PEOPLES BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2023 December 31, 2022 (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and balances due from banks $ 92,114 $ 94,679 Interest-bearing deposits in other banks 56,368 59,343 Total cash and cash equivalents 148,482 154,022 Available-for-sale investment securities, at fair value (amortized cost of $ 1,292,331 at June 30, 2023 and $ 1,300,719 at December 31, 2022) (a) 1,133,439 1,131,399 Held-to-maturity investment securities, at amortized cost (fair value of $ 594,268 at June 30, 2023 and $ 478,509 at December 31, 2022) (a) 673,925 560,212 Other investment securities 63,579 51,609 Total investment securities (a) 1,870,943 1,743,220 Loans and leases, net of deferred fees and costs (b) 5,974,596 4,707,150 Allowance for credit losses ( 61,211 ) ( 53,162 ) Net loans and leases (c) 5,913,385 4,653,988 Loans held for sale 3,218 2,140 Bank premises and equipment, net of accumulated depreciation 103,924 82,934 Bank owned life insurance 138,181 105,292 Goodwill 356,397 292,397 Other intangible assets 56,775 33,932 Other assets 195,330 139,379 Total assets $ 8,786,635 $ 7,207,304 Liabilities Deposits: Non-interest-bearing $ 1,682,634 $ 1,589,402 Interest-bearing 5,277,235 4,127,539 Total deposits 6,959,869 5,716,941 Short-term borrowings 569,935 500,138 Long-term borrowings 123,579 101,093 Accrued expenses and other liabilities 134,345 103,804 Total liabilities 7,787,728 6,421,976 Stockholders’ equity Preferred shares, no par value, 50,000 shares authorized, no shares issued at June 30, 2023 or at December 31, 2022 — — Common shares, no par value, 50,000,000 shares authorized, 36,711,075 shares issued at June 30, 2023 and 29,857,920 shares issued at December 31, 2022, including at each date shares held in treasury 862,960 686,450 Retained earnings 289,445 265,936 Accumulated other comprehensive loss, net of deferred income taxes ( 118,920 ) ( 127,136 ) Treasury stock, at cost, 1,415,639 shares at June 30, 2023 and 1,643,461 shares at December 31, 2022 ( 34,578 ) ( 39,922 ) Total stockholders’ equity 998,907 785,328 Total liabilities and stockholders’ equity $ 8,786,635 $ 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 June 30, 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 Six Months Ended June 30, June 30, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Interest income: Interest and fees on loans and leases $ 91,848 $ 56,764 $ 163,610 $ 106,964 Interest and dividends on taxable investment securities 12,771 6,967 23,774 13,017 Interest on tax-exempt investment securities 1,125 1,026 2,121 2,041 Other interest income 673 299 1,061 459 Total interest income 106,417 65,056 190,566 122,481 Interest expense: Interest on deposits 14,403 2,014 20,064 4,067 Interest on short-term borrowings 5,314 261 9,771 599 Interest on long-term borrowings 1,847 1,313 3,000 2,037 Total interest expense 21,564 3,588 32,835 6,703 Net interest income 84,853 61,468 157,731 115,778 Provision for (recovery of) credit losses 7,983 ( 780 ) 9,836 ( 7,587 ) Net interest income after provision for (recovery of) credit losses 76,870 62,248 147,895 123,365 Non-interest income: Electronic banking income 6,466 5,419 11,909 10,672 Insurance income 4,004 3,646 9,429 8,377 Trust and investment income 4,414 4,246 8,498 8,522 Deposit account service charges 4,153 3,558 7,676 6,984 Lease income 1,719 431 2,796 1,206 Bank owned life insurance income 842 797 1,549 1,228 Mortgage banking income 189 352 503 788 Net loss on asset disposals and other transactions ( 1,665 ) ( 152 ) ( 1,911 ) ( 279 ) Net (loss) gain on investment securities ( 166 ) ( 44 ) ( 2,101 ) 86 Other non-interest income 1,059 1,133 1,727 1,852 Total non-interest income 21,015 19,386 40,075 39,436 Non-interest expense: Salaries and employee benefit costs 38,025 27,585 70,053 55,314 Net occupancy and equipment expense 5,380 4,768 10,335 9,856 Professional fees 7,438 2,280 10,319 5,952 Data processing and software expense 4,728 3,033 9,290 5,949 Amortization of other intangible assets 2,800 2,034 4,671 3,742 Electronic banking expense 1,832 2,727 3,323 5,486 Marketing expense 1,357 860 2,287 1,855 FDIC insurance expense 1,464 1,018 2,265 2,212 Franchise tax expense 872 1,102 1,906 1,866 Communication expense 724 649 1,337 1,274 Other loan expenses 538 445 1,277 1,277 Other non-interest expense 5,465 3,398 10,039 6,745 Total non-interest expense 70,623 49,899 127,102 101,528 Income before income taxes 27,262 31,735 60,868 61,273 Income tax expense 6,166 6,847 13,212 12,808 Net income $ 21,096 $ 24,888 $ 47,656 $ 48,465 Earnings per common share - basic $ 0.64 $ 0.89 $ 1.57 $ 1.73 Earnings per common share - diluted $ 0.64 $ 0.88 $ 1.56 $ 1.72 Weighted-average number of common shares outstanding - basic 32,526,962 27,919,133 30,222,165 27,962,405 Weighted-average number of common shares outstanding - diluted 32,649,976 28,061,736 30,314,504 28,041,145 Cash dividends declared $ 13,422 $ 10,757 $ 24,147 $ 20,933 Cash dividends declared per common share $ 0.39 $ 0.38 $ 0.77 $ 0.74 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 Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Net income $ 21,096 $ 24,888 $ 47,656 $ 48,465 Other comprehensive (loss) income: Available-for-sale investment securities: Gross unrealized holding (loss) gain arising during the period ( 12,034 ) ( 42,648 ) 8,328 ( 114,284 ) Related tax benefit (expense) 3,154 10,238 ( 1,493 ) 26,686 Reclassification adjustment for net loss (gain) included in net income 166 44 2,101 ( 86 ) Related tax (expense) benefit ( 43 ) ( 10 ) ( 495 ) 20 Net effect on other comprehensive (loss) income ( 8,757 ) ( 32,376 ) 8,441 ( 87,664 ) Defined benefit plan: Net gain arising during the period — 75 — 61 Related tax expense — ( 17 ) — ( 14 ) Amortization of unrecognized loss and service cost on benefit plans 7 17 9 38 Related tax benefit ( 2 ) ( 4 ) ( 2 ) ( 9 ) Net effect on other comprehensive income 5 71 7 76 Cash flow hedges: Net gain (loss) arising during the period 1,073 2,104 ( 283 ) 7,560 Related tax (expense) benefit ( 262 ) ( 492 ) 51 ( 1,712 ) Net effect on other comprehensive income (loss) 811 1,612 ( 232 ) 5,848 Total other comprehensive (loss) gain, net of tax ( 7,941 ) ( 30,693 ) 8,216 ( 81,740 ) Total comprehensive income (loss) $ 13,155 $ ( 5,805 ) $ 55,872 $ ( 33,275 ) See Notes to the Unaudited Condensed Consolidated Financial Statements 5 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, March 31, 2023 $ 684,367 $ 281,771 $ ( 110,979 ) $ ( 35,616 ) $ 819,543 Net income — 21,096 — — 21,096 Other comprehensive loss, net of tax — — ( 7,941 ) — ( 7,941 ) Cash dividends declared — ( 13,422 ) — ( 13,422 ) Reissuance of treasury stock for common share awards ( 725 ) — — 725 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 115 115 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 134 ) ( 134 ) Common shares issued under dividend reinvestment plan 350 — — — 350 Common shares issued under compensation plan for Boards of Directors 11 — — 124 135 Common shares issued under employee stock purchase plan 19 — — 208 227 Stock-based compensation 1,009 — — — 1,009 Issuance of common shares related to merger with Limestone Bancorp, Inc. 177,929 — — — 177,929 Balance, June 30, 2023 $ 862,960 $ 289,445 $ ( 118,920 ) $ ( 34,578 ) $ 998,907 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 — 47,656 — — 47,656 Other comprehensive gain, net of tax — — 8,216 — 8,216 Cash dividends declared — ( 24,147 ) — — ( 24,147 ) Reissuance of treasury stock for common share awards ( 5,410 ) — — 5,410 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 115 115 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,054 ) ( 1,054 ) Common shares issued under dividend reinvestment plan 752 — — — 752 Common shares issued under compensation plan for Boards of Directors 19 — — 252 271 Common shares issued under employee stock purchase plan 61 — — 621 682 Stock-based compensation 3,159 — — — 3,159 Issuance of common shares related to merger with Limestone Bancorp, Inc. 177,929 — — — 177,929 Balance, June 30, 2023 $ 862,960 $ 289,445 $ ( 118,920 ) $ ( 34,578 ) $ 998,907 6 Table of Contents Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, March 31, 2022 $ 684,243 $ 220,477 $ ( 62,666 ) $ ( 33,713 ) $ 808,341 Net income — 24,888 — — 24,888 Other comprehensive loss, net of tax — — ( 30,693 ) — ( 30,693 ) Cash dividends declared — ( 10,757 ) — — ( 10,757 ) Reissuance of treasury stock for common share awards ( 727 ) — — 727 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 78 78 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 206 ) ( 206 ) Common shares repurchased under share repurchase program then in effect — — — ( 5,987 ) ( 5,987 ) Common shares issued under dividend reinvestment plan 296 — — — 296 Common shares issued under compensation plan for Boards of Directors 13 — — 115 128 Common shares issued under employee stock purchase plan 15 — — 145 160 Stock-based compensation 576 — — — 576 Balance, June 30, 2022 $ 684,416 $ 234,608 $ ( 93,359 ) $ ( 38,841 ) $ 786,824 Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, December 31, 2021 $ 686,282 $ 207,076 $ ( 11,619 ) $ ( 36,714 ) $ 845,025 Net income — 48,465 — — 48,465 Other comprehensive loss, net of tax — — ( 81,740 ) — ( 81,740 ) Cash dividends declared — ( 20,933 ) — — ( 20,933 ) Reissuance of treasury stock for common share awards ( 4,725 ) — — 4,725 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 78 78 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,436 ) ( 1,436 ) Common shares repurchased under share repurchase program then in effect — — — ( 5,987 ) ( 5,987 ) Common shares issued under dividend reinvestment plan 601 — — — 601 Common shares issued under compensation plan for Boards of Directors 44 — — 208 252 Common shares issued under employee stock purchase plan 61 — — 285 346 Stock-based compensation 2,153 — — — 2,153 Balance, June 30, 2022 $ 684,416 $ 234,608 $ ( 93,359 ) $ ( 38,841 ) $ 786,824 See Notes to the Unaudited Condensed Consolidated Financial Statements 7 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, (Dollars in thousands) 2023 2022 Net cash provided by operating activities $ 63,223 $ 62,708 Investing activities: Available-for-sale investment securities: Purchases ( 23,913 ) ( 233,126 ) Proceeds from sales 120,396 8,732 Proceeds from principal payments, calls and prepayments 73,318 112,795 Held-to-maturity investment securities: Purchases ( 174,335 ) ( 38,622 ) Proceeds from principal payments 60,672 11,109 Other investment securities: Purchases ( 15,856 ) ( 11,013 ) Proceeds from sales 9,665 3,101 Net (increase) decrease in loans held for investment ( 184,177 ) 70,872 Net expenditures for premises and equipment ( 7,182 ) ( 3,462 ) Proceeds from sales of other real estate owned 106 307 Purchase of bank owned life insurance — ( 30,000 ) Proceeds from bank owned life insurance contracts — 248 Business acquisitions, net of cash received (paid) 91,793 ( 85,793 ) Investment in limited partnership and tax credit funds ( 1,699 ) ( 1,151 ) Net cash used in investing activities ( 51,212 ) ( 196,003 ) Financing activities: Net (decrease) increase in non-interest-bearing deposits ( 169,495 ) 20,443 Net increase in interest-bearing deposits 178,373 46,485 Net increase in short-term borrowings 9,797 154,915 Proceeds from long-term borrowings 5,004 11,255 Payments on long-term borrowings ( 16,626 ) ( 89,217 ) Cash dividends paid ( 24,276 ) ( 21,081 ) Purchase of treasury stock under share repurchase program — ( 5,987 ) Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock ( 1,054 ) ( 1,436 ) Proceeds from issuance of common shares 726 576 Net cash (used in) provided by financing activities ( 17,551 ) 115,953 Net decrease in cash and cash equivalents ( 5,540 ) ( 17,342 ) Cash and cash equivalents at beginning of period 154,022 415,727 Cash and cash equivalents at end of period $ 148,482 $ 398,385 Supplemental cash flow information: Interest paid $ 27,283 $ 6,585 Income taxes paid 29,194 1,797 Supplemental noncash disclosures: Transfers from total loans to other real estate owned — 55 Noncash recognition of new leases 4,179 27 See Notes to the Unaudited Condensed Consolidated Financial Statements 8 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 Summary of Significant Accounting Policies Basis of Presentation: The accompanying Unaudited Condensed Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by US GAAP for annual financial statements and should be read in conjunction with Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 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 June 30, 2023 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after June 30, 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 from 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 London Inter-Bank Offered Rate ("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. Peoples ceased originating LIBOR-based products after December 31, 2021 and began originating SOFR-indexed products. Any LIBOR-based products originated prior to December 31, 2021, but maturing after June 30, 2023, are based on SOFR-indexed products as of July 1, 2023. The transition did not have a material impact on Peoples' consolidated financial statements. ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. This ASU eliminates the accounting guidance on TDRs for creditors and amends the guidance on disclosures to include current-period gross charge-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. 9 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 June 30, 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 $ 75,255 $ — $ — $ 152,422 $ — $ — U.S. government sponsored agencies — 98,324 — — 88,115 — States and political subdivisions — 248,271 — — 225,882 — Residential mortgage-backed securities — 635,487 — — 604,653 — Commercial mortgage-backed securities — 52,830 — — 50,049 — Bank-issued trust preferred securities — 21,430 1,842 — 10,278 — Total available-for-sale securities $ 75,255 $ 1,056,342 $ 1,842 $ 152,422 $ 978,977 $ — Equity investment securities (a) 175 200 — 147 199 — Derivative assets (b) — 30,903 — — 34,123 — Liabilities: Derivative liabilities (c) $ — $ 25,591 $ — $ — $ 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). As of June 30, 2023, Peoples had one available-for-sale investment security for which quoted market prices or observable market data was unavailable. Therefore, a broker estimated market value based on the price an interested buyer would be willing to pay (Level 3). Management reviews the valuation methodology and quality controls utilized by the pricing services or broker in management's overall assessment of the 10 Table of Contents reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from q uoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2). Derivative Assets and 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 June 30, 2023 and December 31, 2022. Non-Recurring Fair Value Measurements at Reporting Date June 30, 2023 December 31, 2022 (Dollars in thousands) Level 2 Level 3 Level 2 Level 3 Assets: Collateral dependent loans $ — $ 6,561 $ — $ 10,354 Loans held for sale (a) $ 1,587 $ — $ 1,254 $ — Other real estate owned $ — $ 7,118 $ — $ 55 (a) Loans held for sale are presented gross of a valuation allowance of $ 138 and $ 105 at June 30, 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"): OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3). Servicing Rights : Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). The carrying value of servicing rights is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of servicing rights quarterly for impairment. 11 Table of Contents Financial Instruments Not Required to be Measured or Reported at Fair Value The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Unaudited Consolidated Balance Sheets. Fair Value Measurements of Other Financial Instruments (Dollars in thousands) Fair Value Hierarchy Level June 30, 2023 December 31, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents 1 $ 148,482 $ 148,482 $ 154,022 $ 154,022 Held-to-maturity investment securities: Obligations of: U.S. government sponsored agencies 2 176,027 166,234 132,366 123,020 States and political subdivisions (a) 2 144,909 113,042 145,263 108,776 Residential mortgage-backed securities 2 243,807 223,955 176,215 157,998 Commercial mortgage-backed securities 2 104,675 87,870 101,861 85,354 Commercial mortgage-backed securities 3 4,748 3,408 4,748 3,361 Total held-to-maturity securities 674,166 594,509 560,453 478,509 Other investment securities: Other investment securities at cost: Federal Home Loan Bank ("FHLB") stock N/A 31,564 31,564 26,605 26,605 Federal Reserve Bank ("FRB") stock N/A 26,511 26,511 21,231 21,231 Banker's Bank of Kentucky ("BBKY") stock N/A 355 355 355 355 Total other investment securities at cost 58,430 58,430 48,191 48,191 Other investment securities at fair value: Nonqualified deferred compensation (b) 1 2,660 2,660 2,048 2,048 Other investment securities (c) 2 2,114 2,114 1,024 1,024 Total other investment securities 63,204 63,204 51,263 51,263 Loans and leases, net of deferred fees and costs (d) 3 5,974,596 5,715,455 4,707,150 4,516,695 Bank owned life insurance 2 138,181 138,181 105,292 105,292 Liabilities: Deposits 2 $ 6,959,869 $ 5,972,977 $ 5,716,941 $ 4,682,491 Short-term borrowings 2 569,935 582,893 500,138 504,584 Long-term borrowings 2 123,579 126,390 101,093 101,992 (a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $ 241 at both June 30, 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 June 30, 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 $ 61.2 million and $ 53.2 million at June 30, 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 12 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 financial 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. 13 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 June 30, 2023 Obligations of: U.S. Treasury and government agencies $ 78,769 $ 232 $ ( 3,746 ) $ 75,255 U.S. government sponsored agencies 111,070 — ( 12,746 ) 98,324 States and political subdivisions 280,498 77 ( 32,304 ) 248,271 Residential mortgage-backed securities 737,345 852 ( 102,710 ) 635,487 Commercial mortgage-backed securities 62,961 1 ( 10,132 ) 52,830 Bank-issued trust preferred securities 21,688 2,182 ( 598 ) 23,272 Total available-for-sale securities $ 1,292,331 $ 3,344 $ ( 162,236 ) $ 1,133,439 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 June 30 were as follows: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Gross gains realized $ 12 $ 14 $ 90 $ 160 Gross losses realized ( 178 ) ( 58 ) ( 2,191 ) ( 74 ) Net (loss) gain realized $ ( 166 ) $ ( 44 ) $ ( 2,101 ) $ 86 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. 14 Table of Contents The following table presents a summary of available-for-sale investment securities that have 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 June 30, 2023 Obligations of: U.S. Treasury and government agencies $ 7,020 $ 164 16 $ 57,976 $ 3,582 18 $ 64,996 $ 3,746 U.S. government sponsored agencies 27,135 275 15 71,195 12,471 16 98,330 12,746 States and political subdivisions 69,362 1,031 141 162,552 31,273 123 231,914 32,304 Residential mortgage-backed securities 77,730 1,787 102 544,749 100,923 214 622,479 102,710 Commercial mortgage-backed securities 8,090 155 9 44,518 9,977 21 52,608 10,132 Bank-issued trust preferred securities — — — 3,902 598 3 3,902 598 Total $ 189,337 $ 3,412 283 $ 884,892 $ 158,824 395 $ 1,074,229 $ 162,236 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 June 30, 2023, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At June 30, 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 June 30, 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 $ 9.8 million at June 30, 2023 and $ 7.8 million at December 31, 2022. At June 30, 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 five positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Of the five 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, Federal, state or local 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 three bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at June 30, 2023 was attributable to the subordinated nature of the trust preferred securities. 15 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 June 30, 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 $ 12,496 $ 51,227 $ 8,855 $ 6,191 $ 78,769 U.S. government sponsored agencies 10,082 60,436 32,311 8,241 111,070 States and political subdivisions 24,456 58,633 69,644 127,765 280,498 Residential mortgage-backed securities 1 3,157 58,005 676,182 737,345 Commercial mortgage-backed securities 1,634 8,428 31,690 21,209 62,961 Bank-issued trust preferred securities — 7,175 12,671 1,842 21,688 Total available-for-sale securities $ 48,669 $ 189,056 $ 213,176 $ 841,430 $ 1,292,331 Fair value Obligations of: U.S. Treasury and government agencies $ 12,200 $ 47,897 $ 8,855 $ 6,303 $ 75,255 U.S. government sponsored agencies 9,950 54,971 27,167 6,236 98,324 States and political subdivisions 24,362 55,420 59,159 109,330 248,271 Residential mortgage-backed securities 1 2,971 52,558 579,957 635,487 Commercial mortgage-backed securities 1,622 7,695 26,547 16,966 52,830 Bank-issued trust preferred securities — 7,517 13,913 1,842 23,272 Total available-for-sale securities $ 48,135 $ 176,471 $ 188,199 $ 720,634 $ 1,133,439 Total weighted-average yield 2.71 % 2.42 % 2.16 % 2.16 % 2.22 % Held-to-maturity The following table summarizes Peoples’ held-to-maturity investment securities: (Dollars in thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value June 30, 2023 Obligations of: U.S. government sponsored agencies $ 176,027 $ — $ 74 $ ( 9,867 ) $ 166,234 States and political subdivisions 144,909 ( 241 ) 124 ( 31,991 ) 112,801 Residential mortgage-backed securities 243,807 — 474 ( 20,326 ) 223,955 Commercial mortgage-backed securities 109,423 — — ( 18,145 ) 91,278 Total held-to-maturity securities $ 674,166 $ ( 241 ) $ 672 $ ( 80,329 ) $ 594,268 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 during either of the six months ended June 30, 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 agencies 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 reported $ 0.2 million of allowance for credit losses for held-to-maturity securities at both June 30, 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: 16 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 June 30, 2023 Obligations of: U.S. government sponsored agencies $ 124,952 $ 1,612 26 31,766 8,255 10 $ 156,718 $ 9,867 States and political subdivisions — — — 109,514 31,991 67 109,514 31,991 Residential mortgage-backed securities 117,092 3,598 29 83,902 16,728 26 200,994 20,326 Commercial mortgage-backed securities 19,355 860 5 71,922 17,285 33 91,277 18,145 Total $ 261,399 $ 6,070 60 $ 297,104 $ 74,259 136 $ 558,503 $ 80,329 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 June 30, 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 23.6 % and 23.3 % at June 30, 2023 and at 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 4,627 $ 21,669 $ 67,019 $ 82,712 $ 176,027 States and political subdivisions — 5,216 9,397 130,296 144,909 Residential mortgage-backed securities — 772 4,558 238,477 243,807 Commercial mortgage-backed securities 5,002 9,494 31,176 63,751 109,423 Total held-to-maturity securities $ 9,629 $ 37,151 $ 112,150 $ 515,236 $ 674,166 Fair value Obligations of: U.S. government sponsored agencies 4,559 $ 20,797 $ 66,047 $ 74,831 $ 166,234 States and political subdivisions — 5,217 8,033 99,551 112,801 Residential mortgage-backed securities — 747 3,896 219,312 223,955 Commercial mortgage-backed securities 4,908 8,492 27,202 50,676 91,278 Total held-to-maturity securities $ 9,467 $ 35,253 $ 105,178 $ 444,370 $ 594,268 Total weighted-average yield 2.06 % 1.83 % 4.16 % 3.36 % 3.39 % Other Investment Securities Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB stock and of FRB stock. 17 Table of Contents The following table summarizes the carrying value of Peoples' other investment securities: (Dollars in thousands) June 30, 2023 December 31, 2022 FHLB stock $ 31,564 $ 26,605 FRB stock 26,511 21,231 Nonqualified deferred compensation 2,660 2,048 Equity investment securities 375 346 Other investment securities 2,469 1,379 Total other investment securities $ 63,579 $ 51,609 During the six months ended June 30, 2023, Peoples redeemed $ 9.6 million of FHLB stock in order to be in compliance with the requirements of the FHLB. Peoples purchased $ 7.6 million of additional FHLB stock during the six months ended June 30, 2023, as a result of the FHLB's capital requirements on FHLB advances during the first six months. During the three months ended June 30, 2023 and 2022, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized loss of $ 138,000 and an unrealized loss of $ 11,000 , respectively. For the six months ended June 30, 2023 and 2022, Peoples recognized a unrealized loss of $ 117,000 and an unrealized loss of $ 18,000 , respectively, for the change in fair value of equity investment securities in "Other non-interest income". At June 30, 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. The following table summarizes the carrying amount of Peoples' pledged securities: Carrying Amount (Dollars in thousands) June 30, 2023 December 31, 2022 Securing public and trust department deposits, and repurchase agreements: Available-for-sale $ 795,106 $ 779,244 Held-to-maturity 386,494 312,921 Securing additional borrowing capacity at the FHLB and the FRB: Available-for-sale 3,735 3,972 Held-to-maturity 143,137 128,870 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". 18 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) June 30, 2023 December 31, 2022 Construction $ 418,741 $ 246,941 Commercial real estate, other 2,071,514 1,423,518 Commercial and industrial 1,160,310 892,634 Premium finance 162,357 159,197 Leases 377,791 345,131 Residential real estate 791,442 723,360 Home equity lines of credit 199,221 177,858 Consumer, indirect 654,371 629,426 Consumer, direct 138,019 108,363 Deposit account overdrafts 830 722 Total loans, at amortized cost $ 5,974,596 $ 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 $ 20.0 million at June 30, 2023 and $ 15.4 million at 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: June 30, 2023 December 31, 2022 (Dollars in thousands) Nonaccrual (a) Accruing Loans 90+ Days Past Due Nonaccrual (a) Accruing Loans 90+ Days Past Due Construction $ — $ — $ 12 $ — Commercial real estate, other 8,987 15 12,121 167 Commercial and industrial 3,438 — 3,462 130 Premium finance — 987 — 504 Leases 4,800 3,847 3,178 3,041 Residential real estate 8,393 856 9,496 917 Home equity lines of credit 841 148 820 58 Consumer, indirect 1,982 40 2,176 — Consumer, direct 355 31 208 25 Total loans, at amortized cost $ 28,796 $ 5,924 $ 31,473 $ 4,842 (a) There were $ 1.3 million of nonaccrual loans for which there was no allowance for credit losses at June 30, 2023 and $ 1.4 million of nonaccrual loans for which there was no allowance for credit losses at December 31, 2022. During the first six months of 2023, nonaccrual loans declined compared to at December 31, 2022, which was primarily due to $ 3.1 million of commercial real estate loans being on nonaccrual status as of December 31, 2022 that were accruing as of March 31, 2023. The increase in accruing loans 90+ days past due at June 30, 2023 when compared to at December 31, 2022, was primarily due to increases of $ 0.5 million and $ 0.8 million in premium finance loans and leases, respectively. The amount of interest income recognized on loans past due 90 days or more and accruing during the six months ended June 30, 2023 was $ 0.9 million. The following table presents the aging of the amortized cost of past due loans: 19 Table of Contents Loans Past Due Current Loans Total Loans (Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total June 30, 2023 Construction $ — $ — $ — $ — $ 418,741 $ 418,741 Commercial real estate, other 4,849 53 7,850 12,752 2,058,762 2,071,514 Commercial and industrial 1,710 686 3,370 5,766 1,154,544 1,160,310 Premium finance 4,257 1,438 987 6,682 155,675 162,357 Leases 4,387 3,697 8,647 16,731 361,060 377,791 Residential real estate 3,327 3,134 4,762 11,223 780,219 791,442 Home equity lines of credit 854 327 618 1,799 197,422 199,221 Consumer, indirect 4,137 695 764 5,596 648,775 654,371 Consumer, direct 446 69 259 774 137,245 138,019 Deposit account overdrafts — — — — 830 830 Total loans, at amortized cost $ 23,967 $ 10,099 $ 27,257 $ 61,323 $ 5,913,273 $ 5,974,596 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 99.0 % of Peoples' loan portfolio was considered “current” at June 30, 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) June 30, 2023 December 31, 2022 Loans pledged to FHLB $ 1,268,215 $ 783,843 Loans pledged to FRB 331,168 339,005 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. 20 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 June 30, 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 $ 31,510 $ 195,130 $ 138,966 $ 27,622 $ 9,839 $ 12,695 $ — $ — $ 415,762 Special mention 1,200 1,600 — — — 127 — — 2,927 Substandard — — — — — 52 — — 52 Total 32,710 196,730 138,966 27,622 9,839 12,874 — — 418,741 Current period gross charge-offs — — 9 — — — 9 Commercial real estate, other Pass 131,351 245,661 351,358 245,225 269,331 689,007 32,447 — 1,964,380 Special mention — 3,996 1,977 5,550 5,274 30,879 690 48 48,366 Substandard 343 579 8,402 6,565 2,602 39,800 447 — 58,738 Doubtful — — — — — 30 — — 30 Total 131,694 250,236 361,737 257,340 277,207 759,716 33,584 48 2,071,514 Current period gross charge-offs — — — — — 40 40 Commercial and industrial Pass 95,464 202,509 231,053 99,823 83,817 152,991 209,181 999 1,074,838 Special mention 1,803 1,216 166 21,177 1,737 8,795 19,467 — 54,361 Substandard 19 2,097 5,060 8,717 2,963 7,281 4,785 143 30,922 Doubtful — — — — — 189 — — 189 Total 97,286 205,822 236,279 129,717 88,517 169,256 233,433 1,142 1,160,310 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 Current period gross charge-offs — — — 3 — 9 12 Premium finance Pass 131,117 31,240 — — — — — — 162,357 Total 131,117 31,240 — — — — — — 162,357 Current period gross charge-offs 1 45 — — — — 46 Leases Pass 122,391 139,451 68,529 25,313 9,978 2,713 — 368,375 Special mention 221 1,252 1,595 145 16 30 3,259 Substandard 136 1,822 3,080 377 327 415 6,157 Total 122,748 142,525 73,204 25,835 10,321 3,158 — — 377,791 Current period gross charge-offs — 318 403 158 164 30 1,073 Residential real estate Pass 36,481 95,877 146,290 60,238 49,622 394,204 — — 782,712 Substandard — 83 308 268 564 7,475 — — 8,698 Loss — — — — — 32 — — 32 Total 36,481 95,960 146,598 60,506 50,186 401,711 — — 791,442 Current period gross charge-offs — — — — — 100 100 Home equity lines of credit Pass 15,142 44,878 34,176 21,177 16,057 66,414 107 1,063 197,951 Substandard — — 115 22 123 985 — — 1,245 Loss — 13 — — — 12 — — 25 Total 15,142 44,891 34,291 21,199 16,180 67,411 107 1,063 199,221 Current period gross charge-offs — — — — — 74 74 Consumer, indirect Pass 134,476 268,260 120,680 77,043 26,384 23,362 — — 650,205 Substandard 385 1,189 1,033 696 267 526 — — 4,096 Loss 8 50 3 9 — — — — 70 Total 134,869 269,499 121,716 77,748 26,651 23,888 — — 654,371 Current period gross charge-offs 105 1,002 503 170 18 72 1,870 Consumer, direct Pass 32,644 45,594 37,407 11,369 4,580 5,707 — — 137,301 22 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 20 169 123 97 97 194 — — 700 Loss — — — — — 18 — — 18 Total 32,664 45,763 37,530 11,466 4,677 5,919 — — 138,019 Current period gross charge-offs 5 73 17 69 10 8 182 Deposit account overdrafts 830 — — — — — — — 830 Current period gross charge-offs 490 — — — — — 490 Total loans, at amortized cost 735,541 1,282,666 1,150,321 611,433 483,578 1,443,933 267,124 2,253 5,974,596 Total current period gross charge-offs $ 601 $ 1,438 $ 932 $ 400 $ 192 $ 333 $ 3,896 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 23 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, on residential real property. • 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. 24 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) June 30, 2023 December 31, 2022 Commercial real estate, other 5,581 8,362 Commercial and industrial 460 1,456 Residential real estate 520 536 Total collateral dependent loans $ 6,561 $ 10,354 The decrease i n collateral dependent loans at June 30, 2023, compared to December 31, 2022, was primarily due to three large relationships that were paid in full during the six months ended June 30, 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 and the six months ended June 30, 2023, presented by loan classification. During the Three Months Ended June 30, 2023 (Dollars in thousands) Term Extension Total Percentage of Total by Loan Category (a)(b) Commercial real estate $ 48 $ 48 — % Commercial and industrial 3,319 3,319 0.29 % Total $ 3,367 $ 3,367 0.06 % During the Six Months Ended June 30, 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 0.38 % Commercial real estate 194 — 48 — 242 0.01 % Commercial and industrial — — 3,325 306 3,631 0.31 % Residential real estate — — 220 — 220 0.03 % Total $ 194 $ 1,600 $ 3,593 $ 306 $ 5,693 0.10 % (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. 25 Table of Contents The following table summarizes the financial impacts of loan modifications and payment deferrals made to loans during the three months and the six months ended June 30, 2023, presented by loan classification. During the Three Months Ended June 30, 2023 Weighted-Average Term Extension (in months) Average Amount Capitalized as a Result of a Payment Delay (a) Commercial real estate 12 $ — Commercial and industrial 5 — During the Six Months Ended June 30, 2023 Weighted-Average Term Extension (in months) Average Amount Capitalized as a Result of a Payment Delay (a) Commercial real estate 12 $ — Commercial and industrial 5 — 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. The following table displays the amortized cost of loans that received a completed modification or payment deferral on or after January 1, 2023, the date Peoples adopted ASU 2022-02, through June 30, 2023 and that defaulted in the period presented. 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 June 30, 2023. For the Six Months Ended June 30, 2023 Payment Delay as a Result of a Payment Deferral (Only) Total Consumer, indirect $ 11 $ 11 (1) Represents the sum of amortized cost and gross charge-off as of period end. Excludes loans that liquidated either through foreclosure, deed-in-lieu of foreclosure, or a short sale. 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 June 30, 2023, presented by classification and class of financing receivable. As of June 30, 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 — — — — 242 242 Commercial and industrial — — — — 3,631 3,631 Residential real estate — — — — 220 220 Total loans modified (a) $ — $ — $ — $ — $ 5,693 $ 5,693 (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 26 Table of Contents 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 Form 10-Q for more information on the adoption of ASU 2022-02. The following table summarizes the loans that were modified as TDRs during the three months and the six months ended June 30, 2022: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment June 30, 2022 Commercial real estate, other 2 184 184 184 Commercial and industrial 5 1,422 1,426 1,031 Residential real estate 11 438 463 457 Home equity lines of credit 2 110 110 110 Consumer, indirect 7 108 108 108 Consumer, direct 1 31 31 31 Consumer 8 139 139 139 Total 28 $ 2,293 $ 2,322 $ 1,921 (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. Six Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment June 30, 2022 Commercial real estate, other 3 287 287 284 Commercial and industrial 5 1,422 1,427 1,031 Residential real estate 26 1,333 1,378 1,367 Home equity lines of credit 4 178 178 177 Consumer, indirect 16 210 210 210 Consumer, direct 3 44 44 44 Consumer 19 254 254 254 Total 57 $ 3,474 $ 3,524 $ 3,113 (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. 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. 27 Table of Contents Changes in the allowance for credit losses for the three months and the six months ended June 30, 2023 and June 30, 2022 are summarized below: Beginning Balance, March 31, 2023 Initial Allowance for Acquired PCD Assets Provision for (Recovery of) Credit Losses (a) Charge-offs Recoveries Ending Balance, June 30, 2023 Construction $ 1,273 $ — $ 223 $ — $ — $ 1,496 Commercial real estate, other 16,474 280 2,968 ( 7 ) 16 19,731 Commercial and industrial 8,307 376 1,905 ( 11 ) 451 11,028 Premium finance 433 — 18 ( 23 ) 3 431 Leases 9,109 — 1,783 ( 604 ) 89 10,377 Residential real estate 6,504 254 ( 656 ) ( 59 ) 69 6,112 Home equity lines of credit 1,717 13 1 ( 55 ) — 1,676 Consumer, indirect 7,781 — 641 ( 941 ) 129 7,610 Consumer, direct 1,619 85 981 ( 78 ) 35 2,642 Deposit account overdrafts 86 — 232 ( 263 ) 53 108 Total $ 53,303 $ 1,008 $ 8,096 $ ( 2,041 ) $ 845 $ 61,211 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. Beginning Balance, March 31, 2022 Initial Allowance for Acquired PCD Assets (a) (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, June 30, 2022 Construction $ 2,731 $ — $ ( 1,200 ) $ — $ — $ 1,531 Commercial real estate, other 21,055 ( 234 ) ( 2,267 ) ( 22 ) 176 18,708 Commercial and industrial 10,114 ( 253 ) ( 871 ) ( 420 ) 2 8,572 Premium finance 345 — ( 12 ) ( 30 ) 8 311 Leases 5,875 292 1,847 ( 493 ) 64 7,585 Residential real estate 6,495 12 ( 142 ) ( 47 ) 14 6,332 Home equity lines of credit 1,894 — ( 170 ) ( 25 ) — 1,699 Consumer, indirect 5,172 — 1,428 ( 449 ) 83 6,234 Consumer, direct 1,036 — 334 ( 60 ) 11 1,321 Deposit account overdrafts 51 — 355 ( 405 ) 52 53 Total $ 54,768 $ ( 183 ) $ ( 698 ) $ ( 1,951 ) $ 410 $ 52,346 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 28 Table of Contents (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, June 30, 2023 Construction $ 1,250 $ — $ 255 $ ( 9 ) $ — $ 1,496 Commercial real estate, other 17,710 280 1,738 ( 40 ) 43 19,731 Commercial and industrial 8,229 376 1,984 ( 12 ) 451 11,028 Premium finance 344 — 121 ( 46 ) 12 431 Leases 8,495 — 2,786 ( 1,073 ) 169 10,377 Residential real estate 6,357 254 ( 497 ) ( 100 ) 98 6,112 Home equity lines of credit 1,693 13 44 ( 74 ) — 1,676 Consumer, indirect 7,448 — 1,824 ( 1,870 ) 208 7,610 Consumer, direct 1,575 85 1,114 ( 182 ) 50 2,642 Deposit account overdrafts 61 — 412 ( 490 ) 125 108 Total $ 53,162 $ 1,008 $ 9,781 $ ( 3,896 ) $ 1,156 $ 61,211 (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, June 30, 2022 Construction $ 2,999 $ — $ ( 1,468 ) $ — $ — $ 1,531 Commercial real estate, other 29,147 ( 451 ) ( 9,913 ) ( 300 ) 225 18,708 Commercial and industrial 11,063 ( 418 ) ( 1,196 ) ( 883 ) 6 8,572 Premium finance 379 — ( 32 ) ( 44 ) 8 311 Leases 4,797 424 3,090 ( 966 ) 240 7,585 Residential real estate 7,233 ( 509 ) ( 64 ) ( 356 ) 28 6,332 Home equity lines of credit 2,005 ( 11 ) ( 283 ) ( 41 ) 29 1,699 Consumer, indirect 5,326 ( 41 ) 1,614 ( 834 ) 169 6,234 Consumer, direct 961 — 534 ( 196 ) 22 1,321 Deposit account overdrafts 57 — 554 ( 664 ) 106 53 Total $ 63,967 $ ( 1,006 ) $ ( 7,164 ) $ ( 4,284 ) $ 833 $ 52,346 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 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 second quarter of 2023, Peoples recorded a total provision for credit losses for loans of $ 8.0 million, largely attributable to a provision of $ 9.4 million for the non-purchased credit deteriorated loans acquired in the Limestone Merger, partially offset by the release of reserves of $ 1.7 million on individually analyzed loans and a recovery of $ 1.0 million due to improvements in macro-economic conditions. Net charge-offs for the second quarter of 2023 were $ 1.2 million, primarily due to net charge-offs of indirect consumer loans of $ 0.8 million. During the second quarter of 2022, Peoples recorded a recovery of credit losses of $ 0.7 million driven by a reduction in allowance for individually analyzed loans, as well as changes in loss drivers used in the CECL model. Leases designated as purchased-credit 29 Table of Contents deteriorated ("PCD") acquired from Vantage increased the allowance for credit losses by $ 292,000 . Net charge-offs for the second quarter of 2022 were $ 1.5 million, and included charge-offs of three leases aggregating $ 0.5 million. Peoples had recorded an allowance for unfunded commitments of $ 2.0 million as of both June 30, 2023 and 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) June 30, 2023 December 31, 2022 Goodwill, beginning of year $ 292,397 $ 264,193 Goodwill recorded from acquisitions 64,000 28,204 Goodwill, end of period $ 356,397 $ 292,397 As of the close of business on April 30, 2023, Peoples completed its merger with Limestone Bancorp, Inc. ("Limestone") pursuant to an Agreement and Plan of Merger dated October 24, 2022, at which point Limestone merged with and into Peoples (the "Limestone Merger"), and Limestone Bank, Inc., the subsidiary bank of Limestone, merged immediately thereafter with and into Peoples' wholly-owned subsidiary, Peoples Bank. Peoples preliminarily recorded goodwill from the Limestone Merger as of June 30, 2023 totaling $ 63.4 million. On January 3, 2023, Peoples acquired a trust and investment business, for which Peoples initially recognized $ 200,000 in goodwill. A further adjustment of $ 381,000 was recognized on May 31, 2023. The goodwill recorded from this acquisition totaled $ 581,000 as of June 30, 2023. 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. During 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 (the "Premier Merger") of Peoples with Premier Financial Bancorp, Inc. (“Premier”) on September 17, 2021. Other Intangible Assets Other intangible assets were comprised of the following at June 30, 2023, and at December 31, 2022: (Dollars in thousands) Core Deposits Customer Relationships Indefinite-Lived Trade Names Total June 30, 2023 Gross intangibles $ 26,464 $ 39,241 $ 2,491 $ 68,196 Intangibles recorded from acquisitions 27,722 — — 27,722 Accumulated amortization ( 22,226 ) ( 18,522 ) — ( 40,748 ) Total acquisition-related intangibles $ 31,960 $ 20,719 $ 2,491 $ 55,170 Servicing rights 1,605 Total other intangibles $ 56,775 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 30 Table of Contents As of the close of business on April 30, 2023 , Peoples preliminarily recorded $ 27.7 million of core deposit intangibles related to the merger with Limestone. Refer to "Note 13 Acquisitions" for additional information. Other intangible assets recorded 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 Agency, Inc. ("Elite"). Refer to "Note 13 Acquisitions" for additional information. The following table details estimated aggregate future amortization of other intangible assets at June 30, 2023: (Dollars in thousands) Core Deposits Customer Relationships Total Remaining six months of 2023 $ 3,418 $ 3,151 $ 6,569 2024 5,881 5,325 11,206 2025 4,614 4,255 8,869 2026 3,738 3,114 6,852 2027 3,046 2,289 5,335 Thereafter 11,263 2,585 13,848 Total $ 31,960 $ 20,719 $ 52,679 The weighted average amortization period of other intangible assets is 9.2 years. Note 6 Deposits Peoples’ deposit balances were comprised of the following: (Dollars in thousands) June 30, 2023 December 31, 2022 Retail certificates of deposits ("CDs"): $100 or more $ 527,846 $ 263,341 Less than $100 422,937 266,895 Retail CDs 950,783 530,236 Interest-bearing deposit accounts 1,225,646 1,160,182 Savings accounts 1,116,622 1,068,547 Money market deposit accounts 718,633 617,029 Governmental deposit accounts 705,596 625,965 Brokered CDs 559,955 125,580 Total interest-bearing deposits 5,277,235 4,127,539 Non-interest-bearing deposits $ 1,682,634 1,589,402 Total deposits $ 6,959,869 $ 5,716,941 Uninsured deposits were $ 2.0 billion and $ 1.6 billion at June 30, 2023 and at 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 o ver $ 749.9 million o f the uninsured deposit balances at June 30, 2023. 31 Table of Contents Uninsured time deposits are broken out below by time remaining until maturity. (Dollars in thousands) June 30, 2023 December 31, 2022 3 months or less $ 20,277 $ 19,282 Over 3 to 6 months 65,178 14,871 Over 6 to 12 months 50,677 14,383 Over 12 months 35,942 52,216 Total $ 172,074 $ 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 six months ending December 31, 2023 $ 371,553 $ 559,955 $ 931,508 Year ending December 31, 2024 477,235 — 477,235 Year ending December 31, 2025 46,023 — 46,023 Year ending December 31, 2026 20,815 — 20,815 Year ending December 31, 2027 27,816 — 27,816 Thereafter 7,341 — 7,341 Total CDs $ 950,783 $ 559,955 $ 1,510,738 At June 30, 2023, Peoples had twelve effective interest rate swaps, with an aggregate notional value of $ 115.0 million, of which $ 115.0 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 six months ended June 30, 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 — 28,863 Cancellation of restricted common shares — 10,525 Grant of restricted common shares — ( 236,097 ) Grant of unrestricted common shares — ( 1,300 ) Changes related to deferred compensation plan for Boards of Directors: Purchase of treasury stock — 10,470 Disbursed out of treasury stock — ( 4,368 ) Common shares issued under dividend reinvestment plan 25,487 — Common shares issued under compensation plan for Boards of Directors — ( 10,367 ) Common shares issued under employee stock purchase plan — ( 25,548 ) Issuance of common shares related to the Limestone Merger 6,827,668 — Shares at June 30, 2023 36,711,075 1,415,639 On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $ 30.0 million of Peoples' outstanding common shares. At June 30, 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 six 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 June 30, 2023, Peoples had no preferred shares issued or outstanding. On July 24, 2023, Peoples' Board of Directors declared a quarterly cash dividend of $ 0.39 per common share, payable on August 21, 2023, to shareholders of record on August 7, 2023. The following table details the cash dividends declared per common share during the first three quarters of 2023 and the comparable periods of 2022: 2023 2022 First quarter $ 0.38 $ 0.36 Second quarter 0.39 0.38 Third quarter 0.39 0.38 Total dividends declared $ 1.16 $ 1.12 Accumulated Other Comprehensive (Loss) Income The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income during the six months ended June 30, 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 1,606 — — 1,606 Other comprehensive income (loss), net of reclassifications and tax 6,835 7 ( 232 ) 6,610 Balance, June 30, 2023 $ ( 121,455 ) $ ( 1,626 ) $ 4,161 $ ( 118,920 ) 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. 32 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 Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Interest cost $ 94 $ 66 $ 182 $ 132 Expected return on plan assets ( 164 ) ( 168 ) ( 330 ) ( 336 ) Amortization of net loss 8 20 10 40 Net periodic loss $ ( 62 ) $ ( 82 ) $ ( 138 ) $ ( 164 ) 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 gain or loss during the six months ended June 30, 2023 or the six months ended June 30, 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 Six Months Ended June 30, June 30, (Dollars in thousands, except per common share data) 2023 2022 2023 2022 Net income available to common shareholders $ 21,096 $ 24,888 $ 47,656 $ 48,465 Less: Dividends paid on unvested common shares 144 102 246 150 Less: Undistributed income allocated to unvested common shares 13 19 45 40 Net earnings allocated to common shareholders $ 20,939 $ 24,767 $ 47,365 $ 48,275 Weighted-average common shares outstanding 32,526,962 27,919,133 30,222,165 27,962,405 Effect of potentially dilutive common shares 123,014 142,603 92,339 78,740 Total weighted-average diluted common shares outstanding 32,649,976 28,061,736 30,314,504 28,041,145 Earnings per common share: Basic $ 0.64 $ 0.89 $ 1.57 $ 1.73 Diluted $ 0.64 $ 0.88 $ 1.56 $ 1.72 Anti-dilutive common shares excluded from calculation: Restricted common shares 171,843 188,468 152,741 906 Note 10 Derivative Financial Instruments Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the "Other assets" and the "Accrued expenses and other liabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, while cash activity related to these derivative financial instruments is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows. 33 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 June 30, 2023, Peoples had entered into twelve interest rate swap contracts with an aggregate notional value of $ 115.0 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 through June 30, 2023, after which point three-month LIBOR shall cease publication, and Peoples will pay a fixed rate equal to term SOFR. 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 interest rate swaps. At June 30, 2023 and at December 31, 2022, the interest rate swaps were designated as cash flow hedges of $ 115.0 million and $ 125.0 million, respectively, in brokered CDs, which are expected to be extended every 90 days through the maturity dates of the interest rate 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 (or the SOFR term rate beyond June 30, 2023) of the swaps to ensure effectiveness of the cash flow hedge. During the three months ended June 30, 2023, and 2022, Peoples recorded reclassifications of gains to earnings of $ 0.1 million and reclassifications of losses to earnings of $ 0.4 million, respectively. For the six months ended June 30, 2023 and 2022, Peoples recorded reclassifications of losses to earnings of 130,000 and $ 1.0 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) June 30, 2023 December 31, 2022 Notional amount $ 115,000 $ 125,000 Weighted average pay rates 2.29 % 2.26 % Weighted average receive rates 4.92 % 4.44 % Weighted average maturity 2.3 years 2.6 years Pre-tax changes in fair value included in AOCI $ 5,443 $ 5,727 34 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: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Amount of losses (gains) recorded in AOCI, pre-tax $ ( 1,073 ) $ ( 2,104 ) $ 283 $ ( 7,560 ) The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: June 30, 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 $ 115,000 $ 5,314 $ 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 interest rate 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 interest rate 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 and the six months ended June 30, 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: June 30, 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 $ 361,597 $ 25,588 $ 390,126 $ 28,529 Included in "Accrued expenses and other liabilities": Interest rate swaps related to commercial loans $ 361,597 $ 25,588 $ 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 June 30, 2023 and at December 31, 2022, Peoples had no cash pledged, while counterparties had $ 19.4 million of cash pledged at June 30, 2023 and $ 20.9 million of cash pledged at December 31, 2022. Peoples had no pledged investment securities at June 30, 2023 or at December 31, 2022, while the counterparties had pledged investment securities in the amounts of $ 2.3 million at June 30, 2023 and $ 2.5 million at December 31, 2022. Note 11 Stock-Based Compensation Under the Peoples Bancorp Inc. Fourth 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 1,493,297 . The maximum number of common shares that can be issued for incentive stock options is 750,000 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. 35 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 six 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 six months ended June 30, 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 47,725 26.49 188,372 30.30 Released ( 14,356 ) 30.76 ( 70,458 ) 32.91 Forfeited ( 4,064 ) 31.98 ( 6,461 ) 31.16 Outstanding at June 30, 2023 167,827 $ 26.62 407,328 $ 31.21 For the six months ended June 30, 2023, intrinsic value for restricted common shares released was $ 2.5 million compared to $ 3.5 million for the six months ended June 30, 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 Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Employee stock-based compensation expense: Stock grant expense $ 1,009 $ 576 $ 3,159 $ 2,153 Employee stock purchase plan expense 34 24 73 52 Total employee stock-based compensation expense 1,043 600 $ 3,232 $ 2,205 Non-employee director stock-based compensation expense 135 127 $ 271 $ 251 Total stock-based compensation expense 1,178 727 $ 3,503 $ 2,456 Recognized tax benefit ( 278 ) ( 166 ) ( 825 ) ( 560 ) Net stock-based compensation expense $ 900 $ 561 $ 2,678 $ 1,896 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 $ 6.8 million at June 30, 2023, which will be recognized over a weighted-average period of 2.7 years. Note 12 Revenue The following table details Peoples' revenue from contracts with customers: Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Insurance income: Commission and fees from sale of insurance policies (a) $ 3,895 $ 3,544 $ 7,711 $ 6,587 Fees related to third-party administration services (a) 74 92 156 163 36 Table of Contents Three Months Ended Six Months Ended June 30, June 30, (Dollars in thousands) 2023 2022 2023 2022 Performance-based commissions (b) 35 10 1,562 1,356 Trust and investment income: Fiduciary income (a) 2,747 1,999 5,204 3,964 Brokerage income (a) 1,667 2,247 3,294 4,558 Electronic banking income: Interchange income (a) 5,036 4,302 9,217 8,415 Promotional and usage income (a) 1,430 1,117 2,692 2,257 Deposit account service charges: Ongoing maintenance fees for deposit accounts (a) 1,623 1,307 3,084 2,618 Transaction-based fees (b) 2,530 2,251 4,592 4,366 Commercial loan swap fees (b) 118 270 118 438 Other non-interest income transaction-based fees (b) 378 315 808 572 Total revenue from contracts with customers $ 19,533 $ 17,454 $ 38,438 $ 35,294 Timing of revenue recognition: Services transferred over time $ 16,472 $ 14,608 $ 31,358 $ 28,562 Services transferred at a point in time 3,061 2,846 7,080 6,732 Total revenue from contracts with customers $ 19,533 $ 17,454 $ 38,438 $ 35,294 (a) Services transferred over time. (b) Services transferred at a point in time. Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income and certain insurance income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income. The following table details the changes in Peoples' contract assets and contract liabilities for the six-month period ended June 30, 2023: Contract Assets Contract Liabilities (Dollars in thousands) Balance, January 1, 2023 $ 1,294 $ 5,634 Additional income receivable 82 — Additional deferred income — 490 Recognition of income previously deferred — ( 72 ) Balance, June 30, 2023 $ 1,376 $ 6,052 Note 13 Acquisitions Limestone Bancorp, Inc. As of the close of business on April 30, 2023, Peoples completed the Limestone Merger and immediately after the Limestone Merger, Limestone Bank, Inc., which operated 20 branches in Kentucky, merged into Peoples Bank. As consideration, Limestone shareholders were paid 0.90 common shares of Peoples for each full share of Limestone that was owned at the merger date, resulting in the issuance of 6,827,668 common shares by Peoples, or aggregate consideration of $ 177.9 million. Peoples accounted for this transaction as a business combination under the acquisition method. 37 Table of Contents Peoples recorded acquisition-related expenses related to the Limestone Merger, which included $ 10.8 million and $ 11.2 million in non-interest expense for the second quarter and the six months ended June 30, 2023, respectively. For the second quarter of 2023, the $ 10.8 million of non-interest expense consisted of $ 5.2 million in salaries and employee benefit costs, $ 4.8 million in professional fees, $ 0.5 million in insurance expense, and $ 0.3 million in various other non-interest expense line items. For the six months ended June 30, 2023, the $ 11.2 million of non-interest expense consisted of $ 5.2 million in salaries and employee benefit costs, $ 5.1 million in professional fees, $ 0.5 million in insurance expense, $ 0.4 million in various other non-interest expense line items. Peoples recorded the fair value based on initial valuations available at the close of business on April 30, 2023. Due to the timing of the transaction closing date and this Form 10-Q, these estimated fair values were considered preliminary as of June 30, 2023, and are subject to adjustment for up to one year after April 30, 2023. Valuations subject to change include, but are not limited to, loans, bank premises, core deposit intangibles (included in other intangible assets), certain deposits, other long-term borrowings, deferred tax assets and liabilities, and certain other assets and other liabilities. The following table provides the preliminary purchase price calculation as of the date of the Limestone Merger, and the assets acquired and liabilities assumed at their estimated fair values. (Dollars in thousands) Fair Value Total purchase price $ 177,931 Assets Cash and balances due from banks 5,260 Interest-bearing deposits in other banks 87,115 Total cash and cash equivalents 92,375 Available-for-sale investment securities, at fair value 166,944 Other investment securities 5,716 Total investment securities 172,660 Loans 1,079,253 Allowance for credit losses (on PCD loans) ( 1,008 ) Net loans 1,078,245 Bank premises and equipment, net of accumulated depreciation 17,690 Bank owned life insurance 31,343 Other intangible assets 27,722 Other assets 35,372 Total assets 1,455,407 Liabilities Deposits: Non-interest-bearing 262,727 Interest-bearing 971,457 Total deposits 1,234,184 Short-term borrowings 60,000 Long-term borrowings 33,744 Accrued expenses and other liabilities 12,967 Total liabilities 1,340,895 Net assets 114,512 Goodwill $ 63,419 The goodwill recorded in connection with the Limestone Merger is related to expected synergies to be gained from the combination of Limestone with Peoples' operations. The employees retained from the Limestone Merger and the geographic locations of Limestone should allow Peoples to continue to grow the loan and deposit portfolios while also increasing Peoples' ability to penetrate the new markets, which 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 a core deposit asset in other intangible assets related to the Limestone Merger. 38 Table of Contents Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans as to which Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. Acquired purchased credit deteriorated loans are reported net of the unamortized fair value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired purchased credit deteriorated loans as of the acquisition date: (Dollars in thousands) Par Value Allowance for Credit Losses Non-Credit (Discount) Premium Fair Value Purchased credit deteriorated loans Commercial real estate, other 14,151 ( 280 ) ( 748 ) 13,123 Commercial and industrial 14,871 ( 376 ) ( 616 ) 13,879 Residential real estate 6,699 ( 254 ) ( 958 ) 5,487 Home equity lines of credit 472 ( 13 ) 5 464 Consumer 1,001 ( 85 ) 78 994 Fair value $ 37,194 $ ( 1,008 ) $ ( 2,239 ) $ 33,947 Peoples' operating results for the three months and the six months ended June 30, 2023 include the operating results of the acquired assets and assumed liabilities of Limestone subsequent to the Limestone Merger. Due to the timing of the acquisition close and the conversion of Limestone systems, as well as other streamlining and integration of the operating activities into those of Peoples, historical reporting for the former Limestone operations is impracticable and the disclosures of revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to the acquisition. The following table presents unaudited pro forma information as if the Limestone Merger had occurred on January 1, 2022. The pro forma adjustments include any changes in interest income due to the accretion of discounts, or amortization of premiums, associated with the fair value adjustments to acquired loans, interest-bearing deposits, long-term borrowings and customer deposit intangibles that would have resulted had the assets and liabilities been acquired as of January 1, 2022. The pro forma information excludes Peoples' acquisition-related expenses as described above as well as a provision of credit losses of $ 9.4 million recorded to establish an allowance for credit losses for non-purchased credit deteriorated loans relating to the acquired loans. The pro forma reflects the adoption of CECL by Limestone as of January 1, 2023. The pro forma information does not necessarily reflect the results of operations that would have occurred had Peoples acquired Limestone on January 1, 2022. Additionally, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts. Unaudited Pro Forma For Three Months Ended Six Months Ended (Dollars in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Net interest income $ 89,455 $ 76,536 $ 177,851 $ 145,500 Non-interest income 19,432 21,642 40,552 43,930 Net income 34,376 30,498 67,069 59,348 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 acquisition agreement, Peoples Bank paid cash consideration of $ 54.0 million, and also repaid $ 28.9 million in recourse debt on behalf of Vantage, for total consideration of $ 82.9 million. Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide-array of industries. Peoples recorded acquisition-related expenses during the six months ended June 30, 2023 of $ 46,000 in professional fees related to the Vantage acquisition. Peoples recorded acquisition-related expenses during the first six months of 2022 of $ 1.5 million related to the Vantage acquisition, which included $ 1.1 million in professional fees. The following table provides the final purchase price calculation as of the date of the acquisition of Vantage, and the assets acquired and liabilities assumed at their estimated fair values. 39 Table of Contents (Dollars in thousands) Fair Value Total purchase price $ 82,893 Net assets at fair value Assets Cash and due from banks $ 1,444 Leases 155,726 Allowance for credit losses (on PCD leases) ( 801 ) Net leases 154,925 Bank premises and equipment 116 Other intangible assets 13,207 Other assets 1,506 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 PCD 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 in 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, a lease is typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses. 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 40 Table of Contents 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 through 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 relate to 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. Lease income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' leases can be found in "Note 4 Loans and Leases." The table below details Peoples' lease income: Three Months Ended Six Months Ended (Dollars in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Interest and fees on leases (a) $ 10,275 $ 10,541 $ 19,918 $ 16,643 Lease income 1,719 431 2,796 1,206 Total lease income $ 11,994 $ 10,972 $ 22,714 $ 17,849 (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 fees and costs" on the Unaudited Consolidated Balance Sheets: (Dollars in thousands) June 30, 2023 December 31, 2022 Lease payments receivable, at amortized cost $ 411,627 $ 367,681 Estimated residual values 36,465 35,045 Initial direct costs 5,246 4,233 Deferred revenue ( 75,547 ) ( 61,828 ) Net investment in leases 377,791 345,131 Allowance for credit losses - leases ( 10,377 ) ( 8,495 ) Net investment in leases, after allowance for credit losses $ 367,414 $ 336,636 The following table summarizes the contractual maturities of leases: (Dollars in thousands) Balance Remaining six months ending December 31, 2023 $ 50,716 Year ending December 31, 2024 92,833 Year ending December 31, 2025 106,500 Year ending December 31, 2026 75,794 Year ending December 31, 2027 51,144 Thereafter 34,640 Lease payments receivable, at amortized cost $ 411,627 Lessee Arrangements Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years . Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At June 30, 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 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 an ROU asset or lease liability. 41 Table of Contents The table below details Peoples' lease expense, which is included in "Net occupancy and equipment expense" in the Unaudited Consolidated Statements of Operations: Three Months Ended Six Months Ended (Dollars in thousands) June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Operating lease expense $ 766 $ 660 1,461 1,263 Short-term lease expense 322 179 417 347 Total lease expense $ 1,088 $ 839 $ 1,878 $ 1,610 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) June 30, 2023 December 31, 2022 ROU assets: Other assets $ 14,689 $ 6,825 Lease liabilities: Accrued expenses and other liabilities $ 15,412 $ 7,551 Other information: Weighted-average remaining lease term 9.5 years 8.8 years Weighted-average discount rate 3.19 % 2.70 % During the three months ended June 30, 2023 and 2022, Peoples paid cash of $ 0.7 million and $ 0.7 million, respectively, for operating leases. During the six months ended June 30, 2023 and 2022, Peoples paid cash of $ 1.4 million and $ 1.2 million, respectively, for operating leases. The following table summarizes the maturity of remaining lease liabilities: (Dollars in thousands) Balance Remaining six months ending December 31, 2023 $ 1,714 Year ending December 31, 2024 2,480 Year ending December 31, 2025 1,873 Year ending December 31, 2026 1,626 Year ending December 31, 2027 1,472 Thereafter 6,507 Total undiscounted lease payments $ 15,672 Imputed interest $ ( 260 ) Total lease liabilities $ 15,412 42 Table of Contents