PEOPLES BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2023 December 31, 2022 (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and balances due from banks $ 97,101 $ 94,679 Interest-bearing deposits in other banks 60,053 59,343 Total cash and cash equivalents 157,154 154,022 Available-for-sale investment securities, at fair value (amortized cost of $ 1,196,521 at March 31, 2023 and $ 1,300,719 at December 31, 2022) (a) 1,049,497 1,131,399 Held-to-maturity investment securities, at amortized cost (fair value of $ 624,436 at March 31, 2023 and $ 478,509 at December 31, 2022) (a) 694,072 560,212 Other investment securities 52,763 51,609 Total investment securities (a) 1,796,332 1,743,220 Loans and leases, net of deferred fees and costs (b) 4,759,718 4,707,150 Allowance for credit losses ( 53,303 ) ( 53,162 ) Net loans and leases (c) 4,706,415 4,653,988 Loans held for sale 2,527 2,140 Bank premises and equipment, net of accumulated depreciation 86,567 82,934 Bank owned life insurance 105,999 105,292 Goodwill 292,597 292,397 Other intangible assets 31,965 33,932 Other assets 131,964 139,379 Total assets $ 7,311,520 $ 7,207,304 Liabilities Deposits: Non-interest-bearing $ 1,555,064 $ 1,589,402 Interest-bearing 4,233,463 4,127,539 Total deposits 5,788,527 5,716,941 Short-term borrowings 490,670 500,138 Long-term borrowings 95,629 101,093 Accrued expenses and other liabilities 117,151 103,804 Total liabilities 6,491,977 6,421,976 Stockholders’ equity Preferred shares, no par value, 50,000 shares authorized, no shares issued at March 31, 2023 and at December 31, 2022 — — Common shares, no par value, 50,000,000 shares authorized, 29,868,456 shares issued at March 31, 2023 and 29,857,920 shares issued at December 31, 2022, including at each date shares held in treasury 684,367 686,450 Retained earnings 281,771 265,936 Accumulated other comprehensive loss, net of deferred income taxes ( 110,979 ) ( 127,136 ) Treasury stock, at cost, 1,457,611 shares at March 31, 2023 and 1,643,461 shares at December 31, 2022 ( 35,616 ) ( 39,922 ) Total stockholders’ equity 819,543 785,328 Total liabilities and stockholders’ equity $ 7,311,520 $ 7,207,304 (a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $ 0 and $ 241 , respectively, at March 31, 2023 and December 31, 2022. (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 March 31, (Dollars in thousands, except per share data) 2023 2022 Interest income: Interest and fees on loans and leases $ 71,762 $ 50,200 Interest and dividends on taxable investment securities 11,003 6,050 Interest on tax-exempt investment securities 996 1,015 Other interest income 388 160 Total interest income 84,149 57,425 Interest expense: Interest on deposits 5,661 2,053 Interest on short-term borrowings 4,457 338 Interest on long-term borrowings 1,153 724 Total interest expense 11,271 3,115 Net interest income 72,878 54,310 Provision for (recovery of) credit losses 1,853 ( 6,807 ) Net interest income after provision for (recovery of) credit losses 71,025 61,117 Non-interest income: Electronic banking income 5,443 5,253 Insurance income 5,425 4,731 Trust and investment income 4,084 4,276 Deposit account service charges 3,523 3,426 Lease income 1,077 775 Bank owned life insurance income 707 431 Mortgage banking income 314 436 Net loss on asset disposals and other transactions ( 246 ) ( 127 ) Net (loss) gain on investment securities ( 1,935 ) 130 Other non-interest income 668 719 Total non-interest income 19,060 20,050 Non-interest expense: Salaries and employee benefit costs 32,028 27,729 Net occupancy and equipment expense 4,955 5,088 Data processing and software expense 4,562 2,916 Professional fees 2,881 3,672 Amortization of other intangible assets 1,871 1,708 Electronic banking expense 1,491 2,759 Franchise tax expense 1,034 764 Marketing expense 930 995 FDIC insurance expense 801 1,194 Other loan expenses 739 832 Communication expense 613 625 Other non-interest expense 4,574 3,347 Total non-interest expense 56,479 51,629 Income before income taxes 33,606 29,538 Income tax expense 7,046 5,961 Net income $ 26,560 $ 23,577 Earnings per common share - basic $ 0.95 $ 0.84 Earnings per common share - diluted $ 0.94 $ 0.84 Weighted-average number of common shares outstanding - basic 27,891,760 28,006,165 Weighted-average number of common shares outstanding - diluted 28,021,879 28,129,131 Cash dividends declared $ 10,725 $ 10,176 Cash dividends declared per common share $ 0.38 $ 0.36 See Notes to the Unaudited Condensed Consolidated Financial Statements 4 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended March 31, (Dollars in thousands) 2023 2022 Net income $ 26,560 $ 23,577 Other comprehensive income (loss): Available-for-sale investment securities: Gross unrealized holding gain (loss) arising during the period 20,362 ( 71,637 ) Related tax (expense) benefit ( 4,647 ) 16,448 Reclassification adjustment for net loss (gain) included in net income 1,935 ( 130 ) Related tax (expense) benefit ( 452 ) 30 Net effect on other comprehensive income (loss) 17,198 ( 55,289 ) Defined benefit plan: Net loss arising during the period — ( 14 ) Related tax benefit — 3 Amortization of unrecognized loss and service cost on benefit plans 2 21 Related tax benefit — ( 5 ) Net effect on other comprehensive income (loss) 2 5 Cash flow hedges: Net (loss) gain arising during the period ( 1,356 ) 5,456 Related tax benefit (expense) 313 ( 1,220 ) Net effect on other comprehensive income (loss) ( 1,043 ) 4,236 Total other comprehensive gain (loss), net of tax 16,157 ( 51,048 ) Total comprehensive income (loss) $ 42,717 $ ( 27,471 ) 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, December 31, 2022 $ 686,450 $ 265,936 $ ( 127,136 ) $ ( 39,922 ) $ 785,328 Net income — 26,560 — — 26,560 Other comprehensive gain, net of tax — — 16,157 — 16,157 Cash dividends declared — ( 10,725 ) — — ( 10,725 ) Reissuance of treasury stock for common share awards ( 4,685 ) — — 4,685 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 920 ) ( 920 ) Common shares issued under dividend reinvestment plan 402 — — — 402 Common shares issued under compensation plan for Boards of Directors 8 — — 128 136 Common shares issued under employee stock purchase plan 42 — — 413 455 Stock-based compensation 2,150 — — — 2,150 Balance, March 31, 2023 $ 684,367 $ 281,771 $ ( 110,979 ) $ ( 35,616 ) $ 819,543 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 — 23,577 — — 23,577 Other comprehensive loss, net of tax — — ( 51,048 ) — ( 51,048 ) Cash dividends declared — ( 10,176 ) — — ( 10,176 ) Reissuance of treasury stock for common share awards ( 3,998 ) — — 3,998 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,230 ) ( 1,230 ) Common shares issued under dividend reinvestment plan 305 — — — 305 Common shares issued under compensation plan for Boards of Directors 31 — — 93 124 Common shares issued under employee stock purchase plan 46 — — 140 186 Stock-based compensation 1,577 — — — 1,577 Balance, March 31, 2022 $ 684,243 $ 220,477 $ ( 62,667 ) $ ( 33,713 ) $ 808,340 See Notes to the Unaudited Condensed Consolidated Financial Statements 6 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (Dollars in thousands) 2023 2022 Net cash provided by operating activities $ 47,997 $ 15,710 Investing activities: Available-for-sale investment securities: Purchases ( 22,873 ) ( 165,305 ) Proceeds from sales 95,362 4,218 Proceeds from principal payments, calls and prepayments 27,922 60,520 Held-to-maturity investment securities: Purchases ( 167,169 ) ( 15,463 ) Proceeds from principal payments 33,324 4,512 Other investment securities: Purchases ( 4,792 ) ( 8,208 ) Proceeds from sales 3,746 237 Net (increase) decrease in loans held for investment ( 52,386 ) 75,740 Net expenditures for premises and equipment ( 2,757 ) ( 2,053 ) Proceeds from sales of other real estate owned 107 124 Business acquisitions, net of cash received ( 200 ) ( 80,532 ) Investment in limited partnership and tax credit funds ( 267 ) ( 1,151 ) Net cash used in investing activities ( 89,983 ) ( 127,361 ) Financing activities: Net (decrease) increase in non-interest-bearing deposits ( 34,338 ) 25,246 Net increase in interest-bearing deposits 105,991 115,255 Net decrease in short-term borrowings ( 9,468 ) ( 27,252 ) Proceeds from long-term borrowings 2,899 — Payments on long-term borrowings ( 8,450 ) ( 260 ) Cash dividends paid ( 10,993 ) ( 10,438 ) Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock ( 920 ) ( 1,230 ) Proceeds from issuance of common shares 397 282 Net cash provided by financing activities 45,118 101,603 Net increase (decrease) in cash and cash equivalents 3,132 ( 10,048 ) Cash and cash equivalents at beginning of period 154,022 415,727 Cash and cash equivalents at end of period $ 157,154 $ 405,679 Supplemental cash flow information: Interest paid $ 9,675 $ 2,656 Income taxes paid 105 — Supplemental noncash disclosures: Transfers from total loans to other real estate owned — 36 Noncash recognition of new leases 336 726 See Notes to the Unaudited Condensed Consolidated Financial Statements 7 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, 2022 ("Peoples' 2022 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’ 2022 Form 10-K, as updated by the information contained in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after March 31, 2023 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, 2022, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2022 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’ 2022 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") 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 was effective as of March 12, 2020 through December 31, 2022. The FASB further updated the guidance with ASU 2022-06, which deferred the sunset date of ASC Topic 848, Reference Rate Reform (Topic 848) from December 31, 2022 to December 31, 2024. ASU 2020-04 was early adopted by Peoples as of September 30, 2021, and did 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. Peoples established a working group, consisting of key stakeholders from throughout the company, to monitor developments relating to LIBOR changes and to guide the transition. This team has worked to successfully ensure that technology systems are prepared for the transition, loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders have been apprised of the transition. Based on the transition progress to date, Peoples ceased originating LIBOR-based products and began originating SOFR-indexed products. Peoples will continue to transition all remaining LIBOR-based products to SOFR-indexed products. Peoples will also continue to evaluate the transition process and align its trajectory with regulatory guidelines regarding the cessation of LIBOR as well as monitor new developments for transitioning to alternative reference rates, if necessary and as needed. 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 Accounting Standards Codification ("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. Effective January 1, 2023, Peoples adopted the amendments within ASU 2022-02, using the prospective transition method. The adoption of this guidance did not have a material impact on Peoples' consolidated financial statements. 8 Table of Contents Pursuant to the guidance in ASU 2022-02, when a loan is restructured, Peoples continues to measure the allowance for credit losses on the loan using a discounted cash flow approach that utilizes a prepayment-adjusted discount rate based on the loan’s restructured terms. Under the TDR accounting model, Peoples modeled a 12-month extension of the contractual terms for TDRs that were to mature within the next 12 months. As Peoples has elected a prospective transition, the extension on a loan that was previously restructured and accounted for as a TDR will continue to be measured as it had been historically in Peoples' allowance for credit losses until the loan is paid off, sold, liquidated, or subsequently restructured. Refer to "Note 4 Loans and Leases" for additional information. 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' 2022 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 March 31, 2023 December 31, 2022 (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 $ 58,438 $ — $ — $ 152,422 $ — $ — U.S. government sponsored agencies — 98,311 — — 88,115 — States and political subdivisions — 224,996 — — 225,882 — Residential mortgage-backed securities — 605,270 — — 604,653 — Commercial mortgage-backed securities — 52,153 — — 50,049 — Bank-issued trust preferred securities — 10,329 — — 10,278 — Total available-for-sale securities $ 58,438 $ 991,059 $ — $ 152,422 $ 978,977 $ — Equity investment securities (a) 168 199 — 147 199 — Derivative assets (b) — 27,339 — — 34,123 — Liabilities: Derivative liabilities (c) $ — $ 23,100 $ — $ — $ 28,529 $ — (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. 9 Table of Contents Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from q uoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2). Derivative Assets and Derivative Liabilities : Derivative assets and derivative 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). 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 March 31, 2023 and December 31, 2022. Non-Recurring Fair Value Measurements at Reporting Date March 31, 2023 December 31, 2022 (Dollars in thousands) Level 2 Level 3 Level 2 Level 3 Assets: Collateral dependent loans $ — $ 8,860 $ — $ 10,354 Loans held for sale (a) $ 1,251 $ — $ 1,254 $ — Other real estate owned $ — $ — $ — $ 55 (a) Loans held for sale are presented gross of a valuation allowance of $ 99 and $ 105 at March 31, 2023 and at December 31, 2022, respectively. 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, which Peoples then 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. 10 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 March 31, 2023 December 31, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents 1 $ 157,154 $ 157,154 $ 154,022 $ 154,022 Held-to-maturity investment securities: Obligations of: U.S. government sponsored agencies 2 194,184 186,446 132,366 123,020 States and political subdivisions (a) 2 145,085 114,192 145,263 108,776 Residential mortgage-backed securities 2 245,294 230,377 176,215 157,998 Commercial mortgage-backed securities 2 105,002 89,919 101,861 85,354 Commercial mortgage-backed securities 3 4,748 3,502 4,748 3,361 Total held-to-maturity securities 694,313 624,436 560,453 478,509 Other investment securities: Other investment securities at cost: Federal Home Loan Bank ("FHLB") stock N/A 27,381 27,381 26,605 26,605 Federal Reserve Bank ("FRB") stock N/A 21,231 21,231 21,231 21,231 Banker's Bank of Kentucky ("BBKY") stock N/A 355 355 355 355 Total other investment securities at cost 48,967 48,967 48,191 48,191 Other investment securities at fair value: Nonqualified deferred compensation (b) 1 2,405 2,405 2,048 2,048 Other investment securities (c) 2 1,024 1,024 1,024 1,024 Total other investment securities 52,396 52,396 51,263 51,263 Loans and leases, net of deferred fees and costs (d) 3 4,759,718 4,522,720 4,707,150 4,516,695 Bank owned life insurance 2 105,999 105,999 105,292 105,292 Liabilities: Deposits 2 $ 5,788,527 $ 4,924,296 $ 5,716,941 $ 4,682,491 Short-term borrowings 2 490,670 496,786 500,138 504,584 Long-term borrowings 2 95,629 96,822 101,093 101,992 (a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $ 241 at both March 31, 2023 and December 31, 2022. (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 March 31, 2023 and at December 31, 2022, 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 $ 53.3 million and $ 53.2 million at March 31, 2023 and at December 31, 2022, 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 and cash equivalents balances are 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). When observable market data is absent, the independent pricing service estimates prices based on underlying cash flow characteristics and discount rates and compares them to similar securities (Level 3). Management reviews the valuation 11 Table of Contents 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. 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 fair values described above are not intended to represent the aggregate fair value of Peoples. 12 Table of Contents 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 March 31, 2023 Obligations of: U.S. Treasury and government agencies $ 61,584 $ — $ ( 3,146 ) $ 58,438 U.S. government sponsored agencies 109,927 22 ( 11,638 ) 98,311 States and political subdivisions 254,523 32 ( 29,559 ) 224,996 Residential mortgage-backed securities 697,452 1,070 ( 93,252 ) 605,270 Commercial mortgage-backed securities 62,256 — ( 10,103 ) 52,153 Bank-issued trust preferred securities 10,779 40 ( 490 ) 10,329 Total available-for-sale securities $ 1,196,521 $ 1,164 $ ( 148,188 ) $ 1,049,497 December 31, 2022 Obligations of: U.S. Treasury and government agencies $ 158,473 $ — $ ( 6,051 ) $ 152,422 U.S. government sponsored agencies 101,753 18 ( 13,656 ) 88,115 States and political subdivisions 261,612 12 ( 35,742 ) 225,882 Residential mortgage-backed securities 707,025 1,017 ( 103,389 ) 604,653 Commercial mortgage-backed securities 61,091 — ( 11,042 ) 50,049 Bank-issued trust preferred securities 10,765 57 ( 544 ) 10,278 Total available-for-sale securities $ 1,300,719 $ 1,104 $ ( 170,424 ) $ 1,131,399 The gross gains and losses realized by Peoples from sales of available-for-sale securities for the periods ended March 31 were as follows: Three Months Ended March 31, (Dollars in thousands) 2023 2022 Gross gains realized $ 78 $ 146 Gross losses realized ( 2,013 ) ( 16 ) Net (loss) gain realized $ ( 1,935 ) $ 130 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. 13 Table of Contents The following table presents a summary of available-for-sale investment securities that had been in a continuous unrealized loss position for the periods identified: 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 March 31, 2023 Obligations of: U.S. Treasury and government agencies $ — $ — — $ 58,438 $ 3,146 18 $ 58,438 $ 3,146 U.S. government sponsored agencies 24,093 222 18 71,220 11,416 14 95,313 11,638 States and political subdivisions 52,634 355 96 161,939 29,204 117 214,573 29,559 Residential mortgage-backed securities 22,648 486 32 572,090 92,766 212 594,738 93,252 Commercial mortgage-backed securities 1,627 8 1 50,526 10,095 23 52,153 10,103 Bank-issued trust preferred securities 478 22 1 7,533 468 4 8,011 490 Total $ 101,480 $ 1,093 148 $ 921,746 $ 147,095 388 $ 1,023,226 $ 148,188 December 31, 2022 Obligations of: U.S. Treasury and government agencies $ 112,730 $ 2,772 13 $ 39,692 $ 3,279 11 $ 152,422 $ 6,051 U.S. government sponsored agencies 15,166 249 17 66,706 13,407 18 81,872 13,656 States and political subdivisions 60,324 714 114 156,900 35,028 117 217,224 35,742 Residential mortgage-backed securities 104,959 8,087 105 488,452 95,302 139 593,411 103,389 Commercial mortgage-backed securities 1,874 129 2 48,175 10,913 21 50,049 11,042 Bank-issued trust preferred securities 4,400 100 3 3,556 444 2 7,956 544 Total $ 299,453 $ 12,051 254 $ 803,481 $ 158,373 308 $ 1,102,934 $ 170,424 Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At March 31, 2023, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At March 31, 2023, 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 March 31, 2023 and December 31, 2022 were largely attributable to changes in market interest rates and spreads since the securities were purchased, and were not credit-related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment securities was $ 6.7 million at March 31, 2023 and $ 7.8 million at December 31, 2022. At March 31, 2023, 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 their book values. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities. Obligations of the U.S. treasury and government agencies, obligations of 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 to be impaired securities. The unrealized loss with respect to the four bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at March 31, 2023 was attributable to the subordinated nature of the debt. 14 Table of Contents The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at March 31, 2023. 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 $ 12,495 $ 49,089 $ — $ — $ 61,584 U.S. government sponsored agencies 9,309 47,321 45,042 8,255 109,927 States and political subdivisions 25,699 47,241 67,302 114,281 254,523 Residential mortgage-backed securities 1 1,415 56,175 639,861 697,452 Commercial mortgage-backed securities 1,635 7,463 29,862 23,296 62,256 Bank-issued trust preferred securities — 6,279 4,500 — 10,779 Total available-for-sale securities $ 49,139 $ 158,808 $ 202,881 $ 785,693 $ 1,196,521 Fair value Obligations of: U.S. Treasury and government agencies $ 12,195 $ 46,243 $ — $ — $ 58,438 U.S. government sponsored agencies 9,154 44,088 38,785 6,284 98,311 States and political subdivisions 25,637 45,497 57,761 96,101 224,996 Residential mortgage-backed securities 1 1,358 51,295 552,616 605,270 Commercial mortgage-backed securities 1,627 6,771 24,990 18,765 52,153 Bank-issued trust preferred securities — 6,284 4,045 — 10,329 Total available-for-sale securities $ 48,614 $ 150,241 $ 176,876 $ 673,766 $ 1,049,497 Total weighted-average yield 2.58 % 2.27 % 1.69 % 1.89 % 1.93 % 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 March 31, 2023 Obligations of: U.S. government sponsored agencies $ 194,184 $ — $ 385 $ ( 8,123 ) $ 186,446 States and political subdivisions 145,085 ( 241 ) 199 ( 30,851 ) 114,192 Residential mortgage-backed securities 245,294 — 1,321 ( 16,345 ) 230,377 Commercial mortgage-backed securities 109,750 — 49 ( 16,378 ) 93,421 Total held-to-maturity securities $ 694,313 $ ( 241 ) $ 1,954 $ ( 71,697 ) $ 624,436 December 31, 2022 Obligations of: U.S. government sponsored agencies $ 132,366 $ — $ 130 $ ( 9,476 ) $ 123,020 States and political subdivisions 145,263 ( 241 ) 162 ( 36,408 ) 108,776 Residential mortgage-backed securities 176,215 — 244 ( 18,461 ) 157,998 Commercial mortgage-backed securities 106,609 — — ( 17,894 ) 88,715 Total held-to-maturity securities $ 560,453 $ ( 241 ) $ 536 $ ( 82,239 ) $ 478,509 There were no sales of held-to-maturity securities for either of the three months ended March 31, 2023 or 2022. Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. Peoples has determined that the loss given default for U.S. government sponsored enterprise investment securities is zero , due to the fact that it is unlikely the ultimate guarantor (the U.S. government) would not perform on its implicit guarantee in the event of default. The remaining securities are included in the calculation of the allowance for credit losses for held-to-maturity investment securities. Peoples recorded $ 241,000 of allowance for credit losses for held-to-maturity securities at both March 31, 2023, and December 31, 2022. The following table presents a summary of held-to-maturity investment securities that had been in a continuous unrealized loss position for the periods identified: 15 Table of Contents 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 March 31, 2023 Obligations of: U.S. government sponsored agencies $ 81,988 $ 413 14 30,303 7,710 9 $ 112,291 $ 8,123 States and political subdivisions — — — 110,831 30,851 67 110,831 30,851 Residential mortgage-backed securities 67,554 884 20 87,045 15,461 23 154,599 16,345 Commercial mortgage-backed securities 22,008 462 5 65,621 15,916 31 87,629 16,378 Total $ 171,550 $ 1,759 39 $ 293,800 $ 69,938 130 $ 465,350 $ 71,697 December 31, 2022 Obligations of: U.S. government sponsored agencies $ 59,905 $ 651 17 29,306 8,825 9 $ 89,211 $ 9,476 States and political subdivisions 3,590 1,072 3 101,863 35,336 64 105,453 36,408 Residential mortgage-backed securities 71,582 2,904 21 72,862 15,557 18 144,444 18,461 Commercial mortgage-backed securities 26,869 650 8 61,846 17,244 29 88,715 17,894 Total $ 161,946 $ 5,277 49 $ 265,877 $ 76,962 120 $ 427,823 $ 82,239 The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at March 31, 2023. 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 23.3 % for the three months ended March 31, 2023 and December 31, 2022, 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 2,126 $ 24,178 $ 71,008 $ 96,872 $ 194,184 States and political subdivisions — 5,214 9,402 130,469 145,085 Residential mortgage-backed securities — 890 — 244,404 245,294 Commercial mortgage-backed securities 5,004 6,129 34,744 63,873 109,750 Total held-to-maturity securities $ 7,130 $ 36,411 $ 115,154 $ 535,618 $ 694,313 Fair value Obligations of: U.S. government sponsored agencies 2,102 $ 23,398 $ 70,844 $ 90,102 $ 186,446 States and political subdivisions — 4,944 8,165 101,083 114,192 Residential mortgage-backed securities — 866 — 229,511 230,377 Commercial mortgage-backed securities 4,899 5,471 30,996 52,055 93,421 Total held-to-maturity securities $ 7,001 $ 34,679 $ 110,005 $ 472,751 $ 624,436 Total weighted-average yield 2.01 % 2.01 % 4.29 % 3.45 % 3.50 % Other Investment Securities Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB stock and of FRB stock. 16 Table of Contents The following table summarizes the carrying value of Peoples' other investment securities: (Dollars in thousands) March 31, 2023 December 31, 2022 FHLB stock $ 27,381 $ 26,605 FRB stock 21,231 21,231 Nonqualified deferred compensation 2,405 2,048 Equity investment securities 367 346 Other investment securities 1,379 1,379 Total other investment securities $ 52,763 $ 51,609 During the three months ended March 31, 2023, Peoples redeemed $ 3.7 million of FHLB stock in order to be in compliance with the requirements of the FHLB. Peoples purchased $ 4.5 million of additional FHLB stock during the three months ended March 31, 2023, as a result of the FHLB's capital requirements on FHLB advances during the first quarter. During the three months ended March 31, 2023 and 2022, Peoples recognized a gain of $ 21,000 and a loss of $ 7,000 , respectively, for the change in fair value of equity investment securities in "Other non-interest income". At March 31, 2023, 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 amount of Peoples' pledged securities: Carrying Amount (Dollars in thousands) March 31, 2023 December 31, 2022 Securing public and trust department deposits, and repurchase agreements: Available-for-sale $ 704,074 $ 779,244 Held-to-maturity 372,372 312,921 Securing additional borrowing capacity at the FHLB and the FRB: Available-for-sale 3,949 3,972 Held-to-maturity 145,867 128,870 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 ("NSL") division and its Vantage Financial, LLC ("Vantage") subsidiary. Throughout this Form 10-Q, loans and leases 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) March 31, 2023 December 31, 2022 Construction $ 232,296 $ 246,941 Commercial real estate, other 1,481,062 1,423,518 Commercial and industrial 891,139 892,634 Premium finance 158,263 159,197 Leases 354,641 345,131 Residential real estate 712,602 723,360 Home equity lines of credit 174,383 177,858 Consumer, indirect 647,177 629,426 Consumer, direct 107,406 108,363 Deposit account overdrafts 749 722 Total loans, at amortized cost $ 4,759,718 $ 4,707,150 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 $ 15.4 million at March 31, 2023 and December 31, 2022. 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: March 31, 2023 December 31, 2022 (Dollars in thousands) Nonaccrual (a) Accruing Loans 90+ Days Past Due Nonaccrual (a) Accruing Loans 90+ Days Past Due Construction $ 1 $ — $ 12 $ — Commercial real estate, other 11,345 150 12,121 167 Commercial and industrial 3,064 228 3,462 130 Premium finance — 764 — 504 Leases 3,884 2,491 3,178 3,041 Residential real estate 8,641 238 9,496 917 Home equity lines of credit 793 127 820 58 Consumer, indirect 2,147 13 2,176 — Consumer, direct 105 3 208 25 Total loans, at amortized cost $ 29,980 $ 4,014 $ 31,473 $ 4,842 (a) There were $ 3.4 million of nonaccrual loans for which there was no allowance for credit losses at March 31, 2023 and $ 1.4 million at December 31, 2022. During the first three months of 2023, nonaccrual loans declined compared to at December 31, 2022, which was primarily due to $ 0.9 million of residential real estate being loans on nonaccrual status as of December 31, 2022 that were accruing as of March 31, 2023. The decrease in accruing loans 90+ days past due at March 31, 2023 when compared to at December 31, 2022, was primarily due to reductions of $ 0.7 million and $ 0.6 million in residential real estate loans and leases, respectively. The amount of interest income recognized on loans past due 90 days or more and accruing during the three months ended March 31, 2023 was $ 0.5 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 March 31, 2023 18 Table of Contents Loans Past Due Current Loans Total Loans (Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total Construction $ — $ — $ 1 $ 1 $ 232,295 $ 232,296 Commercial real estate, other 2,382 36 10,475 12,893 1,468,169 1,481,062 Commercial and industrial 641 863 2,928 4,432 886,707 891,139 Premium finance 886 307 764 1,957 156,306 158,263 Leases 7,054 2,908 6,310 16,272 338,369 354,641 Residential real estate 7,921 1,240 4,521 13,682 698,920 712,602 Home equity lines of credit 520 351 594 1,465 172,918 174,383 Consumer, indirect 3,541 769 811 5,121 642,056 647,177 Consumer, direct 402 8 44 454 106,952 107,406 Deposit account overdrafts — — — — 749 749 Total loans, at amortized cost $ 23,347 $ 6,482 $ 26,448 $ 56,277 $ 4,703,441 $ 4,759,718 December 31, 2022 Construction $ 196 $ 161 $ 9 $ 366 $ 246,575 $ 246,941 Commercial real estate, other 2,279 1,051 10,370 13,700 1,409,818 1,423,518 Commercial and industrial 2,522 289 3,449 6,260 886,374 892,634 Premium finance 646 816 504 1,966 157,231 159,197 Leases 6,074 1,921 6,218 14,213 330,918 345,131 Residential real estate 10,113 2,128 5,519 17,760 705,600 723,360 Home equity lines of credit 987 149 552 1,688 176,170 177,858 Consumer, indirect 5,866 1,048 921 7,835 621,591 629,426 Consumer, direct 703 70 108 881 107,482 108,363 Deposit account overdrafts — — — — 722 722 Total loans, at amortized cost $ 29,386 $ 7,633 $ 27,650 $ 64,669 $ 4,642,481 $ 4,707,150 Delinquency trends remained stable, as 98.8 % of Peoples' loan portfolio was considered “current” at March 31, 2023, compared to 98.6 % at December 31, 2022. 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) March 31, 2023 December 31, 2022 Loans pledged to FHLB $ 918,075 $ 783,843 Loans pledged to FRB 332,521 339,005 Credit Quality Indicators As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2022 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Commercial 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. Commercial leases, as well as loan relationships whose aggregate credit exposure to Peoples is equal to or less than $ 1.0 million are reviewed at least 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, follows: “Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist. 19 Table of Contents “Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position. “Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the weaknesses are not corrected. “Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of each of these loans as an estimated loss is deferred until its more exact status may be determined. “Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category. Consumer loans and other smaller-balance loans are evaluated and categorized as "substandard," "doubtful" or "loss" based upon the regulatory definition of these classes and consistent with regulatory requirements. 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 being "not rated." The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at March 31, 2023: Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Total Loans Construction Pass $ 4,420 $ 101,719 $ 87,280 $ 23,208 $ 3,241 $ 9,692 $ — $ — $ 229,560 Special mention 968 1,600 — — — 128 — — 2,696 Substandard — — — — — 40 — — 40 Total 5,388 103,319 87,280 23,208 3,241 9,860 — — 232,296 Current period gross charge-offs — — 9 — — — 9 Commercial real estate, other Pass 76,569 173,133 219,202 223,034 214,534 458,817 25,537 — 1,390,826 Special mention — — 184 1,200 5,128 17,998 50 — 24,560 Substandard — — 10,027 2,523 1,580 51,290 216 — 65,636 Doubtful — — — — — 40 — — 40 Total 76,569 173,133 229,413 226,757 221,242 528,145 25,803 — 1,481,062 Current period gross charge-offs — — — — — 33 33 Commercial and industrial Pass 31,958 157,317 135,973 60,760 70,506 124,255 208,303 — 789,072 Special mention — 8,794 14,375 20,441 2,021 7,579 25,116 — 78,326 Substandard 4 317 10,065 3,217 2,154 3,038 4,744 — 23,539 Doubtful — — — — — 202 — — 202 Total 31,962 166,428 160,413 84,418 74,681 135,074 238,163 — 891,139 20 Table of Contents Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Total Loans Current period gross charge-offs — — — — — 1 1 Premium finance Pass 79,103 79,160 — — — — — — 158,263 Total 79,103 79,160 — — — — — — 158,263 Current period gross charge-offs 23 — — — — — 23 Leases Pass 68,756 151,048 79,901 29,306 13,233 3,398 — — 345,642 Special mention 16 1,212 2,087 371 7 21 — — 3,714 Substandard 127 1,691 2,091 512 410 454 — — 5,285 Total 68,899 153,951 84,079 30,189 13,650 3,873 — — 354,641 Current period gross charge-offs — 108 189 100 58 14 469 Residential real estate Pass 10,786 77,494 136,027 57,950 42,022 377,777 — — 702,056 Substandard — — 280 146 560 9,488 — — 10,474 Loss — — — — — 72 — — 72 Total 10,786 77,494 136,307 58,096 42,582 387,337 — — 712,602 Current period gross charge-offs — — — — — 41 41 Home equity lines of credit Pass 4,830 43,159 34,111 18,852 13,774 58,278 114 635 173,118 Substandard — — 72 21 63 1,105 — — 1,261 Loss — — — — — 4 — — 4 Total 4,830 43,159 34,183 18,873 13,837 59,387 114 635 174,383 Current period gross charge-offs — — — — — 19 19 Consumer, indirect Pass 67,265 293,761 135,301 88,220 31,003 28,840 — — 644,390 Substandard — 566 849 590 315 423 — — 2,743 Loss — 33 10 1 — — — — 44 Total 67,265 294,360 136,160 88,811 31,318 29,263 — — 647,177 Current period gross charge-offs 18 471 279 90 21 50 929 Consumer, direct Pass 11,420 46,431 24,731 12,561 5,345 6,566 — — 107,054 21 Table of Contents Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Total Loans Substandard — 12 35 91 32 167 — — 337 Loss — — — — — 15 — — 15 Total 11,420 46,443 24,766 12,652 5,377 6,748 — — 107,406 Current period gross charge-offs — 40 12 34 10 8 104 Deposit account overdrafts 749 — — — — — — — 749 Current period gross charge-offs 227 — — — — — 227 Total loans, at amortized cost 356,971 1,137,447 892,601 543,004 405,928 1,159,687 264,080 635 4,759,718 Total current period gross charge-offs $ 268 $ 619 $ 489 $ 224 $ 89 $ 166 $ 1,855 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, 2022: Term Loans at Amortized Cost by Origination Year (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Construction Pass $ 82,143 $ 110,719 $ 27,893 $ 20,223 $ 656 $ 4,061 $ 44 $ 81 $ 245,739 Special mention — — — — — 818 — — 818 Substandard — 2 — — — 382 — — 384 Total 82,143 110,721 27,893 20,223 656 5,261 44 81 246,941 Commercial real estate, other Pass 165,282 224,727 227,799 202,877 110,564 369,578 27,300 5,217 1,328,127 Special mention — 189 1,099 5,519 3,111 29,334 105 — 39,357 Substandard — 8,327 2,591 1,366 1,296 42,172 216 190 55,968 Doubtful — — — — — 66 — — 66 Total 165,282 233,243 231,489 209,762 114,971 441,150 27,621 5,407 1,423,518 Commercial and industrial Pass 167,937 142,615 72,573 71,497 40,229 91,853 215,116 3,722 801,820 Special mention 10,248 14,981 11,923 2,711 236 4,877 16,235 — 61,211 Substandard 84 9,801 3,417 2,410 1,459 3,620 8,603 611 29,394 Doubtful — — — — — 209 — — 209 Total 178,269 167,397 87,913 76,618 41,924 100,559 239,954 4,333 892,634 Premium finance Pass 158,778 419 — — — — — — 159,197 Total 158,778 419 — — — — — — 159,197 Leases Pass 191,148 90,738 34,627 15,951 3,269 1,119 — — 336,852 Special mention 1,741 2,477 140 22 24 — — — 4,404 Substandard 546 1,840 571 464 454 — — — 3,875 Total 193,435 95,055 35,338 16,437 3,747 1,119 — — 345,131 Residential real estate 22 Table of Contents Term Loans at Amortized Cost by Origination Year (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Pass 78,313 138,860 58,869 42,840 28,174 364,635 — — 711,691 Substandard — — 137 569 563 10,302 — — 11,571 Loss — — — — — 98 — — 98 Total 78,313 138,860 59,006 43,409 28,737 375,035 — — 723,360 Home equity lines of credit Pass 41,781 35,768 19,863 14,820 13,800 50,291 334 2,096 176,657 Substandard — 60 — 53 126 958 — — 1,197 Loss — — — — — 4 — — 4 Total 41,781 35,828 19,863 14,873 13,926 51,253 334 2,096 177,858 Consumer, indirect Pass 305,814 149,445 100,027 35,988 22,789 12,741 — — 626,804 Substandard 384 811 659 266 304 193 — — 2,617 Loss — 5 — — — — — — 5 Total 306,198 150,261 100,686 36,254 23,093 12,934 — — 629,426 Consumer, direct Pass 50,889 28,351 14,558 6,333 3,725 3,975 — — 107,831 Special mention — — — — — — — — — Substandard 97 63 138 46 21 150 — — 515 Loss — — — — — 17 — — 17 Total 50,986 28,414 14,696 6,379 3,746 4,142 — — 108,363 Deposit account overdrafts 722 — — — — — — — 722 Total loans, at amortized cost $ 1,255,907 $ 960,198 $ 576,884 $ 423,955 $ 230,800 $ 991,453 $ 267,953 $ 11,917 $ 4,707,150 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. 23 Table of Contents • 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) March 31, 2023 December 31, 2022 Commercial real estate, other 7,862 8,362 Commercial and industrial 470 1,456 Residential real estate 528 536 Total collateral dependent loans $ 8,860 $ 10,354 The decrease in collateral dependent loans at March 31, 2023, compared to December 31, 2022, was primarily due to two large relationships that were paid in full during the three months ended March 31, 2023. Modifications for Borrowers Experiencing Financial Difficulty Subsequent to the Adoption of ASU 2022-02 As part of Peoples' loss mitigation activities, Peoples may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty. The most common modifications to the contractual terms of a loan to a borrower experiencing financial difficulty include an extension of the maturity date, a reduction in the interest rate for the remaining life of the loan, a temporary period of interest-only payments, and a reduction in the contractual payment amount for either a short period or the remaining term of the loan. In addition to loan modifications, Peoples also provides other loss mitigation options, such as forbearance and repayment plans, to assist borrowers who experience financial difficulties. In assessing whether or not a borrower is experiencing financial difficulty, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (1) the borrower is currently in payment default on any of the borrower's debt; (2) a payment default is probable in the foreseeable future without the modification; (3) the borrower has declared or is in the process of declaring bankruptcy; and (4) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification. The following table displays the amortized cost of loans that were restructured during the three months ended March 31, 2023, presented by loan classification. For the Three Months Ended March 31, 2023 Payment Delay (Only) (Dollars in thousands) Forbearance Plan Payment Deferral Term Extension Forbearance Plan and Term Extension Total Percentage of Total by Loan Category (a)(b) Construction $ — $ 1,600 $ — $ — $ 1,600 0.69 % Commercial real estate 200 — — — 200 0.01 % Commercial and industrial — — 9 335 344 0.04 % Residential real estate — — 221 — 221 0.03 % Consumer, indirect — — 28 — 28 — % Total $ 200 $ 1,600 $ 258 $ 335 $ 2,393 0.05 % (a) Based on the amortized cost basis as of period end, divided by the period end amortized cost basis of the corresponding class of financing receivable. (b) Each with "--%" not meaningful. 24 Table of Contents The following table summarizes the financial impacts of loan modifications and payment deferrals made to loans during the three months ended March 31, 2023, presented by loan classification. For the Three Months Ended March 31, 2023 Weighted-Average Term Extension (in months) Average Amount Capitalized as a Result of a Payment Delay (a) Commercial and industrial 12 $ — Residential real estate 210 8,969 Consumer, indirect 2 — (a) Represents the average amount of delinquency-related amounts that were capitalized as part of the loan balance. Amounts are in whole dollars. As of March 31, 2023, there were no loans that were modified for borrowers experiencing financial difficulty since the adoption of ASU 2022-02 on January 1, 2023, and subsequently defaulted during the period. For purposes of this disclosure, Peoples defines loans that had a payment default as loans that are 90 days or more past due following a modification through the three months ended March 31, 2023. The following table displays an aging analysis of loans that were modified on or after January 1, 2023, the date Peoples adopted ASU 2022-02, through March 31, 2023, presented by classification and class of financing receivable. As of March 31, 2023 (Dollars in thousands) 30-59 Days Delinquent 60-89 Days Delinquent 90+ Days Delinquent Total Delinquent Current Total Construction $ — $ — $ — $ — $ 1,600 $ 1,600 Commercial real estate — — — — 200 200 Commercial and industrial — — — — 344 344 Residential real estate — — — — 221 221 Consumer, indirect 28 — — 28 — 28 Total loans modified (a) $ 28 $ — $ — $ 28 $ 2,365 $ 2,393 (a) Represents the amortized cost basis as of period end. Troubled Debt Restructurings Disclosures Prior to the Adoption of ASU 2022-02 Prior to the adoption of ASU 2022-02, Peoples accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. See “Note 1 Summary of Significant Accounting Policies” in Peoples' 2022 Form 10-K for more information on our TDR policy and the COVID-19 relief from TDR accounting and disclosure requirements, and “Note 1, Summary of Significant Accounting Policies” in this report for more information on the adoption of ASU 2022-02. 25 Table of Contents The following table summarizes the loans that were modified as TDRs during the three months ended March 31, 2022: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment March 31, 2022 Construction 1 $ 344 $ 344 $ 343 Commercial real estate, other 1 102 102 102 Commercial and industrial 1 4 4 4 Residential real estate 10 493 502 501 Home equity lines of credit 1 22 22 21 Consumer, indirect 10 106 106 105 Consumer, direct 2 14 14 14 Consumer 12 120 120 119 Total 26 $ 1,085 $ 1,094 $ 1,090 (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. 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' 2022 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. Following the reasonable and supportable period, Peoples reverts the macroeconomic variables to their long run average over a four quarter reversion period. 26 Table of Contents Changes in the allowance for credit losses for the three months ended March 31, 2023 and March 31, 2022 are summarized below: (Dollars in thousands) Beginning Balance, December 31, 2022 Initial Allowance for Acquired PCD Assets Provision for (Recovery of) Credit Losses (a) Charge-offs Recoveries Ending Balance, March 31, 2023 Construction $ 1,250 $ — $ 32 $ ( 9 ) $ — $ 1,273 Commercial real estate, other 17,710 — ( 1,230 ) ( 33 ) 27 16,474 Commercial and industrial 8,229 — 79 ( 1 ) — 8,307 Premium finance 344 — 103 ( 23 ) 9 433 Leases 8,495 — 1,003 ( 469 ) 80 9,109 Residential real estate 6,357 — 159 ( 41 ) 29 6,504 Home equity lines of credit 1,693 — 43 ( 19 ) — 1,717 Consumer, indirect 7,448 — 1,183 ( 929 ) 79 7,781 Consumer, direct 1,575 — 133 ( 104 ) 15 1,619 Deposit account overdrafts 61 — 180 ( 227 ) 72 86 Total $ 53,162 $ — $ 1,685 $ ( 1,855 ) $ 311 $ 53,303 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, December 31, 2021 Initial Allowance for Acquired PCD Assets (a) (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, March 31, 2022 Construction $ 2,999 $ — $ ( 268 ) $ — $ — $ 2,731 Commercial real estate, other 29,147 ( 217 ) ( 7,646 ) ( 278 ) 49 21,055 Commercial and industrial 11,063 ( 165 ) ( 325 ) ( 463 ) 4 10,114 Premium finance 379 — ( 20 ) ( 14 ) — 345 Leases 4,797 132 1,243 ( 473 ) 176 5,875 Residential real estate 7,233 ( 521 ) 78 ( 309 ) 14 6,495 Home equity lines of credit 2,005 ( 11 ) ( 113 ) ( 16 ) 29 1,894 Consumer, indirect 5,326 ( 41 ) 186 ( 385 ) 86 5,172 Consumer, direct 961 — 200 ( 136 ) 11 1,036 Deposit account overdrafts 57 — 199 ( 259 ) 54 51 Total $ 63,967 $ ( 823 ) $ ( 6,466 ) $ ( 2,333 ) $ 423 $ 54,768 (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. s adopted ASU 2016-13 - Financial Instruments (c) (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments During the first quarter of 2023, Peoples recorded a provision for credit losses for loans of $ 1.7 million, largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction in reserves for 27 Table of Contents individually analyzed loans. Net charge-offs for the first quarter of 2023 were $ 1.5 million, primarily due to net charge-offs of indirect consumer loans of $ 0.9 million. During the first quarter of 2022, Peoples recorded a recovery of credit losses of $ 6.8 million driven by a continued improvement in economic factors and changes in loss drivers used in the CECL model. Leases designated as purchased-credit deteriorated ("PCD") acquired from Vantage increased the allowance for credit losses by $ 132,000 . Net charge-offs for the first quarter of 2022 were $ 1.9 million, and included charge-offs of two commercial and industrial loans aggregating $ 0.7 million. Peoples had recorded an allowance for unfunded commitments of $ 2.1 million as of March 31, 2023, an increase compared to $ 2.0 million at December 31, 2022. 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) March 31, 2023 December 31, 2022 Goodwill, beginning of year $ 292,397 $ 264,193 Goodwill recorded from acquisitions 200 28,204 Goodwill, end of period $ 292,597 $ 292,397 On January 3, 2023, Peoples acquired a trust and investment business, for which it recognized $ 200,000 in goodwill. On March 7, 2022, Peoples Bank purchased 100 % of the equity of Vantage pursuant to an Equity Purchase Agreement, dated February 16, 2022, at which point Vantage became a legal subsidiary of Peoples Bank. In 2022, Peoples recorded $ 27.2 million of goodwill related to this acquisition, which was offset partially by an adjustment of $ 1.3 million to the goodwill balance related to the merger with Premier Financial Bancorp, Inc. (“Premier” and the "Premier Merger"). Other Intangible Assets Other intangible assets were comprised of the following at March 31, 2023, and at December 31, 2022: (Dollars in thousands) Core Deposits Customer Relationships Indefinite-Lived Trade Names Total March 31, 2023 Gross intangibles $ 26,464 $ 39,241 $ 2,491 $ 68,196 Accumulated amortization ( 20,983 ) ( 16,968 ) — ( 37,951 ) Total acquisition-related intangibles $ 5,481 $ 22,273 $ 2,491 $ 30,245 Servicing rights 1,720 Total other intangibles $ 31,965 December 31, 2022 Gross intangibles $ 26,464 $ 25,173 $ 1,274 $ 52,911 Intangibles recorded from acquisitions — 14,067 1,217 15,284 Accumulated amortization ( 20,667 ) ( 15,412 ) — ( 36,079 ) Total acquisition-related intangibles $ 5,797 $ 23,828 $ 2,491 $ 32,116 Servicing rights 1,816 Total other intangibles $ 33,932 Peoples recorded no other intangible assets for the three months ended March 31, 2023. Other intangible assets recorded from the above-mentioned acquisitions in 2022 were $ 10.8 million of customer relationship intangible assets, $ 1.2 million of non-compete intangible assets, and $ 1.2 million of indefinite-lived trade name 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. Refer to "Note 13 Acquisitions" for additional information. The following table details estimated aggregate future amortization of other intangible assets at March 31, 2023: 28 Table of Contents (Dollars in thousands) Core Deposits Customer Relationships Total Remaining nine months of 2023 $ 942 $ 4,705 $ 5,647 2024 1,058 5,325 6,383 2025 891 4,255 5,146 2026 731 3,114 3,845 2027 572 2,289 2,861 Thereafter 1,287 2,585 3,872 Total $ 5,481 $ 22,273 $ 27,754 The weighted average amortization period of other intangible assets is 7.2 years. Note 6 Deposits Peoples’ deposit balances were comprised of the following: (Dollars in thousands) March 31, 2023 December 31, 2022 Retail CDs: $100 or more $ 331,912 $ 263,341 Less than $100 290,179 266,895 Retail CDs 622,091 530,236 Interest-bearing deposit accounts 1,085,169 1,160,182 Savings accounts 1,024,638 1,068,547 Money market deposit accounts 579,106 617,029 Governmental deposit accounts 649,303 625,965 Brokered CDs 273,156 125,580 Total interest-bearing deposits 4,233,463 4,127,539 Non-interest-bearing deposits $ 1,555,064 1,589,402 Total deposits $ 5,788,527 $ 5,716,941 Uninsured deposits were $ 1.7 billion and $ 1.6 billion at March 31, 2023 and December 31, 2022, respectively. Uninsured amounts are estimated based on the portion of the respective customer account balances that met or exceeded the FDIC limit of $250,000. Peoples pledges investment securities against certain governmental deposit accounts, which covered over $ 698.9 million of the uninsured deposit balances at March 31, 2023. 29 Table of Contents Uninsured time deposits are broken out below by time remaining until maturity. (Dollars in thousands) March 31, 2023 December 31, 2022 3 months or less $ 16,476 $ 19,282 Over 3 to 6 months 18,190 14,871 Over 6 to 12 months 32,554 14,383 Over 12 months 64,405 52,216 Total $ 131,625 $ 100,752 The contractual maturities of CDs for each of the next five years, including the remainder of 2023, and thereafter are as follows: (Dollars in thousands) Retail Brokered Total Remaining nine months ending December 31, 2023 $ 270,212 $ 273,156 $ 543,368 Year ending December 31, 2024 271,410 — 271,410 Year ending December 31, 2025 31,984 — 31,984 Year ending December 31, 2026 19,269 — 19,269 Year ending December 31, 2027 26,482 — 26,482 Thereafter 2,734 — 2,734 Total CDs $ 622,091 $ 273,156 $ 895,247 At March 31, 2023, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $ 125.0 million, of which $ 125.0 million were funded by brokered CDs. Brokered CDs used to fund 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." Note 7 Stockholders’ Equity The following table details the progression in Peoples’ common shares and treasury stock during the three months ended March 31, 2023: Common Shares Treasury Stock Shares at December 31, 2022 29,857,920 1,643,461 Changes related to stock-based compensation awards: Release of restricted common shares — 25,977 Cancellation of restricted common shares — 4,557 Grant of restricted common shares — ( 196,713 ) Grant of unrestricted common shares — ( 1,300 ) Changes related to deferred compensation plan for Boards of Directors: Purchase of treasury stock — 4,665 Disbursed out of treasury stock — ( 730 ) Common shares issued under dividend reinvestment plan 10,536 — Common shares issued under compensation plan for Boards of Directors — ( 5,272 ) Common shares issued under employee stock purchase plan — ( 17,034 ) Shares at March 31, 2023 29,868,456 1,457,611 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 March 31, 2023, Peoples had repurchased 263,183 common shares totaling $ 7.4 million under the share repurchase program. There were no common shares repurchased during the first three months of 2023 . 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 March 31, 2023, Peoples had no preferred shares issued or outstanding. On January 23, 2023 , Peoples' Board of Directors declared a quarterly cash dividend of $ 0.38 per common share, payable on February 21, 2023, to shareholders of record on February 6, 2023. On April 24, 2023, Peoples' Board of Directors declared a quarterly cash dividend of $ 0.39 per common share, payable on May 22, 2023, to shareholders of record on May 8, 2023. The following table details the cash dividends declared per common share during the first two quarters of 2023 and the comparable periods of 2022: 2023 2022 First quarter $ 0.38 $ 0.36 Second quarter 0.39 0.38 Total dividends declared $ 0.77 $ 0.74 Accumulated Other Comprehensive (Loss) Income The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the three months ended March 31, 2023: (Dollars in thousands) Unrealized (Loss) Gain on Securities Unrecognized Net Pension and Postretirement Costs Unrealized Gain (Loss) on Cash Flow Hedges Accumulated Other Comprehensive (Loss) Income Balance, December 31, 2022 $ ( 129,896 ) $ ( 1,633 ) $ 4,393 $ ( 127,136 ) Reclassification adjustments to net income: Realized loss on sale of securities, net of tax 1,483 — — 1,483 Other comprehensive income (loss), net of reclassifications and tax 15,715 2 ( 1,043 ) 14,674 Balance, March 31, 2023 $ ( 112,698 ) $ ( 1,631 ) $ 3,350 $ ( 110,979 ) 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. 30 Table of Contents The expected long-term rate of return on plan assets, which was determined as of January 1, 2023, 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 March 31, (Dollars in thousands) 2023 2022 Interest cost $ 88 $ 66 Expected return on plan assets ( 166 ) ( 168 ) Amortization of net loss 2 20 Settlement of benefit obligation — — Net periodic loss $ ( 76 ) $ ( 82 ) Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss. Peoples did no t record a settlement charge during the three months ended March 31, 2023 or March 31, 2022 under the noncontributory defined benefit pension plan. Note 9 Earnings Per Common Share The calculations of basic and diluted earnings per common share were as follows: Three Months Ended March 31, (Dollars in thousands, except per common share data) 2023 2022 Net income available to common shareholders $ 26,560 $ 23,577 Less: Dividends paid on unvested common shares ( 102 ) ( 48 ) Add: Undistributed loss allocated to unvested common shares ( 34 ) ( 21 ) Net earnings allocated to common shareholders $ 26,424 $ 23,508 Weighted-average common shares outstanding 27,891,760 28,006,165 Effect of potentially dilutive common shares 130,119 122,966 Total weighted-average diluted common shares outstanding 28,021,879 28,129,131 Earnings per common share: Basic $ 0.95 $ 0.84 Diluted $ 0.94 $ 0.84 Anti-dilutive common shares excluded from calculation: Restricted common shares 155,018 — 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. 31 Table of Contents 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 March 31, 2023, 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, which will continue to be rolled through the life of the swaps. At March 31, 2023 and at December 31, 2022, the interest rate swaps were designated as cash flow hedges of $ 125.0 million in brokered CDs, which are expected to be extended every 90 days through the maturity dates of the swaps. 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 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 March 31, 2023, and 2022, Peoples had recorded reclassifications of gains to earnings of $ 0.1 million and reclassifications of losses to earnings of $ 0.6 million, respectively. During the next twelve months, Peoples estimates that $ 1.3 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) March 31, 2023 December 31, 2022 Notional amount $ 125,000 $ 125,000 Weighted average pay rates 2.26 % 2.26 % Weighted average receive rates 4.31 % 4.44 % Weighted average maturity 2.3 years 2.6 years Pre-tax changes in fair value included in AOCI $ 4,370 $ 5,727 32 Table of Contents The following table presents changes in fair value recorded in AOCI and in the Consolidated Statements of Operations related to the cash flow hedges for three months ended March 31, 2023, and 2022: Three Months Ended March 31, (Dollars in thousands) 2023 2022 Amount of (losses) gains recorded in AOCI, pre-tax $ ( 1,356 ) $ 5,456 The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: March 31, 2023 December 31, 2022 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Included in "Other assets": Interest rate swaps related to debt $ 125,000 $ 4,239 $ 125,000 $ 5,594 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 months ended March 31, 2023 and as of or for the year ended December 31, 2022. The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: March 31, 2023 December 31, 2022 (Dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Included in "Other assets": Interest rate swaps related to commercial loans $ 381,196 $ 23,100 $ 390,126 $ 28,529 Included in "Accrued expenses and other liabilities": Interest rate swaps related to commercial loans $ 381,196 $ 23,100 $ 390,126 $ 28,529 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 March 31, 2023 and December 31, 2022, Peoples had no cash pledged, while counterparties had $ 16.7 million of cash pledged at March 31, 2023 and $ 20.9 million of cash pledged at December 31, 2022. Peoples had no pledged investment securities at March 31, 2023 or at December 31, 2022, while the counterparties had pledged investment securities in the amounts of $ 2.4 million at March 31, 2023 and $ 2.5 million at December 31, 2022. 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. 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. 33 Table of Contents 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 three months of 2023, Peoples granted an aggregate of 188,372 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 three months ended March 31, 2023: 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 Oustanding at January 1, 2023 138,522 $ 27.25 295,875 $ 32.20 Awarded 8,341 28.70 188,372 30.30 Released ( 5,316 ) 31.35 ( 70,458 ) 32.91 Forfeited — — ( 4,557 ) 31.46 Outstanding at March 31, 2023 141,547 $ 27.18 409,232 $ 31.21 For the three months ended March 31, 2023, the total intrinsic value for restricted common shares released was $ 2.3 million compared to $ 3.3 million for the three months ended March 31, 2022. 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 . 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 March 31, (Dollars in thousands) 2023 2022 Employee stock-based compensation expense: Stock grant expense $ 2,150 $ 1,577 Employee stock purchase plan expense 39 28 Total employee stock-based compensation expense 2,189 1,605 Non-employee director stock-based compensation expense 136 124 Total stock-based compensation expense 2,325 1,729 Recognized tax benefit ( 543 ) ( 396 ) Net stock-based compensation expense $ 1,782 $ 1,333 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 $ 7.0 million at March 31, 2023, which will be recognized over a weighted-average period of 2.2 years. Note 12 Revenue The following table details Peoples' revenue from contracts with customers: Three Months Ended March 31, (Dollars in thousands) 2023 2022 Insurance income: Commission and fees from sale of insurance policies (a) $ 3,816 $ 3,313 Fees related to third-party administration services (a) 82 72 34 Table of Contents Three Months Ended March 31, (Dollars in thousands) 2023 2022 Performance-based commissions (b) 1,527 1,346 Trust and investment income: Fiduciary income (a) 2,457 1,965 Brokerage income (a) 1,627 2,311 Electronic banking income: Interchange income (a) 4,181 4,113 Promotional and usage income (a) 1,262 1,140 Deposit account service charges: Ongoing maintenance fees for deposit accounts (a) 1,461 1,311 Transaction-based fees (b) 2,062 2,115 Commercial loan swap fees (b) — 168 Other non-interest income transaction-based fees (b) 430 257 Total revenue from contracts with customers $ 18,905 $ 18,111 Timing of revenue recognition: Services transferred over time $ 14,886 $ 14,225 Services transferred at a point in time 4,019 3,886 Total revenue from contracts with customers $ 18,905 $ 18,111 (a) Services transferred over time. (b) Services transferred at a point in time. Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income and certain insurance income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income. The following table details the changes in Peoples' contract assets and contract liabilities for the three-month period ended March 31, 2023: Contract Assets Contract Liabilities (Dollars in thousands) Balance, January 1, 2023 $ 1,294 $ 5,634 Additional income receivable 50 — Recognition of income previously deferred — ( 70 ) Balance, March 31, 2023 $ 1,344 $ 5,564 Note 13 Acquisitions 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. 35 Table of Contents Peoples recorded acquisition-related expenses during the three months ended March 31, 2023 and 2022 of $ 45,000 and $ 0.8 million, respectively, in professional fees related to the Vantage acquisition. The following table provides the purchase price calculation as of the date of the acquisition of Vantage, and the assets acquired and liabilities assumed at their estimated fair values. (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 purchased credit deteriorated leases) ( 801 ) Net leases 154,925 Bank premises and equipment 116 Other intangible assets 13,207 Other assets 1,506 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. Peoples recorded other intangible assets, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. 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 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 the 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 36 Table of Contents 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 these 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 an estimated residual value, which is 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Interest and fees on leases (a) $ 9,643 $ 6,102 Other non-interest income 1,077 775 Total lease income $ 10,720 $ 6,877 (a) Included in "Interest and fees on loans and leases" in 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. 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) March 31, 2023 December 31, 2022 Lease payments receivable, at amortized cost $ 381,549 $ 367,681 Estimated residual values 36,078 35,045 Initial direct costs 4,623 4,233 Deferred revenue ( 67,609 ) ( 61,828 ) Net investment in leases 354,641 345,131 Allowance for credit losses - leases ( 9,109 ) ( 8,495 ) Net investment in leases, after allowance for credit losses $ 345,532 $ 336,636 The following table summarizes the contractual maturities of leases: (Dollars in thousands) Balance Remaining nine months ending December 31, 2023 $ 68,772 Year ending December 31, 2024 87,814 Year ending December 31, 2025 98,604 Year ending December 31, 2026 64,769 Year ending December 31, 2027 42,481 Thereafter 19,109 Lease payments receivable, at amortized cost $ 381,549 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 March 31, 2023, 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 37 Table of Contents make lease payments arising from the lease. Operating lease ROU assets and lease 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 (Dollars in thousands) March 31, 2023 March 31, 2022 Operating lease expense 695 603 Short-term lease expense 95 168 Total lease expense $ 790 $ 771 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. 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) March 31, 2023 December 31, 2022 ROU assets: Other assets $ 7,181 $ 6,825 Lease liabilities: Accrued expenses and other liabilities $ 7,880 $ 7,551 Other information: Weighted-average remaining lease term 8.5 years 8.8 years Weighted-average discount rate 2.67 % 2.70 % During the three months ended March 31, 2023 and 2022, Peoples paid cash of $ 0.7 million and $ 0.6 million, respectively, for operating leases. The following table summarizes the maturity of remaining lease liabilities: (Dollars in thousands) Balance Remaining nine months ending December 31, 2023 $ 2,008 Year ending December 31, 2024 1,650 Year ending December 31, 2025 1,088 Year ending December 31, 2026 905 Year ending December 31, 2027 747 Thereafter 3,007 Total undiscounted lease payments $ 9,405 Imputed interest $ ( 1,525 ) Total lease liabilities $ 7,880 38 Table of Contents