PEOPLES BANCORP INC - Quarter Report: 2022 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, 2022


☐			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: 28,271,499 common shares, without par value, at November 2, 2022.

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 STATEMENTS 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			44


EXECUTIVE SUMMARY			48
RESULTS OF OPERATIONS			50
FINANCIAL CONDITION			65
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			77
ITEM 4. CONTROLS AND PROCEDURES			77
PART II – OTHER INFORMATION			77
ITEM 1. LEGAL PROCEEDINGS			77
ITEM 1A. RISK FACTORS			78
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			78
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			78
ITEM 4. MINE SAFETY DISCLOSURES			78
ITEM 5. OTHER INFORMATION			78
ITEM 6. EXHIBITS			79
SIGNATURES			81

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PEOPLES BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2022		December 31, 2021

(Dollars in thousands)	(Unaudited)
Assets
Cash and cash equivalents:
Cash and balances due from banks	$	93,908	$	74,354
Interest-bearing deposits in other banks	51,276		341,373
Total cash and cash equivalents	145,184		415,727
Available-for-sale investment securities, at fair value (amortized cost of $1,349,800 at September 30, 2022 and $1,283,146 at December 31, 2021) (a)	1,169,844		1,275,493
Held-to-maturity investment securities, at amortized cost (fair value of $326,457 at September 30, 2022 and $369,955 at December 31, 2021) (a)	407,801		374,129
Other investment securities	39,039		33,987
Total investment securities (a)	1,616,684		1,683,609
Loans and leases, net of deferred fees and costs (b)	4,611,207		4,481,600
Allowance for credit losses	(52,866)		(63,967)
Net loans and leases (c)	4,558,341		4,417,633
Loans held for sale	2,649		3,791
Bank premises and equipment, net of accumulated depreciation	83,863		89,260
Bank owned life insurance	104,591		73,358
Goodwill	292,397		264,193
Other intangible assets	36,031		26,816
Other assets	166,114		89,134
Total assets	$	7,005,854	$	7,063,521
Liabilities
Deposits:
Non-interest-bearing	$	1,635,953	$	1,641,422
Interest-bearing	4,229,667		4,221,130
Total deposits	5,865,620		5,862,552
Short-term borrowings	133,611		166,482
Long-term borrowings	104,196		99,475

Accrued expenses and other liabilities	141,916		89,987
Total liabilities	6,245,343		6,218,496
Stockholders’ equity
Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2022 and at December 31, 2021	—		—
Common stock, no par value, 50,000,000 shares authorized, 29,845,795 shares issued at September 30, 2022 and 29,814,401 shares issued at December 31, 2021, including at each date shares held in treasury	685,351		686,282
Retained earnings	249,833		207,076
Accumulated other comprehensive loss, net of deferred income taxes	(134,923)		(11,619)
Treasury stock, at cost, 1,638,574 shares at September 30, 2022 and 1,577,359 shares at December 31, 2021	(39,750)		(36,714)
Total stockholders’ equity	760,511		845,025
Total liabilities and stockholders’ equity	$	7,005,854	$	7,063,521

(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $238, respectively, at September 30, 2022 and $0 and $286, respectively, at December 31, 2021.

(b) Also referred to throughout this Quarterly Report on Form 10-Q as "total loans" and "loans held for investment."

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)	2022		2021		2022		2021
Interest income:
Interest and fees on loans and leases	$	61,370	$	40,748	$	168,334	$	115,196
Interest and dividends on taxable investment securities	7,559		3,755		20,576		9,497
Interest on tax-exempt investment securities	1,095		882		3,136		2,358
Other interest income	847		82		1,306		175
Total interest income	70,871		45,467		193,352		127,226
Interest expense:
Interest on deposits	2,316		2,399		6,383		7,793
Interest on short-term borrowings	393		91		992		283
Interest on long-term borrowings	1,111		399		3,148		1,334

Total interest expense	3,820		2,889		10,523		9,410
Net interest income	67,051		42,578		182,829		117,816
Provision for (recovery of) credit losses	1,776		8,994		(5,811)		7,333
Net interest income after provision for (recovery of) credit losses	65,275		33,584		188,640		110,483



Non-interest income:
Electronic banking income	5,261		4,326		15,933		12,655
Trust and investment income	3,954		4,158		12,476		12,223
Insurance income	3,618		3,367		11,995		11,923
Deposit account service charges	3,833		2,549		10,817		6,578
Bank owned life insurance income	694		437		1,922		1,329
Mortgage banking income	328		766		1,116		2,726
Commercial loan swap fees	224		73		662		194
Net gain (loss) on investment securities	21		(166)		107		(704)
Net loss on asset disposals and other transactions	(35)		(308)		(314)		(459)
Other non-interest income	2,468		1,144		5,088		2,605
Total non-interest income	20,366		16,346		59,802		49,070
Non-interest expense:
Salaries and employee benefit costs	28,618		25,589		83,932		68,276
Net occupancy and equipment expense	4,813		3,551		14,669		10,167
Data processing and software expense	3,279		2,529		9,228		7,394
Professional fees	2,832		6,426		8,784		13,459
Electronic banking expense	2,648		2,037		8,134		6,006
Amortization of other intangible assets	2,023		1,279		5,765		3,267
Marketing expense	1,136		1,223		2,991		2,810
Franchise tax expense	1,075		810		2,941		2,487
FDIC insurance premiums	709		807		2,921		1,596
Communication expense	599		411		1,873		1,079
Other loan expenses	511		487		1,788		1,443
Other non-interest expense	4,010		12,711		10,755		17,762
Total non-interest expense	52,253		57,860		153,781		135,746
Income (loss) before income taxes	33,388		(7,930)		94,661		23,807
Income tax expense (benefit)	7,410		(2,172)		20,218		3,999
Net income (loss)	$	25,978	$	(5,758)	$	74,443	$	19,808


Earnings (loss) per common share - basic	$	0.93	$	(0.28)	$	2.65	$	0.99
Earnings (loss) per common share - diluted	$	0.92	$	(0.28)	$	2.65	$	0.99
Weighted-average number of common shares outstanding - basic	27,865,416		20,640,519		27,929,720		19,751,853
Weighted-average number of common shares outstanding - diluted	27,973,255		20,789,271		28,009,263		19,890,672
Cash dividends declared	$	10,753	$	7,093	$	31,686	$	20,991
Cash dividends declared per common share	$	0.38	$	0.36	$	1.12	$	1.07

See Notes to the Unaudited Condensed Consolidated Financial Statements

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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)	2022		2021		2022		2021
Net income (loss)	$	25,978	$	(5,758)	$	74,443	$	19,808
Other comprehensive (loss) income:
Available-for-sale investment securities:
Gross unrealized holding loss arising during the period	(57,911)		(7,685)		(172,195)		(16,738)
Related tax benefit	13,484		1,592		40,170		3,493
Reclassification adjustment for net (gain) loss included in net income	(21)		166		(107)		704
Related tax benefit (expense)	5		(44)		25		(157)


Net effect on other comprehensive (loss) income	(44,443)		(5,971)		(132,107)		(12,698)
Defined benefit plan:
Net gain arising during the period	203		1,818		264		1,826
Related tax expense	(48)		(407)		(62)		(408)
Amortization of unrecognized gain and service cost on benefit plans	23		20		61		81
Related tax expense	(5)		(5)		(14)		(18)
Recognition of gain due to settlement and curtailment	139		143		139		143
Related tax expense	(32)		(32)		(32)		(32)
Net effect on other comprehensive (loss) income	280		1,537		356		1,592
Cash flow hedges:
Net gain arising during the period	3,388		858		10,948		4,800
Related tax expense	(789)		(90)		(2,501)		(918)
Net effect on other comprehensive (loss) income	2,599		768		8,447		3,882
Total other comprehensive loss, net of tax	(41,564)		(3,666)		(123,304)		(7,224)
Total comprehensive (loss) income	$	(15,586)	$	(9,424)	$	(48,861)	$	12,584

See Notes to the Unaudited Condensed Consolidated Financial Statements

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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, 2022	$	684,416	$	234,608	$	(93,359)	$	(38,841)	$	786,824

Net income	—		25,978		—		—		25,978
Other comprehensive loss, net of tax	—		—		(41,564)		—		(41,564)


Cash dividends declared	—		(10,753)				—		(10,753)

Reissuance of treasury stock for common share awards	(219)		—		—		219		—


Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors	—		—		—		(235)		(235)
Common shares repurchased under share repurchase program then in effect	—		—		—		(1,168)		(1,168)
Common shares issued under dividend reinvestment plan	320		—		—		—		320
Common shares issued under compensation plan for Boards of Directors	20		—		—		106		126

Common shares issued under employee stock purchase plan	34		—		—		169		203
Stock-based compensation	780		—		—		—		780



Balance, September 30, 2022	$	685,351	$	249,833	$	(134,923)	$	(39,750)	$	760,511


					Accumulated Other Comprehensive Loss				Total Stockholders' Equity
	Common Shares		Retained Earnings				Treasury Stock
(Dollars in thousands)
Balance, December 31, 2021	$	686,282	$	207,076	$	(11,619)	$	(36,714)	$	845,025

Net income	—		74,443		—		—		74,443
Other comprehensive loss, net of tax	—		—		(123,304)		—		(123,304)


Cash dividends declared	—		(31,686)		—		—		(31,686)

Reissuance of treasury stock for common share awards	(4,944)		—		—		4,944		—

Reissuance of treasury stock for deferred compensation plan for Boards of Directors	—		—		—		78		78
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors	—		—		—		(1,671)		(1,671)
Common shares repurchased under share repurchase program then in effect	—		—		—		(7,155)		(7,155)
Common shares issued under dividend reinvestment plan	921		—		—		—		921
Common shares issued under compensation plan for Boards of Directors	64		—		—		314		378

Common shares issued under employee stock purchase plan	95		—		—		454		549
Stock-based compensation	2,933		—		—		—		2,933



Balance, September 30, 2022	$	685,351	$	249,833	$	(134,923)	$	(39,750)	$	760,511

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					Accumulated Other Comprehensive Loss				Total Stockholders' Equity
	Common Shares		Retained Earnings				Treasury Stock
(Dollars in thousands)
Balance, June 30, 2021	$	422,652	$	202,359	$	(2,222)	$	(37,284)	$	585,505

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


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

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

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

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

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

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

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


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

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


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

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

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

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

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

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

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

See Notes to the Unaudited Condensed Consolidated Financial Statements

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PEOPLES BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended
	September 30,
(Dollars in thousands)	2022		2021
Net cash provided by operating activities	$	102,500	$	66,722
Investing activities:
Available-for-sale investment securities:
Purchases	(237,930)		(715,263)
Proceeds from sales	8,730		480,127
Proceeds from principal payments, calls and prepayments	155,070		227,574
Held-to-maturity investment securities:
Purchases	(51,060)		(181,331)
Proceeds from principal payments	16,080		3,774
Other investment securities:
Purchases	(11,110)		(1,221)
Proceeds from sales	5,885		8,552

Net decrease in loans held for investment	36,158		156,598
Net expenditures for premises and equipment	(7,008)		(5,893)
Proceeds from sales of other real estate owned	572		153
Purchase of bank owned life insurance	(30,000)		—
Proceeds from bank owned life insurance contracts	689		—
Business acquisitions, net of cash received	(85,791)		136,119
Investment in limited partnership and tax credit funds	(1,857)		(2,900)
Net cash (used in) provided by investing activities	(201,572)		106,289
Financing activities:
Net (decrease) increase in non-interest-bearing deposits	(5,469)		69,557
Net increase in interest-bearing deposits	8,919		95,881
Net (decrease) increase in short-term borrowings	(37,916)		32,625
Proceeds from long-term borrowings	19,001		—
Payments on long-term borrowings	(116,354)		(2,156)


Cash dividends paid	(31,704)		(20,915)
Purchase of treasury stock under share repurchase program	(7,155)		—
Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock	(1,671)		(1,076)
Proceeds from issuance of common shares	878		655


Net cash (used in) provided by financing activities	(171,471)		174,571
Net (decrease) increase in cash and cash equivalents	(270,543)		347,582
Cash and cash equivalents at beginning of period	415,727		152,100
Cash and cash equivalents at end of period	$	145,184	$	499,682

Supplemental cash flow information:
Interest paid	$	11,006	$	10,262
Income taxes paid	1,947		6,450

Supplemental noncash disclosures:
Transfers from total loans to other real estate owned	55		210
Lease right-of-use assets obtained in exchange for lessee operating lease liabilities	27		101

See Notes to the Unaudited Condensed Consolidated Financial Statements

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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, 2021 ("Peoples' 2021 Form 10-K").

The accounting and reporting policies followed in the presentation of the accompanying Unaudited Condensed Consolidated Financial Statements are consistent with those described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2021 Form 10-K, as updated by the information contained in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 30, 2022 for potential recognition or disclosure in these unaudited condensed consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2021, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2021 Form 10-K.

The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items.

New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following paragraphs related to new pronouncements should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2021 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on Peoples' financial statements taken as a whole.

Accounting Standards Update ("ASU") ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance was further updated by ASU 2021-01. This update is effective as of March 12, 2020 through December 31, 2022. This ASU was early adopted by Peoples as of September 30, 2021, and does not have a significant impact on Peoples' Consolidated Financial Statements, but is expected to reduce the accounting burden of assessing contracts impacted by reference rate reform.

ASU 2022-01 - Fair Value Hedging - Portfolio Layer Method - Derivatives and Hedging (Topic 815). This ASU clarifies the guidance in the Accounting Standards Codification ("ASC") 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. For entities that have already adopted ASU 2017-12, as Peoples has, the amendments in ASU 2022-01 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU may also be early adopted, including adoption in any interim period. Peoples is currently evaluating the impact of the amendments in this ASU on Peoples' consolidated financial statements.

ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors and amends the guidance on disclosures to include current-period gross write-offs by year of origination. This ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. For entities that have already adopted ASU 2016-13, as Peoples has, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU may also be early adopted, including adoption in any interim period. Peoples is currently evaluating the impact of the amendments in this ASU on Peoples' consolidated financial statements.

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Note 2 Fair Value of Assets and Liabilities

Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.”

Depending on the nature of the asset or the liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 Form 10-K.

Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

The following table provides the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.


	Recurring Fair Value Measurements at Reporting Date
	September 30, 2022						December 31, 2021
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Assets:
Available-for-sale investment securities:
Obligations of:
U.S. Treasury and government agencies	$	172,055	$	—	$	—	$	35,604	$	—	$	—
U.S. government sponsored agencies	—		80,915		—		—		81,739		—
States and political subdivisions	—		230,022		—		—		259,319		—
Residential mortgage-backed securities	—		624,061		—		—		828,517		—
Commercial mortgage-backed securities	—		52,504		—		—		63,519		—
Bank-issued trust preferred securities	—		10,287		—		—		6,795		—

Total available-for-sale securities	$	172,055	$	997,789	$	—	$	35,604	$	1,239,889	$	—
Equity investment securities (a)	134		198		—		160		184		—
Derivative assets (b)	—		37,167		—		—		12,163		—
Liabilities:
Derivative liabilities (c)	$	—	$	31,234	$	—	$	—	$	17,183	$	—

(a) Included in "Other investment securities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

(b) Included in "Other assets" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

(c) Included in "Accrued expenses and other liabilities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Available-for-Sale Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR (or other relevant) yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.

Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from 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: Derivative assets and liabilities are recognized on the Unaudited Consolidated Balance Sheets at their fair value within "Other assets" and "Accrued expenses and other liabilities", respectively. The fair value for derivative financial instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2).

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Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis

The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy at September 30, 2022 and December 31, 2021.


	Non-Recurring Fair Value Measurements at Reporting Date
	September 30, 2022				December 31, 2021
(Dollars in thousands)	Level 2		Level 3		Level 2		Level 3

Assets:
Collateral dependent loans	$	—	$	2,706	$	—	$	430
Loans held for sale (a)	$	1,302	$	—	$	418	$	—
Other real estate owned ("OREO")	$	—	$	—	$	—	$	87
Servicing rights (b)(c)	$	—	$	25	$	—	$	22

(a) Loans held for sale are presented gross of a valuation allowance of $0 and $0 as of September 30, 2022 and December 31, 2021, respectively.

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

(c) Peoples established a valuation allowance on servicing rights of $6 at September 30, 2022 and $12 at December 31, 2021. The fair value of the servicing rights on 10-year fixed rate loans was less than the carrying value.

Collateral Dependent Loans: Loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty, are considered collateral dependent. Peoples utilizes outside third-party appraisal services to value the underlying collateral, for which Peoples uses to report the loans at their fair value (Level 3).

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

Other Real Estate Owned: OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3).

Servicing Rights: Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). The carrying value of servicing rights is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of servicing rights quarterly for impairment.

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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, 2022				December 31, 2021
		Carrying Amount		Fair Value		Carrying Amount		Fair Value

Assets:
Cash and cash equivalents	1	$	145,184	$	145,184	$	415,727	$	415,727




Held-to-maturity investment securities:
Obligations of:
U.S. government sponsored agencies	2	59,871		50,908		36,431		35,513
States and political subdivisions (a)	2	145,490		107,453		151,688		150,138
Residential mortgage-backed securities	2	111,707		93,885		110,708		110,159
Commercial mortgage-backed securities	2	90,971		74,211		75,588		74,145
Total held-to-maturity securities		408,039		326,457		374,415		369,955


Other investment securities:
Other investment securities at cost:
Federal Home Loan Bank ("FHLB") stock	N/A	14,683		14,683		17,308		17,308
Federal Reserve Bank ("FRB") stock	N/A	21,237		21,237		13,311		13,311
Total other investment securities at cost		35,920		35,920		30,619		30,619
Other investment securities at fair value:
Nonqualified deferred compensation (b)	1	2,008		2,008		2,240		2,240
Other investment securities (c)	2	779		779		784		784
Total other investment securities		38,707		38,707		33,643		33,643

Loans and leases, net of deferred fees and costs (d)	3	4,611,207		4,359,959		4,481,600		4,510,605
Bank owned life insurance	2	104,591		104,591		73,358		73,358
Liabilities:
Deposits	2	$	5,865,620	$	4,797,388	$	5,862,552	$	5,546,552
Short-term borrowings	2	133,611		135,268		166,482		164,990
Long-term borrowings	2	104,196		105,490		99,475		101,664

(a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $238 and $286 as of September 30, 2022 and December 31, 2021, respectively.

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

(c) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at September 30, 2022

and at December 31, 2021, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis

table above and not included in this table.

(d) Loans and leases, net of deferred fees and costs, are presented gross of an allowance for credit losses of $52.9 million and $64.0 million as of September 30, 2022 and December 31, 2021, respectively.

For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These financial instruments include cash and cash equivalents, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash on hand and balances due from banks is a reasonable estimate of fair value (Level 1).

Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, relevant yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.

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Other Investment Securities: Other investment securities at cost are not recorded at fair value as they are not marketable securities. Other investment securities at fair value are valued using quoted prices in an active market (Level 1) or quoted prices in less active markets (Level 2).

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

Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 2). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.

Deposits: The fair value of fixed-maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities. Demand and other non-fixed-maturity deposits are estimated using a discounted cash flow calculation based on maturity, attrition and re-pricing assumptions (Level 2).

Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).

Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).

Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value, which are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.

Note 3 Investment Securities

Available-for-sale

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


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2022
Obligations of:
U.S. Treasury and government agencies	$	178,824	$	—	$	(6,769)	$	172,055
U.S. government sponsored agencies	94,517		4		(13,606)		80,915
States and political subdivisions	270,761		21		(40,760)		230,022
Residential mortgage-backed securities	731,125		1,140		(108,204)		624,061
Commercial mortgage-backed securities	63,821		1		(11,318)		52,504
Bank-issued trust preferred securities	10,752		49		(514)		10,287

Total available-for-sale securities	$	1,349,800	$	1,215	$	(181,171)	$	1,169,844
December 31, 2021
Obligations of:
U.S. Treasury and government agencies	$	35,609	$	12	$	(17)	$	35,604
U.S. government sponsored agencies	83,019		58		(1,338)		81,739
States and political subdivisions	259,508		3,187		(3,376)		259,319
Residential mortgage-backed securities	833,328		6,565		(11,376)		828,517
Commercial mortgage-backed securities	64,971		42		(1,494)		63,519
Bank-issued trust preferred securities	6,711		215		(131)		6,795

Total available-for-sale securities	$	1,283,146	$	10,079	$	(17,732)	$	1,275,493

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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)	2022		2021		2022		2021
Gross gains realized	$	29	$	150	$	189	$	786
Gross losses realized	(8)		(316)		(82)		(1,490)
Net gain (loss) realized	$	21	$	(166)	$	107	$	(704)

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

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


	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
September 30, 2022
Obligations of:
U.S. Treasury and government agencies	$	172,056	$	6,769	26	$	—	$	—	—	$	172,056	$	6,769
U.S. government sponsored agencies	15,861		436		16	64,479		13,170		17	80,340		13,606
States and political subdivisions	127,364		14,607		175	94,650		26,153		70	222,014		40,760
Residential mortgage-backed securities	218,695		25,434		163	393,315		82,770		84	612,010		108,204
Commercial mortgage-backed securities	6,739		543		4	44,669		10,775		19	51,408		11,318
Bank-issued trust preferred securities	7,040		460		4	946		54		1	7,986		514

Total	$	547,755	$	48,249	388	$	598,059	$	132,922	191	$	1,145,814	$	181,171
December 31, 2021
Obligations of:
U.S. Treasury and government agencies	$	16,914	$	17	6	$	—	$	—	—	$	16,914	$	17
U.S. government sponsored agencies	72,406		1,192		13	4,854		146		1	77,260		1,338
States and political subdivisions	101,397		2,075		71	30,853		1,301		11	132,250		3,376
Residential mortgage-backed securities	573,139		9,051		113	51,103		2,325		14	624,242		11,376
Commercial mortgage-backed securities	60,134		1,494		21	—		—		—	60,134		1,494
Bank-issued trust preferred securities	2,991		9		1	878		122		1	3,869		131

Total	$	826,981	$	13,838	225	$	87,688	$	3,894	27	$	914,669	$	17,732

Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At September 30, 2022, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At September 30, 2022, Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both September 30, 2022 and December 31, 2021 were largely attributable to changes in market interest rates and spreads since the securities were purchased, and were not credit-related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment securities was $7.3 million at September 30, 2022 and $5.5 million at December 31, 2021.

At September 30, 2022, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or four positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Of the four positions, three positions had a fair value of less than 90% of its book value. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these

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investments and the low remaining number of loans underlying these securities. U.S. treasury and government agencies, U.S. government sponsored agencies, and obligations of states and political subdivisions were issued by the U.S. Treasury Department or Federal government-sponsored entities. The decline in fair values was attributable to changes in interest rates and not credit quality. Therefore, management does not consider these impaired securities.

The unrealized loss with respect to the one bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at September 30, 2022 was attributable to the subordinated nature of the debt.

The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at September 30, 2022. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.


(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost
Obligations of:
U.S. Treasury and government agencies	$	50,639		$	128,185		$	—		$	—		$	178,824
U.S. government sponsored agencies	4,542			29,812			51,880			8,283			94,517
States and political subdivisions	27,288			46,871			76,138			120,464			270,761
Residential mortgage-backed securities	23			1,657			60,007			669,438			731,125
Commercial mortgage-backed securities	3,509			901			34,262			25,149			63,821
Bank-issued trust preferred securities	—			4,252			6,500			—			10,752

Total available-for-sale securities	$	86,001		$	211,678		$	228,787		$	823,334		$	1,349,800
Fair value
Obligations of:
U.S. Treasury and government agencies	$	49,673		$	122,382		$	—		$	—		$	172,055
U.S. government sponsored agencies	4,499			27,373			42,907			6,136			80,915
States and political subdivisions	27,100			44,620			64,592			93,710			230,022
Residential mortgage-backed securities	23			1,599			53,896			568,543			624,061
Commercial mortgage-backed securities	3,501			857			28,362			19,784			52,504
Bank-issued trust preferred securities	—			4,284			6,003			—			10,287

Total available-for-sale securities	$	84,796		$	201,115		$	195,760		$	688,173		$	1,169,844
Total weighted-average yield	2.52		%	2.78		%	2.29		%	1.81		%	2.09		%

Held-to-maturity

The following table summarizes Peoples’ held-to-maturity investment securities:


(Dollars in thousands)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2022
Obligations of:
U.S. government sponsored agencies	$	59,871	$	—	$	—	$	(8,963)	$	50,908
States and political subdivisions	145,490		(238)		170		(37,969)		107,453
Residential mortgage-backed securities	111,707		—		—		(17,822)		93,885
Commercial mortgage-backed securities	90,971		—		—		(16,760)		74,211
Total held-to-maturity securities	$	408,039	$	(238)	$	170	$	(81,514)	$	326,457
December 31, 2021
Obligations of:
U.S. government sponsored agencies	$	36,431	$	—	$	86	$	(1,004)	$	35,513
States and political subdivisions	151,688		(286)		1,006		(2,270)		150,138
Residential mortgage-backed securities	110,708		—		370		(919)		110,159
Commercial mortgage-backed securities	75,588		—		182		(1,625)		74,145
Total held-to-maturity securities	$	374,415	$	(286)	$	1,644	$	(5,818)	$	369,955

There were no sales of held-to-maturity securities for either of the nine months ended September 30, 2022 or 2021.

Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are obligations of states and political subdivisions with the remaining securities issued by U.S. government sponsored agencies. Peoples analyzed these securities using cumulative default rate averages for

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municipal securities. Peoples recorded $238,000 and $286,000 of allowance for credit losses for held-to-maturity securities as of September 30, 2022, and December 31, 2021, respectively.

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


	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss		No. of Securities	Fair Value		Unrealized Loss
September 30, 2022
Obligations of:
U.S. government sponsored agencies	$	31,574	$	2,172	12	19,333		6,791		4	$	50,907	$	8,963
States and political subdivisions	61,133		20,820		45	42,935		17,149		22	104,068		37,969
Residential mortgage-backed securities	44,505		6,159		15	49,380		11,663		12	93,885		17,822
Commercial mortgage-backed securities	34,496		6,386		18	34,968		10,374		12	69,464		16,760
Total	$	171,708	$	35,537	90	$	146,616	$	45,977	50	$	318,324	$	81,514
December 31, 2021
Obligations of:
U.S. government sponsored agencies	$	17,328	$	504	6	14,635		500		2	$	31,963	$	1,004
States and political subdivisions	61,954		1,041		34	27,328		1,229		6	89,282		2,270
Residential mortgage-backed securities	88,937		919		17	—		—		—	88,937		919
Commercial mortgage-backed securities	67,338		1,625		21	—		—		—	67,338		1,625
Total	$	235,557	$	4,089	78	$	41,963	$	1,729	8	$	277,520	$	5,818

The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at September 30, 2022. The weighted-average yields are based on the amortized cost and are computed on a fully taxable-equivalent basis using a blended federal and state corporate income tax rate of 23.3% and 22.3% for the periods ending September 30, 2022 and December 31, 2021, respectively. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.


(Dollars in thousands)	Within 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
Amortized cost
Obligations of:
U.S. government sponsored agencies	$	—		$	19,144		$	11,172		$	29,555		$	59,871
States and political subdivisions	—			5,209			9,235			131,046			145,490
Residential mortgage-backed securities	—			1,176			—			110,531			111,707
Commercial mortgage-backed securities	—			12,172			21,312			57,487			90,971
Total held-to-maturity securities	$	—		$	37,701		$	41,719		$	328,619		$	408,039
Fair value
Obligations of:
U.S. government sponsored agencies	$	—		$	18,288		$	10,622		$	21,998		$	50,908
States and political subdivisions	—			4,812			7,638			95,003			107,453
Residential mortgage-backed securities	—			1,152			—			92,733			93,885
Commercial mortgage-backed securities	—			11,954			17,841			44,416			74,211
Total held-to-maturity securities	$	—		$	36,206		$	36,101		$	254,150		$	326,457
Total weighted-average yield	—		%	2.70		%	2.58		%	1.97		%	2.10		%

Other Investment Securities

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

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


(Dollars in thousands)	September 30, 2022		December 31, 2021
FHLB stock	$	14,683	$	17,308
FRB stock	21,237		13,311
Nonqualified deferred compensation	2,008		2,240
Equity investment securities	332		344
Other investment securities	779		784
Total other investment securities	$	39,039	$	33,987

During the nine months ended September 30, 2022, Peoples purchased $7.9 million of FRB stock as requested by the FRB as a result of the merger with Premier Financial Bancorp, Inc. ("Premier") on September 17, 2021.

During the three months ended September 30, 2022 and 2021, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $6,000 and $18,000, respectively. For the nine months ended September 30, 2022 and 2021, Peoples recognized a loss of $12,000 and a gain of $91,000, respectively, for the change in fair value of equity securities in "Other non-interest income".

At September 30, 2022, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.

Pledged Securities

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

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


	Carrying Amount
(Dollars in thousands)	September 30, 2022		December 31, 2021

Securing public and trust department deposits, and repurchase agreements:
Available-for-sale	$	891,050	$	795,496
Held-to-maturity	285,207		160,643
Securing collateral for cash flow hedge swaps:
Available-for-sale	—		18,208
Held-to-maturity	—		9,936
Securing additional borrowing capacity at the FHLB and the FRB:
Available-for-sale	4,223		6,504
Held-to-maturity	1,284		549

Note 4 Loans and Leases

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

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


(Dollars in thousands)	September 30, 2022		December 31, 2021
Construction	$	215,621	$	210,232
Commercial real estate, other	1,423,479		1,550,081
Commercial and industrial	877,472		891,392
Premium finance	167,682		136,136
Leases	312,847		122,508
Residential real estate	733,361		771,718
Home equity lines of credit	174,525		163,593
Consumer, indirect	592,309		530,532
Consumer, direct	113,314		104,652
Deposit account overdrafts	597		756
Total loans, at amortized cost	$	4,611,207	$	4,481,600

On March 7, 2022, Peoples completed the acquisition of Vantage, which included $154.9 million of leases. During the first nine months of 2022, Peoples experienced elevated levels of payoffs and amortization of previously-acquired loans, which partially offset organic loan growth.

Peoples is a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender. At September 30, 2022, the PPP loans had an amortized cost of $3.7 million, and were included in the commercial and industrial loan balances. As of September 30, 2022, deferred loan origination fees, net of deferred origination costs, totaled $61,000 for PPP loans. During the third quarter of 2022, Peoples recorded amortization of net deferred loan origination fees of $0.4 million on PPP loans compared to $3.8 million for the third quarter of 2021. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in "Net interest income".

Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest receivable on loans was $13.1 million at September 30, 2022 and $12.0 million at December 31, 2021.

Nonaccrual and Past Due Loans

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.

The amortized cost of loans on nonaccrual status and of loans delinquent for 90 days or more and accruing was as follows:


	September 30, 2022				December 31, 2021
(Dollars in thousands)	Nonaccrual (a)		Accruing Loans 90+ Days Past Due		Nonaccrual (a)		Accruing Loans 90+ Days Past Due
Construction	$	2	$	—	$	6	$	90
Commercial real estate, other	11,916		1,472		17,067		689
Commercial and industrial	2,385		266		3,572		1,139
Premium finance	—		308		—		865
Leases	2,094		4,654		1,581		—
Residential real estate	8,728		1,499		9,647		805
Home equity lines of credit	921		23		1,039		50
Consumer, indirect	1,627		195		1,574		—
Consumer, direct	158		7		279		85
Total loans, at amortized cost	$	27,831	$	8,424	$	34,765	$	3,723

(a) There were $2.0 million of nonaccrual loans for which there was no allowance for credit losses at September 30, 2022 and $2.6 million at December 31, 2021.

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During the first nine months of 2022, nonaccrual loans declined compared to December 31, 2021, which was primarily due to the payoff of one commercial relationship, coupled with other smaller reductions. The increase in accruing loans 90+ days past due, compared to December 31, 2021, was the result of the additional leases acquired in the Vantage acquisition, the majority of which related to in-process renewals. As of September 30, 2022, the short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current borrowers Peoples had made were insignificant. Under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), borrowers are considered current if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made in accordance with the CARES Act were not included in Peoples' nonaccrual or accruing loans 90+ days past due at September 30, 2022.

The amount of interest income recognized on loans past due 90 days or more during the nine months ended September 30, 2022 was $1.1 million.

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


	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
September 30, 2022
Construction	$	334	$	25	$	—	$	359	$	215,262	$	215,621
Commercial real estate, other	2,710		878		11,668		15,256		1,408,223		1,423,479
Commercial and industrial	1,742		870		2,630		5,242		872,230		877,472
Premium finance	312		287		308		907		166,775		167,682
Leases	786		2,972		6,749		10,507		302,340		312,847
Residential real estate	3,413		1,814		5,723		10,950		722,411		733,361
Home equity lines of credit	1,640		102		513		2,255		172,270		174,525
Consumer, indirect	3,912		744		628		5,284		587,025		592,309
Consumer, direct	395		54		83		532		112,782		113,314
Deposit account overdrafts	—		—		—		—		597		597
Total loans, at amortized cost	$	15,244	$	7,746	$	28,302	$	51,292	$	4,559,915	$	4,611,207
December 31, 2021
Construction	$	658	$	—	$	90	$	748	$	209,484	$	210,232
Commercial real estate, other	2,891		1,600		12,561		17,052		1,533,029		1,550,081
Commercial and industrial	1,132		1,278		3,595		6,005		885,387		891,392
Premium finance	751		266		865		1,882		134,254		136,136
Leases	426		247		1,581		2,254		120,254		122,508
Residential real estate	8,276		2,241		5,188		15,705		756,013		771,718
Home equity lines of credit	1,137		619		625		2,381		161,212		163,593
Consumer, indirect	4,220		895		615		5,730		524,802		530,532
Consumer, direct	457		135		200		792		103,860		104,652
Deposit account overdrafts	—		—		—		—		756		756
Total loans, at amortized cost	$	19,948	$	7,281	$	25,320	$	52,549	$	4,429,051	$	4,481,600

Delinquency trends remained stable, as 98.9% of Peoples' loan portfolio was considered “current” at September 30, 2022, compared to 98.8% at December 31, 2021.

Pledged Loans

Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, home equity lines of credit and commercial real estate loans under a blanket collateral agreement to secure borrowings from the FHLB. Peoples also has pledged eligible commercial and industrial loans to secure borrowings with the FRB. Loans pledged are summarized as follows:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Loans pledged to FHLB	$	793,115	$	769,863
Loans pledged to FRB	405,652		294,728

Credit Quality Indicators

As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk

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grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, including loans and leases acquired from Vantage and Premier, is as follows:

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

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

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

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

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

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

The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at September 30, 2022:

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	Term Loans at Amortized Cost by Origination Year														Revolving Loans Converted to Term
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans				Total Loans
Construction
Pass	$	50,403	$	109,791	$	30,078	$	18,033	$	427	$	3,251	$	2,222	$	81	$	214,205
Special mention	—		—		—		—		—		825		—		—		825
Substandard	—		—		136		—		69		386		—		—		591


Total	50,403		109,791		30,214		18,033		496		4,462		2,222		81		215,621
Commercial real estate, other
Pass	124,239		227,395		230,082		206,722		114,512		395,451		21,768		6,337		1,320,169
Special mention	—		195		1,225		5,514		3,198		36,761		93		—		46,986
Substandard	120		9,059		2,342		1,908		1,025		41,356		341		—		56,151
Doubtful	—		—		—		—		—		173		—		—		173

Total	124,359		236,649		233,649		214,144		118,735		473,741		22,202		6,337		1,423,479
Commercial and industrial
Pass	116,058		173,932		86,010		77,871		44,821		99,146		224,418		2,529		822,256
Special mention	—		28		11,098		985		274		4,987		3,333		25		20,705
Substandard	59		9,453		2,627		2,975		2,920		4,563		11,702		142		34,299
Doubtful	—		—		—		—		—		212		—		—		212

Total	116,117		183,413		99,735		81,831		48,015		108,908		239,453		2,696		877,472
Premium finance
Pass	162,713		4,969		—		—		—		—		—		—		167,682




Total	162,713		4,969		—		—		—		—		—		—		167,682
Leases
Pass	139,715		98,250		40,078		19,569		4,440		1,513				—		303,565
Special mention	1,639		3,776		73		24		78		—						5,590
Substandard	575		1,693		537		424		463		—						3,692
Total	141,929		103,719		40,688		20,017		4,981		1,513		—		—		312,847
Residential real estate
Pass	65,666		140,597		62,306		44,469		29,790		375,024		—		—		717,852

Substandard	—		—		—		—		—		15,355		—		—		15,355

Loss	—		—		—		—		—		154		—		—		154
Total	65,666		140,597		62,306		44,469		29,790		390,533		—		—		733,361
Home equity lines of credit
Pass	29,784		36,483		21,432		15,451		14,072		56,586		340		2,191		174,148

Substandard	—		—		—		—		—		377		—		—		377


Total	29,784		36,483		21,432		15,451		14,072		56,963		340		2,191		174,525
Consumer, indirect
Pass	229,831		165,711		112,435		41,315		27,327		15,690		—		—		592,309




Total	229,831		165,711		112,435		41,315		27,327		15,690		—		—		592,309
Consumer, direct
Pass	45,117		32,606		17,426		7,874		4,738		5,553		—		—		113,314




Total	45,117		32,606		17,426		7,874		4,738		5,553		—		—		113,314
Deposit account overdrafts	597		—		—		—		—		—		—		—		597
Total loans, at amortized cost	$	966,516	$	1,013,938	$	617,885	$	443,134	$	248,154	$	1,057,363	$	264,217	$	11,305	$	4,611,207

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The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the then most recent analysis performed at December 31, 2021:



	Term Loans at Amortized Cost by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Construction
Pass	$	85,276	$	78,026	$	29,514	$	3,498	$	1,233	$	2,982	$	2,411	$	6,948	$	202,940
Special mention	290		—		—		735		3,850		137		—		—		5,012
Substandard	—		—		947		77		153		1,103		—		—		2,280


Total	85,566		78,026		30,461		4,310		5,236		4,222		2,411		6,948		210,232
Commercial real estate, other
Pass	253,259		259,113		217,938		143,094		143,975		392,212		21,320		11,940		1,430,911
Special mention	157		2,716		7,875		3,839		6,292		31,626		—		49		52,505
Substandard	—		1,675		824		691		3,124		59,415		371		37		66,100
Doubtful	—		—		—		—		—		542		—		—		542
Loss	—		—		—		—		—		23		—		—		23
Total	253,416		263,504		226,637		147,624		153,391		483,818		21,691		12,026		1,550,081
Commercial and industrial
Pass	299,117		105,646		84,144		56,361		22,182		100,030		174,848		15,888		842,328
Special mention	82		11,745		2,559		2,179		132		5,445		7,563		9		29,705
Substandard	465		2,059		2,691		812		4,995		3,342		3,085		367		17,449
Doubtful	—		—		—		—		—		1,648		262		100		1,910

Total	299,664		119,450		89,394		59,352		27,309		110,465		185,758		16,364		891,392
Premium finance
Pass	135,896		240		—		—		—		—		—		—		136,136
Total	135,896		240		—		—		—		—		—		—		136,136
Leases
Pass	78,048		25,954		13,368		2,972		337		—		—		—		120,679
Special mention	34		29		22		159		4		—		—		—		248
Substandard	196		438		462		479		6		—		—		—		1,581
Total	78,278		26,421		13,852		3,610		347		—		—		—		122,508
Residential real estate
Pass	141,845		74,169		53,434		33,690		44,377		407,541		—		—		755,056

Substandard	—		—		—		—		—		16,302		—		—		16,302

Loss	—		—		—		—		—		360		—		—		360
Total	141,845		74,169		53,434		33,690		44,377		424,203		—		—		771,718
Home equity lines of credit
Pass	35,898		23,276		18,035		16,124		14,991		53,302		1,967		3,287		163,593




Total	35,898		23,276		18,035		16,124		14,991		53,302		1,967		3,287		163,593
Consumer, indirect
Pass	226,287		163,830		63,353		45,672		21,754		9,636		—		—		530,532




Total	226,287		163,830		63,353		45,672		21,754		9,636		—		—		530,532
Consumer, direct
Pass	47,308		26,792		13,293		8,411		3,218		5,630		—		—		104,652




Total	47,308		26,792		13,293		8,411		3,218		5,630		—		—		104,652
Deposit account overdrafts	756		—		—		—		—		—		—		—		756
Total loans, at amortized cost	$	1,304,914	$	775,708	$	508,459	$	318,793	$	270,623	$	1,091,276	$	211,827	$	38,625	$	4,481,600

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Collateral Dependent Loans

Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

• Construction loans are typically secured by owner occupied commercial real estate or non-owner occupied investment real estate. Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction.

•Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

•Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable, and other commercial property.

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

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

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

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

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

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


(Dollars in thousands)	September 30, 2022		December 31, 2021

Construction	$	340		$	1,291
Commercial real estate, other	9,380			37,220
Commercial and industrial	2,590			8,340
Residential real estate	2,196			2,877
Home equity lines of credit	379			391


Total collateral dependent loans	$	14,885		$	50,119

The decrease in collateral dependent loans at September 30, 2022, compared to December 31, 2021, was primarily due to three large commercial relationships that were no longer considered collateral dependent at September 30, 2022.

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Troubled Debt Restructurings

The following tables summarize the loans that were modified as TDRs during the three and nine months ended September 30:


		Three Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
September 30, 2022


Commercial and industrial	1	$	20	$	20	$	19

Residential real estate	7	323		361		354
Home equity lines of credit	2	119		119		119
Consumer, indirect	6	79		79		79
Consumer, direct	3	20		20		20
Consumer	9	99		99		99
Total	19	$	561	$	599	$	591

September 30, 2021
Construction	1	$	6	$	6	$	6
Commercial real estate, other	2	14		14		14
Commercial and industrial	3	327		327		327
Leases	2	182		184		178
Residential real estate	46	1,952		1,956		1,955
Home equity lines of credit	5	55		55		55
Consumer, indirect	9	95		95		95
Consumer, direct	3	9		9		9
Consumer	12	104		104		104
Total	71	$	2,640	$	2,646	$	2,639
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

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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, 2022

Commercial real estate, other	3	$	282	$	282	$	276
Commercial and industrial	6	1,309		1,313		801

Residential real estate	30	1,478		1,562		1,536
Home equity lines of credit	5	251		251		247
Consumer, indirect	19	237		237		237
Consumer, direct	6	63		63		63
Consumer	25	300		300		300
Total	69	$	3,620	$	3,708	$	3,160

September 30, 2021
Construction	2	$	350	$	350	$	350
Commercial real estate, other	3	37		37		37
Commercial and industrial	3	327		327		327
Leases	5	340		348		334
Residential real estate	54	2,367		2,376		2,366
Home equity lines of credit	9	315		315		307
Consumer, indirect	16	200		200		192
Consumer, direct	8	48		48		45
Consumer	24	248		248		237
Total	100	$	3,984	$	4,001	$	3,958
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

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

Peoples had five loans totaling $202,000 that were modified as TDRs during the past twelve months that subsequently defaulted (i.e., 90 days or more past due following a modification during the year).

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

Allowance for Credit Losses

As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 Form 10-K, Peoples' estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. In management's estimation of expected credit losses, Peoples' uses a one year reasonable and supportable period across all segments.

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Following the reasonable and supportable period, Peoples' reverts the macroeconomic variables to their long run average over a four quarter reversion period.

Changes in the allowance for credit losses for the three months ended September 30, 2022 and September 30, 2021 are summarized below:


(Dollars in thousands)	Beginning Balance, June 30, 2022		Initial Allowance for Acquired Purchased Credit Deteriorated Assets (a)		Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets		(Recovery of) Provision for Credit Losses (b)		Charge-offs		Recoveries		Ending Balance, September 30, 2022
Construction	$	1,531	$	—	$	—	$	(67)	$	—	$	—	$	1,464
Commercial real estate, other	18,708		—		—		(995)		(57)		39		17,695
Commercial and industrial	8,572		—		—		72		(36)		3		8,611
Premium finance	311		—		—		279		(38)		1		553
Leases	7,585		377		—		560		(731)		99		7,890
Residential real estate	6,332		—		—		264		(168)		36		6,464
Home equity lines of credit	1,699		—		—		(50)		(5)		—		1,644
Consumer, indirect	6,234		—		—		1,207		(600)		71		6,912
Consumer, direct	1,321		—		—		343		(81)		9		1,592
Deposit account overdrafts	53		—		—		218		(274)		44		41
Total	$	52,346	$	377	$	—	$	1,831	$	(1,990)	$	302	$	52,866

(a)Includes purchase price adjustments related to acquisitions previously completed but within the 12-month measurement period.

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


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

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

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Changes in the allowance for credit losses for the nine months ended September 30, 2022 and September 30, 2021 are summarized below:


(Dollars in thousands)	Beginning Balance, December 31, 2021		Initial Allowance for Acquired Purchased Credit Deteriorated Assets (a)		Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets		(Recovery of) Provision for Credit Losses (b)		Charge-offs		Recoveries		Ending Balance, September 30, 2022
Construction	$	2,999	$	—	$	—	$	(1,535)	$	—	$	—	$	1,464
Commercial real estate, other	29,147		(451)		—		(10,908)		(357)		264		17,695
Commercial and industrial	11,063		(418)		—		(1,124)		(919)		9		8,611
Premium finance	379		—		—		247		(82)		9		553
Leases	4,797		801		—		3,650		(1,697)		339		7,890
Residential real estate	7,233		(509)		—		200		(524)		64		6,464
Home equity lines of credit	2,005		(11)		—		(333)		(46)		29		1,644
Consumer, indirect	5,326		(41)		—		2,821		(1,434)		240		6,912
Consumer, direct	961		—		—		877		(277)		31		1,592
Deposit account overdrafts	57		—		—		772		(938)		150		41
Total	$	63,967	$	(629)	$	—	$	(5,333)	$	(6,274)	$	1,135	$	52,866

(a)Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period.

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



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

(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.s adopted ASU 2016-13 - Financial Instruments

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

During the third quarter of 2022, Peoples recorded a provision for credit losses for loans of $1.8 million, driven by a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans. Leases designated as

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purchased credit deteriorated ("PCD") acquired from Vantage increased the allowance for credit losses by $377,000. Net charge-offs for the third quarter of 2022 were $1.7 million, and included charge-offs of three leases aggregating $0.6 million.

Peoples had recorded an allowance for unfunded commitments of $2.1 million as of September 30, 2022, a decrease compared to $2.5 million at December 31, 2021. The allowance for unfunded commitments (also referred to as "unfunded commitment liability") is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets. The change in the allowance for unfunded commitments is also reflected in the "Provision for (recovery of) credit losses" line of the Unaudited Consolidated Statements of Operations.

Note 5 Goodwill and Other Intangible Assets

Goodwill

The following table details changes in the recorded amount of goodwill:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Goodwill, beginning of year	$	264,193	$	171,260
Goodwill recorded from acquisitions	28,204		92,933
Goodwill, end of period	$	292,397	$	264,193

On March 11, 2022, Peoples Insurance Agency, LLC ("Peoples Insurance") entered into an Asset Purchase Agreement with Elite Agency, Inc. ("Elite"), and consummated the acquisition on April 1, 2022. In the second quarter of 2022, Peoples preliminarily recorded $2.3 million of goodwill related to this acquisition. Peoples Bank entered into an Asset Purchase Agreement, dated March 7, 2022 with Vantage, at which point Vantage became a legal subsidiary of Peoples Bank. In the first nine months of 2022, Peoples preliminarily recorded $27.2 million of goodwill related to this acquisition, which was offset partially by adjustments of $1.2 million to the goodwill balance related to the Premier Merger during the measurement period. On April 1, 2021, Peoples recorded $24.7 million of goodwill related to the acquisition of NS Leasing, LLC ("NSL"). On May 4, 2021, Peoples Insurance recorded $46,000 of goodwill from the acquisition of an insurance agency. On September 17, 2021, Peoples completed the merger with Premier, for which Peoples recorded $66.9 million of goodwill. For additional information on these acquisitions, refer to "Note 13 Acquisitions."

Other Intangible Assets

Other intangible assets were comprised of the following at September 30, 2022, and at December 31, 2021:


(Dollars in thousands)	Core Deposits		Customer Relationships		Total
September 30, 2022
Gross intangibles	$	26,464	$	25,173	$	51,637
Intangibles recorded from acquisitions (a)	—		14,067		14,067
Accumulated amortization	(20,286)		(13,795)		(34,081)
Total acquisition-related intangibles	$	6,178	$	25,445	$	31,623
Servicing rights					1,917
Indefinite-lived intangibles (b)					2,491
Total other intangibles					$	36,031

December 31, 2021
Gross intangibles	$	22,233	$	12,495	$	34,728
Intangibles recorded from acquisitions (c)	4,233		13,014		17,247
Accumulated amortization	(19,048)		(9,603)		(28,651)
Total acquisition-related intangibles	$	7,418	$	15,906	$	23,324
Servicing rights					2,218
Indefinite-lived intangibles (d)					1,274
Total other intangibles					$	26,816

(a) Customer relationship intangible assets included $1.2 million of non-compete intangible assets related to the Vantage acquisition and

$0.1 million of non-compete intangible assets related to the Elite acquisition.

(b) Included $1.2 million of trade name intangible assets related to the Vantage acquisition and $1.3 million of trade name

intangible assets related to the NSL acquisition.

(c) Customer relationship intangible assets consisted of $0.3 million of non-compete intangible assets related to the NSL acquisition.

(d) Included $1.3 million of trade name intangible assets related to the NSL acquisition.

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Other intangible assets preliminarily recorded for the nine months ended September 30, 2022 included $10.8 million of customer relationship intangible assets, and $1.2 million of non-compete intangible assets related to the Vantage acquisition. Peoples also recorded $2.0 million of customer relationship intangible assets and $0.1 million of non-compete intangible assets related to the acquisition of Elite.

Other intangible assets recorded in 2021 included $12.7 million of customer relationship intangible assets related to the NSL acquisition, $4.2 million of core deposit intangible assets related to the Premier merger, and $0.3 million of non-compete intangible assets, and $1.3 million of trade name intangible assets, both related to the NSL acquisition. Refer to "Note 13 Acquisitions" for additional information.

The following table details estimated aggregate future amortization of other intangible assets at September 30, 2022:


(Dollars in thousands)	Core Deposits		Customer Relationships		Total
Remaining three months of 2022	$	382	$	1,617	$	1,999
2023	1,257		6,269		7,526
2024	1,058		5,325		6,383
2025	891		4,255		5,146
2026	731		3,114		3,845
Thereafter	1,859		4,865		6,724
Total	$	6,178	$	25,445	$	31,623

The weighted average amortization period of other intangible assets is 9.8 years.

Servicing Rights

The following is an analysis of activity of servicing rights for the periods ended September 30, 2022 and December 31, 2021:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Balance, beginning of year	$	2,218	$	2,486
Amortization	(460)		(775)
Servicing rights originated	153		519

Change in valuation allowance	6		(12)
Balance, end of period	$	1,917	$	2,218

Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of September 30, 2022, Peoples recorded a reduction to the valuation allowance of $6,000 related to changes in the fair value of servicing rights. During 2021, Peoples had recorded a valuation allowance of $12,000 related to the decrease in the fair value of servicing rights.

The following is the breakdown of the discount rates and prepayment speeds of servicing rights for the periods ended September 30, 2022 and December 31, 2021:


	September 30, 2022				December 31, 2021
	Minimum		Maximum		Minimum		Maximum
Discount rates	11.3	%	13.8	%	8.3	%	10.8	%
Prepayment speeds	7.7	%	20.0	%	8.9	%	27.1	%

The fair value of servicing rights was $3.5 million and $2.6 million at September 30, 2022 and December 31, 2021, respectively.

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Note 6 Deposits

Peoples’ deposit balances were comprised of the following:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Retail CDs:
$100 or more	$	269,145	$	320,574
Less than $100	275,596		323,185
Retail CDs	544,741		643,759
Interest-bearing deposit accounts	1,162,012		1,167,460
Savings accounts	1,077,383		1,036,738
Money market deposit accounts	624,708		651,169
Governmental deposit accounts	734,734		617,259

Brokered deposit accounts (a)	86,089		104,745
Total interest-bearing deposits	4,229,667		4,221,130
Non-interest-bearing deposits	$	1,635,953	1,641,422
Total deposits	$	5,865,620	$	5,862,552

(a) Brokered deposit accounts include $85.0 million of brokered demand deposits.

Time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") limit of $250,000 were $116.4 million and $121.3 million at September 30, 2022 and December 31, 2021, respectively.

The contractual maturities of retail CDs, brokered CDs and demand deposits for each of the next five years, including the remainder of 2022, and thereafter are as follows:


(Dollars in thousands)	Retail		Brokered		Total
Remaining three months ending December 31, 2022 (a)	$	114,371	$	85,595	$	199,966
Year ending December 31, 2023	258,615		494		259,109
Year ending December 31, 2024	98,555		—		98,555
Year ending December 31, 2025	29,032		—		29,032
Year ending December 31, 2026	23,328		—		23,328
Thereafter	20,840		—		20,840
Total CDs	$	544,741	$	86,089	$	630,830

(a) Brokered deposit accounts include $85.0 million of brokered demand deposits.

At September 30, 2022, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, of which $85.0 million were funded by brokered demand and savings deposits. Brokered demand deposits hedged by interest rate swaps are expected to be extended every 90 days through the maturity dates of the swaps. Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments."

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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, 2022:


	Common Shares	Treasury Stock
Shares at December 31, 2021	29,814,401	1,577,359
Changes related to stock-based compensation awards:

Release of restricted common shares	—	39,445
Cancellation of restricted common shares	—	3,647

Grant of restricted common shares	—	(213,065)
Grant of unrestricted common shares	—	(1,500)
Changes related to deferred compensation plan for Boards of Directors:
Purchase of treasury stock	—	13,167
Disbursed out of treasury stock	—	(3,039)
Common shares repurchased under share repurchase program	—	254,519
Common shares issued under dividend reinvestment plan	31,394	—
Common shares issued under compensation plan for Boards of Directors	—	(13,127)

Common shares issued under employee stock purchase plan	—	(18,832)


Shares at September 30, 2022	29,845,795	1,638,574

On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $30.0 million of Peoples' outstanding common shares. At September 30, 2022, Peoples had repurchased 254,519 common shares totaling $7.2 million under the share repurchase program.

Under Peoples' Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At September 30, 2022, Peoples had no preferred shares issued or outstanding.

On October 24, 2022, Peoples' Board of Directors declared a quarterly cash dividend of $0.38 per common share, payable on November 21, 2022, to shareholders of record on November 7, 2022. The following table details the cash dividends declared per common share during the four quarters of 2022 and the comparable periods of 2021:


	2022		2021
First quarter	$	0.36	$	0.35
Second quarter	0.38		0.36
Third quarter	0.38		0.36
Fourth quarter	0.38		0.36
Total dividends declared	$	1.50	$	1.43

Accumulated Other Comprehensive (Loss) Income

The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the nine months ended September 30, 2022:


(Dollars in thousands)	Unrealized Loss on Securities		Unrecognized Net Pension and Postretirement Costs		Unrealized (Loss) Gain on Cash Flow Hedge		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2021	$	(5,946)	$	(1,881)	$	(3,792)	$	(11,619)
Reclassification adjustments to net income:
Realized gain on sale of securities, net of tax	(82)		—		—		(82)
Realized gain due to settlement and curtailment, net of tax	—		107		—		107
Other comprehensive (loss) income, net of reclassifications and tax	(132,025)		249		8,447		(123,329)
Balance, September 30, 2022	$	(138,053)	$	(1,525)	$	4,655	$	(134,923)

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Note 8 Employee Benefit Plans

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

Peoples also provides post-retirement health and life insurance benefits to certain former employees and directors. Only those individuals who retired before January 27, 2012 were eligible for life insurance benefits. As of January 1, 2011, all retirees who desire to participate in the Peoples Bank medical plan do so by electing COBRA, which provides up to 18 months of coverage; retirees over the age of 65 also have the option to pay to participate in a group Medicare supplemental plan. Peoples only pays 100% of the cost of health benefits for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for most, if not all, of the cost of the health benefits. Peoples’ policy is to fund the cost of the benefits as they arise.

The expected long-term rate of return on plan assets, which was determined as of January 1, 2022, is 7.0%. The following table details the components of the net periodic cost for the noncontributory defined benefit pension plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations:


	Pension Benefits
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Interest cost	$	65	$	60	$	197	$	194
Expected return on plan assets	(168)		(143)		(504)		(492)
Amortization of net loss	21		21		61		84
Settlement of benefit obligation	139		143		139		143
Net periodic income (loss)	$	57	$	81	$	(107)	$	(71)

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

Peoples recorded settlement charges under the noncontributory defined benefit pension plan of $139,000 during the three and nine months ended September 30, 2022 and $143,000 during the three and nine months ended September 30, 2021.

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Note 9 Earnings Per Common Share

The calculations of basic and diluted earnings (loss) per common share were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per common share data)	2022		2021		2022		2021
Net income (loss) available to common shareholders	$	25,978	$	(5,758)	$	74,443	$	19,808
Less: Dividends paid on unvested common shares	(102)		(79)		(252)		(214)
Add: Undistributed (loss) earnings allocated to unvested common shares	(24)		21		(65)		2
Net earnings (loss) allocated to common shareholders	$	25,852	$	(5,816)	$	74,126	$	19,596

Weighted-average common shares outstanding	27,865,416		20,640,519		27,929,720		19,751,853
Effect of potentially dilutive common shares	107,839		148,752		79,543		138,819
Total weighted-average diluted common shares outstanding	27,973,255		20,789,271		28,009,263		19,890,672

Earnings (loss) per common share:
Basic	$	0.93	$	(0.28)	$	2.65	$	0.99
Diluted	$	0.92	$	(0.28)	$	2.65	$	0.99
Anti-dilutive common shares excluded from calculation:
Restricted common shares	1,832		—		—		—

Note 10 Derivative Financial Instruments

Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the "Other assets" and the "Accrued expenses and other liabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, while cash activity related to these derivative financial instruments is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows.

Derivative Financial Instruments and Hedging Activities - Risk Management Objective of Using Derivative Financial Instruments

Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. Peoples also manages interest rate risk through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the values of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate derivative financial instruments that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.

Cash Flow Hedges of Interest Rate Risk

Peoples' objectives in using interest rate derivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. At September 30, 2022, Peoples had entered into thirteen interest rate swap contracts with an aggregate notional value of $125.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month brokered CDs and 90-day FHLB Advances, which will continue to be rolled through the life of the swaps. At September 30, 2022, the interest rate swaps were designated as cash flow hedges of $85.0 million in brokered demand deposits, which are expected to be extended every 90 days

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through the maturity dates of the swaps. The remaining $40.0 million of interest rate swaps were designated as cash flow hedges of 90-day FHLB Advances.

For derivative financial instruments designated as cash flow hedges, the effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest expense as interest payments are made or received on Peoples' variable-rate liabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the 90-day advances or brokered CDs are matched to the reset dates and payment dates on the receipt of the three-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. During the three months ended September 30, 2022, and 2021, Peoples had recorded reclassifications of losses to earnings of $0.2 million and $0.8 million, respectively. For the nine months ended September 30, 2022 and 2021, Peoples recorded reclassifications of losses to earnings of $1.3 million and $2.3 million, respectively. During the next twelve months, Peoples estimates that $1.2 million of AOCI will be reclassified as a reduction to interest expense.

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


(Dollars in thousands)	September 30, 2022			December 31, 2021
Notional amount	$	125,000		$	125,000
Weighted average pay rates	2.26		%	2.26		%
Weighted average receive rates	4.16		%	1.10		%
Weighted average maturity	2.8 years			3.6 years
Pre-tax unrealized gains (losses) included in AOCI	$	6,068		$	(4,879)

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Amount of net gains recognized in AOCI, pre-tax	$	(3,388)	$	(858)	$	(10,948)	$	(4,800)

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


	September 30, 2022				December 31, 2021
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in "Other assets":
Interest rate swaps related to debt	$	125,000	$	5,934	$	—	$	—

Included in "Accrued expenses and other liabilities":
Interest rate swaps related to debt	$	—	$	—	$	125,000	$	5,020

Non-Designated Hedges

Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operations or financial condition at or for the three and nine months ended September 30, 2022 and as of or for the year ended December 31, 2021.

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

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	September 30, 2022				December 31, 2021
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in "Other assets":
Interest rate swaps related to commercial loans	$	414,192	$	31,234	$	419,733	$	12,163

Included in "Accrued expenses and other liabilities":
Interest rate swaps related to commercial loans	$	414,192	$	31,234	$	419,733	$	12,163

Pledged Collateral

Peoples pledges or receives collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps is in a net liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps is in a net asset position, the respective counterparties must pledge collateral. At September 30, 2022 and December 31, 2021, Peoples had no cash pledged, while counterparties had $22.0 million of cash pledged at September 30, 2022 and none pledged at December 31, 2021. Peoples had no pledged investment securities and $28.1 million in pledged investment securities at September 30, 2022 and December 31, 2021, respectively, while the counterparties had pledged $3.2 million at September 30, 2022 and none at December 31, 2021.

Note 11 Stock-Based Compensation

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

Restricted Common Shares

Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on the restricted common shares awarded to employees expire after periods ranging from one to five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first nine months of 2022, Peoples granted an aggregate of 154,645 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant date; provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well-capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date.

The following table summarizes the changes to Peoples’ restricted common shares for the nine months ended September 30, 2022:


	Time-Based Vesting			Performance-Based Vesting
	Number of Common Shares	Weighted-Average Grant Date Fair Value		Number of Common Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2022	88,922	$	25.44	247,346	$	32.19
Awarded	58,420	30.94		154,645	32.21
Released	(12,424)	32.37		(100,664)	32.20
Forfeited	—	—		(3,647)	32.17
Outstanding at September 30, 2022	134,918	$	27.18	297,680	$	32.20

For the nine months ended September 30, 2022, the total intrinsic value for restricted common shares released was $3.7 million compared to $2.6 million for the nine months ended September 30, 2021.

Stock-Based Compensation

Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares, as well as purchases made by participants in the employee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. For

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Employee stock-based compensation expense:
Stock grant expense	$	780	$	597	$	2,933	$	2,381
Employee stock purchase plan expense	2		21		54		55

Total employee stock-based compensation expense	782		618		$	2,987	$	2,436
Non-employee director stock-based compensation expense	127		60		$	378	$	310
Total stock-based compensation expense	909		678		$	3,365	$	2,746
Recognized tax benefit	(195)		(151)		(721)		(612)
Net stock-based compensation expense	$	714	$	527	$	2,644	$	2,134

Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the nine months ended September 30, 2022 and 2021. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares on that date. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was $4.8 million at September 30, 2022, which will be recognized over a weighted-average period of 2.1 years.

Note 12 Revenue

The following table details Peoples' revenue from contracts with customers:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Insurance income:
Commission and fees from sale of insurance policies (a)	$	3,465	$	3,231	$	10,323	$	9,603
Fees related to third-party administration services (a)	88		76		252		276
Performance-based commissions (b)	65		60		1,420		2,044
Trust and investment income (a)	3,954		4,158		12,476		12,223
Electronic banking income:
Interchange income (a)	4,150		3,280		12,564		9,930
Promotional and usage income (a)	1,111		1,046		3,369		2,725
Deposit account service charges:
Ongoing maintenance fees for deposit accounts (a)	1,353		933		3,971		2,597
Transaction-based fees (b)	2,480		1,616		6,846		3,981
Commercial loan swap fees (b)	224		73		662		194
Other non-interest income transaction-based fees (b)	255		207		826		601
Total revenue from contracts with customers	$	17,145	$	14,680	$	52,709	$	44,174
Timing of revenue recognition:
Services transferred over time	$	14,121	$	12,724	$	42,955	$	37,354
Services transferred at a point in time	3,024		1,956		9,754		6,820
Total revenue from contracts with customers	$	17,145	$	14,680	$	52,709	$	44,174

(a) Services transferred over time.

(b) Services transferred at a point in time.

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

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performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income.

The following table details the changes in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2022:


	Contract Assets		Contract Liabilities
(Dollars in thousands)
Balance, January 1, 2022	$	743	$	4,811
Additional income receivable	159		—
Additional deferred income	—		487

Recognition of income previously deferred	—		(95)
Balance, September 30, 2022	$	902	$	5,203

Note 13 Acquisitions

Elite Agency, Inc

On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite, pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $3.8 million. Peoples recognized preliminary intangibles of $2.1 million, primarily comprised of a customer relationship intangible.

Vantage Financial, LLC

On March 7, 2022, Peoples Bank purchased 100% of the equity of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota. Peoples Bank acquired assets comprising Vantage's lease business, including $154.9 million in leases and certain third-party debt in the amount of $106.9 million. Under the terms of the agreement, Peoples Bank paid cash consideration of $54.0 million, and also repaid $28.9 million in recourse debt on behalf of Vantage, for total consideration of $82.9 million. Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide-array of industries.

Peoples recorded acquisition-related expenses during the three and nine months ended September 30, 2022 of $120,000 and $1.6 million related to the Vantage acquisition, respectively. For the nine months ended September 30, 2022, the Vantage acquisition-related expenses included $1.3 million in professional fees.

The following table provides the preliminary purchase price calculation as of the date of the acquisition of Vantage, and the assets acquired and liabilities assumed at their estimated fair values, and the amounts are subject to adjustment for up to one year after March 7, 2022. Valuations subject to change include leases, other intangible assets and borrowings.


(Dollars in thousands)	Fair Value







Total purchase price	$	82,893


Net assets at fair value
Assets
Cash and due from banks	$	1,444







Leases	155,726







Allowance for credit losses (on PCD leases)	(801)
Net Leases	154,925



Bank premises and equipment	116
Other intangible assets	13,207
Other assets	1,506

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(Dollars in thousands)	Fair Value
Total assets	$	171,198
Liabilities
Borrowings	$	106,919





Accrued expenses and other liabilities	8,550
Total liabilities	$	115,469
Net assets	$	55,729
Goodwill	$	27,164

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

The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2022, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at September 30, 2022:


(Dollars in thousands)	Change in fair value
Net assets
Leases	$	(2,215)
Allowance for credit losses (on PCD leases)	(377)
Net leases	$	(2,592)



Change in total assets	$	(2,592)
Borrowings	(170)

Change in total liabilities	$	(170)
Change in net assets	$	(2,422)
Change in goodwill	$	2,422

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



(Dollars in thousands)	Par Value		Allowance for Credit Losses		Non-Credit Premium		Fair Value
Purchased credit deteriorated leases



Leases	$	3,412	$	(801)	$	1,120	$	3,731




Fair value	$	3,412	$	(801)	$	1,120	$	3,731

Premier Financial Bancorp, Inc.

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

Peoples recorded acquisition-related expenses related to the Premier merger during the three and nine months ended September 30, 2022 of $18,000 and $445,000.

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

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(Dollars in thousands)	Unpaid Principal Balance	Fair Value




Premier common shares		14,811,200
Number of common shares of Peoples issued for each common share of Premier		0.58
Price per Peoples common share, based at closing date		$	30.49
Common share consideration		261,899
Cash paid in lieu of fractional common shares		25
Total consideration		$	261,924
Net assets at fair value
Assets
Cash and due from banks		$	248,360
Interest-bearing deposits in other banks		1,025
Total cash and cash equivalents		249,385
Available-for-sale investment securities		551,953

Other investment securities		4,159
Total investment securities		556,112

Loans and leases:
Construction	97,262	96,025
Commercial real estate, other	544,950	534,869
Commercial and industrial	132,293	131,979

Residential real estate	332,269	331,544
Home equity lines of credit	46,969	45,910

Consumer	20,961	21,513
Total loans and leases	1,174,704	1,161,840


Allowance for credit losses (on PCD loans)		(15,513)
Net loans and leases		1,146,327
Bank premises and equipment		30,098
Other intangible assets		4,233
OREO		11,081
Other assets		26,982
Total assets		$	2,024,218
Liabilities
Deposits:
Non-interest-bearing		$	733,157
Interest-bearing		1,018,387
Total deposits		1,751,544
Short-term borrowings		63,807
Long-term borrowings		6,070
Accrued expenses and other liabilities		7,813
Total liabilities		1,829,234
Net assets		194,984
Goodwill		$	66,940

Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. Acquired purchased credit deteriorated loans are reported net of the unamortized fair value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired purchased credit deteriorated loans as of the acquisition date:

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(Dollars in thousands)	Par Value		Allowance for Credit Losses		Non-Credit (Discount) Premium		Fair Value
Purchased credit deteriorated loans
Construction	$	20,143	$	(2,005)	$	(214)	$	17,924
Commercial real estate, other	97,193		(9,053)		(2,123)		86,017
Commercial and industrial	9,948		(3,630)		113		6,431

Residential real estate	18,349		(696)		(251)		17,402
Home equity lines of credit	1,291		(55)		(72)		1,164

Consumer	929		(74)		37		892
Fair value	$	147,853	$	(15,513)	$	(2,510)	$	129,830

NS Leasing, LLC

Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $116.5 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. NSL underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded goodwill in the amount of $24.7 million and other intangibles of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. Peoples also recorded and paid an earn-out provision of approximately $3.0 million. Peoples accounted for this transaction as a business combination under the acquisition method.

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

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


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







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









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





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

(a) Includes preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. Peoples recorded an additional $0.7 million in non-interest expense related to an update to the estimated earn-out provision.

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Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. Acquired purchased credit deteriorated leases are reported net of the unamortized fair value adjustment.

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


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

Peoples recorded acquisition-related expenses related to the NSL acquisition during the first nine months of 2022 of $90,000.

Note 14 Leases

Peoples has elected certain practical expedients, in accordance with ASC 842 - Leases ("ASC 842"). As a lessor, Peoples has made an accounting policy election to exclude from consideration in the contract, and from variable payments not included in the consideration in the contract, all sales and other similar taxes assessed. Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.

Lessor Arrangements

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

Peoples began originating leases with the acquisition of leases from NSL in the second quarter of 2021, and expanded its lease portfolio with the acquisition of Vantage in the first quarter of 2022. The leases acquired from NSL were determined to be sales-type leases, as the premise for the leases is dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. These leases do not typically contain residual value guarantees; however, if a lease contains a residual value guarantee, Peoples reduces its residual asset risk by obtaining a security deposit from the lessee. The leases acquired from Vantage were determined to be either sales-type or direct financing leases based primarily on whether they included a dollar buy-out or a fair market value buy-out, respectively. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, health care, manufacturing, office, restaurant, information technology and other equipment. These leases include estimated residual value, which are assessed for impairment as part of the allowance for credit losses. Other non-interest income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' leases can be found in "Note 4 Loans and Leases."

The table below details Peoples' lease income:


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest and fees on leases (a)	$	9,628	$	4,810	$	26,271	$	9,025
Other non-interest income	1,725		471		2,931		716
Total lease income	$	11,353	$	5,281	$	29,202	$	9,741

(a)Included in "Interest and fees on loans and leases" on the Unaudited Consolidated Statements of Operations. For additional information, see "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

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The following table summarizes the net investment in leases, which is included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets:


(Dollars in thousands)	September 30, 2022
Lease payments receivable, at amortized cost	$	331,572
Estimated residual values	34,566
Initial direct costs	3,084
Deferred revenue	(56,375)
Net investment in leases	312,847
Allowance for credit losses - leases	(7,890)
Net investment in leases, after allowance for credit losses	$	304,957

The following table summarizes the contractual maturities of leases:


(Dollars in thousands)	Balance
Remaining three months ending December 31, 2022	$	19,853
Year ending December 31, 2023	76,972
Year ending December 31, 2024	77,615
Year ending December 31, 2025	77,524
Year ending December 31, 2026	48,855
Thereafter	30,753
Lease payments receivable, at amortized cost	$	331,572

Lessee Arrangements

Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At September 30, 2022, Peoples did not have any leases that met the criteria for finance leases. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating lease ROU assets exclude lease incentives. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term and do not have a ROU asset or lease liability.

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


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Operating lease expense	$	630	$	358	1,893		1,038
Short-term lease expense	208		72		555		244
Total lease expense	$	838	$	430	$	2,448	$	1,282

Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.

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


(Dollars in thousands)	September 30, 2022			December 31, 2021
ROU assets:
Other assets	$	7,975		$	7,911
Lease liabilities:
Accrued expenses and other liabilities	$	8,257		$	8,674
Other information:
Weighted-average remaining lease term	9.0 years			9.5 years
Weighted-average discount rate	2.72		%	2.36		%

During the three months ended September 30, 2022 and 2021, Peoples paid cash of $0.7 million and $345,000, respectively, for operating leases. During the nine months ended September 30, 2022 and 2021, Peoples paid cash of $1.9 million and $1.0 million, respectively, for operating leases.

The following table summarizes the maturity of remaining lease liabilities:


(Dollars in thousands)	Balance
Remaining three months ending December 31, 2022	$	834
Year ending December 31, 2023	2,066
Year ending December 31, 2024	1,291
Year ending December 31, 2025	833
Year ending December 31, 2026	674
Thereafter	3,554
Total undiscounted lease payments	$	9,252
Imputed interest	$	(995)
Total lease liabilities	$	8,257

Note 15 Subsequent Events

The Company has evaluated all events occurring after September 30, 2022 through November 3, 2022, the date the interim unaudited financial statements for the period ending September 30, 2022 were available to be issued, to determine whether any event required either recognition or disclosure in the financial statements.

Merger Agreement

On October 25, 2022 Peoples announced the signing of a definitive agreement and plan of merger (the "Merger Agreement") pursuant to which Peoples will acquire, in an all-stock merger, Limestone Bancorp, Inc. ("Limestone"), a bank holding company headquartered in Louisville, Kentucky, and the parent company of Limestone Bank, Inc. (“Limestone Bank”). Under the terms of the Merger Agreement, Limestone will merge with and into Peoples (the “Limestone Merger”), and Limestone Bank will subsequently merge with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at approximately $208.2 million. As of September 30, 2022, Limestone had, on a consolidated basis, $1.5 billion in total assets, which included $1.1 billion in total net loans, as well as $1.2 billion in total deposits.

According to the terms of the Merger Agreement, which has been unanimously approved by the Boards of Directors of both companies, shareholders of Limestone will receive 0.90 common shares of Peoples for each share of Limestone common stock, and the Merger is expected to qualify as a tax-free reorganization for Limestone shareholders.

The Merger is expected to close during the second quarter of 2023, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Peoples and of Limestone.

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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 nine months ended September 30, 2022 and September 30, 2021. This MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.

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," "continue," "remain," 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 risks and uncertainties include, but are not limited to:

(1)the ever-changing effects of the global 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 or mutations thereof - on economies (local, national and international), supply chains and financial markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on Peoples' customers (including potential changes to their bank preferences and behaviors), 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, 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 effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay;

(4)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 Premier Merger, the recently-completed acquisition of Vantage and the pending Limestone Merger, and the expansion of commercial and consumer lending activities, in light of the potential impact of the COVID-19 pandemic on customers' operations and financial condition;

(5)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;

(6)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 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;

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

(8)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;

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

(10)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 recent inflationary pressures and adversely impact the amount of interest income generated;

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(11)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;

(12)future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses;

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

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

(15)the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;

(16)adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and recent inflationary pressures, 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;

(17)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;

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

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

(20)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;

(21)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;

(22)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;

(23)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;

(24)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;

(25)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;

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

(27)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;

(28)the potential further deterioration of the U.S. economy due to financial, political or other shocks;

(29)the potential influence on the U.S. financial markets and economy from the effects of climate change;

(30)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;

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

(32)Peoples' ability to integrate the NSL and Vantage acquisitions, the Premier Merger, and the pending Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;

(33)the risk that expected revenue synergies and cost savings from the Premier Merger or the pending Limestone Merger, may not be fully realized or realized within the expected time frame;

(34)changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases;

(35)the effect of a fall in stock market prices on the asset and wealth management business;

(36)Peoples' continued ability to grow deposits; and

(37)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' 2021 Form 10-K, under the heading "ITEM 1A. RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, and under the head "ITEM 1A. RISK FACTORS" in Part II of this Form 10-Q. Peoples encourages readers of this Form

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10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Peoples undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the filing of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.

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.

This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 2021 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 complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples offers a complete array of insurance products through Peoples Insurance, a subsidiary of Peoples Bank. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division. Peoples also offers lease financing through its North Star Leasing division and through Vantage, a subsidiary of Peoples Bank. As of September 30, 2022, Peoples had 130 locations, including 113 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 FRB of Cleveland and 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 accounting 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, 2022, which have been disclosed in Peoples' 2021 Form 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q. This MD&A should be read in conjunction with the policies disclosed in Peoples’ 2021 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 October 25, 2022, Peoples announced the signing of a definitive agreement and plan of merger pursuant to which Peoples will acquire, in an all-stock merger, Limestone, a bank holding company headquartered in Louisville, Kentucky, and the parent company of Limestone Bank. Under the terms of the agreement and plan of merger, Limestone will merge with and into Peoples, and Limestone Bank will subsequently merge with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at approximately $208.2 million.

◦On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite, pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $3.8 million. Peoples recognized preliminary intangibles of $2.1 million, primarily comprised of a customer relationship intangible.

◦On March 7, 2022, Peoples completed its acquisition of Vantage pursuant to an Equity Purchase Agreement, dated February 16, 2022, in which Peoples Bank purchased 100% of the equity of Vantage. Peoples Bank acquired assets comprising Vantage's lease business, including $154.9 million in leases and certain third-party debt in the amount of $107.1 million. Peoples paid total consideration of $82.9 million. Based in Excelsior, Minnesota, Vantage offers mid-ticket equipment leases

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primarily for business essential information technology equipment across a wide array of industries. Peoples recorded preliminary goodwill in the amount of $27.2 million and preliminary other intangible assets of $13.2 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.

◦On September 17, 2021, Peoples completed its merger with Premier, in which Peoples acquired, in an all-stock merger, 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 “Premier 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 Peoples Bank. Peoples acquired $1.2 billion in loans and $1.8 billion in deposits and recorded goodwill of $66.9 million and other intangible assets of $4.2 million in connection with the Premier Merger as of September 17, 2021.

◦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., 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 paid on the first anniversary of the closing date. Peoples recorded customer relationship intangible assets of $230,000 and goodwill of $46,000 related to this transaction.

◦On March 31, 2021, Peoples completed its acquisition of 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 an earn-out payment to NSL of up to $3.0 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 goodwill in the amount of $24.7 million and other intangibles of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.

◦Peoples began originating loans during the second quarter of 2020, and continued to originate loans during the first five months of 2021 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"). As of September 30, 2022, Peoples had $3.7 million aggregate principal amount in PPP loans outstanding (including $1.7 million acquired in the Premier Merger), which were included in commercial and industrial loan balances, compared to $15.2 million (including $5.6 million acquired in the Premier Merger) at June 30, 2022. Peoples recognized interest income of $0.4 million for deferred loan fees/costs and $22,000 of interest income on PPP loans during the third quarter of 2022, compared to $0.6 million and $79,000, respectively, for the second quarter of 2022, and $3.1 million and $0.4 million, respectively, for the third quarter of 2021. During the first nine months of 2022, Peoples recognized interest income of $2.1 million for deferred loan fee/cost accretion and $0.3 million of interest income on PPP loans, compared to $11.2 million for deferred loan/ fee costs accretion and $2.0 million of interest income during the first nine months of 2021.

◦During the third quarter of 2022, Peoples recorded a provision for credit losses of $1.8 million, compared to a recovery of credit losses of $0.8 million in the linked quarter and a provision for credit losses of $9.0 million in the third quarter of 2021. For the first nine months of 2022, Peoples recorded a recovery of credit losses of $5.8 million compared to a provision for credit losses of $7.3 million for 2021. The release of credit losses for the first three quarters of 2022 was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods. For more information, please refer to the section titled "RESULTS OF OPERATIONS - Provision for (Recovery of) Credit Losses" found later in this discussion.

◦During the third quarter of 2022, Peoples incurred $0.3 million of acquisition-related expenses, compared to $0.6 million in the second quarter of 2022 and $16.2 million in the third quarter of 2021. For the first nine months of 2022, Peoples incurred $2.3 million of acquisition-related expenses compared to $20.5 million for 2021. The acquisition-related expenses in 2022 were primarily related to the Vantage acquisition, while the 2021 expenses were primarily related to the NSL acquisition and the Premier Merger.

◦In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve Board lowered the benchmark Federal Funds Target Rate in two separate actions in the first quarter of 2020 to a range of 0% - 0.25% as of March 31, 2020 and maintained this rate until March 16, 2022. The Federal Reserve Board increased the Federal Funds Target Rate range to 0.25% to 0.50% on March 16, 2022, to 0.75% to 1.00% on May 4, 2022, to 1.50% to 1.75% on June 15, 2022, to 2.25% to 2.50% on July 27, 2022, to 3.00% to 3.25% on September 21, 2022, and has stated it anticipates continuing to raise rates throughout 2022.

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

EXECUTIVE SUMMARY

Peoples reported net income of $26.0 million for the third quarter of 2022, representing earnings per diluted common share of $0.92. In comparison, Peoples recognized earnings per diluted common share of $0.88 for the second quarter of 2022, and a loss per diluted common share of $0.28 for the third quarter of 2021. Peoples recorded net income of $74.4 million, or $2.65 per diluted common share for the nine months ended September 30, 2022, compared to $19.8 million, or $0.99 per diluted common share, for the nine months ended September 30, 2021. Non-core items, and the related tax effect of each, in net income primarily included acquisition-related and COVID-related expenses. Non-core items negatively impacted earnings per diluted common share by $0.01 for the third quarter of 2022, $0.02 for the second quarter of 2022, and $0.71 for the third quarter of 2021. Non-core items negatively impacted earnings per diluted share by $0.07 and $0.98 for the nine months ended September 30, 2022 and 2021, respectively.

Net interest income was $67.1 million for the third quarter of 2022, an increase of $5.6 million, or 9%, compared to the linked quarter. Net interest margin was 4.17% for the third quarter of 2022, compared to 3.84% for the linked quarter. The increase in net interest income and net interest margin reflects the recent increases in market interest rates, which expanded loan yields and investment yields by 33 basis points and 18 basis points, respectively, when compared to the linked quarter. Net interest income for the third quarter of 2022 increased $24.5 million, or 57%, compared to the third quarter of 2021. Net interest margin increased 67 basis points compared to 3.50% for the third quarter of 2021. For the first nine months of 2022, net interest income increased $65.0 million, or 55%, compared to the first nine months of 2021, while net interest margin increased 40 basis points to 3.81%. The increases in net interest income compared to the third quarter and the first nine months of 2021 were driven by the (i) the Premier Merger and Vantage acquisition, (ii) organic growth and (iii) increases in market interest rates.

Accretion income, net of amortization expense, from acquisitions was $2.8 million for the third quarter of 2022, $3.9 million for the second quarter of 2022 and $1.0 million for the third quarter of 2021, which added 16 basis points, 25 basis points and 8 basis points, respectively, to net interest margin. The decrease in accretion income when compared to the linked quarter was driven by less loan accretion due to lower payoffs and less accretion from the Premier Merger. The increase in accretion income for the current quarter compared to the third quarter of 2021 was a result of the acquisition of Vantage and a full quarter of accretion from the Premier Merger. Accretion income, net of amortization expense, from acquisitions was $9.4 million for the nine months ended September 30, 2022, compared to $2.2 million for the nine months ended September 30, 2021, which added 20 and 6 basis points, respectively, to net interest margin. The increase in accretion income for the first nine months of 2022 compared to 2021 was a result of the Premier Merger and the acquisitions of NSL and Vantage.

The provision for credit losses was $1.8 million for the third quarter of 2022, compared to a recovery of credit losses of $0.8 million for the linked quarter and a provision for credit losses of $9.0 million for the third quarter of 2021. The provision for credit losses in the third quarter of 2022 was largely attributable to a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans. Net charge-offs for the third quarter of 2022 were $1.7 million, or 0.15% of average total loans annualized, compared to net charge-offs of $1.5 million, or 0.14% of average total loans annualized, for the linked quarter and net charge-offs of $1.6 million, or 0.18% of average total loans annualized, for the third quarter of 2021. For additional information on credit trends and the allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below.

The recovery of credit losses during the first nine months of 2022 was $5.8 million, compared to a provision for credit losses of $7.3 million for the first nine months of 2021. Net charge-offs for the first nine months of 2022 were $5.1 million, or 0.15% of average total loans annualized, compared to net charge-offs of $3.4 million, or 0.13% annualized, for the first nine months of 2021. The recovery of credit losses during the first nine months of 2022 was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods. The provision for credit losses during the first nine months of 2021 was due to recording a provision for credit losses for the Premier Merger 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 in the third quarter of 2021. 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.

Total non-interest income, excluding net gains and losses, for the third quarter of 2022 increased $0.8 million compared to the linked quarter. The increase in non-interest income, excluding net gains and losses, was primarily impacted by an increase in other non-interest income due to a $1.3 million increase in lease income. Also impacting the third quarter increase was an increase of $0.3 million in deposit account service charges primarily due to customer activity. Partially offsetting these increases in non-interest income, excluding net gains and losses, were declines of $0.3 million, $0.2 million, and $103,000 in trust and investment income, electronic banking income, and bank owned life insurance income, respectively. The decrease in trust and investment income was primarily due to lower market values of trust and investment assets managed. The decrease in electronic banking income was due to less customer activity than in the linked quarter. The lower bank owned life insurance income was primarily driven by $0.2 million recognized on a one-time death benefit during the linked quarter. Compared to the third quarter of 2021, non-interest income, excluding net gains and losses, increased $3.6 million. Lease income, deposit account service charges, and electronic banking income increased $1.7 million, $1.3 million, and $0.9 million, respectively. The increases in deposit account service charges and electronic banking income were primarily attributable to the acquired Premier accounts as well as increased customer activity in recent periods.

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For the first nine months of 2022, total non-interest income, excluding gains and losses, increased $9.8 million, or 19%, compared to the first nine months of 2021. The increase was driven by growth of $4.2 million, or 64%, in service charges on deposit accounts, and $3.3 million, or 26%, in electronic banking income, primarily attributable to customers added in the Premier Merger. Also contributing to the growth was a $2.9 million increase in lease income. Partially offsetting the 2022 increase when compared to the same 2021 period was a $1.6 million decline in mortgage banking income due to the increased market interest rate environment in the first nine months of 2022 and a lower volume of new loan originations.

Total non-interest expense increased $2.4 million, or 5%, for the three months ended September 30, 2022, compared to the linked quarter. The increase in total non-interest expense for the third quarter of 2022 was attributable to increases in (i) salaries and employee benefit costs, (ii) professional fees, (iii) marketing expense and (iv) data processing and software expense. Partially offsetting the increase in non-interest expenses was a decrease in electronic banking expense. The increases in non-interest expenses were primarily driven by growth as well as sales incentives and minimum wage increases at Premier in regards to salaries and employee benefit costs. Total non-interest expense in the third and second quarters of 2022 also contained non-core expenses, including acquisition-related expenses of $0.3 million and $0.6 million, respectively. Compared to the third quarter of 2021, total non-interest expense decreased $5.6 million, or 10%, primarily due to decreases in acquisition-related expenses and professional fees, due to the Premier Merger, which totaled $16.2 million for the third quarter of 2021. Partially offsetting these decreases in non-interest expense were increases in (i) salaries and employee benefit costs, (ii) net occupancy and equipment expense, (iii) data processing and software expense, (iv) amortization of other intangible assets, and (v) electronic banking expense. The increases were due to the recent growth, including through mergers and acquisitions.

For the nine months ended September 30, 2022, total non-interest expense increased $18.0 million, or 13%, compared to the first nine months of 2021. The variance was driven by increases of (i) $15.7 million in salaries and employee benefit costs, (ii) $4.5 million in net occupancy and equipment expense, (iii) $2.5 million in intangible asset amortization, (iv) $2.1 million in electronic banking expense, (v) $1.8 million in data processing and software expenses, and (vi) $1.3 million in FDIC insurance premiums. These increases were primarily due to growth over the last year, driven by mergers and acquisitions. Partially offsetting the increase in non-interest expense was a decrease in acquisition-related expenses.

The efficiency ratio for the third quarter of 2022 was 57.2%, compared to 58.8% for the linked quarter, and 94.7% for the third quarter of 2021. The change in the efficiency ratio compared to the linked quarter was primarily due to the increases in market interest rates coupled with decreases in acquisition-related expenses. The efficiency ratio, adjusted for non-core items, was 56.6% for the third quarter of 2022, compared to 58.0% for the linked quarter and 63.9% for the third quarter of 2021. The change in the efficiency ratio, adjusted for non-core items, was primarily due to the increases in interest rates coupled with decreases in acquisition-related expenses.

The efficiency ratio the nine months ended September 30, 2022 was 60.7%, compared to 78.4% for the nine months ended September 30, 2021. The efficiency ratio, adjusted for non-core items, was 59.6% for the first nine months of 2022, compared to 64.3% for the same period of 2021. The changes in the efficiency ratios were primarily due to the increases in interest income due to higher market interest rates as well as decreases in acquisition-related expenses. Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.

Peoples recorded income tax expense of $7.4 million with an effective tax rate of 22.2% for the third quarter of 2022, compared to income tax expense of $6.8 million with an effective tax rate of 21.6% for the linked quarter and income tax benefit of $2.2 million with an effective tax rate of 27.4% for the third quarter of 2021. The increase in income tax expense for the third quarter of 2022, compared to the linked quarter, was due to higher pre-tax income. The increase in income tax expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was driven by net income in the third quarter of 2022 versus a net loss in the same period of 2021.

Peoples recorded income tax expense of $20.2 million with an effective tax rate of 21.4% in the first nine months of 2022 and $4.0 million with an effective tax rate of 16.8% in the first nine months of 2021. The increase was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

At September 30, 2022, total assets were $7.01 billion, compared to $7.28 billion at June 30, 2022 and $7.06 billion at December 31, 2021 and at September 30, 2021. The 4% decline in total assets compared to June 30, 2022 was primarily due to decreases in interest-bearing deposits at other banks and available-for-sale investment securities, partially offset by an increase in other assets due to increases in the deferred tax asset and derivative assets and loan and lease balances. The increase in the loan and lease balances when compared to June 30, 2022 was primarily driven by increases of (i) $29.2 million in consumer indirect loans, (ii) $19.0 million in commercial and industrial loans, (iii) $15.4 million in premium finance loans and (iv) $13.0 million in construction loans, partially offset by a reduction in other commercial real estate loans of $36.5 million. The 1% decline in total assets compared to December 31, 2021 was largely attributable to decreases in interest-bearing deposits at other banks and available-for-sale investment securities, partially offset by an increase in leases due primarily to the acquired Vantage leases.

Total liabilities were $6.25 billion at September 30, 2022, down from $6.49 billion at June 30, 2022 and up from $6.22 billion at December 31, 2021 and $6.23 billion at September 30, 2021. The decrease in total liabilities compared to June 30, 2022 was attributable to decreases in short-term borrowings and total deposits. The decline in total deposits when compared to June 30, 2022 was primarily driven by reductions of (i) $39.5 million in retail certificates of deposits, (ii) $20.5 million in money market deposit

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accounts, and (iii) $16.5 million in non-interest bearing checking accounts. The increase in total liabilities compared to December 31, 2021 was primarily due to increases in accrued expenses and other liabilities, partially offset by decreases in deposits. Total deposits are declining due to customers returning to pre-COVID-19 pandemic balances. In the 2021 periods presented, deposits 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.

Total stockholders' equity at September 30, 2022 decreased by $26.3 million compared to June 30, 2022, which reflected an other comprehensive loss of $41.6 million, dividends paid of $10.8 million, and share repurchases of $1.2 million, partially offset by net income for the quarter of $26.0 million. Total stockholders' equity at September 30, 2022 decreased by $84.5 million compared to December 31, 2021, which was due to (i) an other comprehensive loss of $123.3 million, (ii) dividends paid of $31.7 million and (iii) share repurchases of $7.1 million, partially offset by net income of $74.4 million for the first nine months of 2022. The other comprehensive loss in all periods of 2022 was the result of changes in the market value of available-for-sale investment securities, which were driven by changes in market interest rates.

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 corporate income tax rate of 21.4% for September 30, 2022, a 23.3% blended corporate income tax rate for June 30, 2022, and 22.3% blended corporate income tax rate for September 30, 2021.

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


	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Net interest income	$	67,051	$	61,468	$	42,578	$	182,829	$	117,816
Taxable equivalent adjustment	387		414		351		1,116		970
Fully tax-equivalent net interest income	$	67,438	$	61,882	$	42,929	$	183,945	$	118,786

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


	For the Three Months Ended
	September 30, 2022						June 30, 2022						September 30, 2021
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost
Short-term investments	$	159,522	$	847	2.11	%	$	182,456	$	299	0.66	%	$	199,007	$	82	0.16	%

Investment securities (a)(b):
Taxable	1,483,984		7,604		2.05	%	1,515,647		7,014		1.85	%	979,278		3,799		1.55	%
Nontaxable	201,150		1,405		2.79	%	193,112		1,344		2.78	%	173,459		1,136		2.62	%
Total investment securities	1,685,134		9,009		2.13	%	1,708,759		8,358		1.96	%	1,152,737		4,935		1.71	%
Loans (b)(c):
Construction	222,966		2,765		4.85	%	209,822		2,216		4.18	%	125,178		1,196		3.74	%
Commercial real estate, other	1,300,173		16,593		4.99	%	1,353,201		15,599		4.56	%	993,259		9,507		3.75	%
Commercial and industrial	865,436		11,140		5.04	%	864,023		8,715		3.99	%	789,555		8,933		4.43	%
Premium finance	162,057		1,949		4.71	%	143,898		1,778		4.89	%	122,828		1,542		4.91	%
Leases	307,459		9,628		12.25	%	288,360		10,541		14.46	%	97,068		4,810		19.39	%
Residential real estate (d)	869,444		9,439		4.34	%	888,809		9,326		4.20	%	652,184		6,648		4.08	%
Home equity lines of credit	173,032		2,217		5.08	%	167,935		1,748		4.17	%	126,888		1,271		3.97	%
Consumer, indirect	576,826		5,907		4.06	%	541,135		5,243		3.89	%	541,329		5,509		4.04	%
Consumer, direct	113,609		1,764		6.16	%	111,541		1,647		5.92	%	86,935		1,385		6.32	%
Total loans	4,591,002		61,402		5.26	%	4,568,724		56,813		4.94	%	3,535,224		40,801		4.55	%
Allowance for credit losses	(52,719)						(54,148)						(51,610)
Net loans	4,538,283		61,402		5.33	%	4,514,576		56,813		5.00	%	3,483,614		40,801		4.61	%
Total earning assets	6,382,939		71,258		4.40	%	6,405,791		65,470		4.06	%	4,835,358		45,818		3.74	%
Goodwill and other intangible assets	329,482						329,243						232,361
Other assets	411,687						386,629						407,428
Total assets	$	7,124,108					$	7,121,663					$	5,475,147
Interest-bearing deposits:
Savings accounts	$	1,079,580	$	139	0.05	%	$	1,076,028	$	45	0.02	%	$	737,771	$	23	0.01	%
Governmental deposit accounts	741,836		543		0.29	%	704,632		471		0.27	%	542,855		458		0.33	%
Interest-bearing demand accounts	1,158,970		190		0.07	%	1,177,751		115		0.04	%	795,565		74		0.04	%
Money market accounts	623,144		292		0.19	%	641,066		104		0.07	%	533,497		67		0.05	%
Retail certificates of deposit	560,532		644		0.46	%	602,225		747		0.50	%	457,073		951		0.83	%
Brokered deposits (e)	86,524		508		2.33	%	87,006		532		2.45	%	155,779		826		2.10	%
Total interest-bearing deposits	4,250,586		2,316		0.22	%	4,288,708		2,014		0.19	%	3,222,540		2,399		0.30	%
Borrowed funds:
Short-term FHLB advances (e)	41,696		266		2.53	%	53,846		237		1.77	%	17,174		78		1.80	%
Repurchase agreements and other	161,069		127		0.32	%	96,589		24		0.10	%	63,226		13		0.08	%
Total short-term borrowings	202,765		393		0.77	%	150,435		261		0.70	%	80,400		91		0.45	%
Long-term FHLB advances	34,727		212		2.42	%	58,498		257		1.76	%	86,561		316		1.45	%

Other borrowings	77,155		899		4.56	%	94,097		1,056		4.44	%	8,470		83		3.92	%
Total long-term borrowings	111,882		1,111		3.97	%	152,595		1,313		3.44	%	95,031		399		1.67	%
Total borrowed funds	314,647		1,504		1.91	%	303,030		1,574		2.08	%	175,431		490		1.11	%
Total interest-bearing liabilities	4,565,233		3,820		0.33	%	4,591,738		3,588		0.31	%	3,397,971		2,889		0.34	%
Non-interest-bearing deposits	1,655,888						1,648,067						1,358,652
Other liabilities	105,128						90,457						90,741
Total liabilities	6,326,249						6,330,262						4,847,364


Total stockholders’ equity	797,859						791,401						627,783
Total liabilities and stockholders’ equity	$	7,124,108					$	7,121,663					$	5,475,147
Interest rate spread (b)			$	67,438	4.07	%			$	61,882	3.75	%			$	42,929	3.40	%
Net interest margin (b)					4.17	%					3.84	%					3.50	%

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	For the Nine Months Ended
	September 30, 2022						September 30, 2021
(Dollars in thousands)	Average Balance		Income/ Expense		Yield/Cost		Average Balance		Income/ Expense		Yield/Cost
Short-term investments	$	224,060	$	1,306	0.78	%	$	175,755	$	175	0.13	%

Investment securities (a)(b):
Taxable	1,488,609		20,712		1.86	%	899,531		9,636		1.43	%
Nontaxable	199,515		3,991		2.67	%	149,636		3,035		2.70	%
Total investment securities	1,688,124		24,703		1.95	%	1,049,167		12,671		1.61	%
Loans (b)(c):
Construction	219,478		7,136		4.29	%	108,859		3,169		3.84	%
Commercial real estate, other	1,338,375		46,974		4.63	%	930,150		26,938		3.82	%
Commercial and industrial	872,601		27,878		4.21	%	872,421		28,773		4.35	%
Premium finance	146,345		4,891		4.41	%	112,925		4,137		4.83	%
Leases	253,231		26,271		13.68	%	61,551		9,025		19.34	%
Residential real estate (d)	890,499		28,531		4.27	%	624,993		19,749		4.21	%
Home equity lines of credit	168,137		5,577		4.43	%	122,720		3,638		3.96	%
Consumer, indirect	547,438		16,195		3.96	%	526,900		16,025		4.07	%
Consumer, direct	110,509		5,006		6.06	%	82,151		3,896		6.34	%
Total loans	4,546,613		168,459		4.91	%	3,442,670		115,350		4.44	%
Allowance for credit losses	(56,237)						(49,483)
Net loans	4,490,376		168,459		4.97	%	3,393,187		115,350		4.50	%
Total earning assets	6,402,560		194,468		4.03	%	4,618,109		128,196		3.68	%
Goodwill and other intangible assets	321,043						213,232
Other assets	380,376						360,842
Total assets	$	7,103,979					$	5,192,183
Interest-bearing deposits:
Savings accounts	$	1,068,912	$	218	0.03	%	$	688,782	$	79	0.02	%
Governmental deposit accounts	705,891		1,462		0.28	%	490,170		1,602		0.44	%
Interest-bearing demand accounts	1,169,284		397		0.05	%	743,562		205		0.04	%
Money market accounts	638,061		492		0.10	%	554,194		294		0.07	%
Retail certificates of deposit	596,335		2,262		0.51	%	440,454		3,054		0.93	%
Brokered deposits (e)	88,336		1,552		2.35	%	166,000		2,559		2.06	%
Total interest-bearing deposits	4,266,819		6,383		0.20	%	3,083,162		7,793		0.34	%
Borrowed funds:
Short-term FHLB advances (e)	50,132		816		2.18	%	18,773		246		1.75	%
Repurchase agreements and other	119,228		176		0.20	%	55,100		37		0.09	%
Total short-term borrowings	169,360		992		0.78	%	73,873		283		0.51	%
Long-term FHLB advances	59,440		775		1.74	%	96,765		1,099		1.52	%

Repurchase agreement and other borrowings	71,689		2,373		4.37	%	7,926		235		3.95	%
Total long-term borrowings	131,129		3,148		3.20	%	104,691		1,334		1.70	%
Total borrowed funds	300,489		4,140		1.83	%	178,564		1,617		1.21	%
Total interest-bearing liabilities	4,567,308		10,523		0.31	%	3,261,726		9,410		0.39	%
Non-interest-bearing deposits	1,637,053						1,248,330
Other liabilities	91,749						86,209
Total liabilities	6,296,110						4,596,265


Total stockholders’ equity	807,869						595,918
Total liabilities and stockholders’ equity	$	7,103,979					$	5,192,183
Interest rate spread (b)			$	183,945	3.72	%			$	118,786	3.29	%
Net interest margin (b)					3.81	%					3.41	%

(a)Average balances are based on carrying value.

(b)Interest income and yields are presented on a fully tax-equivalent basis, using a 21.4% blended corporate income tax rate for September 30, 2022, a 23.3% blended corporate income tax rate for June 30, 2022, and a 22.3% blended corporate income tax rate for September 30, 2021.

(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' average balances compared to prior periods have been impacted by recent acquisitions, which included: Vantage on March 7, 2022, which added to average lease and borrowed funds balances, and Premier on September 17, 2021, which added to average short-term investments, average total investment securities, average total loans and average total deposits. Peoples has began to reduce cash balances after previously maintaining high cash balances in recent prior periods due to an influx of deposits, coupled with PPP proceeds.

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




	Three Months Ended September 30, 2022 Compared to												Nine Months Ended September 30, 2022 Compared to
(Dollars in thousands)	June 30, 2022						September 30, 2021						September 30, 2021
Increase (decrease) in:	Rate		Volume		Total (a)		Rate		Volume		Total (a)		Rate		Volume		Total (a)
INTEREST INCOME:
Short-term investments	$	871	$	(323)	$	548	$	873	$	(108)	$	765	$	1,058	$	73	$	1,131

Investment Securities (b):
Taxable	1,473		(883)		590		1,454		2,351		3,805		3,592		7,484		11,076
Nontaxable	12		49		61		79		190		269		(14)		970		956
Total investment income	1,485		(834)		651		1,533		2,541		4,074		3,578		8,454		12,032
Loans (b):
Construction	396		153		549		433		1,136		1,569		409		3,558		3,967
Commercial real estate, other	4,128		(3,134)		994		3,679		3,407		7,086		6,524		13,512		20,036
Commercial and industrial	2,413		12		2,425		1,300		907		2,207		(904)		9		(895)
Premium finance	(366)		537		171		(396)		803		407		(566)		1,320		754
Leases	(4,488)		3,575		(913)		(11,144)		15,962		4,818		(4,884)		22,130		17,246
Residential real estate	1,068		(955)		113		456		2,335		2,791		279		8,503		8,782
Home equity lines of credit	412		57		469		411		535		946		471		1,468		1,939
Consumer, indirect	271		393		664		36		362		398		(618)		788		170
Consumer, direct	80		37		117		(229)		608		379		(315)		1,425		1,110
Total loan income	3,914		675		4,589		(5,454)		26,055		20,601		396		52,713		53,109
Total interest income	$	6,270	$	(482)	$	5,788	$	(3,048)	$	28,488	$	25,440	$	5,032	$	61,240	$	66,272
INTEREST EXPENSE:
Deposits:
Savings accounts	$	94	$	—	$	94	$	101	$	15	$	116	$	81	$	58	$	139
Governmental deposit accounts	44		28		72		(331)		416		85		(920)		780		(140)
Interest-bearing demand accounts	86		(11)		75		73		43		116		55		137		192
Money market accounts	209		(21)		188		212		13		225		149		49		198
Retail certificates of deposit	(56)		(47)		(103)		(1,339)		1,032		(307)		(2,067)		1,275		(792)
Brokered deposits	(22)		(2)		(24)		505		(823)		(318)		505		(1,512)		(1,007)
Total deposit cost	355		(53)		302		(779)		696		(83)		(2,197)		787		(1,410)
Borrowed funds:
Short-term borrowings	380		(248)		132		111		191		302		143		566		709
Long-term borrowings	495		(697)		(202)		756		(44)		712		254		1,560		1,814
Total borrowed funds cost	875		(945)		(70)		867		147		1,014		397		2,126		2,523
Total interest expense	1,230		(998)		232		88		843		931		(1,800)		2,913		1,113
Fully tax-equivalent net interest income	$	5,040	$	516	$	5,556	$	(3,136)	$	27,645	$	24,509	$	6,832	$	58,327	$	65,159

(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 using a 21.4% blended corporate income tax rate for September 30, 2022, a 23.3% blended corporate income tax rate for June 30, 2022, and a 22.3% blended corporate income tax rate for September 30, 2021.

Compared to the linked quarter, net interest income increased 9% and net interest margin expanded by 33 basis points. Both increases were primarily driven by 32 basis points of improvement in loan yields and 17 basis points of improvement in investment yields due to the recent increases in market interest rates. Both deposit costs and borrowing costs remained stable.

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Net interest income grew 57% over the prior year quarter and net interest margin increased 67 basis points. The recent acquisitions have positively impacted net interest income, coupled with organic growth and an increase in market interest rates. Compared to the prior year quarter, loan yields grew 71 basis points due to the rising interest rate environment and both acquisitive and organic growth, while borrowing costs increased 80 basis points as a result of the non-recourse debt assumed in the acquisition of Vantage.

For the first nine months of 2022, net interest income and net interest margin grew 55% and 40 basis points, respectively, compared to 2021. During that same time, loan yields increased 47 basis points, which was partially offset by higher borrowing costs. Net interest income has been positively impacted by (i) the Premier Merger and Vantage acquisition, (ii) core growth and (iii) increases in market interest rates.

Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $0.4 million, $0.6 million and $3.1 million during the third and second quarters of 2022 and the third quarter of 2021, respectively, along with $22,000, $79,000 and $0.4 million of interest earned on PPP loans, during the respective periods. For the first nine months of 2022, interest income recognized on deferred loan fees/costs related to PPP loans was $2.2 million, and interest earned was $0.3 million, compared to $11.2 million and $2.0 million, respectively, for the nine months of 2021. The interest income recognized on PPP loans added 1 basis point, 2 basis points and 18 basis points to net interest margin for the third and second quarters of 2022 and the third quarter of 2021, respectively, while adding 3 basis points and 20 basis points to net interest margin for the first nine months of 2022 and 2021, respectively.

Accretion income, net of amortization expense, from acquisitions was $2.8 million for the third quarter of 2022, $3.9 million for the linked quarter and $1.0 million for the third quarter of 2021, which added 16 basis points, 25 basis points and 8 basis points, respectively, to net interest margin. The decrease in accretion income when compared to the linked quarter was driven by less loan accretion due to lower payoffs and less accretion from the Premier Merger. The increase in accretion income for the current quarter compared to the third quarter of 2021 was a result of the acquisition of Vantage and a full quarter of accretion from the Premier Merger. For the first nine months of 2022, accretion income totaled $9.4 million and added 20 basis points to net interest margin compared to $2.2 million and 6 basis points for the first nine months of 2021, with the increase from the prior year due to the acquired loans and leases from the Premier Merger and Vantage acquisition.

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 (Recovery of) Credit Losses

The following table details Peoples’ provision for (recovery of) credit losses:


	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30,
(Dollars in thousands)										2022			2021
Provision for (recovery of) other credit losses	$	1,558		$	(1,135)		$	8,870		$	(6,583)		$	7,125
Provision for checking account overdraft credit losses	218			355			124			772			208
Provision for (recovery of) credit losses	$	1,776		$	(780)		$	8,994		$	(5,811)		$	7,333
As a percentage of average total loans (a)	0.15		%	(0.07)		%	1.01		%	(0.17)		%	0.28		%
(a) Presented on an annualized basis.

The provision for (recovery of) credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. For the third quarter of 2022, the provision for credit losses was primarily attributable to a deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans.

For the second quarter of 2022, the recovery of credit losses was driven by the reduction in allowance for individually analyzed loans, as well as changes in loss drivers used in the CECL model.

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 Premier Merger. 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.

For the first nine months of 2022, the recovery of credit losses was primarily due to the impact of economic assumptions used in the CECL model. For the first nine months of 2021, the provision of credit losses was due to the day-one allowance for credit losses for the Premier Merger described above.

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.”

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

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


	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Net gain (loss) on investment securities	$	21	$	(44)	$	(166)	$	107	$	(704)

Net loss on asset disposals and other transactions:
Net gain (loss) on other assets	$	94	$	(119)	$	(270)	$	(47)	$	(429)
Net loss on OREO	(105)		(33)		(32)		(138)		(24)

Net loss on other transactions	(24)		—		(6)		(129)		(6)
Net loss on asset disposals and other transactions	$	(35)	$	(152)	$	(308)	$	(314)	$	(459)

The net loss on asset disposals and other transactions decreased in the third quarter relative to the linked and prior year quarters. The net loss for the linked quarter was attributable to a $119,000 loss recorded on repossessed assets coupled with a $44,000 loss on the sale of investment securities in order to reinvest into higher-yielding investment securities.

The net loss for the third quarter of 2021 was driven primarily by net losses on the disposal of fixed assets acquired in the Premier Merger 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 investment securities.

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 in the Premier Merger.

Total Non-Interest Income, Excluding Net Gains and Losses

Total non-interest income, excluding net gains and losses, comprised 23% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the third quarter of 2022, compared to 24% for the linked quarter and 28% for the prior year quarter. For the first nine months of 2022, total non-interest income, excluding net gains and losses, totaled 25% of total revenues compared to 30% for the same period of 2021. The declines in this ratio compared to the prior periods were primarily due to higher net interest income associated with the recent acquisition of Vantage and the Premier Merger, coupled with the increase in the market interest rate environment.

For the third quarter of 2022, 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, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021


E-banking income	$	5,261	$	5,419	$	4,326	$	15,933	$	12,655

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. E-banking income decreased compared to the linked quarter primarily due to less customer activity. For the current quarter compared to the prior year quarter and the first nine months of 2022 compared to the first nine months of 2021, e-banking income grew 22% and 26%, respectively, from the impact of the acquired Premier accounts in addition to increased customer activity in recent periods.

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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 plan services business. The following table details Peoples’ trust and investment income:


	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Fiduciary income	$	1,752	$	1,999	$	1,944	$	5,716	$	5,941
Brokerage income	1,578		1,631		1,577		4,858		4,408
Employee benefit fees	624		616		637		1,902		1,874
Trust and investment income	$	3,954	$	4,246	$	4,158	$	12,476	$	12,223

Fiduciary income and brokerage income decreased in the current quarter relative to the linked quarter, due to a decrease in assets under administration and management. For the first nine months of 2022, new accounts drove the growth in trust and investment income when compared to the same period of 2021.

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


	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2022		September 30, 2021
(Dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2022		September 30, 2021

Trust	$	1,682,334	$	1,731,454	$	1,927,828	$	2,009,871	$	1,937,123
Brokerage	1,127,831		1,068,261		1,152,530		1,183,927		1,133,668
Total	$	2,810,165	$	2,799,715	$	3,080,358	$	3,193,798	$	3,070,791
Quarterly average	$	2,844,181	$	2,927,405	$	3,106,021	$	3,126,398	$	3,077,554

The declines in assets under administration and management at September 30, 2022, compared to June 30, 2022 and December 31, 2021, were driven by a decrease in market values over the first nine months of 2022 due to the recent economic downturn.

The following table details Peoples' insurance income:


	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021


Property and casualty insurance commissions	$	2,958	$	3,039	$	2,836	$	8,859	$	8,356


Performance-based commissions	64		10		59		1,420		2,044
Life and health insurance commissions	508		506		396		1,464		1,248
Other fees and charges	88		92		76		252		275
Insurance income	$	3,618	$	3,647	$	3,367	$	11,995	$	11,923

Insurance income for the current quarter grew by $0.3 million compared to the third quarter of 2021 due to additional customers.

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, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Overdraft and non-sufficient funds fees	$	2,233	$	2,019	$	1,420	$	6,154	$	3,429
Account maintenance fees	1,353		1,306		934		3,971		2,598
Other fees and charges	247		233		195		692		551
Deposit account service charges	$	3,833	$	3,558	$	2,549	$	10,817	$	6,578

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 increased for the current quarter compared to the linked quarter, and the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021 due to increased customer activity in recent quarters, compared to the very low levels of early 2021, which had been impacted by fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic. Also contributing to the increases in the current quarter compared to the prior year quarter and

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the first nine months of 2022 compared to the first nine months of 2021 were the additional customers associated with the Premier Merger.

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


	Three Months Ended			Nine Months Ended
	September 30, 2022	June 30, 2022	September 30, 2021	September 30,
(Dollars in thousands)				2022	2021

Bank owned life insurance income	694	797	437	1,922	1,329
Mortgage banking income	328	352	766	1,116	2,726
Commercial loan swap fees	224	270	73	662	194
Other non-interest income	2,468	1,294	1,144	5,088	2,605

Bank owned life insurance income for the current quarter was down compared to the linked quarter primarily due to a $248,000 death benefit related to the cash surrender value of the underlying policy in the linked quarter. Partially offsetting the decline, was the fact that Peoples invested an additional $30.0 million in bank owned life insurance policies during the second quarter of 2022. For the first nine months of 2022, the increased bank owned life insurance income when compared to the same period of 2021 was due to the aforementioned death benefit proceeds and additional investment in policies.

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 for the current quarter was mostly flat when compared to the linked quarter. Mortgage banking income declined for the current year quarter compared to the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021 due to the increased market interest rate environment in recent quarters and a lower volume of new loan originations.

In the third quarter of 2022, Peoples sold $4.4 million in loans to the secondary market with servicing retained and $7.6 million in loans with servicing released, compared to $4.6 million and $6.1 million, respectively, for the second quarter of 2022, and $11.0 million and $10.3 million, respectively, for the third quarter of 2021. For the first nine months of 2022, Peoples sold $16.1 million in loans to the secondary market with servicing retained, and $21.6 million with servicing released, compared to $44.0 million and $27.7 million, respectively, for the first nine months of 2021 .

Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. During the third quarter of 2022, commercial loan swap fees decreased slightly for the current quarter as a result of several new commercial loan swaps in the linked period. The commercial loan swap fees increased in the current quarter when compared to third quarter of 2021 and for the first nine months of 2022 compared to the first nine months of 2021 primarily due to the recent increases in market interest rates and increased activity.

Other non-interest income for the current quarter increased primarily due to $1.3 million and $1.7 million increases in lease income when compared to the linked quarter and the prior year quarter, respectively, and for the first nine months of 2022 compared to the first nine months of 2021 due to an increase of $2.9 million in lease income.

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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, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Base salaries and wages	$	18,762	$	18,408	$	17,493	$	54,846	$	43,746
Sales-based and incentive compensation	4,899		4,913		4,013		13,448		12,034
Employee benefits	3,340		3,321		2,619		10,282		8,338
Payroll taxes and other employment costs	1,796		1,389		1,635		5,276		4,471
Stock-based compensation	782		600		618		2,987		2,437
Deferred personnel costs	(961)		(1,046)		(789)		(2,907)		(2,750)
Salaries and employee benefit costs	$	28,618	$	27,585	$	25,589	$	83,932	$	68,276
Full-time equivalent employees:
Actual at end of period	1,244		1,261		1,181		1,244		1,181
Average during the period	1,253		1,255		990		1,106		942

Base salaries and wages for the current quarter increased compared to the prior year quarter and for the first nine months of 2022 compared to the first nine months of 2021, driven by the additional salaries associated with the acquisition of Vantage, and the Premier Merger.

The increases in sales-based and incentive compensation for the current quarter compared to the linked quarter and third quarter of 2021, and for the first nine months of 2022 compared to the first nine months of 2021 were primarily due to sales incentives earned by Vantage employees.

The increases in employee benefits for the current quarter compared to the third quarter of 2021 and the first nine months of 2021 were due to higher medical costs with the addition of the Premier and Vantage employees.

Payroll taxes and other employment costs increased compared to the second quarter of 2022 and the third quarter of 2021, and for the first nine months of 2022 compared to the first nine months of 2021, in each case primarily driven by recent mergers and acquisitions.

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 2022 increased when compared to the first nine months of 2021 due to employees added in the acquisition of Vantage and the Premier Merger.

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 for the current quarter compared to the linked quarter was primarily due to a decrease in loan origination volume.

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


	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Depreciation	$	1,722	$	1,770	$	1,365	$	5,315	$	4,134
Repairs and maintenance costs	1,333		1,245		1,017		3,959		2,863
Property taxes, utilities and other costs	994		997		798		3,190		2,077
Net rent expense	764		756		371		2,205		1,093
Net occupancy and equipment expense	$	4,813	$	4,768	$	3,551	$	14,669	$	10,167

For the third quarter and first nine months of 2022, net occupancy and equipment expense increased when compared to the third quarter and the first nine months of 2021, respectively, due to the additional locations and equipment from recent mergers and acquisitions.

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


	Three Months Ended						Nine Months Ended
	September 30, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021
Data processing and software expense	3,279		3,033		2,529		9,228		7,394
Professional fees	$	2,832	$	2,280	$	6,426	$	8,784	$	13,459
E-banking expense	2,648		2,727		2,037		8,134		6,006
Amortization of other intangible assets	2,023		2,034		1,279		5,765		3,267
Marketing expense	1,136		860		1,223		2,991		2,810
Franchise tax expense	1,075		1,102		810		2,941		2,487
FDIC insurance premiums	709		1,018		807		2,921		1,596
Communication expense	599		649		411		1,873		1,079
Other loan expenses	511		445		487		1,788		1,443
Other non-interest expense	4,010		3,398		12,711		10,755		17,762

Professional fees increased for the current quarter compared to the linked quarter primarily due to increased fees to third parties to assist with process improvements to support the operational teams, partially offset by lower acquisition-related expenses. Professional fees decreased for the third quarter of 2022 when compared to the third quarter of 2021 and for first nine months of 2022 when compared to the first nine months of 2021, primarily driven by acquisition-related expenses related to the Premier Merger which had been realized in 2021.

Data processing and software expense increased relative to prior year periods, driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.

E-banking expense decreased during the current quarter compared to the linked quarter, and is correlated to e-banking income, which also decreased from the linked quarter primarily due to less customer activity. E-banking expense increased for the third quarter of 2022 when compared to the third quarter of 2021 and for the first nine months of 2022 when compared to the first nine months of 2021 due to growth, both organic and through mergers and acquisitions.

Amortization of other intangible assets for the current quarter increased when compared to the third quarter of 2021 and during the first nine months of 2022 when compared to the first nine months of 2021, due to the increased intangible assets recognized as a result of the recent mergers and acquisitions.

Peoples' FDIC insurance premiums decreased for the current quarter compared to the linked quarter due to an adjustment related to the most recent FDIC invoice. FDIC insurance premiums for the first nine months of 2022 increased compared to the first nine months of 2021 due to organic and acquisitive growth.

Marketing expense increased during the current quarter compared to the linked quarter due to increased advertising and donations. The decrease during the current quarter when compared to the third quarter of 2021 was due to additional advertising campaigns relating to the addition of Premier locations in the third quarter of 2021.

Other loan expenses during the first nine months of 2022 increased when compared to the first nine months of 2021 primarily due to higher indirect lending volume and increased collection expense driven by the Premier Merger.

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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. The increases versus the 2021 comparative periods were driven by recent growth through acquisitions and organic means.

Communications expense increased during the first nine months of 2022 when compared to the first nine months of 2021 due to upgraded networking to certain branches (including new branches acquired from Premier coupled with the addition of the NSL and Vantage locations acquired) and increased costs compared to the prior period among certain vendors that provide communication services.

Other non-interest expense increased during the current quarter when compared to the linked quarter due to increased insurance expenses. Other non-interest expense for the third quarter of 2022 and the first nine months of 2022 decreased when compared to their respective 2021 periods primarily due to less acquisition-related expenses.

Income Tax Expense

Peoples recorded income tax expense of $7.4 million with an effective tax rate of 22.2% for the third quarter of 2022, compared to income tax expense of $6.8 million with an effective tax rate of 21.6% for the linked quarter and income tax benefit of $2.2 million with an effective tax rate of 27.4% for the third quarter of 2021. The increase in income tax expense for the third quarter of 2022, compared to income tax expense for the linked quarter, was due to an increase in Peoples' pre-tax income. The increase in income tax expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was driven by net income in the third quarter of 2022 versus a net loss in the same period of 2021.

Peoples recorded income tax expense of $20.2 million with an effective tax rate of 21.4% in the first nine months of 2022 and income tax expense of $4.0 million with an effective tax rate of 16.8% in the first nine months of 2021. The increase was driven by higher pre-tax income and a higher effective tax rate primarily due to apportionment in additional states due to recent acquisitions.

Additional information regarding income taxes can be found in "Note 13 Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 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, 2022			June 30, 2022			September 30, 2021			September 30,
(Dollars in thousands)										2022			2021
Pre-provision net revenue:
Income (loss) before income taxes	$	33,388		$	31,735		$	(7,930)		$	94,661		$	23,807
Add: provision for credit losses	1,776			—			8,994			1,776			7,333

Add: loss on OREO	105			32			32			138			32
Add: loss on investment securities	—			44			316			44			1,490
Add: loss on other assets	—			120			363			142			687
Add: loss on other transactions	24			—			6			128			6
Less: gain on OREO	—			—			—			—			8
Less: recovery of credit losses	—			780			—			7,587			—
Less: gain on investment securities	21			—			150			151			786

Less: gain on other assets	94			—			93			94			258
Pre-provision net revenue	$	35,178		$	31,151		$	1,538		$	89,057		$	32,303


Total average assets	$7,124,108			$7,121,663			$5,475,147			$7,103,979			$5,192,183
Pre-provision net revenue to total average assets (annualized)	1.96		%	1.75		%	0.11		%	1.68		%	0.83		%

Weighted-average common shares outstanding - diluted	27,973,255			28,061,736			20,789,271			28,009,263			19,890,672
Pre-provision net revenue per common share - diluted	$	1.25		$	1.11		$	0.07		$	3.17		$	1.61

The increase PPNR in the third quarter of 2022 compared to the linked quarter was driven by increased net interest income reflecting the positive impact of recent increases in market interest rates. PPNR grew in the third quarter of 2022 and the first nine months of 2022 when compared to the third quarter of 2021 and the first nine months of 2021, respectively, mostly due to the impact of the Premier Merger and the Vantage and NSL acquisitions in improving net interest income, the recent increases in market interest rates, higher non-interest income, and lower acquisition-related expenses.

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, pension settlement charges, severance expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution and contract negotiation expenses.

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, 2022		June 30, 2022		September 30, 2021		September 30,
(Dollars in thousands)							2022		2021

Core non-interest expense:
Total non-interest expense	$	52,253	$	49,899	$	57,860	$	153,781	$	135,746

Less: acquisition-related expenses	339		602		16,209		2,314		20,520
Less: pension settlement charges	139		—		143		139		143
Less: severance expenses	—		—		—		—		63

Less: COVID-19-related expenses	9		29		181		132		683
Less: Peoples Bank Foundation, Inc. contribution	—		—		—		—		500
Less: contract negotiation expenses	—		—		1,851		—		1,851
Core non-interest expense	$	51,766	$	49,268	$	39,476	$	151,196	$	111,986

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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.


	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30,
(Dollars in thousands)										2022			2021

Efficiency ratio:
Total non-interest expense	$	52,253		$	49,899		$	57,860		$	153,781		$	135,746
Less: amortization of other intangible assets	2,023			2,034			1,279			5,765			3,267
Adjusted total non-interest expense	50,230			47,865			56,581			148,016			132,479

Total non-interest income	20,366			19,386			16,346			59,802			49,070

Less: net gain (loss) on investment securities	21			(44)			(166)			107			(704)
Less: net loss on asset disposals and other transactions	(35)			(152)			(308)			(314)			(459)
Total non-interest income excluding net gains and losses	20,380			19,582			16,820			60,009			50,233

Net interest income	67,051			61,468			42,578			182,829			117,816
Add: fully tax-equivalent adjustment (a)	387			414			351			1,116			970
Net interest income on a fully tax-equivalent basis	67,438			61,882			42,929			183,945			118,786
Adjusted revenue	$	87,818		$	81,464		$	59,749		$	243,954		$	169,019
Efficiency ratio	57.20		%	58.76		%	94.70		%	60.67		%	78.38		%

Efficiency ratio adjusted for non-core items:
Core non-interest expense	$	51,766		$	49,268		$	39,476		$	151,196		$	111,986
Less: amortization of other intangible assets	2,023			2,034			1,279			5,765			3,267
Adjusted core non-interest expense	49,743			47,234			38,197			145,431			108,719
Non-interest income excluding net gains and losses	20,380			19,582			16,820			60,009			50,233
Net interest income on a fully tax-equivalent basis	67,438			61,882			42,929			183,945			118,786
Adjusted revenue	$	87,818		$	81,464		$	59,749		$	243,954		$	169,019
Efficiency ratio adjusted for non-core items	56.64		%	57.98		%	63.93		%	59.61		%	64.32		%

(a) Tax effect is calculated using a 21.4% blended corporate income tax rate for September 30, 2022, 23.3% blended corporate income tax rate for June 30, 2022, and 22.3% blended corporate income tax rate for September 30, 2021.

The efficiency ratio and the efficiency ratio adjusted for non-core items for the third quarter of 2022 improved when compared to the linked quarter, due to higher net interest income driven by increases in market interest rates. Additionally, for the third quarter of 2022 and the first nine months of 2022 compared to the third quarter of 2021 and the first nine months of 2021, respectively, the efficiency ratio and adjusted efficiency ratio both improved due to improvements in net interest income from the recent acquisitions, coupled with higher non-interest income, outpacing increases in total non-interest expense.

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, pension settlement charges, severance expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution and contract negotiation expenses.

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	Three Months Ended									Nine Months Ended
	September 30, 2022			June 30, 2022			September 30, 2021			September 30,
(Dollars in thousands)										2022			2021

Annualized net income (loss) adjusted for non-core items:
Net income (loss)	$	25,978		$	24,888		$	(5,758)		$	74,443		$	19,808

Add: net loss on investment securities	—			44			166			—			704
Less: tax effect of net loss on investment securities (a)	—			9			35			—			148
Less: net gain on investment securities	21			—			—			107			—
Add: tax effect of net gain on investment securities (a)	4			—			—			22			—
Add: net loss on asset disposals and other transactions	35			152			308			314			459
Less: tax effect of net loss on asset disposals and other transactions (a)	7			32			65			66			96



Add: acquisition-related expenses	339			602			16,209			2,314			20,520
Less: tax effect of acquisition-related expenses (a)	71			126			3,404			486			4,309
Add: pension settlement charges	139			—			143			139			143
Less: tax effect of pension settlement charges (a)	29			—			30			29			30
Add: severance expenses	—			—			—			—			63
Less: tax effect of severance expenses (a)	—			—			—			—			13
Add: COVID-19-related expenses	9			29			181			132			683
Less: tax effect of COVID-19-related expenses (a)	2			6			38			28			143
Add: Peoples Bank Foundation, Inc. contribution	—			—			—			—			500
Less: tax effect of Peoples Bank Foundation, Inc. contribution (a)	—			—			—			—			105




Add: contract negotiation expenses	—			—			1,851			—			1,851
Less: tax effect of contract negotiation expenses (a)	—			—			389			—			389


Net income adjusted for non-core items (after tax)	$	26,374		25,542			9,139			76,648			39,498
Days in the period	92			91			92			273			273
Days in the year	365			365			365			365			365
Annualized net income (loss)	$	103,065		$	99,825		$	(22,844)		$	99,530		$	26,483
Annualized net income adjusted for non-core items (after tax)	$	104,636		$	102,449		$	36,258		$	102,478		$	52,809
Return on average assets:
Annualized net income (loss)	$	103,065		$	99,825		$	(22,844)		$	99,530		$	26,483
Total average assets	7,124,108			7,121,663			5,475,147			7,103,979			5,192,183
Return on average assets	1.45		%	1.40		%	(0.42)		%	1.40		%	0.51		%
Return on average assets adjusted for non-core items:
Annualized net income adjusted for non-core items (after tax)	$	104,636		$	102,449		$	36,258		$	102,478		$	52,809
Total average assets	7,124,108			7,121,663			5,475,147			7,103,979			5,192,183
Return on average assets adjusted for non-core items	1.47		%	1.44		%	0.66		%	1.44		%	1.02		%

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

The return on average assets for the current quarter improved when compared to the linked quarter, due to higher net interest income driven by increases in market interest rates. The increases in the return on average assets for the third quarter of 2022, compared to the third quarter of 2021 and for the first nine months of 2022 compared to the first nine months of 2021, were

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attributable to higher net interest income and non-interest income, which were driven by the recent acquisitions and increases in market interest rates.

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, 2022			June 30, 2022			September 30, 2021			September 30,
(Dollars in thousands)										2022			2021
Annualized net income (loss) excluding amortization of other intangible assets:
Net income (loss)	$	25,978		$	24,888		$	(5,758)		$	74,443		$	19,808
Add: amortization of other intangible assets	2,023			2,034			1,279			5,765			3,267
Less: tax effect of amortization of other intangible assets (a)	425			427			269			1,211			686
Net income (loss) excluding amortization of other intangible assets	$	27,576		$	26,495		$	(4,748)		$	78,997		$	22,389
Days in the period	92			91			92			273			273
Days in the year	365			365			365			365			365
Annualized net income (loss)	$	103,065		$	99,825		$	(22,844)		$	99,530		$	26,483
Annualized net income (loss) excluding amortization of other intangible assets	$	109,405		$	106,271		$	(18,837)		$	105,619		$	29,934
Average tangible equity:
Total average stockholders' equity	$	797,859		$	791,401		$	627,783		$	807,869		$	595,918
Less: average goodwill and other intangible assets	329,482			329,243			232,361			321,043			213,232
Average tangible equity	$	468,377		$	462,158		$	395,422		$	486,826		$	382,686
Return on total average stockholders' equity ratio:
Annualized net income	$	103,065		$	99,825		$	(22,844)		$	99,530		$	26,483
Total average stockholders' equity	$	797,859		$	791,401		$	627,783		$	807,869		$	595,918
Return on total average stockholders' equity	12.92		%	12.61		%	(3.64)		%	12.32		%	4.44		%
Return on average tangible equity ratio:
Annualized net income (loss) excluding amortization of other intangible assets	$	109,405		$	106,271		$	(18,837)		$	105,619		$	29,934
Average tangible equity	$	468,377		$	462,158		$	395,422		$	486,826		$	382,686
Return on average tangible equity	23.36		%	22.99		%	(4.76)		%	21.70		%	7.82		%

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

The return on total average stockholders' equity and average tangible equity ratios were higher in the current quarter and the first nine months of 2022 relative to all prior periods, due to higher total net interest income driven by the recent increases in market interest rates and loans and leases added in the Premier Merger and acquisitions of Vantage and NSL, coupled with higher non-interest income. At the same time, the average tangible equity was negatively impacted by the Vantage acquisition, for which People did not issue any equity, and recorded additional goodwill and other intangible assets.

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FINANCIAL CONDITION

Cash and Cash Equivalents

At September 30, 2022, Peoples' interest-bearing deposits in other banks had decreased $290.1 million from December 31, 2021. Peoples paid $82.9 million in cash for the Vantage acquisition during the first quarter of 2022. The total cash and cash equivalents balance included $36.0 million of excess cash reserves being maintained at the FRB of Cleveland at September 30, 2022, compared to $318.1 million at December 31, 2021. 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.

Through the first nine months of 2022, Peoples' total cash and cash equivalents decreased $270.5 million as Peoples had $201.6 million and $171.5 million of cash used in investing activities and financing activities, respectively, partially offset by cash provided by operating activities of $102.5 million. Peoples' cash used in investing activities reflected (i) cash outflows for business combinations of $85.8 million, (ii) net cash outflows from available-for-sale investment securities of $74.1 million, (iii) net cash outflows from held-to-maturity investment securities of $35.0 million, and (iv) purchases of bank owned life insurance of $30.0 million, partially offset by cash inflows from a $36.2 million net decrease in loans held for investment. The cash used in financing activities was largely driven by cash outflows from (i) payments on long-term borrowings of $116.4 million, (ii) a net decrease in short-term borrowings of $37.9 million and (iii) cash dividends paid of $31.7 million, partially offset by cash inflows from proceeds on long-term borrowings of $19.0 million.

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)	Weighted Average Yield		September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Available-for-sale securities, at fair value:
Obligations of:
U.S. Treasury and government agencies	2.79	%	$	172,055	$	175,255	$	167,406	$	35,604	$	—
U.S. government sponsored agencies	1.47	%	80,915		82,465		80,654		81,739		78,481
States and political subdivisions	2.74	%	230,022		249,402		231,644		259,319		252,919
Residential mortgage-backed securities	1.77	%	624,061		691,735		753,353		828,517		898,459
Commercial mortgage-backed securities	1.79	%	52,504		58,301		58,112		63,519		62,552
Bank-issued trust preferred securities	3.29	%	10,287		10,440		10,670		6,795		4,679



Total fair value			$	1,169,844	$	1,267,598	$	1,301,839	$	1,275,493	$	1,297,090
Total amortized cost			$	1,349,800	$	1,389,621	$	1,381,259	$	1,283,146	$	1,294,654
Net unrealized (loss) gain			$	(179,956)	$	(122,023)	$	(79,420)	$	(7,653)	$	2,436
Held-to-maturity securities, at amortized cost:
Obligations of:
U.S. government sponsored agencies	2.12	%	$	59,871	$	50,990	$	38,486	$	36,431	$	29,995
States and political subdivisions (a)	2.34	%	145,252		151,034		151,217		151,402		124,181
Residential mortgage-backed securities	1.84	%	111,707		112,095		115,613		110,708		41,035
Commercial mortgage-backed securities	2.02	%	90,971		86,601		79,340		75,588		47,889
Total amortized cost			$	407,801	$	400,720	$	384,656	$	374,129	$	243,100
Other investment securities			$	39,039	$	41,655	$	41,840	$	33,987	$	34,486
Total investment securities:
Amortized cost			$	1,796,640	$	1,831,996	$	1,807,755	$	1,691,262	$	1,572,240
Carrying value			$	1,616,684	$	1,709,973	$	1,728,335	$	1,683,609	$	1,574,676

(a)Amortized cost is presented net of the allowance for credit losses of $238 at September 30, 2022, $286 at December 31, 2021 and $236 at September 30, 2021.

For the first quarter of 2022, total investment securities increased compared to the prior quarter, largely due to investments made in U.S. Treasury and government agencies' obligations, in an effort to deploy cash, improve investment yields and reduce risk, partially offset by the reduction in market value of available-for-sale securities driven by the recent increases in market interest rates.

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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, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Originated loans:
Construction	$	175,388		$	144,062		$	171,934		$	137,437		$	108,334
Commercial real estate, other	891,576			899,774			854,721			861,610			838,333
Commercial real estate	1,066,964			1,043,836			1,026,655			999,047			946,667
Commercial and industrial	814,593			777,050			791,307			779,064			715,169
Premium finance	167,682			152,237			145,813			136,121			134,755
Leases	178,083			149,894			97,168			69,169			49,464
Residential real estate	381,104			373,010			364,989			350,595			334,838
Home equity lines of credit	124,524			115,935			107,414			104,176			98,806
Consumer, indirect	592,309			563,088			524,778			530,532			543,243
Consumer, direct	99,282			95,371			87,994			81,330			80,746
Consumer	691,591			658,459			612,772			611,862			623,989
Deposit account overdrafts	597			851			699			756			927
Total originated loans	$	3,425,138		$	3,271,272		$	3,146,817		$	3,050,790		$	2,904,615
Acquired loans (a):
Construction	$	40,233		$	58,526		$	66,371		$	72,795		$	66,450
Commercial real estate, other	531,903			560,249			602,511			688,471			790,783
Commercial real estate	572,136			618,775			668,882			761,266			857,233
Commercial and industrial	62,879			81,402			95,844			112,328			143,369
Premium finance	—			—			—			15			—
Leases	134,764			164,628			169,900			53,339			61,982
Residential real estate	352,257			369,995			391,440			421,123			433,296
Home equity lines of credit	50,001			53,400			54,874			59,417			62,564
Consumer, indirect	—			—			—			—			13
Consumer, direct	14,032			16,433			19,396			23,322			27,956
Consumer	14,032			16,433			19,396			23,322			27,969
Total acquired loans	$	1,186,069		$	1,304,633		$	1,400,336		$	1,430,810		$	1,586,413
Total loans	$	4,611,207		$	4,575,905		$	4,547,153		$	4,481,600		$	4,491,028



Percent of loans to total loans:
Construction	4.7		%	4.4		%	5.2		%	4.7		%	3.9		%
Commercial real estate, other	30.9		%	32.0		%	32.1		%	34.7		%	36.3		%
Commercial real estate	35.6		%	36.4		%	37.3		%	39.4		%	40.2		%
Commercial and industrial	19.0		%	18.8		%	19.5		%	19.9		%	19.1		%
Premium finance	3.6		%	3.3		%	3.2		%	3.0		%	3.0		%
Leases	6.8		%	6.9		%	5.9		%	2.7		%	2.5		%
Residential real estate	15.9		%	16.2		%	16.6		%	17.2		%	17.1		%
Home equity lines of credit	3.8		%	3.7		%	3.6		%	3.7		%	3.6		%
Consumer, indirect	12.8		%	12.3		%	11.5		%	11.8		%	12.1		%
Consumer, direct	2.5		%	2.4		%	2.4		%	2.3		%	2.4		%
Consumer	15.3		%	14.7		%	13.9		%	14.1		%	14.5		%

Total percentage	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%
Residential real estate loans being serviced for others	$	400,736		$	410,007		$	420,024		$	430,597		$	441,085

(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).

Period-end total loan balances at September 30, 2022 increased $35.3 million compared to June 30, 2022. The increase in the period-end loan and lease balances was primarily driven by increases of (i) $29.2 million in consumer indirect loans, (ii) $19.0 million in commercial and industrial loans, (iii) $15.4 million in premium finance loans and (iv) $13.0 million in construction loans, partially offset by a reduction in other commercial real estate loans of $36.5 million. The acquired loan decrease was driven by pay-offs of

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commercial real estate and commercial and industrial loans acquired in the Premier Merger. The increase of $129.6 million in the period-end loan and lease balances when compared to December 31, 2021 was primarily driven by $154.9 million of leases acquired from Vantage and an increase of $61.8 million in indirect consumer loans, partially offset by a reduction of $126.6 million in other commercial real estate loans. The increase of $120.2 million in the period-end loan and lease balances when compared to September 30, 2021 was driven by increases of (i) $201.4 million in leases, primarily due to the leases acquired from Vantage and growth from the North Star Leasing division, (ii) $49.1 million in indirect consumer loans and (iii) $40.8 million in construction loans, partially offset by a reduction of $205.6 million in other commercial real estate loans.

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, 2022:


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



































Construction:
Apartment complexes	$	84,808	$	116,756	$	201,564	41.9	%
Mixed-use facilities	29,776		13,881		43,657		9.1	%
Assisted living facilities and nursing homes	21,364		12,449		33,813		7.0	%
Land only	12,644		16,864		29,508		6.1	%
Office buildings and complexes	10,728		8,546		19,274		4.0	%

Industrial	7,553		5,525		13,078		2.7	%
Education Services	7,355		2,826		10,181		2.1	%






Other (a)	41,393		88,760		130,153		27.1	%
Total construction	$	215,621	$	265,607	$	481,228	100.0	%

(a) All other total exposures by industry are less than 2% of the Total Exposure.

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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	$	74,674	$	2,508	$	77,182	5.2	%
Non-owner occupied	81,492		3,973		85,465		5.8	%
Total office buildings and complexes	156,166		6,481		162,647		11.0	%
Retail facilities:
Owner occupied	42,985		730		43,715		3.0	%
Non-owner occupied	126,910		2,126		129,036		8.8	%
Total retail facilities	169,895		2,856		172,751		11.8	%
Mixed-use facilities:
Owner occupied	57,598		232		57,830		3.9	%
Non-owner occupied	57,577		761		58,338		4.0	%
Total mixed-use facilities	115,175		993		116,168		7.9	%
Apartment complexes	91,766		2,257		94,023		6.4	%
Light industrial facilities:
Owner occupied	103,689		1,730		105,419		7.2	%
Non-owner occupied	38,917		3,261		42,178		2.8	%
Total light industrial facilities	142,606		4,991		147,597		10.0	%
Assisted living facilities and nursing homes	53,757		250		54,007		3.7	%
Warehouse facilities:
Owner occupied	35,924		1,852		37,776		2.5	%
Non-owner occupied	28,561		211		28,772		2.0	%
Total warehouse facilities	64,485		2,063		66,548		4.5	%
Lodging and lodging related:
Owner occupied	14,298		1,690		15,988		1.1	%
Non-owner occupied	88,942		430		89,372		6.0	%
Total lodging and lodging related	103,240		2,120		105,360		7.1	%
Education services:
Owner occupied	17,465		98		17,563		1.2	%
Non-owner occupied	21,952		4,000		25,952		1.8	%
Total education services	39,417		4,098		43,515		3.0	%
Healthcare facilities:
Owner occupied	23,670		559		24,229		1.6	%
Non-owner occupied	10,269		—		10,269		0.7	%
Total healthcare facilities	33,939		559		34,498		2.3	%
Restaurant/bar facilities:
Owner occupied	21,943		50		21,993		1.5	%
Non-owner occupied	11,007		298		11,305		0.8	%
Total restaurant/bar facilities	32,950		348		33,298		2.3	%












Other (a)	420,083		22,117		442,200		30.0	%
Total commercial real estate, other	$	1,423,479	$	49,133	$	1,472,612	100.0	%

(a) All other total exposures by industry are less than 2% of the Total Exposure.

Peoples' commercial lending activities continue to focus on lending opportunities 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 both September 30, 2022 and December 31, 2021. The repayment of premium finance loans are secured by the underlying insurance policy prepaid premium, and therefore, have no geographical impact from a repayment perspective. The repayment of leases is secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.

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 are satisfied. The

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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 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 table details Peoples' PPP loan balances and related income:


(Dollars in millions)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
PPP aggregate outstanding principal balances	$	3.8	$	15.2	$	42.9	$	89.3	$	139.8
PPP net deferred loan origination fees	0.1		0.4		1.0		2.2		4.0
Accretion of net deferred loan origination fees	0.4		0.6		1.2		1.8		3.1

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, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Construction	$	1,464		$	1,531		$	2,731		$	2,999		$	3,436
Commercial real estate, other	17,695			18,708			21,055			29,147			35,816
Commercial and industrial	8,611			8,572			10,114			11,063			13,378
Premium finance	553			311			345			379			1,137
Leases	7,890			7,585			5,875			4,797			4,505

Residential real estate	6,464			6,332			6,495			7,233			9,568
Home equity lines of credit	1,644			1,699			1,894			2,005			2,224
Consumer, indirect	6,912			6,234			5,172			5,326			6,160
Consumer, direct	1,592			1,321			1,036			961			1,079

Deposit account overdrafts	41			53			51			57			79
Allowance for credit losses	$	52,866		$	52,346		$	54,768		$	63,967		$	77,382
As a percent of total loans	1.15		%	1.14		%	1.20		%	1.43		%	1.72		%

The increase in the allowance for credit losses at September 30, 2022 compared to June 30, 2022, was largely attributable to the deterioration of macro-economic conditions, partially offset by a reduction in reserves for individually analyzed loans. The reduction in the allowance for credit losses at September 30, 2022 compared to December 31, 2021 was due to improvements in economic forecasts and loss drivers, along with reductions in loan balances from acquired loans due to pay-offs during the quarter. Peoples recorded $0.8 million of provision for credit losses to establish the allowance for credit losses for non-purchase credit deteriorated leases acquired from Vantage.

The higher allowance for credit losses at September 30, 2021 when compared to all other comparative periods was related to the provision for credit losses recorded in the amount of $11.0 million in order 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 Premier Merger. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchased credit deteriorated loans acquired from Premier.

Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2021 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.

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


	Three Months Ended
(Dollars in thousands)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Gross charge-offs:

Commercial real estate, other	$	57		$	22		$	278		$	226		$	—

Commercial and industrial	36			420			463			105			654
Premium finance	38			30			14			15			7
Leases	731			493			473			478			431
Residential real estate	168			47			309			72			44
Home equity lines of credit	5			25			16			1			180
Consumer, indirect	600			449			385			566			416
Consumer, direct	81			60			136			56			29
Consumer	681			509			521			622			445
Deposit account overdrafts	274			405			259			248			135
Total gross charge-offs	$	1,990		$	1,951		$	2,333		$	1,767		$	1,896
Recoveries:

Commercial real estate, other	$	39		$	176		$	49		$	196		$	4

Commercial and industrial	3			2			4			4			4
Premium finance	1			8			—			—			—
Leases	99			64			176			109			120
Residential real estate	36			14			14			40			48
Home equity lines of credit	—			—			29			—			37
Consumer, indirect	71			83			86			42			43
Consumer, direct	9			11			11			58			17
Consumer	80			94			97			100			60
Deposit account overdrafts	44			52			54			42			37
Total recoveries	$	302		$	410		$	423		$	491		$	310
Net charge-offs (recoveries):

Commercial real estate, other	$	18		$	(154)		$	229		$	30		$	(4)

Commercial and industrial	33			418			459			101			650
Premium finance	37			22			14			15			7
Leases	632			429			297			369			311
Residential real estate	132			33			295			32			(4)
Home equity lines of credit	5			25			(13)			1			143
Consumer, indirect	529			366			299			524			373
Consumer, direct	72			49			125			(2)			12
Consumer	601			415			424			522			385
Deposit account overdrafts	230			353			205			206			98
Total net charge-offs	$	1,688		$	1,541		$	1,910		$	1,276		$	1,586
Ratio of net charge-offs to average total loans (annualized):

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

Commercial and industrial	—		%	0.04		%	0.03		%	0.01		%	0.08		%

Leases	0.06		%	0.04		%	0.03		%	0.03		%	0.03		%
Residential real estate	0.01		%	—		%	0.03		%	—		%	—		%
Home equity lines of credit	—		%	—		%	—		%	—		%	0.02		%
Consumer, indirect	0.05		%	0.03		%	0.03		%	0.05		%	0.04		%
Consumer, direct	0.01		%	0.01		%	0.01		%	—		%	—		%
Consumer	0.06		%	0.04		%	0.04		%	0.05		%	0.04		%
Deposit account overdrafts	0.02		%	0.03		%	0.02		%	0.02		%	0.01		%
Total	0.15		%	0.14		%	0.17		%	0.11		%	0.18		%

Each with "--%" not meaningful.

Net charge-offs during the third quarter of 2022 were 0.15% of average total loans on an annualized basis. Peoples has anticipated an increase in the net charge-offs to average total loans, as recent periods have been below historical levels. The increase for the current quarter when compared to the linked quarter was driven by higher charge-offs on leases, consumer loans, and other

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commercial real estate loans, substantially offset by less charge-offs on commercial and industrial loans and deposit account overdrafts. The decrease in net charge-offs during the current quarter versus the prior year quarter was primarily attributable to one commercial and industrial loan charge-off of $500,000 during the third quarter of 2021.

The following table details Peoples’ nonperforming assets:


(Dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Loans 90+ days past due and accruing:
Construction	$	—	$	—	$	—	$	90	$	—
Commercial real estate, other	1,472		330		603		689		1,912
Commercial and industrial	266		89		53		1,139		98
Premium finance	308		304		613		865		368
Leases	4,654		5,722		3,921		—		1,736
Residential real estate	1,499		1,687		677		805		1,156
Home equity lines of credit	23		89		75		50		61
Consumer, indirect	195		15		17		—		—
Consumer, direct	7		—		—		85		32
Consumer	202		15		17		85		32
Total loans 90+ days past due and accruing	$	8,424	$	8,236	$	5,959	$	3,723	$	5,363
Nonaccrual loans:
Construction	$	2	$	5	$	6	$	6	$	—
Commercial real estate, other	9,513		11,795		14,745		16,849		17,207
Commercial and industrial	2,055		1,748		2,394		2,505		4,133
Leases	2,094		1,573		1,731		1,581		1,411
Residential real estate	7,113		7,463		7,459		8,016		8,046
Home equity lines of credit	615		567		604		687		661
Consumer, indirect	1,455		1,351		1,408		1,302		850
Consumer, direct	158		166		231		273		177
Consumer	1,613		1,517		1,639		1,575		1,027
Total nonaccrual loans	$	23,005	$	24,668	$	28,578	$	31,219	$	32,485
Nonaccrual troubled debt restructurings ("TDRs"):

Commercial real estate, other	$	2,403	$	2,458	$	197	$	218	$	94
Commercial and industrial	330		101		999		1,067		1,223
Residential real estate	1,615		1,731		1,676		1,631		1,689
Home equity lines of credit	306		323		333		352		315
Consumer, indirect	172		207		220		272		219
Consumer, direct	—		—		—		6		9
Consumer	172		207		220		278		228
Total nonaccrual TDRs	$	4,826	$	4,820	$	3,425	$	3,546	$	3,549
Total nonperforming loans ("NPLs")	$	36,255	$	37,724	$	37,962	$	38,488	$	41,397
OREO:
Commercial	$	8,730	$	9,065	$	9,106	$	9,105	$	10,804
Residential	110		145		301		391		464
Total OREO	$	8,840	$	9,210	$	9,407	$	9,496	$	11,268
Total nonperforming assets ("NPAs")	$	45,095	$	46,934	$	47,369	$	47,984	$	52,665
Criticized loans (a)	$	164,775	$	181,395	$	190,315	$	194,016	$	234,845
Classified loans (b)	94,848		115,483		109,530		106,547		142,628

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(Dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Asset Quality Ratios (c):
Nonaccrual loans as a percent of total loans (d)	0.60	%	0.64	%	0.70	%	0.78	%	0.80	%
NPLs as a percent of total loans (d)	0.79	%	0.82	%	0.83	%	0.86	%	0.92	%
NPAs as a percent of total assets (d)	0.64	%	0.64	%	0.65	%	0.68	%	0.75	%
NPAs as a percent of total loans and OREO (d)	0.98	%	1.02	%	1.04	%	1.07	%	1.17	%
Allowance for credit losses as a percent of nonaccrual loans	189.95	%	177.52	%	171.13	%	184.00	%	214.75	%
Allowance for credit losses as a percent of NPLs (d)	145.82	%	138.76	%	144.27	%	166.20	%	186.93	%
Criticized loans as a percent of total loans (a)	3.57	%	3.96	%	4.19	%	4.33	%	5.23	%
Classified loans as a percent of total loans (b)	2.06	%	2.52	%	2.41	%	2.38	%	3.18	%

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

(b) Includes loans categorized as substandard or doubtful.

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

Compared to June 30, 2022, Peoples' NPAs remained at 0.64% of total assets. Loans 90+ days past due and accruing increased compared to December 31, 2021, mostly due to the Vantage acquisition. During the third quarter of 2022, criticized loans declined $16.6 million, while classified loans declined $20.6 million when compared to the linked quarter. The third quarter of 2021 was impacted by NPAs, criticized loans and classified loans acquired in the Premier Merger.

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.

Deposits

The following table details Peoples’ deposit balances:


(Dollars in thousands)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Non-interest-bearing deposits (a)	$	1,635,953		$	1,661,865		$	1,666,668		$	1,641,422		$	1,559,993
Interest-bearing deposits:
Interest-bearing demand accounts (a)	1,162,012			1,143,010			1,179,199			1,167,460			1,140,639
Savings accounts	1,077,383			1,080,053			1,065,678			1,036,738			1,016,755
Retail certificates of deposit ("CDs")	544,741			584,259			612,936			643,759			691,680
Money market deposit accounts	624,708			645,242			656,266			651,169			637,635
Governmental deposit accounts	734,734			728,057			734,784			617,259			679,305
Brokered deposits	86,089			86,739			87,395			104,745			106,013
Total interest-bearing deposits	4,229,667			4,267,360			4,336,258			4,221,130			4,272,027
Total deposits	$	5,865,620		$	5,929,225		$	6,002,926		$	5,862,552		$	5,832,020
Demand deposits as a percent of total deposits	48		%	47		%	47		%	48		%	46		%

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

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At September 30, 2022, period-end deposits decreased $63.6 million, or 1%, compared to June 30, 2022, and increased $33.6 million, or 1%, compared to September 30, 2021. The decrease when compared to the linked period was primarily driven by a reduction of (i) $39.5 million in retail certificates of deposits, (ii) $20.5 million in money market deposits, and (iii) $25.9 million in non-interest bearing checking accounts. Total deposits in periods presented through March 31, 2022, 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 quarterly periods prior to June 30, 2022, Peoples experienced increases in most low-cost deposit categories.

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, 2022, Peoples had thirteen effective interest rate swaps, with an aggregate notional value of $125.0 million, of which $85.0 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 $40.0 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, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Short-term borrowings:

FHLB 90-day advances	$	40,000	$	40,000	$	40,000	$	40,000	$	50,000
Current portion of long-term FHLB advances	—		—		15,000		15,000		15,000
Retail repurchase agreements	98,611		286,442		89,275		111,482		119,693

Total short-term borrowings	$	133,611	$	326,442	$	144,275	$	166,482	$	184,693
Long-term borrowings:
FHLB advances	$	34,662	$	35,348	$	85,564	$	85,825	$	86,483


Vantage non-recourse debt	55,781		74,622		102,364		—		—
Junior subordinated debt securities	13,753		13,717		13,682		13,650		12,928
Total long-term borrowings	$	104,196	$	123,687	$	201,610	$	99,475	$	99,411
Total borrowed funds	$	237,807	$	450,129	$	345,885	$	265,957	$	284,104

Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. Total borrowed funds decreased compared to June 30, 2022, due to a large individual customer deposit during the period ended June 30, 2022, thereby increasing retail repurchase agreements at June 30, 2022.

Capital/Stockholders’ Equity

At September 30, 2022, 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, 2022, Peoples had a capital conservation buffer of 4.98%.

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


(Dollars in thousands)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Capital Amounts:
Common Equity Tier 1	$	584,880		$	564,708		$	547,215		$	577,565		$	567,172
Tier 1	598,633			578,425			560,897			591,215			580,100
Total (Tier 1 and Tier 2)	643,189			622,516			607,493			648,948			637,802
Net risk-weighted assets	$	4,955,627		$	4,857,818		$	4,752,428		$	4,614,258		$	4,611,321
Capital Ratios:
Common Equity Tier 1	11.80		%	11.62		%	11.51		%	12.52		%	12.30		%
Tier 1	12.08		%	11.91		%	11.80		%	12.81		%	12.58		%
Total (Tier 1 and Tier 2)	12.98		%	12.81		%	12.78		%	14.06		%	13.83		%
Tier 1 leverage ratio	8.64		%	8.38		%	8.29		%	8.67		%	11.20		%

Peoples' regulatory capital and related ratio levels improved during the third quarter of 2022 when compared to the linked quarter driven by higher net interest income. The ratios were negatively impacted at March 31, 2022 by the cash acquisition of Vantage, for which Peoples recorded goodwill and intangible assets. The impact of the Vantage acquisition was partially offset by net income exceeding dividends declared during the period ended March 31, 2022.

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.

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, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Tangible equity:
Total stockholders' equity	$	760,511		$	786,824		$	808,340		$	845,025		$	831,882
Less: goodwill and other intangible assets	328,428			328,132			341,865			291,009			295,415
Tangible equity	$	432,083		$	458,692		$	466,475		$	554,016		$	536,467






Tangible assets:
Total assets	$	7,005,854		$	7,278,292		$	7,239,261		$	7,063,521		$	7,059,752
Less: goodwill and other intangible assets	328,428			328,132			341,865			291,009			295,415
Tangible assets	$	6,677,426		$	6,950,160		$	6,897,396		$	6,772,512		$	6,764,337

Tangible book value per common share:
Tangible equity	$	432,083		$	458,692		$	466,475		$	554,016		$	536,467
Common shares outstanding	28,278,078			28,290,115			28,453,175			28,297,771			28,265,791

Tangible book value per common share	$	15.28		$	16.21		$	16.39		$	19.58		$	18.98

Tangible equity to tangible assets ratio:
Tangible equity	$	432,083		$	458,692		$	466,475		$	554,016		$	536,467
Tangible assets	$	6,677,426		$	6,950,160		$	6,897,396		$	6,772,512		$	6,764,337

Tangible equity to tangible assets	6.47		%	6.60		%	6.76		%	8.18		%	7.93		%

Tangible book value per common share declined to $15.28 at September 30, 2022, compared to $16.21 at June 30, 2022. The change in tangible book value per common share was due to tangible equity declining during the three months ended September 30, 2022 as a result of other comprehensive losses recognized on available-for-sale investment securities, which were driven by changes in market interest rates. Also contributing to the declines in tangible book value per common share when compared to December 31, 2021 and September 30, 2021, were $123.3 million and $129.0 million increases in accumulated other comprehensive losses,

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respectively. The other comprehensive losses were the result of the changes in the market value of available-for-sale investment securities, which were driven by changes in market interest rates.

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' 2021 Form 10-K.

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 Decrease in Economic Value of Equity
(in Basis Points)	September 30, 2022				December 31, 2021				September 30, 2022				December 31, 2021
300	$	21,345	7.6	%	$	24,903	11.7	%	$	(37,180)	(2.5)	%	$	(24,232)	(2.0)	%
200	14,165		5.0	%	16,312		7.7	%	(25,394)		(1.7)	%	(16,541)		(1.3)	%
100	7,036		2.5	%	7,899		3.7	%	(13,399)		(0.9)	%	(5,308)		(0.4)	%
(100)	(14,926)		(5.3)	%	(8,615)		(4.1)	%	(46,191)		(3.1)	%	(91,568)		(7.4)	%

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 amounts forecasted for cash flow reinvestment, premium amortization, and discount accretion 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, and decrease as interest rates increase. 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 interest 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 interest 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, 2022, consideration of the bear steepener or inversion scenarios provide insights which are not captured by parallel shifts.

The bear steepener scenario highlights the risk to net interest income and economic value of equity when short-term interest rates remain constant while long-term interest rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are generally correlated with short-term interest rates, remain constant, while asset yields, which are correlated with long-term interest rates, rise. At September 30, 2022 the bear steepener scenario produced no change to net interest income and increased the economic value of equity by 3.4%.

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As of September 30, 2022, the yield curve was relatively flat with some inversion. A notable non-parallel shift scenario would be a continued increase in short-term interest rates relative to long-term interest rates in which the yield curve would further invert. As of September 30, 2022 this inversion scenario would have resulted in an increase in net interest income and decrease the economic value of equity of 1.1% and (1.9)%, respectively. Peoples was within its policy limitations for this alternative scenario as of September 30, 2022, which set the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of the 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, 2022, Peoples had entered into thirteen interest rate swap contracts with an aggregate notional value of $125.0 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, 2022, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income. 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, 2021 was largely attributable to increased effective duration in the investment securities portfolio.

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' 2021 Form 10-K.

At September 30, 2022, Peoples Bank had liquid assets of $171.2 million, which represented 2.2% of total assets and unfunded loan commitments. Peoples also had an additional $231.0 million of unpledged investment securities not included in the measurement of liquid assets.

Management believes the current mix of short-term liquidity sources, loan and security portfolio cash flows, and availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.

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.

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


(Dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Home equity lines of credit	$	194,685	$	188,803	$	184,616	$	177,262	$	177,963
Unadvanced construction loans	320,825		237,129		203,719		227,135		271,483
Other loan commitments	653,384		566,624		616,696		577,170		646,374
Loan commitments	$	1,168,894	$	992,556	$	1,005,031	$	981,567	$	1,095,820
Standby letters of credit	$	15,096	$	15,977	$	12,729	$	12,805	$	12,358

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 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, 2022. 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 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 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)as previously disclosed within "ITEM 9A. CONTROLS AND PROCEDURES" of Peoples' 2021 Form 10-K, Peoples did not design effective controls supporting acquired purchased credit deteriorated loan accounting and the related allowance for credit losses aggregated to a material weakness in internal control over financial reporting; and

(d)as part of Peoples' efforts to remediate the material weakness described above, new controls and procedures have been designed and are in process of being implemented. Therefore, Peoples' President and Chief Executive Officer, and its Executive Vice President, Chief Financial Officer and Treasurer concluded that, as of September 30, 2022, Peoples' disclosure controls and procedures were not effective. Despite the foregoing, Peoples' management has concluded the financial statements fairly present in all material respects, Peoples' financial position, results of operations and cash flows as of the dates, and for the periods presented in this Form 10-Q, in conformity with US GAAP.

Changes in Internal Control Over Financial Reporting

The remediation activities described above, and discussed in further detail in "ITEM 9A. CONTROLS AND PROCEDURES" of Peoples' 2021 Form 10-K and under "ITEM 1A. RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, are 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, 2022. These changes may materially affect, 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

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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’ 2021 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. In the third quarter of 2022, we identified the following additional risk factor:

Economic, Political, Environmental and Market Risks

•Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on the Company's results of operations and financial condition.

Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on the Peoples' results of operations and financial condition. The macroeconomic environment in the United States is susceptible to global events and volatility in financial markets. For example, global demand for products continues to exceed supply during the economic recovery from the COVID-19 pandemic, creading significant inflationary pressures which, in turn, may adversly impact consumer and business confidence and regional and global economic conditions, as well as Peoples' financial condition and results of operations. In addition, trade negotiations between the U.S. and other nations remain uncertain and could adversely impact economic and market conditions for Peoples and its clients and counterparties.

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 Exchange Act of Peoples’ common shares during the three months ended September 30, 2022:


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, 2022	1,800	(1)	$	27.53	(1)	—	$	24,023,642
August 1 – 31, 2022	2,609	(1)(2)	$	30.40	(1)(2)	—	$	24,023,642
September 1 – 30, 2022	42,297	(1)(3)	$	28.95	(1)(3)	40,299	$	22,857,421
Total	46,706		$	28.97		40,299	$	22,857,421

(1)Information reported includes 1,800 common shares, 1,174 common shares and 1,998 common shares purchased in open market transactions during July 2022, August 2022, and September 2022, respectively, 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.

(2)Information reported includes 1,435 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 2022.

(3)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 40,299 common shares repurchased under the share repurchase program during September 2022.

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.+

Included as Annex A to the preliminary joint proxy statement/prospectus which forms a part of the Registration Statement of Peoples Bancorp Inc. ("Peoples") on Form S-4/A with a filing date of June 1, 2021 (Registration No. 333-256040)

2.2

Agreement and Plan of Merger, dated as of October 24, 2022, by and between Peoples Bancorp Inc. and Limestone Bancorp, Inc.+

Incorporated herein by reference to Exhibit 2.1 to Peoples' Current Report on Form 8-K dated and filed on October 28, 2022 (File No. 000-16772)

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, or the staff of the SEC, on a confidential basis upon request.

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Exhibit
Number

Description

Exhibit Location

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.

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

31.1

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

Filed herewith

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 ##