 30, 2022 and 2021, Peoples paid cash of $ 1.9 million and $ 1.0 million, respectively, for operating leases. The following table summarizes the maturity of remaining lease liabilities: (Dollars in thousands) Balance Remaining three months ending December 31, 2022 $ 834 Year ending December 31, 2023 2,066 Year ending December 31, 2024 1,291 Year ending December 31, 2025 833 Year ending December 31, 2026 674 Thereafter 3,554 Total undiscounted lease payments $ 9,252 Imputed interest $ ( 995 ) Total lease liabilities $ 8,257 Note 15 Subsequent Events The Company has evaluated all events occurring after September 30, 2022 through November 3, 2022, the date the interim unaudited financial statements for the period ending September 30, 2022 were available to be issued, to determine whether any event required either recognition or disclosure in the financial statements. Merger Agreement On October 25, 2022 Peoples announced the signing of a definitive agreement and plan of merger (the "Merger Agreement") pursuant to which Peoples will acquire, in an all-stock merger, Limestone Bancorp, Inc. ("Limestone"), a bank holding company headquartered in Louisville, Kentucky, and the parent company of Limestone Bank, Inc. (“Limestone Bank”). Under the terms of the Merger Agreement, Limestone will merge with and into Peoples (the “Limestone Merger”), and Limestone Bank will subsequently merge with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at approximately $ 208.2 million. As of September 30, 2022, Limestone had, on a consolidated basis, $ 1.5 billion in total assets, which included $ 1.1 billion in total net loans, as well as $ 1.2 billion in total deposits. According to the terms of the Merger Agreement, which has been unanimously approved by the Boards of Directors of both companies, shareholders of Limestone will receive 0.90 common shares of Peoples for each share of Limestone common stock, and the Merger is expected to qualify as a tax-free reorganization for Limestone shareholders. The Merger is expected to close during the second quarter of 2023, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Peoples and of Limestone. 43 Table of Contents