PEOPLES BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 2023 December 31, 2022 (Dollars in thousands) (Unaudited) Assets Cash and cash equivalents: Cash and balances due from banks $ 108,107 $ 94,679 Interest-bearing deposits in other banks 191,002 59,343 Total cash and cash equivalents 299,109 154,022 Available-for-sale investment securities, at fair value (amortized cost of $ 1,211,794 at September 30, 2023 and $ 1,300,719 at December 31, 2022) (a) 1,018,581 1,131,399 Held-to-maturity investment securities, at amortized cost (fair value of $ 569,888 at September 30, 2023 and $ 478,509 at December 31, 2022) (a) 675,409 560,212 Other investment securities 66,332 51,609 Total investment securities (a) 1,760,322 1,743,220 Loans and leases, net of deferred fees and costs (b) 6,084,390 4,707,150 Allowance for credit losses ( 62,924 ) ( 53,162 ) Net loans and leases (c) 6,021,466 4,653,988 Loans held for sale 2,699 2,140 Bank premises and equipment, net of accumulated depreciation 103,877 82,934 Bank owned life insurance 139,554 105,292 Goodwill 355,106 292,397 Other intangible assets 53,388 33,932 Other assets 207,013 139,379 Total assets $ 8,942,534 $ 7,207,304 Liabilities Deposits: Non-interest-bearing $ 1,569,095 $ 1,589,402 Interest-bearing 5,468,423 4,127,539 Total deposits 7,037,518 5,716,941 Short-term borrowings 585,437 500,138 Long-term borrowings 173,312 101,093 Accrued expenses and other liabilities 153,048 103,804 Total liabilities 7,949,315 6,421,976 Stockholders’ equity Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2023 or at December 31, 2022 — — Common shares, no par value, 50,000,000 shares authorized, 36,723,893 shares issued at September 30, 2023 and 29,857,920 shares issued at December 31, 2022, including at each date shares held in treasury 864,010 686,450 Retained earnings 307,534 265,936 Accumulated other comprehensive loss, net of deferred income taxes ( 143,796 ) ( 127,136 ) Treasury stock, at cost, 1,412,650 shares at September 30, 2023 and 1,643,461 shares at December 31, 2022 ( 34,529 ) ( 39,922 ) Total stockholders’ equity 993,219 785,328 Total liabilities and stockholders’ equity $ 8,942,534 $ 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 $ 238 , respectively, at September 30, 2023, and $ 0 and $ 241 , respectively, at 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 Nine Months Ended September 30, September 30, (Dollars in thousands, except per share data) 2023 2022 2023 2022 Interest income: Interest and fees on loans and leases $ 109,024 $ 61,370 $ 272,634 $ 168,334 Interest and dividends on taxable investment securities 12,635 7,559 36,409 20,576 Interest on tax-exempt investment securities 1,133 1,095 3,254 3,136 Other interest income 801 847 1,862 1,306 Total interest income 123,593 70,871 314,159 193,352 Interest expense: Interest on deposits 22,482 2,316 42,546 6,383 Interest on short-term borrowings 5,169 393 14,940 992 Interest on long-term borrowings 2,668 1,111 5,668 3,148 Total interest expense 30,319 3,820 63,154 10,523 Net interest income 93,274 67,051 251,005 182,829 Provision for (recovery of) credit losses 4,053 1,776 13,889 ( 5,811 ) Net interest income after provision for (recovery of) credit losses 89,221 65,275 237,116 188,640 Non-interest income: Electronic banking income 6,466 5,261 18,375 15,933 Insurance income 4,250 3,618 13,679 11,995 Trust and investment income 4,288 3,954 12,786 12,476 Deposit account service charges 4,516 3,833 12,192 10,817 Lease (loss) income ( 66 ) 1,725 2,730 2,931 Bank owned life insurance income 1,375 694 2,924 1,922 Mortgage banking income 237 328 740 1,116 Net loss on asset disposals and other transactions ( 307 ) ( 35 ) ( 2,218 ) ( 314 ) Net (loss) gain on investment securities ( 7 ) 21 ( 2,108 ) 107 Other non-interest income 2,452 967 4,179 2,819 Total non-interest income 23,204 20,366 63,279 59,802 Non-interest expense: Salaries and employee benefit costs 36,608 28,618 106,661 83,932 Net occupancy and equipment expense 5,501 4,813 15,836 14,669 Professional fees 3,456 2,832 13,775 8,784 Data processing and software expense 6,288 3,279 15,578 9,228 Amortization of other intangible assets 3,280 2,023 7,951 5,765 Electronic banking expense 1,836 2,648 5,159 8,134 Marketing expense 1,267 1,136 3,554 2,991 Federal Deposit Insurance Corporation ("FDIC") insurance expense 1,260 709 3,525 2,921 Franchise tax expense 772 1,075 2,678 2,941 Communication expense 752 599 2,089 1,873 Other loan expenses 856 511 2,133 1,788 Other non-interest expense 9,820 4,010 19,859 10,755 Total non-interest expense 71,696 52,253 198,798 153,781 Income before income taxes 40,729 33,388 101,597 94,661 Income tax expense 8,847 7,410 22,059 20,218 Net income $ 31,882 $ 25,978 $ 79,538 $ 74,443 Earnings per common share - basic $ 0.91 $ 0.93 $ 2.49 $ 2.65 Earnings per common share - diluted $ 0.90 $ 0.92 $ 2.47 $ 2.65 Weighted-average number of common shares outstanding - basic 34,818,346 27,865,416 31,771,061 27,929,720 Weighted-average number of common shares outstanding - diluted 35,061,897 27,973,255 31,977,486 28,009,263 Cash dividends declared $ 13,793 $ 10,753 $ 37,940 $ 31,686 Cash dividends declared per common share $ 0.39 $ 0.38 $ 1.16 $ 1.12 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 Nine Months Ended September 30, September 30, (Dollars in thousands) 2023 2022 2023 2022 Net income $ 31,882 $ 25,978 $ 79,538 $ 74,443 Other comprehensive loss: Available-for-sale investment securities: Gross unrealized holding loss arising during the period ( 34,330 ) ( 57,911 ) ( 26,002 ) ( 172,195 ) Related tax benefit 7,671 13,484 6,178 40,170 Reclassification adjustment for net loss (gain) included in net income 7 ( 21 ) 2,108 ( 107 ) Related tax benefit (expense) 3 5 ( 492 ) 25 Net effect on other comprehensive loss ( 26,649 ) ( 44,443 ) ( 18,208 ) ( 132,107 ) Defined benefit plan: Net (loss) gain arising during the period ( 244 ) 203 ( 244 ) 264 Related tax benefit (expense) 57 ( 48 ) 57 ( 62 ) Amortization of unrecognized loss and service cost on benefit plans — 23 9 61 Related tax benefit — ( 5 ) ( 2 ) ( 14 ) Reclassification from accumulated other comprehensive income ("AOCI") 2,424 139 2,424 139 Related tax benefit ( 566 ) ( 32 ) ( 566 ) ( 32 ) Net effect on other comprehensive loss 1,671 280 1,678 356 Cash flow hedges: Net gain (loss) arising during the period 118 3,388 ( 165 ) 10,948 Related tax (expense) benefit ( 16 ) ( 789 ) 35 ( 2,501 ) Net effect on other comprehensive loss 102 2,599 ( 130 ) 8,447 Total other comprehensive loss, net of tax ( 24,876 ) ( 41,564 ) ( 16,660 ) ( 123,304 ) Total comprehensive income (loss) $ 7,006 $ ( 15,586 ) $ 62,878 $ ( 48,861 ) See Notes to the Unaudited Condensed Consolidated Financial Statements 5 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, June 30, 2023 $ 862,960 $ 289,445 $ ( 118,920 ) $ ( 34,578 ) $ 998,907 Net income — 31,882 — — 31,882 Other comprehensive loss, excluding pension termination settlement, net of tax — — ( 26,734 ) — ( 26,734 ) Pension termination settlement, net of tax 1,858 1,858 Cash dividends declared — ( 13,793 ) — ( 13,793 ) Reissuance of treasury stock for common share awards ( 314 ) — — 314 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 391 ) ( 391 ) Common shares issued under dividend reinvestment plan 284 — — — 284 Common shares issued under compensation plan for Boards of Directors 6 — — 133 139 Common shares issued under employee stock purchase plan — — — ( 7 ) ( 7 ) Stock-based compensation 1,074 — — — 1,074 Balance, September 30, 2023 $ 864,010 $ 307,534 $ ( 143,796 ) $ ( 34,529 ) $ 993,219 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 — 79,538 — — 79,538 Other comprehensive loss excluding pension termination settlement, net of tax — — ( 18,518 ) — ( 18,518 ) Pension termination settlement, net of tax 1,858 1,858 Cash dividends declared — ( 37,940 ) — — ( 37,940 ) Reissuance of treasury stock for common share awards ( 5,724 ) — — 5,724 — 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 — — — ( 1,445 ) ( 1,445 ) Common shares issued under dividend reinvestment plan 1,036 — — — 1,036 Common shares issued under compensation plan for Boards of Directors 25 — — 385 410 Common shares issued under employee stock purchase plan 61 — — 614 675 Stock-based compensation 4,233 — — — 4,233 Issuance of common shares related to merger with Limestone Bancorp, Inc. 177,929 — — — 177,929 Balance, September 30, 2023 $ 864,010 $ 307,534 $ ( 143,796 ) $ ( 34,529 ) $ 993,219 6 Table of Contents Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, June 30, 2022 $ 684,416 $ 234,608 $ ( 93,359 ) $ ( 38,841 ) $ 786,824 Net income — 25,978 — — 25,978 Other comprehensive loss, net of tax — — ( 41,564 ) — ( 41,564 ) Cash dividends declared — ( 10,753 ) — — ( 10,753 ) Reissuance of treasury stock for common share awards ( 219 ) — — 219 — Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 235 ) ( 235 ) Common shares repurchased under share repurchase program then in effect — — — ( 1,168 ) ( 1,168 ) Common shares issued under dividend reinvestment plan 320 — — — 320 Common shares issued under compensation plan for Boards of Directors 20 — — 106 126 Common shares issued under employee stock purchase plan 34 — — 169 203 Stock-based compensation 780 — — — 780 Balance, September 30, 2022 $ 685,351 $ 249,833 $ ( 134,923 ) $ ( 39,750 ) $ 760,511 Accumulated Other Comprehensive Loss Total Stockholders' Equity Common Shares Retained Earnings Treasury Stock (Dollars in thousands) Balance, December 31, 2021 $ 686,282 $ 207,076 $ ( 11,619 ) $ ( 36,714 ) $ 845,025 Net income — 74,443 — — 74,443 Other comprehensive loss, net of tax — — ( 123,304 ) — ( 123,304 ) Cash dividends declared — ( 31,686 ) — — ( 31,686 ) Reissuance of treasury stock for common share awards ( 4,944 ) — — 4,944 — Reissuance of treasury stock for deferred compensation plan for Boards of Directors — — — 78 78 Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors — — — ( 1,671 ) ( 1,671 ) Common shares repurchased under share repurchase program then in effect — — — ( 7,155 ) ( 7,155 ) Common shares issued under dividend reinvestment plan 921 — — — 921 Common shares issued under compensation plan for Boards of Directors 64 — — 314 378 Common shares issued under employee stock purchase plan 95 — — 454 549 Stock-based compensation 2,933 — — — 2,933 Balance, September 30, 2022 $ 685,351 $ 249,833 $ ( 134,923 ) $ ( 39,750 ) $ 760,511 See Notes to the Unaudited Condensed Consolidated Financial Statements 7 Table of Contents PEOPLES BANCORP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Net cash provided by operating activities $ 113,085 $ 102,500 Investing activities: Available-for-sale investment securities: Purchases ( 33,380 ) ( 237,930 ) Proceeds from sales 166,919 8,730 Proceeds from principal payments, calls and prepayments 115,963 155,070 Held-to-maturity investment securities: Purchases ( 187,487 ) ( 51,060 ) Proceeds from principal payments 72,396 16,080 Other investment securities: Purchases ( 24,768 ) ( 11,110 ) Proceeds from sales 15,681 5,885 Net (increase) decrease in loans held for investment ( 285,202 ) 36,158 Net expenditures for premises and equipment ( 10,620 ) ( 7,008 ) Proceeds from sales of other real estate owned 129 572 Purchase of bank owned life insurance — ( 30,000 ) Proceeds from bank owned life insurance contracts — 689 Business acquisitions, net of cash received (paid) 92,952 ( 85,791 ) Investment in limited partnership and tax credit funds ( 1,699 ) ( 1,857 ) Net cash used in investing activities ( 79,116 ) ( 201,572 ) Financing activities: Net decrease in non-interest-bearing deposits ( 283,034 ) ( 5,469 ) Net increase in interest-bearing deposits 369,629 8,919 Net increase (decrease) in short-term borrowings 25,299 ( 37,916 ) Proceeds from long-term borrowings 70,085 19,001 Payments on long-term borrowings ( 32,515 ) ( 116,354 ) Cash dividends paid ( 37,899 ) ( 31,704 ) Purchase of treasury stock under share repurchase program — ( 7,155 ) Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock ( 1,445 ) ( 1,671 ) Proceeds from issuance of common shares 998 878 Net cash provided by (used in) financing activities 111,118 ( 171,471 ) Net increase (decrease) in cash and cash equivalents 145,087 ( 270,543 ) Cash and cash equivalents at beginning of period 154,022 415,727 Cash and cash equivalents at end of period $ 299,109 $ 145,184 Supplemental cash flow information: Interest paid $ 57,033 $ 11,006 Income taxes paid 29,636 1,947 Supplemental noncash disclosures: Transfers from total loans to other real estate owned 31 55 Noncash recognition of new leases 4,428 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 September 30, 2023 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 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, which reduced 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, have been amended to reference SOFR-indexed rates 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 September 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 $ 42,466 $ — $ — $ 152,422 $ — $ — U.S. government sponsored agencies — 103,932 — — 88,115 — States and political subdivisions — 220,460 — — 225,882 — Residential mortgage-backed securities — 593,104 — — 604,653 — Commercial mortgage-backed securities — 50,840 — — 50,049 — Bank-issued trust preferred securities — 5,927 1,852 — 10,278 — Total available-for-sale securities $ 42,466 $ 974,263 $ 1,852 $ 152,422 $ 978,977 $ — Equity investment securities (a) 155 239 — 147 199 — Derivative assets (b) — 34,709 — — 34,123 — Liabilities: Derivative liabilities (c) $ — $ 29,491 $ — $ — $ 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, SOFR (or other relevant) yield curves, credit spreads and prices from market makers and live trading systems (Level 2). As of September 30, 2023, Peoples had one 10 Table of Contents 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 was used to estimate the fair value (Level 3). Management reviews the valuation methodology and quality controls utilized by the pricing services or broker in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from q uoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2). Derivative Assets and 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 September 30, 2023 and December 31, 2022. Non-Recurring Fair Value Measurements at Reporting Date September 30, 2023 December 31, 2022 (Dollars in thousands) Level 2 Level 3 Level 2 Level 3 Assets: Collateral dependent loans $ — $ 508 $ — $ 10,354 Loans held for sale (a) $ 1,443 $ — $ 1,254 $ — Other real estate owned $ — $ 32 $ — $ 55 (a) Loans held for sale are presented gross of a valuation allowance of $ 237 and $ 105 at September 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 September 30, 2023 December 31, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents 1 $ 299,109 $ 299,109 $ 154,022 $ 154,022 Held-to-maturity investment securities: Obligations of: U.S. government sponsored agencies 2 174,699 160,985 132,366 123,020 States and political subdivisions (a) 2 144,728 104,810 145,263 108,776 Residential mortgage-backed securities 2 248,627 218,970 176,215 157,998 Commercial mortgage-backed securities 2 102,845 85,123 101,861 85,354 Commercial mortgage-backed securities 3 4,748 — 4,748 3,361 Total held-to-maturity securities 675,647 569,888 560,453 478,509 Other investment securities: Other investment securities at cost: Federal Home Loan Bank ("FHLB") stock N/A 33,808 33,808 26,605 26,605 Federal Reserve Bank ("FRB") stock N/A 26,897 26,897 21,231 21,231 Banker's Bank of Kentucky ("BBKY") stock N/A 445 445 355 355 Total other investment securities at cost 61,150 61,150 48,191 48,191 Other investment securities at fair value: Nonqualified deferred compensation (b) 1 2,744 2,744 2,048 2,048 Other investment securities (c) 2 2,044 2,044 1,024 1,024 Total other investment securities 65,938 65,938 51,263 51,263 Loans and leases, net of deferred fees and costs (d) 3 6,084,390 5,808,484 4,707,150 4,516,695 Bank owned life insurance 2 139,554 139,554 105,292 105,292 Liabilities: Deposits 2 $ 7,037,518 $ 5,992,880 $ 5,716,941 $ 4,682,491 Short-term borrowings 2 585,437 595,045 500,138 504,584 Long-term borrowings 2 173,312 176,156 101,093 101,992 (a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $ 238 and $ 241 at September 30, 2023 and December 31, 2022, respectively. (b) Nonqualified deferred compensation includes mutual funds as part of the investment. (c) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at September 30, 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 $ 62.9 million and $ 53.2 million at September 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 12 Table of Contents underlying cash flow characteristics and discount rates and compares them to similar securities (Level 3). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists. 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 September 30, 2023 Obligations of: U.S. Treasury and government agencies $ 45,207 $ — $ ( 2,741 ) $ 42,466 U.S. government sponsored agencies 118,148 — ( 14,216 ) 103,932 States and political subdivisions 263,001 6 ( 42,547 ) 220,460 Residential mortgage-backed securities 714,501 725 ( 122,122 ) 593,104 Commercial mortgage-backed securities 62,584 — ( 11,744 ) 50,840 Bank-issued trust preferred securities 8,353 1 ( 575 ) 7,779 Total available-for-sale securities $ 1,211,794 $ 732 $ ( 193,945 ) $ 1,018,581 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 September 30 were as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2023 2022 2023 2022 Gross gains realized $ 1,101 $ 29 $ 1,191 $ 189 Gross losses realized ( 1,108 ) ( 8 ) ( 3,299 ) ( 82 ) Net (loss) gain realized $ ( 7 ) $ 21 $ ( 2,108 ) $ 107 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 September 30, 2023 Obligations of: U.S. Treasury and government agencies $ 15,992 $ 374 19 $ 26,476 $ 2,367 12 $ 42,468 $ 2,741 U.S. government sponsored agencies 29,514 450 17 74,418 13,766 17 103,932 14,216 States and political subdivisions 47,093 3,358 106 170,282 39,189 156 217,375 42,547 Residential mortgage-backed securities 68,958 4,928 85 519,488 117,194 238 588,446 122,122 Commercial mortgage-backed securities 7,851 344 9 42,767 11,400 21 50,618 11,744 Bank-issued trust preferred securities — — — 3,925 575 2 3,925 575 Total $ 169,408 $ 9,454 236 $ 837,356 $ 184,491 446 $ 1,006,764 $ 193,945 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 September 30, 2023, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At September 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 September 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 $ 9.4 million at September 30, 2023 and $ 7.8 million at December 31, 2022. At September 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, no positions had a fair value of less than 90 % of their book values. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities. Obligations of the U.S. treasury and government agencies, obligations of U.S. government sponsored agencies, and obligations of states and political subdivisions were issued by the U.S. Treasury Department or other U.S., state or local government agencies or 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 two bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at September 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 September 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 $ — $ 30,703 $ 8,439 $ 6,065 $ 45,207 U.S. government sponsored agencies 7,929 60,184 32,335 17,700 118,148 States and political subdivisions 18,785 52,478 66,632 125,106 263,001 Residential mortgage-backed securities 1 4,052 61,904 648,544 714,501 Commercial mortgage-backed securities 1,628 12,583 27,254 21,119 62,584 Bank-issued trust preferred securities — 3,000 3,500 1,853 8,353 Total available-for-sale securities $ 28,343 $ 163,000 $ 200,064 $ 820,387 $ 1,211,794 Fair value Obligations of: U.S. Treasury and government agencies $ — $ 28,284 $ 8,242 $ 5,940 $ 42,466 U.S. government sponsored agencies 7,858 54,328 26,545 15,201 103,932 States and political subdivisions 18,554 48,537 54,148 99,221 220,460 Residential mortgage-backed securities 1 3,845 54,760 534,498 593,104 Commercial mortgage-backed securities 1,621 11,195 21,986 16,038 50,840 Bank-issued trust preferred securities — 2,942 2,984 1,853 7,779 Total available-for-sale securities $ 28,034 $ 149,131 $ 168,665 $ 672,751 $ 1,018,581 Total weighted-average yield 2.77 % 2.27 % 2.10 % 2.29 % 2.27 % Held-to-maturity The following table summarizes Peoples’ held-to-maturity investment securities: (Dollars in thousands) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value September 30, 2023 Obligations of: U.S. government sponsored agencies $ 174,699 $ — $ — $ ( 13,714 ) $ 160,985 States and political subdivisions 144,728 ( 238 ) 84 ( 39,764 ) 104,810 Residential mortgage-backed securities 248,627 — 85 ( 29,742 ) 218,970 Commercial mortgage-backed securities 107,593 — — ( 22,470 ) 85,123 Total held-to-maturity securities $ 675,647 $ ( 238 ) $ 169 $ ( 105,690 ) $ 569,888 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 nine months ended September 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 September 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 September 30, 2023 Obligations of: U.S. government sponsored agencies $ 111,592 $ 3,708 22 49,393 10,006 16 $ 160,985 $ 13,714 States and political subdivisions — — — 101,560 39,764 67 101,560 39,764 Residential mortgage-backed securities 130,966 9,176 38 80,612 20,566 26 211,578 29,742 Commercial mortgage-backed securities 21,396 3,599 8 63,727 18,871 30 85,123 22,470 Total $ 263,954 $ 16,483 68 $ 295,292 $ 89,207 139 $ 559,246 $ 105,690 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 September 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 23.3 % at September 30, 2023. 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 4,629 $ 18,660 $ 67,032 $ 84,378 $ 174,699 States and political subdivisions — 5,218 9,392 130,118 144,728 Residential mortgage-backed securities — 646 4,453 243,528 248,627 Commercial mortgage-backed securities 6,562 9,466 37,564 54,001 107,593 Total held-to-maturity securities $ 11,191 $ 33,990 $ 118,441 $ 512,025 $ 675,647 Fair value Obligations of: U.S. government sponsored agencies 4,584 $ 17,800 $ 65,196 $ 73,405 $ 160,985 States and political subdivisions — 5,157 7,706 91,947 104,810 Residential mortgage-backed securities — 626 3,736 214,608 218,970 Commercial mortgage-backed securities 6,474 7,793 30,487 40,369 85,123 Total held-to-maturity securities $ 11,058 $ 31,376 $ 107,125 $ 420,329 $ 569,888 Total weighted-average yield 2.32 % 1.64 % 4.04 % 3.43 % 3.43 % 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) September 30, 2023 December 31, 2022 FHLB stock $ 33,808 $ 26,605 FRB stock 26,897 21,231 Nonqualified deferred compensation 2,744 2,048 Equity investment securities 394 346 Other investment securities 2,489 1,379 Total other investment securities $ 66,332 $ 51,609 During the nine months ended September 30, 2023, Peoples redeemed $ 15.6 million of FHLB stock in order to be in compliance with the requirements of the FHLB. Peoples purchased $ 17.2 million of additional FHLB stock during the nine months ended September 30, 2023, as a result of the FHLB's capital requirements on FHLB advances during the first nine months. For the three months ended September 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 $ 58,000 and an unrealized gain of $ 6,000 , respectively. For the nine months ended September 30, 2023 and 2022, Peoples recognized an unrealized loss of $ 175,000 and an unrealized loss of $ 12,000 , respectively, for the change in fair value of equity investment securities in "Other non-interest income". At September 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 at September 30, 2023. 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) September 30, 2023 December 31, 2022 Securing public and trust department deposits, and repurchase agreements: Available-for-sale $ 745,164 $ 779,244 Held-to-maturity 523,317 312,921 Securing additional borrowing capacity at the FHLB and the FRB: Available-for-sale 3,520 3,972 Held-to-maturity 1,254 128,870 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) September 30, 2023 December 31, 2022 Construction $ 374,016 $ 246,941 Commercial real estate, other 2,189,984 1,423,518 Commercial and industrial 1,128,809 892,634 Premium finance 189,251 159,197 Leases 402,635 345,131 Residential real estate 791,965 723,360 Home equity lines of credit 203,940 177,858 Consumer, indirect 668,371 629,426 Consumer, direct 134,562 108,363 Deposit account overdrafts 857 722 Total loans, at amortized cost $ 6,084,390 $ 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 $ 22.2 million at September 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: September 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 3,661 487 12,121 167 Commercial and industrial 3,116 67 3,462 130 Premium finance — 1,581 — 504 Leases 7,929 6,007 3,178 3,041 Residential real estate 8,454 736 9,496 917 Home equity lines of credit 1,026 177 820 58 Consumer, indirect 1,904 47 2,176 — Consumer, direct 97 15 208 25 Total loans, at amortized cost $ 26,187 $ 9,117 $ 31,473 $ 4,842 (a) There were $ 0.5 million of nonaccrual loans for which there was no allowance for credit losses at September 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 nine months of 2023, nonaccrual loans declined compared to at December 31, 2022, which was primarily due to three large relationships totaling $ 8.0 million of commercial real estate loans which were paid off in the third quarter. This was partially offset by an increase in nonaccrual leases during the first nine months of 2023. The increase in accruing loans 90+ days past due at September 30, 2023 when compared to at December 31, 2022, was primarily due to increases of approximately $ 3.0 million and $ 1.1 million in leases and premium finance loans, respectively. The amount of interest income recognized on accruing loans 90+ days past due during the nine months ended September 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 September 30, 2023 Construction $ — $ — $ — $ — $ 374,016 $ 374,016 Commercial real estate, other 1,059 322 2,970 4,351 2,185,633 2,189,984 Commercial and industrial 733 2,513 3,171 6,417 1,122,392 1,128,809 Premium finance 781 686 1,581 3,048 186,203 189,251 Leases 4,057 9,036 13,937 27,030 375,605 402,635 Residential real estate 3,286 2,924 4,091 10,301 781,664 791,965 Home equity lines of credit 1,637 239 795 2,671 201,269 203,940 Consumer, indirect 5,663 1,090 816 7,569 660,802 668,371 Consumer, direct 441 96 53 590 133,972 134,562 Deposit account overdrafts — — — — 857 857 Total loans, at amortized cost $ 17,657 $ 16,906 $ 27,414 $ 61,977 $ 6,022,413 $ 6,084,390 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 improved slightly, as 99.0 % of Peoples' loan portfolio was considered “current” at September 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) September 30, 2023 December 31, 2022 Loans pledged to FHLB $ 1,245,235 $ 783,843 Loans pledged to FRB 366,754 339,005 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 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 September 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 $ 49,218 $ 166,000 $ 103,935 $ 28,902 $ 8,931 $ 14,073 $ — $ — $ 371,059 Special mention — — — — — 125 — — 125 Substandard 1,200 1,598 — — — 34 — — 2,832 Total 50,418 167,598 103,935 28,902 8,931 14,232 — — 374,016 Current period gross charge-offs — — 9 — — — 9 Commercial real estate, other Pass 159,774 296,172 377,054 238,765 273,896 705,640 32,428 194 2,083,729 Special mention 1,000 7,374 1,950 4,303 5,178 17,863 947 45 38,615 Substandard 315 1,430 7,268 10,669 2,404 44,954 590 — 67,630 Doubtful — — — — — 10 — — 10 Total 161,089 304,976 386,272 253,737 281,478 768,467 33,965 239 2,189,984 Current period gross charge-offs — — — 39 — 279 318 Commercial and industrial Pass 129,859 188,569 221,410 88,762 68,408 132,029 222,517 56 1,051,554 Special mention 788 12,298 68 9,439 2,051 8,132 13,842 7,500 46,618 Substandard 34 6,477 5,286 5,764 1,723 6,976 4,193 142 30,453 Doubtful — — — — — 184 — — 184 Total 130,681 207,344 226,764 103,965 72,182 147,321 240,552 7,698 1,128,809 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 — — — 13 — 198 211 Premium finance Pass 181,786 7,462 3 — — — — — 189,251 Total 181,786 7,462 3 — — — — — 189,251 Current period gross charge-offs 2 76 1 — — — 79 Leases Pass 176,044 126,255 59,878 19,171 7,122 1,786 — 390,256 Special mention 420 1,251 1,384 76 25 11 3,167 Substandard 1,410 3,461 3,116 483 322 420 9,212 Total 177,874 130,967 64,378 19,730 7,469 2,217 — — 402,635 Current period gross charge-offs 90 625 850 218 165 30 1,978 Residential real estate Pass 54,423 93,514 143,794 59,432 48,436 381,826 — — 781,425 Special mention — — — — — 111 — — 111 Substandard — 244 336 141 612 9,044 — — 10,377 Loss — — — — — 52 — — 52 Total 54,423 93,758 144,130 59,573 49,048 391,033 — — 791,965 Current period gross charge-offs — — — — — 150 150 Home equity lines of credit Pass 29,743 43,501 33,323 20,296 14,878 60,657 80 1,292 202,478 Substandard 81 40 87 21 91 1,130 — — 1,450 Loss — — — — — 12 — — 12 Total 29,824 43,541 33,410 20,317 14,969 61,799 80 1,292 203,940 Current period gross charge-offs — — — — — 106 106 Consumer, indirect Pass 202,590 246,044 108,067 67,475 22,157 19,331 — — 665,664 Substandard 169 704 803 510 211 235 — — 2,632 Loss 16 39 9 11 — — — — 75 Total 202,775 246,787 108,879 67,996 22,368 19,566 — — 668,371 Current period gross charge-offs 251 1,488 665 207 59 126 2,796 Consumer, direct Pass 54,619 41,130 20,085 9,714 3,854 4,850 — — 134,252 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 — 30 84 45 24 114 — — 297 Loss — — — — — 13 — — 13 Total 54,619 41,160 20,169 9,759 3,878 4,977 — — 134,562 Current period gross charge-offs 18 99 32 84 14 27 274 Deposit account overdrafts 857 — — — — — — — 857 Current period gross charge-offs 809 — — — — — 809 Total loans, at amortized cost 1,044,346 1,243,593 1,087,940 563,979 460,323 1,409,612 274,597 9,229 6,084,390 Total current period gross charge-offs $ 1,170 $ 2,288 $ 1,557 $ 561 $ 238 $ 916 $ 6,730 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 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 estate 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. • Premium finance loans are secured by the unearned portion of the insurance premium being financed. 24 Table of Contents The following table details Peoples' amortized cost of collateral dependent loans: (Dollars in thousands) September 30, 2023 December 31, 2022 Commercial real estate, other — 8,362 Commercial and industrial — 1,456 Residential real estate 508 536 Total collateral dependent loans $ 508 $ 10,354 The decrease in collateral dependent loans at September 30, 2023, compared to December 31, 2022, was primarily due to three large-relationships that were paid in full during the nine months ended September 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 tables display the amortized cost of loans that were restructured during the three months and the nine months ended September 30, 2023, presented by loan classification. During the Three Months Ended September 30, 2023 (Dollars in thousands) Term Extension Total Percentage of Total by Loan Category (a)(b) Commercial real estate $ 901 $ 901 0.04 % Commercial and industrial 2,352 2,352 0.21 % Residential real estate 25 25 — % Home equity lines of credit 52 52 0.03 % Total $ 3,330 $ 3,330 0.05 % During the Nine Months Ended September 30, 2023 Payment Delay (Only) Forbearance Plan and Term Extension Percentage of Total by Loan Category (a) (Dollars in thousands) Forbearance Plan Payment Deferral Term Extension Total Construction $ — $ 1,598 $ — $ — $ 1,598 0.43 % Commercial real estate 189 — 1,089 — 1,278 0.06 % Commercial and industrial — — 5,130 293 5,423 0.48 % Residential real estate — — 243 — 243 0.03 % Home equity lines of credit — — 203 — 203 0.10 % Total $ 189 $ 1,598 $ 6,665 $ 293 $ 8,745 0.14 % (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. 25 Table of Contents The following tables summarize the financial impacts of loan modifications and payment deferrals made to loans during the three months and the nine months ended September 30, 2023, presented by loan classification. During the Three Months Ended September 30, 2023 Weighted-Average Term Extension (in months) Average Amount Capitalized as a Result of a Payment Delay (a) Commercial real estate 4 $ — Commercial and industrial 4 — Residential real estate 240 — Home equity lines of credit 217 — During the Nine Months Ended September 30, 2023 Weighted-Average Term Extension (in months) Average Amount Capitalized as a Result of a Payment Delay (a) Commercial real estate 6 $ — Commercial and industrial 5 — Residential real estate 213 8,072 Home equity lines of credit 189 — 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 September 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 were 90 days or more past due following a modification through September 30, 2023. For the Nine Months Ended September 30, 2023 Payment Delay as a Result of a Payment Deferral (Only) Total Commercial and industrial $ 245 $ 245 Consumer, indirect $ 11 $ 11 Total loans that subsequently defaulted $ 256 $ 256 (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 September 30, 2023, presented by classification and class of financing receivable. 26 Table of Contents As of September 30, 2023 (Dollars in thousands) 30-59 Days Delinquent 60-89 Days Delinquent 90+ Days Delinquent Total Delinquent Current Total Construction $ — $ — $ — $ — $ 1,598 $ 1,598 Commercial real estate — 76 — 76 1,203 1,279 Commercial and industrial — 276 2,042 2,318 3,105 5,423 Residential real estate — — — — 242 242 Home equity lines of credit — — — — 203 203 Total loans modified (a) $ — $ 352 $ 2,042 $ 2,394 $ 6,351 $ 8,745 (a) Represents the amortized cost basis as of period end. Troubled Debt Restructurings Disclosures Prior to the Adoption of ASU 2022-02 Prior to the adoption of ASU 2022-02, Peoples accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. See “Note 1 Summary of Significant Accounting Policies” in Peoples' 2022 Form 10-K for more information on our TDR policy, and “Note 1, Summary of Significant Accounting Policies” in this Form 10-Q for more information on the adoption of ASU 2022-02. 27 Table of Contents The following table summarizes the loans that were modified as TDRs during the three months and the nine months ended September 30, 2022: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment September 30, 2022 Commercial and industrial 1 20 20 19 Residential real estate 7 323 361 354 Home equity lines of credit 2 119 119 119 Consumer, indirect 6 79 79 79 Consumer, direct 3 20 20 20 Consumer 9 99 99 99 Total 19 $ 561 $ 599 $ 591 (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. Nine Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment September 30, 2022 Commercial real estate, other 3 282 282 276 Commercial and industrial 6 1,309 1,313 801 Residential real estate 30 1,478 1,562 1,536 Home equity lines of credit 5 251 251 247 Consumer, indirect 19 237 237 237 Consumer, direct 6 63 63 63 Consumer 25 300 300 300 Total 69 $ 3,620 $ 3,708 $ 3,160 (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. 28 Table of Contents Changes in the allowance for credit losses for the three months and the nine months ended September 30, 2023 and September 30, 2022 are summarized below: (Dollars in thousands) Beginning Balance, June 30, 2023 Initial Allowance for Acquired PCD Assets (a) (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, September 30, 2023 Construction $ 1,496 — ( 255 ) — — 1,241 Commercial real estate, other 19,731 138 1,569 ( 278 ) 97 21,257 Commercial and industrial 11,028 3 ( 630 ) ( 199 ) 3 10,205 Premium finance 431 — 66 ( 33 ) 12 476 Leases 10,377 — 2,052 ( 905 ) 168 11,692 Residential real estate 6,112 6 156 ( 50 ) 27 6,251 Home equity lines of credit 1,676 5 ( 9 ) ( 32 ) — 1,640 Consumer, indirect 7,610 — 683 ( 926 ) 149 7,516 Consumer, direct 2,642 1 ( 43 ) ( 92 ) 11 2,519 Deposit account overdrafts 108 — 289 ( 319 ) 49 127 Total $ 61,211 $ 153 $ 3,878 $ ( 2,834 ) $ 516 $ 62,924 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, June 30, 2022 Initial Allowance for Acquired PCD Assets (a) (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, September 30, 2022 Construction $ 1,531 $ — $ ( 67 ) $ — $ — $ 1,464 Commercial real estate, other 18,708 — ( 995 ) ( 57 ) 39 17,695 Commercial and industrial 8,572 — 72 ( 36 ) 3 8,611 Premium finance 311 — 279 ( 38 ) 1 553 Leases 7,585 377 560 ( 731 ) 99 7,890 Residential real estate 6,332 — 264 ( 168 ) 36 6,464 Home equity lines of credit 1,699 — ( 50 ) ( 5 ) — 1,644 Consumer, indirect 6,234 — 1,207 ( 600 ) 71 6,912 Consumer, direct 1,321 — 343 ( 81 ) 9 1,592 Deposit account overdrafts 53 — 218 ( 274 ) 44 41 Total $ 52,346 $ 377 $ 1,831 $ ( 1,990 ) $ 302 $ 52,866 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. 29 Table of Contents (Dollars in thousands) Beginning Balance, December 31, 2022 Initial Allowance for Acquired PCD Assets (a) Provision for (Recovery of) Credit Losses (b) Charge-offs Recoveries Ending Balance, September 30, 2023 Construction $ 1,250 $ — $ — $ ( 9 ) $ — $ 1,241 Commercial real estate, other 17,710 418 3,307 ( 318 ) 140 21,257 Commercial and industrial 8,229 379 1,354 ( 211 ) 454 10,205 Premium finance 344 — 187 ( 79 ) 24 476 Leases 8,495 — 4,838 ( 1,978 ) 337 11,692 Residential real estate 6,357 260 ( 341 ) ( 150 ) 125 6,251 Home equity lines of credit 1,693 18 35 ( 106 ) — 1,640 Consumer, indirect 7,448 — 2,507 ( 2,796 ) 357 7,516 Consumer, direct 1,575 86 1,071 ( 274 ) 61 2,519 Deposit account overdrafts 61 — 701 ( 809 ) 174 127 Total $ 53,162 $ 1,161 $ 13,659 $ ( 6,730 ) $ 1,672 $ 62,924 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, December 31, 2021 Initial Allowance for Acquired PCD Assets (a) (Recovery of) Provision for Credit Losses (b) Charge-offs Recoveries Ending Balance, September 30, 2022 Construction $ 2,999 $ — $ ( 1,535 ) $ — $ — $ 1,464 Commercial real estate, other 29,147 ( 451 ) ( 10,908 ) ( 357 ) 264 17,695 Commercial and industrial 11,063 ( 418 ) ( 1,124 ) ( 919 ) 9 8,611 Premium finance 379 — 247 ( 82 ) 9 553 Leases 4,797 801 3,650 ( 1,697 ) 339 7,890 Residential real estate 7,233 ( 509 ) 200 ( 524 ) 64 6,464 Home equity lines of credit 2,005 ( 11 ) ( 333 ) ( 46 ) 29 1,644 Consumer, indirect 5,326 ( 41 ) 2,821 ( 1,434 ) 240 6,912 Consumer, direct 961 — 877 ( 277 ) 31 1,592 Deposit account overdrafts 57 — 772 ( 938 ) 150 41 Total $ 63,967 $ ( 629 ) $ ( 5,333 ) $ ( 6,274 ) $ 1,135 $ 52,866 (a) Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. During the third quarter of 2023, Peoples recorded a total provision for credit losses of $ 4.1 million, which was driven by (i) loan growth, (ii) an increase in net charge-offs, (iii) updates to our prepayment, curtailment and funding rates, and (iv) a deterioration in macro-economic conditions used within the CECL model, partially offset by the release of reserves on individually analyzed loans. The increase in the allowance for credit losses at September 30, 2023 when compared to prior periods was driven by the establishment of an allowance for credit losses for loans acquired in the Limestone Merger that were not considered purchased credit deteriorated ("PCD"). During the third quarter of 2022, Peoples recorded a provision for credit losses of $ 1.8 million driven by a deterioration of macro-economic conditions, partially offset by a release of reserves on individually analyzed loans. Leases designated as PCD acquired from 30 Table of Contents Vantage increased the allowance for credit losses by $ 377,000 . Net charge-offs for the third quarter of 2022 were $ 1.7 million, and included charge-offs of three leases aggregating $ 0.6 million. Peoples had recorded an allowance for unfunded commitments of $ 2.2 million and $ 2.0 million as of September 30, 2023 and December 31, 2022, respectively. The allowance for unfunded commitments (also referred to as "unfunded commitment liability") is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets. The change in the allowance for unfunded commitments is also reflected in the "Provision for (recovery of) credit losses" line of the Unaudited Consolidated Statements of Operations. Note 5 Goodwill and Other Intangible Assets Goodwill The following table details changes in the recorded amount of goodwill: (Dollars in thousands) September 30, 2023 December 31, 2022 Goodwill, beginning of year $ 292,397 $ 264,193 Goodwill recorded from acquisitions 62,709 28,204 Goodwill, end of period $ 355,106 $ 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, and immediately thereafter, Limestone Bank, Inc., the subsidiary bank of Limestone, merged with and into Peoples Bank (collectively, the “Limestone Merger”). Peoples has recorded preliminary goodwill from the Limestone Merger totaling $ 62.1 million as of September 30, 2023. On January 3, 2023, Peoples acquired a trust and investment business, for which Peoples has recorded $ 0.6 million in goodwill as of September 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 wholly-owned 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 September 30, 2023, and at December 31, 2022: (Dollars in thousands) Core Deposits Customer Relationships Indefinite-Lived Trade Names Total September 30, 2023 Gross intangibles $ 26,464 $ 39,241 $ 2,491 $ 68,196 Intangibles recorded from acquisitions 27,722 — — 27,722 Accumulated amortization ( 23,952 ) ( 20,076 ) — ( 44,028 ) Total acquisition-related intangibles $ 30,234 $ 19,165 $ 2,491 $ 51,890 Servicing rights 1,498 Total other intangibles $ 53,388 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 31 Table of Contents As of September 30, 2023 , Peoples has recorded $ 27.7 million of core deposit intangibles related to the Limestone Merger. Refer to "Note 13 Acquisitions" for additional information. Peoples recorded other intangible assets in 2022 related to the Vantage acquisition consisting of $ 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. 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") in 2022. Refer to "Note 13 Acquisitions" for additional information. The following table details estimated aggregate future amortization of other intangible assets at September 30, 2023: (Dollars in thousands) Core Deposits Customer Relationships Total Remaining three months of 2023 $ 1,692 $ 1,554 $ 3,246 2024 5,881 5,343 11,224 2025 4,614 4,255 8,869 2026 3,738 3,114 6,852 2027 3,046 2,289 5,335 Thereafter 11,263 2,610 13,873 Total $ 30,234 $ 19,165 $ 49,399 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) September 30, 2023 December 31, 2022 Retail certificates of deposits ("CDs"): $100 or more $ 673,848 $ 263,341 Less than $100 524,885 266,895 Total Retail CDs 1,198,733 530,236 Interest-bearing deposit accounts 1,181,079 1,160,182 Savings accounts 987,170 1,068,547 Money market deposit accounts 730,902 617,029 Governmental deposit accounts 761,625 625,965 Brokered CDs 608,914 125,580 Total interest-bearing deposits 5,468,423 4,127,539 Non-interest-bearing deposits $ 1,569,095 1,589,402 Total deposits $ 7,037,518 $ 5,716,941 Uninsured deposits were $ 1.9 billion and $ 1.6 billion at September 30, 2023 and at December 31, 2022, respectively. Uninsured amounts are estimated based on the portion of the respective customer account balances that exceeded the FDIC limit of $250,000. Peoples pledges investment securities against certain governmental deposit accounts, which covered o ver $ 812.7 million o f the uninsured deposit balances at September 30, 2023. 32 Table of Contents Uninsured time deposits are broken out below by time remaining until maturity. (Dollars in thousands) September 30, 2023 December 31, 2022 3 months or less $ 34,976 $ 19,282 Over 3 to 6 months 58,092 14,871 Over 6 to 12 months 135,603 14,383 Over 12 months 33,184 52,216 Total $ 261,855 $ 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 three months ending December 31, 2023 $ 200,562 $ 608,914 $ 809,476 Year ending December 31, 2024 899,116 — 899,116 Year ending December 31, 2025 45,630 — 45,630 Year ending December 31, 2026 19,560 — 19,560 Year ending December 31, 2027 26,296 — 26,296 Thereafter 7,569 — 7,569 Total CDs $ 1,198,733 $ 608,914 $ 1,807,647 At September 30, 2023, Peoples had eleven effective interest rate swaps, with an aggregate notional value of $ 105.0 million, of which $ 105.0 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 nine months ended September 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 — 34,710 Cancellation of restricted common shares — 15,726 Grant of restricted common shares — ( 249,645 ) Grant of unrestricted common shares — ( 1,900 ) Changes related to deferred compensation plan for Boards of Directors: Purchase of treasury stock — 15,737 Disbursed out of treasury stock — ( 4,368 ) Common shares issued under dividend reinvestment plan 38,305 — Common shares issued under compensation plan for Boards of Directors — ( 15,827 ) Common shares issued under employee stock purchase plan — ( 25,244 ) Issuance of common shares related to the Limestone Merger 6,827,668 — Shares at September 30, 2023 36,723,893 1,412,650 On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $ 30.0 million of Peoples' outstanding common shares. At September 30, 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 nine 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 designated by Peoples' Board of Directors. At September 30, 2023, Peoples had no preferred shares issued or outstanding. On October 23, 2023, Peoples' Board of Directors declared a quarterly cash dividend of $ 0.39 per common share, payable on November 20, 2023, to shareholders of record on November 6, 2023. The following table details the cash dividends declared per common share during the four 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 Fourth quarter 0.39 0.38 Total dividends declared $ 1.55 $ 1.50 Accumulated Other Comprehensive (Loss) Income The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income during the nine months ended September 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 1,616 — — 1,616 Realized loss due to settlement and curtailment, net of tax — 1,858 — 1,858 Other comprehensive (loss) income, net of reclassifications and tax ( 19,824 ) ( 180 ) ( 130 ) ( 20,134 ) Balance, September 30, 2023 $ ( 148,104 ) $ 45 $ 4,263 $ ( 143,796 ) Note 8 Employee Benefit Plans Peoples sponsored a noncontributory defined benefit pension plan that covered substantially all employees hired before January 1, 2010. The plan provided retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of post-retirement benefit was 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 post-retirement benefit was based on 2 % of the employee’s annual compensation during the years 2003 through 2009, plus accrued interest. During the third quarter of 2023, Peoples terminated its pension plan by settling the remaining benefit obligation of $ 7.7 million. The pension plan had been closed to new entrants since January 1, 2010. Peoples recorded a settlement charge of $ 2.4 million in the third quarter of 2023 in relation to the termination of the pension plan. Peoples does not anticipate further expenses related to the termination. 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. Since January 1, 2011, all retirees who desire to participate in the Peoples Bank medical plan may 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. 33 Table of Contents Note 9 Earnings Per Common Share The calculations of basic and diluted earnings per common share were as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per common share data) 2023 2022 2023 2022 Net income available to common shareholders $ 31,882 $ 25,978 $ 79,538 $ 74,443 Less: Dividends paid on unvested common shares 143 102 388 252 Less: Undistributed income allocated to unvested common shares 79 24 190 65 Net earnings allocated to common shareholders $ 31,660 $ 25,852 $ 78,960 $ 74,126 Weighted-average common shares outstanding 34,818,346 27,865,416 31,771,061 27,929,720 Effect of potentially dilutive common shares 243,551 107,839 206,425 79,543 Total weighted-average diluted common shares outstanding 35,061,897 27,973,255 31,977,486 28,009,263 Earnings per common share: Basic $ 0.91 $ 0.93 $ 2.49 $ 2.65 Diluted $ 0.90 $ 0.92 $ 2.47 $ 2.65 Anti-dilutive common shares excluded from calculation: Restricted common shares 3,046 1,832 10,547 — Note 10 Derivative Financial Instruments Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the "Other assets" and the "Accrued expenses and other liabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, while cash activity related to these derivative financial instruments is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows. Derivative Financial Instruments and Hedging Activities - Risk Management Objective of Using Derivative Financial Instruments Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. Peoples also manages interest rate risk through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the values of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate derivative financial instruments that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions. Cash Flow Hedges of Interest Rate Risk Peoples' objectives in using interest rate derivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. At September 30, 2023, Peoples had entered into eleven interest rate swap contracts with an aggregate notional value of $ 105.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to 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 September 30, 2023 and at December 31, 2022, the interest rate swaps were designated as cash flow hedges of $ 105.0 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. 34 Table of Contents For derivative financial instruments designated as cash flow hedges, the effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest expense as interest payments are made or received on Peoples' variable-rate liabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the brokered CDs are matched to the reset dates and payment dates on the receipt of the term SOFR rate (or the three-month LIBOR floating portion prior to June 30, 2023) of the swaps to ensure effectiveness of the cash flow hedge. During the three months ended September 30, 2023, and 2022, Peoples recorded reclassifications of losses to earnings of $ 0.9 million and $ 0.2 million, respectively. For the nine months ended September 30, 2023 and 2022, Peoples recorded reclassifications of losses to earnings of $ 2.3 million and $ 1.3 million, respectively. During the next twelve months, Peoples estimates that $ 1.3 million of AOCI will be reclassified as an addition to interest expense. The following table summarizes information about the interest rate swaps designated as cash flow hedges: (Dollars in thousands) September 30, 2023 December 31, 2022 Notional amount $ 105,000 $ 125,000 Weighted average pay rates 2.22 % 2.26 % Weighted average receive rates 5.19 % 4.44 % Weighted average maturity 2.2 years 2.6 years Pre-tax changes in fair value included in AOCI $ 5,547 $ 5,727 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 Nine Months Ended September 30, September 30, (Dollars in thousands) 2023 2022 2023 2022 Amount of losses (gains) recorded in AOCI, pre-tax $ ( 118 ) $ ( 3,388 ) $ 165 $ ( 10,948 ) The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value: September 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 $ 105,000 $ 5,440 $ 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 nine months ended September 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: 35 Table of Contents September 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 $ 395,721 $ 29,270 $ 390,126 $ 28,529 Included in "Accrued expenses and other liabilities": Interest rate swaps related to commercial loans $ 395,721 $ 29,491 $ 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 September 30, 2023 and at December 31, 2022, Peoples had no cash pledged, while counterparties had $ 22.2 million of cash pledged at September 30, 2023 and $ 20.9 million of cash pledged at December 31, 2022. Peoples had no pledged investment securities at September 30, 2023 or at December 31, 2022, while the counterparties had pledged investment securities in the amounts of $ 2.2 million at September 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. 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 officers and key employees expire after periods ranging from one to five years . Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first nine months of 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 nine months ended September 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 61,273 26.51 188,372 30.30 Released ( 33,220 ) 24.73 ( 70,458 ) 32.91 Forfeited ( 6,547 ) 30.54 ( 9,179 ) 31.14 Outstanding at September 30, 2023 160,028 $ 27.36 404,610 $ 31.21 For the nine months ended September 30, 2023, the intrinsic value for restricted common shares released was $ 3.0 million compared to $ 3.7 million for the nine months ended September 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: 36 Table of Contents Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2023 2022 2023 2022 Employee stock-based compensation expense: Stock grant expense $ 1,074 $ 780 $ 4,233 $ 2,933 Employee stock purchase plan expense 33 2 106 54 Total employee stock-based compensation expense 1,107 782 $ 4,339 $ 2,987 Non-employee director stock-based compensation expense 139 127 $ 410 $ 378 Total stock-based compensation expense 1,246 909 $ 4,749 $ 3,365 Recognized tax benefit ( 291 ) ( 195 ) ( 1,109 ) ( 721 ) Net stock-based compensation expense $ 955 $ 714 $ 3,640 $ 2,644 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 $ 6.0 million at September 30, 2023, which will be recognized over a weighted-average period of 2.1 years. Note 12 Revenue The following table details Peoples' revenue from contracts with customers: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands) 2023 2022 2023 2022 Insurance income: Commission and fees from sale of insurance policies (a) $ 4,133 $ 3,465 $ 11,844 $ 10,323 Fees related to third-party administration services (a) 77 88 233 252 Performance-based commissions (b) 40 65 1,602 1,420 Trust and investment income: Fiduciary income (a) 2,506 2,376 7,710 7,618 Brokerage income (a) 1,782 1,578 5,076 4,858 Electronic banking income: Interchange income (a) 5,124 4,150 14,341 12,564 Promotional and usage income (a) 1,342 1,111 4,034 3,369 Deposit account service charges: Ongoing maintenance fees for deposit accounts (a) 1,577 1,353 4,661 3,971 Transaction-based fees (b) 2,939 2,480 7,531 6,846 Commercial loan swap fees (b) 475 224 593 662 Other non-interest income transaction-based fees (b) 391 255 1,199 826 Total revenue from contracts with customers $ 20,386 $ 17,145 $ 58,824 $ 52,709 Timing of revenue recognition: Services transferred over time $ 16,541 $ 14,121 $ 47,899 $ 42,955 Services transferred at a point in time 3,845 3,024 10,925 9,754 Total revenue from contracts with customers $ 20,386 $ 17,145 $ 58,824 $ 52,709 (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 37 Table of Contents liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income. The following table details the changes in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2023: Contract Assets Contract Liabilities (Dollars in thousands) Balance, January 1, 2023 $ 1,294 $ 5,634 Additional income receivable 210 — Additional deferred income — 106 Recognition of income previously deferred — ( 163 ) Balance, September 30, 2023 $ 1,504 $ 5,577 Note 13 Acquisitions Limestone Bancorp, Inc. As of the close of business on April 30, 2023, Peoples completed the Limestone Merger. In connection with the Limestone Merger, Limestone Bank, Inc., which operated 20 branches in Kentucky, merged into Peoples Bank. As consideration in the Limestone Merger, 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. Peoples recorded acquisition-related expenses related to the Limestone Merger, which included $ 4.4 million and $ 15.7 million in non-interest expense for the three months and the nine months ended September 30, 2023, respectively. For the third quarter of 2023, the $ 4.4 million of acquisition-related non-interest expense consisted of $ 2.1 million in other non-interest expense, $ 1.3 million in data processing and software expense, $ 0.6 million in salaries and employee benefit costs, and $ 0.4 million in professional fees. For the nine months ended September 30, 2023, the $ 15.7 million of acquisition-related non-interest expense consisted of $ 5.7 million in salaries and employee benefit costs, $ 5.5 million in professional fees, $ 3.0 million in other non-interest expense, $ 1.3 million in data processing and software expense, and $ 0.2 million in various other non-interest expense line items. The other non-interest expenses were primarily due to $ 1.8 million of early contract termination fees on Limestone contracts driven by the system conversions, which took place in the third quarter of 2023. 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. The estimated fair values below were considered preliminary as of September 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, including the designation of PCD loans, deferred tax assets and liabilities, long-term borrowings, and certain other assets and other liabilities. (Dollars in thousands) Fair Value Total purchase price $ 177,931 Assets Cash and balances due from banks 6,422 Interest-bearing deposits in other banks 87,115 Total cash and cash equivalents 93,537 Available-for-sale investment securities, at fair value 166,944 Other investment securities 5,716 Total investment securities 172,660 Loans 1,079,980 Allowance for credit losses (on PCD loans) ( 1,161 ) Net loans 1,078,819 Bank premises and equipment, net of accumulated depreciation 17,690 38 Table of Contents (Dollars in thousands) Fair Value Bank owned life insurance 31,343 Other intangible assets 27,722 Other assets 34,925 Total assets 1,456,696 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 115,801 Goodwill $ 62,130 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. The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2023, which resulted in changes to certain fair value estimates made as of the date of the Limestone Merger. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at September 30, 2023: (Dollars in thousands) Fair Value Cash and balances due from banks 1,162 Total cash and cash equivalents 1,162 Loans 727 Allowance for credit losses (on PCD loans) ( 153 ) Net loans 574 Other assets ( 447 ) Total assets 1,289 Net assets 1,289 Goodwill $ ( 1,289 ) 39 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" (or "PCD") loans. Acquired PCD 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 PCD loans as of the acquisition date: (Dollars in thousands) Par Value Allowance for Credit Losses Non-Credit (Discount) Premium Fair Value PCD loans Commercial real estate, other 16,390 ( 418 ) ( 877 ) 15,095 Commercial and industrial 16,466 ( 379 ) ( 610 ) 15,477 Residential real estate 6,994 ( 259 ) ( 979 ) 5,756 Home equity lines of credit 774 ( 18 ) 11 767 Consumer 1,029 ( 86 ) 78 1,021 Fair value $ 41,653 $ ( 1,160 ) $ ( 2,377 ) $ 38,116 Peoples' operating results for the three months and the nine months ended September 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 closing 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 separate disclosures of revenue from the assets acquired and income before income taxes is impracticable for the periods 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 information reflects the adoption of the current expected credit loss ("CECL") accounting standard 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 Nine Months Ended (Dollars in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Net interest income $ 88,541 $ 83,235 $ 266,367 $ 228,719 Non-interest income 23,204 22,594 63,756 66,524 Net income 31,906 33,319 98,810 92,639 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 nine months ended September 30, 2023 of $ 46,000 related to the Vantage acquisition, which consisted of professional fees. Peoples recorded acquisition-related expenses during the first nine 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. (Dollars in thousands) Fair Value 40 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, along with Peoples' resources, should allow Peoples to continue to grow the lease portfolio 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 related to the Vantage acquisition as of the acquisition date: (Dollars in thousands) Par Value Allowance for Credit Losses Non-Credit Premium Fair Value PCD 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 leases, as these leases are structured as dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the 41 Table of Contents 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 (loss) income noted in the table below includes (i) gains on the early termination of leases, (ii) fees received for referrals, (iii) gains and losses recognized on the sales of residual assets and (iv) syndication income. Additional information regarding Peoples' leases can be found in "Note 4 Loans and Leases." The table below details Peoples' lease income: Three Months Ended Nine Months Ended (Dollars in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Interest and fees on leases (a) $ 11,508 $ 9,628 $ 31,426 $ 26,271 Lease (loss) income ( 66 ) 1,725 2,730 2,931 Total lease income $ 11,442 $ 11,353 $ 34,156 $ 29,202 (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) September 30, 2023 December 31, 2022 Lease payments receivable, at amortized cost $ 444,270 $ 367,681 Estimated residual values 36,425 35,045 Initial direct costs 6,173 4,233 Deferred revenue ( 84,233 ) ( 61,828 ) Net investment in leases 402,635 345,131 Allowance for credit losses - leases ( 11,692 ) ( 8,495 ) Net investment in leases, after allowance for credit losses $ 390,943 $ 336,636 The following table summarizes the contractual maturities of leases: (Dollars in thousands) Balance Remaining three months ending December 31, 2023 $ 28,442 Year ending December 31, 2024 106,588 Year ending December 31, 2025 105,727 Year ending December 31, 2026 82,368 Year ending December 31, 2027 66,925 Thereafter 54,220 Lease payments receivable, at amortized cost $ 444,270 Lessee Arrangements Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years . Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At September 30, 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 the 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 42 Table of Contents 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. The table below details Peoples' lease expense, which is included in "Net occupancy and equipment expense" in the Unaudited Consolidated Statements of Operations: Three Months Ended Nine Months Ended (Dollars in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Operating lease expense $ 474 $ 630 2,262 1,893 Short-term lease expense 84 208 174 555 Total lease expense $ 558 $ 838 $ 2,436 $ 2,448 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) September 30, 2023 December 31, 2022 ROU assets: Other assets $ 12,102 $ 6,825 Lease liabilities: Accrued expenses and other liabilities $ 12,490 $ 7,551 Other information: Weighted-average remaining lease term 9.3 years 8.8 years Weighted-average discount rate 3.32 % 2.70 % During the three months ended September 30, 2023 and 2022, Peoples paid cash of $ 0.8 million and $ 0.7 million, respectively, for operating leases. During the nine months ended September 30, 2023 and 2022, Peoples paid cash of $ 2.2 million and $ 1.9 million, respectively, for operating leases. The following table summarizes the maturity of remaining lease liabilities: (Dollars in thousands) Balance Remaining three months ending December 31, 2023 $ 909 Year ending December 31, 2024 2,551 Year ending December 31, 2025 1,983 Year ending December 31, 2026 1,710 Year ending December 31, 2027 1,555 Thereafter 6,601 Total undiscounted lease payments $ 15,309 Imputed interest $ ( 2,819 ) Total lease liabilities $ 12,490 43 Table of Contents