PEOPLES BANCORP INC - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 000-16772

PEOPLES BANCORP INC.

(Exact name of Registrant as specified in its charter)

Ohio

31-0987416

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

138 Putnam Street, P.O. Box 738,

Marietta,

Ohio

45750

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(740)

373-3155

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

PEBO

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	☒
Non-accelerated filer	o	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 28,272,537 common shares, without par value, at November 4, 2021.

Table of Contents


Table of Contents

PART I – FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
CONSOLIDATED BALANCE SHEETS (Unaudited)			3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)			4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)			5
CONSOLIDATED STATEMENT S OF STOCKHOLDERS’ EQUITY (Unaudited)			6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)			8
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			9
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			43
SELECTED FINANCIAL DATA			43
EXECUTIVE SUMMARY			49
RESULTS OF OPERATIONS			51
FINANCIAL CONDITION			66
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			80
ITEM 4. CONTROLS AND PROCEDURES			80
PART II – OTHER INFORMATION			80
ITEM 1. LEGAL PROCEEDINGS			80
ITEM 1A. RISK FACTORS			80
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			81
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			81
ITEM 4. MINE SAFETY DISCLOSURES			81
ITEM 5. OTHER INFORMATION			81
ITEM 6. EXHIBITS			82
SIGNATURES			85

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2021		December 31, 2020

(Dollars in thousands)	(Unaudited)
Assets
Cash and cash equivalents:
Cash and balances due from banks	$	129,842	$	60,902
Interest-bearing deposits in other banks	369,840		91,198
Total cash and cash equivalents	499,682		152,100
Available-for-sale investment securities, at fair value (amortized cost of $1,294,654 at September 30, 2021 and $734,544 at December 31, 2020) (a)	1,297,090		753,013
Held-to-maturity investment securities, at amortized cost (fair value of $240,000 at September 30, 2021 and $68,082 at December 31, 2020) (a)	243,100		66,458
Other investment securities	34,486		37,560
Total investment securities (a)	1,574,676		857,031
Loans and leases, net of deferred fees and costs (b)	4,491,028		3,402,940
Allowance for credit losses	(77,382)		(50,359)
Net loans	4,413,646		3,352,581
Loans held for sale	2,699		4,659
Bank premises and equipment, net of accumulated depreciation	91,210		60,094
Bank owned life insurance	72,920		71,591
Goodwill	267,015		171,260
Other intangible assets	28,400		13,337
Other assets	109,504		78,111
Total assets	$	7,059,752	$	4,760,764
Liabilities
Deposits:
Non-interest-bearing	$	1,559,993	$	997,323
Interest-bearing	4,272,027		2,913,136
Total deposits	5,832,020		3,910,459
Short-term borrowings	184,693		73,261
Long-term borrowings	99,411		110,568

Accrued expenses and other liabilities	111,746		90,803
Total liabilities	6,227,870		4,185,091
Stockholders’ equity
Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2021 and at December 31, 2020	—		—
Common stock, no par value, 50,000,000 shares authorized, 29,806,435 shares issued at September 30, 2021 and 21,193,402 shares issued at December 31, 2020, including at each date shares held in treasury	685,428		422,536
Retained earnings	189,508		190,691
Accumulated other comprehensive (loss) income, net of deferred income taxes	(5,888)		1,336
Treasury stock, at cost, 1,599,593 shares at September 30, 2021 and 1,686,046 shares at December 31, 2020	(37,166)		(38,890)
Total stockholders’ equity	831,882		575,673
Total liabilities and stockholders’ equity	$	7,059,752	$	4,760,764

(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $236, respectively, at September 30, 2021 and $0 and $60, respectively, at December 31, 2020.

(b) Also referred to throughout this document as "total loans" and "loans held for investment."

See Notes to the Unaudited Condensed Consolidated Financial Statements

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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)	2021		2020		2021		2020
Interest income:
Interest and fees on loans and leases	$	40,748	$	35,580	$	115,196	$	104,651
Interest and dividends on taxable investment securities	3,755		2,786		9,497		12,310
Interest on tax-exempt investment securities	882		614		2,358		1,903
Other interest income	82		33		175		317
Total interest income	45,467		39,013		127,226		119,181
Interest expense:
Interest on deposits	2,399		2,669		7,793		10,582
Interest on short-term borrowings	91		742		283		2,355
Interest on long-term borrowings	399		483		1,334		1,629

Total interest expense	2,889		3,894		9,410		14,566
Net interest income	42,578		35,119		117,816		104,615
Provision for credit losses	8,994		4,728		7,333		33,531
Net interest income after provision for credit losses	33,584		30,391		110,483		71,084



Non-interest income:
Electronic banking income	4,326		3,765		12,655		10,568
Trust and investment income	4,158		3,435		12,223		10,013
Insurance income	3,367		3,608		11,923		10,929
Deposit account service charges	2,549		2,266		6,578		6,995
Mortgage banking income	766		2,658		2,726		4,346
Bank owned life insurance income	437		462		1,329		1,514
Commercial loan swap fees	73		68		194		1,267
Net loss on asset disposals and other transactions	(308)		(28)		(459)		(237)
Net (loss) gain on investment securities	(166)		2		(704)		383
Other non-interest income	1,144		534		2,605		1,393
Total non-interest income	16,346		16,770		49,070		47,171
Non-interest expense:
Salaries and employee benefit costs	25,589		19,410		68,276		57,313
Professional fees	6,426		1,720		13,459		5,247
Net occupancy and equipment expense	3,551		3,383		10,167		9,688
Data processing and software expense	2,529		1,838		7,394		5,344
Electronic banking expense	2,037		2,095		6,006		5,839
Amortization of other intangible assets	1,279		857		3,267		2,314
Marketing expense	1,223		456		2,810		1,561
Franchise tax expense	810		882		2,487		2,645
FDIC insurance premium	807		570		1,596		717
Other loan expenses	487		342		1,443		1,255
Communication expense	411		283		1,079		857
Other non-interest expense	12,711		2,479		17,762		7,665
Total non-interest expense	57,860		34,315		135,746		100,445
(Loss) income before income taxes	(7,930)		12,846		23,807		17,810
Income tax (benefit) expense	(2,172)		2,636		3,999		3,616
Net (loss) income	$	(5,758)	$	10,210	$	19,808	$	14,194


(Loss) earnings per common share - basic	$	(0.28)	$	0.52	$	0.99	$	0.70
(Loss) earnings per common share - diluted	$	(0.28)	$	0.51	$	0.99	$	0.70
Weighted-average number of common shares outstanding - basic	20,640,519		19,504,503		19,751,853		19,862,409
Weighted-average number of common shares outstanding - diluted	20,789,271		19,637,689		19,890,672		19,998,353
Cash dividends declared	$	7,093	$	6,770	$	20,991	$	20,622
Cash dividends declared per common share	$	0.36	$	0.34	$	1.07	$	1.02

See Notes to the Unaudited Condensed Consolidated Financial Statements

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PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2021		2020		2021		2020
Net (loss) income	$	(5,758)	$	10,210	$	19,808	$	14,194
Other comprehensive (loss) income:
Available-for-sale investment securities:
Gross unrealized holding (loss) gain arising during the period	(7,685)		(2,974)		(16,738)		15,480
Related tax benefit (expense)	1,592		624		3,493		(3,251)
Reclassification adjustment for net loss (gain) included in net (loss) income	166		(2)		704		(383)
Related tax (benefit) expense	(44)		—		(157)		80


Net effect on other comprehensive (loss) income	(5,971)		(2,352)		(12,698)		11,926
Defined benefit plan:
Net gain (loss) arising during the period	1,818		(533)		1,826		(1,054)
Related tax (expense) benefit	(407)		113		(408)		222
Amortization of unrecognized gain and service cost on benefit plans	20		33		81		97
Related tax expense	(5)		(7)		(18)		(21)
Recognition of gain due to settlement and curtailment	143		531		143		1,050
Related tax expense	(32)		(112)		(32)		(221)
Net effect on other comprehensive income	1,537		25		1,592		73
Cash flow hedges:
Net gain (loss) arising during the period	858		803		4,800		(9,661)
Related tax (expense) benefit	(90)		(168)		(918)		2,029
Net effect on other comprehensive income (loss)	768		635		3,882		(7,632)
Total other comprehensive (loss) income, net of tax	(3,666)		(1,692)		(7,224)		4,367
Total comprehensive (loss) income	$	(9,424)	$	8,518	$	12,584	$	18,561

See Notes to the Unaudited Condensed Consolidated Financial Statements

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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, 2021	$	422,652	$	202,359	$	(2,222)	$	(37,284)	$	585,505

Net loss	—		(5,758)		—		—		(5,758)
Other comprehensive loss, net of tax	—		—		(3,666)		—		(3,666)


Cash dividends declared	—		(7,093)				—		(7,093)

Reissuance of treasury stock for common share awards	(51)		—		—		51		—


Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors	—		—		—		(78)		(78)

Common shares issued under dividend reinvestment plan	277		—		—		—		277
Common shares issued under compensation plan for Boards of Directors	16		—		—		44		60

Common shares issued under employee stock purchase plan	37		—		—		101		138
Stock-based compensation	598		—		—		—		598

Issuance of common shares related to merger with Premier Financial Bancorp, Inc.	261,899		—		—		—		261,899

Balance, September 30, 2021	$	685,428	$	189,508	$	(5,888)	$	(37,166)	$	831,882


					Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity
	Common Shares		Retained Earnings				Treasury Stock
(Dollars in thousands)
Balance, December 31, 2020	$	422,536	$	190,691	$	1,336	$	(38,890)	$	575,673

Net income	—		19,808		—		—		19,808
Other comprehensive loss, net of tax	—		—		(7,224)		—		(7,224)


Cash dividends declared	—		(20,991)		—		—		(20,991)

Reissuance of treasury stock for common share awards	(2,223)		—		—		2,223		—

Reissuance of treasury stock for deferred compensation plan for Boards of Directors	—		—		—		74		74
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors	—		—		—		(1,076)		(1,076)

Common shares issued under dividend reinvestment plan	655		—		—		—		655
Common shares issued under compensation plan for Boards of Directors	81		—		—		228		309

Common shares issued under employee stock purchase plan	98		—		—		275		373
Stock-based compensation	2,382		—		—		—		2,382

Issuance of common shares related to merger with Premier Financial Bancorp, Inc.	261,899		—		—		—		261,899

Balance, September 30, 2021	$	685,428	$	189,508	$	(5,888)	$	(37,166)	$	831,882

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					Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity
	Common Shares		Retained Earnings				Treasury Stock
(Dollars in thousands)
Balance, June 30, 2020	$	421,236	$	173,572	$	4,634	$	(30,265)	$	569,177

Net income	—		10,210		—		—		10,210
Other comprehensive income, net of tax	—		—		(1,692)		—		(1,692)


Cash dividends declared	—		(6,770)		—		—		(6,770)

Reissuance of treasury stock for common share awards	(321)		—		—		321		—


Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors	—		—		—		(66)		(66)
Common shares repurchased under share repurchase program then in effect	—		—		—		(5,000)		(5,000)
Common shares issued under dividend reinvestment plan	220		—		—		—		220
Common shares issued under compensation plan for Boards of Directors	(11)		—		—		63		52

Common shares issued under employee stock purchase plan	(23)		—		—		134		111
Stock-based compensation	614		—		—		—		614



Balance, September 30, 2020	$	421,715	$	177,012	$	2,942	$	(34,813)	$	566,856


					Accumulated Other Comprehensive (Loss) Income				Total Stockholders' Equity
	Common Shares		Retained Earnings				Treasury Stock
(Dollars in thousands)
Balance, December 31, 2019	$	420,876	$	187,149	$	(1,425)	$	(12,207)	$	594,393

Net income	—		14,194		—		—		14,194
Other comprehensive income, net of tax	—		—		4,367		—		4,367


Cash dividends declared	—		(20,622)		—		—		(20,622)

Reissuance of treasury stock for common share awards	(2,583)		—		—		2,583		—

Reissuance of treasury stock for deferred compensation plan for Boards of Directors	—		—		—		59		59
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors	—		—		—		(1,052)		(1,052)
Common shares repurchased under share repurchase program then in effect	—		—		—		(25,000)		(25,000)
Common shares issued under dividend reinvestment plan	463		—		—		—		463
Common shares issued under compensation plan for Boards of Directors	9		—		—		316		325
Common shares issued under performance unit awards, net of tax	41		—		—		138		179
Common shares issued under employee stock purchase plan	(40)		—		—		350		310
Stock-based compensation	2,949		—		—		—		2,949
Impact of adoption of new accounting standard, net of taxes (a)	—		(3,709)		—		—		(3,709)


Balance, September 30, 2020	$	421,715	$	177,012	$	2,942	$	(34,813)	$	566,856

(a)On January 1, 2020, Peoples adopted ASU 2016-13, which resulted in a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.

See Notes to the Unaudited Condensed Consolidated Financial Statements

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PEOPLES BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended
	September 30,
(Dollars in thousands)	2021		2020
Net cash provided by operating activities	$	66,722	$	55,992
Investing activities:
Available-for-sale investment securities:
Purchases	(715,263)		(171,251)
Proceeds from sales	480,127		11,582
Proceeds from principal payments, calls and prepayments	227,574		248,021
Held-to-maturity investment securities:
Purchases	(181,331)		(8,404)
Proceeds from principal payments	3,774		3,834
Other investment securities:
Purchases	(1,221)		(5,901)
Proceeds from sales	8,552		7,937

Net decrease (increase) in loans held for investment	156,598		(505,161)
Net expenditures for premises and equipment	(5,893)		(3,702)
Proceeds from sales of other real estate owned	153		96

Proceeds from bank owned life insurance contracts	—		109
Business acquisitions, net of cash received	136,119		(94,856)
Investment in limited partnership and tax credit funds	(2,900)		(13)
Net cash provided by (used in) investing activities	106,289		(517,709)
Financing activities:
Net increase in non-interest-bearing deposits	69,557		311,704
Net increase in interest-bearing deposits	95,881		348,779
Net increase (decrease) in short-term borrowings	32,625		(154,914)
Proceeds from long-term borrowings	—		50,000
Payments on long-term borrowings	(2,156)		(1,857)


Cash dividends paid	(20,915)		(20,147)
Purchase of treasury stock under share repurchase program	—		(25,000)
Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock	(1,076)		(1,052)
Proceeds from issuance of common shares	655		262


Net cash provided by financing activities	174,571		507,775
Net increase in cash and cash equivalents	347,582		46,058
Cash and cash equivalents at beginning of period	152,100		115,193
Cash and cash equivalents at end of period	$	499,682	$	161,251

Supplemental cash flow information:
Interest paid	$	10,262	$	15,179
Income taxes paid	6,450		7,500

Supplemental noncash disclosures:
Transfers from loans to other real estate owned	210		163
Lease right-of-use assets obtained in exchange for lessee operating lease liabilities	101		38

See Notes to the Unaudited Condensed Consolidated Financial Statements

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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, 2020 ("Peoples' 2020 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’ 2020 Form 10-K, as updated by the information contained in this quarterly report on Form 10-Q for the quarterly period ended September 30, 2021 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 30, 2021 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, 2020, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2020 Form 10-K.

Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers a lease to be 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, the 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.

Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. The initial allowance for credit losses determined on a collective basis is allocated to individual leases. The total of the purchase price and the allowance for credit losses is the initial amortized cost basis of these leases. The variance between the initial amortized cost basis and the fair value of a lease is considered an interest premium or discount, which is amortized or accreted into interest income on a level yield method over the life of the lease.

Leases acquired by Peoples in a business combination that are not considered purchased credit deteriorated are recorded at the fair value and the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the discount or premium to the leases' cost basis and is accreted or amortized to interest income over the leases' remaining life using the level yield method.

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’ 2020 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") 2021-05 - Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. This ASU addresses stakeholders' concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. This ASU is effective for fiscal years beginning after December 15, 2021, for all entities. Peoples early adopted this ASU as of September 30, 2021. The adoption of this ASU did not have an impact on Peoples' consolidated financial statements.

ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU allows relief where the benchmark interest rate is changed on a loan, lease or hedging relationship between March 12, 2020

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and December 31, 2022. This ASU was early adopted as of September 30, 2021, and is not expected to have a significant impact on Peoples' consolidated financial statements, but is expected to reduce the accounting burden of assessing contracts impacted by reference rate reform.

ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance. These amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Peoples adopted this ASU as of January 1, 2021. The adoption of this ASU did not have a material effect on Peoples' consolidated financial statements.

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' 2020 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, 2021						December 31, 2020
(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. government sponsored agencies	$	—	$	78,481	$	—	$	—	$	5,363	$	—
States and political subdivisions	—		252,919		—		—		114,919		—
Residential mortgage-backed securities	—		898,459		—		—		623,218		—
Commercial mortgage-backed securities	—		62,552		—		—		4,783		—
Bank-issued trust preferred securities	—		4,679		—		—		4,730		—

Total available-for-sale securities	—		1,297,090		—		—		753,013		—
Equity investment securities (a)	145		245		—		107		192		—
Derivative assets (b)	—		15,653		—		—		27,332		—
Liabilities:
Derivative liabilities (c)	$	—	$	22,904	$	—	$	—	$	39,395	$	—

(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 reported by Peoples are determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, London Interbank Offered Rate ("LIBOR") yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.

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Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from quoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).

Derivative Assets and Liabilities: The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on similar products, or other related market 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 during the nine months ended September 30, 2021 and December 31, 2020.


	Non-Recurring Fair Value Measurements at Reporting Date
	September 30, 2021						December 31, 2020
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Assets:
Loans held for sale	$	—	$	2,751	$	—	$	—	$	4,733	$	—
Other real estate owned ("OREO")	$	—	$	—	$	11,268	$	—	$	—	$	134
Servicing rights (a)(b)	$	—	$	—	$	2,294	$	—	$	—	$	2,591

(a) Included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.

(b) Peoples established a valuation allowance on servicing rights of $16 at September 30, 2021 and $161 at December 31, 2020, as the fair value of the servicing rights was less than the carrying value.

Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2).

Other Real Estate Owned: OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of OREO quarterly for impairment considering market activity and recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach (Level 3). The increase in OREO for the nine months ended September 30, 2021 was due to the OREO acquired in the Premier Financial Bancorp Inc. ("Premier") acquisition.

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.

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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, 2021				December 31, 2020
		Carrying Amount		Fair Value		Carrying Amount		Fair Value

Assets:
Cash and cash equivalents	1	$	499,682	$	499,682	$	152,100	$	152,100




Held-to-maturity investment securities:
Obligations of:
U.S. government sponsored agencies	2	29,995		29,147		—		—
States and political subdivisions	2	124,181		122,435		35,139		35,484
Residential mortgage-backed securities	2	41,035		41,501		25,890		26,742
Commercial mortgage-backed securities	2	47,889		46,917		5,429		5,856
Total held-to-maturity securities		243,100		240,000		66,458		68,082


Other investment securities:
Other investment securities at cost:
Federal Home Loan Bank ("FHLB") stock	n/a	17,918		17,918		21,718		21,718
Federal Reserve Bank ("FRB") stock	n/a	13,311		13,311		13,311		13,311
Total other investment securities at cost		31,229		31,229		35,029		35,029
Other investment securities at fair value:
Nonqualified deferred compensation (a)	2	2,083		2,083		1,867		1,867
Other investment securities (b)	2	784		784		365		365
Total other investment securities at fair value		2,867		2,867		2,232		2,232
Total other investment securities (b)		34,096		34,096		37,261		37,261
Loans and leases, net of deferred fees and costs	3	4,491,028		4,595,800		3,402,940		3,458,732
Bank owned life insurance	3	72,920		72,920		71,591		71,591
Liabilities:
Deposits	2	$	5,832,020	$	5,546,935	$	3,910,459	$	3,773,602
Short-term borrowings	2	184,693		186,028		73,261		74,170
Long-term borrowings	2	99,411		106,497		110,568		117,364

(a) Nonqualified deferred compensation includes mutual funds as part of the investment.

(b) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at September 30, 2021

and at December 31, 2020, 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.

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instruments. These instruments include cash and cash equivalents, demand and other non-maturity deposits, 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 balances due from banks is a reasonable estimate of fair value (Level 1).

Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing service 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 are measured at their respective redemption values due to restrictions placed on their transferability (Level 2).

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Loans and Leases, Net of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considered interest rate, credit and market factors in estimating the fair value of loans (Level 3). Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loans and other market factors, including liquidity.

Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.

Deposits: The fair value of fixed maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level 2).

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 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 assets and liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.

Note 3 Investment Securities

Available-for-sale

The following table summarizes Peoples' available-for-sale investment securities:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2021
Obligations of:

U.S. government sponsored agencies	$	78,916	$	102	$	(537)	$	78,481
States and political subdivisions	252,706		3,220		(3,007)		252,919
Residential mortgage-backed securities	894,848		10,453		(6,842)		898,459
Commercial mortgage-backed securities	63,568		85		(1,101)		62,552
Bank-issued trust preferred securities	4,616		233		(170)		4,679

Total available-for-sale securities	$	1,294,654	$	14,093	$	(11,657)	$	1,297,090
December 31, 2020
Obligations of:

U.S. government sponsored agencies	$	4,960	$	403	$	—	$	5,363
States and political subdivisions	110,401		4,642		(124)		114,919
Residential mortgage-backed securities	609,865		15,377		(2,024)		623,218
Commercial mortgage-backed securities	4,622		161		—		4,783
Bank-issued trust preferred securities	4,696		192		(158)		4,730

Total available-for-sale securities	$	734,544	$	20,775	$	(2,306)	$	753,013

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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)	2021		2020		2021		2020
Gross gains realized	$	150	$	2	$	786	$	386
Gross losses realized	(316)		—		(1,490)		(3)
Net (loss) gain realized	$	(166)	$	2	$	(704)	$	383

The cost of investment securities sold, and any resulting gain or loss, were based on the specific identification method and recognized as of the trade date.

The following table presents a summary of available-for-sale investment securities that had been in a continuous unrealized loss loss position:


	Less than 12 Months						12 Months or More						Total
(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities		Fair Value		Unrealized Loss		No. of Securities		Fair Value		Unrealized Loss
September 30, 2021
Obligations of:

U.S. government sponsored agencies	$	49,570	$	537	$	7	$	—	$	—	$	—	$	49,570	$	537
States and political subdivisions	128,402		3,007		76		—		—		—		128,402		3,007
Residential mortgage-backed securities	466,518		6,079		72		36,160		763		16		502,678		6,842
Commercial mortgage-backed securities	48,974		1,101		17		—		—		—		48,974		1,101
Bank-issued trust preferred securities	—		—		—		1,830		170		2		1,830		170

Total	$	693,464	$	10,724	172		$	37,990	$	933	18		$	731,454	$	11,657
December 31, 2020
Obligations of:


States and political subdivisions	$	17,651	$	124	5		$	—	$	—	—		$	17,651	$	124
Residential mortgage-backed securities	156,659		1,795		45		9,892		229		13		166,551		2,024

Bank-issued trust preferred securities	494		6		1		1,848		152		2		2,342		158

Total	$	174,804	$	1,925	51		$	11,740	$	381	15		$	186,544	$	2,306

Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At September 30, 2021, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At September 30, 2021, 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, 2021 and December 31, 2020 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 $5.7 million at September 30, 2021 and $2.7 million at December 31, 2020.

At September 30, 2021, 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 two positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Neither of the two positions had a fair value of less than 90% of its book value. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities.

The unrealized losses 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, 2021 were attributable to the subordinated nature of the debt.

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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, 2021. 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. government sponsored agencies	$	—		$	1,996		$	66,436		$	10,484		$	78,916
States and political subdivisions	7,314			28,647			67,074			149,671			252,706
Residential mortgage-backed securities	7			981			56,615			837,245			894,848
Commercial mortgage-backed securities	1,887			—			34,169			27,512			63,568
Bank-issued trust preferred securities	—			—			4,616			—			4,616

Total available-for-sale securities	$	9,208		$	31,624		$	228,910		$	1,024,912		$	1,294,654
Fair value
Obligations of:

U.S. government sponsored agencies	$	—		$	2,069		$	66,161		$	10,251		$	78,481
States and political subdivisions	7,375			29,538			68,100			147,906			252,919
Residential mortgage-backed securities	7			1,006			56,712			840,734			898,459
Commercial mortgage-backed securities	1,907			—			33,763			26,882			62,552
Bank-issued trust preferred securities	—			—			4,679			—			4,679

Total available-for-sale securities	$	9,289		$	32,613		$	229,415		$	1,025,773		$	1,297,090
Total weighted-average yield	2.07		%	2.56		%	1.19		%	1.58		%	1.54		%

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, 2021
Obligations of:
U.S. government sponsored agencies	$	29,995	$	—	$	85	$	(933)	$	29,147
States and political subdivisions	124,417		(236)		675		(2,421)		122,435
Residential mortgage-backed securities	41,035		—		661		(195)		41,501
Commercial mortgage-backed securities	47,889		—		236		(1,208)		46,917
Total held-to-maturity securities	$	243,336	$	(236)	$	1,657	$	(4,757)	$	240,000
December 31, 2020
Obligations of:
States and political subdivisions	$	35,199	$	(60)	$	510	$	(165)	$	35,484
Residential mortgage-backed securities	25,890		—		852		—		26,742
Commercial mortgage-backed securities	5,429		—		427		—		5,856
Total held-to-maturity securities	$	66,518	$	(60)	$	1,789	$	(165)	$	68,082

There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for any of the three and nine months ended September 30, 2021 and 2020.

Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are obligations of states and political subdivisions with the remaining securities issued by U.S. government sponsored agencies. Peoples analyzed these securities using cumulative default rate averages for investment grade municipal securities. Since December 31, 2020, Peoples has purchased securities and designated them as held-to maturity and, as a result, at September 30, 2021, Peoples recorded $236,000 of allowance for credit losses for held-to-maturity securities, compared to $60,000 at December 31, 2020.

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The following table presents a summary of held-to-maturity investment securities that had been in a continuous unrealized loss position:


	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
September 30, 2021
Obligations of:
U.S. government sponsored agencies	$	25,587	$	933	5	—		—		—	$	25,587	$	933
States and political subdivisions	89,532		2,421		37	—		—		—	89,532		2,421
Residential mortgage-backed securities	17,426		195		2	—		—		—	17,426		195
Commercial mortgage-backed securities	39,641		1,208		11	—		—		—	39,641		1,208
Total	$	172,186	$	4,757	55	$	—	$	—	—	$	172,186	$	4,757
December 31, 2020
Obligations of:
States and political subdivisions	$	18,662	$	165	5	$	—	$	—	—	$	18,662	$	165


Total	$	18,662	$	165	5	$	—	$	—	—	$	18,662	$	165

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, 2021. 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 22.3%. 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	$	—		$	—		$	—		$	29,995		$	29,995
States and political subdivisions	—			989			2,511			120,917			124,417
Residential mortgage-backed securities	—			1,939			—			39,096			41,035
Commercial mortgage-backed securities	355			—			8,655			38,879			47,889
Total held-to-maturity securities	$	355		$	2,928		$	11,166		$	228,887		$	243,336
Fair value
Obligations of:
U.S. government sponsored agencies	$	—		$	—		$	—		$	29,147		$	29,147
States and political subdivisions	—			1,132			2,794			118,509			122,435
Residential mortgage-backed securities	—			2,015			—			39,486			41,501
Commercial mortgage-backed securities	358			—			8,844			37,715			46,917
Total held-to-maturity securities	$	358		$	3,147		$	11,638		$	224,857		$	240,000
Total weighted-average yield	2.25		%	2.29		%	2.37		%	2.05		%	2.07		%

Other Investment Securities

Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB and FRB stock.

The following table summarizes the carrying value of Peoples' other investment securities:


(Dollars in thousands)	September 30, 2021		December 31, 2020
FHLB stock	$	17,918	$	21,718
FRB stock	13,311		13,311
Nonqualified deferred compensation	2,083		1,867
Equity investment securities	390		299
Other investment securities	784		365
Total other investment securities	$	34,486	$	37,560

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During the nine months ended September 30, 2021, Peoples redeemed $7.5 million of FHLB stock as requested by the FHLB. During the three months ended September 30, 2021, Peoples acquired $3.7 million in FHLB stock in the Merger with Premier.

During the three and nine months ended September 30, 2021, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $18,000 and $91,000, respectively. During the three and nine months ended September 30, 2020, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $1,000 and an unrealized loss of $15,000, respectively.

At September 30, 2021, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.

Pledged Securities

Peoples has pledged available-for-sale investment securities and held-to-maturity investment securities to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples has also pledged available-for-sale investment securities to secure additional borrowing capacity at the FHLB and the FRB as well as to derivative counterparties as collateral on unrealized interest rate swaps.

The following table summarizes the carrying value of Peoples' pledged securities:


	Carrying Amount
(Dollars in thousands)	September 30, 2021		December 31, 2020

Securing public and trust department deposits, and repurchase agreements:
Available-for-sale	$	851,966	$	547,244
Held-to-maturity	143,467		28,287
Securing collateral for cash flow hedge swaps:
Available-for-sale	36,314		—
Securing additional borrowing capacity at the FHLB and the FRB:
Available-for-sale	7,036		2,175
Held-to-maturity	556		—

Note 4 Loans and Leases

Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' footprint. Peoples also originates insurance premium finance loans and leases nationwide through its Peoples Premium Finance and North Star Leasing divisions, respectively. Loans and leases throughout this document are referred to as "total loans" and "loans held for investment".

The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:


(Dollars in thousands)	September 30, 2021		December 31, 2020
Construction	$	174,784	$	106,792
Commercial real estate, other	1,629,116		929,853
Commercial and industrial	858,538		973,645
Premium finance	134,755		114,758
Leases	111,446		—
Residential real estate	768,134		574,007
Home equity lines of credit	161,370		120,913
Consumer, indirect	543,256		503,527
Consumer, direct	108,702		79,094
Deposit account overdrafts	927		351
Total loans, at amortized cost	$	4,491,028	$	3,402,940

On September 17, 2021, Peoples completed the merger with Premier effective after the close of the business day. Peoples acquired $1.1 billion in loans, of which $285.3 million were considered purchased credit deteriorated loans. See "Note 13

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Acquisitions" for more detail on the merger with Premier. Effective after the close of business on March 31, 2021, Peoples acquired $83.3 million in leases from NS Leasing, LLC (" NSL"), of which $5.2 million were considered purchased credit deteriorated leases. Refer to "Note 13 Acquisitions" for more detail on the acquisition of leases from NSL.

Peoples began participating as a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020. Peoples originated PPP loans of $159.2 million during the first nine months of 2021 and $488.9 million of PPP loans during the full year of 2020. At September 30, 2021, the PPP loans (including $28.2 million acquired from Premier) had an amortized cost of $135.8 million, and were included in commercial and industrial loan balance. As of September 30, 2021, deferred loan origination fees, net of deferred origination costs, totaled $4.0 million. During the third quarter of 2021, Peoples recorded amortization of net deferred loan origination fees of $3.8 million on PPP loans compared to $1.9 million for the third quarter of 2020. Peoples recorded accretion of net deferred loan origination fees of $11.2 million and $3.8 million, for the nine months ended September 30, 2021 and 2020, respectively. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in "Net interest income".

Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest receivable on loans was $12.4 million at September 30, 2021 and $10.9 million at December 31, 2020.

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 were as follows:


	September 30, 2021				December 31, 2020
(Dollars in thousands)	Nonaccrual (a)		Accruing Loans 90+ Days Past Due		Nonaccrual (a)		Accruing Loans 90+ Days Past Due
Construction	$	—	$	—	$	4	$	—
Commercial real estate, other	17,301		1,912		9,111		—
Commercial and industrial	5,356		98		6,192		50
Premium finance	—		368		—		204
Leases	1,411		1,736		—		—
Residential real estate	9,735		1,156		8,375		1,975
Home equity lines of credit	976		61		867		82
Consumer, indirect	1,069		—		1,073		39
Consumer, direct	186		32		171		17
Total loans, at amortized cost	$	36,034	$	5,363	$	25,793	$	2,367

(a) There were $0.6 million of nonaccrual loans for which there was no allowance for credit losses at September 30, 2021 and $1.3 million at December 31, 2020.

During the first nine months of 2021, nonaccrual loans increased compared to December 31, 2020, primarily due to the non-accrual loans acquired from Premier, which added $13.0 million in nonaccrual loans at the end of the third quarter of 2021. As of September 30, 2021, the short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current borrowers, Peoples had made were insignificant. Under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made in accordance with the CARES Act were not included in Peoples' nonaccrual or accruing loans 90+ days past due at September 30, 2021. During the third quarter of 2021, accruing loans 90+ days past due increased primarily due to the loans acquired from Premier.

The amount of interest income recognized on loans past due 90 days or more during the three and nine months ended September 30, 2021 was $0.2 million and $0.9 million, respectively.

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The following table presents the aging of the amortized cost of past due loans:


	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
September 30, 2021
Construction	$	146	$	16	$	—	$	162	$	174,622	$	174,784
Commercial real estate, other	4,513		2,349		14,116		20,978		1,608,138		1,629,116
Commercial and industrial	924		566		5,324		6,814		851,724		858,538
Premium finance	440		281		368		1,089		133,666		134,755
Leases	393		194		1,736		2,323		109,123		111,446
Residential real estate	4,138		2,649		5,353		12,140		755,994		768,134
Home equity lines of credit	487		166		758		1,411		159,959		161,370
Consumer, indirect	2,977		477		346		3,800		539,456		543,256
Consumer, direct	134		224		101		459		108,243		108,702
Deposit account overdrafts	—		—		—		—		927		927
Total loans, at amortized cost	$	14,152	$	6,922	$	28,102	$	49,176	$	4,441,852	$	4,491,028
December 31, 2020
Construction	$	—	$	344	$	4	$	348	$	106,444	$	106,792
Commercial real estate, other	1,943		283		8,643		10,869		918,984		929,853
Commercial and industrial	567		552		4,535		5,654		967,991		973,645
Premium finance	928		1,073		204		2,205		112,553		114,758
Residential real estate	6,739		2,688		5,512		14,939		559,068		574,007
Home equity lines of credit	309		58		780		1,147		119,766		120,913
Consumer, indirect	4,362		733		348		5,443		498,084		503,527
Consumer, direct	424		43		123		590		78,504		79,094
Deposit account overdrafts	—		—		—		—		351		351
Total loans, at amortized cost	$	15,272	$	5,774	$	20,149	$	41,195	$	3,361,745	$	3,402,940

Delinquency trends remained stable, as 98.9% of Peoples' loan portfolio was considered “current” at September 30, 2021, compared to 98.8% at December 31, 2020.

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, 2021		December 31, 2020
Loans pledged to FHLB	$	752,382	$	740,584
Loans pledged to FRB	135,504		107,340

Credit Quality Indicators

As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2020 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, including loans acquired from Premier, is as follows:

“Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist.

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“Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position.

“Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the weaknesses are not corrected.

“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of each of these loans as an estimated loss is deferred until its more exact status may be determined.

“Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category.

Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard,” or “loss” consistent with the regulatory definitions and requirements of these classes. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the prospect of collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as “pass" for disclosure purposes.

The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at September 30, 2021:



	Term Loans at Amortized Cost by Origination Year														Revolving Loans Converted to Term
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans				Total Loans
Construction
Pass	$	57,422	$	73,789	$	16,624	$	3,289	$	1,286	$	2,829	$	1,755	$	4,170	$	156,994
Special mention	290		—		7,185		1,092		3,805		138		—		—		12,510
Substandard	—		—		957		79		159		4,085		—		—		5,280


Total	57,712		73,789		24,766		4,460		5,250		7,052		1,755		4,170		174,784
Commercial real estate, other
Pass	195,110		266,264		240,617		153,836		160,057		427,073		23,815		12,128		1,466,772
Special mention	159		10,353		8,398		7,077		8,798		33,558		—		51		68,343
Substandard	—		1,679		6,644		2,299		5,668		76,655		371		41		93,316
Doubtful	—		—		—		—		—		669		—		—		669
Loss	—		—		—		—		—		16		—		—		16
Total	195,269		278,296		255,659		163,212		174,523		537,971		24,186		12,220		1,629,116
Commercial and industrial
Pass	241,877		135,119		90,671		67,107		30,843		102,471		154,178		14,440		822,266
Special mention	82		1,281		2,327		3,622		164		991		2,702		10		11,169

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	Term Loans at Amortized Cost by Origination Year														Revolving Loans Converted to Term
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans				Total Loans
Substandard	94		2,858		2,739		875		6,921		3,853		5,690		608		23,030
Doubtful	—		—		—		—		—		1,808		265		187		2,073

Total	242,053		139,258		95,737		71,604		37,928		109,123		162,835		15,245		858,538
Premium finance
Pass	131,142		3,613		—		—		—		—		—		—		134,755
Total	131,142		3,613		—		—		—		—		—		—		134,755
Leases
Pass	56,901		30,875		16,750		4,473		491		26		—		—		109,516
Special mention	99		10		68		17		—		—		—		—		194
Substandard	123		502		531		572		8		—		—		—		1,736
Total	57,123		31,387		17,349		5,062		499		26		—		—		111,446
Residential real estate
Pass	115,657		75,578		55,305		35,693		46,720		422,673		—		—		751,626

Substandard	—		—		—		—		—		16,079		—		—		16,079

Loss	—		—		—		—		—		429		—		—		429
Total	115,657		75,578		55,305		35,693		46,720		439,181		—		—		768,134
Home equity lines of credit
Pass	25,901		23,840		19,084		17,112		15,625		57,574		2,234		3,164		161,370




Total	25,901		23,840		19,084		17,112		15,625		57,574		2,234		3,164		161,370
Consumer, indirect
Pass	195,954		183,489		72,009		53,063		26,499		12,242		—		—		543,256




Total	195,954		183,489		72,009		53,063		26,499		12,242		—		—		543,256
Consumer, direct
Pass	42,124		30,880		15,541		9,863		3,861		6,433		—		—		108,702




Total	42,124		30,880		15,541		9,863		3,861		6,433		—		—		108,702
Deposit account overdrafts	927		—		—		—		—		—		—		—		927
Total loans, at amortized cost	$	1,063,862	$	840,130	$	555,450	$	360,069	$	310,905	$	1,169,602	$	191,010	$	34,799	$	4,491,028

The following table summarizes the risk category of Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at December 31, 2020:



(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Construction
Pass	$	27,670	$	56,361	$	554	$	15,089	$	824	$	1,194	$	3,199	$	2,003	$	104,891
Special mention	—		—		496		—		—		143		—		—		639
Substandard	—		—		—		186		—		1,076		—		—		1,262


Total	27,670		56,361		1,050		15,275		824		2,413		3,199		2,003		106,792
Commercial real estate, other
Pass	116,441		125,373		99,522		94,465		99,668		215,385		109,160		9,748		860,014
Special mention	297		5,806		999		5,296		5,125		12,932		3,967		60		34,422
Substandard	—		1,191		677		1,709		1,663		27,066		3,033		110		35,339
Doubtful	—		—		—		—		—		78		—		—		78

Total	116,738		132,370		101,198		101,470		106,456		255,461		116,160		9,918		929,853

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(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Commercial and industrial
Pass	409,237		97,362		67,284		38,450		45,026		77,009		199,597		30,680		933,965
Special mention	1,034		366		2,018		287		1,453		1,452		12,429		526		19,039
Substandard	2,226		3,569		2,873		2,167		318		4,163		3,436		1,083		18,752
Doubtful	—		—		—		—		1,698		191		—		187		1,889

Total	412,497		101,297		72,175		40,904		48,495		82,815		215,462		32,476		973,645
Premium finance
Pass	114,758		—		—		—		—		—		—		—		114,758
Total	114,758		—		—		—		—		—		—		—		114,758
Residential real estate
Pass	47,147		40,223		24,235		29,142		43,105		309,795		65,168		305		558,815

Substandard	—		—		—		—		—		15,048		—		—		15,048

Loss	—		—		—		—		—		144		—		—		144
Total	47,147		40,223		24,235		29,142		43,105		324,987		65,168		305		574,007
Home equity lines of credit
Pass	16,469		13,513		12,548		12,382		11,869		40,626		13,506		4,091		120,913




Total	16,469		13,513		12,548		12,382		11,869		40,626		13,506		4,091		120,913
Consumer, indirect
Pass	210,014		92,696		71,807		39,608		17,156		11,563		60,683		—		503,527




Total	210,014		92,696		71,807		39,608		17,156		11,563		60,683		—		503,527
Consumer, direct
Pass	31,689		15,923		11,085		4,531		2,529		4,193		9,144		—		79,094




Total	31,689		15,923		11,085		4,531		2,529		4,193		9,144		—		79,094
Deposit account overdrafts	351		—		—		—		—		—		—		—		351
Total loans, at amortized cost	$	977,333	$	452,383	$	294,098	$	243,312	$	230,434	$	722,058	$	483,322	$	48,793	$	3,402,940

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 general secured by equipment, inventory, accounts receivable, and other commercial property.

•Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

•Home equity lines of credit are generally secured by second mortgages on residential real estate property.

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•Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

•Leases are secured by commercial equipment and other essential business assets.

•Premium finance loans are secured by the unearned portion of the insurance premium being financed.

The following table details Peoples' amortized cost of collateral dependent loans:


(Dollars in thousands)	September 30, 2021		December 31, 2020

Construction	$	4,276		$	—
Commercial real estate, other	35,820			8,467
Commercial and industrial	11,446			6,333
Residential real estate	1,321			1,670
Home equity lines of credit	393			403


Total collateral dependent loans	$	53,256		$	16,873

The increase in collateral dependent loans at September 30, 2021, compared to December 31, 2020, was primarily due to $39.1 million in collateral dependent loans acquired from Premier.

Troubled Debt Restructurings

The following tables summarize the loans that were modified as troubled debt restructurings ("TDRs") during the three and nine months ended September 30:


		Three Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
September 30, 2021
Construction	1	$	6	$	6	$	6
Commercial real estate, other	2	14		14		14
Commercial and industrial	3	327		327		327
Leases	2	182		184		178
Residential real estate	46	1,952		1,956		1,955
Home equity lines of credit	5	55		55		55
Consumer, indirect	9	95		95		95
Consumer, direct	3	9		9		9
Consumer	12	104		104		104
Total	71	$	2,640	$	2,646	$	2,639

September 30, 2020
Commercial real estate, other	3	$	2,214	$	2,214	$	1,112
Commercial and industrial	4	3,657		3,657		3,658
Residential real estate	10	608		608		608
Home equity lines of credit	3	68		68		68
Consumer, indirect	11	126		126		126
Consumer, direct	2	16		16		16
Consumer	13	142		142		142
Total	33	$	6,689	$	6,689	$	5,588
(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.

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		Nine Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
September 30, 2021
Construction	2	$	350	$	350	$	350
Commercial real estate, other	3	37		37		37
Commercial and industrial	3	327		327		327
Leases	5	340		348		334
Residential real estate	54	2,367		2,376		2,366
Home equity lines of credit	9	315		315		307
Consumer, indirect	16	200		200		192
Consumer, direct	8	48		48		45
Consumer	24	248		248		237
Total	100	$	3,984	$	4,001	$	3,958

September 30, 2020

Commercial real estate, other	5	$	2,533	$	2,533	$	1,430
Commercial and industrial	5	3,803		3,803		3,804
Residential real estate	16	1,237		1,267		1,261
Home equity lines of credit	7	123		123		121
Consumer, indirect	23	235		235		216
Consumer, direct	5	68		68		63
Consumer	28	303		303		279
Total	61	$	7,999	$	8,029	$	6,895
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of accounting for TDRs, as defined in ASC 310-40.

The following table presents those loans modified into a TDR during the year that subsequently defaulted (i.e., 90 days or more past due following a modification) during the nine-month periods ended September 30:


	September 30, 2021					September 30, 2020
(Dollars in thousands)	Number of Contracts	Recorded Investment (a)		Impact on the Allowance for Credit Losses		Number of Contracts	Recorded Investment (a)		Impact on the Allowance for Credit Losses

Commercial real estate, other	—	$	—	—		1	$	54	—
Residential real estate	3	113		—		—	—		—

Total	3	$	113	$	—	1	$	54	$	—
(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.

Peoples had no commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR.

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Allowance for Credit Losses

Changes in the allowance for credit losses for the three months ended September 30, 2021 and September 30, 2020 are summarized below:


(Dollars in thousands)	Beginning Balance, June 30, 2021		Initial Allowance for Acquired Purchased Credit Deteriorated Assets		Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets		(Recovery of) Provision for Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, September 30, 2021
Construction	$	914	$	2,127	$	638	$	(243)	$	—	$	—	$	3,436
Commercial real estate, other	17,233		13,374		5,384		(179)		—		4		35,816
Commercial and industrial	8,686		4,286		1,059		(3)		(654)		4		13,378
Premium finance	998		—		—		146		(7)		—		1,137
Leases	3,715		—		—		1,101		(431)		120		4,505
Residential real estate	4,837		2,394		2,645		(312)		(44)		48		9,568
Home equity lines of credit	1,504		41		674		148		(180)		37		2,224
Consumer, indirect	8,841		—		—		(2,308)		(416)		43		6,160
Consumer, direct	1,161		112		180		(362)		(29)		17		1,079
Deposit account overdrafts	53		—		—		124		(135)		37		79
Total	$	47,942	$	22,334	$	10,580	$	(1,888)	$	(1,896)	$	310	$	77,382

(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.


(Dollars in thousands)	Beginning Balance, June 30, 2020		Initial Allowance for Acquired Purchased Credit Deteriorated Assets		Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets		(Recovery of) Provision for Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, September 30, 2020
Construction	$	2,662	$	—	$	—	$	(148)	$	—	$	—	$	2,514
Commercial real estate, other	19,148		—		—		(8)		(109)		4		19,035
Commercial and industrial	10,106		—		—		3,139		(146)		—		13,099
Premium finance	—		—		990		(2)		(2)		—		986

Residential real estate	6,380		—		—		(371)		(121)		100		5,988
Home equity lines of credit	1,755		—		—		40		—		2		1,797
Consumer, indirect	12,293		—		—		785		(370)		64		12,772
Consumer, direct	1,941		—		—		(78)		(15)		13		1,861
Deposit account overdrafts	77		—		—		154		(202)		47		76
Total	$	54,362	$	—	$	990	$	3,511	$	(965)	$	230	$	58,128

(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.

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Changes in the allowance for credit losses for the nine months ended September 30, 2021 and September 30, 2020 are summarized below:



(Dollars in thousands)	Beginning Balance, December 31, 2020		Initial Allowance for Acquired Purchased Credit Deteriorated Assets		Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets		(Recovery of) Provision for Credit Losses (a)		Charge-offs		Recoveries		Ending Balance, September 30, 2021
Construction	$	1,887	$	2,127	$	638	$	(1,216)	$	—	$	—	$	3,436
Commercial real estate, other	17,536		13,374		5,384		(325)		(161)		8		35,816
Commercial and industrial	12,763		4,286		1,059		(3,800)		(952)		22		13,378
Premium finance	1,095		—		—		72		(30)		—		1,137
Leases	—		493		3,288		1,450		(956)		230		4,505
Residential real estate	6,044		2,394		2,645		(1,305)		(313)		103		9,568
Home equity lines of credit	1,860		41		674		(196)		(196)		41		2,224
Consumer, indirect	8,030		—		—		(891)		(1,190)		211		6,160
Consumer, direct	1,081		112		180		(252)		(96)		54		1,079
Deposit account overdrafts	63		—		—		208		(327)		135		79
Total	$	50,359	$	22,827	$	13,868	$	(6,255)	$	(4,221)	$	804	$	77,382

(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.



(Dollars in thousands)	Beginning Balance, January 1, 2020 (a)		Initial Allowance for Acquired Purchased Credit Deteriorated Assets		Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets		Provision for (Recovery of) Credit Losses (b)		Charge-offs		Recoveries		Ending Balance, September 30, 2020
Construction	$	600	$	51	$	—	$	1,863	$	—	$	—	$	2,514
Commercial real estate, other	7,193		1,356		—		10,614		(254)		126		19,035
Commercial and industrial	4,960		860		—		6,368		(1,098)		2,009		13,099
Premium finance	—		—		990		(2)		(2)		—		986

Residential real estate	3,977		383		—		1,626		(255)		257		5,988
Home equity lines of credit	1,570		2		—		237		(23)		11		1,797
Consumer, indirect	5,389		—		—		8,549		(1,427)		261		12,772
Consumer, direct	856		34		—		1,062		(128)		37		1,861
Deposit account overdrafts	94		—		—		360		(534)		156		76
Total	$	24,639	$	2,686	$	990	$	30,677	$	(3,721)	$	2,857	$	58,128

(a)Peoples adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) on January 1, 2020.

(b)Amount does not include the provision for the allowance for credit losses on unfunded commitments.

During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. During the second quarter of 2021, Peoples recorded provision for credit losses to establish the allowance for credit losses of $3.3 million for the acquired non-purchased credit deteriorated leases from NSL along with an increase in allowance for credit loss of $0.5 million related to the purchase credit

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deteriorated leases acquired from NSL. Lastly, economic assumptions and loss drivers used in the CECL model continued to improve in the current year, partially offsetting the increase in allowance driven by the aforementioned acquired loans and leases. The PPP loans originated during 2021 and 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit losses at September 30, 2021 and at December 31, 2020.

At September 30, 2021, Peoples had recorded an allowance for unfunded commitments of $2.4 million, an increase compared to $2.2 million at June 30, 2021, and a decrease compared to $2.9 million at December 31, 2020. The total amount of unfunded commitments had increased compared to June 30, 2021 due to the unfunded commitments associated with the Premier acquisition and decreased compared to December 31, 2020 due to the improved economic forecast conditions. 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, 2021		December 31, 2020
Goodwill, beginning of year	$	171,260	$	165,701
Goodwill recorded from acquisitions	95,755		5,559
Goodwill, end of period	$	267,015	$	171,260

Peoples Bank entered into the Asset Purchase Agreement, dated March 24, 2021 with NSL. The transaction closed after the close of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. On April 1, 2021, Peoples recorded $24.7 million of goodwill related to the acquisition from NSL. On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Peoples recorded $46,000 of goodwill from this completed acquisition. On September 17, 2021, Peoples completed the merger with Premier, for which Peoples recorded $71.0 million of goodwill. In 2020, Peoples completed its acquisition of Premium Finance, recording $5.5 million in goodwill. Also, in 2020 Peoples Insurance completed an acquisition of a property and casualty-focused independent insurance agency for which $0.1 million of goodwill was recorded. For additional information on these acquisitions, refer to "Note 13 Acquisitions."

Other Intangible Assets

Other intangible assets were comprised of the following at end of period, September 30, 2021 and end of year, December 31, 2020:


(Dollars in thousands)	Core Deposits		Customer Relationships		Total
September 30, 2021
Gross intangibles	$	25,805	$	25,096	$	50,901

Accumulated amortization	(17,813)		(8,256)		(26,069)
Total acquisition-related intangibles	$	7,992	$	16,840	$	24,832
Servicing rights					2,294
Indefinite-lived intangibles					1,274
Total other intangibles					$	28,400

December 31, 2020
Gross intangibles	$	22,233	$	12,495	$	34,728

Accumulated amortization	(17,298)		(6,579)		(23,877)
Total acquisition-related intangibles	$	4,935	$	5,916	$	10,851
Servicing rights					2,486

Total other intangibles					$	13,337

Other intangible assets recorded from the above-mentioned acquisitions year-to-date as of September 30, 2021 were $13.0 million of customer relationship intangible assets related to the NSL and Peoples Insurance acquisitions, and $4.2 million of core deposit intangible assets related to Premier. Refer to "Note 13 Acquisitions" for additional information. Other intangible assets recorded in 2020 included $5.0 million of customer relationship intangible assets from the Premium Finance and Peoples Insurance acquisitions.

The following table details estimated aggregate future amortization of other intangible assets at September 30, 2021:

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(Dollars in thousands)	Core Deposits		Customer Relationships		Total
2021	$	574	$	934	$	1,508
2022	1,620		4,014		5,634
2023	1,257		3,712		4,969
2024	1,058		2,733		3,791
2025	891		1,941		2,832
Thereafter	2,592		3,506		6,098
Total	$	7,992	$	16,840	$	24,832

The weighted average amortization period of other intangible assets is 8.1 years.

Servicing Rights

The following is an analysis of activity of servicing rights for the periods ended September 30,2021 and December 31, 2020:


(Dollars in thousands)	September 30, 2021		December 31, 2020
Balance, beginning of year	$	2,486	$	2,742
Amortization	(591)		(1,121)
Servicing rights originated	415		1,026

Valuation allowance	(16)		(161)
Balance, end of period	$	2,294	$	2,486

Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of September 30, 2021, Peoples has recorded a valuation allowance of $16,000 related to the decrease in the fair value of servicing rights. During 2020, Peoples recorded a valuation allowance of $161,000 related to the decrease in the fair value of servicing rights.

The following is the breakdown of the discount rates and prepayment speeds of servicing rights for the periods ended September 30,2021 and December 31, 2020:


	September 30, 2021				December 31, 2020
	Minimum		Maximum		Minimum		Maximum
Discount rates	8.3	%	10.8	%	8.3	%	10.8	%
Prepayment speeds	8.4	%	27.2	%	12.8	%	21.1	%

The fair value of servicing rights was $2.3 million and $2.6 million at September 30, 2021 and December 31, 2020, respectively.

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Note 6 Deposits

Peoples’ deposit balances were comprised of the following:


(Dollars in thousands)	September 30, 2021		December 31, 2020
Retail CDs:
$100 or more	$	343,324	$	220,532
Less than $100	348,356		225,398
Retail CDs	691,680		445,930
Interest-bearing deposit accounts	1,140,639		692,113
Savings accounts	1,016,755		628,190
Money market deposit accounts	637,635		591,373
Governmental deposit accounts	679,305		385,384

Brokered deposit accounts (a)	106,013		170,146
Total interest-bearing deposits	4,272,027		2,913,136
Non-interest-bearing deposits	1,559,993		997,323
Total deposits	$	5,832,020	$	3,910,459

(a) At September 30, 2021, brokered deposit accounts included $100.0 million of brokered demand deposits.

At December 31, 2020, brokered deposit accounts included $50.0 million of 90-day brokered CDs and

$110.0 million of brokered demand deposits

Time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") limit of $250,000 were $134.3 million and $89.0 million at September 30, 2021 and December 31, 2020, respectively. The increase compared to December 31, 2020 was mostly due to the deposits acquired from Premier.

The contractual maturities of retail CDs and brokered CDs and demand deposits for each of the next five years and thereafter are as follows:


(Dollars in thousands)	Retail		Brokered		Total
Remaining three months ending December 31, 2021 (a)	$	142,996	$	101,307	$	244,303
Year ending December 31, 2022	375,448		4,216		379,664
Year ending December 31, 2023	66,339		490		66,829
Year ending December 31, 2024	62,021		—		62,021
Year ending December 31, 2025	22,021		—		22,021
Thereafter	22,855		—		22,855
Total CDs	$	691,680	$	106,013	$	797,693

(a) Brokered deposit accounts include $100.0 million of brokered demand deposits.

At September 30, 2021, Peoples had sixteen effective interest rate swaps, with an aggregate notional value of $150.0 million, of which $100.0 million were funded by brokered demand and savings deposits. Brokered demand deposits hedged by interest rate swaps are expected to be extended every 90 days through the maturity dates of the swaps. Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments."

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Note 7 Stockholders’ Equity

The following table details the progression in Peoples’ common shares and treasury stock during the nine months ended September 30, 2021:


	Common Shares	Treasury Stock
Shares at December 31, 2020	21,193,402	1,686,046
Changes related to stock-based compensation awards:

Release of restricted common shares	—	29,135
Cancellation of restricted common shares	—	7,168

Grant of restricted common shares	—	(101,926)
Grant of unrestricted common shares	—	(5,747)
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock	—	5,309
Disbursed out of treasury stock	—	(2,983)

Common shares issued under dividend reinvestment plan	23,348	—
Common shares issued under compensation plan for Boards of Directors	—	(5,535)

Common shares issued under employee stock purchase plan	—	(11,874)
Issuance of common shares related to the merger with Premier Financial Bancorp, Inc.	8,589,685	—

Shares at September 30, 2021	29,806,435	1,599,593

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, replacing the February 27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. At September 30, 2021, Peoples had not repurchased any common shares under the share repurchase program authorized on January 28, 2021.

Under Peoples' Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At September 30, 2021, Peoples had no preferred shares issued or outstanding.

On October 25, 2021, Peoples' Board of Directors declared a quarterly cash dividend of $0.36 per common share, payable on November 22, 2021, to shareholders of record on November 8, 2021. The following table details the cash dividends declared per common share during the four quarters of 2021 and the comparable periods of 2020:


	2021		2020
First quarter	$	0.35	0.34
Second quarter	0.36		0.34
Third quarter	0.36		0.34
Fourth quarter	$	0.36	$	0.35
Total dividends declared	$	1.43	$	1.37

Accumulated Other Comprehensive (Loss) Income

The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the nine months ended September 30, 2021:


(Dollars in thousands)	Unrealized Gain on Securities		Unrecognized Net Pension and Postretirement Costs		Unrealized Loss on Cash Flow Hedge		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2020	$	14,592	$	(3,872)	$	(9,384)	$	1,336
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax	547		—		—		547
Realized loss due to settlement and curtailment, net of tax	—		111		—		111
Other comprehensive (loss) income, net of reclassifications and tax	(13,245)		1,481		3,882		(7,882)
Balance, September 30, 2021	$	1,894	$	(2,280)	$	(5,502)	$	(5,888)

Note 8 Employee Benefit Plans

Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the employee’s annual compensation during the years 2003 through 2009, plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following the date such person makes an election to receive his or her retirement benefits.

The expected long-term rate of return on plan assets, which was determined as of January 1, 2021, is 7.0%. The following table details the components of the net periodic cost for the plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations:


	Pension Benefits
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2021		2020		2021		2020
Interest cost	$	60	$	80	$	194	$	256
Expected return on plan assets	(143)		(187)		(492)		(577)
Amortization of net loss	21		35		84		101
Settlement of benefit obligation	143		531		143		1,050
Net periodic loss (income)	$	81	$	459	$	(71)	$	830

Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.

Peoples recorded a settlement charge of $143,000 during the three and nine months ended September 30, 2021 under the noncontributory defined benefit pension plan. Peoples recorded settlement charges of $531,000 and $1.1 million, respectively, during the three and nine months ended September 30, 2020 under the noncontributory defined benefit pension plan.

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Note 9 Earnings Per Common Share

The calculations of basic and diluted (loss) 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)	2021		2020		2021		2020
Net (loss) income available to common shareholders	$	(5,758)	$	10,210	$	19,808	$	14,194
Less: Dividends paid on unvested shares	(79)		(96)		(214)		(274)
Add: Undistributed earnings (loss) allocated to unvested shares	21		(2)		2		4
Net (loss) earnings allocated to common shareholders	$	(5,816)	$	10,112	$	19,596	$	13,924

Weighted-average common shares outstanding	20,640,519		19,504,503		19,751,853		19,862,409
Effect of potentially dilutive common shares	148,752		133,186		138,819		135,944
Total weighted-average diluted common shares outstanding	20,789,271		19,637,689		19,890,672		19,998,353

(Loss) earnings per common share:
Basic	$	(0.28)	$	0.52	$	0.99	$	0.70
Diluted	$	(0.28)	$	0.51	$	0.99	$	0.70
Anti-dilutive common shares excluded from calculation:
Restricted shares	—		69,459		—		67,759

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 derivatives 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, 2021, Peoples had entered into sixteen interest rate swap contracts with an aggregate notional value of $150.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month brokered CDs and brokered demand deposits, which will continue to be rolled through the life of the swaps. At September 30, 2021, the interest rate swaps were designated as cash flow hedges of $100.0 million in brokered demand deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0 million of interest rate swaps were designated as cash flow hedges of 90-day FHLB Advances.

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For derivative financial instruments designated as cash flow hedges, the effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest expense as interest payments are made or received on Peoples' variable-rate liabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the 90-day advances or brokered CDs are matched to the reset dates and payment dates on the receipt of the three-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. During the three and nine months ended September 30, 2021, Peoples had reclassifications of losses to earnings of $766,000 and $2.3 million, respectively. During the three and nine months ended September 30, 2020, Peoples had reclassifications of losses to earnings of $732,000 and $1.2 million, respectively. During the next twelve months, Peoples estimates that minimal interest expense will be reclassified.

The following table summarizes information about the interest rate swaps designated as cash flow hedges:


(Dollars in thousands)	September 30, 2021			December 31, 2020
Notional amount	$	150,000		$	160,000
Weighted average pay rates	2.13		%	2.18		%
Weighted average receive rates	0.76		%	0.38		%
Weighted average maturity	3.8 years			4.4 years
Pre-tax unrealized losses included in AOCI	$	(7,143)		$	(11,879)

The following table presents net gains or losses recorded in AOCI and in the Unaudited Consolidated Statements of Operations related to the cash flow hedges:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2021		2020		2021		2020
Amount of (gain) loss recognized in AOCI, pre-tax	$	(858)	$	(803)	$	(4,800)	$	9,661

The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:


	September 30, 2021				December 31, 2020
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value



Included in "Accrued expenses and other liabilities":
Interest rate swaps related to debt	$	150,000	$	7,252	$	160,000	$	12,063

Non-Designated Hedges

Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operations or financial condition at or for the three and nine months ended September 30, 2021 and at or for the year ended December 31, 2020.

The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:

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	September 30, 2021				December 31, 2020
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in "Other assets":
Interest rate swaps related to commercial loans	$	403,208	$	15,653	$	415,044	$	27,332

Included in "Accrued expenses and other liabilities":
Interest rate swaps related to commercial loans	$	403,208	$	15,653	$	415,044	$	27,332

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, 2021 and December 31, 2020, Peoples had zero and $41.0 million, respectively, of cash pledged, while the counterparties had no amount of cash pledged at either date. Cash pledged was included in "Interest-bearing deposits in other banks" on the Audited Consolidated Balance Sheet as of December 31, 2020. Peoples had pledged $36.3 million and zero in investment securities at September 30, 2021 and December 31, 2020, respectively.

Note 11 Stock-Based Compensation

Under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted common share awards, stock appreciation rights, performance units and unrestricted common share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is 891,340. The maximum number of common shares that can be issued for incentive stock options is 500,000 common shares. Since February 2009, Peoples has granted restricted common shares to employees, and periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2020 and 2021, Peoples granted unrestricted common shares to non-employee directors (in addition to their directors' fees paid in common shares). In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.

Restricted Common Shares

Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on the restricted common shares awarded to employees expire after periods ranging from one to five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first nine months of 2021, Peoples granted an aggregate of 76,819 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, 2021:


	Time-Based Vesting			Performance-Based Vesting
	Number of Common Shares	Weighted-Average Grant Date Fair Value		Number of Common Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1	67,758	$	23.71	250,992	$	33.36
Awarded	25,107	32.58		76,819	31.48
Released	(9,127)	35.63		(73,611)	35.43
Forfeited	(500)	34.75		(6,668)	32.42
Outstanding at September 30	83,238	$	25.01	247,532	$	32.19

For the nine months ended September 30, 2021, the total intrinsic value for restricted common shares released was $2.6 million compared to $2.0 million for the nine months ended September 30, 2020.

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 and performance unit awards, 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

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the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. For performance unit awards, Peoples recognizes stock-based compensation over the performance period, based on the portion of the awards that was expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15%. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2021		2020		2021		2020
Employee stock-based compensation expense:
Stock grant expense	$	597	$	615	$	2,381	$	2,950
Employee stock purchase plan expense	21		17		$	55	$	47
Performance unit benefit	—		—		$	—	$	(12)
Total employee stock-based compensation expense	618		632		$	2,436	$	2,985
Non-employee director stock-based compensation expense	60		53		$	310	$	288
Total stock-based compensation expense	678		685		$	2,746	$	3,273
Recognized tax benefit	(151)		(144)		(612)		(687)
Net stock-based compensation expense	$	527	$	541	$	2,134	$	2,586

Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the nine months ended September 30, 2021 and 2020. 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 $3.0 million at September 30, 2021, which will be recognized over a weighted-average period of 1.9 years. On April 1, 2020, an aggregate of 18,952 unrestricted common shares were granted as a one-time special award to employees under the level of Vice President, with a related stock-based compensation expense of $396,000 being recognized.

In addition to the portion of directors' fees paid in common shares, non-employee director stock-based compensation expense included $135,000 during the first nine months of 2021, and $120,000 during the first nine months of 2020, reflecting separate grants of unrestricted common shares aggregating 4,347 and 3,680 common shares, respectively.

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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)	2021		2020		2021		2020
Insurance income:
Commission and fees from sale of insurance policies (a)	$	3,231	$	3,493	$	9,603	$	9,117
Fees related to third-party administration services (a)	76		107		276		375
Performance-based commissions (b)	60		9		2,044		1,437
Trust and investment income (a)	4,158		3,435		12,223		10,013
Electronic banking income:
Interchange income (a)	3,280		3,011		9,930		8,255
Promotional and usage income (a)	1,046		755		2,725		2,313
Deposit account service charges:
Ongoing maintenance fees for deposit accounts (a)	933		848		2,597		2,677
Transactional-based fees (b)	1,616		1,418		3,981		4,318
Commercial loan swap fees (b)	73		68		194		1,267
Other non-interest income transactional-based fees (b)	207		94		601		624
Total revenue from contracts with customers	$	14,680	$	13,238	$	44,174	$	40,396
Timing of revenue recognition:
Services transferred over time	$	12,724	$	11,649	$	37,354	$	32,750
Services transferred at a point in time	1,956		1,589		6,820		7,646
Total revenue from contracts with customers	$	14,680	$	13,238	$	44,174	$	40,396

(a) Services transferred over time.

(b) Services transferred at a point in time.

Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income and certain insurance income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income.

The following table details the changes in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2021:


	Contract Assets		Contract Liabilities
(Dollars in thousands)
Balance, January 1, 2021	$	1,247	$	5,224
Additional income receivable	144		—

Receipt of income previously receivable	(701)		—
Recognition of income previously deferred	—		(488)
Balance, September 30, 2021	$	690	$	4,736

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Note 13 Acquisitions

Premier Financial Bancorp, Inc.

On September 17, 2021, Peoples completed its merger with Premier. Premier merged into Peoples, and Premier’s wholly-owned subsidiaries, Premier Bank, Inc., and Citizens Deposit Bank and Trust, Inc., which combined operate 48 branches in Kentucky, Maryland, Ohio, Virginia, West Virginia and Washington, D.C., merged into Peoples’ wholly-owned subsidiary, Peoples Bank. As consideration, Premier shareholders were paid 0.58 common shares of Peoples for each full share of Premier that was owned at the acquisition date, resulting in the issuance of 8,589,685 common shares by Peoples, or $261.9 million. Peoples accounted for this transaction as a business combination under the acquisition method. Peoples completed the merger in an effort to diversify and expand its franchise, and further enhance its size and scale. Peoples believes the growth potential, and attractive market areas will benefit its future financial performance.

Peoples recorded acquisition-related expenses related to the Premier merger which included $9.8 million in other non-interest expense; $4.2 million in professional fees; $3.7 million in salaries and employee benefit costs; $181,000 in marketing expense; and $83,000 in data processing and software expense.

Peoples recorded the estimate of fair value based on initial valuations available at September 17, 2021. Due to the timing of the transaction closing date and this Form 10-Q, these estimated fair values are considered preliminary as of September 30, 2021, and are subject to adjustment for up to one year after September 17, 2021. Valuations subject to change include, but are not limited to, loans, bank premises, customer deposit intangibles (included in other intangible assets), certain deposits, trust preferred securities, deferred tax assets and liabilities, and certain other assets and other liabilities.

The following table provides the preliminary purchase price calculation as of the date of the Merger with Premier, and the assets acquired and liabilities assumed at their estimated fair values.


(Dollars in thousands)	Unpaid Principal Balance	Fair Value




Premier common shares		14,811,200
Number of common shares of Peoples issued for each common share of Premier		0.58
Price per Peoples common share, based at closing date		$	30.49
Common share consideration		261,899
Cash paid in lieu of fractional common shares		25
Total consideration		$	261,924
Net assets at fair value
Assets
Cash and due from banks		$	251,763
Interest-bearing deposits in other banks		1,025
Total cash and cash equivalents		252,788
Available-for-sale investment securities		563,294

Other investment securities		4,159
Total investment securities		567,453

Loans:
Construction	97,262	93,819
Commercial real estate, other	544,950	517,315
Commercial and industrial	132,293	127,880

Residential real estate	332,269	327,508
Home equity lines of credit	46,969	45,841

Consumer	21,083	21,527
Total loans	1,174,826	1,133,890


Bank premises and equipment		33,835
Other intangible assets		4,233
OREO		11,101
Other assets		19,671
Total assets		$	2,022,971

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(Dollars in thousands)	Unpaid Principal Balance	Fair Value
Liabilities
Deposits:
Non-interest-bearing		$	735,236
Interest-bearing		1,020,887
Total deposits		1,756,123
Short-term borrowings		63,807
Long-term borrowings		6,070
Accrued expenses and other liabilities		6,036
Total liabilities		1,832,036
Net assets		190,935
Goodwill		$	70,989

The recorded goodwill associated with the Premier merger is related to expected synergies and operational efficiencies to be gained from the combination of Premier with Peoples' operations. None of the goodwill associated with the Premier merger is expected to be deductible for tax purposes. The geographic locations of Premier will allow Peoples to continue to grow the loan and deposit portfolios, while also increasing Peoples' ability to penetrate the new markets with wealth management and insurance services, which should benefit Peoples in future periods. Additional information regarding other intangibles recognized in the acquisition can be found in "Note 5 Goodwill and Other Intangible Assets."

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

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 due from banks is a reasonable estimate of fair value.

Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.

Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan, related collateral, classification status, fixed or variable interest rate, term, amortization status and current discount rates. Loans were grouped together according to similar characteristics when applying various valuation techniques. The discount rates used for loans are based on current market rates at the acquisition date for new originations for comparable loans and include adjustments for liquidity. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows.

Bank Premises and Equipment: The fair values of premises were based on a market approach, with third-party appraisals and broker opinions of value for land, office and branch space.

OREO: The fair values of OREO were based on a market approach, with third-party appraisals and broker opinions of value for land and buildings.

Customer Deposit Intangible: The customer deposit intangible represents the low cost of funding acquired core deposits provide relative to a marginal cost of funds. The fair value was estimated based on a discounted cash flow methodology that gave consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The customer deposit intangible is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.

Deposits: The fair values used for the demand and savings deposits equal the amount payable on demand at the acquisition date. The fair values for time deposits were estimated using a discounted cash flow calculation that applies interest rates being offered at the acquisition date to the contractual interest rates on such time deposits.

Borrowings: Short-term borrowings consist of overnight repurchase agreements and rates, and given their short-term nature book value approximated fair value. The fair values of long-term borrowings are estimated using discounted cash flow analyses, based on incremental borrowing rates at acquisition date for similar types of instruments.

Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. Acquired purchased credit deteriorated loans are reported net of the unamortized fair

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value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired purchased credit deteriorated loans as of the acquisition date:



(Dollars in thousands)	Par Value		Allowance for Credit Losses		Non-Credit (Discount) Premium		Fair Value
Purchased credit deteriorated loans
Construction	$	23,232	$	(2,127)	$	(219)	$	20,886
Commercial real estate, other	176,122		(13,374)		(8,022)		154,726
Commercial and industrial	26,341		(4,286)		281		22,336

Residential real estate	56,005		(2,394)		(2,166)		51,445
Home equity lines of credit	2,014		(41)		(68)		1,905

Consumer	1,614		(112)		63		1,565
Fair value	$	285,328	$	(22,334)	$	(10,131)	$	252,863

Peoples' operating results for the three-month and nine-month periods ended September 30, 2021 include the operating results of the acquired assets and assumed liabilities of Premier subsequent to the acquisition on September 17, 2021. Due to the conversion of Premier systems during the third quarter of 2021, as well as other streamlining and integration of the operating activities into those of Peoples, historical reporting for the former Premier operations is impracticable and the disclosures of revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to the acquisition. The following table presents unaudited pro forma information as if the acquisition of Premier had occurred on January 1, 2020. 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, trust preferred securities and customer deposit intangibles that would have resulted had the assets and liabilities been acquired as of January 1, 2020. The pro forma information excludes Peoples' acquisition-related expenses, which primarily included, but were not limited to, salaries and employee benefit costs, severance costs, professional fees, marketing expenses and deconversion costs. Those acquisition-related expenses totaled $16.2 million and $18.1 million for the quarter and year-to-date, respectively. The pro forma information also excludes a provision of credit losses of $11.0 million recorded to establish an allowance for credit losses for non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquired loans. The pro forma information does not necessarily reflect the results of operations that would have occurred had Peoples acquired Premier on January 1, 2020. 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, 2021		September 30, 2020		September 30, 2021		September 30, 2020


Net interest income	$	59,248	$	52,646	$	168,644	$	156,285


Non-interest income	19,071		18,967		57,061		53,507



Net income	17,492		16,151		56,862		31,529

Pikeville, Kentucky Insurance Agency

On May 4, 2021, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000. Peoples accounted for this transaction as a business combination under the acquisition method.

NS Leasing, LLC

Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $116.5 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. NSL underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included a customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million. As of

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September 30, 2021, leases had grown to $111.4 million. Peoples accounted for this transaction as a business combination under the acquisition method.

The recorded goodwill associated with the NSL acquisition is related to expected synergies and operational efficiencies to be gained from the combination of NSL with Peoples' operations. The employees retained from the NSL acquisition should allow Peoples to continue to grow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill.

The bonus earn-out provision recorded by Peoples related to the NSL acquisition was determined based on a weighting of probability of outcomes, at present value. Peoples predominately weighted the outcomes of the factors at around a 100% payout expectation of the base earn-out, which is $2.7 million in total. Adjusting weighting into the bonus expectation in the third quarter resulted in an additional $625,000 of potential payout. Peoples anticipates that NSL will meet the minimums for the base earn-out payment, and will likely meet the targets set at acquisition for a 100% payout of the base earn-out.

The following table provides the preliminary purchase price calculation as of the date of acquisition for NSL and the assets acquired and liabilities assumed at their estimated fair values.


(Dollars in thousands)
Total purchase price (a)	$	118,846







Net assets at fair value
Assets
Cash and due from banks	$	216









Net leases	82,833
Bank premises and equipment, net of accumulated depreciation	470
Other intangible assets	14,009
Other assets	1,225
Total assets	$	98,753
Liabilities





Accrued expenses and other liabilities	$	4,627
Total liabilities	$	4,627
Net assets	$	94,126
Goodwill	$	24,720

(a) Includes preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. Peoples recorded an additional $0.4 million in non-interest expense related to an update to the estimated earn-out provision.

The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2021, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at September 30, 2021:


(Dollars in thousands)	Change in fair value
Net assets




Other intangible assets	$	(474)
Other assets	(380)
Accrued expenses and other liabilities	380
Change in goodwill	$	(474)

The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date:

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(Dollars in thousands)	NSL
Purchased credit deteriorated leases
Par value	$	5,248
Allowance for credit losses	(493)
Non-credit premium	85
Fair value	$	4,840

Peoples recorded acquisition-related expenses related to the NSL acquisition during the third quarter of 2021, which included $13,000 in professional fees. For the first nine months of 2021, Peoples recorded acquisition-related expenses related to the NSL acquisition which included $2.1 million in professional fees; $209,000 in other non-interest expense; $3,000 in salaries and employee benefit costs; $3,000 in data processing and software expense; $2,000 in net occupancy and equipment expense; and $2,000 in marketing expense.

Note 14 Leases

Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.

Lessor Arrangements

Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers leases past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, leases are typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses.

Peoples began originating leases with the acquisition of leases from NSL. The leases acquired were determined to be sales-type leases, as the premise for the leases is dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, healthcare, manufacturing, office, restaurant, and other equipment. These sales-type 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. Other non-interest income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' sales-type 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, 2021		September 30, 2021
Interest and fees on leases (a)	$	4,810	9,025
Other non-interest income	471		716
Total lease income	$	5,281	$	9,741

(a)Included in "Interest and fees on loans" on the Unaudited Consolidated Statements of Operations.

For additional information, see "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed

Consolidated Financial Statements.

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The following table summarizes the net investments in sales-type leases, which are included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets:


(Dollars in thousands)	September 30, 2021
Lease payments receivable, at amortized cost	$	139,445
Estimated residual values	120
Initial direct costs	802
Deferred revenue	(28,921)
Total leases, at amortized cost	111,446
Allowance for credit losses - leases	(4,505)
Net investment in sales-type leases	$	106,941

The following table summarizes the contractual maturities of leases:


(Dollars in thousands)	Balance
Remaining three months ending December 31, 2021	$	13,980
Year ending December 31, 2022	46,706
Year ending December 31, 2023	36,524
Year ending December 31, 2024	24,093
Year ending December 31, 2025	13,605
Thereafter	4,537
Lease payments receivable, at amortized cost	$	139,445

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, 2021, Peoples did not have any leases that met the criteria for finance leases. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating lease ROU assets exclude lease incentives. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term and do not have a ROU asset or lease liability.

The table below details Peoples' lease expense, which is included in "Net occupancy and equipment expense" in the Unaudited Consolidated Statements of Operations:


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Operating lease expense	$	358	$	334	1,038		995
Short-term lease expense	72		71		244		231
Total lease expense	$	430	$	405	$	1,282	$	1,226

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.

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The following table details the ROU assets, the lease liabilities and other information related to Peoples' operating leases:


(Dollars in thousands)	September 30, 2021			December 31, 2020
ROU assets:
Other assets	$	8,732		$	6,522
Lease liabilities:
Accrued expenses and other liabilities	$	9,040		$	6,776
Other information:
Weighted-average remaining lease term	9.5 years			12.4 years
Weighted-average discount rate	2.39		%	3.14		%

During the three and nine months ended September 30, 2021, Peoples paid cash of $345,000 and $1,005,000, respectively, for operating leases. During the three and nine months ended September 30, 2020, Peoples paid cash of $320,000 and $960,000, respectively, for operating leases.

The following table summarizes the maturity of remaining lease liabilities:


(Dollars in thousands)	Balance
Remaining three months ending December 31, 2021	$	728
Year ending December 31, 2022	2,270
Year ending December 31, 2023	1,612
Year ending December 31, 2024	954
Year ending December 31, 2025	765
Thereafter	4,396
Total undiscounted lease payments	$	10,725
Imputed interest	$	(1,685)
Total lease liabilities	$	9,040

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three and nine months ended September 30, 2021 and September 30, 2020. This MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.

SELECTED FINANCIAL DATA

The following data should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the MD&A that follows:


	At or For the Three Months Ended				At or For the Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, expect per share data)	2021		2020		2021		2020
Operating Data (a)
Total interest income	$	45,467	$	39,013	$	127,226	$	119,181
Total interest expense	2,889		3,894		9,410		14,566
Net interest income	42,578		35,119		117,816		104,615
Provision for credit losses	8,994		4,728		7,333		33,531
Net (loss) gain on investment securities	(166)		2		(704)		383
Net loss on asset disposals and other transactions	(308)		(28)		(459)		(237)
Total non-interest income excluding net gains and losses (b)	16,820		16,796		50,233		47,025
Total non-interest expense	57,860		34,315		135,746		100,445
Net (loss) income (c)	(5,758)		10,210		19,808		14,194
Balance Sheet Data (a)
Total investment securities	$	1,574,676	$	928,560	$	1,574,676	$	928,560
Loans and leases, net of deferred fees and costs ("total loans")	4,491,028		3,472,085		4,491,028		3,472,085
Allowance for credit losses	77,382		58,128		77,382		58,128
Goodwill and other intangible assets	295,415		185,397		295,415		185,397
Total assets	7,059,752		4,911,807		7,059,752		4,911,807
Non-interest-bearing deposits	1,559,993		982,912		1,559,993		982,912
Brokered deposits	106,013		260,753		106,013		260,753
Other interest-bearing deposits	4,166,014		2,697,905		4,166,014		2,697,905
Short-term borrowings	184,693		182,063		184,693		182,063
Junior subordinated debentures held by subsidiary trust	12,928		7,571		12,928		7,571
Other long-term borrowings	86,483		103,815		86,483		103,815
Total stockholders' equity	831,882		566,856		831,882		566,856
Tangible assets (d)	6,764,337		4,726,410		6,764,337		4,726,410
Tangible equity (d)	536,467		381,459		536,467		381,459
Per Common Share Data (a)
(Loss) earnings per common share – basic	$	(0.28)	$	0.52	$	0.99	$	0.70
(Loss) earnings per common share – diluted	(0.28)		0.51		0.99		0.70
Cash dividends declared per common share	0.36		0.34		1.07		1.02
Book value per common share (e)	29.43		28.74		29.43		28.74
Tangible book value per common share (d)(e)	$	18.98	$	19.34	$	18.98	$	19.34
Weighted-average number of common shares outstanding – basic	20,640,519		19,504,503		19,751,853		19,862,409
Weighted-average number of common shares outstanding – diluted	20,789,271		19,637,689		19,890,672		19,998,353
Common shares outstanding at end of period (e)	28,265,791		19,721,783		28,265,791		19,721,783
Closing share price at end of period (e)	$	31.61	$	19.09	$	31.61	$	19.09

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	At or For the Three Months Ended						At or For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands, expect per share data)	2021			2020			2021			2020
Significant Ratios (a)
Return on average stockholders' equity (f)	(3.64)		%	7.16		%	4.44		%	3.28		%
Return on average tangible equity (f)(g)	(4.76)		%	11.36		%	7.82		%	5.38		%
Return on average assets (f)	(0.42)		%	0.83		%	0.51		%	0.40		%
Return on average assets adjusted for non-core items (f)(h)	0.66		%	0.91		%	1.02		%	0.47		%
Average stockholders' equity to average assets	11.47		%	11.56		%	11.48		%	12.29		%
Average total loans to average deposits	77.17		%	87.44		%	79.48		%	86.15		%
Net interest margin (f)(i)	3.50		%	3.14		%	3.41		%	3.27		%
Efficiency ratio (j)	94.70		%	64.12		%	78.38		%	64.37		%
Efficiency ratio adjusted for non-core items (k)	63.93		%	61.81		%	64.32		%	62.44		%
Pre-provision net revenue to total average assets (l)	0.11		%	1.43		%	0.83		%	1.45		%
Dividend payout ratio (m)(n)	NM			66.31		%	NM			145.29		%
Total loans to deposits (e)	77.05		%	88.04		%	77.05		%	88.04		%
Total investment securities as percentage of total assets (e)	22.30		%	18.90		%	22.30		%	18.90		%
Asset Quality Ratios (a)
Nonperforming loans as a percent of total loans (e)(o)	0.92		%	0.84		%	0.92		%	0.84		%
Nonperforming assets as a percent of total assets (e)(o)	0.75		%	0.60		%	0.75		%	0.60		%
Nonperforming assets as a percent of total loans and OREO (e)(o)	1.17		%	0.85		%	1.17		%	0.85		%
Criticized loans as a percent of total loans (e)(p)	5.23		%	3.55		%	5.23		%	3.55		%
Classified loans as a percent of total loans (e)(q)	3.18		%	2.19		%	3.18		%	2.19		%
Allowance for credit losses as a percent of total loans (e)	1.72		%	1.67		%	1.72		%	1.67		%
Allowance for credit losses as a percent of nonperforming loans (e)(o)	186.93		%	198.72		%	186.93		%	198.72		%
Provision for credit losses as a percent of average total loans	1.01		%	0.55		%	0.28		%	1.40		%
Net charge-offs as a percentage of average total loans	0.18		%	0.08		%	0.13		%	0.04		%
Capital Information (a)(e)
Common equity tier 1 capital ratio (r)	12.30		%	12.83		%	12.30		%	12.83		%
Tier 1 risk-based capital ratio	12.58		%	13.07		%	12.58		%	13.07		%
Total risk-based capital ratio (tier 1 and tier 2)	13.83		%	14.33		%	13.83		%	14.33		%
Tier 1 leverage ratio	11.20		%	8.62		%	11.20		%	8.62		%
Common equity tier 1 capital	$	567,172		$	398.553		$	567,172		$	398.553
Tier 1 capital	580,100			406,124			580,100			406,124
Total capital (tier 1 and tier 2)	637,802			445,101			637,802			445,101
Total risk-weighted assets	$	4,611,321		$	3,106,817		$	4,611,321		$	3,106,817
Total stockholders' equity to total assets	11.78		%	11.54		%	11.78		%	11.54		%
Tangible equity to tangible assets (d)	7.93		%	8.07		%	7.93		%	8.07		%

(a)Reflects the impact of the acquisitions of Premium Finance on July 1, 2020, NSL beginning April 1, 2021, and of Premier beginning September 17, 2021.

(b)Total non-interest income excluding net gains and losses, is a Non-US GAAP financial measure since it excludes all gains and/or losses included in earnings. Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found under the caption "Efficiency Ratio (Non-US GAAP)."

(c)Net loss for the for the third quarter of 2021 included non-core non-interest expense totaling $18.4 million. Net income for the first nine months of 2021 included non-core non-interest expense totaling $23.8 million. Net income for the third quarter of 2020 and for the first nine months of 2020, included non-core non-interest expenses of $1.2 million and $3.0 million, respectively. Additional information regarding the non-core non-interest expense can be found under the caption "Core Non-Interest Expense (Non-US GAAP)."

(d)These amounts represent Non-US GAAP financial measures since they exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity and total assets. Additional information regarding the calculation of these Non-US GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.”

(e)Data presented as of the end of the period indicated.

(f)Ratios are presented on an annualized basis.

(g)Return on average tangible equity ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Return on Average Tangible Equity Ratio (Non-US GAAP).”

(h)Return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement

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charges and severance expenses included in earnings. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)."

(i)Information presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal rate of 21% for 2020.

(j)The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses). This amount represents a Non-US GAAP financial measure since it excludes amortization of other intangible assets, and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Efficiency Ratio (Non-US GAAP).”

(k)The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses. This amount represents a Non-US GAAP financial measure since it excludes the impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement charges and severance expenses included in earnings, and uses FTE net interest income. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Efficiency Ratio (Non-US GAAP).”

(l)Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Pre-Provision Net Revenue (Non-US GAAP).”

(m)The dividend payout ratio is calculated based on dividends declared during the period divided by net income, where applicable, for the period.

(n)NM = not meaningful.

(o)Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned.

(p)Includes loans categorized as special mention, substandard and doubtful.

(q)Includes loans categorized as substandard and doubtful.

(r)Peoples' capital conservation buffer was 5.83% at September 30, 2021 and 6.33% at September 30, 2020, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019.

Forward-Looking Statements

Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions.

These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:

(1)the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), the availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;

(2)changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other factors and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;

(3)the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and the recently-completed acquisition of NSL, and the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;

(4)competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;

(5)uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular

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the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;

(6)the effects of easing restrictions on participants in the financial services industry;

(7)local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;

(8)Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;

(9)changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated;

(10)Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;

(11)changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;

(12)the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;

(13)the discontinuation of the LIBOR and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(14)adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;

(15)the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;

(16)Peoples' ability to receive dividends from its subsidiaries;

(17)Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;

(18)the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;

(19)Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;

(20)Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;

(21)operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent;

(22)changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated;

(23)the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;

(24)the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence;

(25)the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;

(26)the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;

(27)risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;

(28)Peoples' ability to integrate the NSL acquisition and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

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(29)the risk that expected revenue synergies and cost savings from the merger of Peoples and Premier may not be fully realized or realized within the expected time frame;

(30)Peoples' continued ability to grow deposits;

(31)the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;

(32)uncertainty regarding the impact of changes to the U.S. presidential administration and Congress on the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates and the response to and management of the COVID-19 pandemic, infrastructure spending and social programs; and,

(33)other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.

This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 2020 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.

Business Overview

The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.

Peoples is a diversified financial services holding company that makes available a banking products, such as deposit accounts, lending products and trust services. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples also offers a complete array of insurance products, commercial leasing and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank also offers insurance premium finance lending nationwide through its Peoples Premium Finance division and, since April 1, 2021, offers lease financing through its North Star Leasing division. As of September 30, 2021, Peoples has 135 locations, including 119 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.

Critical Accounting Policies

The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant account policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at September 30, 2021, which are discussed in Peoples’ 2020 Form 10-K.

Summary of Recent Transactions and Events

The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:

◦On September 17, 2021, Peoples completed its merger with Premier Financial Bancorp, Inc. (“Premier”), in which Peoples acquired, in an all-stock merger, Premier, a bank holding company headquartered in Huntington, West Virginia, and the parent company of Premier Bank, Inc. (“Premier Bank”) and Citizens Deposit Bank and Trust, Inc. (“Citizens”). Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million. At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of

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Peoples Bank. Peoples acquired $1.1 billion in loans and $1.8 billion in deposits. Peoples preliminarily recorded $71.0 million in goodwill and $4.2 million in other intangible assets in connection with the Merger.

◦On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc., pursuant to an Asset Purchase Agreement between Peoples Insurance and Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000, with $162,500 paid at closing and the second installment in the amount of $162,500 to be paid on the first anniversary of the closing date, less any adjustments pursuant to adverse claims incurred or sustained by or imposed by Peoples Insurance. Peoples recorded preliminary customer relationship intangible assets of $230,000 and preliminary goodwill of $46,000, related to this transaction.

◦On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021 in which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus a potential earn-out payment to NSL of up to $3.1 million. Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million. As of September 30, 2021, equipment leases had grown to $111.4 million.

◦Peoples began originating loans during the second quarter of 2020 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of September 30, 2021, Peoples had $135.8 million aggregate principal amount in PPP loans outstanding (including $28.2 million acquired in the merger with Premier), which were included in commercial and industrial loan balances, compared to $187.6 million at June 30, 2021 and $366.9 million at December 31, 2020. Peoples recognized interest income of $3.1 million for deferred loan fees/cost accretion and $0.4 million of interest income on PPP loans during the third quarter of 2021, compared to $3.4 million and $0.7 million, respectively, for the second quarter of 2021 and $1.9 million and $1.2 million, respectively, for the third quarter of 2020. During the first nine months of 2021, Peoples recognized interest income of $11.2 million for deferred loan fees/cost accretion and $2.0 million of interest income on PPP loans compared to $3.8 million for deferred loan fees/costs accretion and $2.1 million of interest income during the first nine months of 2020.

◦Peoples provided relief solutions to consumer and commercial borrowers, including forbearance and modifications, during the COVID-19 pandemic. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."

◦On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares. This program replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of Peoples' outstanding common shares, which Peoples' Board of Directors had authorized on February 27, 2020 and which was terminated on January 28, 2021. There were no common share repurchases during the first nine months of 2021, under the existing share repurchase program. On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. This program had replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares, which Peoples' Board of Directors had approved on November 3, 2015 and which was terminated on February 27, 2020. During the third quarter of 2020, Peoples repurchased 235,684 of Peoples' common shares through Peoples' then-effective common share repurchase program for a total of $5.0 million. For the first nine months of 2020, Peoples repurchased 1,119,752 in common shares for a total of $25.0 million.

◦During the third quarter of 2021, Peoples recorded a provision for credit losses of $9.0 million, compared to a provision for credit losses of $3.1 million in the linked quarter and a provision for credit losses of $4.7 million in the third quarter of 2020. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. The change in the amount of the provision for credit losses compared to the third quarter of 2020 was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to

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COVID-19, coupled with the day-one allowances for credit losses required in connection with the acquisitions of loans from Premier in the third quarter of 2021.

◦For the third quarter of 2021, Peoples recorded $181,000 of expenses related to the COVID-19 pandemic, compared to $210,000 for the second quarter of 2021 and $148,000 for the third quarter of 2020. These expenses were primarily related to providing Peoples' employees meals in support of local businesses and assisting employees with childcare and elder care needs, as well as taking extra precautions in cleaning facilities.

◦During the third quarter of 2021, Peoples incurred $16.2 million of acquisition-related expenses, compared to $2.4 million in the second quarter of 2021 and $335,000 in the third quarter of 2020. Acquisition-related expenses for the nine months ended September 30, 2021 were $20.5 million, compared to $412,000 for the same period last year. The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier acquisition. The acquisition-related expenses in 2020 were primarily related to the Triumph Premium Finance acquisition.

◦Peoples incurred $0.1 million in pension settlement charges for the third quarter of 2021 compared to $0.5 million for the third quarter of 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the relevant period. Peoples recorded $0.1 million of pension settlement charges for the nine months ended September 30, 2021 and $1.1 million for the nine months ended September 30, 2020.

◦Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as "Premium Finance acquisition"), a division of TBK Bank, SSB. Based in Kansas City, Missouri, the division operating as Peoples Premium Finance continues to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide. Peoples Bank acquired $84.7 million in loans, at the acquisition date, after fair value adjustments. Peoples also recorded $4.3 million of other intangible assets and $5.5 million of goodwill related to the acquisition. As of September 30, 2021, Peoples premium finance loans had grown to $134.8 million.

◦In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020, then lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020. The Federal Funds Target Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of September 30, 2021.

The impact of these transactions and events, where material, is discussed in the applicable sections of this MD&A.

EXECUTIVE SUMMARY

Peoples recorded a net loss of $5.8 million for the third quarter of 2021, or $0.28 per diluted common share, compared to net income of $10.1 million, or $0.51 per diluted common share, for the second quarter of 2021, and net income of $10.2 million, or $0.51 per diluted share, for the third quarter of 2020. Non-core items, and the related tax effect of each, in net (loss) income included acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses, and gains and losses on investment securities, asset disposals and other transactions. Non-core items negatively impacted earnings per diluted common share by $0.71 for the third quarter of 2021, $0.10 for the second quarter of 2021, and by $0.05 for the third quarter of 2020. Net income in the third quarter of 2021 was largely affected by the acquisition of Premier.

For the first nine months of 2021, net income was $19.8 million, or $0.99 per diluted common share, compared to net income of $14.2 million, or $0.70 per diluted common share, for the nine months ended September 30, 2020. The increase in earnings was impacted primarily by the change in provision for credit losses in 2021 as compared to 2020. Non-core items negatively impacted earnings per diluted common share by $0.98 and $0.12 for the nine months ended September 30, 2021 and 2020, respectively.

Net interest income was $42.6 million for the third quarter of 2021, up 7% compared to $39.7 million for the second quarter of 2021, and an increase of 21% compared to $35.1 million for the third quarter of 2020. Net interest margin was 3.50% for the third quarter of 2021, compared to 3.45% for the second quarter of 2021, and 3.14% for the third quarter of 2020. Compared to the linked quarter and third quarter of 2020, net interest income and margin were improved due to the growth in leases and premium finance loans, coupled with the partial period impact of the Premier acquisition and lower cost of funds. Net interest income and margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves. Net interest income and net interest margin continue to be impacted by the low interest rate environment caused by COVID-19 that continued throughout the third quarter of 2021. For the first nine months of 2021, net interest income increased $13.2 million, or 13%, compared to the first nine months of 2020, while net interest margin increased 14 basis points to 3.41%. The change in net interest income was the result of lower funding costs due to a shift from higher cost overnight FHLB advances to lower cost brokered deposits, as well as a higher volume of loans and leases due to the Premier, NSL and Premium Finance acquisitions.

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Accretion income, net of amortization expense, from acquisitions was $1.0 million for the third quarter of 2021, $0.8 million for the second quarter of 2021, and $0.5 million for the third quarter of 2020, which added 8 basis points, 7 basis points, and 5 basis points, respectively, to net interest margin. Accretion income, net of amortization expense, from acquisitions was $2.2 million for the nine months ended September 30, 2021, compared to $2.6 million for the nine months ended September 30, 2020, which added 6 and 8 basis points, respectively, to net interest margin.

During the third quarter of 2021, Peoples recorded a provision for credit losses of $9.0 million, compared to a provision for credit losses of $3.1 million for the second quarter of 2021 and a provision for credit losses of $4.7 million for the third quarter of 2020. Net charge-offs for the third quarter of 2021 were $1.6 million, or 0.18% of average total loans annualized, compared to net charge-offs of $0.8 million, or 0.09% of average total loans annualized, for the linked quarter and net charge-offs of $0.7 million, or 0.08% of average total loans annualized, for the third quarter of 2020. Net charge-offs for the third quarter of 2021 included one commercial and industrial loan aggregating $0.5 million. Net charge-offs for the second quarter of 2021 included $0.4 million in leases. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, offset by the day-one allowances for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.

The provision for credit losses during the first nine months of 2021 was $7.3 million, compared to a provision for credit losses of $33.5 million for the first nine months of 2020. Net charge-offs for the first nine months of 2021 were $3.4 million, or 0.13% of average total loans annualized, compared to net charge-offs of $0.9 million, or 0.04% annualized, for the first nine months of 2020. The change in the provision for credit losses compared to the first nine months of 2020 was primarily due to improved economic factors and updated loss drivers and their impact on assumptions used in the CECL model throughout the first nine months of 2021.

For the third quarter of 2021, total non-interest income increased $0.5 million, or 3%, compared to the second quarter of 2021 and decreased $0.4 million, or 3%, from the third quarter of 2020. The rise in non-interest income compared to the linked quarter was the result of an increase in overdraft fees included in deposit account service charges of $0.5 million and a $0.2 million increase in income recognized on leases related to the early termination of leases and other fees, offset partially by declines in trust and investment income, electronic banking income and mortgage banking income. Net losses of $0.5 million realized during the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sales of securities during the third quarter of 2021, compared to net losses of $0.3 million for the linked quarter, and net gains of $26,000 for the third quarter of 2020.

For the nine months ended September 30, 2021, total non-interest income increased $1.9 million compared to the nine months ended September 30, 2020. The increase was driven by higher trust and investment income, associated with new accounts and increased market values of assets under administration and management, coupled with higher electronic banking income and $716,000 of non-interest income contributed by the leasing business.

Total non-interest expense increased $18.0 million, or 45%, for the third quarter of 2021 compared to the second quarter of 2021, and $23.5 million, or 69%, compared to the third quarter of 2020. The increase in total non-interest expense for the third quarter of 2021 compared to the linked quarter was primarily due to the recognition of $16.5 million of acquisition-related expenses due to the closing of the Premier acquisition during the quarter. Total non-interest expense in the third quarter of 2021 also contained other non-core expenses such as a one-time expense related to contract renewal negotiations of Peoples Bank's core banking systems of $1.9 million, and $0.2 million in COVID-19-related expenses. During the second quarter of 2021, non-core expenses included acquisition-related expenses of $2.4 million and $0.2 million in COVID-19-related expenses. For the third quarter of 2020, non-core expenses included $531,000 of pension settlement charges, $335,000 of acquisition-related expenses, $192,000 of severance expenses and $148,000 of COVID-19-related expenses. Compared to the third quarter of 2020, the increase in total non-interest expense was primarily due to an increase in acquisition-related expenses of $16.2 million, an increase in salaries and employee benefit costs of $6.2 million and an increase in amortization of intangible assets of $0.4 million. The increases in salaries and employee benefit costs and amortization of intangible assets were primarily the result of the acquisitions of Premier and NSL.

For the first nine months of 2021, total non-interest expense increased $35.3 million compared to the same period last year. The variance was driven primarily by increases of $20.5 million in acquisition-related expenses. The remainder of the increase was largely due to a $7.2 million rise in salaries and employee benefit costs, which was driven by the added ongoing costs of the recent acquisitions, along with higher sales and incentive compensation from increased production, growth in medical insurance and 401(k) costs, while data processing and software costs also increased $2.1 million. These changes were partially offset by decreases in pension settlement charges and COVID-19-related expenses. Similar to the quarterly comparisons, the acquisitions of Premier, NSL and Premium Finance increased salaries and employee benefit costs, as well as amortization of intangible assets.

Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, for the third quarter of 2021 was 94.7%, compared to 68.6% for the second quarter of 2021, and 64.1% for the third quarter of 2020. The change in the efficiency ratio compared to the linked quarter was primarily due to the acquisition-related expenses mentioned above. The efficiency ratio, when adjusted for non-core items, was 63.9% for the third quarter of 2021, compared to 64.0% for the second quarter of 2021 and 61.8% for the third quarter of 2020. The efficiency ratio for the nine months ended September 30, 2021 was 78.4% compared to 64.4% for the nine months ended September 30, 2020. When adjusted for non-core items, the efficiency ratio was 64.3% for the first nine months of

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2021 compared to 62.4% for the first nine months of 2020. Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.

Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and $2.6 million for the third quarter of 2020. The income tax benefit for the third quarter of 2021, compared to the income tax expense for the linked quarter, was due to the net loss recognized in the third quarter of 2021. The increase in income tax expense for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was due to higher pre-tax income.

At September 30, 2021, total assets were $7.06 billion, compared to $5.07 billion at June 30, 2021 and $4.76 billion at December 31, 2020. Total assets grew 39% compared to June 30, 2021, and was largely attributable to the Premier acquisition, which added $1.1 billion in loans, $563.3 million in investment securities, and the recognition of goodwill on the transaction of $71.0 million. The 48% increase compared to December 31, 2020 was also driven by the Premier acquisition, along with the $83.3 million of leases acquired from NSL, subsequent growth in leases of $28.1 million, and organic loan growth of $88.2 million, offset partially by $474.2 million in forgiveness received on PPP loans during the nine months ended September 30, 2021. The allowance for credit losses at September 30, 2021 increased to $77.4 million, or 1.72% of total loans, compared to $50.4 million and 1.48%, respectively, at December 31, 2020. Total assets increased $2.0 billion, or 39%, compared to the linked quarter. The increase was a result of the Premier acquisition.

Total liabilities were $6.23 billion at September 30, 2021, up from $4.48 billion at June 30, 2021 and $4.19 billion at December 31, 2020. The increase in total liabilities compared to June 30, 2021 was primarily due to deposits acquired from Premier of $1.8 billion, as well as retail repurchase agreements of $63.8 million. Also contributing to the increase compared to December 31, 2020 was higher total deposits associated with customers maintaining higher balances due primarily to economic stimulus payments provided by the government, as well as changes in customer buying habits.

At September 30, 2021, total stockholders' equity was $831.9 million, an increase of $256.2 million compared to December 31, 2020. The increase in total stockholders' equity was driven by common shares issued for the acquisition of Premier and net income for the first nine months of 2021, offset by $21.0 million in dividends paid to shareholders and the change in accumulated other comprehensive income to an accumulated other comprehensive loss of $7.2 million.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.

Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020.

The following table details the calculation of FTE net interest income:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Net interest income	$	42,578	$	39,660	$	35,119	$	117,816	$	104,615
Taxable equivalent adjustment	351		324		262		970		803
Fully tax-equivalent net interest income	$	42,929	$	39,984	$	35,381	$	118,786	$	105,418

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The following tables detail Peoples’ average balance sheets for the periods presented:


	For the Three Months Ended
	September 30, 2021						June 30, 2021						September 30, 2020
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost
Short-term investments	$	199,007	$	82	0.16	%	$	180,730	$	53	0.12	%	$	97,430	$	33	0.13	%

Investment securities (a)(b):
Taxable	979,278		3,799		1.55	%	883,948		3,217		1.45	%	851,092		2,832		1.33	%
Nontaxable	173,459		1,136		2.62	%	168,015		1,095		2.61	%	101,403		778		3.07	%
Total investment securities	1,152,737		4,935		1.71	%	1,051,963		4,312		1.64	%	952,495		3,610		1.52	%
Loans (b)(c):
Construction	125,178		1,196		3.74	%	87,075		979		4.45	%	105,488		1,179		4.37	%
Commercial real estate, other	993,259		9,507		3.75	%	916,604		8,829		3.81	%	857,830		8,854		4.04	%
Commercial and industrial	789,555		8,933		4.43	%	887,756		9,241		4.12	%	1,047,105		8,145		3.04	%
Premium finance	122,828		1,542		4.91	%	108,387		1,298		4.74	%	92,533		1,871		7.91	%
Leases	97,068		4,810		19.39	%	86,519		4,215		19.27	%	—		—		—	%
Residential real estate (d)	652,184		6,648		4.08	%	607,691		6,429		4.23	%	661,694		7,870		4.76	%
Home equity lines of credit	126,888		1,271		3.97	%	119,354		1,180		3.97	%	125,351		1,278		4.06	%
Consumer, indirect	541,329		5,509		4.04	%	529,180		5,313		4.03	%	477,962		5,103		4.25	%
Consumer, direct	86,935		1,385		6.32	%	80,409		1,272		6.35	%	82,139		1,332		6.45	%
Total loans	3,535,224		40,801		4.55	%	3,422,975		38,756		4.50	%	3,450,102		35,632		4.08	%
Allowance for credit losses	(51,610)						(46,967)						(56,519)
Net loans	3,483,614		40,801		4.61	%	3,376,008		38,756		4.56	%	3,393,583		35,632		4.14	%
Total earning assets	4,835,358		45,818		3.74	%	4,608,701		43,121		3.72	%	4,443,508		39,275		3.49	%
Goodwill and other intangible assets	232,361						222,553						185,816
Other assets	407,428						351,892						277,290
Total assets	$	5,475,147					$	5,183,146					$	4,906,614
Interest-bearing deposits:
Savings accounts	$	737,771	$	23	0.01	%	$	680,825	$	21	0.01	%	$	589,100	$	34	0.02	%
Governmental deposit accounts	542,855		458		0.33	%	496,906		551		0.44	%	398,653		511		0.51	%
Interest-bearing demand accounts	795,565		74		0.04	%	733,913		66		0.04	%	671,987		66		0.04	%
Money market accounts	533,497		67		0.05	%	564,593		94		0.07	%	589,078		216		0.15	%
Retail certificates of deposit (e)	457,073		951		0.83	%	424,279		980		0.93	%	467,431		1,524		1.30	%
Brokered deposits (e)	155,779		826		2.10	%	167,109		865		2.08	%	258,875		318		0.49	%
Total interest-bearing deposits	3,222,540		2,399		0.30	%	3,067,625		2,577		0.34	%	2,975,124		2,669		0.36	%
Borrowed funds:
Short-term FHLB advances	17,174		78		1.80	%	19,176		81		1.69	%	137,174		732		2.12	%
Repurchase agreements and other	63,226		13		0.08	%	50,852		11		0.09	%	43,184		10		0.09	%
Total short-term borrowings	80,400		91		0.45	%	70,028		92		0.53	%	180,358		742		1.64	%
Long-term FHLB advances	86,561		316		1.45	%	101,161		392		1.55	%	103,906		402		1.54	%

Other borrowings	8,470		83		3.92	%	7,669		76		3.96	%	7,551		81		4.29	%
Total long-term borrowings	95,031		399		1.67	%	108,830		468		1.72	%	111,457		483		1.73	%
Total borrowed funds	175,431		490		1.11	%	178,858		560		1.26	%	291,815		1,225		1.67	%
Total interest-bearing liabilities	3,397,971		2,889		0.34	%	3,246,483		3,137		0.39	%	3,266,939		3,894		0.47	%
Non-interest-bearing deposits	1,358,652						1,272,623						970,353
Other liabilities	90,741						82,209						102,267
Total liabilities	4,847,364						4,601,315						4,339,559


Total stockholders’ equity	627,783						581,831						567,055
Total liabilities and stockholders’ equity	$	5,475,147					$	5,183,146					$	4,906,614
Interest rate spread (b)			$	42,929	3.40	%			$	39,984	3.33	%			$	35,381	3.02	%
Net interest margin (b)					3.50	%					3.45	%					3.14	%

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	For the Nine Months Ended
	September 30, 2021						September 30, 2020
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost
Short-term investments	$	175,755	$	175	0.13	%	$	111,852	$	317	0.38	%

Investment securities (a)(b):
Taxable	899,531		9,636		1.43	%	894,008		12,448		1.86	%
Nontaxable	149,636		3,035		2.70	%	103,827		2,409		3.09	%
Total investment securities	1,049,167		12,671		1.61	%	997,835		14,857		1.99	%
Loans (b)(c):
Construction	108,859		3,169		3.84	%	108,426		3,656		4.43	%
Commercial real estate, other	930,150		26,938		3.82	%	848,202		27,784		4.30	%
Commercial and industrial	872,421		28,773		4.35	%	892,483		24,411		3.59	%
Premium finance	112,925		4,137		4.83	%	31,069		1,871		7.91	%
Leases	61,551		9,025		19.34	%	—		—		—	%
Residential real estate (d)	624,993		19,749		4.21	%	669,852		24,498		4.88	%
Home equity lines of credit	122,720		3,638		3.96	%	128,540		4,546		4.72	%
Consumer, indirect	526,900		16,025		4.07	%	438,784		14,066		4.28	%
Consumer, direct	82,151		3,896		6.34	%	78,904		3,978		6.73	%
Total loans	3,442,670		115,350		4.44	%	3,196,260		104,810		4.34	%
Allowance for credit losses	(49,483)						(44,323)
Net loans	3,393,187		115,350		4.50	%	3,151,937		104,810		4.40	%
Total earning assets	4,618,109		128,196		3.68	%	4,261,624		119,984		3.73	%
Goodwill and other intangible assets	213,232						180,291
Other assets	360,842						264,238
Total assets	$	5,192,183					$	4,706,153
Interest-bearing deposits:
Savings accounts	$	688,782	$	79	0.02	%	$	558,514	$	140	0.03	%
Governmental deposit accounts	490,170		1,602		0.44	%	366,139		1,671		0.61	%
Interest-bearing demand accounts	743,562		205		0.04	%	652,198		385		0.08	%
Money market accounts	554,194		294		0.07	%	547,291		1,271		0.31	%
Retail certificates of deposit (e)	440,454		3,054		0.93	%	479,185		5,453		1.52	%
Brokered deposits (e)	166,000		2,559		2.06	%	214,516		1,662		1.03	%
Total interest-bearing deposits	3,083,162		7,793		0.34	%	2,817,843		10,582		0.50	%
Borrowed funds:
Short-term FHLB advances	18,773		246		1.75	%	160,287		2,285		1.90	%
Repurchase agreements and other	55,100		37		0.09	%	45,613		70		0.26	%
Total short-term borrowings	73,873		283		0.51	%	205,900		2,355		1.54	%
Long-term FHLB advances	96,765		1,099		1.52	%	109,536		1,341		1.64	%

Repurchase agreement and other borrowings	7,926		235		3.95	%	9,148		288		5.40	%
Total long-term borrowings	104,691		1,334		1.70	%	118,684		1,629		1.93	%
Total borrowed funds	178,564		1,617		1.21	%	324,584		3,984		1.64	%
Total interest-bearing liabilities	3,261,726		9,410		0.39	%	3,142,427		14,566		0.62	%
Non-interest-bearing deposits	1,248,330						892,301
Other liabilities	86,209						92,986
Total liabilities	4,596,265						4,127,714


Stockholders’ equity	595,918						578,439
Total liabilities and stockholders’ equity	$	5,192,183					$	4,706,153
Interest rate spread (b)			$	118,786	3.29	%			$	105,418	3.11	%
Net interest margin (b)					3.41	%					3.27	%

(a)Average balances are based on carrying value.

(b)Interest income and yields are presented on a fully tax-equivalent basis, a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020.

(c)Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented.

(d)Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.

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(e)Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered deposits for the periods presented in which FHLB advances and brokered deposits were being utilized.

Peoples completed the acquisition of Premier on September 17, 2021, which impacted average total loan and deposit balances for the partial period in which the balances were included for the third quarter of 2021. Compared to the third quarter of 2020, average total loans grew mostly due to the leases acquired. Compared to the third quarter of 2020, average total deposit balances grew significantly due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers.

In addition, average total loan balances for the first nine months of 2021 were higher than the prior year period due to the lease, Premium Finance and Premier balances acquired, coupled with the PPP loans originated since the start of the pandemic and loan growth. The average total deposit balances compared to 2020 grew considerably due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers, while the Premier acquired balances had a minimal impact on the period.

The following table provides an analysis of the changes in FTE net interest income:




	Three Months Ended September 30, 2021 Compared to												Nine Months Ended September 30, 2021 Compared to
(Dollars in thousands)	June 30, 2021						September 30, 2020						September 30, 2020
Increase (decrease) in:	Rate		Volume		Total (a)		Rate		Volume		Total (a)		Rate		Volume		Total (a)
INTEREST INCOME:
Short-term investments	$	22	$	7	$	29	$	9	$	41	$	50	$	(314)	$	172	$	(142)

Investment Securities (b):
Taxable	224		358		582		506		461		967		(2,939)		127		(2,812)
Nontaxable	4		37		41		(695)		1,053		358		(489)		1,115		626
Total investment income	228		395		623		(189)		1,514		1,325		(3,428)		1,242		(2,186)
Loans (b):
Construction	(848)		1,065		217		(746)		763		17		(510)		23		(487)
Commercial real estate, other	(883)		1,561		678		(3,242)		3,895		653		(4,252)		3,406		(846)
Commercial and industrial	3,146		(3,454)		(308)		10,684		(9,896)		788		5,242		(880)		4,362
Premium finance	52		192		244		(2,749)		2,420		(329)		(1,379)		3,645		2,266
Leases	28		567		595		—		4,810		4,810		—		9,025		9,025
Residential real estate	(1,179)		1,398		219		(1,110)		(112)		(1,222)		(3,182)		(1,567)		(4,749)
Home equity lines of credit	3		88		91		(84)		77		(7)		(709)		(199)		(908)
Consumer, indirect	20		176		196		(1,347)		1,753		406		(1,121)		3,080		1,959
Consumer, direct	(33)		146		113		(176)		229		53		(320)		238		(82)
Total loan income	306		1,739		2,045		1,230		3,939		5,169		(6,231)		16,771		10,540
Total interest income	$	556	$	2,141	$	2,697	$	1,050	$	5,494	$	6,544	$	(9,973)	$	18,185	$	8,212
INTEREST EXPENSE:
Deposits:
Savings accounts	$	—	$	2	$	2	$	(51)	$	40	$	(11)	$	(104)	$	43	$	(61)
Governmental deposit accounts	(365)		272		(93)		(742)		689		(53)		(720)		651		(69)
Interest-bearing demand accounts	2		6		8		(21)		29		8		(257)		77		(180)
Money market accounts	(22)		(5)		(27)		(131)		(17)		(148)		(1,002)		48		(954)
Retail certificates of deposit	(372)		343		(29)		(540)		(33)		(573)		(1,987)		(412)		(2,399)
Brokered deposits	71		(110)		(39)		1,351		(844)		507		1,548		(674)		874
Total deposit cost	(686)		508		(178)		(134)		(136)		(270)		(2,522)		(267)		(2,789)
Borrowed funds:
Short-term borrowings	22		(23)		(1)		(102)		(549)		(651)		(221)		(1,851)		(2,072)
Long-term borrowings	(30)		(39)		(69)		(55)		(29)		(84)		(109)		(186)		(295)
Total borrowed funds cost	(8)		(62)		(70)		(157)		(578)		(735)		(330)		(2,037)		(2,367)
Total interest expense	(694)		446		(248)		(291)		(714)		(1,005)		(2,852)		(2,304)		(5,156)
Fully tax-equivalent net interest income	$	1,250	$	1,695	$	2,945	$	1,341	$	6,208	$	7,549	$	(7,121)	$	20,489	$	13,368

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(a)The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the dollar amounts of the change in each.

(b)Interest income and yields are presented on a fully tax-equivalent basis a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020.

Net interest income grew 7% compared to the linked quarter, benefiting from the Premier acquisition, growth in leases and Premium Finance balances, and the overall growth in interest-earning assets, coupled with lower deposit costs. Net interest income and net interest margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves. Peoples recognized interest income on deferred loan fees/costs of $3.1 million and $3.4 million during the third and second quarters of 2021, respectively, along with $0.4 million and $0.7 million of interest earned on PPP loans during the third and second quarters of 2021, respectively. Net interest margin grew five basis points to 3.50% for the third quarter of 2021 compared to 3.45% for the linked quarter. The increase in net interest margin was driven by the PPP income, which benefited net interest margin by 18 basis points for the third quarter of 2021 compared to 15 basis points for the second quarter of 2021, while excess liquidity resulted in inflated cash balances which reduced net interest margin by 13 basis points compared to 12 basis points for the linked quarter.

Compared to the third quarter of 2020, net interest income increased 21%, which was due to the acquired leases, premium finance loans and additional PPP income from the deferred loan fees recognized, as well as controlled funding costs. Net interest margin expanded 36 basis points compared to 3.14% for the third quarter of 2020. The lease portfolio added $4.8 million to net interest income, and 28 basis points to net interest margin, for the third quarter of 2021. In late March of 2020, the Federal Reserve lowered the Federal Funds effective target range 150 basis points to 0.00% to 0.25%. The majority of Peoples' variable rate loan portfolio is tied to LIBOR or a prime rate, which continued to be lower than historical levels.

For the first nine months of 2021, net interest income grew 13%, and was driven by the addition of the lease and premium finance portfolios, along with PPP income, coupled with lower funding costs. Compared to the first nine months of 2020, net interest margin grew by 14 basis points and was driven by the 20 basis point addition of the leasing portfolio, while the PPP income contributed 20 basis points during 2021 compared to 6 basis points for 2020.

Accretion income, net of amortization expense, from acquisitions was $1.0 million for the third quarter of 2021, $0.8 million for the linked quarter and $0.5 million for the third quarter of 2020, which added 8 basis points, 7 basis points and 5 basis points, respectively, to net interest margin. For the first nine months of 2021, accretion income, net of amortization expense, from acquisitions totaled $2.2 million, and added 6 basis points to net interest margin, compared to $2.6 million, and 8 basis points for 2020.

Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this MD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."

Provision for Credit Losses

The following table details Peoples’ provision for credit losses:


	Three Months Ended									Nine Months Ended
	September 30, 2021			June 30, 2021			September 30, 2020			September 30,
(Dollars in thousands)										2021			2020
Provision for other credit losses	$	8,870		$	3,035		$	4,574		$	7,125		$	33,171
Provision for checking account overdraft credit losses	124			53			154			208			360
Provision for credit losses	$	8,994		$	3,088		$	4,728		$	7,333		$	33,531
As a percentage of average total loans (a)	1.01		%	0.36		%	0.55		%	0.28		%	1.40		%
(a) Presented on an annualized basis.

The provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. Excluding the day-one allowance for credit losses related to loans acquired from Premier, the release of allowance for credit losses was based on changes in economic factors and loss drivers used in the CECL model. Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, coupled with the day-one allowance for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.

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Compared to the first nine months of 2020, the provision for credit losses declined significantly, as the economic forecasts utilized within the CECL model experienced notable recovery compared to those utilized during 2020, which had been impacted by the onset of the COVID-19 pandemic.

Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this MD&A under the caption “FINANCIAL CONDITION - Allowance for Credit Losses.”

Net (Loss) Gain Included in Total Non-Interest Income

Net (loss) gain include gains and losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses for the periods presented:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Net (loss) gain on investment securities	$	(166)	$	(202)	$	2	$	(704)	$	383

Net (loss) gain on asset disposals and other transactions:
Net loss on other assets	$	(270)	$	(132)	$	(43)	$	(429)	$	(258)
Net (loss) gain on OREO	(32)		8		15		(24)		(1)

Net (loss) gain on other transactions	(6)		—		—		(6)		22
Net loss on asset disposals and other transactions	$	(308)	$	(124)	$	(28)	$	(459)	$	(237)

Net losses for the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sale of investment securities during the third quarter of 2021. During the third quarter of 2021, Peoples sold a portion of its available-for-sale investment securities and reinvested the proceeds into higher-yielding investments.

For the first nine months of 2021, a net loss on investment securities was recorded due to the sale of investment securities in order to reinvest proceeds into higher-yielding investment securities. During the second quarter of 2021, net loss on other assets was due to a market value write-down of $208,000 related to a closed office that was held for sale. The first nine months of 2021 included a net loss on other assets related to the write-down of a closed office in the second quarter of 2021 and the disposal of fixed assets acquired from Premier. The first nine months of 2020 included a net gain on investment securities that was recorded in connection with sales of investment securities. For the first nine months of 2020, net loss on other assets was driven by losses on repossessed assets.

Total Non-Interest Income, Excluding Net Gains and Losses

Total non-interest income, excluding net gains and losses, accounted for 28% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the three months ended September 30, 2021 compared to 29% for the linked quarter and 32% for the third quarter of 2020. The recent decline in this ratio was driven by an increase in net interest income due to the acquisition of leases acquired from NSL.

For the third quarter of 2021, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients. The following table details Peoples' e-banking income:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020


E-banking income	$	4,326	$	4,418	$	3,765	$	12,655	$	10,568

Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. The decreases in e-banking income compared to each of the linked quarter and the prior year quarter were driven by the increased usage of debit cards by customers, resulting from the COVID-19 pandemic. The increased usage has continued through the first nine months of 2021, resulting in higher e-banking income compared to the same period in 2020.

Peoples' fiduciary income and brokerage income continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement

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plan services business. The following tables detail Peoples’ trust and investment income and related assets under administration and management:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Fiduciary income	$	1,944	$	2,095	$	1,710	$	5,941	$	5,112
Brokerage income	1,577		1,494		1,165		4,408		3,324
Employee benefit fees	637		631		560		1,874		1,577
Trust and investment income	$	4,158	$	4,220	$	3,435	$	12,223	$	10,013

Fiduciary income and brokerage income are mostly driven by the values of assets under administration and management, which have increased in recent periods as the market values of existing accounts have been positively impacted and grown, coupled with new accounts added compared to prior periods. Employee benefit fees continue to increase compared to prior periods as Peoples focuses on growing the number of employee benefit plans it manages.

The following table details Peoples' assets under administration and management:


	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020

Trust	$	1,937,123	$	1,963,884	$	1,916,892	$	1,885,324	$	1,609,270
Brokerage	1,133,668		1,119,247		1,071,126		1,009,521		921,688
Total	$	3,070,791	$	3,083,131	$	2,988,018	$	2,894,845	$	2,530,958
Quarterly average	$	3,105,476	$	3,051,027	$	2,927,458	$	2,663.485	$	2,510,978

The slight decline in assets under administration and management at September 30, 2021, compared to each prior period end, was largely driven by the decrease in market values late in the third quarter of 2021, while the quarterly average increased compared to prior quarters.

The following table details Peoples' insurance income:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020


Property and casualty insurance commissions	$	2,836	$	2,765	$	2,528	$	8,356	$	7,624


Life and health insurance commissions	396		430		965		1,248		1,494
Performance-based commissions	59		35		8		2,044		1,437
Other fees and charges	76		105		107		275		374
Insurance income	$	3,367	$	3,335	$	3,608	$	11,923	$	10,929

For the third quarter of 2021, insurance income was relatively flat compared to the linked quarter. Compared to the third quarter of 2020, insurance income declined 7%, driven by decreases in life and health insurance commissions, offset partially by an increase in property and casualty insurance commissions. For the first nine months of 2021, insurance income increased $1.0 million, or 9%. This increase was driven by higher property and casualty, and performance-based commissions. Annually Peoples receives performance-based income commissions that are related to how much loss is incurred by underlying policies and the overall performance of the insurance carriers. The insurance income compared to prior periods was positively impacted by the addition of new customers.

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Deposit account service charges are based on the recovery of costs associated with services provided. The following table details Peoples' deposit account service charges:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Overdraft and non-sufficient funds fees	$	1,420	$	1,012	$	1,216	$	3,429	$	3,741
Account maintenance fees	934		854		848		2,598		2,677
Other fees and charges	195		178		202		551		577
Deposit account service charges	$	2,549	$	2,044	$	2,266	$	6,578	$	6,995

The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges for the third quarter of 2021 grew compared to the linked quarter and the third quarter of 2020 due largely to an increase in volume of overdraft and non-sufficient fees charged due to customer activity. Deposit account service charges were negatively impacted during the second quarter of 2021 and the third quarter of 2020, mostly due to fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic. For the first nine months of 2021, compared to the same period of 2020, deposit account service charges declined and were impacted by the COVID-19 pandemic items already mentioned.

The following table details the other items included within Peoples' total non-interest income:


	Three Months Ended			Nine Months Ended
	September 30, 2021	June 30, 2021	September 30, 2020	September 30,
(Dollars in thousands)				2021	2020

Mortgage banking income	766	820	2,658	2,726	4,346
Bank owned life insurance income	437	446	462	1,329	1,514
Commercial loan swap fees	73	61	68	194	1,267
Other non-interest income	1,144	803	534	2,605	1,393

Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage banking income declined during the third quarter of 2021, compared to the linked quarter and the prior year quarter as refinancing activity slowed and a lower volume of new loan originations due to the lack of inventory of homes for sale. Compared to the first nine months of 2020, mortgage banking income declined 37%, because of lower origination volume caused by a lower inventory of homes for sale and less refinancing activity because of an increase in interest rates above historically low levels experienced as a result of the COVID-19 pandemic.

In the third quarter of 2021, Peoples recognized a gain of $0.4 million on the sale of $11.0 million in loans to the secondary market with servicing retained and $0.2 million on the sale of $10.3 million in loans with servicing released. In the second quarter of 2021, Peoples recognized a gain of $0.6 million on the sale of $15.8 million in loans with servicing retained and $185,000 on the sale of $7.8 million in loans with servicing released. In the third quarter of 2020 Peoples recognized a gain of $1.6 million on the sale of $35.2 million in loans sold servicing retained and a gain of $1.0 million on $68.2 million in loans sold servicing released. For the first nine months of 2021, Peoples recognized a gain of $1.8 million on the sale of $44.0 million in loans to the secondary market with servicing retained and a gain of $0.6 million on the sale of $27.7 million in loans with servicing released. For the first nine months of 2020, Peoples recognized a gain of $2.5 million on the sale of $78.6 million in loans sold servicing retained and a gain of $1.8 million on the sale of $124.2 million in loans sold servicing released. The volume of sales has a direct impact on the amount of mortgage banking income.

Bank owned life insurance income was down compared to the linked quarter and the third quarter of 2020. For the first nine months of 2021, bank owned life insurance declined 12%, primarily due to a $109,000 tax-free death benefit recognized during the first quarter of 2020.

Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. Commercial loan swap fees were up slightly compared to the linked quarter and the third quarter of 2020. Compared to the first nine months of 2020, commercial loan swap fees declined due to a lower volume of transactions during 2021 compared to the high volume of transactions entered into during the first nine months of 2020.

Other non-interest income increased compared to the linked quarter and the third quarter of 2020 and was driven by other fee income of $0.5 million recognized on leases related to the early termination of leases and other fees in the third quarter of 2021

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compared to $0.2 million recognized in the second quarter of 2021. There was no income related to the early termination of leases in the third quarter of 2020, as NSL was not acquired until the second quarter of 2021. For the nine months ended September 30, 2021, other non-interest income was higher due to the recognition of $0.6 million related to fees received for the early termination of leases and lease syndications.

Non-Interest Expense

Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Base salaries and wages	$	17,493	$	13,488	$	13,019	$	43,746	$	38,489
Sales-based and incentive compensation	4,013		4,593		3,493		12,034		9,320
Employee benefits	2,619		2,821		1,930		8,338		6,471
Payroll taxes and other employment costs	1,635		1,343		1,148		4,471		3,584
Stock-based compensation	618		604		632		2,437		2,985
Deferred personnel costs	(789)		(921)		(812)		(2,750)		(3,536)
Salaries and employee benefit costs	$	25,589	$	21,928	$	19,410	$	68,276	$	57,313
Full-time equivalent employees:
Actual at end of period	1,181		925		886		1,181		886
Average during the period	990		914		890		942		893

Base salaries and wages increased 30% compared to the linked quarter and increased 34% compared to the third quarter of 2020. The increase for the third quarter of 2021 compared to prior periods was primarily due to the acquisition of Premier, which included $3.4 million in acquisition-related severance expense. For the first nine months of 2021, base salaries and wages increased 14% compared to the first nine months of 2020 as a result of the acquisition-related severance expense for Premier and additional salaries associated with NSL and a full nine months of Premium Finance.

The decrease in sales-based and incentive compensation for the third quarter of 2021 compared to the linked quarter was primarily due to lower incentive compensation related to insurance and mortgage banking. For the first nine months of 2021 compared to the same period in 2020, the increase was driven by the overall company performance relative to measures used in calculating incentive awards and higher sales-based compensation from insurance and trust and investments.

The increase in employee benefits for first nine months of 2021, compared to first nine months of 2020, was due to an increase to the employer 401(k) match made during 2021, as well as higher medical costs with the addition of the Premier and NSL employees. During the second quarter of 2021, Peoples increased the matching contribution to participant's 401(k) accounts, retroactive to January 1, 2021. This true-up was completed in the second quarter of 2021 and drove the increase in employee benefits for the third quarter of 2021 compared to the third quarter of 2020.

The increase in payroll taxes and other employment costs, compared to linked quarter, was primarily due to the taxes associated with the acquisition-related severance expense recognized in the third quarter of 2021. The increase in payroll taxes and other employment costs for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily related to higher base salaries and wages, coupled with the additional associates of Premier and NSL.

Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, adjusted for an estimate of the portion of awards that will be forfeited. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the first nine months of 2021 decreased compared to the first nine months of 2020 due to an additional $396,000 of unrestricted grants of common share awards to associates at the level of Assistant Vice President or below granted in the second quarter of 2020.

Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. The decrease in deferred personnel costs compared to the linked quarter was due to a reduction loan origination volume. The decrease in deferred personnel costs in the first

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nine months of 2021 compared to first nine months of 2020 was driven by the recognition of $921,000 in deferred personnel costs during the second quarter of 2020 related to the origination of PPP loans.

Peoples' net occupancy and equipment expense was comprised of the following:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Depreciation	$	1,365	$	1,398	$	1,507	$	4,134	$	4,519
Repairs and maintenance costs	1,017		903		767		2,863		2,225
Net rent expense	371		382		340		1,093		960
Property taxes, utilities and other costs	798		606		769		2,077		1,984
Net occupancy and equipment expense	$	3,551	$	3,289	$	3,383	$	10,167	$	9,688

Depreciation on capitalized assets has declined during the second and third quarters of 2021, compared to both the third quarter of 2020, and the first nine months of 2020 as a result of certain capitalized assets and improvements reaching the end of their depreciable lives. In addition, Peoples recognized higher building maintenance costs during the first nine months of 2021, compared to 2020 due to various projects including painting, window replacements, drive-thru enhancements and parking lot sealing. Property taxes, utilities and other costs also increased during the nine months ended September 30, 2021, compared to the first nine months of 2020 as a result of an increase in other costs, primarily driven by low-cost furniture and fixtures not capitalized, offset by a reduction in utilities and property taxes.

Net occupancy and equipment expense increased 5% compared to the first nine months of 2020 mainly due to increased expenses associated with maintaining the Premium Finance location for a full period, the acquisition from NSL in second quarter of 2021 and the partial period impact of the merger with Premier in the third quarter of 2021.

The following table details the other items included in total non-interest expense:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020
Professional fees	$	6,426	$	3,565	$	1,720	$	13,459	$	5,247
Data processing and software expense	2,529		2,411		1,838		7,394		5,344
E-banking expense	2,037		2,075		2,095		6,006		5,839
Amortization of other intangible assets	1,279		1,368		857		3,267		2,314
Marketing expense	1,223		676		456		2,810		1,561
Franchise tax expense	810		822		882		2,487		2,645
FDIC insurance premiums	807		326		570		1,596		717
Other loan expenses	487		494		342		1,443		1,255
Communication expense	411		386		283		1,079		857
Other non-interest expense	12,711		2,559		2,479		17,762		7,665

Professional fees increased $2.9 million from the linked quarter and $4.7 million from the third quarter of 2020 primarily due to investment banking fees and other acquisition-related expenses, which were related to the purchase of NSL and the merger with Premier. Professional fees included acquisition-related expenses of $2.4 million for the third quarter of 2021, $1.8 million for the second quarter of 2021, and $319,000 for the third quarter of 2020. For the first nine months of 2021, professional fees nearly doubled compared to the prior year, and included $6.2 million of acquisition-related expenses for 2021, compared to $363,000 for 2020.

The change in data processing and software expense compared to prior periods was driven by systems and software upgrades, annual contractual increases and overall growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers; software upgrades; and additional network capacity and security features in the latter part of 2020 and first quarter of 2021.

E-banking expense was down slightly compared to the linked quarter, and is directly correlated to e-banking income, with the decrease due to lower costs associated with ATM processing expenses.

Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the third quarter of 2021 was down $89,000 compared to the second quarter of 2021 due to adjustments to the fair value of intangible assets acquired from NSL, and the related changes to intangible amortization post-acquisition. Amortization of other intangible assets increased $422,000 compared to the third quarter of 2020 as a result of the NSL acquisition effective after the close of business on March 31, 2021.

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Marketing expense increased compared to the second quarter of 2021 due primarily to additional advertising campaigns relating to the addition of Premier locations. Additionally, in giving back to the community, Peoples' contributions increased during the third quarter of 2021 and included a donation to each of Marietta College and the Ohio Valley Museum of Discovery.

Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end.

Peoples' FDIC insurance premiums increased compared to the linked quarter, due to a decline in the leverage ratio which was impacted by the NSL acquisition in the second quarter, and decreased compared to December 31, 2020. Compared to the first nine months of 2020, the FDIC insurance premiums grew as a result of credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium. The FDIC insurance credits were related to the level of the Federal Deposit Insurance Fund ("DIF") that had continued to be above the target threshold for banks with total consolidated assets of less than $10 billion to recognize credits. Peoples utilized the remaining credits that had been issued to it in the second quarter of 2020.

Other loan expenses decreased slightly compared to the linked quarter due to lower expenses associated with business loans. Compared to the third quarter of 2020, other loan expenses increased mostly due to higher expenses associated with real estate loans and home equity lines of credit. Other loan expenses for the nine months ended September 30, 2021 increased $188,000 compared to the nine months ended September 30, 2020 due to increased loan origination activity.

Compared to the linked quarter, third quarter of 2020, and first nine months of 2020, communications expense grew as a result of upgraded networking to certain branches (including new branches acquired from Premier coupled with the addition of the NSL and Premium Finance locations acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.

Other non-interest expense increased $10.2 million compared to the third quarter of 2020, and was mostly due to $9.6 million in acquisition-related expenses recognized during the third quarter of 2021.

Income Tax Expense

Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and income tax expense of $2.6 million for the third quarter of 2020. The income tax benefit during the third quarter of 2021, and the income tax expense recognized during the linked quarter and the third quarter of 2020 was heavily related to the amount of pre-tax income recognized during each period. Pretax income was impacted by acquisition-related expenses associated with the Premier acquisition during the third quarter of 2021. Peoples recorded income tax expense of $4.0 million for the nine months ended September 30, 2021, compared to $3.6 million for the nine months ended September 30, 2020. Pretax income for the nine months ended September 30, 2021 was largely impacted by acquisition-related expenses, contract negotiation expenses and other non-core expenses.

Additional information regarding income taxes can be found in "Note 12 Income Taxes" of the Notes to the Condensed Consolidated Financial Statements included in Peoples' 2020 Form 10-K.

Pre-Provision Net Revenue (Non-US GAAP)

Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings.

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The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:


	Three Months Ended									Nine Months Ended
	September 30, 2021			June 30, 2021			September 30, 2020			September 30,
(Dollars in thousands)										2021			2020
Pre-provision net revenue:
(Loss) income before income taxes	$	(7,930)		$	12,494		$	12,846		$	23,807		$	17,810
Add: provision for credit losses	8,994			3,088			4,728			7,333			33,531

Add: loss on OREO	32			—			—			32			17
Add: loss on investment securities	316			499			—			1,490			2
Add: loss on other assets	363			238			115			687			258
Add: loss on other transactions	6			—			—			6			—
Less: gain on OREO	—			8			15			8			16

Less: gain on investment securities	150			297			2			786			385

Less: gain on other assets	93			106			72			258			22
Pre-provision net revenue	$	1,538		$	15,908		$	17,600		$	32,303		$	51,195


Total average assets	$5,475,147			$5,183,146			$4,906,614			$5,192,183			$	4,706,153
Pre-provision net revenue to total average assets (annualized)	0.11		%	1.23		%	1.43		%	0.83		%	1.45		%

Weighted-average common shares outstanding - diluted	20,789,271			19,461,934			19,637,689			19,890,672			19,998,353
Pre-provision net revenue per common share - diluted	$	0.07		$	0.81		$	0.90		$	1.61		$	2.55

The decrease in PPNR compared to the linked quarter and the third quarter of 2020 was mostly due to higher non-core acquisition-related expenses recognized during the third quarter of 2021.

Core Non-Interest Expense (Non-US GAAP)

Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream. This measure is Non-US GAAP since it excludes the impact of all acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution.

The following table provides a reconciliation of this Non-US GAAP measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in thousands)							2021		2020

Core non-interest expense:
Total non-interest expense	$	57,860	$	39,899	$	34,315	$	135,746	100,445

Less: acquisition-related expenses	16,209		2,400		335		20,520		412
Less: pension settlement charges	143		—		531		143		1,050
Less: severance expenses	—		14		192		63		284

Less: COVID-19-related expenses	181		210		148		683		1,206
Less: Peoples Bank Foundation, Inc. contribution	—		—		—		500		—
Less: contract negotiation expenses	1,851		—		—		1,851		—
Core non-interest expense	$	39,476	$	37,275	$	33,109	$	111,986	$	97,493

Efficiency Ratio (Non-US GAAP)

The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.

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	Three Months Ended									Nine Months Ended
	September 30, 2021			June 30, 2021			September 30, 2020			September 30,
(Dollars in thousands)										2021			2020

Efficiency ratio:
Total non-interest expense	$	57,860		$	39,899		$	34,315		$	135,746		$	100,445
Less: amortization of other intangible assets	1,279			1,368			857			3,267			2,314
Adjusted total non-interest expense	$	56,581		$	38,531		$	33,458		$	132,479		$	98,131

Total non-interest income	$	16,346		$	15,821		$	16,770		$	49,070		$	47,171
Less: net gain on investment securities	—			—			2			—			383
Add: net loss on investment securities	(166)			(202)			—			(704)			—
Add: net loss on asset disposals and other transactions	(308)			(124)			(28)			(459)			(237)
Total non-interest income excluding net gains and losses	$	16,820		$	16,147		$	16,796		$	50,233		$	47,025

Net interest income	$	42,578		$	39,660		$	35,119		$	117,816		$	104,615
Add: fully tax-equivalent adjustment (a)	351			324			262			970			803
Net interest income on a fully tax-equivalent basis	$	42,929		$	39,984		$	35,381		$	118,786		$	105,418

Adjusted revenue	$	59,749		$	56,131		$	52,177		$	169,019		$	152,443

Efficiency ratio	94.70		%	68.64		%	64.12		%	78.38		%	64.37		%

Efficiency ratio adjusted for non-core items:
Core non-interest expense	$	39,476		$	37,275		$	33,109		$	111,986		$	97,493
Less: amortization of other intangible assets	1,279			1,368			857			3,267			2,314
Adjusted core non-interest expense	$	38,197		$	35,907		$	32,252		$	108,719		$	95,179

Core non-interest income excluding net gains and losses	$	16,820		$	16,147		$	16,796		$	50,233		$	47,025
Net interest income on a fully tax-equivalent basis	42,929			39,984			35,381			118,786			105,418
Adjusted revenue	$	59,749		$	56,131		$	52,177		$	169,019		$	152,443

Efficiency ratio adjusted for non-core items	63.93		%	63.97		%	61.81		%	64.32		%	62.44		%

(a) Based on a 21% statutory federal corporate income tax rate.

The efficiency ratio for the third quarter of 2021 was 94.7%, compared to 68.6% for the linked quarter, and 64.1% for the third quarter of 2020. The change in the efficiency ratio compared to the linked quarter was primarily due to the acquisition-related expenses. The efficiency ratio, adjusted for non-core items, was 63.9% for the third quarter of 2021, compared to 64.0% for the linked quarter and 61.8% for the third quarter of 2020. Impacting the adjusted ratios were higher salaries and employee benefits due to the Premier and NSL acquisitions along with higher advertising expenses and increased repair and maintenance expenses.

For the first nine months of 2021, the efficiency ratio grew due to higher total non-interest expense associated with the acquisition-related expenses mentioned above, operating expenses associated with the NSL and Premium Finance acquired divisions, a reduction in deferred loan costs from the PPP loans, and increased sales and incentive-based compensation from higher production.

Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)

In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance. The return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution.

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	Three Months Ended									Nine Months Ended
	September 30, 2021			June 30, 2021			September 30, 2020			September 30,
(Dollars in thousands)										2021			2020

Annualized net (loss) income adjusted for non-core items:
Net (loss) income	$	(5,758)		$	10,103		$	10,210		$	19,808		$	14,194

Add: net loss on investment securities	166			202			—			704			—
Less: tax effect of net loss on investment securities (a)	35			42			—			148			—
Less: net gain on investment securities	—			—			2			—			383
Add: tax effect of net gain on investment securities (a)	—			—			—			—			80
Add: net loss on asset disposals and other transactions	308			124			28			459			237
Less: tax effect of net loss on asset disposals and other transactions (a)	65			26			6			96			50



Add: acquisition-related expenses	16,209			2,400			335			20,520			412
Less: tax effect of acquisition-related expenses (a)	3,404			504			70			4,309			87
Add: pension settlement charges	143			—			531			143			1,050
Less: tax effect of pension settlement charges (a)	30			—			112			30			221
Add: severance expenses	—			14			192			63			284
Less: tax effect of severance expenses (a)	—			3			40			13			60
Add: COVID-19-related expenses	181			210			148			683			1,206
Less: tax effect of COVID-19-related expenses (a)	38			44			31			143			253
Add: Peoples Bank Foundation, Inc. contribution	—			—			—			500			—
Less: tax effect of Peoples Bank Foundation, Inc. contribution (a)	—			—			—			105			—




Add: contract negotiation fees	1,851			—			—			1,851			—
Less: tax effect of contract negotiation fees	389			—			—			389			—
Net income adjusted for non-core items (after tax)	$	9,139		$	12,434		$	11,183		$	39,498		$	16,409
Days in the period	92			91			92			273			274
Days in the year	365			365			366			365			366
Annualized net (loss) income	$	(22,844)		$	40,523		$	40,618		$	26,483		$	18,960
Annualized net income adjusted for non-core items (after tax)	$	36,258		$	49,873		$	44,489		$	52,809		$	21,919
Return on average assets:
Annualized net (loss) income	$	(22,844)		$	40,523		$	40,618		$	26,483		$	18,960
Total average assets	5,475,147			5,183,146			4,906,614			5,192,183			4,706,153
Return on average assets	(0.42)		%	0.78		%	0.83		%	0.51		%	0.40		%
Return on average assets adjusted for non-core items:
Annualized net income adjusted for non-core items (after tax)	$	36,258		$	49,873		$	44,489		$	52,809		$	21,919
Total average assets	5,475,147			5,183,146			4,906,614			5,192,183			4,706,153
Return on average assets adjusted for non-core items	0.66		%	0.96		%	0.91		%	1.02		%	0.47		%

(a) Based on a 21% statutory federal corporate income tax rate.

The return on average assets declined during the third quarter of 2021, compared to the linked quarter and the third quarter of 2020. The decrease was driven by the provision for credit losses recognized in the third quarter due to the Premier acquisition and higher total non-interest expense recognized during the third quarter of 2021, which was mostly due to acquisition-related expenses. The return on average assets adjusted for non-core items declined compared to the linked quarter due to the higher salaries and

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incentive compensation. The return on average assets and the return on average assets adjusted for non-core items both grew compared to the first nine months of 2020. The increases were mostly due to the previously mentioned higher provision for credit losses recorded during the first nine months of 2020. For additional information related to the changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”

Return on Average Tangible Equity Ratio (Non-US GAAP)

The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.


	Three Months Ended									Nine Months Ended
	September 30, 2021			June 30, 2021			September 30, 2020			September 30,
(Dollars in thousands)										2021			2020
Annualized net income excluding amortization of other intangible assets:
Net (loss) income	$	(5,758)		$	10,103		$	10,210		$	19,808		$	14,194
Add: amortization of other intangible assets	1,279			1,368			857			3,267			2,314
Less: tax effect of amortization of other intangible assets (a)	269			287			180			686			486
Net income excluding amortization of other intangible assets	$	(4,748)		$	11,184		$	10,887		$	22,389		$	16,022
Days in the period	92			91			92			273			274
Days in the year	365			365			366			365			366
Annualized net (loss) income	$	(22,844)		$	40,523		$	40,618		$	26,483		$	18,960
Annualized net (loss) income excluding amortization of other intangible assets	$	(18,837)		$	44,859		$	43,311		$	29,934		$	21,402
Average tangible equity:
Total average stockholders' equity	$	627,783		$	581,831		$	567,055		$	595,918		$	578,439
Less: average goodwill and other intangible assets	232,361			222,553			185,816			213,232			180,291
Average tangible equity	$	395,422		$	359,278		$	381,239		$	382,686		$	398,148
Return on average stockholders' equity ratio:
Annualized net income	$	(22,844)		$	40,523		$	40,618		$	26,483		$	18,960
Average stockholders' equity	$	627,783		$	581,831		$	567,055		$	595,918		$	578,439
Return on average stockholders' equity	(3.64)		%	6.96		%	7.16		%	4.44		%	3.28		%
Return on average tangible equity ratio:
Annualized net income excluding amortization of other intangible assets	$	(18,837)		$	44,859		$	43,311		$	29,934		$	21,402
Average tangible equity	$	395,422		$	359,278		$	381,239		$	382,686		$	398,148
Return on average tangible equity	(4.76)		%	12.49		%	11.36		%	7.82		%	5.38		%

(a) Based on a 21% statutory federal corporate income tax rate.

The return on average stockholders' equity and average tangible equity ratios were impacted by the provision for (recovery of) credit losses during each of the respective periods, as well as non-core items recognized during the periods. Intangible assets grew at September 30, 2021, compared to June 30, 2021, as Peoples recorded the intangibles and goodwill associated with the Premier acquisition, which increased average tangible equity. Additionally, during the first nine months of 2020, Peoples recorded high amounts of provision for credit losses, which negatively impacted net income, as a result of the COVID-19 pandemic.

For additional information related to changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”

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FINANCIAL CONDITION

Cash and Cash Equivalents

At September 30, 2021, Peoples' interest-bearing deposits in other banks had increased $278.6 million from December 31, 2020. The total cash and cash equivalents balance included $321.0 million of excess cash reserves being maintained at the FRB of Cleveland at September 30, 2021, compared to $25.1 million at December 31, 2020. Peoples also acquired $252.8 million in cash and cash equivalents from Premier. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances, coupled with increased liquidity needs due to the COVID-19 pandemic.

Through the first nine months of 2021, Peoples' total cash and cash equivalents increased $347.6 million as Peoples had net cash provided by investing activities of $106.3 million, financing activities of $174.6 million and operating activities of $66.7 million. Peoples' investing activities reflected a net decrease of $156.6 million in loans and an aggregate of $896.6 million in purchases of available-for-sale and held-to-maturity investment securities, which were partially offset by an aggregate of $711.5 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a $165.4 million net increase in deposits and an increase of $32.6 million in short-term borrowings, as well as no purchases of treasury stock under the share repurchase program and $20.9 million of cash dividends paid.

Further information regarding the management of Peoples' liquidity position can be found later in this discussion under “Interest Rate Sensitivity and Liquidity.”

Investment Securities

The following table provides information regarding Peoples’ investment portfolio:


(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Available-for-sale securities, at fair value:
Obligations of:

U.S. government sponsored agencies	$	78,481	$	14,235	$	18,471	$	5,363	$	5,383
States and political subdivisions	252,919		223,853		218,484		114,919		104,126
Residential mortgage-backed securities	898,459		579,152		596,181		623,218		726,992
Commercial mortgage-backed securities	62,552		27,631		27,481		4,783		10,568
Bank-issued trust preferred securities	4,679		4,766		4,730		4,730		4,633



Total fair value	$	1,297,090	$	849,637	$	865,347	$	753,013	$	851,702
Total amortized cost	$	1,294,654	$	839,682	$	859,120	$	734,544	$	829,899
Net unrealized gain	$	2,436	$	9,955	$	6,227	$	18,469	$	21,803
Held-to-maturity securities, at amortized cost:
Obligations of:
U.S. government sponsored agencies	$	29,995	$	30,103	$	30,211	$	—	$	—
States and political subdivisions (a)	124,181		102,224		92,436		35,139		3,539
Residential mortgage-backed securities	41,035		24,067		24,878		25,890		26,926
Commercial mortgage-backed securities	47,889		23,830		18,705		5,429		5,678
Total amortized cost	$	243,100	$	180,224	$	166,230	$	66,458	$	36,143
Other investment securities	$	34,486	$	32,584	$	34,026	$	37,560	$	40,715
Total investment securities:
Amortized cost	$	1,572,240	$	1,052,490	$	1,059,376	$	838,562	$	906,757
Carrying value	$	1,574,676	$	1,062,445	$	1,065,603	$	857,031	$	928,560

(a)Amortized cost is presented net of the allowance for credit losses of $236 at September 30, 2021; $201 at June 30, 2021; $182 at March 31, 2021; $60 at December 31, 2020 and $6 at September 30, 2020.

During the third quarter of 2021, Peoples acquired, in the Premier acquisition, investment securities totaling $563.3 million. Peoples sold $400.6 million of available-for-sale investment securities and reinvested $358.7 million of the proceeds into higher-yielding investments. The increase compared to December 31, 2020 was driven by the Premier acquisition and an increase in available-for-sale commercial-mortgage backed securities that were purchased during the first nine months of 2021, coupled with purchases of available for sale and held-to-maturity obligations of state and political subdivisions, which were purchased in an effort to reduce the impact of premium amortization on the securities that were sold. At December 31, 2020, the investment security portfolio decreased compared to prior periods, as Peoples had worked to execute the strategy to sell securities that had high premium

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amortization, and reinvest into investment securities; however, not all proceeds from those sales had been reinvested by December 31, 2020.

Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Loans

The following table provides information regarding outstanding loan balances:


(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Originated loans:
Construction	$	108,334		$	97,424		$	75,189		$	103,169		$	103,948
Commercial real estate, other	838,333			836,613			832,399			780,324			752,480
Commercial real estate	946,667			934,037			907,588			883,493			856,428
Commercial and industrial	715,169			778,122			935,150			943,024			1,029,613
Premium finance	134,755			117,039			109,129			100,571			60,908
Leases	49,464			24,217			—			—			—
Residential real estate	334,838			324,321			306,440			281,623			284,645
Home equity lines of credit	98,806			95,376			92,540			93,296			91,701
Consumer, indirect	543,243			537,926			519,749			503,526			491,663
Consumer, direct	80,746			78,736			75,998			75,591			75,106
Consumer	623,989			616,662			595,747			579,117			566,769
Deposit account overdrafts	927			498			298			351			519
Total originated loans	$	2,904,615		$	2,890,272		$	2,946,892		$	2,881,475		$	2,890,583
Acquired loans (a):
Construction	$	66,450		$	3,175		$	3,510		$	3,623		$	4,103
Commercial real estate, other	790,783			111,647			132,850			149,529			160,759
Commercial real estate	857,233			114,822			136,360			153,152			164,862
Commercial and industrial	143,369			27,629			29,611			30,621			34,396
Premium finance	—			49			1,461			14,187			43,217
Leases	61,982			71,426			—			—			—
Residential real estate	433,296			242,276			267,260			292,384			304,804
Home equity lines of credit	62,564			23,025			24,886			27,617			30,234
Consumer, indirect	13			—			—			1			36
Consumer, direct	27,956			2,700			3,206			3,503			3,953
Consumer	27,969			2,700			3,206			3,504			3,989
Total acquired loans	$	1,586,413		$	481,927		$	462,784		$	521,465		$	581,502
Total loans	$	4,491,028		$	3,372,199		$	3,409,676		$	3,402,940		$	3,472,085



Percent of loans to total loans:
Construction	3.9		%	3.0		%	2.3		%	3.1		%	3.1		%
Commercial real estate, other	36.3		%	28.1		%	28.3		%	27.3		%	26.3		%
Commercial real estate	40.2		%	31.1		%	30.6		%	30.4		%	29.4		%
Commercial and industrial	19.1		%	23.9		%	28.3		%	28.6		%	30.6		%
Premium finance	3.0		%	3.5		%	3.2		%	3.4		%	3.0		%
Leases	2.5		%	2.8		%	—		%	—		%	—		%
Residential real estate	17.1		%	16.8		%	16.8		%	16.9		%	17.0		%
Home equity lines of credit	3.6		%	3.5		%	3.5		%	3.6		%	3.5		%
Consumer, indirect	12.1		%	16.0		%	15.3		%	14.8		%	14.2		%
Consumer, direct	2.4		%	2.4		%	2.3		%	2.3		%	2.3		%
Consumer	14.5		%	18.4		%	17.6		%	17.1		%	16.5		%

Total percentage	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Residential real estate loans being serviced for others	$	441,085		$	454,399		$	469,788		$	485,972		$	490,170

(a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit).

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Period-end total loan balances at September 30, 2021 increased $1.1 billion compared to June 30, 2021. The increase compared to June 30, 2021 was mostly driven by $1.1 billion in loans acquired from Premier, coupled with organic growth in premium finance loans of $17.7 million, growth in leases of $15.8 million, and organic loan growth of $14.3 million, offset partially by $132.2 million in forgiveness received on PPP loans during the quarter. Excluding the PPP loan balances, Peoples' total originated loans grew by 6% annualized compared to June 30, 2021.

The decrease in commercial and industrial loan balances at June 30, 2021 compared to March 31, 2021 was mostly driven by $186.4 million in forgiveness proceeds received on PPP loans during the second quarter. This decrease was partially offset by $95.6 million in leases acquired from NSL, coupled with growth in in commercial real estate and consumer indirect loans.

The decline in construction loan balances of $28.0 million at March 31, 2021, compared to December 31, 2020, was mainly due to construction projects being completed and construction loans then converting to permanent financing.

Loan Concentration

Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio.

Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at September 30, 2021:


(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total



































Construction:
Apartment complexes	$	76,292	$	135,048	$	211,340	47.7	%
Mixed-use facilities	14,641		43,992		58,633		13.2	%
Assisted living facilities and nursing homes	15,804		30,708		46,512		10.5	%
Land only	25,959		12,968		38,927		8.8	%
Office buildings and complexes	3,523		15,969		19,492		4.4	%
Storage facility	8,966		5,291		14,257		3.2	%
Lodging and lodging related	7,784		6,091		13,875		3.1	%
Retail	5,408		6,470		11,878		2.7	%
Residential property	4,529		4,932		9,461		2.1	%











Other (a)	11,878		7,118		18,996		4.3	%
Total construction	$	174,784	$	268,587	$	443,371	100.0	%

(a) All other outstanding balances are less than 2% of the total loan portfolio.

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(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total
Commercial real estate, other:
Office buildings and complexes:
Owner occupied	$	78,614	$	3,199	$	81,813	4.9	%
Non-owner occupied	93,863		3,795		97,658		5.8	%
Total office buildings and complexes	172,477		6,994		179,471		10.7	%
Retail facilities:
Owner occupied	55,417		1,752		57,169		3.4	%
Non-owner occupied	128,759		471		129,230		7.7	%
Total retail facilities	184,176		2,223		186,399		11.1	%
Mixed-use facilities:
Owner occupied	55,549		1,582		57,131		3.4	%
Non-owner occupied	63,214		458		63,672		3.8	%
Total mixed-use facilities	118,763		2,040		120,803		7.2	%
Apartment complexes	98,159		1,468		99,627		5.9	%
Light industrial facilities:
Owner occupied	79,414		1,531		80,945		4.8	%
Non-owner occupied	34,473		757		35,230		2.1	%
Total light industrial facilities	113,887		2,288		116,175		6.9	%
Assisted living facilities and nursing homes	81,539		750		82,289		4.9	%
Warehouse facilities:
Owner occupied	38,685		1,400		40,085		2.4	%
Non-owner occupied	38,614		27		38,641		2.3	%
Total warehouse facilities	77,299		1,427		78,726		4.7	%
Lodging and lodging related:
Owner occupied	15,131		210		15,341		0.9	%
Non-owner occupied	119,043		150		119,193		7.1	%
Total lodging and lodging related	134,174		360		134,534		8.0	%
Education services:
Owner occupied	15,615		98		15,713		0.9	%
Non-owner occupied	22,460		4,000		26,460		1.6	%
Total education services	38,075		4,098		42,173		2.5	%




Restaurant/bar facilities:
Owner occupied	22,361		—		22,361		1.3	%
Non-owner occupied	14,644		—		14,644		0.9	%
Total restaurant/bar facilities	37,005		—		37,005		2.2	%











Agriculture	32,865		1,976		34,841		2.1	%
Other (a)	540,697		26,225		566,922		33.8	%
Total commercial real estate, other	$	1,629,116	$	49,849	$	1,678,965	100.0	%

(a) All other outstanding balances are less than 2% of the total loan portfolio.

Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Maryland. In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at either September 30, 2021 or December 31, 2020. The repayment of premium finance loans are secured by the underlying insurance policy, and therefore, have no geographical impact from a repayment perspective. The repayment of leases are secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.

COVID-19 Loan Impacts

Small Business Administration Paycheck Protection Program

In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria

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are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.

Peoples is a PPP participating lender, and the PPP loans originated (including $28.2 million acquired in the merger with Premier) are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following tables detail Peoples' PPP loans and related income:


(Dollars in millions)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
PPP aggregate outstanding principal balances	$	139.8	$	194.7	$	349.9	$	374.8	$	472.0
PPP net deferred loan origination fees	4.0		7.1		9.3		7.9		11.6


	Three Months Ended						Nine Months Ended
	September 30, 2021		June 30, 2021		September 30, 2020		September 30,
(Dollars in millions)							2021		2020
Amortization of net deferred loan origination fees	$	3.1	$	3.4	$	1.9	$	11.2	$	3.8

Allowance for Credit Losses

The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio.

The following details management's allocation of the allowance for credit losses:


(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Commercial real estate	$	39,252		$	18,147		$	18,663		$	19,423		$	21,549
Commercial and industrial	13,378			8,686			10,108			12,763			13,099
Premium finance	1,137			998			1,160			1,095			986
Leases	4,505			3,715			—			—			—
Total commercial	58,272			31,546			29,931			33,281			35,634
Residential real estate	9,568			4,837			4,935			6,044			5,988
Home equity lines of credit	2,224			1,504			1,494			1,860			1,797
Consumer, indirect	6,160			8,841			7,522			8,030			12,772
Consumer, direct	1,079			1,161			970			1,081			1,861
Consumer	7,239			10,002			8,492			9,111			14,633
Deposit account overdrafts	79			53			45			63			76
Allowance for credit losses	$	77,382		$	47,942		$	44,897		$	50,359		$	58,128
As a percent of total loans	1.72		%	1.42		%	1.32		%	1.48		%	1.67		%

During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. The increases at September 30, 2021 compared to prior periods are due to the Premier and NSL acquisitions.

During the second quarter, Peoples increased its allowance for credit losses due to the establishment of an allowance for credit losses on the leases acquired from NSL. Peoples recorded $3.3 million in provision for credit losses during the second quarter of 2021 in order to establish the allowance for credit losses for the acquired leases and $493,000 to establish the allowance for credit losses on leases identified as purchase credit deteriorated at the acquisition date and added an additional $427,000 in allowance for credit losses on growth in leases during the second quarter of 2021. The decreases in the allowance for credit losses for March 31, 2021 compared to December 31, 2020, and from December 31, 2020 compared to September 30, 2020, were due to developments related to COVID-19 and the resulting positive impact on the economic assumptions used in estimating the allowance for credit losses under the CECL model.

During much of 2020, Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts that included the impact of COVID-19 on certain economic factors. These forecasts included higher unemployment rates nationally and in Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL

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model, compared to prior periods. During the third quarter of 2020, Peoples also recorded allowance for credit losses associated with the loans acquired from Triumph Premium Finance on July 1, 2020, which had included $84.7 million in loans at the acquisition date.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2020 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

The following table summarizes Peoples’ net charge-offs and recoveries:


	Three Months Ended
(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Gross charge-offs:

Commercial real estate, other	$	—	$	4	$	157	$	274	$	109

Commercial and industrial	654		5		293		465		146
Premium finance	7		7		16		1		2
Leases	431		525		—		—		—
Residential real estate	44		136		133		98		121
Home equity lines of credit	180		4		12		80		—
Consumer, indirect	416		269		505		498		370
Consumer, direct	29		31		36		59		15
Consumer	445		300		541		557		385
Deposit account overdrafts	135		89		103		139		202
Total gross charge-offs	$	1,896	$	1,070	$	1,255	$	1,614	$	965
Recoveries:

Commercial real estate, other	$	4	$	4	$	—	$	74	$	4

Commercial and industrial	4		18		—		512		—
Premium finance	—		—		—		—		—
Leases	120		110		—		—		—
Residential real estate	48		40		15		45		100
Home equity lines of credit	37		—		4		1		2
Consumer, indirect	43		63		105		41		64
Consumer, direct	17		11		26		12		13
Consumer	60		74		131		53		77
Deposit account overdrafts	37		44		54		30		47
Total recoveries	$	310	$	290	$	204	$	715	$	230
Net charge-offs (recoveries):

Commercial real estate, other	$	(4)	$	—	$	157	$	200	$	105

Commercial and industrial	650		(13)		293		(47)		146
Premium finance	7		7		16		1		2
Leases	311		415		—		—		—
Residential real estate	(4)		96		118		53		21
Home equity lines of credit	143		4		8		79		(2)
Consumer, indirect	373		206		400		457		306
Consumer, direct	12		20		10		47		2
Consumer	385		226		410		504		308
Deposit account overdrafts	98		45		49		109		155
Total net charge-offs	$	1,586	$	780	$	1,051	$	899	$	735

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	Three Months Ended
(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Ratio of net charge-offs to average total loans (annualized):

Commercial real estate, other	—	%	—	%	0.02	%	0.02	%	0.01	%

Commercial and industrial	0.08	%	—	%	0.04	%	(0.01)	%	0.02	%

Leases	0.03	%	0.05	%	—	%	—	%	—	%
Residential real estate	—	%	0.01	%	0.01	%	0.01	%	—	%
Home equity lines of credit	0.02	%	—	%	—	%	—	%	—	%
Consumer, indirect	0.04	%	0.02	%	0.05	%	0.05	%	0.03	%
Consumer, direct	—	%	—	%	—	%	0.01	%	—	%
Consumer	0.04	%	0.02	%	0.05	%	0.06	%	0.03	%
Deposit account overdrafts	0.01	%	0.01	%	0.01	%	0.02	%	0.02	%
Total	0.18	%	0.09	%	0.13	%	0.10	%	0.08	%

Each with "--%" not meaningful.

Net charge-offs during the third quarter of 2021 were 0.18% of average total loans on an annualized basis. Although, gross charge-offs in many loan categories declined compared to the linked quarter, the primary factor in the increase of total gross charge-offs was one commercial and industrial loan charge-off of $500,000 during the quarter. Peoples recognized a $450,000 charge-off on a commercial and industrial loan relationship, while also recording a $508,000 recovery on a previously charged-off commercial and industrial loan relationship during the fourth quarter of 2020. During the second quarter of 2020, Peoples recorded a $750,000 recovery on a commercial loan relationship that had been previously charged-off.

The following table details Peoples’ nonperforming assets:


(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Loans 90+ days past due and accruing:

Commercial real estate, other	$	1,912	$	1,361	$	55	$	—	$	80

Commercial and industrial	98		161		—		50		74
Premium finance	368		216		109		205		—
Leases	1,736		1,522		—		—		—
Residential real estate	1,156		342		662		1,975		2,548
Home equity lines of credit	61		60		180		82		27
Consumer, indirect	—		39		24		39		86
Consumer, direct	32		40		14		17		—
Consumer	32		79		38		56		86
Total loans 90+ days past due and accruing	$	5,363	$	3,741	$	1,044	$	2,368	$	2,815
Nonaccrual loans:
Construction	$	—	$	4	$	4	$	4	$	4
Commercial real estate, other	17,207		7,965		8,084		8,744		8,762
Commercial real estate	17,207		7,969		8,088		8,748		8,766
Commercial and industrial	4,133		3,938		4,067		4,017		4,067
Leases	1,411		—		—		—		—
Residential real estate	8,046		5,811		6,182		6,080		6,027
Home equity lines of credit	661		572		624		708		754
Consumer, indirect	850		704		825		883		801
Consumer, direct	177		100		146		160		148
Consumer	1,027		804		971		1,043		949
Total nonaccrual loans	$	32,485	$	19,094	$	19,932	$	20,596	$	20,563
Nonaccrual troubled debt restructurings ("TDRs"):

Commercial real estate, other	$	94	$	99	$	337	367		$	772

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(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Commercial and industrial	1,223			1,774			2,034			2,175			2,250
Residential real estate	1,689			1,784			2,064			2,295			2,481
Home equity lines of credit	315			129			156			159			165
Consumer, indirect	219			193			206			190			160
Consumer, direct	9			6			15			11			45
Consumer	228			199			221			201			205
Total nonaccrual TDRs	$	3,549		$	3,985		$	4,812		$	5,197		$	5,873
Total nonperforming loans ("NPLs")	$	41,397		$	26,820		$	25,788		$	28,161		$	29,251
OREO:
Commercial	$	10,804		$	—		$	—		$	—		$	145
Residential	$	464		$	239		$	134		$	134		$	148
Total OREO	$	11,268		$	239		$	134		$	134		$	293
Total nonperforming assets ("NPAs")	$	52,665		$	27,059		$	25,922		$	28,295		$	29,544
Criticized loans (a)	$	234,845		$	113,802		$	116,424		$	126,619		$	123,219
Classified loans (b)	142,628			69,166			76,095			72,518			76,009
Asset Quality Ratios (c):
NPLs as a percent of total loans (d)	0.92		%	0.79		%	0.76		%	0.82		%	0.84		%
NPAs as a percent of total assets (d)	0.75		%	0.53		%	0.50		%	0.59		%	0.60		%
NPAs as a percent of total loans and OREO(d)	1.17		%	0.80		%	0.76		%	0.84		%	0.85		%
Allowance for credit losses as a percent of NPLs (d)	186.93		%	178.75		%	174.10		%	180.14		%	198.72		%
Criticized loans as a percent of total loans (a)	5.23		%	3.37		%	3.41		%	3.72		%	3.55		%
Classified loans as a percent of total loans (b)	3.18		%	2.05		%	2.23		%	2.13		%	2.19		%

(a) Includes loans categorized as special mention, substandard or doubtful.

(b) Includes loans categorized as substandard or doubtful.

(d) Nonperforming loans include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.

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During the third quarter of 2021, nonperforming assets increased $25.6 million, or 95%, compared to June 30, 2021. The increase in nonperforming assets compared to the prior quarter was primarily attributable to nonperforming loans and other real estate owned acquired from Premier. The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios both increased compared to June 30, 2021, due to the acquired nonperforming loans. The increase in nonperforming assets of $1.1 million at June 30, 2021, compared to March 31, 2021, was primarily due to acquisition of NSL. Nonperforming assets declined $2.3 million at March 31, 2021, compared to December 31, 2020, and was mostly due to several small relationships in both loans 90+ days past due and accruing and nonaccrual loans.

Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $121.0 million, or 106%, compared to June 30, 2021 and increased $111.6 million, or 91%, compared to September 30, 2020. The increase in the amount of criticized loans compared to June 30, 2021 was the result of criticized loans acquired from Premier, offset by the pay-off of six commercial and industrial loans with an aggregate principal balance of $12.3 million and several smaller loans. Criticized loans declined $2.6 million at June 30, 2021, which was primarily due to the payoff of several smaller commercial loans.

Classified loans, which are those categorized as substandard or doubtful, increased by $73.5 million, or 106%, compared to June 30, 2021, and were up $66.6 million, or 88%, compared to September 30, 2020. The increase was driven by loans acquired from Premier.

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40.

On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.

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Deposits

The following table details Peoples’ deposit balances:


(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Non-interest-bearing deposits (a)	$	1,559,993		$	1,181,045		$	1,206,034		$	997,323		$	982,912
Interest-bearing deposits:
Interest-bearing demand accounts (a)	1,140,639			732,478			722,470			692,113			666,134
Savings accounts	1,016,755			689,086			676,345			628,190			589,625
Retail certificates of deposit ("CDs")	691,680			417,466			433,214			445,930			461,216
Money market deposit accounts	637,635			547,412			586,099			591,373			581,398
Governmental deposit accounts	679,305			498,390			511,937			385,384			409,967
Brokered deposits	106,013			166,746			168,130			170,146			260,753
Total interest-bearing deposits	4,272,027			3,051,578			3,098,195			2,913,136			2,969,093
Total deposits	$	5,832,020		$	4,232,623		$	4,304,229		$	3,910,459		$	3,952,005
Demand deposits as a percent of total deposits	46		%	45		%	45		%	43		%	42		%

(a)The sum of amounts presented is considered total demand deposits.

At September 30, 2021, period-end deposits increased $1.6 billion, or 38%, compared to June 30, 2021, and increased $1.9 billion, or 48%, compared to September 30, 2020. The increase in total deposits compared to June 30, 2021 was driven primarily by $1.8 billion in deposits acquired in the merger with Premier including $392.2 million in non-interest bearing deposits, $652.9 million in interest-bearing demand accounts, $327.0 million in savings accounts, $285.4 million in retail CDs, $155.6 million in money market accounts and $11.1 million in brokered deposits. The decrease in total deposits at June 30, 2021 compared to March 31, 2021 was related to declines in money market deposits, non-interest bearing deposits, and retail CDs. At March 31, 2021, compared to December 31, 2020, Peoples experienced a significant increase in governmental deposit accounts, which was mostly due to seasonal fluctuation within these accounts.

Total deposits in all periods presented were higher due to customers maintaining larger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic. In prior quarterly periods in the table above, Peoples experienced increases in most low-cost deposit categories.

Peoples reduced its reliance on brokered deposits in each quarterly period, beginning after June 30, 2020. This decline was largely due to the increase in deposit balances from customers, which allowed Peoples to reduce its position in the higher-cost brokered CDs during each period. As part of its funding strategy, Peoples hedges 90-day brokered deposits with interest rate swaps. The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits. As of September 30, 2021, Peoples had sixteen effective interest rate swaps, with an aggregate notional value of $150.0 million, of which $100.0 million were designated as cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0 million of interest rate swaps hedged 90-day FHLB advances, which are also expected to be extended every 90 days through the maturity dates of the swaps. Peoples continually evaluates the overall balance sheet position given the interest rate environment.

Borrowed Funds

The following table details Peoples’ short-term and long-term borrowings:


(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Short-term borrowings:

FHLB 90-day advances	$	50,000	$	—	$	—	$	—	$	110,000
Current portion of long-term FHLB advances	15,000		15,000		20,000		20,000		25,000
Retail repurchase agreements	119,693		51,496		47,868		53,261		47,063

Total short-term borrowings	$	184,693	$	66,496	$	67,868	$	73,261	$	182,063
Long-term borrowings:
FHLB advances	$	86,483	$	87,393	$	102,645	$	102,957	$	103,815



Junior subordinated debt securities	12,928		7,688		7,650		7,611		7,571
Total long-term borrowings	$	99,411	$	95,081	$	110,295	$	110,568	$	111,386
Total borrowed funds	$	284,104	$	161,577	$	178,163	$	183,829	$	293,449

Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. Total borrowed funds increased 76% compared to June 30, 2021, primarily due to the addition of $63.8 million retail

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repurchase agreements from Premier. The decline in borrowed funds at September 30, 2021, compared to September 30, 2020 was mostly due to swap funding being moved to brokered deposits rather than the use of rolling 90-day advances to fund liquidity needs, which was partially offset by the acquired retail repurchase agreements from Premier during the third quarter of 2021.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities increased $23.8 million, or 27%, compared to June 30, 2021 and increased $12.2 million compared to September 30, 2020. The increase compared to the end of the second quarter of 2021 was the result of an increase in interest payable and other liabilities offset by with changes related to the fair value of swap derivatives at September 30, 2021. The increase compared to the end of the third quarter of 2020 was also the result of an increase in accrued interest payable offset by a decrease in the fair value of swap derivatives . Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Capital/Stockholders’ Equity

At September 30, 2021, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. In order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At September 30, 2021, Peoples had a capital conservation buffer of 5.83%.

The following table details Peoples' risk-based capital levels and corresponding ratios:


(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Capital Amounts:
Common Equity Tier 1	$	567,172		$	383,502		$	418,089		$	409,400		$	398,553
Tier 1	580,100			391,190			425,739			417,011			406,124
Total (Tier 1 and Tier 2)	637,802			431,424			463,872			456,384			445,101
Net risk-weighted assets	$	4,611,321		$	3,382,736		$	3,365,637		$	3,146,767		$	3,106,817
Capital Ratios:
Common Equity Tier 1	12.30		%	11.34		%	12.42		%	13.01		%	12.83		%
Tier 1	12.58		%	11.56		%	12.65		%	13.25		%	13.07		%
Total (Tier 1 and Tier 2)	13.83		%	12.75		%	13.78		%	14.50		%	14.33		%
Tier 1 leverage ratio	11.20		%	7.87		%	9.00		%	8.97		%	8.62		%

During the third quarter of 2021, Peoples' reported a net loss of $5.8 million and declared dividends of $7.1 million. However, regulatory capital levels increased due to the merger with Premier. Net risk-weighted assets grew compared to June 30, 2021 mostly due to the merger with Premier, along with growth in premium finance loans and growth in leases during the quarter. The NSL acquisition negatively impacted the regulatory capital ratios at March 31, 2021, as the purchase price was included in net risk-weighted assets and there was no capital issued in connection with the NSL acquisition.

In 2020, Peoples repurchased common shares during each quarter of the year, which reduced regulatory capital levels. Peoples also completed the Premium Finance acquisition on July 1, 2020, which impacted regulatory capital levels due to the recognition of goodwill and intangibles associated with the acquisition. Peoples did not repurchase any common shares in the first nine months of 2021.

In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent.

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The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements:


(Dollars in thousands)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Tangible equity:
Total stockholders' equity	$	831,882		$	585,505		$	578,893		$	575,673		$	566,856
Less: goodwill and other intangible assets	295,415			221,576			184,007			184,597			185,397
Tangible equity	$	536,467		$	363,929		$	394,886		$	391,076		$	381,459






Tangible assets:
Total assets	$	7,059,752		$	5,067,634		$	5,143,052		$	4,760,764		$	4,911,807
Less: goodwill and other intangible assets	295,415			221,576			184,007			184,597			185,397
Tangible assets	$	6,764,337		$	4,846,058		$	4,959,045		$	4,576,167		$	4,726,410

Tangible book value per common share:
Tangible equity	$	536,467		$	363,929		$	394,886		$	391,076		$	381,459
Common shares outstanding	28,265,791			19,660,877			19,629,633			19,563,979			19,721,783

Tangible book value per common share	$	18.98		$	18.51		$	20.12		$	19.99		$	19.34

Tangible equity to tangible assets ratio:
Tangible equity	$	536,467		$	363,929		$	394,886		$	391,076		$	381,459
Tangible assets	$	6,764,337		$	4,846,058		$	4,959,045		$	4,576,167		$	4,726,410

Tangible equity to tangible assets	7.93		%	7.51		%	7.96		%	8.55		%	8.07		%

Tangible book value per common share increased to $18.98 at September 30, 2021, compared to $18.51 at June 30, 2021. The change in tangible book value per common share was due to tangible equity increasing at a higher rate than shares outstanding during the third quarter of 2021. The increase in tangible book value per common share at December 31, 2020, compared to September 30, 2020, was the result of higher stockholders' equity as net income exceeded dividends declared during the period, as well as a reduction in common shares outstanding as Peoples actively repurchased common shares.

The tangible equity to tangible assets ratio increased at September 30, 2021 compared to June 30, 2021. This increase was driven by higher tangible assets related to the merger with Premier which provided for increases in loans, investment securities, cash and cash equivalents, and other assets, coupled with the intangible assets recorded during the third quarter of 2021 associated with the merger with Premier and the NSL acquisition. The decline in the tangible equity to tangible assets ratio at March 31, 2021 compared to December 31, 2020, was largely due to an increase in other assets that was driven by the NSL acquisition, for which the purchase price was paid and recorded on March 31, 2021. The higher tangible equity to tangible assets ratio at December 31, 2020, compared to September 30, 2020, was attributable to higher tangible equity, while tangible assets declined due to reductions in investment securities and total loans.

Interest Rate Sensitivity and Liquidity

While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources.

Interest Rate Risk

Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams.

Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2020 Form 10-K.

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The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands):


Increase (Decrease) in Interest Rate	Estimated Increase (Decrease) in Net Interest Income								Estimated Increase (Decrease) in Economic Value of Equity
(in Basis Points)	September 30, 2021				December 31, 2020				September 30, 2021				December 31, 2020
300	$	26,191	12.5	%	$	22,034	17.3	%	$	12,475	1.0	%	$	117,235	15.7	%
200	17,360		8.3	%	15,899		12.5	%	11,544		0.9	%	95,189		12.7	%
100	8,646		4.1	%	8,981		7.1	%	10,550		0.8	%	60,384		8.1	%
(100)	(9,792)		(4.7)	%	(7,030)		(5.5)	%	(120,471)		(9.6)	%	(116,205)		(15.5)	%

Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis.

With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay. These prepayment speeds affect the amount forecasted for cash flow reinvestment, premium amortization, and discount accretion assumed in interest rate risk modeling results. This prepayment activity is generally the result of refinancing activity and tends to increase as longer term interest rates decline, much like the current environment. The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income or asset duration.

While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at September 30, 2021, consideration of the bear steepener and bull flattener scenarios provides insights which were not captured by parallel shifts. These scenarios were evaluated as the current environment suggests these may be possible outcomes for the trajectory of interest rates.

The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are correlated with short-term rates, remain constant, while asset yields, which are correlated with long-term rates, rise. Increased asset yields would not be offset by increases in deposit or funding costs; resulting in an increased amount of net interest income and higher net interest margin. At September 30, 2021, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.8% and 5.5%, respectively.

The bull flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates fall. In such a scenario, Peoples’ deposit and borrowing costs, which are correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall. Asset yields driven lower by increased investment securities premium amortization would not be offset by reductions in deposit or funding costs; resulting in a decreased amount of net interest income and lower net interest margin. At September 30, 2021, the bull flattener scenario resulted in a decrease in both net interest income and the economic value of equity of -0.5% and -0.9%, respectively. Peoples was within the policy limitations for this alternative scenario as of September 30, 2021, which sets the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of economic value of equity.

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. As of September 30, 2021, Peoples had entered into sixteen interest rate swap contracts with an aggregate notional value of $150.0 million. Additional information regarding Peoples’ interest rate swaps can be found in “Note 10 Derivative Financial Instruments” of the Notes to the Unaudited Condensed Consolidated Financial Statements.

At September 30, 2021, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income and the economic value of equity. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2020 was largely attributable to increased effective duration in the investment securities portfolio.

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Liquidity

In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 2020 Form 10-K.

At September 30, 2021, Peoples Bank had liquid assets of $607.8 million, which represented 7.7% of total assets and unfunded loan commitments. Peoples also had an additional $246.5 million of unpledged investment securities not included in the measurement of liquid assets.

Management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from the government fiscal stimulus, the PPP and other government actions. Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes; however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement funds are received. At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit. This decrease is related to the receipt of PPP loan proceeds and other increased cash flows to certain companies. Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses. The utilization percentage for consumer line of credit products has been relatively steady.

Off-Balance Sheet Activities and Contractual Obligations

In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.

Loan Commitments and Standby Letters of Credit

Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.

Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.

The following table details the total contractual amount of loan commitments and standby letters of credit:


(Dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Home equity lines of credit	$	177,963	$	134,516	$	124,027	$	117,792	$	113,185
Unadvanced construction loans	271,483		207,403		190,715		141,009		123,338
Other loan commitments	646,374		542,429		555,102		535,250		498,472
Loan commitments	$	1,095,820	$	884,348	$	869,844	$	794,051	$	734,995
Standby letters of credit	$	12,358	$	10,252	$	10,295	$	14,342	$	13,177

The increase in loan commitments at September 30, 2021 was primarily the result of the Premier acquisition. Management does not anticipate that Peoples Bank’s current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Peoples' management, with the participation of Peoples' President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer, has evaluated the effectiveness of Peoples’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2021. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:

(a)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure;

(b)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

(c)Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting

There were no changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of their respective businesses or operations, Peoples or one of its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Peoples cannot state what the eventual outcome of any such matters will be. However, based on management's current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Peoples.

ITEM 1A. RISK FACTORS

The disclosure below supplements the risk factors previously disclosed under “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 2020 Form 10-K. Those risk factors are not the only risks Peoples faces. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect Peoples’ business, financial condition and/or operating results.

Changes in the federal, state, or local tax laws may negatively impact our financial performance. On October 28, 2021, President Biden unveiled his revised infrastructure plan, which removed a proposal to implement an increase in the federal corporate income tax rate, but would implement a stock buyback tax as part of a package of tax reforms to help fund the spending proposals in the plan. The revised Biden plan is in the early stages of the legislative process. If adopted as proposed, the stock buyback tax could adversely affect Peoples' determination to repurchase common shares in future periods.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended September 30, 2021:


Period	Total Number of Common Shares Purchased		Average Price Paid per Common Share			Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1 – 31, 2021	—		$	—		—	$	30,000,000
August 1 – 31, 2021	1,363	(2)	$	29.07	(2)	—	$	30,000,000
September 1 – 30, 2021	700	(3)	$	31.22	(3)	—	$	30,000,000
Total	2,063		$	29.80		—	$	30,000,000

(1)On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares. There were no common shares repurchased under the share repurchase program during the three months ended September 30, 2021.

(2)Information reported includes an aggregate of 1,363 common shares withheld to satisfy income taxes associated with restricted common shares which were granted under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan and vested during August 2021.

(3)Information reported includes 700 common shares purchased in open market transactions during September 2021 by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

Exhibit
Number

Description

Exhibit Location

2.1

Agreement and Plan of Merger, dated as of March 26, 2021, by and between Peoples Bancorp Inc. and Premier Financial Bancorp, Inc.+

Incorporated herein by reference to Exhibit 2.1 to the Current Report of Peoples Bancorp Inc. ("Peoples") on Form 8-K dated and filed on March 31, 2021 (File No. 0-16772)

3.1(a)

Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on May 3, 1993) P

Incorporated herein by reference to Exhibit 3(a) to Peoples' Registration Statement on Form 8-B filed on July 20, 1993 (File No. 0-16772)

3.1(b)

Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 22, 1994)

Incorporated herein by reference to Exhibit 3.1(b) to Peoples' Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 (File No. 0-16772) ("Peoples' September 30, 2017 Form 10-Q")

3.1(c)

Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 9, 1996)

Incorporated herein by reference to Exhibit 3.1(c) to Peoples' September 30, 2017 Form 10-Q

3.1(d)

Certificate of Amendment to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on April 23, 2003)

Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 (File No. 0-16772) (“Peoples’ March 31, 2003 Form 10-Q”)

3.1(e)

Certificate of Amendment by Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on January 22, 2009)

Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on January 23, 2009 (File No. 0-16772)

3.1(f)

Certificate of Amendment by Directors to Articles filed with the Ohio Secretary of State on January 28, 2009, evidencing adoption of amendments by the Board of Directors of Peoples Bancorp Inc. to Article FOURTH of the Amended Articles of Incorporation to establish express terms of Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value, of Peoples Bancorp Inc.

Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on February 2, 2009 (File No. 0-16772)

3.1(g)

Certificate of Amendment by the Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on July 28, 2021)

Incorporated herein by reference to Exhibit 3.1(g) to Peoples' Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (File No. 0-16772) ("Peoples' June 30, 2021 Form 10-Q")

3.1(h)

Amended Articles of Incorporation of Peoples Bancorp Inc. (representing the Amended Articles of Incorporation in compiled form incorporating all amendments through the date of this Quarterly Report on Form 10-Q) [For purposes of SEC reporting compliance only--not filed with Ohio Secretary of State]

Incorporated herein by reference to Exhibit 3.1(h) to Peoples' June 30, 2021 Form 10-Q

3.2(a)

Code of Regulations of Peoples Bancorp Inc. P

Incorporated herein by reference to Exhibit 3(b) to Peoples’ Registration Statement on Form 8-B filed on July 20, 1993 (File No. 0-16772)

3.2(b)

Certified Resolutions Regarding Adoption of Amendments to Sections 1.03, 1.04, 1.05, 1.06, 1.08, 1.10, 2.03(C), 2.07, 2.08, 2.10 and 6.02 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 10, 2003

Incorporated herein by reference to Exhibit 3(c) to Peoples’ March 31, 2003 Form 10-Q

3.2(c)

Certificate regarding adoption of amendments to Sections 3.01, 3.03, 3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 8, 2004

Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 (File No. 0-16772)

+Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. A copy of any omitted schedules or exhibits will be furnished supplementally by Peoples Bancorp Inc. to the SEC on a confidential basis upon request.

PPeoples Bancorp Inc. filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format.

Table of Contents

Exhibit
Number

Description

Exhibit Location

3.2(d)

Certificate regarding adoption of amendments to Sections 2.06, 2.07, 3.01 and 3.04 of Peoples Bancorp Inc.’s Code of Regulations by the shareholders on April 13, 2006

Incorporated herein by reference to Exhibit 3.1 to Peoples’ Current Report on Form 8-K dated and filed on April 14, 2006 (File No. 0-16772)

3.2(e)

Certificate regarding adoption of an amendment to Section 2.01 of Peoples Bancorp Inc.’s Code of Regulations by the shareholders on April 22, 2010

Incorporated herein by reference to Exhibit 3.2(e) to Peoples’ Quarterly Report on Form 10-Q/A (Amendment No. 1) for the quarterly period ended June 30, 2010 (File No. 0-16772)

3.2(f)

Certificate regarding Adoption of Amendment to Division (D) of Section 2.02 of the Code of Regulations of Peoples Bancorp Inc. by the Shareholders at the Annual Meeting of Shareholders on April 26, 2018

Incorporated herein by reference to Exhibit 3.1 to Peoples' Current Report on Form 8-K dated and filed on June 28, 2018 (File No. 0-16772) ("Peoples' June 28, 2018 Form 8-K")

3.2(g)

Code of Regulations of Peoples Bancorp Inc. (This document represents the Code of Regulations of Peoples Bancorp Inc. in compiled form incorporating all amendments.)

Incorporated herein by reference to Exhibit 3.2 to Peoples' June 28, 2018 Form 8-K

4.1(a)

Indenture, dated February 26, 2004, between First National Bankshares Corporation, as issuer, and Wilmington Trust Company, as trustee, related to Floating Rate Junior Subordinated Debt Securities due 2034

Filed herewith

4.1(b)

First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., as successor to First National Bankshares Corporation

Filed herewith

4.1(c)

Second Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., as successor to Premier Financial Bancorp, Inc.

Filed herewith

4.2

Amended and Restated Declaration of Trust of FNB Capital Trust One, dated as of February 26, 2004; NOTE: Pursuant to the First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., Premier Financial Bancorp, Inc. succeeded to and was substituted for First National Bankshares Corporation as "Sponsor" and pursuant to the Second Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded and was substituted for Premier Financial Bancorp, Inc. as "Sponsor"

Filed herewith

4.3

Notice of Removal of Administrators and Appointment of Replacements, dated September 17, 2021, delivered to Wilmington Trust Company by the Successor Administrators named therein and Peoples Bancorp Inc.

Filed herewith

4.4

Guarantee Agreement, dated February 26, 2004, between First National Bankshares Corporation, as guarantor, and Wilmington Trust Company, as guarantee trustee, related to the Capital Securities (as defined therein); NOTE: Pursuant to the First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., Premier Financial Bancorp, Inc. succeeded to and was substituted for First National Bankshares Corporation as "Guarantor" and pursuant to the Second Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded and was substituted for Premier Financial Bancorp, Inc. as "Guarantor"

Filed herewith

31.1

Rule 13a-14(a)/15d-14(a) Certifications [President and Chief Executive Officer]

Filed herewith

Table of Contents

Exhibit
Number

Description

Exhibit Location

31.2

Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President, Chief Financial Officer and Treasurer]

Filed herewith

Section 1350 Certifications

Furnished herewith

101.INS

Inline XBRL Instance Document ##