UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
OR
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☐ | 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
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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: 19,721,27628,272,537 common shares, without par value, at October 27, 2020.November 4, 2021.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | September 30, 2020 | December 31, 2019 | | September 30, 2021 | December 31, 2020 |
| (Dollars in thousands) | (Dollars in thousands) | (Unaudited) | | (Dollars in thousands) | (Unaudited) | |
Assets | Assets | | Assets | |
Cash and cash equivalents: | Cash and cash equivalents: | | Cash and cash equivalents: | |
Cash and due from banks | $ | 57,953 | | $ | 53,263 | | |
Cash and balances due from banks | | Cash and balances due from banks | $ | 129,842 | | $ | 60,902 | |
Interest-bearing deposits in other banks | Interest-bearing deposits in other banks | 103,298 | | 61,930 | | Interest-bearing deposits in other banks | 369,840 | | 91,198 | |
Total cash and cash equivalents | Total cash and cash equivalents | 161,251 | | 115,193 | | Total cash and cash equivalents | 499,682 | | 152,100 | |
Available-for-sale investment securities, at fair value (amortized cost of $829,899 at September 30, 2020 and $929,395 at December 31, 2019) (a) | 851,702 | | 936,101 | | |
Held-to-maturity investment securities, at amortized cost (fair value of $38,086 at September 30, 2020 and $32,541 at December 31, 2019) (a)(b) | 36,143 | | 31,747 | | |
Available-for-sale investment securities, at fair value (amortized cost of $1,294,654 at September 30, 2021 and $734,544 at December 31, 2020) (a) | | Available-for-sale investment securities, at fair value (amortized cost of $1,294,654 at September 30, 2021 and $734,544 at December 31, 2020) (a) | 1,297,090 | | 753,013 | |
Held-to-maturity investment securities, at amortized cost (fair value of $240,000 at September 30, 2021 and $68,082 at December 31, 2020) (a) | | Held-to-maturity investment securities, at amortized cost (fair value of $240,000 at September 30, 2021 and $68,082 at December 31, 2020) (a) | 243,100 | | 66,458 | |
Other investment securities | Other investment securities | 40,715 | | 42,730 | | Other investment securities | 34,486 | | 37,560 | |
Total investment securities (b)(a) | Total investment securities (b)(a) | 928,560 | | 1,010,578 | | Total investment securities (b)(a) | 1,574,676 | | 857,031 | |
Loans, net of deferred fees and costs (b)(c) | 3,472,085 | | 2,873,525 | | |
Loans and leases, net of deferred fees and costs (b) | | Loans and leases, net of deferred fees and costs (b) | 4,491,028 | | 3,402,940 | |
Allowance for credit losses (b) | Allowance for credit losses (b) | (58,128) | | (21,556) | | Allowance for credit losses (b) | (77,382) | | (50,359) | |
Net loans (b) | Net loans (b) | 3,413,957 | | 2,851,969 | | Net loans (b) | 4,413,646 | | 3,352,581 | |
Loans held for sale | Loans held for sale | 7,420 | | 6,499 | | Loans held for sale | 2,699 | | 4,659 | |
Bank premises and equipment, net of accumulated depreciation | Bank premises and equipment, net of accumulated depreciation | 61,468 | | 61,846 | | Bank premises and equipment, net of accumulated depreciation | 91,210 | | 60,094 | |
Bank owned life insurance | Bank owned life insurance | 71,127 | | 69,722 | | Bank owned life insurance | 72,920 | | 71,591 | |
Goodwill | Goodwill | 171,255 | | 165,701 | | Goodwill | 267,015 | | 171,260 | |
Other intangible assets | Other intangible assets | 14,142 | | 11,802 | | Other intangible assets | 28,400 | | 13,337 | |
Other assets | Other assets | 82,627 | | 60,855 | | Other assets | 109,504 | | 78,111 | |
Total assets | Total assets | $ | 4,911,807 | | $ | 4,354,165 | | Total assets | $ | 7,059,752 | | $ | 4,760,764 | |
Liabilities | Liabilities | | Liabilities | |
Deposits: | Deposits: | | Deposits: | |
Non-interest-bearing | Non-interest-bearing | $ | 982,912 | | $ | 671,208 | | Non-interest-bearing | $ | 1,559,993 | | $ | 997,323 | |
Interest-bearing | Interest-bearing | 2,969,093 | | 2,620,204 | | Interest-bearing | 4,272,027 | | 2,913,136 | |
Total deposits | Total deposits | 3,952,005 | | 3,291,412 | | Total deposits | 5,832,020 | | 3,910,459 | |
Short-term borrowings | Short-term borrowings | 182,063 | | 316,977 | | Short-term borrowings | 184,693 | | 73,261 | |
Long-term borrowings | Long-term borrowings | 111,386 | | 83,123 | | Long-term borrowings | 99,411 | | 110,568 | |
| Accrued expenses and other liabilities (b) | Accrued expenses and other liabilities (b) | 99,497 | | 68,260 | | Accrued expenses and other liabilities (b) | 111,746 | | 90,803 | |
Total liabilities | Total liabilities | 4,344,951 | | 3,759,772 | | Total liabilities | 6,227,870 | | 4,185,091 | |
Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
Preferred shares, 0 par value, 50,000 shares authorized, 0 shares issued at September 30, 2020 and December 31, 2019 | 0 | | 0 | | |
Common shares, 0 par value, 24,000,000 shares authorized, 21,184,157 shares issued at September 30, 2020 and 21,156,143 shares issued at December 31, 2019, including shares held in treasury | 421,715 | | 420,876 | | |
Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2021 and at December 31, 2020 | | Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2021 and at December 31, 2020 | — | | — | |
Common stock, no par value, 50,000,000 shares authorized, 29,806,435 shares issued at September 30, 2021 and 21,193,402 shares issued at December 31, 2020, including at each date shares held in treasury | | Common stock, no par value, 50,000,000 shares authorized, 29,806,435 shares issued at September 30, 2021 and 21,193,402 shares issued at December 31, 2020, including at each date shares held in treasury | 685,428 | | 422,536 | |
Retained earnings (b) | Retained earnings (b) | 177,012 | | 187,149 | | Retained earnings (b) | 189,508 | | 190,691 | |
Accumulated other comprehensive income (loss), net of deferred income taxes | 2,942 | | (1,425) | | |
Treasury stock, at cost, 1,515,624 shares at September 30, 2020 and 504,182 shares at December 31, 2019 | (34,813) | | (12,207) | | |
Accumulated other comprehensive (loss) income, net of deferred income taxes | | Accumulated other comprehensive (loss) income, net of deferred income taxes | (5,888) | | 1,336 | |
Treasury stock, at cost, 1,599,593 shares at September 30, 2021 and 1,686,046 shares at December 31, 2020 | | Treasury stock, at cost, 1,599,593 shares at September 30, 2021 and 1,686,046 shares at December 31, 2020 | (37,166) | | (38,890) | |
Total stockholders’ equity | Total stockholders’ equity | 566,856 | | 594,393 | | Total stockholders’ equity | 831,882 | | 575,673 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 4,911,807 | | $ | 4,354,165 | | Total liabilities and stockholders’ equity | $ | 7,059,752 | | $ | 4,760,764 | |
(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $6,000,$236, respectively, as ofat September 30, 2021 and $0 and $60, respectively, at December 31, 2020.
(b) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the current expected credit loss ("CECL") model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in accrued expenses and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
(c) Also referred to throughout this document as "total loans" and "loans held for investment."
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands, except per share data) | 2021 | 2020 | | 2021 | 2020 |
Interest income: | Interest income: | | Interest income: | |
Interest and fees on loans | $ | 35,580 | | $ | 36,522 | | | $ | 104,651 | | $ | 107,235 | | |
Interest and fees on loans and leases | | Interest and fees on loans and leases | $ | 40,748 | | $ | 35,580 | | | $ | 115,196 | | $ | 104,651 | |
Interest and dividends on taxable investment securities | Interest and dividends on taxable investment securities | 2,786 | | 5,891 | | | 12,310 | | 17,670 | | Interest and dividends on taxable investment securities | 3,755 | | 2,786 | | | 9,497 | | 12,310 | |
Interest on tax-exempt investment securities | Interest on tax-exempt investment securities | 614 | | 690 | | | 1,903 | | 1,956 | | Interest on tax-exempt investment securities | 882 | | 614 | | | 2,358 | | 1,903 | |
Other interest income | Other interest income | 33 | | 506 | | | 317 | | 945 | | Other interest income | 82 | | 33 | | | 175 | | 317 | |
Total interest income | Total interest income | 39,013 | | 43,609 | | | 119,181 | | 127,806 | | Total interest income | 45,467 | | 39,013 | | | 127,226 | | 119,181 | |
Interest expense: | Interest expense: | | Interest expense: | |
Interest on deposits | Interest on deposits | 2,669 | | 6,159 | | | 10,582 | | 16,722 | | Interest on deposits | 2,399 | | 2,669 | | | 7,793 | | 10,582 | |
Interest on short-term borrowings | Interest on short-term borrowings | 742 | | 1,150 | | | 2,355 | | 3,556 | | Interest on short-term borrowings | 91 | | 742 | | | 283 | | 2,355 | |
Interest on long-term borrowings | Interest on long-term borrowings | 483 | | 546 | | | 1,629 | | 1,811 | | Interest on long-term borrowings | 399 | | 483 | | | 1,334 | | 1,629 | |
| Total interest expense | Total interest expense | 3,894 | | 7,855 | | | 14,566 | | 22,089 | | Total interest expense | 2,889 | | 3,894 | | | 9,410 | | 14,566 | |
Net interest income | Net interest income | 35,119 | | 35,754 | | | 104,615 | | 105,717 | | Net interest income | 42,578 | | 35,119 | | | 117,816 | | 104,615 | |
Provision for credit losses (a) | Provision for credit losses (a) | 4,728 | | 1,005 | | | 33,531 | | 1,368 | | Provision for credit losses (a) | 8,994 | | 4,728 | | | 7,333 | | 33,531 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 30,391 | | 34,749 | | | 71,084 | | 104,349 | | Net interest income after provision for credit losses | 33,584 | | 30,391 | | | 110,483 | | 71,084 | |
| Non-interest income: | Non-interest income: | | Non-interest income: | |
Electronic banking income | Electronic banking income | 3,765 | | 3,577 | | | 10,568 | | 9,831 | | Electronic banking income | 4,326 | | 3,765 | | | 12,655 | | 10,568 | |
Trust and investment income | | Trust and investment income | 4,158 | | 3,435 | | | 12,223 | | 10,013 | |
Insurance income | Insurance income | 3,608 | | 3,386 | | | 10,929 | | 11,493 | | Insurance income | 3,367 | | 3,608 | | | 11,923 | | 10,929 | |
Trust and investment income | 3,435 | | 3,205 | | | 10,013 | | 9,718 | | |
Deposit account service charges | | Deposit account service charges | 2,549 | | 2,266 | | | 6,578 | | 6,995 | |
Mortgage banking income | Mortgage banking income | 2,658 | | 1,204 | | | 4,346 | | 2,992 | | Mortgage banking income | 766 | | 2,658 | | | 2,726 | | 4,346 | |
Deposit account service charges | 2,266 | | 3,233 | | | 6,995 | | 8,551 | | |
Bank owned life insurance income | Bank owned life insurance income | 462 | | 487 | | | 1,514 | | 1,462 | | Bank owned life insurance income | 437 | | 462 | | | 1,329 | | 1,514 | |
Commercial loan swap fees | Commercial loan swap fees | 68 | | 772 | | | 1,267 | | 1,434 | | Commercial loan swap fees | 73 | | 68 | | | 194 | | 1,267 | |
Net gain on investment securities | 2 | | 97 | | | 383 | | 70 | | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | (28) | | (78) | | | (237) | | (553) | | Net loss on asset disposals and other transactions | (308) | | (28) | | | (459) | | (237) | |
Net (loss) gain on investment securities | | Net (loss) gain on investment securities | (166) | | 2 | | | (704) | | 383 | |
Other non-interest income | Other non-interest income | 534 | | 510 | | | 1,393 | | 2,113 | | Other non-interest income | 1,144 | | 534 | | | 2,605 | | 1,393 | |
Total non-interest income | Total non-interest income | 16,770 | | 16,393 | | | 47,171 | | 47,111 | | Total non-interest income | 16,346 | | 16,770 | | | 49,070 | | 47,171 | |
Non-interest expense: | Non-interest expense: | | Non-interest expense: | |
Salaries and employee benefit costs | Salaries and employee benefit costs | 19,410 | | 18,931 | | | 57,313 | | 58,957 | | Salaries and employee benefit costs | 25,589 | | 19,410 | | | 68,276 | | 57,313 | |
Professional fees | | Professional fees | 6,426 | | 1,720 | | | 13,459 | | 5,247 | |
Net occupancy and equipment expense | Net occupancy and equipment expense | 3,383 | | 3,098 | | | 9,688 | | 9,208 | | Net occupancy and equipment expense | 3,551 | | 3,383 | | | 10,167 | | 9,688 | |
Data processing and software expense | | Data processing and software expense | 2,529 | | 1,838 | | | 7,394 | | 5,344 | |
Electronic banking expense | Electronic banking expense | 2,095 | | 2,070 | | | 5,839 | | 5,340 | | Electronic banking expense | 2,037 | | 2,095 | | | 6,006 | | 5,839 | |
Data processing and software expense | 1,838 | | 1,572 | | | 5,344 | | 4,684 | | |
Professional fees | 1,720 | | 1,544 | | | 5,247 | | 5,164 | | |
Amortization of other intangible assets | | Amortization of other intangible assets | 1,279 | | 857 | | | 3,267 | | 2,314 | |
Marketing expense | | Marketing expense | 1,223 | | 456 | | | 2,810 | | 1,561 | |
Franchise tax expense | Franchise tax expense | 882 | | 797 | | | 2,645 | | 2,274 | | Franchise tax expense | 810 | | 882 | | | 2,487 | | 2,645 | |
Amortization of other intangible assets | 857 | | 953 | | | 2,314 | | 2,471 | | |
FDIC insurance premium | FDIC insurance premium | 570 | | 0 | | | 717 | | 752 | | FDIC insurance premium | 807 | | 570 | | | 1,596 | | 717 | |
Marketing expense | 456 | | 634 | | | 1,561 | | 1,718 | | |
Foreclosed real estate and other loan expenses | 342 | | 600 | | | 1,255 | | 1,324 | | |
Other loan expenses | | Other loan expenses | 487 | | 342 | | | 1,443 | | 1,255 | |
Communication expense | Communication expense | 283 | | 268 | | | 857 | | 863 | | Communication expense | 411 | | 283 | | | 1,079 | | 857 | |
Other non-interest expense | Other non-interest expense | 2,479 | | 2,526 | | | 7,665 | | 10,974 | | Other non-interest expense | 12,711 | | 2,479 | | | 17,762 | | 7,665 | |
Total non-interest expense | Total non-interest expense | 34,315 | | 32,993 | | | 100,445 | | 103,729 | | Total non-interest expense | 57,860 | | 34,315 | | | 135,746 | | 100,445 | |
Income before income taxes | 12,846 | | 18,149 | | | 17,810 | | 47,731 | | |
Income tax expense | 2,636 | | 3,281 | | | 3,616 | | 8,896 | | |
Net income | $ | 10,210 | | $ | 14,868 | | | $ | 14,194 | | $ | 38,835 | | |
(Loss) income before income taxes | | (Loss) income before income taxes | (7,930) | | 12,846 | | | 23,807 | | 17,810 | |
Income tax (benefit) expense | | Income tax (benefit) expense | (2,172) | | 2,636 | | | 3,999 | | 3,616 | |
Net (loss) income | | Net (loss) income | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
| Earnings per common share - basic | $ | 0.52 | | $ | 0.72 | | | $ | 0.70 | | $ | 1.93 | | |
Earnings per common share - diluted | $ | 0.51 | | $ | 0.72 | | | $ | 0.70 | | $ | 1.91 | | |
(Loss) earnings per common share - basic | | (Loss) earnings per common share - basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
(Loss) earnings per common share - diluted | | (Loss) earnings per common share - diluted | $ | (0.28) | | $ | 0.51 | | | $ | 0.99 | | $ | 0.70 | |
Weighted-average number of common shares outstanding - basic | Weighted-average number of common shares outstanding - basic | 19,504,503 | | 20,415,245 | | | 19,862,409 | | 20,023,271 | | Weighted-average number of common shares outstanding - basic | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Weighted-average number of common shares outstanding - diluted | Weighted-average number of common shares outstanding - diluted | 19,637,689 | | 20,595,769 | | | 19,998,353 | | 20,178,634 | | Weighted-average number of common shares outstanding - diluted | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
Cash dividends declared | Cash dividends declared | $ | 6,770 | | $ | 7,040 | | | $ | 20,622 | | $ | 19,943 | | Cash dividends declared | $ | 7,093 | | $ | 6,770 | | | $ | 20,991 | | $ | 20,622 | |
Cash dividends declared per common share | Cash dividends declared per common share | $ | 0.34 | | $ | 0.34 | | | $ | 1.02 | | $ | 0.98 | | Cash dividends declared per common share | $ | 0.36 | | $ | 0.34 | | | $ | 1.07 | | $ | 1.02 | |
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model. Prior to the adoption of the CECL model, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans (which includes purchased credit deteriorated loans), held-to-maturity investment securities, and the unfunded commitment liability.
See Notes to the Unaudited Condensed Consolidated Financial Statements
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) | 2020 | 2019 | | 2020 | 2019 |
Net income | $ | 10,210 | | $ | 14,868 | | | $ | 14,194 | | $ | 38,835 | |
Other comprehensive income: | | | | | |
Available-for-sale investment securities: | | | | | |
Gross unrealized holding (loss) gain arising during the period | (2,974) | | 2,913 | | | 15,480 | | 24,585 | |
Related tax benefit (expense) | 624 | | (612) | | | (3,251) | | (5,163) | |
Reclassification adjustment for net gain included in net income | (2) | | (97) | | | (383) | | (70) | |
Related tax expense | 0 | | 21 | | | 80 | | 15 | |
| | | | | |
| | | | | |
Net effect on other comprehensive (loss) income | (2,352) | | 2,225 | | | 11,926 | | 19,367 | |
Defined benefit plans: | | | | | |
Net (loss) gain arising during the period | (533) | | 2 | | | (1,054) | | 4 | |
Related tax benefit (expense) | 113 | | (1) | | | 222 | | (1) | |
Amortization of unrecognized loss and service cost on benefit plans | 33 | | 17 | | | 97 | | 54 | |
Related tax expense | (7) | | (3) | | | (21) | | (11) | |
Recognition of loss due to settlement and curtailment | 531 | | 0 | | | 1,050 | | 0 | |
Related tax expense | (112) | | 0 | | | (221) | | 0 | |
Net effect on other comprehensive income | 25 | | 15 | | | 73 | | 46 | |
Cash flow hedges: | | | | | |
Net gain (loss) arising during the period | 803 | | (1,857) | | | (9,661) | | (6,824) | |
Related tax (expense) benefit | (168) | | 390 | | | 2,029 | | 1,433 | |
Net effect on other comprehensive income (loss) | 635 | | (1,467) | | | (7,632) | | (5,391) | |
Total other comprehensive (loss) income, net of tax | (1,692) | | 773 | | | 4,367 | | 14,022 | |
Total comprehensive income | $ | 8,518 | | $ | 15,641 | | | $ | 18,561 | | $ | 52,857 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Net (loss) income | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
Other comprehensive (loss) income: | | | | | |
Available-for-sale investment securities: | | | | | |
Gross unrealized holding (loss) gain arising during the period | (7,685) | | (2,974) | | | (16,738) | | 15,480 | |
Related tax benefit (expense) | 1,592 | | 624 | | | 3,493 | | (3,251) | |
Reclassification adjustment for net loss (gain) included in net (loss) income | 166 | | (2) | | | 704 | | (383) | |
Related tax (benefit) expense | (44) | | — | | | (157) | | 80 | |
| | | | | |
| | | | | |
Net effect on other comprehensive (loss) income | (5,971) | | (2,352) | | | (12,698) | | 11,926 | |
Defined benefit plan: | | | | | |
Net gain (loss) arising during the period | 1,818 | | (533) | | | 1,826 | | (1,054) | |
Related tax (expense) benefit | (407) | | 113 | | | (408) | | 222 | |
Amortization of unrecognized gain and service cost on benefit plans | 20 | | 33 | | | 81 | | 97 | |
Related tax expense | (5) | | (7) | | | (18) | | (21) | |
Recognition of gain due to settlement and curtailment | 143 | | 531 | | | 143 | | 1,050 | |
Related tax expense | (32) | | (112) | | | (32) | | (221) | |
Net effect on other comprehensive income | 1,537 | | 25 | | | 1,592 | | 73 | |
Cash flow hedges: | | | | | |
Net gain (loss) arising during the period | 858 | | 803 | | | 4,800 | | (9,661) | |
Related tax (expense) benefit | (90) | | (168) | | | (918) | | 2,029 | |
Net effect on other comprehensive income (loss) | 768 | | 635 | | | 3,882 | | (7,632) | |
Total other comprehensive (loss) income, net of tax | (3,666) | | (1,692) | | | (7,224) | | 4,367 | |
Total comprehensive (loss) income | $ | (9,424) | | $ | 8,518 | | | $ | 12,584 | | $ | 18,561 | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, December 31, 2019 | | $ | 420,876 | | $ | 187,149 | | $ | (1,425) | | $ | (12,207) | | $ | 594,393 | |
| | | | | | |
Net income | | — | | 14,194 | | — | | — | | 14,194 | |
Other comprehensive income, net of tax | | — | | — | | 4,367 | | — | | 4,367 | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (20,622) | | — | | — | | (20,622) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (2,583) | | — | | — | | 2,583 | | 0 | |
| | | | | | |
Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 59 | | 59 | |
Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors | | — | | — | | — | | (1,052) | | (1,052) | |
Common shares repurchased under share repurchase program | | — | | — | | — | | (25,000) | | (25,000) | |
Common shares issued under dividend reinvestment plan | | 463 | | — | | — | | — | | 463 | |
Common shares issued under compensation plan for Boards of Directors | | 9 | | — | | — | | 316 | | 325 | |
Common shares issued under performance unit awards, net of tax | | 41 | | — | | — | | 138 | | 179 | |
Common shares issued under employee stock purchase plan | | (40) | | — | | — | | 350 | | 310 | |
Stock-based compensation | | 2,949 | | — | | — | | — | | 2,949 | |
Impact of adoption of new accounting standard, net of taxes (a) | | — | | (3,709) | | — | | — | | (3,709) | |
| | | | | | |
| | | | | | |
Balance, September 30, 2020 | | $ | 421,715 | | $ | 177,012 | | $ | 2,942 | | $ | (34,813) | | $ | 566,856 | |
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, June 30, 2021 | | $ | 422,652 | | $ | 202,359 | | $ | (2,222) | | $ | (37,284) | | $ | 585,505 | |
| | | | | | |
Net loss | | — | | (5,758) | | — | | — | | (5,758) | |
Other comprehensive loss, net of tax | | — | | — | | (3,666) | | — | | (3,666) | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (7,093) | | | — | | (7,093) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (51) | | — | | — | | 51 | | — | |
| | | | | | |
| | | | | | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (78) | | (78) | |
| | | | | | |
Common shares issued under dividend reinvestment plan | | 277 | | — | | — | | — | | 277 | |
Common shares issued under compensation plan for Boards of Directors | | 16 | | — | | — | | 44 | | 60 | |
| | | | | | |
Common shares issued under employee stock purchase plan | | 37 | | — | | — | | 101 | | 138 | |
Stock-based compensation | | 598 | | — | | — | | — | | 598 | |
| | | | | | |
Issuance of common shares related to merger with Premier Financial Bancorp, Inc. | | 261,899 | | — | | — | | — | | 261,899 | |
| | | | | | |
Balance, September 30, 2021 | | $ | 685,428 | | $ | 189,508 | | $ | (5,888) | | $ | (37,166) | | $ | 831,882 | |
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, December 31, 2020 | | $ | 422,536 | | $ | 190,691 | | $ | 1,336 | | $ | (38,890) | | $ | 575,673 | |
| | | | | | |
Net income | | — | | 19,808 | | — | | — | | 19,808 | |
Other comprehensive loss, net of tax | | — | | — | | (7,224) | | — | | (7,224) | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (20,991) | | — | | — | | (20,991) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (2,223) | | — | | — | | 2,223 | | — | |
| | | | | | |
Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 74 | | 74 | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,076) | | (1,076) | |
| | | | | | |
Common shares issued under dividend reinvestment plan | | 655 | | — | | — | | — | | 655 | |
Common shares issued under compensation plan for Boards of Directors | | 81 | | — | | — | | 228 | | 309 | |
| | | | | | |
Common shares issued under employee stock purchase plan | | 98 | | — | | — | | 275 | | 373 | |
Stock-based compensation | | 2,382 | | — | | — | | — | | 2,382 | |
| | | | | | |
Issuance of common shares related to merger with Premier Financial Bancorp, Inc. | | 261,899 | | — | | — | | — | | 261,899 | |
| | | | | | |
Balance, September 30, 2021 | | $ | 685,428 | | $ | 189,508 | | $ | (5,888) | | $ | (37,166) | | $ | 831,882 | |
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, June 30, 2020 | | $ | 421,236 | | $ | 173,572 | | $ | 4,634 | | $ | (30,265) | | $ | 569,177 | |
| | | | | | |
Net income | | — | | 10,210 | | — | | — | | 10,210 | |
Other comprehensive income, net of tax | | — | | — | | (1,692) | | — | | (1,692) | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (6,770) | | — | | — | | (6,770) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (321) | | — | | — | | 321 | | — | |
| | | | | | |
| | | | | | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (66) | | (66) | |
Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (5,000) | | (5,000) | |
Common shares issued under dividend reinvestment plan | | 220 | | — | | — | | — | | 220 | |
Common shares issued under compensation plan for Boards of Directors | | (11) | | — | | — | | 63 | | 52 | |
| | | | | | |
Common shares issued under employee stock purchase plan | | (23) | | — | | — | | 134 | | 111 | |
Stock-based compensation | | 614 | | — | | — | | — | | 614 | |
| | | | | | |
| | | | | | |
| | | | | | |
Balance, September 30, 2020 | | $ | 421,715 | | $ | 177,012 | | $ | 2,942 | | $ | (34,813) | | $ | 566,856 | |
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, December 31, 2019 | | $ | 420,876 | | $ | 187,149 | | $ | (1,425) | | $ | (12,207) | | $ | 594,393 | |
| | | | | | |
Net income | | — | | 14,194 | | — | | — | | 14,194 | |
Other comprehensive income, net of tax | | — | | — | | 4,367 | | — | | 4,367 | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (20,622) | | — | | — | | (20,622) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (2,583) | | — | | — | | 2,583 | | — | |
| | | | | | |
Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 59 | | 59 | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,052) | | (1,052) | |
Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (25,000) | | (25,000) | |
Common shares issued under dividend reinvestment plan | | 463 | | — | | — | | — | | 463 | |
Common shares issued under compensation plan for Boards of Directors | | 9 | | — | | — | | 316 | | 325 | |
Common shares issued under performance unit awards, net of tax | | 41 | | — | | — | | 138 | | 179 | |
Common shares issued under employee stock purchase plan | | (40) | | — | | — | | 350 | | 310 | |
Stock-based compensation | | 2,949 | | — | | — | | — | | 2,949 | |
Impact of adoption of new accounting standard, net of taxes (a) | | — | | (3,709) | | — | | — | | (3,709) | |
| | | | | | |
| | | | | | |
Balance, September 30, 2020 | | $ | 421,715 | | $ | 177,012 | | $ | 2,942 | | $ | (34,813) | | $ | 566,856 | |
(a)On January 1, 2020, Peoples adopted ASU 2016-13, which resulted in a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | (Dollars in thousands) | 2021 | 2020 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 55,992 | | $ | 52,528 | | Net cash provided by operating activities | $ | 66,722 | | $ | 55,992 | |
Investing activities: | Investing activities: | | Investing activities: | |
Available-for-sale investment securities: | Available-for-sale investment securities: | | Available-for-sale investment securities: | |
Purchases | Purchases | (171,251) | | (246,563) | | Purchases | (715,263) | | (171,251) | |
Proceeds from sales | Proceeds from sales | 11,582 | | 72,706 | | Proceeds from sales | 480,127 | | 11,582 | |
Proceeds from principal payments, calls and prepayments | Proceeds from principal payments, calls and prepayments | 248,021 | | 130,860 | | Proceeds from principal payments, calls and prepayments | 227,574 | | 248,021 | |
Held-to-maturity investment securities: | Held-to-maturity investment securities: | | Held-to-maturity investment securities: | |
Purchases | Purchases | (8,404) | | — | | Purchases | (181,331) | | (8,404) | |
Proceeds from principal payments | Proceeds from principal payments | 3,834 | | 2,939 | | Proceeds from principal payments | 3,774 | | 3,834 | |
Other investment securities: | Other investment securities: | | Other investment securities: | |
Purchases | Purchases | (5,901) | | (1,420) | | Purchases | (1,221) | | (5,901) | |
Proceeds from sales | Proceeds from sales | 7,937 | | 5,415 | | Proceeds from sales | 8,552 | | 7,937 | |
Proceeds from insurance claim | 0 | | 26 | | |
Net (increase) decrease in loans held for investment | (505,161) | | 11,993 | | |
| Net decrease (increase) in loans held for investment | | Net decrease (increase) in loans held for investment | 156,598 | | (505,161) | |
Net expenditures for premises and equipment | Net expenditures for premises and equipment | (3,702) | | (2,758) | | Net expenditures for premises and equipment | (5,893) | | (3,702) | |
Proceeds from sales of other real estate owned | Proceeds from sales of other real estate owned | 96 | | 221 | | Proceeds from sales of other real estate owned | 153 | | 96 | |
| Proceeds from bank owned life insurance contracts | Proceeds from bank owned life insurance contracts | 109 | | — | | Proceeds from bank owned life insurance contracts | — | | 109 | |
Business acquisitions, net of cash received | Business acquisitions, net of cash received | (94,856) | | 7,813 | | Business acquisitions, net of cash received | 136,119 | | (94,856) | |
Investment in limited partnership and tax credit funds | Investment in limited partnership and tax credit funds | (13) | | (5,021) | | Investment in limited partnership and tax credit funds | (2,900) | | (13) | |
Net cash used in investing activities | (517,709) | | (23,789) | | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 106,289 | | (517,709) | |
Financing activities: | Financing activities: | | Financing activities: | |
Net increase in non-interest-bearing deposits | Net increase in non-interest-bearing deposits | 311,704 | | 10,856 | | Net increase in non-interest-bearing deposits | 69,557 | | 311,704 | |
Net increase in interest-bearing deposits | Net increase in interest-bearing deposits | 348,779 | | 132,795 | | Net increase in interest-bearing deposits | 95,881 | | 348,779 | |
Net decrease in short-term borrowings | (154,914) | | (105,636) | | |
Net increase (decrease) in short-term borrowings | | Net increase (decrease) in short-term borrowings | 32,625 | | (154,914) | |
Proceeds from long-term borrowings | Proceeds from long-term borrowings | 50,000 | | — | | Proceeds from long-term borrowings | — | | 50,000 | |
Payments on long-term borrowings | Payments on long-term borrowings | (1,857) | | (2,388) | | Payments on long-term borrowings | (2,156) | | (1,857) | |
| Cash dividends paid | Cash dividends paid | (20,147) | | (19,212) | | Cash dividends paid | (20,915) | | (20,147) | |
Purchase of treasury stock under share repurchase program | Purchase of treasury stock under share repurchase program | (25,000) | | (431) | | Purchase of treasury stock under share repurchase program | — | | (25,000) | |
Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | (1,052) | | (790) | | Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | (1,076) | | (1,052) | |
Proceeds from issuance of common shares | Proceeds from issuance of common shares | 262 | | 6 | | Proceeds from issuance of common shares | 655 | | 262 | |
Contingent consideration payments made after a business acquisition | 0 | | (102) | | |
| | Net cash provided by financing activities | Net cash provided by financing activities | 507,775 | | 15,098 | | Net cash provided by financing activities | 174,571 | | 507,775 | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | 46,058 | | 43,837 | | Net increase in cash and cash equivalents | 347,582 | | 46,058 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 115,193 | | 77,612 | | Cash and cash equivalents at beginning of period | 152,100 | | 115,193 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 161,251 | | $ | 121,449 | | Cash and cash equivalents at end of period | $ | 499,682 | | $ | 161,251 | |
| Supplemental cash flow information: | Supplemental cash flow information: | | Supplemental cash flow information: | |
Interest paid | Interest paid | 15,179 | | 21,902 | | Interest paid | $ | 10,262 | | $ | 15,179 | |
Income taxes paid | Income taxes paid | 7,500 | | 10,050 | | Income taxes paid | 6,450 | | 7,500 | |
| Supplemental noncash disclosures: | Supplemental noncash disclosures: | | Supplemental noncash disclosures: | |
Transfers from loans to other real estate owned | Transfers from loans to other real estate owned | 163 | | 153 | | Transfers from loans to other real estate owned | 210 | | 163 | |
Lease right-of-use assets obtained in exchange for lessee operating lease liabilities | Lease right-of-use assets obtained in exchange for lessee operating lease liabilities | 38 | | — | | Lease right-of-use assets obtained in exchange for lessee operating lease liabilities | 101 | | 38 | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
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, 20192020 ("Peoples' 20192020 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’ 20192020 Form 10-K, as updated by the information contained in this quarterly report on Form 10-Q.10-Q for the quarterly period ended September 30, 2021 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 30, 20202021 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, 2019,2020, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 20192020 Form 10-K.
Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers a lease to be past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, the lease is typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged off amounts are credited to the allowance for credit losses.
Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. The initial allowance for credit losses determined on a collective basis is allocated to individual leases. The total of the purchase price and the allowance for credit losses is the initial amortized cost basis of these leases. The variance between the initial amortized cost basis and the fair value of a lease is considered an interest premium or discount, which is amortized or accreted into interest income on a level yield method over the life of the lease.
Leases acquired by Peoples in a business combination that are not considered purchased credit deteriorated are recorded at the fair value and the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the discount or premium to the leases' cost basis and is accreted or amortized to interest income over the leases' remaining life using the level yield method.
The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following paragraphs related to new pronouncements should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 20192020 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on Peoples' financial statements taken as a whole.
Accounting Standards Update ("ASU") 2021-05 - Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. This ASU addresses stakeholders' concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. This ASU is effective for fiscal years beginning after December 15, 2021, for all entities. Peoples early adopted this ASU as of September 30, 2021. The adoption of this ASU did not have an impact on Peoples' consolidated financial statements.
ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying US GAAP to contracts,ASU allows relief where the benchmark interest rate is changed on a loan, lease or hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This update is effective as ofrelationship between March 12, 2020 through December 31, 2022. Per the guidance, Peoples is continuing to evaluate the impact of ASU 2020-04 on Peoples' consolidated financial statements.
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the "incurred loss" model for recognizing credit losses with an "expected loss" model, referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, Peoples is required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity investment securities, at the net amount expected to be collected. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification ("ASC") 326-20, and should be accounted for according to ASC 842.
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The measurement is to take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model under previous US GAAP accounting guidance, which delayed recognition until it was probable a loss had been incurred.
Peoples adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost on January 1, 2020. Reporting periods beginning after December 31, 2019 are presented as required by ASU 2016-13, while prior period amounts continue to be reported in accordance with previously applicable US GAAP requirements. Peoples is using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired assets and accounted for under ASC 310-30.
As of January 1, 2020, Peoples recorded a one-time cumulative-effect adjustment to reduce retained earnings by $3.7 million, net of statutory corporate federal income taxes, an increase in allowance for credit losses of $5.8 million and an increase in unfunded
commitment liability of $1.5 million. On January 1, 2020, the amortized cost basis of the purchased credit deteriorated assets was adjusted to reflect the addition of $2.6 million to establish the allowance for credit losses. The remaining interest-related discount is being accreted into interest income at the effective interest rate beginning on January 1, 2020. As of January 1, 2020, Peoples did not record an allowance for credit losses for available-for-sale investment securities, as all unrealized losses on these securities were deemed to be non-credit in nature, with no credit deterioration upon review by Peoples. Peoples recorded an allowance for credit losses for held-to-maturity securities of $7,000 as of January 1, 2020.
The following table illustrates the impact on the allowance for credit losses from the adoption of ASU 2016-13:
| | | | | | | | | | | |
| |
(Dollars in thousands) | As Reported Under ASC 326 January 1, 2020 | Pre-ASC 326 Adoption December 31, 2019 | Impact of ASC 326 Adoption |
Assets: |
|
|
|
Loans, at amortized cost | $ | 2,876,147 | | $ | 2,873,525 | | $ | 2,622 | |
| | | |
Allowance for credit losses on loans: | | | |
Construction | 651 | | 1,188 | | (537) | |
Commercial real estate, other | 8,549 | | 6,560 | | 1,989 | |
Commercial and industrial | 5,820 | | 8,568 | | (2,748) | |
Residential real estate | 4,360 | | 1,296 | | 3,064 | |
Home equity lines of credit | 1,572 | | 612 | | 960 | |
Consumer, indirect | 5,389 | | 2,942 | | 2,447 | |
Consumer, direct | 890 | | 296 | | 594 | |
Deposit account overdrafts | 94 | | 94 | | 0 | |
Allowance for credit losses on loans | 27,325 | | 21,556 | | 5,769 | |
Liabilities: |
|
|
|
Allowance for credit losses for unfunded commitments | $ | 1,495 | | $ | — | | $ | 1,495 | |
Investment Securities: Investment securities are recorded initially at cost, which includes premiums and discounts if purchased at other than par or face value. Peoples amortizes premiums and accretes discounts as an adjustment to interest income on a level yield basis. The cost of investment securities sold, excluding equity investment securities, and any resulting gain or loss, is based on the specific identification method and recognized as of the trade date. The cost of equity investment securities is based on the weighted-average method.
Peoples determines the appropriate classification of investment securities at the time of purchase. Held-to-maturity securities are those securities that Peoples has the positive intent and ability to hold to maturity and are recorded at amortized cost. Available-for-sale securities are those securities that would be available to be sold in the future in response to Peoples' liquidity needs, changes in market interest rates, and asset-liability management strategies, among other considerations. Available-for-sale securities are reported at fair value, with unrealized gains and losses reported in total stockholders' equity as a separate component of accumulated other comprehensive income or loss, net of applicable deferred income taxes.
Certain restricted equity investment securities that do not have readily determinable fair values and for which Peoples does not exercise significant influence, are carried at cost. These cost method securities are reported in other investment securities on the Unaudited Consolidated Balance Sheets and consist primarily of shares of the Federal Home Loan Bank of Cincinnati (the "FHLB") and the Federal Reserve Bank of Cleveland (the "FRB").
Peoples evaluates available-for-sale investment securities on a quarterly basis to determine how much, if any, allowance for credit losses is required. Peoples reviews available-for-sale investment securities at an unrealized loss position, with potential exposure to a credit event (which excludes U.S. government and U.S. government sponsored agency securities) to determine if the unrealized loss was credit-related. An allowance for credit losses is recorded to the extent that the unrealized losses are credit-related and likely to be permanent.
Peoples evaluates held-to-maturity investment securities on a quarterly basis in determining an allowance for credit losses. Peoples has determined that the loss given default for U.S. government sponsored enterprise investment securities is 0, due to the fact that it is unlikely the ultimate guarantor (the U.S. government) would not perform on its implicit guarantee in the event of default. The remaining securities are included in the calculation of the allowance for credit losses for held-to-maturity investment securities.
Loans: Loans originated that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, purchase premiums and discounts, charge-offs and an allowance for credit losses. The foreseeable future is based upon current market conditions and business strategies, as well as balance sheet management and liquidity. As the conditions change, so may management's view of the foreseeable future.
Peoples considers loans past due if any required principal and interest payments have not been receivedDecember 31, 2022. This ASU was early adopted as of September 30, 2021, and is not expected to have a significant impact on Peoples' consolidated financial statements, but is expected to reduce the date such payments were required to be made underaccounting burden of assessing contracts impacted by reference rate reform.
ASU 2019-12 - Income Taxes (Topic 740): Simplifying the terms ofAccounting for Income Taxes. The amendments in this ASU simplify the loan agreement. Upon detection of the reduced ability of a borrower to meet cash flow obligations, consumer and residential real estate loans are typically charged downaccounting for income taxes by removing certain exceptions to the net realizable value, with the residual balance placed on nonaccrual status. Loans deemed to be uncollectable are charged against the allowance for credit losses, while recoveriesgeneral principles in Topic 740. The amendments also improve consistent application of previously charged off amounts are credited to the allowance for credit losses.
Loans acquired 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. These loans are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology assimplify US GAAP for other loans. The initial allowanceareas of Topic 740 by clarifying and amending existing guidance. These amendments are effective for credit losses determined on a collective basis is allocated to individual loans. The total of the purchase pricefiscal years beginning after December 15, 2020, and allowance for credit losses is the initial amortized cost basis of these loans. The variance between the initial amortized cost basis and the par value of the loan is considered an interest premium or discount, which is amortized or accreted into interest income on a level yield method over the life of the loan.
Loans acquired in a business combination that are not considered purchased credit deteriorated are recorded at the fair value and the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the discount or premium to a loan's cost basis and is accreted or amortized to interest income over the loan's remaining life using the level yield method.
Allowance for Credit Losses: The allowance for credit losses is a valuation reserve established through the provision for credit losses charged against income. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The allowance for credit losses is measured on a pool basis, with loans collectively evaluated when similar risk characteristics exist.interim periods within those fiscal years. Peoples evaluated risk characteristics, including but not limited to: internal or third-party credit scores or credit ratings, risk ratings or classifications, financial asset type, collateral type, size, effective interest rate, term, geographical location, industry of the borrower, vintage, historical or credit loss patterns and reasonable and supportable forecast periods. Peoples identified 17 segments for which it believes there are similar risk characteristics and utilized a discounted cash flow methodology in determining an allowance for credit losses for each segment.
In estimating credit losses, Peoples uses a loss driver method, which analyzes one or more economic variables to the change in default rate using a regression analysis. Variables that had a strong correlation were selected as economic factors, or variables, for the model. If a single variable was not found to be strongly correlated, additional variables were included. Peoples utilizes the U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors in modeling.
Probabilities of default are used in the loss driver model, and are analyzed on a quarterly basis to assess reasonableness.
Peoples measured loss given default at the segment level due to statistical considerations using historical information. Peoples also utilized peer data due to somewhat volatile loss history in certain segments to normalize default curves, which provided more meaningful results.
Peoples modeled amortizing loans with a prepayment rate annualized to one year. The prepayment rates were calculated using Peoples' historical data, at the segment level.
Peoples models extensions of contractual terms in the following situations: when a loan is 60 days or more past due, when a partial charge-off has occurred, if the loan is in non-accrual status, if a troubled debt restructuring ("TDR") has occurred, or if the loan is grade 5 or higher. When any of these criteria are met and the loan matures within the next 12 months, the loan will be modeled to extend for an additional 12 months.
In general, Peoples completes a quarterly evaluation based on several qualitative factors to determine if there should be adjustments made to the allowance for credit losses. These factors include economic conditions, collateral, concentrations, troubled assets, Peoples' loss trends, peer loss trends, delinquency trends, portfolio composition and loan growth, underwriting, and certain other risks.
The allowance for credit losses related to specific loans was based on management's estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows, (2) the fair value of collateral if the loan is determined to be collateral dependent, or (3) the loan's observable market price.
Peoples categorized loans involving commercial borrowers into risk categories based upon an established grading matrix. This system was used to manage the risk within Peoples' commercial lending activities, evaluate changes in the overall credit quality of the loan portfolio and evaluate the appropriateness of the allowance for credit losses. 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 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 million are reviewed at least on an event
driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis.
The primary factors considered when assigning a risk grade to a loan include (1) reliability and sustainability of the primary source of repayment, (2) past, present and projected financial condition of the borrower, and (3) current economic and industry conditions. Other factors that could influence the risk grade assigned include the type and quality of collateral and the strength of any guarantors. The primary source of repayment for commercial real estate loans and commercial and industrial loans is normally the operating cash flow of the business available to repay debt. Management's analysis of operating cash flow for commercial real estate loans secured by non-owner occupied properties takes into account factors such as rent rolls and vacancy statistics. Management's analysis of operating cash flow for commercial real estate loans secured by owner occupied properties and all commercial and industrial loans considers the profitability, liquidity and leverage of the business. The evaluation of construction loans includes consideration of the borrower's ability to complete construction within the established budget.
The primary factors considered when classifying residential real estate, home equity lines of credit and consumer loans include the loan's past due status and declaration of bankruptcy by the borrower(s). The classification of residential real estate and home equity lines of credit also takes into consideration the current value of the underlying collateral.
Peoples has elected the practical expedient not to measure allowance for credit losses for accrued interest receivables.
Unfunded Commitments: Peoples also completes a quarterly evaluation for unfunded commitments for loans that are not conditionally cancellable, which includes construction loans, floor plan lines of credit, home equity lines of credit, other credit lines and letters of credit. Peoples performed a study to determine the historical funding rates of unadvanced portions of loans, and applied these funding rates to the unfunded commitments at period end. The loss rates, including qualitative factors, in determining the allowance for credit losses were applied at the segment level to the unfunded commitment amount to determine the allowance for credit loss liability for unfunded commitments.
Troubled Debt Restructuring ("TDR"): The restructuring of a loan is considered a TDR if both (1) the borrower is experiencing financial difficulties and (2) the creditor has granted a concession. Loans acquired that are restructured after acquisition are not considered TDRs if the loans evidenced credit deteriorationadopted this ASU as of the acquisition date and are accounted for in poolsJanuary 1, 2021. The adoption of purchased credit deteriorated loans.
In assessing whether orthis ASU did not have a borrower is experiencingmaterial effect on Peoples' consolidated financial difficulties, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (1) the borrower is currently in payment default on any of the borrower's debt; (2) a payment default is probable in the foreseeable future without the modification; (3) the borrower has declared or is in the process of declaring bankruptcy; and (4) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.
Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for loans with similar risk characteristics, the significance of the modification relative to the unpaid principal loan balance or collateral value underlying the loan, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the terms of the loan, such as (1) a reduction in the interest rate for the remaining life of the loan, (2) an extension of the maturity date at an interest rate lower than the current market rate for a new loan with similar risk, (3) a temporary period of interest-only payments, and (4) a reduction in the contractual payment amount for either a short period or the remaining term of the loan. All TDRs are evaluated individually to determine if a write-down is required and if they should be on accrual or nonaccrual status.
On March 22, 2020, federal and state banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of accounting for troubled debt restructurings defined in ASC 310-40. Based on this guidance, Peoples does not classify COVID-19 loan modifications as TDRs.
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.
Nonaccrual loans: Peoples discontinues the accrual of interest on a loan when conditions cause management to believe collection of all or any portion of the loan's contractual interest is doubtful. Such conditions may include the borrower being 90 days or more past due on any contractual payments, or current information regarding the borrower's financial condition and repayment ability. All unpaid accrued interest deemed uncollectable is reversed, which reduces Peoples' net interest income. Interest received on nonaccrual loans is included in income only if principal recovery is reasonably assured.
Under the Coronavirus Aid, Relief and Economic Security ("CARES") Act, borrowers who were making payments as required and were not considered past due prior to becoming affected by COVID-19 and then receive payment accommodations as a result of the effects of COVID-19 generally would not be reported as past due. If Peoples agrees to a payment deferral for a borrower under the CARES Act, this may result in no contractual payments being past due, and the loans are not considered past due during the period of the deferral. During the time that Peoples maintains these short-term arrangements with borrowers, under the guidance, it is not to report the loans as nonaccrual.
Interest Income Recognition: Interest income on loans and investment securities is recognized by methods that result in level rates of return on principal amounts outstanding. This includes yield adjustments resulting from the amortization of premiums on investment securities, loan costs and premiums, and accretion of discounts on investment securities, loan fees and discounts. Loans that have been placed on nonaccrual, and are subsequently returned to accruing status, recognize interest income similar to other accruing loans once they return to accruing status. Prior accrued interest that was reversed when the loan was placed on nonaccrual is recognized when received, after all of the principal of the loan outstanding has been paid. Since mortgage-backed securities comprise a sizable portion of Peoples' investment portfolio, a significant increase in principal payments on those securities can impact interest income due to the corresponding acceleration of premium amortization or discount accretion.
Under the CARES Act, Peoples has made certain modifications that include the short-term deferral of interest for certain borrowers. In these cases, Peoples recognizes interest income as earned. The deferred interest will be repaid by the borrower in a future period, and will be evaluated by Peoples for collectability.
statements.
Note 2 Fair Value of Assets and Liabilities
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.”
Depending on the nature of the asset or the liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20192020 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 | | | Recurring Fair Value Measurements at Reporting Date |
| | | September 30, 2020 | | December 31, 2019 | | | September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | (Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| Assets: | Assets: | | | | Assets: | | | |
Available-for-sale investment securities: | Available-for-sale investment securities: | | | Available-for-sale investment securities: | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | |
| U.S. government sponsored agencies | U.S. government sponsored agencies | | $ | 0 | | $ | 5,383 | | $ | 0 | | | $ | 0 | | $ | 8,209 | | $ | 0 | | U.S. government sponsored agencies | | $ | — | | $ | 78,481 | | $ | — | | | $ | — | | $ | 5,363 | | $ | — | |
States and political subdivisions | States and political subdivisions | | 0 | | 104,126 | | 0 | | | 0 | | 114,104 | | 0 | | States and political subdivisions | | — | | 252,919 | | — | | | — | | 114,919 | | — | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | 0 | | 726,992 | | 0 | | | 0 | | 791,009 | | 0 | | Residential mortgage-backed securities | | — | | 898,459 | | — | | | — | | 623,218 | | — | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | | 0 | | 10,568 | | 0 | | | 0 | | 18,088 | | 0 | | Commercial mortgage-backed securities | | — | | 62,552 | | — | | | — | | 4,783 | | — | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | | 0 | | 4,633 | | 0 | | | 0 | | 4,691 | | 0 | | Bank-issued trust preferred securities | | — | | 4,679 | | — | | | — | | 4,730 | | — | |
| Total available-for-sale securities | Total available-for-sale securities | | 0 | | 851,702 | | 0 | | | 0 | | 936,101 | | 0 | | Total available-for-sale securities | | — | | 1,297,090 | | — | | | — | | 753,013 | | — | |
Equity investment securities (a) | Equity investment securities (a) | | 97 | | 209 | | — | | | 123 | | 198 | | — | | Equity investment securities (a) | | 145 | | 245 | | — | | | 107 | | 192 | | — | |
Derivative assets (b) | Derivative assets (b) | | — | | 30,651 | | — | | | — | | 11,419 | | — | | Derivative assets (b) | | — | | 15,653 | | — | | | — | | 27,332 | | — | |
Liabilities: | Liabilities: | | | Liabilities: | | |
Derivative liabilities (c) | Derivative liabilities (c) | | $ | — | | $ | 44,002 | | $ | — | | | $ | — | | $ | 15,116 | | $ | — | | Derivative liabilities (c) | | $ | — | | $ | 22,904 | | $ | — | | | $ | — | | $ | 39,395 | | $ | — | |
(a) Included in other"Other investment securitiessecurities" 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"Other assets" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 910 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
(c) Included in accrued"Accrued expenses and other liabilitiesliabilities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 910 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Available-for-Sale Investment Securities: The fair values usedreported 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, LIBORLondon Interbank Offered Rate ("LIBOR") yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
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 instruments is determined based on market prices, broker-dealer quotations on similar products, or other related market input parameters (Level 2).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.hierarchy during the nine months ended September 30, 2021 and December 31, 2020.
| | | | Non-Recurring Fair Value Measurements at Reporting Date | | | Non-Recurring Fair Value Measurements at Reporting Date |
| | | September 30, 2020 | | December 31, 2019 | | | September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | (Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| | Assets: | | Assets: | | |
Loans held for sale | | Loans held for sale | | $ | — | | $ | 2,751 | | $ | — | | | $ | — | | $ | 4,733 | | $ | — | |
Other real estate owned ("OREO") | Other real estate owned ("OREO") | | $ | — | | $ | — | | $ | 293 | | | $ | — | | $ | — | | $ | 227 | | Other real estate owned ("OREO") | | $ | — | | $ | — | | $ | 11,268 | | | $ | — | | $ | — | | $ | 134 | |
Servicing rights (a)(b) | | Servicing rights (a)(b) | | $ | — | | $ | — | | $ | 2,294 | | | $ | — | | $ | — | | $ | 2,591 | |
(a) Included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.
(b) Peoples established a valuation allowance on servicing rights of $16 at September 30, 2021 and $161 at December 31, 2020, as the fair value of the servicing rights was less than the carrying value.
Loans Held for Sale:Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2).
Other Real Estate Owned: OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based onbasis. Peoples assesses the carrying value of OREO quarterly for impairment considering market activity and recent real estate appraisals and is updated at least annually.appraisals. 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 madeapproach (Level 3). The increase in OREO for the nine months ended September 30, 2021 was due to the OREO acquired in the appraisal processPremier Financial Bancorp Inc. ("Premier") acquisition.
Servicing Rights: Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the independent appraisers to adjust for differences betweenpresent value of the comparable salesfuture net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and income data availablediscount 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.
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 | | | Fair Value Measurements of Other Financial Instruments |
(Dollars in thousands) | (Dollars in thousands) | | Fair Value Hierarchy Level | September 30, 2020 | | December 31, 2019 | (Dollars in thousands) | | Fair Value Hierarchy Level | September 30, 2021 | | December 31, 2020 |
| Carrying Amount | Fair Value | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
| Assets: | Assets: | | | Assets: | | |
Cash and cash equivalents | Cash and cash equivalents | | 1 | $ | 161,251 | | $ | 161,251 | | | $ | 115,193 | | $ | 115,193 | | Cash and cash equivalents | | 1 | $ | 499,682 | | $ | 499,682 | | | $ | 152,100 | | $ | 152,100 | |
| Held-to-maturity investment securities: | Held-to-maturity investment securities: | | | Held-to-maturity investment securities: | | |
Obligations of: | Obligations of: | | | Obligations of: | | |
U.S. government sponsored agencies | | U.S. government sponsored agencies | | 2 | 29,995 | | 29,147 | | | — | | — | |
States and political subdivisions | States and political subdivisions | | 2 | 3,539 | | 4,073 | | | 4,346 | | 4,791 | | States and political subdivisions | | 2 | 124,181 | | 122,435 | | | 35,139 | | 35,484 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | 2 | 26,926 | | 27,879 | | | 21,494 | | 21,569 | | Residential mortgage-backed securities | | 2 | 41,035 | | 41,501 | | | 25,890 | | 26,742 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | | 2 | 5,678 | | 6,134 | | | 5,907 | | 6,181 | | Commercial mortgage-backed securities | | 2 | 47,889 | | 46,917 | | | 5,429 | | 5,856 | |
Total held-to-maturity securities | Total held-to-maturity securities | | | 36,143 | | 38,086 | | | 31,747 | | 32,541 | | Total held-to-maturity securities | | | 243,100 | | 240,000 | | | 66,458 | | 68,082 | |
| Other investment securities: | Other investment securities: | | | Other investment securities: | | |
Other investment securities at cost: | | Other investment securities at cost: | | |
Federal Home Loan Bank ("FHLB") stock | Federal Home Loan Bank ("FHLB") stock | | 2 | 25,022 | | 25,022 | | | 27,235 | | 27,235 | | Federal Home Loan Bank ("FHLB") stock | | n/a | 17,918 | | 17,918 | | | 21,718 | | 21,718 | |
Federal Reserve Bank ("FRB") stock | Federal Reserve Bank ("FRB") stock | | 2 | 13,311 | | 13,311 | | | 13,310 | | 13,310 | | Federal Reserve Bank ("FRB") stock | | n/a | 13,311 | | 13,311 | | | 13,311 | | 13,311 | |
Nonqualified deferred compensation | | 2 | 1,711 | | 1,711 | | | 1,499 | | 1,499 | | |
Other investment securities | | 2 | 365 | | 365 | | | 365 | | 365 | | |
Other investment securities (a) | | | 40,409 | | 40,409 | | | 42,409 | | 42,409 | | |
Net loans | | 3 | 3,413,957 | | 3,486,317 | | | 2,851,969 | | 3,147,190 | | |
Loans held for sale | | 2 | 7,420 | | 8,796 | | | 6,499 | | 6,553 | | |
Total other investment securities at cost | | Total other investment securities at cost | | | 31,229 | | 31,229 | | | 35,029 | | 35,029 | |
Other investment securities at fair value: | | Other investment securities at fair value: | | |
Nonqualified deferred compensation (a) | | Nonqualified deferred compensation (a) | | 2 | 2,083 | | 2,083 | | | 1,867 | | 1,867 | |
Other investment securities (b) | | Other investment securities (b) | | 2 | 784 | | 784 | | | 365 | | 365 | |
Total other investment securities at fair value | | Total other investment securities at fair value | | | 2,867 | | 2,867 | | | 2,232 | | 2,232 | |
Total other investment securities (b) | | Total other investment securities (b) | | | 34,096 | | 34,096 | | | 37,261 | | 37,261 | |
Loans and leases, net of deferred fees and costs | | Loans and leases, net of deferred fees and costs | | 3 | 4,491,028 | | 4,595,800 | | | 3,402,940 | | 3,458,732 | |
Bank owned life insurance | Bank owned life insurance | | 3 | 71,127 | | 71,127 | | | 69,722 | | 69,722 | | Bank owned life insurance | | 3 | 72,920 | | 72,920 | | | 71,591 | | 71,591 | |
Servicing rights (b)(c) | | 3 | 2,489 | | 2,789 | | | 2,742 | | 3,881 | | |
Liabilities: | Liabilities: | | | Liabilities: | | |
Deposits | Deposits | | 2 | $ | 3,952,005 | | $ | 3,853,468 | | | $ | 3,291,412 | | $ | 3,292,950 | | Deposits | | 2 | $ | 5,832,020 | | $ | 5,546,935 | | | $ | 3,910,459 | | $ | 3,773,602 | |
Short-term borrowings | Short-term borrowings | | 2 | 182,063 | | 185,713 | | | 316,977 | | 317,973 | | Short-term borrowings | | 2 | 184,693 | | 186,028 | | | 73,261 | | 74,170 | |
Long-term borrowings | Long-term borrowings | | 2 | 111,386 | | 116,741 | | | 83,123 | | 82,701 | | Long-term borrowings | | 2 | 99,411 | | 106,497 | | | 110,568 | | 117,364 | |
(a) OtherNonqualified deferred compensation includes mutual funds as part of the investment.
(b) "Other investment securities,securities", as reported on the Unaudited Consolidated Balance Sheets, also includesincluded equity investment securities at September 30, 2020 2021
and at December 31, 2019,2020, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
table above and not included in this table.
(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) There were 0 write-downs of servicing rights during the third and second quarters of 2020. Peoples recognized a write-down on servicing rights of $182,000 during the first quarter of 2020 as the fair value of the servicing rights was less than the carrying value.
For certain financial assets and liabilities, carrying value approximates fair value due to the nature of eachthe financial instrument.instruments. These instruments include cash and cash equivalents, demand and other non-fixed-maturitynon-maturity deposits, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and balances due from banks is a reasonable estimate of fair value.value (Level 1).
Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing servicesservice in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Other Investment Securities: Other investment securities are measured at their respective redemption values due to restrictions placed on their transferability (Level 2).
Loans and Leases, Net Loans:of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considered interest rate, credit and
market factors in estimating the fair value of loans (Level 3). Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loanloans and other market factors, including liquidity.
Loans Held for Sale:Loans originated and intended to be sold in the secondary market, generally 1-4 family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. The use of a valuation model using quoted prices of similar instruments represents significant inputs in arriving at the fair value (Level 2).
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.
Servicing Rights: The fair value of the 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). Peoples recognized a write-down on servicing rights of $182,000 during the first quarter of 2020 as the fair value of the servicing rights was less than the carrying value. There were 0 similar write-downs during the third and second quarters of 2020.
Deposits: The fair value of fixed maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level 2).
Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).
Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).
Certain 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 that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.
Note 3 Investment Securities
Available-for-sale
The following table summarizes Peoples' available-for-sale investment securities:
| | | | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2020 | | | | |
Obligations of: | | | | |
| | | | |
U.S. government sponsored agencies | $ | 4,958 | | $ | 425 | | $ | 0 | | $ | 5,383 | |
States and political subdivisions | 99,518 | | 4,608 | | 0 | | 104,126 | |
Residential mortgage-backed securities | 710,254 | | 19,052 | | (2,314) | | 726,992 | |
Commercial mortgage-backed securities | 10,473 | | 218 | | (123) | | 10,568 | |
Bank-issued trust preferred securities | 4,696 | | 114 | | (177) | | 4,633 | |
| | | | |
Total available-for-sale securities | $ | 829,899 | | $ | 24,417 | | $ | (2,614) | | $ | 851,702 | |
December 31, 2019 | | | | |
Obligations of: | | | | |
| | | | |
U.S. government sponsored agencies | $ | 7,917 | | $ | 292 | | $ | 0 | | $ | 8,209 | |
States and political subdivisions | 111,217 | | 3,018 | | (131) | | 114,104 | |
Residential mortgage-backed securities | 787,430 | | 7,763 | | (4,184) | | 791,009 | |
Commercial mortgage-backed securities | 18,135 | | 88 | | (135) | | 18,088 | |
Bank-issued trust preferred securities | 4,696 | | 137 | | (142) | | 4,691 | |
| | | | |
Total available-for-sale securities | $ | 929,395 | | $ | 11,298 | | $ | (4,592) | | $ | 936,101 | |
| | | | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2021 | | | | |
Obligations of: | | | | |
| | | | |
U.S. government sponsored agencies | $ | 78,916 | | $ | 102 | | $ | (537) | | $ | 78,481 | |
States and political subdivisions | 252,706 | | 3,220 | | (3,007) | | 252,919 | |
Residential mortgage-backed securities | 894,848 | | 10,453 | | (6,842) | | 898,459 | |
Commercial mortgage-backed securities | 63,568 | | 85 | | (1,101) | | 62,552 | |
Bank-issued trust preferred securities | 4,616 | | 233 | | (170) | | 4,679 | |
| | | | |
Total available-for-sale securities | $ | 1,294,654 | | $ | 14,093 | | $ | (11,657) | | $ | 1,297,090 | |
December 31, 2020 | | | | |
Obligations of: | | | | |
| | | | |
U.S. government sponsored agencies | $ | 4,960 | | $ | 403 | | $ | — | | $ | 5,363 | |
States and political subdivisions | 110,401 | | 4,642 | | (124) | | 114,919 | |
Residential mortgage-backed securities | 609,865 | | 15,377 | | (2,024) | | 623,218 | |
Commercial mortgage-backed securities | 4,622 | | 161 | | — | | 4,783 | |
Bank-issued trust preferred securities | 4,696 | | 192 | | (158) | | 4,730 | |
| | | | |
Total available-for-sale securities | $ | 734,544 | | $ | 20,775 | | $ | (2,306) | | $ | 753,013 | |
The gross unrealized losses related to residential mortgage-backed securities at September 30, 2020 and December 31, 2019, were attributed to changes in market interest rates and spreads since the securities were purchased.
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 | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Gross gains realized | Gross gains realized | $ | 2 | | $ | 97 | | | $ | 386 | | $ | 157 | | Gross gains realized | $ | 150 | | $ | 2 | | | $ | 786 | | $ | 386 | |
Gross losses realized | Gross losses realized | 0 | | 0 | | | 3 | | 87 | | Gross losses realized | (316) | | — | | | (1,490) | | (3) | |
Net gain realized | $ | 2 | | $ | 97 | | | $ | 383 | | $ | 70 | | |
Net (loss) gain realized | | Net (loss) gain realized | $ | (166) | | $ | 2 | | | $ | (704) | | $ | 383 | |
The cost of investment securities sold, and any resulting gain or loss, were based on the specific identification method and recognized as of the trade date.
The following table presents a summary of available-for-sale investment securities that had anbeen in a continuous unrealized loss:loss loss position:
| | | Less than 12 Months | | 12 Months or More | | Total | | Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | (Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2020 | | | | | | |
September 30, 2021 | | September 30, 2021 | | | | | |
Obligations of: | Obligations of: | | Obligations of: | |
| Residential mortgage-backed securities | $ | 142,807 | | $ | 1,794 | | 44 | | | $ | 19,904 | | $ | 519 | | 18 | | | $ | 162,711 | | $ | 2,313 | | |
Commercial mortgage-backed securities | 0 | | 0 | | 0 | | | 1,475 | | 123 | | 2 | | | 1,475 | | 123 | | |
Bank-issued trust preferred securities | 495 | | 5 | | 1 | | | 1,828 | | 172 | | 2 | | | 2,323 | | 177 | | |
| Total | $ | 143,302 | | $ | 1,799 | | 45 | | | $ | 23,207 | | $ | 814 | | 22 | | | $ | 166,509 | | $ | 2,613 | | |
December 31, 2019 | | | | | | |
Obligations of: | | |
| U.S. government sponsored agencies | | U.S. government sponsored agencies | $ | 49,570 | | $ | 537 | | $ | 7 | | | $ | — | | $ | — | | $ | — | | | $ | 49,570 | | $ | 537 | |
States and political subdivisions | States and political subdivisions | $ | 6,226 | | $ | 74 | | 2 | | | $ | 2,441 | | $ | 57 | | 1 | | | $ | 8,667 | | $ | 131 | | States and political subdivisions | 128,402 | | 3,007 | | 76 | | | — | | — | | — | | | 128,402 | | 3,007 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 284,096 | | 2,527 | | 62 | | | 88,993 | | 1,657 | | 39 | | | 373,089 | | 4,184 | | Residential mortgage-backed securities | 466,518 | | 6,079 | | 72 | | | 36,160 | | 763 | | 16 | | | 502,678 | | 6,842 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 970 | | 21 | | 1 | | | 2,409 | | 114 | | 3 | | | 3,379 | | 135 | | Commercial mortgage-backed securities | 48,974 | | 1,101 | | 17 | | | — | | — | | — | | | 48,974 | | 1,101 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 0 | | 0 | | 0 | | | 1,858 | | 142 | | 2 | | | 1,858 | | 142 | | Bank-issued trust preferred securities | — | | — | | — | | | 1,830 | | 170 | | 2 | | | 1,830 | | 170 | |
| Total | Total | $ | 291,292 | | $ | 2,622 | | 65 | | | $ | 95,701 | | $ | 1,970 | | 45 | | | $ | 386,993 | | $ | 4,592 | | Total | $ | 693,464 | | $ | 10,724 | | 172 | | | $ | 37,990 | | $ | 933 | | 18 | | | $ | 731,454 | | $ | 11,657 | |
December 31, 2020 | | December 31, 2020 | | | | | |
Obligations of: | | Obligations of: | |
| States and political subdivisions | | States and political subdivisions | $ | 17,651 | | $ | 124 | | 5 | | | $ | — | | $ | — | | — | | | $ | 17,651 | | $ | 124 | |
Residential mortgage-backed securities | | Residential mortgage-backed securities | 156,659 | | 1,795 | | 45 | | | 9,892 | | 229 | | 13 | | | 166,551 | | 2,024 | |
| Bank-issued trust preferred securities | | Bank-issued trust preferred securities | 494 | | 6 | | 1 | | | 1,848 | | 152 | | 2 | | | 2,342 | | 158 | |
| Total | | Total | $ | 174,804 | | $ | 1,925 | | 51 | | | $ | 11,740 | | $ | 381 | | 15 | | | $ | 186,544 | | $ | 2,306 | |
Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At September 30, 2020,2021, management concluded that 0no individual securities at an unrealized loss position required an allowance for credit losses. At September 30, 2020,2021, Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both September 30, 20202021 and December 31, 20192020 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 $3.4$5.7 million at September 30, 20202021 and $3.6$2.7 million at December 31, 2019.2020.
At September 30, 2020,2021, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or 2 positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Neither of the 2 positions had a fair value of less than 90% of its book value. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities.
The unrealized losses with respect to the 2 bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at September 30, 20202021 were primarily 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, 2020.2021. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | 0 | | $ | 4,958 | | $ | 0 | | $ | 0 | | $ | 4,958 | |
States and political subdivisions | 5,878 | | 24,002 | | 38,358 | | 31,280 | | 99,518 | |
Residential mortgage-backed securities | 2 | | 5,898 | | 73,518 | | 630,836 | | 710,254 | |
Commercial mortgage-backed securities | 3,213 | | 3,535 | | 960 | | 2,765 | | 10,473 | |
Bank-issued trust preferred securities | — | | — | | 4,696 | | 0 | | 4,696 | |
| | | | | |
Total available-for-sale securities | $ | 9,093 | | $ | 38,393 | | $ | 117,532 | | $ | 664,881 | | $ | 829,899 | |
Fair value | | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | 0 | | $ | 5,383 | | $ | 0 | | $ | 0 | | $ | 5,383 | |
States and political subdivisions | 5,925 | | 24,949 | | 40,925 | | 32,327 | | 104,126 | |
Residential mortgage-backed securities | 2 | | 5,995 | | 74,425 | | 646,570 | | 726,992 | |
Commercial mortgage-backed securities | 3,225 | | 3,622 | | 1,004 | | 2,717 | | 10,568 | |
Bank-issued trust preferred securities | — | | — | | 4,633 | | 0 | | 4,633 | |
| | | | | |
Total available-for-sale securities | $ | 9,152 | | $ | 39,949 | | $ | 120,987 | | $ | 681,614 | | $ | 851,702 | |
Total weighted-average yield | 2.47 | % | 2.67 | % | 2.43 | % | 2.12 | % | 2.19 | % |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | — | | $ | 1,996 | | $ | 66,436 | | $ | 10,484 | | $ | 78,916 | |
States and political subdivisions | 7,314 | | 28,647 | | 67,074 | | 149,671 | | 252,706 | |
Residential mortgage-backed securities | 7 | | 981 | | 56,615 | | 837,245 | | 894,848 | |
Commercial mortgage-backed securities | 1,887 | | — | | 34,169 | | 27,512 | | 63,568 | |
Bank-issued trust preferred securities | — | | — | | 4,616 | | — | | 4,616 | |
| | | | | |
Total available-for-sale securities | $ | 9,208 | | $ | 31,624 | | $ | 228,910 | | $ | 1,024,912 | | $ | 1,294,654 | |
Fair value | | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | — | | $ | 2,069 | | $ | 66,161 | | $ | 10,251 | | $ | 78,481 | |
States and political subdivisions | 7,375 | | 29,538 | | 68,100 | | 147,906 | | 252,919 | |
Residential mortgage-backed securities | 7 | | 1,006 | | 56,712 | | 840,734 | | 898,459 | |
Commercial mortgage-backed securities | 1,907 | | — | | 33,763 | | 26,882 | | 62,552 | |
Bank-issued trust preferred securities | — | | — | | 4,679 | | — | | 4,679 | |
| | | | | |
Total available-for-sale securities | $ | 9,289 | | $ | 32,613 | | $ | 229,415 | | $ | 1,025,773 | | $ | 1,297,090 | |
Total weighted-average yield | 2.07 | % | 2.56 | % | 1.19 | % | 1.58 | % | 1.54 | % |
Held-to-MaturityHeld-to-maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Allowance for Credit Losses (a) | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2020 | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 3,545 | | $ | (6) | | $ | 534 | | $ | 0 | | $ | 4,073 | |
Residential mortgage-backed securities | 26,926 | | — | | 954 | | (1) | | 27,879 | |
Commercial mortgage-backed securities | 5,678 | | — | | 456 | | 0 | | 6,134 | |
Total held-to-maturity securities | $ | 36,149 | | $ | (6) | | $ | 1,944 | | $ | (1) | | $ | 38,086 | |
December 31, 2019 | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 4,346 | | $ | — | | $ | 445 | | $ | 0 | | $ | 4,791 | |
Residential mortgage-backed securities | 21,494 | | — | | 169 | | (94) | | 21,569 | |
Commercial mortgage-backed securities | 5,907 | | — | | 275 | | (1) | | 6,181 | |
Total held-to-maturity securities | $ | 31,747 | | $ | — | | $ | 889 | | $ | (95) | | $ | 32,541 | |
(a) On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities. | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2021 | | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | 29,995 | | $ | — | | $ | 85 | | $ | (933) | | $ | 29,147 | |
States and political subdivisions | 124,417 | | (236) | | 675 | | (2,421) | | 122,435 | |
Residential mortgage-backed securities | 41,035 | | — | | 661 | | (195) | | 41,501 | |
Commercial mortgage-backed securities | 47,889 | | — | | 236 | | (1,208) | | 46,917 | |
Total held-to-maturity securities | $ | 243,336 | | $ | (236) | | $ | 1,657 | | $ | (4,757) | | $ | 240,000 | |
December 31, 2020 | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 35,199 | | $ | (60) | | $ | 510 | | $ | (165) | | $ | 35,484 | |
Residential mortgage-backed securities | 25,890 | | — | | 852 | | — | | 26,742 | |
Commercial mortgage-backed securities | 5,429 | | — | | 427 | | — | | 5,856 | |
Total held-to-maturity securities | $ | 66,518 | | $ | (60) | | $ | 1,789 | | $ | (165) | | $ | 68,082 | |
There were 0no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for any of the three and nine months ended September 30, 20202021 and 2019.2020.
Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are obligations of states and political subdivisions with the remaining securities issued by U.S. government sponsored agencies. The remaining securities are obligations of state and political subdivisions. Peoples analyzed these securities using cumulative default rate averages for investment grade municipal securities. Since December 31, 2020, Peoples has purchased securities and determined that the potential credit losses of the securities was $6,000. Asdesignated them as held-to maturity and, as a result, at September 30, 2020,2021, Peoples recorded $6,000$236,000 of allowance for credit losses for held-to-maturity securities, compared to $7,000$60,000 at January 1,December 31, 2020.
The following table presents a summary of held-to-maturity investment securities that had anbeen in a continuous unrealized loss:loss position:
| | | Less than 12 Months | | 12 Months or More | | Total | | Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | (Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2020 | | | | | | |
| Residential mortgage-backed securities | $ | 637 | | $ | 1 | | 1 | | | $ | 0 | | $ | 0 | | 0 | | | $ | 637 | | $ | 1 | | |
| Total | $ | 637 | | $ | 1 | | 1 | | | $ | 0 | | $ | 0 | | 0 | | | $ | 637 | | $ | 1 | | |
December 31, 2019 | | | | | | |
| September 30, 2021 | | September 30, 2021 | | | | | |
Obligations of: | | Obligations of: | |
U.S. government sponsored agencies | | U.S. government sponsored agencies | $ | 25,587 | | $ | 933 | | 5 | | | — | | — | | — | | | $ | 25,587 | | $ | 933 | |
States and political subdivisions | | States and political subdivisions | 89,532 | | 2,421 | | 37 | | | — | | — | | — | | | 89,532 | | 2,421 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | $ | 7,731 | | $ | 67 | | 1 | | | $ | 890 | | $ | 27 | | 1 | | | $ | 8,621 | | $ | 94 | | Residential mortgage-backed securities | 17,426 | | 195 | | 2 | | | — | | — | | — | | | 17,426 | | 195 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,666 | | 1 | | 1 | | | 0 | | 0 | | 0 | | | 1,666 | | 1 | | Commercial mortgage-backed securities | 39,641 | | 1,208 | | 11 | | | — | | — | | — | | | 39,641 | | 1,208 | |
Total | Total | $ | 9,397 | | $ | 68 | | 2 | | | $ | 890 | | $ | 27 | | 1 | | | $ | 10,287 | | $ | 95 | | Total | $ | 172,186 | | $ | 4,757 | | 55 | | | $ | — | | $ | — | | — | | | $ | 172,186 | | $ | 4,757 | |
December 31, 2020 | | December 31, 2020 | | | | | |
Obligations of: | | Obligations of: | |
States and political subdivisions | | States and political subdivisions | $ | 18,662 | | $ | 165 | | 5 | | | $ | — | | $ | — | | — | | | $ | 18,662 | | $ | 165 | |
| Total | | Total | $ | 18,662 | | $ | 165 | | 5 | | | $ | — | | $ | — | | — | | | $ | 18,662 | | $ | 165 | |
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at September 30, 2020.2021. The weighted-average yields are based on the amortized cost and are computed on a fully taxable-equivalent basis using a statutoryblended federal and state corporate income tax rate of 21%22.3%. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 0 | | $ | 0 | | $ | 3,545 | | $ | 0 | | $ | 3,545 | |
Residential mortgage-backed securities | 0 | | 0 | | 3,023 | | 23,903 | | 26,926 | |
Commercial mortgage-backed securities | 0 | | 380 | | 3,764 | | 1,534 | | 5,678 | |
Total held-to-maturity securities | $ | 0 | | $ | 380 | | $ | 10,332 | | $ | 25,437 | | $ | 36,149 | |
Fair value | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 0 | | $ | 0 | | $ | 4,073 | | $ | 0 | | $ | 4,073 | |
Residential mortgage-backed securities | 0 | | 0 | | 3,142 | | 24,737 | | 27,879 | |
Commercial mortgage-backed securities | 0 | | 389 | | 4,175 | | 1,570 | | 6,134 | |
Total held-to-maturity securities | $ | 0 | | $ | 389 | | $ | 11,390 | | $ | 26,307 | | $ | 38,086 | |
Total weighted-average yield | 0 | % | 2.29 | % | 2.81 | % | 2.41 | % | 2.53 | % |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | — | | $ | — | | $ | — | | $ | 29,995 | | $ | 29,995 | |
States and political subdivisions | — | | 989 | | 2,511 | | 120,917 | | 124,417 | |
Residential mortgage-backed securities | — | | 1,939 | | — | | 39,096 | | 41,035 | |
Commercial mortgage-backed securities | 355 | | — | | 8,655 | | 38,879 | | 47,889 | |
Total held-to-maturity securities | $ | 355 | | $ | 2,928 | | $ | 11,166 | | $ | 228,887 | | $ | 243,336 | |
Fair value | | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | — | | $ | — | | $ | — | | $ | 29,147 | | $ | 29,147 | |
States and political subdivisions | — | | 1,132 | | 2,794 | | 118,509 | | 122,435 | |
Residential mortgage-backed securities | — | | 2,015 | | — | | 39,486 | | 41,501 | |
Commercial mortgage-backed securities | 358 | | — | | 8,844 | | 37,715 | | 46,917 | |
Total held-to-maturity securities | $ | 358 | | $ | 3,147 | | $ | 11,638 | | $ | 224,857 | | $ | 240,000 | |
Total weighted-average yield | 2.25 | % | 2.29 | % | 2.37 | % | 2.05 | % | 2.07 | % |
Other Investment Securities
Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB of Cincinnati and FRB of Cleveland stock.
The following table summarizes the carrying value of Peoples' other investment securities:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | December 31, 2019 | (Dollars in thousands) | September 30, 2021 | December 31, 2020 |
FHLB stock | FHLB stock | $ | 25,022 | | $ | 27,235 | | FHLB stock | $ | 17,918 | | $ | 21,718 | |
FRB stock | FRB stock | 13,311 | | 13,310 | | FRB stock | 13,311 | | 13,311 | |
Nonqualified deferred compensation | Nonqualified deferred compensation | 1,711 | | 1,499 | | Nonqualified deferred compensation | 2,083 | | 1,867 | |
Equity investment securities | Equity investment securities | 306 | | 321 | | Equity investment securities | 390 | | 299 | |
Other investment securities | Other investment securities | 365 | | 365 | | Other investment securities | 784 | | 365 | |
Total other investment securities | Total other investment securities | $ | 40,715 | | $ | 42,730 | | Total other investment securities | $ | 34,486 | | $ | 37,560 | |
|
During the nine months ended September 30, 2020,2021, Peoples redeemed $7.5 million of FHLB stock as requested by the FHLB. During the three months ended September 30, 2021, Peoples acquired $3.7 million in FHLB stock in order to bethe Merger with Premier.
During the three and nine months ended September 30, 2021, Peoples recorded the change in compliance with the requirementsfair value of the FHLB of Cincinnati. These redemptions totaled $2.1 millionequity investment securities held during the third quarterperiod, in "Other non-interest income", resulting in an unrealized gain of 2020, $4.5 million during the second quarter of 2020,$18,000 and $700,000 during the first quarter of 2020. Peoples purchased 0 additional FHLB stock during the third and second quarters of 2020, and purchased $5.0 million of additional FHLB stock during the first quarter of 2020, as a result of the FHLB of Cincinnati's capital requirements on FHLB advances during the quarter.
$91,000, respectively. During the three and nine months ended September 30, 2020, Peoples recorded the change in the fair value of equity investment securities held at September 30, 2020,during the period, in other"Other non-interest income, resulting in unrealized gain of $1,000 and unrealized loss of $15,000, respectively. During the three and nine months ended September 30, 2019, Peoples recorded the change in the fair value of equity investment securities held at September 30, 2019, in other non-interest income,income", resulting in an unrealized gain of $19,000$1,000 and $828,000,an unrealized loss of $15,000, respectively. Net realized gains on sales of equity investment securities, included in other non-interest income during the
first nine months of 2019, consisted of a realized gain of $787,000 related to the sale of restricted Class B Visa stock, which had been held at a carrying cost and fair value of 0 due to the litigation liability associated with the stock.
At September 30, 2020,2021, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were 0no 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 and held-to-maturity securities to secure additional borrowing capacity at the FHLB and the FRB.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 | | | Carrying Amount |
(Dollars in thousands) | (Dollars in thousands) | | September 30, 2020 | | December 31, 2019 | (Dollars in thousands) | | September 30, 2021 | | December 31, 2020 |
| Securing public and trust department deposits, and repurchase agreements: | Securing public and trust department deposits, and repurchase agreements: | | | | | Securing public and trust department deposits, and repurchase agreements: | | |
Available-for-sale | Available-for-sale | | $ | 588,634 | | | $ | 527,655 | | Available-for-sale | | $ | 851,966 | | | $ | 547,244 | |
Held-to-maturity | Held-to-maturity | | 18,440 | | | 12,975 | | Held-to-maturity | | 143,467 | | | 28,287 | |
Securing collateral for cash flow hedge swaps: | | Securing collateral for cash flow hedge swaps: | | |
Available-for-sale | | Available-for-sale | | 36,314 | | | — | |
Securing additional borrowing capacity at the FHLB and the FRB: | Securing additional borrowing capacity at the FHLB and the FRB: | | | Securing additional borrowing capacity at the FHLB and the FRB: | | |
Available-for-sale | Available-for-sale | | 98,003 | | | 44,618 | | Available-for-sale | | 7,036 | | | 2,175 | |
Held-to-maturity | Held-to-maturity | | 12,054 | | | 14,155 | | Held-to-maturity | | 556 | | | — | |
| |
Note 4 Loans
Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' primary market areas of northeastern, central, southwestern and southeastern Ohio, central and eastern Kentucky and west central West Virginia.footprint. Peoples also originates insurance premium finance loans and leases nationwide through its premium finance division. Acquired loans consist of loans purchased in 2012 or thereafter.Peoples Premium Finance and North Star Leasing divisions, respectively. Loans that were acquired and subsequently re-underwrittenleases throughout this document are reportedreferred to as originated upon execution of such credit actions (for example, renewals"total loans" and increases in lines of credit)"loans held for investment".
The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:
| | | | | | | | |
(Dollars in thousands) | September 30, 2020 | December 31, 2019 |
Construction | $ | 108,051 | | $ | 88,518 | |
Commercial real estate, other | 913,239 | | 833,238 | |
Commercial and industrial | 1,168,134 | | 662,993 | |
Residential real estate | 589,449 | | 661,476 | |
Home equity lines of credit | 121,935 | | 132,704 | |
Consumer, indirect | 491,699 | | 417,185 | |
Consumer, direct | 79,059 | | 76,533 | |
Deposit account overdrafts | 519 | | 878 | |
Total loans, at amortized cost | $ | 3,472,085 | | $ | 2,873,525 | |
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Construction | $ | 174,784 | | $ | 106,792 | |
Commercial real estate, other | 1,629,116 | | 929,853 | |
Commercial and industrial | 858,538 | | 973,645 | |
Premium finance | 134,755 | | 114,758 | |
Leases | 111,446 | | — | |
Residential real estate | 768,134 | | 574,007 | |
Home equity lines of credit | 161,370 | | 120,913 | |
Consumer, indirect | 543,256 | | 503,527 | |
Consumer, direct | 108,702 | | 79,094 | |
Deposit account overdrafts | 927 | | 351 | |
Total loans, at amortized cost | $ | 4,491,028 | | $ | 3,402,940 | |
Commercial and industrial loan balances grew significantly comparedOn September 17, 2021, Peoples completed the merger with Premier effective after the close of the business day. Peoples acquired $1.1 billion in loans, of which $285.3 million were considered purchased credit deteriorated loans. See "Note 13
Acquisitions" for more detail on the merger with Premier. Effective after the close of business on March 31, 2021, Peoples acquired $83.3 million in leases from NS Leasing, LLC (" NSL"), of which $5.2 million were considered purchased credit deteriorated leases. Refer to December 31, 2019. "Note 13 Acquisitions" for more detail on the acquisition of leases from NSL.
Peoples began participating as a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020,2020. Peoples originated PPP loans of $159.2 million during the first nine months of 2021 and originated $488.9 million of PPP loans during the first nine monthsfull year of 2020. At September 30, 2020,2021, the PPP loans (including $28.2 million acquired from Premier) had an amortized cost of $460.4$135.8 million, and were included in commercial and industrial loan balances. Peoples recordedbalance. As of September 30, 2021, deferred loan origination fees, related to the PPP loans, net of deferred loan origination costs, which totaled $11.6 million at September 30, 2020.$4.0 million. During the third quarter of 2020,2021, Peoples recorded amortization of net deferred loan origination fees of $1.9$3.8 million on PPP loans.loans compared to $1.9 million for the third quarter of 2020. Peoples recorded accretion of net deferred loan origination fees of $11.2 million and $3.8 million, for the nine months ended September 30, 2021 and 2020, respectively. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net"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. InterestTotal interest receivable on loans was $10.2$12.4 million at September 30, 20202021 and $9.1$10.9 million at December 31, 2019.2020.
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.
The amortized cost of loans on nonaccrual status and of loans delinquent for 90 days or more and accruing were as follows:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Nonaccrual (a)(b) | Accruing Loans 90+ Days Past Due | | Nonaccrual (a) | Accruing Loans 90+ Days Past Due (b) | (Dollars in thousands) | Nonaccrual (a) | Accruing Loans 90+ Days Past Due | | Nonaccrual (a) | Accruing Loans 90+ Days Past Due |
Construction | Construction | $ | 4 | | $ | 0 | | | $ | 411 | | $ | 0 | | Construction | $ | — | | $ | — | | | $ | 4 | | $ | — | |
Commercial real estate, other | Commercial real estate, other | 9,534 | | 80 | | | 6,801 | | 907 | | Commercial real estate, other | 17,301 | | 1,912 | | | 9,111 | | — | |
Commercial and industrial | Commercial and industrial | 6,317 | | 74 | | | 2,155 | | 155 | | Commercial and industrial | 5,356 | | 98 | | | 6,192 | | 50 | |
Premium finance | | Premium finance | — | | 368 | | | — | | 204 | |
Leases | | Leases | 1,411 | | 1,736 | | | — | | — | |
Residential real estate | Residential real estate | 8,508 | | 2,548 | | | 6,361 | | 2,677 | | Residential real estate | 9,735 | | 1,156 | | | 8,375 | | 1,975 | |
Home equity lines of credit | Home equity lines of credit | 919 | | 27 | | | 1,165 | | 108 | | Home equity lines of credit | 976 | | 61 | | | 867 | | 82 | |
Consumer, indirect | Consumer, indirect | 961 | | 86 | | | 840 | | 0 | | Consumer, indirect | 1,069 | | — | | | 1,073 | | 39 | |
Consumer, direct | Consumer, direct | 193 | | 0 | | | 48 | | 85 | | Consumer, direct | 186 | | 32 | | | 171 | | 17 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 26,436 | | $ | 2,815 | | | $ | 17,781 | | $ | 3,932 | | Total loans, at amortized cost | $ | 36,034 | | $ | 5,363 | | | $ | 25,793 | | $ | 2,367 | |
(a) There were $1.3$0.6 million of nonaccrual loans for which there was no allowance for credit losses as ofat September 30, 20202021 and $3.1$1.3 million at December 31, 2019.
(b) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. At December 31, 2019, these loans were presented as 90+ days past due and accruing.
During the third quarterfirst nine months of 2020,2021, nonaccrual loans increased compared to June 30,December 31, 2020, mostlyprimarily due to a single commercial relationshipthe non-accrual loans acquired from Premier, which added $13.0 million in nonaccrual loans at the end of $1.8 million that was placed on nonaccrual.the third quarter of 2021. As of September 30, 2020, Peoples had made2021, the short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current borrowers, whichPeoples had made were insignificant. Under the CARESCoronavirus Aid, Relief and Economic Security Act (the "CARES Act"), borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made underin accordance with the CARES Act arewere not included in Peoples' nonaccrual or accruing loans 90+ days past due as ofat September 30, 2020.
The new accounting for purchased credit deteriorated2021. During the third quarter of 2021, accruing loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing categoryincreased primarily due to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were accreting incomeacquired from the discount that was recognized due to acquisition accounting. The additional increase in nonaccrual loans at September 30, 2020, compared to December 31, 2019, was due to two commercial relationships aggregating $3.3 million and several smaller commercial relationships being placed on nonaccrual. Premier.
The amount of interest income recognized on nonaccrual loans past due 90 days or more during the three and nine months ended September 30, 20202021 was $377,000$0.2 million and $1.2$0.9 million, respectively.
The following table presents the aging of the amortized cost of past due loans:
| | | Loans Past Due | Current Loans | Total Loans | | Loans Past Due | Current Loans | Total Loans |
(Dollars in thousands) | (Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total | (Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total |
September 30, 2020 | | |
September 30, 2021 | | September 30, 2021 | |
Construction | Construction | $ | 0 | | $ | 0 | | $ | 4 | | $ | 4 | | $ | 108,047 | | $ | 108,051 | | Construction | $ | 146 | | $ | 16 | | $ | — | | $ | 162 | | $ | 174,622 | | $ | 174,784 | |
Commercial real estate, other | Commercial real estate, other | 1,353 | | 267 | | 9,039 | | 10,659 | | 902,580 | | 913,239 | | Commercial real estate, other | 4,513 | | 2,349 | | 14,116 | | 20,978 | | 1,608,138 | | 1,629,116 | |
Commercial and industrial | Commercial and industrial | 330 | | 286 | | 4,594 | | 5,210 | | 1,162,924 | | 1,168,134 | | Commercial and industrial | 924 | | 566 | | 5,324 | | 6,814 | | 851,724 | | 858,538 | |
Premium finance | | Premium finance | 440 | | 281 | | 368 | | 1,089 | | 133,666 | | 134,755 | |
Leases | | Leases | 393 | | 194 | | 1,736 | | 2,323 | | 109,123 | | 111,446 | |
Residential real estate | Residential real estate | 1,517 | | 2,113 | | 5,598 | | 9,228 | | 580,221 | | 589,449 | | Residential real estate | 4,138 | | 2,649 | | 5,353 | | 12,140 | | 755,994 | | 768,134 | |
Home equity lines of credit | Home equity lines of credit | 66 | | 195 | | 712 | | 973 | | 120,962 | | 121,935 | | Home equity lines of credit | 487 | | 166 | | 758 | | 1,411 | | 159,959 | | 161,370 | |
Consumer, indirect | Consumer, indirect | 2,199 | | 286 | | 336 | | 2,821 | | 488,878 | | 491,699 | | Consumer, indirect | 2,977 | | 477 | | 346 | | 3,800 | | 539,456 | | 543,256 | |
Consumer, direct | Consumer, direct | 141 | | 163 | | 104 | | 408 | | 78,651 | | 79,059 | | Consumer, direct | 134 | | 224 | | 101 | | 459 | | 108,243 | | 108,702 | |
Deposit account overdrafts | Deposit account overdrafts | 0 | | 0 | | 0 | | 0 | | 519 | | 519 | | Deposit account overdrafts | — | | — | | — | | — | | 927 | | 927 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 5,606 | | $ | 3,310 | | $ | 20,387 | | $ | 29,303 | | $ | 3,442,782 | | $ | 3,472,085 | | Total loans, at amortized cost | $ | 14,152 | | $ | 6,922 | | $ | 28,102 | | $ | 49,176 | | $ | 4,441,852 | | $ | 4,491,028 | |
December 31, 2019 | | |
December 31, 2020 | | December 31, 2020 | |
Construction | Construction | $ | 5 | | $ | 0 | | $ | 411 | | $ | 416 | | $ | 88,102 | | $ | 88,518 | | Construction | $ | — | | $ | 344 | | $ | 4 | | $ | 348 | | $ | 106,444 | | $ | 106,792 | |
Commercial real estate, other | Commercial real estate, other | 376 | | 337 | | 7,501 | | 8,214 | | 825,024 | | 833,238 | | Commercial real estate, other | 1,943 | | 283 | | 8,643 | | 10,869 | | 918,984 | | 929,853 | |
Commercial and industrial | Commercial and industrial | 2,780 | | 312 | | 1,244 | | 4,336 | | 658,657 | | 662,993 | | Commercial and industrial | 567 | | 552 | | 4,535 | | 5,654 | | 967,991 | | 973,645 | |
Premium finance | | Premium finance | 928 | | 1,073 | | 204 | | 2,205 | | 112,553 | | 114,758 | |
Residential real estate | Residential real estate | 10,538 | | 2,918 | | 5,872 | | 19,328 | | 642,148 | | 661,476 | | Residential real estate | 6,739 | | 2,688 | | 5,512 | | 14,939 | | 559,068 | | 574,007 | |
Home equity lines of credit | Home equity lines of credit | 642 | | 510 | | 1,033 | | 2,185 | | 130,519 | | 132,704 | | Home equity lines of credit | 309 | | 58 | | 780 | | 1,147 | | 119,766 | | 120,913 | |
Consumer, indirect | Consumer, indirect | 3,574 | | 714 | | 370 | | 4,658 | | 412,527 | | 417,185 | | Consumer, indirect | 4,362 | | 733 | | 348 | | 5,443 | | 498,084 | | 503,527 | |
Consumer, direct | Consumer, direct | 619 | | 117 | | 112 | | 848 | | 75,685 | | 76,533 | | Consumer, direct | 424 | | 43 | | 123 | | 590 | | 78,504 | | 79,094 | |
Deposit account overdrafts | Deposit account overdrafts | 0 | | 0 | | 0 | | 0 | | 878 | | 878 | | Deposit account overdrafts | — | | — | | — | | — | | 351 | | 351 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 18,534 | | $ | 4,908 | | $ | 16,543 | | $ | 39,985 | | $ | 2,833,540 | | $ | 2,873,525 | | Total loans, at amortized cost | $ | 15,272 | | $ | 5,774 | | $ | 20,149 | | $ | 41,195 | | $ | 3,361,745 | | $ | 3,402,940 | |
The increase in loans 90+ days past due, compared to December 31, 2019, was mostly due to a $1.5 million commercial relationship. Delinquency trends remained stable, as 99.2%98.9% of Peoples' loan portfolio was considered “current” at September 30, 2020,2021, compared to 98.6%98.8% at December 31, 2019.2020.
Pledged Loans
Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, and 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, 2020 | December 31, 2019 |
Loans pledged to FHLB | $ | 742,023 | | $ | 458,227 | |
Loans pledged to FRB | 188,354 | | 172,693 | |
During 2020, Peoples pledged additional collateral to the FHLB and FRB to secure potential funding needs in light of the COVID-19 pandemic, as well as to fund the PPP loan originations that occurred during the year. | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Loans pledged to FHLB | $ | 752,382 | | $ | 740,584 | |
Loans pledged to FRB | 135,504 | | 107,340 | |
Credit Quality Indicators
As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20192020 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, including loans acquired from Premier, is as follows:
“Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating
factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist.
“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 loan.loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the deficienciesweaknesses 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 the loaneach 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 regulatory definitionprospect of these classes and consistent with regulatory requirements.collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “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, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
(Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Construction | | | | | | |
| | |
Pass | $ | 25,197 | | $ | 42,715 | | $ | 2,958 | | $ | 14,650 | | $ | 1,146 | | $ | 17,668 | | $ | 446 | | $ | 3,311 | | $ | 104,780 | |
Special mention | 0 | | 1,378 | | 475 | | 0 | | 0 | | 144 | | 0 | | 475 | | 1,997 | |
Substandard | 0 | | 0 | | 0 | | 195 | | 0 | | 730 | | 349 | | 0 | | 1,274 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 25,197 | | 44,093 | | 3,433 | | 14,845 | | 1,146 | | 18,542 | | 795 | | 3,786 | | 108,051 | |
Commercial real estate, other | | | | | |
| | |
Pass | 89,909 | | 99,713 | | 99,193 | | 99,656 | | 112,043 | | 220,567 | | 126,990 | | 27,562 | | 848,071 | |
Special mention | 61 | | 4,822 | | 1,118 | | 3,809 | | 5,102 | | 7,206 | | 2,025 | | 182 | | 24,143 | |
Substandard | 0 | | 1,547 | | 822 | | 2,854 | | 1,973 | | 31,972 | | 1,857 | | 47 | | 41,025 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 89,970 | | 106,082 | | 101,133 | | 106,319 | | 119,118 | | 259,745 | | 130,872 | | 27,791 | | 913,239 | |
Commercial and industrial | | | | | | | | |
Pass | 495,729 | | 92,863 | | 75,491 | | 40,026 | | 49,385 | | 170,044 | | 206,382 | | 27,217 | | 1,129,920 | |
Special mention | 755 | | 1,712 | | 3,448 | | 123 | | 269 | | 1,397 | | 13,367 | | 51 | | 21,071 | |
Substandard | 2,337 | | 1,665 | | 1,439 | | 1,977 | | 300 | | 4,014 | | 3,638 | | 2,722 | | 15,370 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 1,773 | | 0 | | 0 | | 1,773 | |
| | | | | | | | | |
Total | 498,821 | | 96,240 | | 80,378 | | 42,126 | | 49,954 | | 177,228 | | 223,387 | | 29,990 | | 1,168,134 | |
Residential real estate | | | | | | | | |
Pass | 29,893 | | 44,275 | | 27,806 | | 32,183 | | 45,532 | | 306,390 | | 86,801 | | 227 | | 572,880 | |
Special mention | 0 | | 0 | | 0 | | 0 | | 0 | | 1 | | 0 | | 0 | | 1 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 15,962 | | 126 | | 0 | | 16,088 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 297 | | 0 | | 0 | | 297 | |
Loss | 0 | | 0 | | 0 | | 0 | | 0 | | 183 | | 0 | | 0 | | 183 | |
Total | 29,893 | | 44,275 | | 27,806 | | 32,183 | | 45,532 | | 322,833 | | 86,927 | | 227 | | 589,449 | |
Home equity lines of credit | | | | | | | | |
Pass | 11,065 | | 13,802 | | 13,087 | | 14,651 | | 11,751 | | 43,776 | | 13,803 | | 4,025 | | 121,935 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 11,065 | | 13,802 | | 13,087 | | 14,651 | | 11,751 | | 43,776 | | 13,803 | | 4,025 | | 121,935 | |
Consumer, indirect | | | | | | | | | |
Pass | 169,220 | | 102,067 | | 80,906 | | 45,867 | | 20,583 | | 15,417 | | 57,639 | | 0 | | 491,699 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 169,220 | | 102,067 | | 80,906 | | 45,867 | | 20,583 | | 15,417 | | 57,639 | | 0 | | 491,699 | |
Consumer, direct | | | | | | | | | |
Pass | 25,239 | | 18,257 | | 12,834 | | 5,427 | | 3,249 | | 5,256 | | 8,797 | | 0 | | 79,059 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 25,239 | | 18,257 | | 12,834 | | 5,427 | | 3,249 | | 5,256 | | 8,797 | | 0 | | 79,059 | |
Deposit account overdrafts | 519 | | — | | — | | — | | — | | — | | — | | — | | 519 | |
Total loans, at amortized cost | $ | 849,924 | | $ | 424,816 | | $ | 319,577 | | $ | 261,418 | | $ | 251,333 | | $ | 842,797 | | $ | 522,220 | | $ | 65,819 | | $ | 3,472,085 | |
During the third quarter of 2020, Peoples downgraded several relationships due to the COVID-19 pandemic. The COVID-related downgrades contributed to increases of $17.5 million of additional criticized loans and $9.3 million of additional classified loans compared to balances at June 30, 2020. At September 30, 2020, Peoples had a total of $1.8 million of loans secured by residential real estate mortgages that were in the process of foreclosure. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total Loans |
Construction | | | | | | |
| | |
Pass | $ | 57,422 | | $ | 73,789 | | $ | 16,624 | | $ | 3,289 | | $ | 1,286 | | $ | 2,829 | | $ | 1,755 | | $ | 4,170 | | $ | 156,994 | |
Special mention | 290 | | — | | 7,185 | | 1,092 | | 3,805 | | 138 | | — | | — | | 12,510 | |
Substandard | — | | — | | 957 | | 79 | | 159 | | 4,085 | | — | | — | | 5,280 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 57,712 | | 73,789 | | 24,766 | | 4,460 | | 5,250 | | 7,052 | | 1,755 | | 4,170 | | 174,784 | |
Commercial real estate, other | | | | |
| | |
Pass | 195,110 | | 266,264 | | 240,617 | | 153,836 | | 160,057 | | 427,073 | | 23,815 | | 12,128 | | 1,466,772 | |
Special mention | 159 | | 10,353 | | 8,398 | | 7,077 | | 8,798 | | 33,558 | | — | | 51 | | 68,343 | |
Substandard | — | | 1,679 | | 6,644 | | 2,299 | | 5,668 | | 76,655 | | 371 | | 41 | | 93,316 | |
Doubtful | — | | — | | — | | — | | — | | 669 | | — | | — | | 669 | |
Loss | — | | — | | — | | — | | — | | 16 | | — | | — | | 16 | |
Total | 195,269 | | 278,296 | | 255,659 | | 163,212 | | 174,523 | | 537,971 | | 24,186 | | 12,220 | | 1,629,116 | |
Commercial and industrial | | | | | | | | |
Pass | 241,877 | | 135,119 | | 90,671 | | 67,107 | | 30,843 | | 102,471 | | 154,178 | | 14,440 | | 822,266 | |
Special mention | 82 | | 1,281 | | 2,327 | | 3,622 | | 164 | | 991 | | 2,702 | | 10 | | 11,169 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total Loans |
Substandard | 94 | | 2,858 | | 2,739 | | 875 | | 6,921 | | 3,853 | | 5,690 | | 608 | | 23,030 | |
Doubtful | — | | — | | — | | — | | — | | 1,808 | | 265 | | 187 | | 2,073 | |
| | | | | | | | | |
Total | 242,053 | | 139,258 | | 95,737 | | 71,604 | | 37,928 | | 109,123 | | 162,835 | | 15,245 | | 858,538 | |
Premium finance | | | | | | | | | |
Pass | 131,142 | | 3,613 | | — | | — | | — | | — | | — | | — | | 134,755 | |
Total | 131,142 | | 3,613 | | — | | — | | — | | — | | — | | — | | 134,755 | |
Leases | | | | | | | | | |
Pass | 56,901 | | 30,875 | | 16,750 | | 4,473 | | 491 | | 26 | | — | | — | | 109,516 | |
Special mention | 99 | | 10 | | 68 | | 17 | | — | | — | | — | | — | | 194 | |
Substandard | 123 | | 502 | | 531 | | 572 | | 8 | | — | | — | | — | | 1,736 | |
Total | 57,123 | | 31,387 | | 17,349 | | 5,062 | | 499 | | 26 | | — | | — | | 111,446 | |
Residential real estate | | | | | | | | |
Pass | 115,657 | | 75,578 | | 55,305 | | 35,693 | | 46,720 | | 422,673 | | — | | — | | 751,626 | |
| | | | | | | | | |
Substandard | — | | — | | — | | — | | — | | 16,079 | | — | | — | | 16,079 | |
| | | | | | | | | |
Loss | — | | — | | — | | — | | — | | 429 | | — | | — | | 429 | |
Total | 115,657 | | 75,578 | | 55,305 | | 35,693 | | 46,720 | | 439,181 | | — | | — | | 768,134 | |
Home equity lines of credit | | | | | | | | |
Pass | 25,901 | | 23,840 | | 19,084 | | 17,112 | | 15,625 | | 57,574 | | 2,234 | | 3,164 | | 161,370 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 25,901 | | 23,840 | | 19,084 | | 17,112 | | 15,625 | | 57,574 | | 2,234 | | 3,164 | | 161,370 | |
Consumer, indirect | | | | | | | | |
Pass | 195,954 | | 183,489 | | 72,009 | | 53,063 | | 26,499 | | 12,242 | | — | | — | | 543,256 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 195,954 | | 183,489 | | 72,009 | | 53,063 | | 26,499 | | 12,242 | | — | | — | | 543,256 | |
Consumer, direct | | | | | | | | | |
Pass | 42,124 | | 30,880 | | 15,541 | | 9,863 | | 3,861 | | 6,433 | | — | | — | | 108,702 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 42,124 | | 30,880 | | 15,541 | | 9,863 | | 3,861 | | 6,433 | | — | | — | | 108,702 | |
Deposit account overdrafts | 927 | | — | | — | | — | | — | | — | | — | | — | | 927 | |
Total loans, at amortized cost | $ | 1,063,862 | | $ | 840,130 | | $ | 555,450 | | $ | 360,069 | | $ | 310,905 | | $ | 1,169,602 | | $ | 191,010 | | $ | 34,799 | | $ | 4,491,028 | |
The following table summarizes the risk category of Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
(Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Construction | | | | | | |
| | |
Pass | $ | 27,670 | | $ | 56,361 | | $ | 554 | | $ | 15,089 | | $ | 824 | | $ | 1,194 | | $ | 3,199 | | $ | 2,003 | | $ | 104,891 | |
Special mention | — | | — | | 496 | | — | | — | | 143 | | — | | — | | 639 | |
Substandard | — | | — | | — | | 186 | | — | | 1,076 | | — | | — | | 1,262 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 27,670 | | 56,361 | | 1,050 | | 15,275 | | 824 | | 2,413 | | 3,199 | | 2,003 | | 106,792 | |
Commercial real estate, other | | | | | |
| | |
Pass | 116,441 | | 125,373 | | 99,522 | | 94,465 | | 99,668 | | 215,385 | | 109,160 | | 9,748 | | 860,014 | |
Special mention | 297 | | 5,806 | | 999 | | 5,296 | | 5,125 | | 12,932 | | 3,967 | | 60 | | 34,422 | |
Substandard | — | | 1,191 | | 677 | | 1,709 | | 1,663 | | 27,066 | | 3,033 | | 110 | | 35,339 | |
Doubtful | — | | — | | — | | — | | — | | 78 | | — | | — | | 78 | |
| | | | | | | | | |
Total | 116,738 | | 132,370 | | 101,198 | | 101,470 | | 106,456 | | 255,461 | | 116,160 | | 9,918 | | 929,853 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
(Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Commercial and industrial | | | | | | | | |
Pass | 409,237 | | 97,362 | | 67,284 | | 38,450 | | 45,026 | | 77,009 | | 199,597 | | 30,680 | | 933,965 | |
Special mention | 1,034 | | 366 | | 2,018 | | 287 | | 1,453 | | 1,452 | | 12,429 | | 526 | | 19,039 | |
Substandard | 2,226 | | 3,569 | | 2,873 | | 2,167 | | 318 | | 4,163 | | 3,436 | | 1,083 | | 18,752 | |
Doubtful | — | | — | | — | | — | | 1,698 | | 191 | | — | | 187 | | 1,889 | |
| | | | | | | | | |
Total | 412,497 | | 101,297 | | 72,175 | | 40,904 | | 48,495 | | 82,815 | | 215,462 | | 32,476 | | 973,645 | |
Premium finance | | | | | | | | | |
Pass | 114,758 | | — | | — | | — | | — | | — | | — | | — | | 114,758 | |
Total | 114,758 | | — | | — | | — | | — | | — | | — | | — | | 114,758 | |
Residential real estate | | | | | | | | |
Pass | 47,147 | | 40,223 | | 24,235 | | 29,142 | | 43,105 | | 309,795 | | 65,168 | | 305 | | 558,815 | |
| | | | | | | | | |
Substandard | — | | — | | — | | — | | — | | 15,048 | | — | | — | | 15,048 | |
| | | | | | | | | |
Loss | — | | — | | — | | — | | — | | 144 | | — | | — | | 144 | |
Total | 47,147 | | 40,223 | | 24,235 | | 29,142 | | 43,105 | | 324,987 | | 65,168 | | 305 | | 574,007 | |
Home equity lines of credit | | | | | | | | |
Pass | 16,469 | | 13,513 | | 12,548 | | 12,382 | | 11,869 | | 40,626 | | 13,506 | | 4,091 | | 120,913 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 16,469 | | 13,513 | | 12,548 | | 12,382 | | 11,869 | | 40,626 | | 13,506 | | 4,091 | | 120,913 | |
Consumer, indirect | | | | | | | | | |
Pass | 210,014 | | 92,696 | | 71,807 | | 39,608 | | 17,156 | | 11,563 | | 60,683 | | — | | 503,527 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 210,014 | | 92,696 | | 71,807 | | 39,608 | | 17,156 | | 11,563 | | 60,683 | | — | | 503,527 | |
Consumer, direct | | | | | | | | | |
Pass | 31,689 | | 15,923 | | 11,085 | | 4,531 | | 2,529 | | 4,193 | | 9,144 | | — | | 79,094 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 31,689 | | 15,923 | | 11,085 | | 4,531 | | 2,529 | | 4,193 | | 9,144 | | — | | 79,094 | |
Deposit account overdrafts | 351 | | — | | — | | — | | — | | — | | — | | — | | 351 | |
Total loans, at amortized cost | $ | 977,333 | | $ | 452,383 | | $ | 294,098 | | $ | 243,312 | | $ | 230,434 | | $ | 722,058 | | $ | 483,322 | | $ | 48,793 | | $ | 3,402,940 | |
Collateral Dependent Loans
Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:
• Construction loans are typically secured by owner occupied commercial real estate or non-owner occupied investment real estate. Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction.
•Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.
•Commercial and industrial loans are general secured by equipment, inventory, accounts receivable, and other commercial property.
•Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.
•Home equity lines of credit are generally secured by second mortgages on residential real estate property.
•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) | (Dollars in thousands) | September 30, 2020 | | December 31, 2019 | (Dollars in thousands) | September 30, 2021 | | December 31, 2020 |
| Construction | | Construction | $ | 4,276 | | | | $ | — | | |
Commercial real estate, other | Commercial real estate, other | $ | 8,999 | | | | $ | 6,818 | | | Commercial real estate, other | 35,820 | | | | 8,467 | | |
Commercial and industrial | Commercial and industrial | 6,487 | | | | 1,962 | | | Commercial and industrial | 11,446 | | | | 6,333 | | |
Residential real estate | Residential real estate | 1,971 | | | | 1,847 | | | Residential real estate | 1,321 | | | | 1,670 | | |
Home equity lines of credit | Home equity lines of credit | 406 | | | | 681 | | | Home equity lines of credit | 393 | | | | 403 | | |
Consumer, indirect | 0 | | | | 713 | | | |
Consumer, direct | 0 | | | | 94 | | | |
| Total collateral dependent loans | Total collateral dependent loans | $ | 17,863 | | | | $ | 12,115 | | | Total collateral dependent loans | $ | 53,256 | | | | $ | 16,873 | | |
The increase in collateral dependent commercial and industrial loans at September 30, 20202021, compared to December 31, 20192020, was mostlyprimarily due to one commercial relationship that became collateral dependent, coupled with some smaller relationships. In addition, the increase$39.1 million in collateral dependent consumer loans was driven by a change in the policy threshold for evaluation of individually impaired loans, which was previously $100,000 and on January 1, 2020 was changed to $250,000, thereby reducing the amount of loans considered collateral dependent which were no longer above the threshold.acquired from Premier.
Troubled Debt Restructurings
The following tables summarize the loans that were modified as TDRstroubled debt restructurings ("TDRs") during the three months 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, 2020 | | | | |
| | | | |
Commercial real estate, other | 3 | | $ | 2,214 | | $ | 2,214 | | $ | 1,112 | |
Commercial and industrial | 4 | | 3,657 | | 3,657 | | 3,658 | |
Residential real estate | 10 | | 608 | | 608 | | 608 | |
Home equity lines of credit | 3 | | 68 | | 68 | | 68 | |
Consumer, indirect | 11 | | 126 | | 126 | | 126 | |
Consumer - direct | 2 | | 16 | | 16 | | 16 | |
Consumer | 13 | | 142 | | 142 | | 142 | |
Total | 33 | | $ | 6,689 | | $ | 6,689 | | $ | 5,588 | |
| | | | |
September 30, 2019 | | | | |
Originated loans: | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Consumer, indirect | 15 | | $ | 205 | | $ | 205 | | $ | 205 | |
| | | | |
| | | | |
Total | 15 | | $ | 205 | | $ | 205 | | $ | 205 | |
Acquired loans: | | | | |
| | | | |
| | | | |
| | | | |
Residential real estate | 1 | | $ | 70 | | $ | 70 | | $ | 70 | |
| | | | |
| | | | |
| | | | |
| | | | |
Total | 1 | | $ | 70 | | $ | 70 | | $ | 70 | |
(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.
|
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | Recorded Investment (a) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2021 | | | | |
Construction | 1 | | $ | 6 | | $ | 6 | | $ | 6 | |
Commercial real estate, other | 2 | | 14 | | 14 | | 14 | |
Commercial and industrial | 3 | | 327 | | 327 | | 327 | |
Leases | 2 | | 182 | | 184 | | 178 | |
Residential real estate | 46 | | 1,952 | | 1,956 | | 1,955 | |
Home equity lines of credit | 5 | | 55 | | 55 | | 55 | |
Consumer, indirect | 9 | | 95 | | 95 | | 95 | |
Consumer, direct | 3 | | 9 | | 9 | | 9 | |
Consumer | 12 | | 104 | | 104 | | 104 | |
Total | 71 | | $ | 2,640 | | $ | 2,646 | | $ | 2,639 | |
| | | | |
September 30, 2020 | | | | |
Commercial real estate, other | 3 | | $ | 2,214 | | $ | 2,214 | | $ | 1,112 | |
Commercial and industrial | 4 | | 3,657 | | 3,657 | | 3,658 | |
Residential real estate | 10 | | 608 | | 608 | | 608 | |
Home equity lines of credit | 3 | | 68 | | 68 | | 68 | |
Consumer, indirect | 11 | | 126 | | 126 | | 126 | |
Consumer, direct | 2 | | 16 | | 16 | | 16 | |
Consumer | 13 | | 142 | | 142 | | 142 | |
Total | 33 | | $ | 6,689 | | $ | 6,689 | | $ | 5,588 | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
|
| | | Nine Months Ended | | Nine Months Ended |
| | Recorded Investment (a) | | Recorded Investment (a) |
(Dollars in thousands) | (Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment | (Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2021 | | September 30, 2021 | |
Construction | | Construction | 2 | | $ | 350 | | $ | 350 | | $ | 350 | |
Commercial real estate, other | | Commercial real estate, other | 3 | | 37 | | 37 | | 37 | |
Commercial and industrial | | Commercial and industrial | 3 | | 327 | | 327 | | 327 | |
Leases | | Leases | 5 | | 340 | | 348 | | 334 | |
Residential real estate | | Residential real estate | 54 | | 2,367 | | 2,376 | | 2,366 | |
Home equity lines of credit | | Home equity lines of credit | 9 | | 315 | | 315 | | 307 | |
Consumer, indirect | | Consumer, indirect | 16 | | 200 | | 200 | | 192 | |
Consumer, direct | | Consumer, direct | 8 | | 48 | | 48 | | 45 | |
Consumer | | Consumer | 24 | | 248 | | 248 | | 237 | |
Total | | Total | 100 | | $ | 3,984 | | $ | 4,001 | | $ | 3,958 | |
| September 30, 2020 | September 30, 2020 | | September 30, 2020 | |
| Commercial real estate, other | Commercial real estate, other | 5 | | $ | 2,533 | | $ | 2,533 | | $ | 1,430 | | Commercial real estate, other | 5 | | $ | 2,533 | | $ | 2,533 | | $ | 1,430 | |
Commercial and industrial | Commercial and industrial | 5 | | 3,803 | | 3,803 | | 3,804 | | Commercial and industrial | 5 | | 3,803 | | 3,803 | | 3,804 | |
Residential real estate | Residential real estate | 16 | | 1,237 | | 1,267 | | 1,261 | | Residential real estate | 16 | | 1,237 | | 1,267 | | 1,261 | |
Home equity lines of credit | Home equity lines of credit | 7 | | 123 | | 123 | | 121 | | Home equity lines of credit | 7 | | 123 | | 123 | | 121 | |
Consumer, indirect | Consumer, indirect | 23 | | 235 | | 235 | | 216 | | Consumer, indirect | 23 | | 235 | | 235 | | 216 | |
Consumer, direct | Consumer, direct | 5 | | 68 | | 68 | | 63 | | Consumer, direct | 5 | | 68 | | 68 | | 63 | |
Consumer | Consumer | 28 | | 303 | | 303 | | 279 | | Consumer | 28 | | 303 | | 303 | | 279 | |
Total | Total | 61 | | $ | 7,999 | | $ | 8,029 | | $ | 6,895 | | Total | 61 | | $ | 7,999 | | $ | 8,029 | | $ | 6,895 | |
| September 30, 2019 | | |
Originated loans: | | |
| Commercial and industrial | 2 | | $ | 38 | | $ | 38 | | $ | 34 | | |
Residential real estate | 3 | | 437 | | 440 | | 434 | | |
Home equity lines of credit | 4 | | 139 | | 139 | | 137 | | |
Consumer, indirect | 23 | | 328 | | 328 | | 312 | | |
Consumer, direct | 3 | | 52 | | 52 | | 48 | | |
Consumer | 26 | | 380 | | 380 | | 360 | | |
Total | 35 | | $ | 994 | | $ | 997 | | $ | 965 | | |
Acquired loans: | | |
| Commercial real estate, other | 3 | | $ | 101 | | $ | 76 | | $ | 75 | | |
Commercial and industrial | 5 | | 1,557 | | 1,557 | | 1,510 | | |
Residential real estate | 35 | | 2,088 | | 2,088 | | 2,037 | | |
Home equity lines of credit | 8 | | 172 | | 172 | | 168 | | |
| Consumer, direct | 16 | | 340 | | 340 | | 330 | | |
| Total | 67 | | $ | 4,258 | | $ | 4,233 | | $ | 4,120 | | |
(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.
| (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.
| (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
|
On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of accounting for troubled debt restructurings,TDRs, as defined in ASC 310-40.
The following table presents those loans modified into a TDR during the year that subsequently defaulted (i.e., 90 days or more past due following a modificationmodification) during the nine-month periods ended September 30:
| | | | | September 30, 2020 | | September 30, 2019 | | September 30, 2021 | | September 30, 2020 | |
(Dollars in thousands) | (Dollars in thousands) | | | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses | | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses | (Dollars in thousands) | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Credit Losses | | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Credit Losses | |
| Commercial real estate, other | Commercial real estate, other | | | 1 | | $ | 54 | | — | | | — | | $ | — | | $ | — | | Commercial real estate, other | — | | $ | — | | — | | | 1 | | $ | 54 | | — | | |
Consumer, direct | | | — | | — | | — | | | 1 | | 35 | | $ | — | | |
Residential real estate | | Residential real estate | 3 | | 113 | | — | | | — | | — | | — | | |
| Total | Total | | | 1 | | $ | 54 | | $ | — | | | 1 | | $ | 35 | | $ | — | | Total | 3 | | $ | 113 | | $ | — | | | 1 | | $ | 54 | | $ | — | | |
(1) 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. | |
(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. | | (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
Peoples had 0no commitments to lend additional funds to the related borrowers whose loan terms have been modified in a TDR.
Allowance for Credit Losses
Changes in the allowance for credit losses for the three months ended September 30, 2021 and September 30, 2020 are summarized below:
| | (Dollars in thousands) | (Dollars in thousands) | Beginning Balance, June 30, 2020 | | Provision for (Recovery of) Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, September 30, 2020 | (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 | Construction | $ | 2,662 | | | $ | (148) | | $ | 0 | | $ | 0 | | $ | 2,514 | | Construction | $ | 914 | | $ | 2,127 | | $ | 638 | | $ | (243) | | $ | — | | $ | — | | $ | 3,436 | |
Commercial real estate, other | Commercial real estate, other | 19,148 | | | (8) | | (109) | | 4 | | 19,035 | | Commercial real estate, other | 17,233 | | 13,374 | | 5,384 | | (179) | | — | | 4 | | 35,816 | |
Commercial and industrial | Commercial and industrial | 10,106 | | | 4,127 | | (148) | | 0 | | 14,085 | | Commercial and industrial | 8,686 | | 4,286 | | 1,059 | | (3) | | (654) | | 4 | | 13,378 | |
Premium finance | | Premium finance | 998 | | — | | — | | 146 | | (7) | | — | | 1,137 | |
Leases | | Leases | 3,715 | | — | | — | | 1,101 | | (431) | | 120 | | 4,505 | |
Residential real estate | Residential real estate | 6,380 | | | (371) | | (121) | | 100 | | 5,988 | | Residential real estate | 4,837 | | 2,394 | | 2,645 | | (312) | | (44) | | 48 | | 9,568 | |
Home equity lines of credit | Home equity lines of credit | 1,755 | | | 40 | | 0 | | 2 | | 1,797 | | Home equity lines of credit | 1,504 | | 41 | | 674 | | 148 | | (180) | | 37 | | 2,224 | |
Consumer, indirect | Consumer, indirect | 12,293 | | | 785 | | (370) | | 64 | | 12,772 | | Consumer, indirect | 8,841 | | — | | — | | (2,308) | | (416) | | 43 | | 6,160 | |
Consumer, direct | Consumer, direct | 1,941 | | | (78) | | (15) | | 13 | | 1,861 | | Consumer, direct | 1,161 | | 112 | | 180 | | (362) | | (29) | | 17 | | 1,079 | |
Deposit account overdrafts | Deposit account overdrafts | 77 | | | 154 | | (202) | | 47 | | 76 | | Deposit account overdrafts | 53 | | — | | — | | 124 | | (135) | | 37 | | 79 | |
Total | Total | $ | 54,362 | | | $ | 4,501 | | $ | (965) | | $ | 230 | | $ | 58,128 | | 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 commitment liability.commitments.
| | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Beginning Balance, June 30, 2020 | Initial Allowance for Acquired Purchased Credit Deteriorated Assets | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | (Recovery of) Provision for Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, September 30, 2020 |
Construction | $ | 2,662 | | $ | — | | $ | — | | $ | (148) | | $ | — | | $ | — | | $ | 2,514 | |
Commercial real estate, other | 19,148 | | — | | — | | (8) | | (109) | | 4 | | 19,035 | |
Commercial and industrial | 10,106 | | — | | — | | 3,139 | | (146) | | — | | 13,099 | |
Premium finance | — | | — | | 990 | | (2) | | (2) | | — | | 986 | |
| | | | | | | |
Residential real estate | 6,380 | | — | | — | | (371) | | (121) | | 100 | | 5,988 | |
Home equity lines of credit | 1,755 | | — | | — | | 40 | | — | | 2 | | 1,797 | |
Consumer, indirect | 12,293 | | — | | — | | 785 | | (370) | | 64 | | 12,772 | |
Consumer, direct | 1,941 | | — | | — | | (78) | | (15) | | 13 | | 1,861 | |
Deposit account overdrafts | 77 | | — | | — | | 154 | | (202) | | 47 | | 76 | |
Total | $ | 54,362 | | $ | — | | $ | 990 | | $ | 3,511 | | $ | (965) | | $ | 230 | | $ | 58,128 | |
(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.
Changes in the allowance for credit losses for the nine months ended September 30, 2021 and September 30, 2020 are summarized below:
| | (Dollars in thousands) | (Dollars in thousands) | Beginning Balance, January 1, 2020 | Initial Allowance for Purchased Credit Deteriorated Assets | Provision for Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, September 30, 2020 | (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 | Construction | $ | 600 | | $ | 51 | | $ | 1,863 | | $ | 0 | | $ | 0 | | $ | 2,514 | | Construction | $ | 1,887 | | $ | 2,127 | | $ | 638 | | $ | (1,216) | | $ | — | | $ | — | | $ | 3,436 | |
Commercial real estate, other | Commercial real estate, other | 7,193 | | 1,356 | | 10,614 | | (254) | | 126 | | 19,035 | | Commercial real estate, other | 17,536 | | 13,374 | | 5,384 | | (325) | | (161) | | 8 | | 35,816 | |
Commercial and industrial | Commercial and industrial | 4,960 | | 860 | | 7,356 | | (1,100) | | 2,009 | | 14,085 | | Commercial and industrial | 12,763 | | 4,286 | | 1,059 | | (3,800) | | (952) | | 22 | | 13,378 | |
Premium finance | | Premium finance | 1,095 | | — | | — | | 72 | | (30) | | — | | 1,137 | |
Leases | | Leases | — | | 493 | | 3,288 | | 1,450 | | (956) | | 230 | | 4,505 | |
Residential real estate | Residential real estate | 3,977 | | 383 | | 1,626 | | (255) | | 257 | | 5,988 | | Residential real estate | 6,044 | | 2,394 | | 2,645 | | (1,305) | | (313) | | 103 | | 9,568 | |
Home equity lines of credit | Home equity lines of credit | 1,570 | | 2 | | 237 | | (23) | | 11 | | 1,797 | | Home equity lines of credit | 1,860 | | 41 | | 674 | | (196) | | (196) | | 41 | | 2,224 | |
Consumer, indirect | Consumer, indirect | 5,389 | | 0 | | 8,549 | | (1,427) | | 261 | | 12,772 | | Consumer, indirect | 8,030 | | — | | — | | (891) | | (1,190) | | 211 | | 6,160 | |
Consumer, direct | Consumer, direct | 856 | | 34 | | 1,062 | | (128) | | 37 | | 1,861 | | Consumer, direct | 1,081 | | 112 | | 180 | | (252) | | (96) | | 54 | | 1,079 | |
Deposit account overdrafts | Deposit account overdrafts | 94 | | 0 | | 360 | | (534) | | 156 | | 76 | | Deposit account overdrafts | 63 | | — | | — | | 208 | | (327) | | 135 | | 79 | |
Total | Total | $ | 24,639 | | $ | 2,686 | | $ | 31,667 | | $ | (3,721) | | $ | 2,857 | | $ | 58,128 | | Total | $ | 50,359 | | $ | 22,827 | | $ | 13,868 | | $ | (6,255) | | $ | (4,221) | | $ | 804 | | $ | 77,382 | |
(a)Amount does not include the provision for unfunded commitment liability.
Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts at the end of September 2020. The primary drivers of the increase compared to June 30, 2020, were the recent developments related to COVID-10 and the resulting impact on the economic assumptions used in estimating the allowance for credit losses underon unfunded commitments.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
(Dollars in thousands) | Beginning Balance, January 1, 2020 (a) | Initial Allowance for Acquired Purchased Credit Deteriorated Assets | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | Provision for (Recovery of) Credit Losses (b) | Charge-offs | Recoveries | Ending Balance, September 30, 2020 |
Construction | $ | 600 | | $ | 51 | | $ | — | | $ | 1,863 | | $ | — | | $ | — | | $ | 2,514 | |
Commercial real estate, other | 7,193 | | 1,356 | | — | | 10,614 | | (254) | | 126 | | 19,035 | |
Commercial and industrial | 4,960 | | 860 | | — | | 6,368 | | (1,098) | | 2,009 | | 13,099 | |
Premium finance | — | | — | | 990 | | (2) | | (2) | | — | | 986 | |
| | | | | | | |
Residential real estate | 3,977 | | 383 | | — | | 1,626 | | (255) | | 257 | | 5,988 | |
Home equity lines of credit | 1,570 | | 2 | | — | | 237 | | (23) | | 11 | | 1,797 | |
Consumer, indirect | 5,389 | | — | | — | | 8,549 | | (1,427) | | 261 | | 12,772 | |
Consumer, direct | 856 | | 34 | | — | | 1,062 | | (128) | | 37 | | 1,861 | |
Deposit account overdrafts | 94 | | — | | — | | 360 | | (534) | | 156 | | 76 | |
Total | $ | 24,639 | | $ | 2,686 | | $ | 990 | | $ | 30,677 | | $ | (3,721) | | $ | 2,857 | | $ | 58,128 | |
(a)Peoples adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) on January 1, 2020.
(b)Amount does not include the CECL model,provision for the additionallowance for credit losses on unfunded commitments.
During the third quarter of 2021, Peoples recorded a specific reserveprovision for credit losses of $1.9$11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. During the second quarter of 2021, Peoples recorded provision for credit losses to establish the allowance for credit losses of $3.3 million for the acquired non-purchased credit deteriorated leases from NSL along with an increase in allowance for credit loss of $0.5 million related to one commercial loan relationship impacted by COVID-19 and the purchase credit
$932,000 recordeddeteriorated leases acquired from NSL. Lastly, economic assumptions and loss drivers used in the CECL model continued to establishimprove in the current year, partially offsetting the increase in allowance for credit losses related todriven by the premium finance acquisition completed on July 1, 2020.aforementioned acquired loans and leases. The PPP loans originated during 2021 and 2020 are guaranteed by the SBA, and therefore, had 0no impact on the allowance for credit losses at September 30, 2021 and at December 31, 2020.
The significant increase in the allowance for credit losses as ofAt September 30, 2020 compared to January 1, 2020 was mostly due to the recent COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model. Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors. The economic forecast used in the September 30, 2020 calculation of the allowance for credit losses included higher unemployment rates and lower Ohio Gross Domestic Product than those at January 1, 2020, which drove much of the increase in the allowance for credit losses at September 30, 2020. In addition, Peoples recorded an increase of $5.8 million in allowance for credit losses on January 1, 2020 related to the implementation of ASU 2016-13.
As of September 30, 2020, the CECL model produced results, based on economic forecasts, which were higher than Peoples believed to be appropriate at the time. The majority of the modifications that were granted by Peoples early in the pandemic had expired by September 30, 2020, with the remaining requests considered minimal. Peoples' delinquency rates improved at September 30, 2020, compared to December 31, 2019. Peoples believes the actions taken to provide early relief to consumer and commercial customers, which included at least 90 days of payment relief for those customers, coupled with the CARES Act stimulus package and the SBA PPP, indicate that Peoples would not experience the projected credit losses produced by the model. Therefore, Peoples made certain qualitative adjustments to more closely reflect its estimate of the potential losses of its loan portfolio at September 30, 2020.
During the second quarter of 2020, Peoples recognized a recovery of $750,000 on a commercial and industrial loan that was previously charged-off, and recognized a similar $1.2 million recovery during the first quarter of 2020.
As of September 30, 2020,2021, Peoples had recorded an allowance for unfunded commitment liabilitycommitments of $3.3$2.4 million, an increase compared to the $3.1$2.2 million at June 30, 2020,2021, and the $1.5a decrease compared to $2.9 million that was recorded on January 1,at December 31, 2020. The increase intotal amount of unfunded commitments had increased compared to June 30, 2021 due to the unfunded commitment liability was mostly relatedcommitments associated with the Premier acquisition and decreased compared to December 31, 2020 due to the higher unadvanced portions of commercial lines of credit,improved economic forecast conditions. The allowance for unfunded commitments (also referred to as the utilization rate by customers declined compared to prior periods. The unfunded"unfunded commitment liabilityliability") 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 Long-Term Borrowings
Goodwill and Other Intangible Assets
Goodwill
The following table summarizes Peoples' long-term borrowings:details changes in the recorded amount of goodwill:
| | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(Dollars in thousands) | Balance | Weighted- Average Rate | | Balance | Weighted- Average Rate |
FHLB putable, non-amortizing, fixed-rate advances | $ | 95,000 | | 1.52 | % | | $ | 65,000 | | 2.18 | % |
| | | | | |
FHLB amortizing, fixed-rate advances | $ | 8,815 | | 1.79 | % | | $ | 10,672 | | 1.74 | % |
Junior subordinated debt securities | $ | 7,571 | | 4.28 | % | | $ | 7,451 | | 6.55 | % |
| | | | | |
Total long-term borrowings | $ | 111,386 | | 1.73 | % | | $ | 83,123 | | 2.51 | % |
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Goodwill, beginning of year | $ | 171,260 | | $ | 165,701 | |
Goodwill recorded from acquisitions | 95,755 | | 5,559 | |
Goodwill, end of period | $ | 267,015 | | $ | 171,260 | |
| | |
| | |
Peoples continually evaluates its overall balance sheet position givenBank entered into the interest rate environment. DuringAsset Purchase Agreement, dated March 24, 2021 with NSL. The transaction closed after the first nine monthsclose of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. On April 1, 2021, Peoples recorded $24.7 million of goodwill related to the acquisition from NSL. On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Peoples recorded $46,000 of goodwill from this completed acquisition. On September 17, 2021, Peoples completed the merger with Premier, for which Peoples recorded $71.0 million of goodwill. In 2020, Peoples entered into 1completed its acquisition of Premium Finance, recording $5.5 million in goodwill. Also, in 2020 Peoples Insurance completed an acquisition of a property and casualty-focused independent insurance agency for which $0.1 million of goodwill was recorded. For additional $50.0information on these acquisitions, refer to "Note 13 Acquisitions."
Other Intangible Assets
Other intangible assets were comprised of the following at end of period, September 30, 2021 and end of year, December 31, 2020:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Core Deposits | | Customer Relationships | | Total |
September 30, 2021 | | | | | |
Gross intangibles | $ | 25,805 | | | $ | 25,096 | | | $ | 50,901 | |
| | | | | |
Accumulated amortization | (17,813) | | | (8,256) | | | (26,069) | |
Total acquisition-related intangibles | $ | 7,992 | | | $ | 16,840 | | | $ | 24,832 | |
Servicing rights | | | | | 2,294 | |
Indefinite-lived intangibles | | | | | 1,274 | |
Total other intangibles | | | | | $ | 28,400 | |
| | | | | |
December 31, 2020 | | | | | |
Gross intangibles | $ | 22,233 | | | $ | 12,495 | | | $ | 34,728 | |
| | | | | |
Accumulated amortization | (17,298) | | | (6,579) | | | (23,877) | |
Total acquisition-related intangibles | $ | 4,935 | | | $ | 5,916 | | | $ | 10,851 | |
Servicing rights | | | | | 2,486 | |
| | | | | |
Total other intangibles | | | | | $ | 13,337 | |
| | | | | |
| | | | | |
Other intangible assets recorded from the above-mentioned acquisitions year-to-date as of September 30, 2021 were $13.0 million FHLB putable, non-amortizing fixed-rate advance with an interest rate of 0.77%, which matures in 2030. Peoples also reclassified 2 long-term FHLB non-amortizing advances totaling $20.0 million to short-term borrowings as the maturity became less than one year.
The FHLB putable, non-amortizing, fixed rate advances have maturities ranging from one to nine years that may be repaid prior to maturity, subjectcustomer relationship intangible assets related to the paymentNSL and Peoples Insurance acquisitions, and $4.2 million of termination fees. The FHLB hascore deposit intangible assets related to Premier. Refer to "Note 13 Acquisitions" for additional information. Other intangible assets recorded in 2020 included $5.0 million of customer relationship intangible assets from the option, at its sole discretion, to terminate the advance after an initial fixed rate period of three months or twelve months, requiring full repayment of the advance byPremium Finance and Peoples prior to the stated maturity. If an advance is terminated prior to maturity, the FHLB will offer Peoples replacement funding at the then-prevailing rate on an advance product then offered by the FHLB, subject to normal FHLB credit and collateral requirements. These advances require monthly interest payments, with no repayment of principal until the earlier of either an option to terminate being exercised by the FHLB or the stated maturity.Insurance acquisitions.
The amortizing, fixed-rate FHLB advances have a fixed rate for the termfollowing table details estimated aggregate future amortization of each advance, with remaining maturities ranging from 5 to ten years. These advances require monthly principal and interest payments, with some having a constant prepayment rate requiring an additional principal payment annually. These advances are not eligible for optional prepayment prior to maturity.other intangible assets at September 30, 2021:
| | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Core Deposits | | Customer Relationships | | Total |
2021 | | $ | 574 | | | $ | 934 | | | $ | 1,508 | |
2022 | | 1,620 | | | 4,014 | | | 5,634 | |
2023 | | 1,257 | | | 3,712 | | | 4,969 | |
2024 | | 1,058 | | | 2,733 | | | 3,791 | |
2025 | | 891 | | | 1,941 | | | 2,832 | |
Thereafter | | 2,592 | | | 3,506 | | | 6,098 | |
Total | | $ | 7,992 | | | $ | 16,840 | | | $ | 24,832 | |
The weighted average amortization period of other intangible assets is 8.1 years.
Servicing Rights
The following is an analysis of activity of servicing rights for the periods ended September 30,2021 and December 31, 2020:
| | | | | | | | | | | |
(Dollars in thousands) | | September 30, 2021 | December 31, 2020 |
Balance, beginning of year | | $ | 2,486 | | $ | 2,742 | |
Amortization | | (591) | | (1,121) | |
Servicing rights originated | | 415 | | 1,026 | |
| | | |
Valuation allowance | | (16) | | (161) | |
Balance, end of period | | $ | 2,294 | | $ | 2,486 | |
Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of September 30, 2021, Peoples has recorded a valuation allowance of $16,000 related to the decrease in the fair value of servicing rights. During 2020, Peoples recorded a valuation allowance of $161,000 related to the decrease in the fair value of servicing rights.
The following is the breakdown of the discount rates and prepayment speeds of servicing rights for the periods ended September 30,2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | |
| | September 30, 2021 | December 31, 2020 |
| | Minimum | Maximum | Minimum | Maximum |
Discount rates | | 8.3 | % | 10.8 | % | 8.3 | % | 10.8 | % |
Prepayment speeds | | 8.4 | % | 27.2 | % | 12.8 | % | 21.1 | % |
The fair value of servicing rights was $2.3 million and $2.6 million at September 30, 2021 and December 31, 2020, respectively.
Peoples’ deposit balances were comprised of the following:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Retail CDs: | | |
$100 or more | $ | 343,324 | | $ | 220,532 | |
Less than $100 | 348,356 | | 225,398 | |
Retail CDs | 691,680 | | 445,930 | |
Interest-bearing deposit accounts | 1,140,639 | | 692,113 | |
Savings accounts | 1,016,755 | | 628,190 | |
Money market deposit accounts | 637,635 | | 591,373 | |
Governmental deposit accounts | 679,305 | | 385,384 | |
| | |
Brokered deposit accounts (a) | 106,013 | | 170,146 | |
Total interest-bearing deposits | 4,272,027 | | 2,913,136 | |
Non-interest-bearing deposits | 1,559,993 | | 997,323 | |
Total deposits | $ | 5,832,020 | | $ | 3,910,459 | |
(a) At September 30, 2021, brokered deposit accounts included $100.0 million of brokered demand deposits.
At December 31, 2020, brokered deposit accounts included $50.0 millionof 90-day brokered CDs and
$110.0 million of brokered demand deposits
Time deposits that met or exceeded the aggregate minimum annual retirementsFederal Deposit Insurance Corporation ("FDIC") limit of long-term borrowings in future periods$250,000 were $134.3 million and $89.0 million at September 30, 2021 and December 31, 2020, respectively. The increase compared to December 31, 2020 was mostly due to the deposits acquired from Premier.
The contractual maturities of retail CDs and brokered CDs and demand deposits for each of the next five years and thereafter are as follows:
| (Dollars in thousands) | (Dollars in thousands) | Balance | Weighted-Average Rate (a) | (Dollars in thousands) | Retail | Brokered | Total |
Three months ending December 31, 2020 | $ | 818 | | 1.98 | % | |
Year ending December 31, 2021 | 1,979 | | 1.53 | % | |
Remaining three months ending December 31, 2021 (a) | | Remaining three months ending December 31, 2021 (a) | $ | 142,996 | | $ | 101,307 | | $ | 244,303 | |
Year ending December 31, 2022 | Year ending December 31, 2022 | 16,521 | | 1.98 | % | Year ending December 31, 2022 | 375,448 | | 4,216 | | 379,664 | |
Year ending December 31, 2023 | Year ending December 31, 2023 | 1,157 | | 1.49 | % | Year ending December 31, 2023 | 66,339 | | 490 | | 66,829 | |
Year ending December 31, 2024 | Year ending December 31, 2024 | 869 | | 1.47 | % | Year ending December 31, 2024 | 62,021 | | — | | 62,021 | |
Year ending December 31, 2025 | | Year ending December 31, 2025 | 22,021 | | — | | 22,021 | |
Thereafter | Thereafter | 90,042 | | 1.54 | % | Thereafter | 22,855 | | — | | 22,855 | |
Total long-term borrowings | $ | 111,386 | | 1.61 | % | |
Total CDs | | Total CDs | $ | 691,680 | | $ | 106,013 | | $ | 797,693 | |
(a) Brokered deposit accounts include $100.0 million of brokered demand deposits.The weighted-average
At September 30, 2021, Peoples had 16 effective interest rate includes the impact of accreting the current bookswaps, with an aggregate notional value of $150.0 million, of which $100.0 million were funded by brokered demand and savings deposits. Brokered demand deposits hedged by interest rate swaps are expected to be extended every 90 days through the junior subordinated debt securities to face value overmaturity dates of the period. The weighted-average rates for the FHLB advances are 2.08%swaps. Additional information regarding Peoples' interest rate swaps can be found in the three months ending December 31, 2020, 1.71% in 2021, 2.00% in 2022, 1.73% in 2023, 1.74% in 2024, and 1.43% thereafter."Note 10 Derivative Financial Instruments."
Note 67 Stockholders’ Equity
The following table details the progression in Peoples’ common shares and treasury stock during the nine months ended September 30, 2020:2021:
| | | | Common Shares | Treasury Stock | | | Common Shares | Treasury Stock |
Shares at December 31, 2019 | | 21,156,143 | | 504,182 | | |
Shares at December 31, 2020 | | Shares at December 31, 2020 | | 21,193,402 | | 1,686,046 | |
Changes related to stock-based compensation awards: | Changes related to stock-based compensation awards: | | | Changes related to stock-based compensation awards: | | |
| Release of restricted common shares | Release of restricted common shares | | — | | 27,391 | | Release of restricted common shares | | — | | 29,135 | |
Cancellation of restricted common shares | Cancellation of restricted common shares | | 0 | | 13,445 | | Cancellation of restricted common shares | | — | | 7,168 | |
| Grant of restricted common shares | Grant of restricted common shares | | — | | (23,482) | | Grant of restricted common shares | | — | | (101,926) | |
Grant of unrestricted common shares | Grant of unrestricted common shares | | — | | (101,202) | | Grant of unrestricted common shares | | — | | (5,747) | |
Changes related to deferred compensation plan for Boards of Directors: | Changes related to deferred compensation plan for Boards of Directors: | | | Changes related to deferred compensation plan for Boards of Directors: | | |
Purchase of treasury stock | Purchase of treasury stock | | — | | 8,632 | | Purchase of treasury stock | | — | | 5,309 | |
Disbursed out of treasury stock | Disbursed out of treasury stock | | — | | (2,362) | | Disbursed out of treasury stock | | — | | (2,983) | |
Common shares repurchased under share repurchase programs | | — | | 1,119,752 | | |
| Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 28,014 | | — | | Common shares issued under dividend reinvestment plan | | 23,348 | | — | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | — | | (9,615) | | Common shares issued under compensation plan for Boards of Directors | | — | | (5,535) | |
Common shares issued under performance unit awards | | — | | (6,127) | | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | — | | (14,990) | | Common shares issued under employee stock purchase plan | | — | | (11,874) | |
Issuance of common shares related to the merger with Premier Financial Bancorp, Inc. | | Issuance of common shares related to the merger with Premier Financial Bancorp, Inc. | | 8,589,685 | | — | |
| Shares at September 30, 2020 | | 21,184,157 | | 1,515,624 | | |
Shares at September 30, 2021 | | Shares at September 30, 2021 | | 29,806,435 | | 1,599,593 | |
On February 27, 2020,January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0$30.0 million of itsPeoples' outstanding common shares, replacing the previousFebruary 27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $20.0$40.0 million of itsPeoples' outstanding common shares. An aggregate of $6.3 million of Peoples'At September 30, 2021, Peoples had not repurchased any common shares were purchased under the previous share repurchase program from inception through its termination date, which was February 27, 2020. During the first nine months of 2020, Peoples purchased an aggregate of $25.0 million of its outstanding common shares, $843,000 of which were purchased under the previous share repurchase program and $24.2 million of which were purchased under the share repurchase program authorized on February 27, 2020.January 28, 2021.
Under itsPeoples' 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, 2020,2021, Peoples had 0no preferred shares issued or outstanding.
On October 19, 2020,25, 2021, Peoples' Board of Directors declared a quarterly cash dividend of $0.35$0.36 per common share, payable on November 16, 2020,22, 2021, to shareholders of record on November 2, 2020.8, 2021. The following table details the cash dividends declared per common share during 2020the four quarters of 2021 and the comparable periodperiods of 2019:2020:
| | | | | | | | |
| 2020 | 2019 |
First quarter | $ | 0.34 | | 0.30 | |
Second quarter | 0.34 | | 0.34 | |
Third quarter | 0.34 | | 0.34 | |
Fourth quarter | 0.35 | | 0.34 | |
Total dividends declared | $ | 1.37 | | $ | 1.32 | |
| | | | | | | | |
| 2021 | 2020 |
First quarter | $ | 0.35 | | 0.34 | |
Second quarter | 0.36 | | 0.34 | |
Third quarter | 0.36 | | 0.34 | |
Fourth quarter | $ | 0.36 | | $ | 0.35 | |
Total dividends declared | $ | 1.43 | | $ | 1.37 | |
Accumulated Other Comprehensive (Loss) Income (Loss)
The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income (loss) for the nine months ended September 30, 2020:2021:
| (Dollars in thousands) | (Dollars in thousands) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Loss on Cash Flow Hedge | Accumulated Other Comprehensive Income (Loss) | (Dollars in thousands) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Loss on Cash Flow Hedge | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2019 | $ | 5,300 | | $ | (3,958) | | $ | (2,767) | | $ | (1,425) | | |
Balance, December 31, 2020 | | Balance, December 31, 2020 | $ | 14,592 | | $ | (3,872) | | $ | (9,384) | | $ | 1,336 | |
Reclassification adjustments to net income: | Reclassification adjustments to net income: | | Reclassification adjustments to net income: | |
Realized gain on sale of securities, net of tax | Realized gain on sale of securities, net of tax | (303) | | — | | — | | (303) | | Realized gain on sale of securities, net of tax | 547 | | — | | — | | 547 | |
Realized loss due to settlement and curtailment, net of tax | Realized loss due to settlement and curtailment, net of tax | — | | 829 | | — | | 829 | | Realized loss due to settlement and curtailment, net of tax | — | | 111 | | — | | 111 | |
Other comprehensive income (loss), net of reclassifications and tax | 12,229 | | (756) | | (7,632) | | 3,841 | | |
Balance, September 30, 2020 | $ | 17,226 | | $ | (3,885) | | $ | (10,399) | | $ | 2,942 | | |
Other comprehensive (loss) income, net of reclassifications and tax | | Other comprehensive (loss) income, net of reclassifications and tax | (13,245) | | 1,481 | | 3,882 | | (7,882) | |
Balance, September 30, 2021 | | Balance, September 30, 2021 | $ | 1,894 | | $ | (2,280) | | $ | (5,502) | | $ | (5,888) | |
Note 78 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. AsThe expected long-term rate of return on plan assets, which was determined 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 for those individuals who retired before January 1, 1993. For all others, the retiree2021, 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.
7.0%. The following tables detailtable details the components of the net periodic cost for the plansplan described above: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) | 2020 | 2019 | | 2020 | 2019 |
Interest cost | $ | 80 | | $ | 109 | | | $ | 256 | | $ | 328 | |
Expected return on plan assets | (187) | | (195) | | | (577) | | (586) | |
Amortization of net loss | 35 | | 19 | | | 101 | | 58 | |
Settlement of benefit obligation | 531 | | 0 | | | 1,050 | | 0 | |
Net periodic loss (income) | $ | 459 | | $ | (67) | | | $ | 830 | | $ | (200) | |
| | | | | | | | | | | | | | | | | |
| Postretirement Benefits |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2020 | 2019 | | 2020 | 2019 |
Interest cost | $ | 1 | | $ | 1 | | | $ | 2 | | $ | 3 | |
Amortization of prior service cost | 0 | | 0 | | | 0 | | (1) | |
| | | | | |
Amortization of net gain | (2) | | (2) | | | (4) | | (4) | |
| | | | | |
Net periodic income | $ | (1) | | $ | (1) | | | $ | (2) | | $ | (2) | |
| | | | | | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Interest cost | $ | 60 | | $ | 80 | | | $ | 194 | | $ | 256 | |
Expected return on plan assets | (143) | | (187) | | | (492) | | (577) | |
Amortization of net loss | 21 | | 35 | | | 84 | | 101 | |
Settlement of benefit obligation | 143 | | 531 | | | 143 | | 1,050 | |
Net periodic loss (income) | $ | 81 | | $ | 459 | | | $ | (71) | | $ | 830 | |
Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.
InPeoples recorded a settlement charge of $143,000 during the firstthree and nine months of 2020, the total lump-sum distributions made to participantsended September 30, 2021 under the noncontributory defined benefit pension plan caused the total settlements to exceed the recognition threshold for settlement gains or losses. As a result,plan. Peoples recorded settlement charges of $531,000 and $1.1 million, respectively, in the three and nine months ended September 30, 2020. There were 0 settlement charges recorded during the three and nine months ended September 30, 20192020 under the noncontributory defined benefit pension plan.
The following table summarizes the change in the projected benefit obligation and funded status as a result of the remeasurement and the aggregate settlements for the nine months ended September 30, 2020:
| | | | | | | | | | | | | | |
| As of | September 30, 2020 |
(Dollars in thousands) | December 31, | Before | Impact of | After |
Funded status: | 2019 | Settlements | Settlements | Settlements |
Projected benefit obligation | $ | 12,668 | | $ | 12,854 | | $ | (1,172) | | $ | 11,682 | |
Fair value of plan assets | 11,865 | | 10,989 | | (1,172) | | 9,817 | |
Funded status | $ | (803) | | $ | (1,865) | | $ | — | | $ | (1,865) | |
Gross unrealized loss | $ | 5,068 | | $ | 5,834 | | $ | (531) | | $ | 5,303 | |
Assumptions: | | | | |
Discount rate | 3.12 | % | 2.51 | % | | 2.51 | % |
Expected return on plan assets | 7.50 | % | 7.50 | % | | 7.50 | % |
Note 89 Earnings Per Common Share
The calculations of basic and diluted (loss) earnings per common share were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, except per common share data) | 2020 | 2019 | | 2020 | 2019 |
Distributed earnings allocated to common shareholders | $ | 6,658 | | $ | 6,941 | | | $ | 20,310 | | $ | 19,652 | |
Undistributed earnings (loss) allocated to common shareholders | 3,454 | | 7,828 | | | (6,386) | | 18,900 | |
Net earnings allocated to common shareholders | $ | 10,112 | | $ | 14,769 | | | $ | 13,924 | | $ | 38,552 | |
| | | | | |
Weighted-average common shares outstanding | 19,504,503 | | 20,415,245 | | | 19,862,409 | | 20,023,271 | |
Effect of potentially dilutive common shares | 133,186 | | 180,524 | | | 135,944 | | 155,363 | |
Total weighted-average diluted common shares outstanding | 19,637,689 | | 20,595,769 | | | 19,998,353 | | 20,178,634 | |
| | | | | |
Earnings per common share: | | | | | |
Basic | $ | 0.52 | | $ | 0.72 | | | $ | 0.70 | | $ | 1.93 | |
Diluted | $ | 0.51 | | $ | 0.72 | | | $ | 0.70 | | $ | 1.91 | |
Anti-dilutive common shares excluded from calculation: | | | | | |
Restricted shares | 69,459 | | 844 | | | 67,759 | | 720 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, except per common share data) | 2021 | 2020 | | 2021 | 2020 |
Net (loss) income available to common shareholders | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
Less: Dividends paid on unvested shares | (79) | | (96) | | | (214) | | (274) | |
Add: Undistributed earnings (loss) allocated to unvested shares | 21 | | (2) | | | 2 | | 4 | |
Net (loss) earnings allocated to common shareholders | $ | (5,816) | | $ | 10,112 | | | $ | 19,596 | | $ | 13,924 | |
| | | | | |
Weighted-average common shares outstanding | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Effect of potentially dilutive common shares | 148,752 | | 133,186 | | | 138,819 | | 135,944 | |
Total weighted-average diluted common shares outstanding | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
| | | | | |
(Loss) earnings per common share: | | | | | |
Basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
Diluted | $ | (0.28) | | $ | 0.51 | | | $ | 0.99 | | $ | 0.70 | |
Anti-dilutive common shares excluded from calculation: | | | | | |
Restricted shares | — | | 69,459 | | | — | | 67,759 | |
Note 910 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"Other assets" and the accrued"Accrued expenses and other liabilitiesliabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, andwhile cash activity related to these derivatives is included in the netactivity in "Net cash provided by operating activitiesactivities" 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, andliabilities. 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. As ofAt September 30, 2020,2021, Peoples had entered into 1716 interest rate swap contracts with an aggregate notional value of $160.0$150.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month FHLB advances or rolling three-month brokered CDs and brokered demand deposits, which will continue to be rolled through the life of the swaps. As ofAt September 30, 2020,2021, the interest rate swaps were funded by $110.0designated as cash flow hedges of $100.0 million in brokered demand deposits, which are expected to be extended every 90 days through the maturity dates of rolling three-month FHLB advances andthe swaps. The remaining $50.0 million of rolling three-month brokered deposits.interest rate swaps were designated as cash flow hedges of 90-day FHLB Advances.
Amounts reported in accumulated other comprehensive income (loss) ("AOCI") related to derivative financial instruments will be reclassified to interest income or expense as interest payments are made or received on Peoples' variable-rate assets or liabilities. During the three and nine months ended September 30, 2020, Peoples had reclassifications of losses to earnings of $732,000 and $1.2 million, respectively. During the three and nine months ended September 30, 2019, Peoples had reclassifications of gains to interest expense of $30,000 and $183,000, respectively.
For derivative financial instruments designated as cash flow hedges, the effective portionand ineffective portions of changes in the fair value of each derivative financial instrument is reported in AOCIaccumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and subsequentlyare reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings.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 used to fund the swaps 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. Effectiveness is measured by ensuringDuring the three and nine months ended September 30, 2021, Peoples had reclassifications of losses to earnings of $766,000 and $2.3 million, respectively. During the three and nine months ended September 30, 2020, Peoples had reclassifications of losses to earnings of $732,000 and $1.2 million, respectively. During the next twelve months, Peoples estimates that reset dates and payment dates are matched.minimal interest expense will be reclassified.
The following table summarizes information about the interest rate swaps designated as cash flow hedges:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | December 31, 2019 | (Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Notional amount | Notional amount | $ | 160,000 | | $ | 160,000 | | Notional amount | $ | 150,000 | | $ | 160,000 | |
Weighted average pay rates | Weighted average pay rates | 2.18 | % | 2.18 | % | Weighted average pay rates | 2.13 | % | 2.18 | % |
Weighted average receive rates | Weighted average receive rates | 0.34 | % | 1.73 | % | Weighted average receive rates | 0.76 | % | 0.38 | % |
Weighted average maturity | Weighted average maturity | 4.6 years | 5.4 years | Weighted average maturity | 3.8 years | 4.4 years |
Pre-tax unrealized losses included in AOCI | Pre-tax unrealized losses included in AOCI | $ | (13,164) | | $ | (3,503) | | Pre-tax unrealized losses included in AOCI | $ | (7,143) | | $ | (11,879) | |
The following table presents net lossesgains or gainslosses recorded in AOCI and in the Unaudited Consolidated Statements of Operations related to the cash flow hedges:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Amount of (gain) loss recognized in AOCI, pre-tax | Amount of (gain) loss recognized in AOCI, pre-tax | $ | (803) | | $ | 1,857 | | | $ | 9,661 | | $ | 6,824 | | Amount of (gain) loss recognized in AOCI, pre-tax | $ | (858) | | $ | (803) | | | $ | (4,800) | | $ | 9,661 | |
Amount of loss recognized in earnings | $ | 0 | | $ | 0 | | | $ | 0 | | $ | (19) | | |
|
The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
| | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
Included in "Other assets": | | | | | |
Interest rate swaps related to debt | $ | 0 | | $ | 0 | | | $ | 55,000 | | $ | 644 | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to debt | $ | 160,000 | | $ | 13,350 | | | $ | 105,000 | | $ | 4,340 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
| | | | | |
| | | | | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to debt | $ | 150,000 | | $ | 7,252 | | | $ | 160,000 | | $ | 12,063 | |
| | | | | |
Non-Designated Hedges
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operationoperations or financial condition.
condition at or for the three and nine months ended September 30, 2021 and at or for the year ended December 31, 2020. The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
| | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
Included in "Other assets": | | | | | |
Interest rate swaps related to commercial loans | $ | 387,239 | | $ | 30,651 | | | $ | 321,394 | | $ | 10,776 | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to commercial loans | $ | 387,239 | | $ | 30,651 | | | $ | 321,394 | | $ | 10,776 | |
| | | | | |
: | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
Included in "Other assets": | | | | | |
Interest rate swaps related to commercial loans | $ | 403,208 | | $ | 15,653 | | | $ | 415,044 | | $ | 27,332 | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to commercial loans | $ | 403,208 | | $ | 15,653 | | | $ | 415,044 | | $ | 27,332 | |
| | | | | |
Pledged Collateral
Peoples pledges or receives collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps is in a net liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps is in a net asset position, the respective counterparties must pledge collateral. At September 30, 20202021 and December 31, 2019,2020, Peoples had $46.9 millionzero and $20.0$41.0 million, respectively, of cash pledged, while the counterparties had 0no amount of cash pledged at either date. Cash pledged iswas included in "interest-bearing"Interest-bearing deposits in other banks" on the UnauditedAudited Consolidated Balance Sheets.Sheet as of December 31, 2020. Peoples had pledged $36.3 million and zero in investment securities at September 30, 2021 and December 31, 2020, respectively.
Note 1011 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 20192020 and 2020,2021, Peoples granted unrestricted common shares to non-employee directors (in addition to their directors' fees paid in common shares) and to full-time and part-time employees who did not already participate in the 2006 Equity Plan.. In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.
Restricted Common Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on the restricted common shares awarded to 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 2020,2021, Peoples granted an aggregate of 80,33876,819 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant date; provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well-capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date. During the first nine months of 2020, Peoples granted, to certain key employees, an aggregate of 20,864 common shares subject to time-based vesting with restrictions that will lapse three years after the grant date.
The following table summarizes the changes to Peoples’ restricted common shares for the nine months ended September 30, 2020:2021:
| | | | | | | | | | | | | | | | | |
| Time-Based Vesting | | Performance-Based Vesting |
| Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value |
Outstanding at January 1 | 32,230 | | $ | 33.05 | | | 253,884 | | $ | 33.29 | |
Awarded | 20,864 | | 20.21 | | | 80,338 | | 32.91 | |
Released | 5,250 | | 32.76 | | | 56,827 | | 32.42 | |
Forfeited | 7,286 | | 31.85 | | | 6,159 | | 33.09 | |
Outstanding at September 30 | 40,558 | | $ | 26.70 | | | 271,236 | | $ | 33.36 | |
| | | | | | | | | | | | | | | | | |
| Time-Based Vesting | | Performance-Based Vesting |
| Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value |
Outstanding at January 1 | 67,758 | | $ | 23.71 | | | 250,992 | | $ | 33.36 | |
Awarded | 25,107 | | 32.58 | | | 76,819 | | 31.48 | |
Released | (9,127) | | 35.63 | | | (73,611) | | 35.43 | |
Forfeited | (500) | | 34.75 | | | (6,668) | | 32.42 | |
Outstanding at September 30 | 83,238 | | $ | 25.01 | | | 247,532 | | $ | 32.19 | |
For the nine months ended September 30, 2020,2021, the total intrinsic value for restricted common shares released was $2.0$2.6 million compared to $1.8$2.0 million for the nine months ended September 30, 2019.
Performance Unit Awards
Under the 2006 Equity Plan, Peoples may grant performance unit awards to officers, key employees and non-employee directors. On July 26, 2017, Peoples granted a total of seven performance unit awards to individuals who were then serving as officers, with a maximum aggregate dollar amount of $1.3 million represented by the performance units subject to such awards and each performance unit representing $1.00. During 2019, one of the seven performance unit awards was forfeited as the individual to whom the performance unit award was granted left Peoples before meeting the minimum service requirement to retain the performance unit award. The performance unit awards granted covered the performance period beginning January 1, 2018 and ending on December 31, 2019, and were subject to two performance goals. Peoples achieved the first performance goal by exceeding its target cumulative two-year adjusted earnings per share. However, Peoples failed to achieve the second performance goal as its adjusted return on average assets for the measurement period ranked below the target percentile compared to its peer group. As a result, during the first quarter of 2020, the remaining six officers holding performance unit awards received an aggregate of 9,395 common shares at a fair market value of $29.26 per common share on the date the performance units were deemed vested, with a related expense of $275,000 that had been recognized over the vesting period.2020.
Stock-Based Compensation
Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares and performance unit awards, as well as purchases made by participants in the employee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of
the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. For performance unit awards, Peoples recognizedrecognizes 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 | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Employee stock-based compensation expense: | Employee stock-based compensation expense: | | Employee stock-based compensation expense: | |
Stock grant expense | Stock grant expense | $ | 615 | | $ | 888 | | | $ | 2,950 | | $ | 2,944 | | Stock grant expense | $ | 597 | | $ | 615 | | | $ | 2,381 | | $ | 2,950 | |
Employee stock purchase plan expense | Employee stock purchase plan expense | 17 | | 16 | | | $ | 47 | | $ | 48 | | Employee stock purchase plan expense | 21 | | 17 | | | $ | 55 | | $ | 47 | |
Performance unit expense (benefit) | 0 | | 46 | | | $ | (12) | | $ | 96 | | |
Performance unit benefit | | Performance unit benefit | — | | — | | | $ | — | | $ | (12) | |
Total employee stock-based compensation expense | Total employee stock-based compensation expense | 632 | | 950 | | | $ | 2,985 | | $ | 3,088 | | Total employee stock-based compensation expense | 618 | | 632 | | | $ | 2,436 | | $ | 2,985 | |
Non-employee director stock-based compensation expense | Non-employee director stock-based compensation expense | 53 | | 50 | | | $ | 288 | | $ | 252 | | Non-employee director stock-based compensation expense | 60 | | 53 | | | $ | 310 | | $ | 288 | |
Total stock-based compensation expense | Total stock-based compensation expense | 685 | | 1,000 | | | $ | 3,273 | | $ | 3,340 | | Total stock-based compensation expense | 678 | | 685 | | | $ | 2,746 | | $ | 3,273 | |
Recognized tax benefit | Recognized tax benefit | (144) | | (210) | | | (687) | | (701) | | Recognized tax benefit | (151) | | (144) | | | (612) | | (687) | |
Net stock-based compensation expense | Net stock-based compensation expense | $ | 541 | | $ | 790 | | | $ | 2,586 | | $ | 2,639 | | Net stock-based compensation expense | $ | 527 | | $ | 541 | | | $ | 2,134 | | $ | 2,586 | |
Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the nine months ended September 30, 20202021 and 2019.2020. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares on that date. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was $3.0 million at September 30, 2020,2021, which will be recognized over a weighted-average period of 1.81.9 years. On April 1, 2020, an aggregate of 18,952 unrestricted common shares were granted as a one-time special award to employees under the level of Vice President, with a related stock-based compensation expense of $396,000 being recognized.
In addition to the portion of directors' fees paid in common shares, non-employee director stock-based compensation expense included $135,000 during the first nine months of 2021, and $120,000 during the first nine months of 2020, and $102,000 during the first nine months of 2019, reflecting separate grants of unrestricted common shares aggregating 3,6804,347 and 3,2003,680 common shares, respectively.
Note 1112 Revenue
The following table details Peoples' revenue from contracts with customers:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Insurance income: | Insurance income: | | Insurance income: | |
Commission and fees from sale of insurance policies (a) | Commission and fees from sale of insurance policies (a) | $ | 3,493 | | $ | 3,173 | | | $ | 9,117 | | $ | 9,512 | | Commission and fees from sale of insurance policies (a) | $ | 3,231 | | $ | 3,493 | | | $ | 9,603 | | $ | 9,117 | |
Fees related to third-party administration services (a) | Fees related to third-party administration services (a) | 107 | | 140 | | | 375 | | 486 | | Fees related to third-party administration services (a) | 76 | | 107 | | | 276 | | 375 | |
Performance-based commissions (b) | Performance-based commissions (b) | 9 | | 73 | | | 1,437 | | 1,495 | | Performance-based commissions (b) | 60 | | 9 | | | 2,044 | | 1,437 | |
Trust and investment income (a) | Trust and investment income (a) | 3,435 | | 3,205 | | | 10,013 | | 9,718 | | Trust and investment income (a) | 4,158 | | 3,435 | | | 12,223 | | 10,013 | |
Electronic banking income: | Electronic banking income: | | Electronic banking income: | |
Interchange income (a) | Interchange income (a) | 3,011 | | 2,842 | | | 8,255 | | 8,032 | | Interchange income (a) | 3,280 | | 3,011 | | | 9,930 | | 8,255 | |
Promotional and usage income (a) | Promotional and usage income (a) | 755 | | 735 | | | 2,313 | | 1,799 | | Promotional and usage income (a) | 1,046 | | 755 | | | 2,725 | | 2,313 | |
Deposit account service charges: | Deposit account service charges: | | Deposit account service charges: | |
Ongoing maintenance fees for deposit accounts (a) | Ongoing maintenance fees for deposit accounts (a) | 848 | | 1,049 | | | 2,677 | | 2,813 | | Ongoing maintenance fees for deposit accounts (a) | 933 | | 848 | | | 2,597 | | 2,677 | |
Transactional-based fees (b) | Transactional-based fees (b) | 1,418 | | 2,184 | | | 4,318 | | 5,738 | | Transactional-based fees (b) | 1,616 | | 1,418 | | | 3,981 | | 4,318 | |
Commercial loan swap fees (b) | Commercial loan swap fees (b) | 68 | | 772 | | | 1,267 | | 1,434 | | Commercial loan swap fees (b) | 73 | | 68 | | | 194 | | 1,267 | |
Other non-interest income transactional-based fees (b) | Other non-interest income transactional-based fees (b) | 94 | | 174 | | | 624 | | 598 | | Other non-interest income transactional-based fees (b) | 207 | | 94 | | | 601 | | 624 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | $ | 13,238 | | $ | 14,347 | | | $ | 40,396 | | $ | 41,625 | | Total revenue from contracts with customers | $ | 14,680 | | $ | 13,238 | | | $ | 44,174 | | $ | 40,396 | |
Timing of revenue recognition: | Timing of revenue recognition: | | Timing of revenue recognition: | |
Services transferred over time | Services transferred over time | $ | 11,649 | | $ | 11,144 | | | $ | 32,750 | | $ | 32,360 | | Services transferred over time | $ | 12,724 | | $ | 11,649 | | | $ | 37,354 | | $ | 32,750 | |
Services transferred at a point in time | Services transferred at a point in time | 1,589 | | 3,203 | | | 7,646 | | 9,265 | | Services transferred at a point in time | 1,956 | | 1,589 | | | 6,820 | | 7,646 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | $ | 13,238 | | $ | 14,347 | | | $ | 40,396 | | $ | 41,625 | | Total revenue from contracts with customers | $ | 14,680 | | $ | 13,238 | | | $ | 44,174 | | $ | 40,396 | |
(a) Services transferred over time.
(b) Services transferred at a point in time.
Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income and certain insurance income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income is recognizedover time, during the period in which the performance obligations are fulfilled. As of September 30, 2020, there were no material changes to Peoples' revenue contractsfulfilled related to the COVID-19 pandemic, and there were no changes to the likelihood of collectability under the contracts.electronic banking income.
The following table details the changechanges in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2020:2021:
| | | Contract Assets | Contract Liabilities | | Contract Assets | Contract Liabilities |
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
Balance, January 1, 2020 | $ | 600 | | $ | 5,190 | | |
Balance, January 1, 2021 | | Balance, January 1, 2021 | $ | 1,247 | | $ | 5,224 | |
Additional income receivable | Additional income receivable | 519 | | — | | Additional income receivable | 144 | | — | |
Additional deferred income | — | | 56 | | |
| Receipt of income previously receivable | | Receipt of income previously receivable | (701) | | — | |
Recognition of income previously deferred | Recognition of income previously deferred | — | | (125) | | Recognition of income previously deferred | — | | (488) | |
Balance, September 30, 2020 | $ | 1,119 | | $ | 5,121 | | |
Balance, September 30, 2021 | | Balance, September 30, 2021 | $ | 690 | | $ | 4,736 | |
Note 1213 Acquisitions
Effective July 1, 2020,Premier Financial Bancorp, Inc.
On September 17, 2021, Peoples closed oncompleted its merger with Premier. Premier merged into Peoples, and Premier’s wholly-owned subsidiaries, Premier Bank, Inc., and Citizens Deposit Bank and Trust, Inc., which combined operate 48 branches in Kentucky, Maryland, Ohio, Virginia, West Virginia and Washington, D.C., merged into Peoples’ wholly-owned subsidiary, Peoples Bank. As consideration, Premier shareholders were paid 0.58 common shares of Peoples for each full share of Premier that was owned at the acquisition date, resulting in the issuance of 8,589,685 common shares by Peoples, or $261.9 million. Peoples accounted for this transaction as a business combination under the acquisition method. Peoples completed the merger in an effort to diversify and expand its franchise, and further enhance its size and scale. Peoples believes the growth potential, and attractive market areas will benefit its future financial performance.
Peoples recorded acquisition-related expenses related to the Premier merger which included $9.8 million in other non-interest expense; $4.2 million in professional fees; $3.7 million in salaries and employee benefit costs; $181,000 in marketing expense; and $83,000 in data processing and software expense.
Peoples recorded the estimate of fair value based on initial valuations available at September 17, 2021. Due to the timing of the transaction closing date and this Form 10-Q, these estimated fair values are considered preliminary as of September 30, 2021, and are subject to adjustment for up to one year after September 17, 2021. Valuations subject to change include, but are not limited to, loans, bank premises, customer deposit intangibles (included in other intangible assets), certain deposits, trust preferred securities, deferred tax assets and liabilities, and certain other assets and other liabilities.
The following table provides the preliminary purchase price calculation as of the date of the Merger with Premier, and the assets acquired and liabilities assumed at their estimated fair values.
| | | | | | | | | | |
(Dollars in thousands) | | Unpaid Principal Balance | Fair Value | |
| | | | |
| | | | |
| | | | |
| | | | |
Premier common shares | | | 14,811,200 | | |
Number of common shares of Peoples issued for each common share of Premier | | | 0.58 | | |
Price per Peoples common share, based at closing date | | | $ | 30.49 | | |
Common share consideration | | | 261,899 | | |
Cash paid in lieu of fractional common shares | | | 25 | | |
Total consideration | | | $ | 261,924 | | |
Net assets at fair value | | | | |
Assets | | | | |
Cash and due from banks | | | $ | 251,763 | | |
Interest-bearing deposits in other banks | | | 1,025 | | |
Total cash and cash equivalents | | | 252,788 | | |
Available-for-sale investment securities | | | 563,294 | | |
| | | | |
Other investment securities | | | 4,159 | | |
Total investment securities | | | 567,453 | | |
| | | | |
Loans: | | | | |
Construction | | 97,262 | | 93,819 | | |
Commercial real estate, other | | 544,950 | | 517,315 | | |
Commercial and industrial | | 132,293 | | 127,880 | | |
| | | | |
Residential real estate | | 332,269 | | 327,508 | | |
Home equity lines of credit | | 46,969 | | 45,841 | | |
| | | | |
Consumer | | 21,083 | | 21,527 | | |
Total loans | | 1,174,826 | | 1,133,890 | | |
| | | | |
| | | | |
Bank premises and equipment | | | 33,835 | | |
Other intangible assets | | | 4,233 | | |
OREO | | | 11,101 | | |
Other assets | | | 19,671 | | |
Total assets | | | $ | 2,022,971 | | |
| | | | | | | | | | |
(Dollars in thousands) | | Unpaid Principal Balance | Fair Value | |
Liabilities | | | | |
Deposits: | | | | |
Non-interest-bearing | | | $ | 735,236 | | |
Interest-bearing | | | 1,020,887 | | |
Total deposits | | | 1,756,123 | | |
Short-term borrowings | | | 63,807 | | |
Long-term borrowings | | | 6,070 | | |
Accrued expenses and other liabilities | | | 6,036 | | |
Total liabilities | | | 1,832,036 | | |
Net assets | | | 190,935 | | |
Goodwill | | | $ | 70,989 | | |
The recorded goodwill associated with the Premier merger is related to expected synergies and operational efficiencies to be gained from the combination of Premier with Peoples' operations. None of the goodwill associated with the Premier merger is expected to be deductible for tax purposes. The geographic locations of Premier will allow Peoples to continue to grow the loan and deposit portfolios, while also increasing Peoples' ability to penetrate the new markets with wealth management and insurance services, which should benefit Peoples in future periods. Additional information regarding other intangibles recognized in the acquisition can be found in "Note 5 Goodwill and Other Intangible Assets."
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and due from banks is a reasonable estimate of fair value.
Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.
Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan, related collateral, classification status, fixed or variable interest rate, term, amortization status and current discount rates. Loans were grouped together according to similar characteristics when applying various valuation techniques. The discount rates used for loans are based on current market rates at the acquisition date for new originations for comparable loans and include adjustments for liquidity. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows.
Bank Premises and Equipment: The fair values of premises were based on a market approach, with third-party appraisals and broker opinions of value for land, office and branch space.
OREO: The fair values of OREO were based on a market approach, with third-party appraisals and broker opinions of value for land and buildings.
Customer Deposit Intangible: The customer deposit intangible represents the low cost of funding acquired core deposits provide relative to a marginal cost of funds. The fair value was estimated based on a discounted cash flow methodology that gave consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The customer deposit intangible is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.
Deposits: The fair values used for the demand and savings deposits equal the amount payable on demand at the acquisition date. The fair values for time deposits were estimated using a discounted cash flow calculation that applies interest rates being offered at the acquisition date to the contractual interest rates on such time deposits.
Borrowings: Short-term borrowings consist of overnight repurchase agreements and rates, and given their short-term nature book value approximated fair value. The fair values of long-term borrowings are estimated using discounted cash flow analyses, based on incremental borrowing rates at acquisition date for similar types of instruments.
Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. Acquired purchased credit deteriorated loans are reported net of the unamortized fair
value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired purchased credit deteriorated loans as of the acquisition date:
| | | | | | | | | | | | | | | |
| | |
(Dollars in thousands) | | Par Value | Allowance for Credit Losses | Non-Credit (Discount) Premium | Fair Value |
Purchased credit deteriorated loans | | | | | |
Construction | | $ | 23,232 | | $ | (2,127) | | $ | (219) | | $ | 20,886 | |
Commercial real estate, other | | 176,122 | | (13,374) | | (8,022) | | 154,726 | |
Commercial and industrial | | 26,341 | | (4,286) | | 281 | | 22,336 | |
| | | | | |
Residential real estate | | 56,005 | | (2,394) | | (2,166) | | 51,445 | |
Home equity lines of credit | | 2,014 | | (41) | | (68) | | 1,905 | |
| | | | | |
Consumer | | 1,614 | | (112) | | 63 | | 1,565 | |
Fair value | | $ | 285,328 | | $ | (22,334) | | $ | (10,131) | | $ | 252,863 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Peoples' operating results for the three-month and nine-month periods ended September 30, 2021 include the operating results of the acquired assets and assumed liabilities of Premier subsequent to the acquisition on September 17, 2021. Due to the conversion of Premier systems during the third quarter of 2021, as well as other streamlining and integration of the operating activities into those of Peoples, historical reporting for the former Premier operations is impracticable and the disclosures of revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to the acquisition. The following table presents unaudited pro forma information as if the acquisition of Premier had occurred on January 1, 2020. The pro forma adjustments include any changes in interest income due to the accretion of discounts, or amortization of premiums, associated with the fair value adjustments to acquired loans, interest-bearing deposits, long-term borrowings, trust preferred securities and customer deposit intangibles that would have resulted had the assets and liabilities been acquired as of January 1, 2020. The pro forma information excludes Peoples' acquisition-related expenses, which primarily included, but were not limited to, salaries and employee benefit costs, severance costs, professional fees, marketing expenses and deconversion costs. Those acquisition-related expenses totaled $16.2 million and $18.1 million for the quarter and year-to-date, respectively. The pro forma information also excludes a provision of credit losses of $11.0 million recorded to establish an allowance for credit losses for non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquired loans. The pro forma information does not necessarily reflect the results of operations that would have occurred had Peoples acquired Premier on January 1, 2020. Additionally, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts.
| | | | | | | | | | | | | | | | | |
| Unaudited Pro Forma For |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2021 | September 30, 2020 | | September 30, 2021 | September 30, 2020 |
| | | | | |
| | | | | |
Net interest income | $ | 59,248 | | $ | 52,646 | | | $ | 168,644 | | $ | 156,285 | |
| | | | | |
| | | | | |
Non-interest income | 19,071 | | 18,967 | | | 57,061 | | 53,507 | |
| | | | | |
| | | | | |
| | | | | |
Net income | 17,492 | | 16,151 | | | 56,862 | | 31,529 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Pikeville, Kentucky Insurance Agency
On May 4, 2021, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000. Peoples accounted for this transaction as a business combination under the acquisition method.
NS Leasing, LLC
Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $116.5 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the operationsamount of $69.1 million. NSL underwrites, originates and assetsservices equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of Triumph Premium Finance (referred$24.7 million and preliminary other intangibles of $14.0 million, which included a customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million. As of
September 30, 2021, leases had grown to $111.4 million. Peoples accounted for this transaction as "premium finance acquisition"), a divisionbusiness 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 TBK Bank, SSB. Based in Kansas City, Missouri,NSL with Peoples' operations. The employees retained from the division operating asNSL acquisition should allow Peoples Premium Finance willto continue to provide insurance premium financing loansgrow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill.
The bonus earn-out provision recorded by Peoples related to the NSL acquisition was determined based on a weighting of probability of outcomes, at present value. Peoples predominately weighted the outcomes of the factors at around a 100% payout expectation of the base earn-out, which is $2.7 million in total. Adjusting weighting into the bonus expectation in the third quarter resulted in an additional $625,000 of potential payout. Peoples anticipates that NSL will meet the minimums for commercial customers to purchase propertythe base earn-out payment, and casualty insurance products through its growing networkwill likely meet the targets set at acquisition for a 100% payout of independent insurance agency partners nationwide.the base earn-out.
The following table provides the preliminary purchase price calculation as of the date of acquisition for the premium finance company,NSL and the assets acquired and liabilities assumed at their estimated fair values.
| | | | | | |
(Dollars in thousands) | | |
Total purchase price (a) | $ | 94,526 118,846 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Net Assetsassets at Fair Valuefair value | | |
Assets | | |
Cash and due from banks
| $ | 508216 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Loans, net of deferred fees and costsNet leases | 84,81782,833 | | |
Bank premises and equipment, net of accumulated depreciation | 45470 | | |
Customer relationshipOther intangible assets | 4,17214,009 | | |
Other assets | 101,225 | | |
Total assets | $ | 89,55298,753 | | |
Liabilities | | |
| | |
| | |
| | |
| | |
| | |
Accrued expenses and other liabilities | 479 $ | 4,627 | | |
Total liabilities | $ | 4794,627 | | |
Net assets | $ | 89,07594,126 | | |
Preliminary goodwillGoodwill | $ | 5,45124,720 | |
| |
(a) Includes preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. Peoples recorded an additional $0.4 million in non-interest expense related to an update to the estimated earn-out provision.
The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2021, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded induring the period in which each adjustment is determinedthey occur and, as a result, previously recorded results may change.
Peoples has recorded a preliminary customer relationship intangible of $4.2 million. Peoples expects to amortizehave changed. The below table reflects the intangible over 10 years. Amortization for the third quarter of 2020 was $128,000.
As of the acquisition date, Peoples estimated an allowance for credit losses of $932,000 for the acquired loans through the income statement, which was includedchanges in the provision for credit losses during the third quarter of 2020.
Acquired loans are reported net of the unamortizedestimated fair value adjustment. The following table details the preliminary fair value adjustment for acquired loans as of the acquisition date:they impact goodwill at September 30, 2021:
| | | | | |
(Dollars in thousands, except per share data)thousands) | Triumph Premium FinanceChange in fair value |
Loans Purchased Without Credit Deterioration | |
Contractual cash flows | $ | 84,440 | |
Nonaccretable difference | (179) | |
Expected cash flows | 84,261 | |
Accretable yield | 556 | |
Fair value | $ | 84,817 Net assets | |
| |
| |
| |
| |
Other intangible assets | $ | (474) | |
Other assets | (380) | |
Accrued expenses and other liabilities | 380 | |
Change in goodwill | $ | (474) | |
On January 1, 2020,Leases acquired by Peoples Insurance acquiredin a property and casualty-focused independent insurance agency for abusiness 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, amount equal to $866,000, and recorded $735,000an allowance for credit losses is determined using the same methodology as for other leases. Acquired purchased credit deteriorated leases are reported net of customer relationship intangibles, and $27,000the unamortized fair value adjustment.
The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of other assets, resulting in $104,000 of goodwill. Thethe acquisition will not materially impact Peoples' financial position, results of operations or cash flows. As of September 30, 2020, Peoples had $403,000 of contingent consideration payable related to the acquisition.date:
Note 13 Leases | | | | | | |
(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 | | |
| | |
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Peoples recorded acquisition-related expenses related to the NSL acquisition during the third quarter of 2021, which included $13,000 in professional fees. For the first nine months of 2021, Peoples recorded acquisition-related expenses related to the NSL acquisition which included $2.1 million in professional fees; $209,000 in other non-interest expense; $3,000 in salaries and employee benefit costs; $3,000 in data processing and software expense; $2,000 in net occupancy and equipment expense; and $2,000 in marketing expense.
Note 14 Leases
Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.
Lessor Arrangements
Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers leases past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, leases are typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses.
Peoples began originating leases with the acquisition of leases from NSL. The leases acquired were determined to be sales-type leases, as the premise for the leases is dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, healthcare, manufacturing, office, restaurant, and other equipment. These sales-type leases do not typically contain residual value guarantees; however, if a lease contains a residual value guarantee, Peoples reduces its residual asset risk by obtaining a security deposit from the lessee. Other non-interest income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' sales-type leases can be found in "Note 4 Loans and Leases."
The table below details Peoples' lease income:
| | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(Dollars in thousands) | September 30, 2021 | | | | September 30, 2021 | | |
Interest and fees on leases (a) | $ | 4,810 | | | | | 9,025 | | | |
Other non-interest income | 471 | | | | | 716 | | | |
Total lease income | $ | 5,281 | | | | | $ | 9,741 | | | |
(a)Included in "Interest and fees on loans" on the Unaudited Consolidated Statements of Operations.
For additional information, see "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed
Consolidated Financial Statements.
The following table summarizes the net investments in sales-type leases, which are included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets:
| | | | | | |
(Dollars in thousands) | September 30, 2021 | |
Lease payments receivable, at amortized cost | $ | 139,445 | | |
Estimated residual values | 120 | | |
Initial direct costs | 802 | | |
Deferred revenue | (28,921) | | |
Total leases, at amortized cost | 111,446 | | |
Allowance for credit losses - leases | (4,505) | | |
Net investment in sales-type leases | $ | 106,941 | | |
The following table summarizes the contractual maturities of leases:
| | | | | |
(Dollars in thousands) | Balance |
Remaining three months ending December 31, 2021 | $ | 13,980 | |
Year ending December 31, 2022 | 46,706 | |
Year ending December 31, 2023 | 36,524 | |
Year ending December 31, 2024 | 24,093 | |
Year ending December 31, 2025 | 13,605 | |
Thereafter | 4,537 | |
Lease payments receivable, at amortized cost | $ | 139,445 | |
Lessee Arrangements
Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. 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. At September 30, 2020,2021, Peoples did not have any leases that met the criteria for finance leases or any significant lessor agreements.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.
Peoples elected Short-term leases of certain practical expedients, in accordancefacilities and equipment, with ASC 842. Peoples also made an accounting policy election to account for each separate lease componentterms of 12 months or less, are recognized on a contractstraight-line basis over the lease term and its associated non-lease components asdo not have a singleROU asset or lease component for all leases subject to ASC 842.liability.
The table below details Peoples' lease expense, which is included in net"Net occupancy and equipment expenseexpense" in the Unaudited Consolidated Statements of Operations:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Operating lease expense | Operating lease expense | $ | 334 | | | $ | 192 | | | 995 | | | 815 | | Operating lease expense | $ | 358 | | | $ | 334 | | | 1,038 | | | 995 | |
Short-term lease expense | Short-term lease expense | 71 | | | 113 | | | 231 | | | 170 | | Short-term lease expense | 72 | | | 71 | | | 244 | | | 231 | |
Total lease expense | Total lease expense | $ | 405 | | | $ | 305 | | | $ | 1,226 | | | $ | 985 | | Total lease expense | $ | 430 | | | $ | 405 | | | $ | 1,282 | | | $ | 1,226 | |
Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.
The following table details the ROU asset,assets, the lease liabilityliabilities and other information related to Peoples' operating leases:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | December 31, 2019 | (Dollars in thousands) | September 30, 2021 | December 31, 2020 |
ROU asset: | | |
ROU assets: | | ROU assets: | |
Other assets | Other assets | $ | 6,872 | | $ | 7,606 | | Other assets | $ | 8,732 | | $ | 6,522 | |
Lease liability: | | |
Lease liabilities: | | Lease liabilities: | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | $ | 7,117 | | $ | 7,813 | | Accrued expenses and other liabilities | $ | 9,040 | | $ | 6,776 | |
Other information: | Other information: | | Other information: | |
Weighted-average remaining lease term | Weighted-average remaining lease term | 12.3 years | 12.4 years | Weighted-average remaining lease term | 9.5 years | 12.4 years |
Weighted-average discount rate | Weighted-average discount rate | 3.14 | % | 3.16 | % | Weighted-average discount rate | 2.39 | % | 3.14 | % |
|
$345,000 and $1,005,000, respectively, for operating leases. During the three and nine months ended September 30, 2020, Peoples paid cash of $320,000 and $960,000, respectively, for operating leases. During the three and nine months ended September 30, 2019, Peoples paid cash of $291,000 and $882,000, respectively, for operating leases.
The following table summarizes the maturity of remaining lease liabilities:
| | | | | |
(Dollars in thousands) | Balance |
ThreeRemaining three months ending December 31, 2020 | $ | 425 | |
Year ending December 31, 2021 | 1,199$ | 728 | |
Year ending December 31, 2022 | 1,0612,270 | |
Year ending December 31, 2023 | 8731,612 | |
Year ending December 31, 2024 | 629954 | |
Year ending December 31, 2025 | 765 | |
Thereafter | 4,7504,396 | |
Total undiscounted lease payments | $ | 8,93710,725 | |
Imputed interest | $ | (1,820)(1,685) | |
Total lease liabilityliabilities | $ | 7,1179,040 | |
ITEM 22. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three and nine months ended September 30, 20202021 and September 30, 2019.2020. This discussion and analysisMD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Management’s Discussion and Analysisthe MD&A that follows:
| | | At or For the Three Months Ended | | At or For the Nine Months Ended | | At or For the Three Months Ended | | At or For the Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands, expect per share data) | (Dollars in thousands, expect per share data) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands, expect per share data) | 2021 | 2020 | | 2021 | 2020 |
Operating Data (a) | Operating Data (a) | | Operating Data (a) | |
Total interest income | Total interest income | $ | 39,013 | | $ | 43,609 | | | $ | 119,181 | | $ | 127,806 | | Total interest income | $ | 45,467 | | $ | 39,013 | | | $ | 127,226 | | $ | 119,181 | |
Total interest expense | Total interest expense | 3,894 | | 7,855 | | | 14,566 | | 22,089 | | Total interest expense | 2,889 | | 3,894 | | | 9,410 | | 14,566 | |
Net interest income | Net interest income | 35,119 | | 35,754 | | | 104,615 | | 105,717 | | Net interest income | 42,578 | | 35,119 | | | 117,816 | | 104,615 | |
Provision for credit losses (b) | Provision for credit losses (b) | 4,728 | | 1,005 | | | 33,531 | | 1,368 | | Provision for credit losses (b) | 8,994 | | 4,728 | | | 7,333 | | 33,531 | |
Net gain on investment securities | 2 | | 97 | | | 383 | | 70 | | |
Net (loss) gain on investment securities | | Net (loss) gain on investment securities | (166) | | 2 | | | (704) | | 383 | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | (28) | | (78) | | | (237) | | (553) | | Net loss on asset disposals and other transactions | (308) | | (28) | | | (459) | | (237) | |
Total non-interest income excluding net gains and losses (c)(b) | Total non-interest income excluding net gains and losses (c)(b) | 16,796 | | 16,374 | | | 47,025 | | 47,594 | | Total non-interest income excluding net gains and losses (c)(b) | 16,820 | | 16,796 | | | 50,233 | | 47,025 | |
Total non-interest expense | Total non-interest expense | 34,315 | | 32,993 | | | 100,445 | | 103,729 | | Total non-interest expense | 57,860 | | 34,315 | | | 135,746 | | 100,445 | |
Net income (d) | 10,210 | | 14,868 | | | 14,194 | | 38,835 | | |
Net (loss) income (c) | | Net (loss) income (c) | (5,758) | | 10,210 | | | 19,808 | | 14,194 | |
Balance Sheet Data (a) | Balance Sheet Data (a) | | Balance Sheet Data (a) | |
Total investment securities (e) | Total investment securities (e) | $ | 928,560 | | $ | 1,064,909 | | | $ | 928,560 | | $ | 1,064,909 | | Total investment securities (e) | $ | 1,574,676 | | $ | 928,560 | | | $ | 1,574,676 | | $ | 928,560 | |
Loans, net of deferred fees and costs ("total loans") | 3,472,085 | | 2,850,316 | | | 3,472,085 | | 2,850,316 | | |
Loans and leases, net of deferred fees and costs ("total loans") | | Loans and leases, net of deferred fees and costs ("total loans") | 4,491,028 | | 3,472,085 | | | 4,491,028 | | 3,472,085 | |
Allowance for credit losses (e) | Allowance for credit losses (e) | 58,128 | | 21,585 | | | 58,128 | | 21,585 | | Allowance for credit losses (e) | 77,382 | | 58,128 | | | 77,382 | | 58,128 | |
Goodwill and other intangible assets | Goodwill and other intangible assets | 185,397 | | 179,126 | | | 185,397 | | 179,126 | | Goodwill and other intangible assets | 295,415 | | 185,397 | | | 295,415 | | 185,397 | |
Total assets | Total assets | 4,911,807 | | 4,396,148 | | | 4,911,807 | | 4,396,148 | | Total assets | 7,059,752 | | 4,911,807 | | | 7,059,752 | | 4,911,807 | |
Non-interest-bearing deposits | Non-interest-bearing deposits | 982,912 | | 677,232 | | | 982,912 | | 677,232 | | Non-interest-bearing deposits | 1,559,993 | | 982,912 | | | 1,559,993 | | 982,912 | |
Brokered deposits | Brokered deposits | 260,753 | | 262,230 | | | 260,753 | | 262,230 | | Brokered deposits | 106,013 | | 260,753 | | | 106,013 | | 260,753 | |
Other interest-bearing deposits | Other interest-bearing deposits | 2,708,340 | | 2,417,740 | | | 2,708,340 | | 2,417,740 | | Other interest-bearing deposits | 4,166,014 | | 2,697,905 | | | 4,166,014 | | 2,697,905 | |
Short-term borrowings | Short-term borrowings | 182,063 | | 288,150 | | | 182,063 | | 288,150 | | Short-term borrowings | 184,693 | | 182,063 | | | 184,693 | | 182,063 | |
Junior subordinated debentures held by subsidiary trust | Junior subordinated debentures held by subsidiary trust | 7,571 | | 7,409 | | | 7,571 | | 7,409 | | Junior subordinated debentures held by subsidiary trust | 12,928 | | 7,571 | | | 12,928 | | 7,571 | |
Other long-term borrowings | Other long-term borrowings | 103,815 | | 76,785 | | | 103,815 | | 76,785 | | Other long-term borrowings | 86,483 | | 103,815 | | | 86,483 | | 103,815 | |
Total stockholders' equity (e) | Total stockholders' equity (e) | 566,856 | | 588,533 | | | 566,856 | | 588,533 | | Total stockholders' equity (e) | 831,882 | | 566,856 | | | 831,882 | | 566,856 | |
Tangible assets (f)(d) | Tangible assets (f)(d) | 4,726,410 | | 4,217,022 | | | 4,726,410 | | 4,217,022 | | Tangible assets (f)(d) | 6,764,337 | | 4,726,410 | | | 6,764,337 | | 4,726,410 | |
Tangible equity (f)(d) | Tangible equity (f)(d) | 381,459 | | 409,407 | | | 381,459 | | 409,407 | | Tangible equity (f)(d) | 536,467 | | 381,459 | | | 536,467 | | 381,459 | |
Per Common Share Data (a) | Per Common Share Data (a) | | Per Common Share Data (a) | |
Earnings per common share – basic | $ | 0.52 | | $ | 0.72 | | | $ | 0.70 | | $ | 1.93 | | |
Earnings per common share – diluted | 0.51 | | 0.72 | | | 0.70 | | 1.91 | | |
(Loss) earnings per common share – basic | | (Loss) earnings per common share – basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
(Loss) earnings per common share – diluted | | (Loss) earnings per common share – diluted | (0.28) | | 0.51 | | | 0.99 | | 0.70 | |
Cash dividends declared per common share | Cash dividends declared per common share | 0.34 | | 0.34 | | | 1.02 | | 0.98 | | Cash dividends declared per common share | 0.36 | | 0.34 | | | 1.07 | | 1.02 | |
Book value per common share (g)(e) | Book value per common share (g)(e) | 28.74 | | 28.43 | | | 28.74 | | 28.43 | | Book value per common share (g)(e) | 29.43 | | 28.74 | | | 29.43 | | 28.74 | |
Tangible book value per common share (g)(e) | Tangible book value per common share (g)(e) | $ | 19.34 | | $ | 19.78 | | | $ | 19.34 | | $ | 19.78 | | Tangible book value per common share (g)(e) | $ | 18.98 | | $ | 19.34 | | | $ | 18.98 | | $ | 19.34 | |
Weighted-average number of common shares outstanding – basic | Weighted-average number of common shares outstanding – basic | 19,504,503 | | 20,415,245 | | | 19,862,409 | | 20,023,271 | | Weighted-average number of common shares outstanding – basic | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Weighted-average number of common shares outstanding – diluted | Weighted-average number of common shares outstanding – diluted | 19,637,689 | | 20,595,769 | | | 19,998,353 | | 20,178,634 | | Weighted-average number of common shares outstanding – diluted | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
Common shares outstanding at end of period(e) | Common shares outstanding at end of period(e) | 19,721,783 | | 20,700,630 | | | 19,721,783 | | 20,700,630 | | Common shares outstanding at end of period(e) | 28,265,791 | | 19,721,783 | | | 28,265,791 | | 19,721,783 | |
Closing share price at end of period(e) | Closing share price at end of period(e) | $ | 19.09 | | $ | 31.81 | | | $ | 19.09 | | $ | 31.81 | | Closing share price at end of period(e) | $ | 31.61 | | $ | 19.09 | | | $ | 31.61 | | $ | 19.09 | |
| | | At or For the Three Months Ended | | At or For the Nine Months Ended | | At or For the Three Months Ended | | At or For the Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands, expect per share data) | (Dollars in thousands, expect per share data) | 2020 | 2019 | | 2020 | 2019 | (Dollars in thousands, expect per share data) | 2021 | 2020 | | 2021 | 2020 |
Significant Ratios (a) | Significant Ratios (a) | | | Significant Ratios (a) | | |
Return on average stockholders' equity (h)(f) | Return on average stockholders' equity (h)(f) | 7.16 | % | 10.11 | % | | 3.28 | % | 9.31 | % | Return on average stockholders' equity (h)(f) | (3.64) | % | 7.16 | % | | 4.44 | % | 3.28 | % |
Return on average tangible equity (i)(g) | Return on average tangible equity (i)(g) | 11.36 | % | 15.35 | % | | 5.38 | % | 14.14 | % | Return on average tangible equity (i)(g) | (4.76) | % | 11.36 | % | | 7.82 | % | 5.38 | % |
Return on average assets (h)(f) | Return on average assets (h)(f) | 0.83 | % | 1.37 | % | | 0.40 | % | 1.24 | % | Return on average assets (h)(f) | (0.42) | % | 0.83 | % | | 0.51 | % | 0.40 | % |
Return on average assets adjusted for non-core items (j)(h) | Return on average assets adjusted for non-core items (j)(h) | 0.91 | % | 1.39 | % | | 0.47 | % | 1.44 | % | Return on average assets adjusted for non-core items (j)(h) | 0.66 | % | 0.91 | % | | 1.02 | % | 0.47 | % |
Average stockholders' equity to average assets | Average stockholders' equity to average assets | 11.56 | % | 13.53 | % | | 12.29 | % | 13.34 | % | Average stockholders' equity to average assets | 11.47 | % | 11.56 | % | | 11.48 | % | 12.29 | % |
Average total loans to average deposits | Average total loans to average deposits | 87.44 | % | 84.99 | % | | 86.15 | % | 86.83 | % | Average total loans to average deposits | 77.17 | % | 87.44 | % | | 79.48 | % | 86.15 | % |
Net interest margin (k)(i) | Net interest margin (k)(i) | 3.14 | % | 3.66 | % | | 3.27 | % | 3.74 | % | Net interest margin (k)(i) | 3.50 | % | 3.14 | % | | 3.41 | % | 3.27 | % |
Efficiency ratio (l)(j) | Efficiency ratio (l)(j) | 64.12 | % | 61.10 | % | | 64.37 | % | 65.71 | % | Efficiency ratio (l)(j) | 94.70 | % | 64.12 | % | | 78.38 | % | 64.37 | % |
Efficiency ratio adjusted for non-core items (m)(k) | Efficiency ratio adjusted for non-core items (m)(k) | 61.81 | % | 60.55 | % | | 62.44 | % | 60.94 | % | Efficiency ratio adjusted for non-core items (m)(k) | 63.93 | % | 61.81 | % | | 64.32 | % | 62.44 | % |
Pre-provision net revenue to total average assets (n)(l) | Pre-provision net revenue to total average assets (n)(l) | 1.43 | % | 1.76 | % | | 1.45 | % | 1.59 | % | Pre-provision net revenue to total average assets (n)(l) | 0.11 | % | 1.43 | % | | 0.83 | % | 1.45 | % |
Dividend payout ratio (p)(n) | Dividend payout ratio (p)(n) | 66.31 | % | 47.35 | % | | 145.29 | % | 51.35 | % | Dividend payout ratio (p)(n) | NM | 66.31 | % | | NM | 145.29 | % |
Total loans to deposits (g)(e) | Total loans to deposits (g)(e) | 88.04 | % | 85.04 | % | | 88.04 | % | 85.04 | % | Total loans to deposits (g)(e) | 77.05 | % | 88.04 | % | | 77.05 | % | 88.04 | % |
Total investment securities as percentage of total assets (g)(e) | Total investment securities as percentage of total assets (g)(e) | 18.90 | % | 24.22 | % | | 18.90 | % | 24.22 | % | Total investment securities as percentage of total assets (g)(e) | 22.30 | % | 18.90 | % | | 22.30 | % | 18.90 | % |
Asset Quality Ratios (a) | Asset Quality Ratios (a) | | | Asset Quality Ratios (a) | | |
Nonperforming loans as a percent of total loans (q)(o) | Nonperforming loans as a percent of total loans (q)(o) | 0.84 | % | 0.73 | % | | 0.84 | % | 0.73 | % | Nonperforming loans as a percent of total loans (q)(o) | 0.92 | % | 0.84 | % | | 0.92 | % | 0.84 | % |
Nonperforming assets as a percent of total assets (q)(o) | Nonperforming assets as a percent of total assets (q)(o) | 0.60 | % | 0.48 | % | | 0.60 | % | 0.48 | % | Nonperforming assets as a percent of total assets (q)(o) | 0.75 | % | 0.60 | % | | 0.75 | % | 0.60 | % |
Nonperforming assets as a percent of total loans and OREO (q)(o) | Nonperforming assets as a percent of total loans and OREO (q)(o) | 0.85 | % | 0.74 | % | | 0.85 | % | 0.74 | % | Nonperforming assets as a percent of total loans and OREO (q)(o) | 1.17 | % | 0.85 | % | | 1.17 | % | 0.85 | % |
Criticized loans as a percent of total loans (r)(p) | Criticized loans as a percent of total loans (r)(p) | 3.55 | % | 3.52 | % | | 3.55 | % | 3.52 | % | Criticized loans as a percent of total loans (r)(p) | 5.23 | % | 3.55 | % | | 5.23 | % | 3.55 | % |
Classified loans as a percent of total loans (s)(q) | Classified loans as a percent of total loans (s)(q) | 2.19 | % | 2.07 | % | | 2.19 | % | 2.07 | % | Classified loans as a percent of total loans (s)(q) | 3.18 | % | 2.19 | % | | 3.18 | % | 2.19 | % |
Allowance for credit losses as a percent of total loans (g)(e) | Allowance for credit losses as a percent of total loans (g)(e) | 1.67 | % | 0.76 | % | | 1.67 | % | 0.76 | % | Allowance for credit losses as a percent of total loans (g)(e) | 1.72 | % | 1.67 | % | | 1.72 | % | 1.67 | % |
Allowance for credit losses as a percent of nonperforming loans (q)(o) | Allowance for credit losses as a percent of nonperforming loans (q)(o) | 198.72 | % | 104.20 | % | | 198.72 | % | 104.20 | % | Allowance for credit losses as a percent of nonperforming loans (q)(o) | 186.93 | % | 198.72 | % | | 186.93 | % | 198.72 | % |
Provision for credit losses as a percent of average total loans (b) | Provision for credit losses as a percent of average total loans (b) | 0.55 | % | 0.14 | % | | 1.40 | % | 0.07 | % | Provision for credit losses as a percent of average total loans (b) | 1.01 | % | 0.55 | % | | 0.28 | % | 1.40 | % |
Net charge-offs as a percentage of average total loans (p) | Net charge-offs as a percentage of average total loans (p) | 0.08 | % | 0.11 | % | | 0.04 | % | NM | Net charge-offs as a percentage of average total loans (p) | 0.18 | % | 0.08 | % | | 0.13 | % | 0.04 | % |
Capital Information (g)(e) | Capital Information (g)(e) | | | | Capital Information (g)(e) | | | |
Common equity tier 1 capital ratio (t)(r) | Common equity tier 1 capital ratio (t)(r) | 12.83 | % | 14.23 | % | | 12.83 | % | 14.23 | % | Common equity tier 1 capital ratio (t)(r) | 12.30 | % | 12.83 | % | | 12.30 | % | 12.83 | % |
Tier 1 risk-based capital ratio | Tier 1 risk-based capital ratio | 13.07 | % | 14.48 | % | | 13.07 | % | 14.48 | % | Tier 1 risk-based capital ratio | 12.58 | % | 13.07 | % | | 12.58 | % | 13.07 | % |
Total risk-based capital ratio (tier 1 and tier 2) | Total risk-based capital ratio (tier 1 and tier 2) | 14.33 | % | 15.22 | % | | 14.33 | % | 15.22 | % | Total risk-based capital ratio (tier 1 and tier 2) | 13.83 | % | 14.33 | % | | 13.83 | % | 14.33 | % |
Tier 1 leverage ratio | Tier 1 leverage ratio | 8.62 | % | 10.28 | % | | 8.62 | % | 10.28 | % | Tier 1 leverage ratio | 11.20 | % | 8.62 | % | | 11.20 | % | 8.62 | % |
Common equity tier 1 capital | Common equity tier 1 capital | $ | 398,553 | | $ | 417,468 | | | $ | 398,553 | | $ | 417,468 | | Common equity tier 1 capital | $ | 567,172 | | $ | 398.553 | | | $ | 567,172 | | $ | 398.553 | |
Tier 1 capital | Tier 1 capital | 406,124 | | 424,877 | | | 406,124 | | 424,877 | | Tier 1 capital | 580,100 | | 406,124 | | | 580,100 | | 406,124 | |
Total capital (tier 1 and tier 2) | Total capital (tier 1 and tier 2) | 445,101 | | 446,462 | | | 445,101 | | 446,462 | | Total capital (tier 1 and tier 2) | 637,802 | | 445,101 | | | 637,802 | | 445,101 | |
Total risk-weighted assets | Total risk-weighted assets | $ | 3,106,817 | | $ | 2,933,848 | | | $ | 3,106,817 | | $ | 2,933,848 | | Total risk-weighted assets | $ | 4,611,321 | | $ | 3,106,817 | | | $ | 4,611,321 | | $ | 3,106,817 | |
Total stockholders' equity to total assets | Total stockholders' equity to total assets | 11.54 | % | 13.39 | % | | 11.54 | % | 13.39 | % | Total stockholders' equity to total assets | 11.78 | % | 11.54 | % | | 11.78 | % | 11.54 | % |
Tangible equity to tangible assets (f)(d) | Tangible equity to tangible assets (f)(d) | 8.07 | % | 9.71 | % | | 8.07 | % | 9.71 | % | Tangible equity to tangible assets (f)(d) | 7.93 | % | 8.07 | % | | 7.93 | % | 8.07 | % |
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(a)Reflects the impact of the acquisitionacquisitions of First Prestonsburg Bancshares Inc. ("First Prestonsburg")Premium Finance on July 1, 2020, NSL beginning April 12, 2019.1, 2021, and of Premier beginning September 17, 2021.
(b)On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of the CECL model, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans (which includes purchased credit deteriorated loans), held-to-maturity investment securities, and the unfunded commitment liability in 2020.
(c)Total non-interest income excluding net gains and losses, is a non-USNon-US GAAP financial measure since it excludes all gains and/or losses included in earnings. Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found under the caption "Efficiency Ratio (non-US(Non-US GAAP)."
(d)(c)Net income includesloss for the for the third quarter of 2021 included non-core non-interest expensesexpense totaling $1.2 million$18.4 million. Net income for the first nine months of 2021 included non-core non-interest expense totaling $23.8 million. Net income for the third quarter of 2020 and $3.0 million for the first nine months of 2020. For the third quarter of 2019, net income2020, included non-core non-interest expenses of $0.3$1.2 million and the first nine months of 2019 included $7.4 million.$3.0 million, respectively. Additional information regarding the non-core non-interest expense can be found under the caption "Core Non-Interest Expense (non-US(Non-US GAAP)."
(e)On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
(f)(d)These amounts represent non-USNon-US GAAP financial measures since they exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity and total assets. Additional information regarding the calculation of these non-USNon-US GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.”
(g)(e)Data presented as of the end of the period indicated.
(h)(f)Ratios are presented on an annualized basis.
(i)(g)Return on average tangible equity ratio represents a non-USNon-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity. Additional information regarding the calculation of this non-USNon-US GAAP financial measure can be found under the caption “Return on Average Tangible Equity Ratio (non-US(Non-US GAAP).”
(j)(h)Return on average assets adjusted for non-core items ratio represents a non-USNon-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement
charges severance expenses and COVID-19-relatedseverance expenses included in earnings. Additional information regarding the calculation of this non-USNon-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items Ratio (non-US(Non-US GAAP)."
(k)(i)Information presented on a fully tax-equivalent basis.basis, using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal rate of 21% for 2020.
(l)(j)The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses). This amount represents a non-USNon-US GAAP financial measure since it excludes amortization of other intangible assets, and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this non-USNon-US GAAP financial measure can be found under the caption “Efficiency Ratio (non-US(Non-US GAAP).”
(m)(k)The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses. This amount represents a non-USNon-US GAAP financial measure since it excludes the impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement charges severance expenses and COVID-19-relatedseverance expenses included in earnings, and uses FTE net interest income. Additional information regarding the calculation of this non-USNon-US GAAP financial measure can be found under the caption "Efficiency Ratio (non-US(Non-US GAAP).”
(n)(l)Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. This ratio represents a non-USNon-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of this non-USNon-US GAAP financial measure can be found under the caption “Pre-Provision Net Revenue (non-US(Non-US GAAP).”
(o)(m)The dividend payout ratio is calculated based on dividends declared during the period divided by net income, where applicable, for the period.
(p)(n)NM = not meaningfulmeaningful.
(q)(o)Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned. The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing,
(r)(p)Includes loans categorized as special mention, substandard and doubtful.
(s)(q)Includes loans categorized as substandard and doubtful.
(t)(r)Peoples' capital conservation buffer was 5.83% at September 30, 2021 and 6.33% at September 30, 2020, and 7.22% at September 30, 2019, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019.
Forward-Looking Statements
Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions.
These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:
(1)the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on Peoples'our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), the availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages, which could decreaseadversely 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"Reserve Board") in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;
(3)the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and the recently-completed acquisition of NSL, and the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;
(4)competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;
(5)uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular
the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;
(6)the effects of easing restrictions on participants in the financial services industry;
(7)local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;
(8)Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current stockholders;shareholders;
(9)changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterpartiescounterparties' performance and creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated;
(10)Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
(11)changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;
(12)the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;
(13)the discontinuation of the London Interbank Offered Rate ("LIBOR")LIBOR and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;
(14)adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;
(15)the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
(16)Peoples' ability to receive dividends from its subsidiaries;
(17)Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(18)the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;
(19)Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;
(20)Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;
(21)operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent;
(22)changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated;
(23)the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;
(24)the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence;
(25)the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;
(26)the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;
(27)risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;
(28)Peoples' ability to identify, acquire, or integrate suitable strategic acquisitions,the NSL acquisition and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;
(29)the risk that expected revenue synergies and cost savings from the merger of Peoples and Premier may not be fully realized or realized within the expected time frame;
(30)Peoples' continued ability to grow depositsdeposits;
(30)(31)the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;
(31)(32)uncertainty regarding the impact of changes to the U.S. presidential administration and Congress and the impact thereof on the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates and the response to and management of the COVID-19 pandemic;pandemic, infrastructure spending and social programs; and,
(32)(33)other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples’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’Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and under the heading "ITEM 1A. RISK FACTORS" in Part II of this Form 10-Q.2020.
All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.
This discussion and analysis should be read in conjunction with the auditedAudited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 20192020 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 offersis a diversified financial services holding company that makes available a banking products, such as deposit accounts, lending products and trust services. Peoples provides services through 88 locations, including 76 full-service bank branches,traditional offices, ATMs, mobile banking and 84 Automated Teller Machines ("ATMs") in northeastern, central, southwesterntelephone and southeastern Ohio, centralinternet-based banking. Peoples also offers a complete array of insurance products, commercial leasing and eastern Kentucky,premium financing solutions, and west central West Virginiamakes available custom-tailored fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through its financial service units –an unaffiliated registered broker-dealer located at Peoples Bank and Peoples Insurance Agency, LLC ("Peoples Insurance"), a subsidiary of Peoples Bank.Bank's offices. Peoples Bank also offers insurance premium finance lending nationwide through its premium financePeoples Premium Finance division and, since April 1, 2021, offers lease financing through its North Star Leasing division. As of September 30, 2021, Peoples has 135 locations, including 119 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.
Peoples’ products and services include a complete line of banking products, such as deposit accounts, lending products and trust services. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples also offers a complete array of insurance products and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to US GAAP and to general practices within the financial services industry.GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant account policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and Management’s Discussion and AnalysisMD&A at September 30, 2020,2021, which have been updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q, and should be read in conjunction with the policies disclosedare discussed in Peoples’ 20192020 Form 10-K.
Goodwill and intangible assets: Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired in the business combination. Goodwill is not amortized but is tested for impairment when indicators of impairment exist, or at least annually on October 1. There were no triggering events that were reviewed as of October 1, 2019. There was no indication that the carrying amount of the assets may not be recoverable, based on that analysis. Quarterly, Peoples performs an impairment review of goodwill, core deposit intangibles and customer relationship intangibles. During interim periods, ASC 350 requires companies to focus on those events and circumstances that affect significant inputs used to determine the fair value of goodwill. Paragraph 350-20-35-3C(a) through (g) includes examples of those events or circumstances. Those examples are not all-inclusive, and an entity shall consider other relevant events and circumstances that affect the fair value or carrying amount of the entity (or of a reporting unit) in determining whether to perform the goodwill impairment test. If an entity determines that there are no triggering events, then further testing is unnecessary.
Upon the occurrence of a triggering event, an entity may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the entity (or the reporting unit) is less than its carrying amount, including goodwill. Based on the assessment at September 30, 2020, management concluded that it was not more likely than not that goodwill was impaired.
Summary of Recent Transactions and Events
The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:
◦On September 17, 2021, Peoples originated $489.0completed its merger with Premier Financial Bancorp, Inc. (“Premier”), in which Peoples acquired, in an all-stock merger, Premier, a bank holding company headquartered in Huntington, West Virginia, and the parent company of Premier Bank, Inc. (“Premier Bank”) and Citizens Deposit Bank and Trust, Inc. (“Citizens”). Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million. At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of
Peoples Bank. Peoples acquired $1.1 billion in loans and $1.8 billion in deposits. Peoples preliminarily recorded $71.0 million in goodwill and $4.2 million in other intangible assets in connection with the Merger.
◦On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc., pursuant to an Asset Purchase Agreement between Peoples Insurance and Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000, with $162,500 paid at closing and the second installment in the amount of $162,500 to be paid on the first anniversary of the closing date, less any adjustments pursuant to adverse claims incurred or sustained by or imposed by Peoples Insurance. Peoples recorded preliminary customer relationship intangible assets of $230,000 and preliminary goodwill of $46,000, related to this transaction.
◦On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021 in which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus a potential earn-out payment to NSL of up to $3.1 million. Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million. As of September 30, 2021, equipment leases had grown to $111.4 million.
◦Peoples began originating loans during the first nine monthssecond quarter of 2020 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with financial support to cover payroll and certain other expenses.specified types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of September 30, 2020,2021, Peoples had $460.4$135.8 million aggregate principal amount in PPP loans outstanding (including $28.2 million acquired in the merger with Premier), which were included in commercial and industrial loan balances, compared to $458.0$187.6 million at June 30, 2020, as the program was initiated2021 and $366.9 million at the beginning of the second quarter ofDecember 31, 2020.Peoples recognized interest income of $3.8$3.1 million for deferred fee/loan fees/cost amortizationaccretion and $2.1$0.4 million of interest income on PPP loans during the third quarter of 2021, compared to $3.4 million and $0.7 million, respectively, for the second quarter of 2021 and $1.9 million and $1.2 million, respectively, for the third quarter of 2020. During the first nine months of 2021, Peoples recognized interest income of $11.2 million for deferred loan fees/cost accretion and $2.0 million of interest income on PPP loans compared to $3.8 million for deferred loan fees/costs accretion and $2.1 million of interest income during the first nine months of 2020.
◦Peoples is also providingprovided relief solutions to consumer and commercial borrowers, including forbearance and modifications, during the COVID-19 pandemic. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."
◦On January 29, 2021, Peoples was selectedannounced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to partner with JobsOhio, a private nonprofit organization charged with economic development. Additional information can be found later in this discussion underpurchase up to an aggregate of $30 million of Peoples' outstanding common shares. This program replaced the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."
◦share repurchase program authorizing Peoples incurred $531,000 in pension settlement charges in the third quarterto purchase up to an aggregate of 2020, $151,000 in the second quarter$40 million of Peoples' outstanding common shares, which Peoples' Board of Directors had authorized on February 27, 2020 and $368,000 in the first quarter of 2020, in each case, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the period.which was terminated on January 28, 2021. There were no such chargescommon share repurchases during the first, second, and third quarters of 2019.
◦During the third quarter of 2020, Peoples recorded a provision for credit losses of $4.7 million, compared to $11.8 million in the linked quarter and $1.0 million in the third quarter of 2019. For the first nine months of 2020, Peoples recorded a total provision for credit losses of $33.5 million compared to $1.4 million in 2019. During the third quarter of 2020, Peoples recorded $932,000 of the provision for credit losses to establish the allowance for credit losses for the loans acquired from Triumph Premium Finance. The increases in the provision for credit losses compared to the third quarter of 2019, and the first nine months of 2019, were related to the impact of COVID-19 on the CECL model, as well as the implementation of the CECL accounting standard. Peoples recognized a recovery of $750,000 and $1.2 million on a previously charged-off commercial loan in the second and first quarters of 2020, respectively.
◦For the third quarter of 2020, Peoples recorded $148,000 of expenses related to the COVID-19 pandemic, compared to $918,000 for the second quarter of 2020. These expenses were primarily related to donations made to community food banks and pantries, as well as contributions to funds to support employees, including, in the second quarter of 2020, the issuance of unrestricted common share awards totaling $396,000 granted to employees at the Assistant Vice President level and below.
◦During the third quarter of 2020, Peoples recognized an expense of $570,000 for its Federal Deposit Insurance Corp. ("FDIC") insurance premiums. The FDIC previously issued credits to member banks to offset against the quarterly assessment as a result of the deposit insurance fund reaching its target threshold for smaller banks. These credits were used beginning in 2019 and were fully exhausted during the second quarter of 2020. For the three months ended September 30, 2020, Peoples had no credits available to offset FDIC insurance premiums.
◦During the third quarter of 2020, Peoples incurred $0.3 million of acquisition-related expenses, compared to $47,000 in the second quarter of 2020 and $199,000 in the third quarter of 2019. Acquisition-related expenses for the nine months ended September 30, 2020 were $0.4 million, compared to $7.2 million for the same period last year. The acquisition-related expenses in 2020 and 2019 were primarily related to the Triumph Premium Finance and First Prestonsburg acquisitions, respectively.
◦Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as "premium finance acquisition"), a division of TBK Bank, SSB. Based in Kansas City, Missouri, the division operating as Peoples Premium Finance will continue to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide. Peoples Bank acquired $84.8 million in loans, at acquisition date, after preliminary fair value adjustments. Peoples also preliminarily recorded $4.2 million of other intangible assets and $5.5 million of goodwill. As of September 30, 2020, Peoples Premium Finance loans had grown to $104.1 million.
◦On April 2, 2020, Peoples entered into a First Amendment to Loan Agreement to extend the maturity of the Loan Agreement (the “U.S. Bank Loan Agreement”) with U.S. Bank National Association, entered into on April 3, 2019. The First Amendment to Loan Agreement extends the maturity from April 2, 2020 to April 1, 2021. The U.S. Bank Loan Agreement provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $20.0 million that may be used: (i) for working capital purposes; (ii) to finance dividends or other distributions (other than stock dividends and stock splits) on or in respect of Peoples’ capital stock and redemptions, repurchases or other acquisitions of any of Peoples’ capital stock permitted2021, under the U.S. Bank Loan Agreement; and (iii) to finance acquisitions permitted under the U.S. Bank Loan Agreement.
◦existing share repurchase program. On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. This program had replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares, which Peoples' Board of Directors had approved on November 3, 2015 and which was terminated on February 27, 2020. During the third quarter of 2020, Peoples repurchased 235,684 of itsPeoples' common shares through itsPeoples' then-effective common share repurchase program for a total of $5.0 million. For the first nine months of 2020, Peoples repurchased 1,119,752 of itsin common shares for a total of $25.0 million.
◦During the firstthird quarter of 2020 and the first nine months2021, Peoples recorded a provision for credit losses of 2020, Peoples recognized an additional $109,000 in bank owned life insurance ("BOLI") income related to tax-free death benefits,$9.0 million, compared to nonea provision for credit losses of $3.1 million in the first nine monthslinked quarter and a provision for credit losses of 2019.
◦Peoples closed a full-service bank branch located$4.7 million in Kentucky, when the lease for the location expired in Julythird quarter of 2020. During the secondthird quarter of 2020, there were no branch closures. During the first quarter2021, Peoples recorded a provision for credit losses of 2020, Peoples closed one full-service bank branch located$11.0 million in West Virginia when the lease for the location expired in January 2020. During the fourth quarter of 2019, Peoples closed one full-service bank branch located in Kentucky. During the second quarter of 2019, Peoples closed one full-service bank branch located in West Virginia. During the first quarter of 2019, Peoples closed one full-service bank branch located in West Virginia and one insurance office located in Ohio. The locations closed during 2019 were closed when the respective leases for those Kentucky, West Virginia and Ohio locations expired. Most employees at the closed locations filled open positions at other branches or offices.
◦On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000order to establish an allowance for credit losses for held-to-maturity investment securities; annon-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in loan balances of $2.6 million to establish the allowance for credit losses for purchasedduring the third quarter of 2021 related to the purchase credit deteriorated loans; an increase toloans acquired from Premier. The change in the allowanceamount of the provision for credit losses (whichcompared to the third quarter of 2020 was primarily due to the "allowance for loan losses" prior to January 1, 2020)impact of $5.8 million; the addition of a $1.5 million unfunded commitment liability includedeconomic assumptions used in the accrued expensesCECL model and other liabilities line of the Unaudited Consolidated Balance Sheets; and a reductionPeoples' own credit portfolio developments related to retained earnings of $3.7 million, net of statutory federal corporate income tax.
◦On January 1, 2020, Peoples Insurance acquired a property and casualty-focused independent insurance agency for a purchase price amount equal to $866,000.
COVID-19, coupled with the day-one allowances for credit losses required in connection with the acquisitions of loans from Premier in the third quarter of 2021.
◦For the third quarter of 2021, Peoples recorded $181,000 of expenses related to the COVID-19 pandemic, compared to $210,000 for the second quarter of 2021 and $148,000 for the third quarter of 2020. These expenses were primarily related to providing Peoples' employees meals in support of local businesses and assisting employees with childcare and elder care needs, as well as taking extra precautions in cleaning facilities.
◦During the third quarter of 2021, Peoples incurred $16.2 million of acquisition-related expenses, compared to $2.4 million in the second quarter of 2021 and $335,000 in the third quarter of 2020. Acquisition-related expenses for the nine months ended September 30, 2021 were $20.5 million, compared to $412,000 for the same period last year. The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier acquisition. The acquisition-related expenses in 2020 were primarily related to the Triumph Premium Finance acquisition.
◦Peoples incurred $0.1 million in pension settlement charges for the third quarter of 2021 compared to $0.5 million for the third quarter of 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the relevant period. Peoples recorded $0.1 million of pension settlement charges for the nine months ended September 30, 2021 and $1.1 million for the nine months ended September 30, 2020.
◦Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as "Premium Finance acquisition"), a division of TBK Bank, SSB. Based in Kansas City, Missouri, the division operating as Peoples Premium Finance continues to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide. Peoples Bank acquired $84.7 million in loans, at the acquisition date, after fair value adjustments. Peoples also recorded $4.3 million of other intangible assets and $5.5 million of goodwill related to the acquisition. As of September 30, 2021, Peoples premium finance loans had grown to $134.8 million.
◦In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020, then lowered the target rate another 100 basis points at the next FOMC meeting on March 15.15, 2020. The Federal Funds Target Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of September 30, 2020. According to the Chair of the Board of Governors of the Federal Reserve, the Federal Funds Target Rate is not likely to drop below this range. However, the Federal Reserve does have other tools available that it can employ and has expressed an intention to do so in order to maintain a targeted level of liquidity. Furthermore, the Federal Reserve has indicated it is committed to a target 0% - 0.25% range for Federal Funds through at least 2023.
◦During the fourth quarter of 2019, Peoples entered into one interest rate swap with a notional value of $10.0 million, which will mature in 2024, with an interest rate of 1.59%. During the third quarter of 2019, Peoples entered into one interest rate swap with a notional value of $10.0 million, which will mature in 2029, with an interest rate of 1.44%. During the second quarter of 2019, Peoples entered into three interest rate swaps with a notional value in the aggregate of $30.0 million, which will mature between 2023 and 2026, with interest rates ranging from 1.89% to 1.91%. For additional information regarding Peoples' interest rate swaps, refer to "Note 9 Derivative Financial Instruments" of the Notes to the Unaudited Consolidated Financial Statements.
◦On August 22, 2019, Peoples Risk Management, Inc., a wholly-owned subsidiary of Peoples, was formed. Peoples Risk Management, Inc. is a Nevada-chartered captive insurance company which insures against certain risks unique to the operations of Peoples and for which insurance may not be currently available or economically feasible. Peoples Risk Management, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.
◦At the close of business on April 12, 2019, Peoples completed the merger transaction with First Prestonsburg. First Prestonsburg merged into Peoples and First Prestonsburg's wholly-owned subsidiary, The First Commonwealth Bank of Prestonsburg, Inc., which operated nine full-service bank branches in central and eastern Kentucky, merged into Peoples Bank. First Prestonsburg shareholders received total merger consideration of $43.7 million, of which $11.3 million was in the form of a special cash dividend paid by First Prestonsburg to its shareholders prior to the merger with the remainder being paid in the form of an aggregate of 1,005,478 Peoples common shares issued by Peoples. The merger added $129.4 million of total loans and $257.2 million of total deposits at the acquisition date, after fair value adjustments. Peoples also recorded $4.2 million of other intangible assets and $14.5 million of goodwill.
◦During the first quarter of 2019, Peoples sold its restricted Class B Visa stock, which had been held at a carrying cost and fair value of zero due to the litigation liability associated with the stock, resulting in a gain of $787,000 recorded in other non-interest income.2021.
The impact of these transactions and events, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Results of Operations and Financial Condition.
MD&A.
EXECUTIVE SUMMARY
Peoples recorded a net incomeloss of $10.2$5.8 million for the third quarter of 2020,2021, or earnings of $0.51$0.28 per diluted common share, compared to net income of $4.7$10.1 million, or $0.23$0.51 per diluted common share, for the second quarter of 2020,2021, and net income of $14.9$10.2 million, or $0.72$0.51 per diluted share, for the third quarter of 2019.2020. Non-core items, containedand the related tax effect of each, in net (loss) income included gains and losses, acquisition-related costs,expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses, and COVID-19-related expenses.gains and losses on investment securities, asset disposals and other transactions. Non-core items negatively impacted earnings per diluted common share by $0.71 for the third quarter of 2021, $0.10 for the second quarter of 2021, and by $0.05 for the third quarter of 2020, $0.06 for the second quarter of 2020, and by $0.01 for the third quarter of 2019.2020. Net income in the third quarter of 2020,2021 was largely affected by the provision for credit losses recorded during the quarter. The provision for credit losses was lower than in the linked quarter due to the changes in economic developments and forecasts used in the CECL model. The provision for credit losses was calculated under the CECL accounting methodology in accordance with ASU 2016-13, which is sensitive to future economic projections. Additional information regarding the provision for credit losses can be found later in this discussion under the caption “RESULTS OF OPERATIONS - Provision for Credit Losses.”acquisition of Premier.
For the first nine months of 2020,2021, net income was $14.2$19.8 million, or earnings of $0.70$0.99 per diluted common share, compared to net income of $38.8$14.2 million, or earnings of $1.91$0.70 per diluted common share, for the nine months ended September 30, 2019.2020. The decreaseincrease in earnings was impacted primarily by the change in provision for credit losses calculated using the CECL accounting methodology and the impact COVID-19 had on the inputs in the CECL model.2021 as compared to 2020. Non-core items negatively impacted earnings per diluted common share by $0.12$0.98 and $0.29$0.12 for the nine months ended September 30, 2021 and 2020, and 2019, respectively.
Net interest income was $42.6 million for the third quarter of 2021, up 7% compared to $39.7 million for the second quarter of 2021, and an increase of 21% compared to $35.1 million for the third quarter of 2020, up 1%2020. Net interest margin was 3.50% for the third quarter of 2021, compared to $34.9 million3.45% for the second quarter of 2020,2021, and a decrease of 2% compared to $35.8 million for the third quarter of 2019. Net interest margin was 3.14% for the third quarter of 2020, compared2020. Compared to 3.19% for the secondlinked quarter and third quarter of 2020, net interest income and 3.66% formargin were improved due to the third quartergrowth in leases and premium finance loans, coupled with the partial period impact of 2019.the Premier acquisition and lower cost of funds. Net interest income and margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves. Net interest income and net interest margin continuedcontinue to be impacted by the low interest rate environment caused by COVID-19 which resulted in lower yields onthat continued throughout the loan portfolio and accelerated premium amortization onthird quarter of 2021. For the investment securities portfolio. The PPP loan income (interest and fees)first nine months of $3.1 million, premium finance interest income of $1.8 million and a reduction of $615,000 in interest expense on deposits benefited2021, net interest income increased $13.2 million, or 13%, compared to the linked quarter.first nine months of 2020, while net interest margin increased 14 basis points to 3.41%. The change in net interest income was the result of lower funding costs due to a shift from higher cost overnight FHLB advances to lower cost brokered deposits, as well as a higher volume of loans and leases due to the Premier, NSL and Premium Finance acquisitions.
Accretion income, net of amortization expense, from acquisitions was $547,000$1.0 million for the third quarter of 2021, $0.8 million for the second quarter of 2021, and $0.5 million for the third quarter of 2020, $955,000 for the second quarter of 2020, and $1.2 million for the third quarter of 2019, which added 58 basis points, 97 basis points, and 125 basis points, respectively, to net interest margin. Accretion income, net of amortization expense, from acquisitions was $2.2 million for the nine months ended September 30, 2021, compared to $2.6 million for the nine months ended September 30, 2020, compared to $3.1 million for the nine months ended September 30, 2019, which added 8 basis points6 and 118 basis points, respectively, to net interest margin.
During the third quarter of 2020,2021, Peoples recorded a provision for credit losses of $4.7$9.0 million, compared to a provision for credit losses of $11.8$3.1 million for the second quarter of 20202021 and a provision for loancredit losses of $1.0$4.7 million for the third quarter of 2019.2020. Net charge-offs for the third quarter of 20202021 were $735,000,$1.6 million, or 0.08%0.18% of average total loans annualized, compared to net recoveriescharge-offs of $369,000,$0.8 million, or (0.05)%0.09% of average total loans annualized, for the linked quarter and net charge-offs of $777,000,$0.7 million, or 0.11%0.08% of average total loans annualized, for the third quarter of 2019. The2020. Net charge-offs for the third quarter of 2021 included one commercial and industrial loan aggregating $0.5 million. Net charge-offs for the second quarter of 2021 included $0.4 million in leases. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to a specific reserve recorded on one commercial relationship, along with the establishmentimpact of economic assumptions used in the allowanceCECL model and Peoples' own credit portfolio developments related to COVID-19, offset by the day-one allowances for credit losses related torequired in connection with the premium finance loans acquired.acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.
ProvisionThe provision for credit losses during the first nine months of 20202021 was $33.5$7.3 million, compared to a provision for loancredit losses of $1.4$33.5 million for the first nine months of 2019.2020. Net charge-offs for the first nine months of 20202021 were $864,000,$3.4 million, or 0.04%0.13% of average total loans annualized, compared to net recoveriescharge-offs of $22,000,$0.9 million, or 0.04% annualized, for the first nine months of 2019. During2020. The change in the provision for credit losses compared to the first nine months of 2020 recoveries of $750,000was primarily due to improved economic factors and $1.2 million were recognized, duringupdated loss drivers and their impact on assumptions used in the second and first quarters of 2020, respectively, on a previously charged-off commercial loan. TheCECL model throughout the first nine months of 2019 included the recognition of a $1.8 million recovery on a previously charged-off commercial loan.2021.
For the third quarter of 2020,2021, total non-interest income increased $2.1$0.5 million, or 14%3%, compared to the second quarter of 20202021 and was up $377,000,decreased $0.4 million, or 2%3%, compared tofrom the third quarter of 2019. Compared2020. The rise in non-interest income compared to the secondlinked quarter was the result of 2020, mortgage banking income increased $1.7 million due to the volume of refinancing activity resulting from the low interest rate environment, insurance income increased $417,000, or 13%, due to a $591,000 revenue recognition adjustment recordedan increase in the third quarter of 2020 andoverdraft fees included in deposit account service charges increased $357,000 driven largely by anof $0.5 million and a $0.2 million increase in fees assessed for overdrafts and non-sufficient funds. These increases were partially offset by a decrease in commercial loan swap fees of $887,000. Comparedincome recognized on leases related to the third quarterearly termination of 2019, non-interest income was up $377,000. Mortgage banking income increased $1.5 million due to a higher volume of refinance activity. Also contributing to the increase was an increaseleases and other fees, offset partially by declines in trust and investment income, electronic banking income and mortgage banking income. Net losses of $230,000$0.5 million realized during the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and an increase in insurance incomethe sales of $222,000. These increases were offset partially by decreases in deposit account service chargessecurities during the third quarter of 2021, compared to net losses of $0.3 million for the linked quarter, and lower commercial loan swap fees, driven by lower customer demandnet gains of these products.$26,000 for the third quarter of 2020.
For the nine months ended September 30, 2020,2021, total non-interest income increased slightly$1.9 million compared to the nine months ended September 30, 2019. Decreases in deposit account service charges2020. The increase was driven by higher trust and commercial loan swap feesinvestment income, associated with new accounts and increased market values of were more than offset by increases in mortgage bankingassets under administration and management, coupled with higher electronic banking income.income and $716,000 of non-interest income contributed by the leasing business.
Total non-interest expense increased $2.5$18.0 million, or 8%45%, for the third quarter of 20202021 compared to the second quarter of 20202021, and $1.3$23.5 million, or 4%69%, compared to the third quarter of 2019. Compared2020. The increase in total non-interest expense for the third quarter of 2021 compared to the linked quarter salaries and employee benefit costs were up as a resultwas primarily due to the recognition of higher one-time deferred personnel costs$16.5 million of $921,000 associated with PPP loan originations recognized inacquisition-related expenses due to the secondclosing of the Premier acquisition during the quarter. Total non-interest expense in the third quarter of 2020 included $531,0002021 also contained other non-core expenses such as a one-time expense related to contract renewal negotiations of Peoples Bank's core banking systems of $1.9 million, and $0.2 million in pension settlement charges, whileCOVID-19-related expenses. During the second quarter of 20202021, non-core expenses included pension settlement chargesacquisition-related expenses of $151,000$2.4 million and there were no pension settlement charges recorded$0.2 million in the third quarter of 2019. Total non-interest expense inCOVID-19-related expenses. For the third quarter of 2020, alsonon-core expenses included $531,000 of pension settlement charges, $335,000 of acquisition-related expenses, $192,000 inof severance expenses comparedand $148,000 of COVID-19-related expenses. Compared to $79,000 recognized in the second quarter of 2020 and $88,000 in severance expenses recorded in the third quarter of 2019.2020, the increase in total non-interest expense was primarily due to an increase in acquisition-related expenses of $16.2 million, an increase in salaries and employee benefit costs of $6.2 million and an increase in amortization of intangible assets of $0.4 million. The increases in salaries and employee benefit costs and amortization of intangible assets were primarily the areas described above were partially offset by decreases for COVID-19-related expenses, which duringresult of the second quarteracquisitions of 2020 included a $250,000 donation to food banksPremier and pantries in Peoples' market area and an employee unrestricted common share award aggregating $396,000 made to employees at the level of Assistant Vice President and below during the second quarter.NSL.
DuringFor the first nine months of 2020,2021, total non-interest expense decreased $3.3 million to $100.4increased $35.3 million compared to 2019.the same period last year. The variance was driven primarily by a reductionincreases of $20.5 million in "Other expenses", which included acquisition-related expensesexpenses. The remainder of the increase was largely due to a $7.2 million recognizedrise in salaries and employee benefit costs, which was driven by the previous year,added ongoing costs of the recent acquisitions, along with higher sales and lower travelincentive compensation from increased production, growth in medical insurance and entertainment expenses of $747,000 due to COVID-19 restrictions.401(k) costs, while data processing and software costs also increased $2.1 million. These changes were partially offset by increases of $660,000, or 14%decreases in data processing and software expenses, $499,000, or 9% in electronic banking expenses, pension settlement charges of $1.1 million, severance expenses of $284,000 and COVID-19-related expenses.
Premier, NSL and Premium Finance increased salaries and employee benefit costs, as well as amortization of intangible assets. Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, for the third quarter of 20202021 was 64.1%94.7%, compared to 62.3%68.6% for the second quarter of 2020,2021, and 61.1%64.1% for the third quarter of 2019.2020. The change in the efficiency ratio compared to the linked quarter was primarily due to the increase in non-interest expense.acquisition-related expenses mentioned above. The efficiency ratio, when adjusted for non-core items, was 63.9% for the third quarter of 2021, compared to 64.0% for the second quarter of 2021 and 61.8% for the third quarter of 2020,2020. The efficiency ratio for the nine months ended September 30, 2021 was 78.4% compared to 59.9%64.4% for the second quarter of 2020 and 60.6% for the third quarter of 2019. For the first nine months of 2020,ended September 30, 2020. When adjusted for non-core items, the efficiency ratio was 64.4% compared to 65.7% for 2019, and was 62.4% and 60.9%, respectively, when adjusted for non-core items. The efficiency ratio, adjusted for non-core items, went up as a result of lower revenue as a result of COVID-19 and the impact of the low interest rate environment.
Peoples recorded income tax expense of $2.6 million for the third quarter of 2020, compared to $1.1 million for the linked quarter and $3.3 million for the third quarter of 2019. Peoples recognized income tax expense of $3.6 million64.3% for the first nine months of 2020, compared to $8.9 million for the first nine months of 2019. The variance between each of the comparative periods was the result of pre-tax income in 2020 related to the variability in the allowance for credit losses recorded during the first nine months of 2020 and an additional income tax expense adjustment of $575,000 and $288,000 in the third and second quarters of 2020, respectively.
At September 30, 2020, total assets were $4.91 billion, compared to $4.35 billion at December 31, 2019. The 13% increase compared to December 31, 2019 was driven by loan growth of $598.6 million, which was primarily the result of PPP loan originations and loans from the acquisition of the premium finance company, as well as an increase in cash and cash equivalents of $46.1 million. The allowance for credit losses increased to $58.1 million, or 1.67% of total loans, compared to $21.6 million and 0.75%, respectively, at December 31, 2019. Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in the allowance for credit losses.
Total liabilities were $4.34 billion at September 30, 2020, up $585.2 million since December 31, 2019. The increase in total liabilities during the first nine months of 2020 was primarily due to an increase in deposits of $660.6 million, partially offset by a decline in total borrowed funds of $106.7 million. The increase in deposits was caused by customers having continued to maintain higher balances largely as a reaction to the COVID-19 pandemic. Also, Peoples began using alternative funding sources that included overnight brokered deposits and reduced overnight borrowings.
At September 30, 2020, total stockholders' equity was $566.9 million, a decrease of $27.5 million compared to December 31, 2019. The decrease in total stockholders' equity was mainly due to the repurchase of 1.1 million shares for a total of $25.0 million, dividends paid of $20.6 million, and a $3.7 million adjustment related to the adoption of the CECL accounting standard, partially offset by net income of $14.2 million and a $4.4 million increase in accumulated other comprehensive income in the third quarter of 2020.
2021 compared to 62.4% for the first nine months of 2020. Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.
Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and $2.6 million for the third quarter of 2020. The income tax benefit for the third quarter of 2021, compared to the income tax expense for the linked quarter, was due to the net loss recognized in the third quarter of 2021. The increase in income tax expense for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was due to higher pre-tax income.
At September 30, 2021, total assets were $7.06 billion, compared to $5.07 billion at June 30, 2021 and $4.76 billion at December 31, 2020. Total assets grew 39% compared to June 30, 2021, and was largely attributable to the Premier acquisition, which added $1.1 billion in loans, $563.3 million in investment securities, and the recognition of goodwill on the transaction of $71.0 million. The 48% increase compared to December 31, 2020 was also driven by the Premier acquisition, along with the $83.3 million of leases acquired from NSL, subsequent growth in leases of $28.1 million, and organic loan growth of $88.2 million, offset partially by $474.2 million in forgiveness received on PPP loans during the nine months ended September 30, 2021. The allowance for credit losses at September 30, 2021 increased to $77.4 million, or 1.72% of total loans, compared to $50.4 million and 1.48%, respectively, at December 31, 2020. Total assets increased $2.0 billion, or 39%, compared to the linked quarter. The increase was a result of the Premier acquisition.
Total liabilities were $6.23 billion at September 30, 2021, up from $4.48 billion at June 30, 2021 and $4.19 billion at December 31, 2020. The increase in total liabilities compared to June 30, 2021 was primarily due to deposits acquired from Premier of $1.8 billion, as well as retail repurchase agreements of $63.8 million. Also contributing to the increase compared to December 31, 2020 was higher total deposits associated with customers maintaining higher balances due primarily to economic stimulus payments provided by the government, as well as changes in customer buying habits.
At September 30, 2021, total stockholders' equity was $831.9 million, an increase of $256.2 million compared to December 31, 2020. The increase in total stockholders' equity was driven by common shares issued for the acquisition of Premier and net income for the first nine months of 2021, offset by $21.0 million in dividends paid to shareholders and the change in accumulated other comprehensive income to an accumulated other comprehensive loss of $7.2 million.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.
Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21%. for 2020.
The following table details the calculation of FTE net interest income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, |
(Dollars in thousands) | | 2020 | 2019 |
Net interest income | $ | 35,119 | | $ | 34,860 | | $ | 35,754 | | | $ | 104,615 | | $ | 105,717 | |
Taxable equivalent adjustments | 262 | | 269 | | 314 | | | 803 | | 781 | |
Fully tax-equivalent net interest income | $ | 35,381 | | $ | 35,129 | | $ | 36,068 | | | $ | 105,418 | | $ | 106,498 | |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Net interest income | $ | 42,578 | | $ | 39,660 | | $ | 35,119 | | | $ | 117,816 | | $ | 104,615 | |
Taxable equivalent adjustment | 351 | | 324 | | 262 | | | 970 | | 803 | |
Fully tax-equivalent net interest income | $ | 42,929 | | $ | 39,984 | | $ | 35,381 | | | $ | 118,786 | | $ | 105,418 | |
The following tables detail Peoples’ average balance sheets for the periods presented:
| | | For the Three Months Ended | | For the Three Months Ended |
| | September 30, 2020 | | June 30, 2020 | | September 30, 2019 | | September 30, 2021 | | June 30, 2021 | | September 30, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | (Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments (a) | Short-term investments (a) | $ | 97,430 | | $ | 33 | | 0.13 | % | | $ | 164,487 | | $ | 48 | | 0.12 | % | | $ | 62,860 | | $ | 506 | | 3.19 | % | Short-term investments (a) | $ | 199,007 | | $ | 82 | | 0.16 | % | | $ | 180,730 | | $ | 53 | | 0.12 | % | | $ | 97,430 | | $ | 33 | | 0.13 | % |
| Investment securities (b)(c)(d): | | | | | | |
Investment securities (a)(b): | | Investment securities (a)(b): | | | | | |
Taxable | Taxable | 851,092 | | 2,832 | | 1.33 | % | | 903,227 | | 4,188 | | 1.85 | % | | 896,142 | | 5,986 | | 2.67 | % | Taxable | 979,278 | | 3,799 | | 1.55 | % | | 883,948 | | 3,217 | | 1.45 | % | | 851,092 | | 2,832 | | 1.33 | % |
Nontaxable | Nontaxable | 101,403 | | 778 | | 3.07 | % | | 103,169 | | 802 | | 3.11 | % | | 113,806 | | 874 | | 3.07 | % | Nontaxable | 173,459 | | 1,136 | | 2.62 | % | | 168,015 | | 1,095 | | 2.61 | % | | 101,403 | | 778 | | 3.07 | % |
Total investment securities | Total investment securities | 952,495 | | 3,610 | | 1.52 | % | | 1,006,396 | | 4,990 | | 1.98 | % | | 1,009,948 | | 6,860 | | 2.69 | % | Total investment securities | 1,152,737 | | 4,935 | | 1.71 | % | | 1,051,963 | | 4,312 | | 1.64 | % | | 952,495 | | 3,610 | | 1.52 | % |
Loans (c)(d)(e): | | | | |
Loans (b)(c): | | Loans (b)(c): | | | |
Construction | Construction | 105,488 | | 1,179 | | 4.37 | % | | 121,982 | | 1,226 | | 3.98 | % | | 103,758 | | 1,313 | | 4.95 | % | Construction | 125,178 | | 1,196 | | 3.74 | % | | 87,075 | | 979 | | 4.45 | % | | 105,488 | | 1,179 | | 4.37 | % |
Commercial real estate, other | Commercial real estate, other | 857,830 | | 8,854 | | 4.04 | % | | 849,070 | | 8,873 | | 4.13 | % | | 844,186 | | 11,307 | | 5.24 | % | Commercial real estate, other | 993,259 | | 9,507 | | 3.75 | % | | 916,604 | | 8,829 | | 3.81 | % | | 857,830 | | 8,854 | | 4.04 | % |
Commercial and industrial | Commercial and industrial | 1,139,638 | | 10,016 | | 3.44 | % | | 979,206 | | 8,842 | | 3.57 | % | | 603,750 | | 8,110 | | 5.26 | % | Commercial and industrial | 789,555 | | 8,933 | | 4.43 | % | | 887,756 | | 9,241 | | 4.12 | % | | 1,047,105 | | 8,145 | | 3.04 | % |
Residential real estate (f) | 661,694 | | 7,870 | | 4.76 | % | | 682,216 | | 8,257 | | 4.84 | % | | 648,481 | | 7,903 | | 4.87 | % | |
Premium finance | | Premium finance | 122,828 | | 1,542 | | 4.91 | % | | 108,387 | | 1,298 | | 4.74 | % | | 92,533 | | 1,871 | | 7.91 | % |
Leases | | Leases | 97,068 | | 4,810 | | 19.39 | % | | 86,519 | | 4,215 | | 19.27 | % | | — | | — | | — | % |
Residential real estate (d) | | Residential real estate (d) | 652,184 | | 6,648 | | 4.08 | % | | 607,691 | | 6,429 | | 4.23 | % | | 661,694 | | 7,870 | | 4.76 | % |
Home equity lines of credit | Home equity lines of credit | 125,351 | | 1,278 | | 4.06 | % | | 128,632 | | 1,493 | | 4.67 | % | | 131,898 | | 1,977 | | 5.95 | % | Home equity lines of credit | 126,888 | | 1,271 | | 3.97 | % | | 119,354 | | 1,180 | | 3.97 | % | | 125,351 | | 1,278 | | 4.06 | % |
Consumer, indirect | Consumer, indirect | 477,962 | | 5,103 | | 4.25 | % | | 421,972 | | 4,554 | | 4.34 | % | | 423,694 | | 4,452 | | 4.17 | % | Consumer, indirect | 541,329 | | 5,509 | | 4.04 | % | | 529,180 | | 5,313 | | 4.03 | % | | 477,962 | | 5,103 | | 4.25 | % |
Consumer, direct | Consumer, direct | 82,139 | | 1,332 | | 6.45 | % | | 77,830 | | 1,292 | | 6.68 | % | | 82,067 | | 1,495 | | 7.23 | % | Consumer, direct | 86,935 | | 1,385 | | 6.32 | % | | 80,409 | | 1,272 | | 6.35 | % | | 82,139 | | 1,332 | | 6.45 | % |
Total loans | Total loans | 3,450,102 | | 35,632 | | 4.08 | % | | 3,260,908 | | 34,537 | | 4.22 | % | | 2,837,834 | | 36,557 | | 5.08 | % | Total loans | 3,535,224 | | 40,801 | | 4.55 | % | | 3,422,975 | | 38,756 | | 4.50 | % | | 3,450,102 | | 35,632 | | 4.08 | % |
Allowance for credit losses (d) | (56,519) | | | (48,768) | | | (21,620) | | | |
Allowance for credit losses | | Allowance for credit losses | (51,610) | | | (46,967) | | | (56,519) | | |
Net loans | Net loans | 3,393,583 | | 35,632 | | 4.14 | % | | 3,212,140 | | 34,537 | | 4.28 | % | | 2,816,214 | | 36,557 | | 5.12 | % | Net loans | 3,483,614 | | 40,801 | | 4.61 | % | | 3,376,008 | | 38,756 | | 4.56 | % | | 3,393,583 | | 35,632 | | 4.14 | % |
Total earning assets | Total earning assets | 4,443,508 | | 39,275 | | 3.49 | % | | 4,383,023 | | 39,575 | | 3.60 | % | | 3,889,022 | | 43,923 | | 4.47 | % | Total earning assets | 4,835,358 | | 45,818 | | 3.74 | % | | 4,608,701 | | 43,121 | | 3.72 | % | | 4,443,508 | | 39,275 | | 3.49 | % |
Goodwill and other intangible assets | Goodwill and other intangible assets | 185,816 | | | | | 177,012 | | | 179,487 | | | | Goodwill and other intangible assets | 232,361 | | | | | 222,553 | | | 185,816 | | | |
Other assets | Other assets | 277,290 | | | | | 267,981 | | | 242,880 | | | | Other assets | 407,428 | | | | | 351,892 | | | 277,290 | | | |
Total assets | Total assets | $ | 4,906,614 | | | | | $ | 4,828,016 | | | $ | 4,311,389 | | | Total assets | $ | 5,475,147 | | | | | $ | 5,183,146 | | | $ | 4,906,614 | | |
Interest-bearing deposits: | Interest-bearing deposits: | | | | | Interest-bearing deposits: | | | | |
Savings accounts | Savings accounts | $ | 589,100 | | $ | 34 | | 0.02 | % | | $ | 563,213 | | $ | 33 | | 0.02 | % | | $ | 524,025 | | $ | 126 | | 0.10 | % | Savings accounts | $ | 737,771 | | $ | 23 | | 0.01 | % | | $ | 680,825 | | $ | 21 | | 0.01 | % | | $ | 589,100 | | $ | 34 | | 0.02 | % |
Governmental deposit accounts | Governmental deposit accounts | 398,653 | | 511 | | 0.51 | % | | 370,999 | | 445 | | 0.48 | % | | 347,625 | | 991 | | 1.13 | % | Governmental deposit accounts | 542,855 | | 458 | | 0.33 | % | | 496,906 | | 551 | | 0.44 | % | | 398,653 | | 511 | | 0.51 | % |
Interest-bearing demand accounts | Interest-bearing demand accounts | 671,987 | | 66 | | 0.04 | % | | 655,711 | | 71 | | 0.04 | % | | 617,770 | | 378 | | 0.24 | % | Interest-bearing demand accounts | 795,565 | | 74 | | 0.04 | % | | 733,913 | | 66 | | 0.04 | % | | 671,987 | | 66 | | 0.04 | % |
Money market accounts | Money market accounts | 589,078 | | 215 | | 0.15 | % | | 575,858 | | 360 | | 0.25 | % | | 434,834 | | 787 | | 0.72 | % | Money market accounts | 533,497 | | 67 | | 0.05 | % | | 564,593 | | 94 | | 0.07 | % | | 589,078 | | 216 | | 0.15 | % |
Retail certificates of deposit | 467,431 | | 1,524 | | 1.30 | % | | 481,305 | | 1,870 | | 1.56 | % | | 495,499 | | 2,255 | | 1.81 | % | |
Brokered deposits | 258,875 | | 319 | | 0.49 | % | | 192,230 | | 505 | | 1.06 | % | | 261,145 | | 1,622 | | 2.46 | % | |
Retail certificates of deposit (e) | | Retail certificates of deposit (e) | 457,073 | | 951 | | 0.83 | % | | 424,279 | | 980 | | 0.93 | % | | 467,431 | | 1,524 | | 1.30 | % |
Brokered deposits (e) | | Brokered deposits (e) | 155,779 | | 826 | | 2.10 | % | | 167,109 | | 865 | | 2.08 | % | | 258,875 | | 318 | | 0.49 | % |
Total interest-bearing deposits | Total interest-bearing deposits | 2,975,124 | | 2,669 | | 0.36 | % | | 2,839,316 | | 3,284 | | 0.47 | % | | 2,680,898 | | 6,159 | | 0.91 | % | Total interest-bearing deposits | 3,222,540 | | 2,399 | | 0.30 | % | | 3,067,625 | | 2,577 | | 0.34 | % | | 2,975,124 | | 2,669 | | 0.36 | % |
Borrowed funds: | Borrowed funds: | | | | Borrowed funds: | | | |
Short-term FHLB advances | Short-term FHLB advances | 137,174 | | 732 | | 2.12 | % | | 137,659 | | 559 | | 1.63 | % | | 190,677 | | 1,086 | | 2.26 | % | Short-term FHLB advances | 17,174 | | 78 | | 1.80 | % | | 19,176 | | 81 | | 1.69 | % | | 137,174 | | 732 | | 2.12 | % |
Repurchase agreements and other | Repurchase agreements and other | 43,184 | | 10 | | 0.09 | % | | 46,330 | | 15 | | 0.13 | % | | 46,240 | | 64 | | 0.55 | % | Repurchase agreements and other | 63,226 | | 13 | | 0.08 | % | | 50,852 | | 11 | | 0.09 | % | | 43,184 | | 10 | | 0.09 | % |
Total short-term borrowings | Total short-term borrowings | 180,358 | | 742 | | 1.64 | % | | 183,989 | | 574 | | 1.25 | % | | 236,917 | | 1,150 | | 1.93 | % | Total short-term borrowings | 80,400 | | 91 | | 0.45 | % | | 70,028 | | 92 | | 0.53 | % | | 180,358 | | 742 | | 1.64 | % |
Long-term FHLB advances | Long-term FHLB advances | 103,906 | | 402 | | 1.54 | % | | 122,960 | | 491 | | 1.61 | % | | 76,893 | | 410 | | 2.12 | % | Long-term FHLB advances | 86,561 | | 316 | | 1.45 | % | | 101,161 | | 392 | | 1.55 | % | | 103,906 | | 402 | | 1.54 | % |
| Other borrowings | Other borrowings | 7,551 | | 81 | | 4.29 | % | | 12,438 | | 97 | | 3.12 | % | | 7,388 | | 136 | | 7.36 | % | Other borrowings | 8,470 | | 83 | | 3.92 | % | | 7,669 | | 76 | | 3.96 | % | | 7,551 | | 81 | | 4.29 | % |
Total long-term borrowings | Total long-term borrowings | 111,457 | | 483 | | 1.73 | % | | 135,398 | | 588 | | 1.75 | % | | 84,281 | | 546 | | 2.58 | % | Total long-term borrowings | 95,031 | | 399 | | 1.67 | % | | 108,830 | | 468 | | 1.72 | % | | 111,457 | | 483 | | 1.73 | % |
Total borrowed funds | Total borrowed funds | 291,815 | | 1,225 | | 1.67 | % | | 319,387 | | 1,162 | | 1.46 | % | | 321,198 | | 1,696 | | 2.10 | % | Total borrowed funds | 175,431 | | 490 | | 1.11 | % | | 178,858 | | 560 | | 1.26 | % | | 291,815 | | 1,225 | | 1.67 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 3,266,939 | | 3,894 | | 0.47 | % | | 3,158,703 | | 4,446 | | 0.57 | % | | 3,002,096 | | 7,855 | | 1.04 | % | Total interest-bearing liabilities | 3,397,971 | | 2,889 | | 0.34 | % | | 3,246,483 | | 3,137 | | 0.39 | % | | 3,266,939 | | 3,894 | | 0.47 | % |
Non-interest-bearing deposits | Non-interest-bearing deposits | 970,353 | | | | 997,179 | | | 657,952 | | | | Non-interest-bearing deposits | 1,358,652 | | | | 1,272,623 | | | 970,353 | | | |
Other liabilities | Other liabilities | 102,267 | | | | | 99,993 | | | 68,072 | | | | Other liabilities | 90,741 | | | | | 82,209 | | | 102,267 | | | |
Total liabilities | Total liabilities | 4,339,559 | | | | 4,255,875 | | | 3,728,120 | | | Total liabilities | 4,847,364 | | | | 4,601,315 | | | 4,339,559 | | |
| Total stockholders’ equity | Total stockholders’ equity | 567,055 | | | | | 572,141 | | | 583,269 | | | | Total stockholders’ equity | 627,783 | | | | | 581,831 | | | 567,055 | | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 4,906,614 | | | | | $ | 4,828,016 | | | $ | 4,311,389 | | | | Total liabilities and stockholders’ equity | $ | 5,475,147 | | | | | $ | 5,183,146 | | | $ | 4,906,614 | | | |
Interest rate spread (c) | | $ | 35,381 | | 3.02 | % | | $ | 35,129 | | 3.03 | % | | | $ | 36,068 | | 3.43 | % | |
Net interest margin (c) | 3.14 | % | | | | 3.19 | % | | | | 3.66 | % | |
Interest rate spread (b) | | Interest rate spread (b) | | $ | 42,929 | | 3.40 | % | | $ | 39,984 | | 3.33 | % | | | $ | 35,381 | | 3.02 | % |
Net interest margin (b) | | Net interest margin (b) | 3.50 | % | | | | 3.45 | % | | | | 3.14 | % |
| | | | For the Nine Months Ended | | For the Nine Months Ended |
| | September 30, 2020 | | September 30, 2019 | | September 30, 2021 | | September 30, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | (Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments (a) | Short-term investments (a) | $ | 111,852 | | $ | 317 | | 0.38 | % | | $ | 35,867 | | $ | 945 | | 3.52 | % | Short-term investments (a) | $ | 175,755 | | $ | 175 | | 0.13 | % | | $ | 111,852 | | $ | 317 | | 0.38 | % |
| Investment securities (b)(c)(d): | | | |
Investment securities (a)(b): | | Investment securities (a)(b): | | |
Taxable | Taxable | 894,008 | | 12,448 | | 1.86 | % | | 850,852 | | 17,839 | | 2.80 | % | Taxable | 899,531 | | 9,636 | | 1.43 | % | | 894,008 | | 12,448 | | 1.86 | % |
Nontaxable | Nontaxable | 103,827 | | 2,409 | | 3.09 | % | | 105,233 | | 2,477 | | 3.14 | % | Nontaxable | 149,636 | | 3,035 | | 2.70 | % | | 103,827 | | 2,409 | | 3.09 | % |
Total investment securities | Total investment securities | 997,835 | | 14,857 | | 1.99 | % | | 956,085 | | 20,316 | | 2.83 | % | Total investment securities | 1,049,167 | | 12,671 | | 1.61 | % | | 997,835 | | 14,857 | | 1.99 | % |
Loans (c)(d)(e): | | | |
Loans (b)(c): | | Loans (b)(c): | | |
Construction | Construction | 108,426 | | 3,656 | | 4.43 | % | | 119,823 | | 4,700 | | 5.17 | % | Construction | 108,859 | | 3,169 | | 3.84 | % | | 108,426 | | 3,656 | | 4.43 | % |
Commercial real estate, other | Commercial real estate, other | 848,202 | | 27,784 | | 4.30 | % | | 828,258 | | 33,225 | | 5.29 | % | Commercial real estate, other | 930,150 | | 26,938 | | 3.82 | % | | 848,202 | | 27,784 | | 4.30 | % |
Commercial and industrial | Commercial and industrial | 923,552 | | 26,282 | | 3.74 | % | | 594,136 | | 23,872 | | 5.30 | % | Commercial and industrial | 872,421 | | 28,773 | | 4.35 | % | | 892,483 | | 24,411 | | 3.59 | % |
Residential real estate (f) | 669,852 | | 24,498 | | 4.88 | % | | 633,070 | | 22,748 | | 4.79 | % | |
Premium finance | | Premium finance | 112,925 | | 4,137 | | 4.83 | % | | 31,069 | | 1,871 | | 7.91 | % |
Leases | | Leases | 61,551 | | 9,025 | | 19.34 | % | | — | | — | | — | % |
Residential real estate (d) | | Residential real estate (d) | 624,993 | | 19,749 | | 4.21 | % | | 669,852 | | 24,498 | | 4.88 | % |
Home equity lines of credit | Home equity lines of credit | 128,540 | | 4,546 | | 4.72 | % | | 131,797 | | 5,843 | | 5.93 | % | Home equity lines of credit | 122,720 | | 3,638 | | 3.96 | % | | 128,540 | | 4,546 | | 4.72 | % |
Consumer, indirect | Consumer, indirect | 438,784 | | 14,066 | | 4.28 | % | | 415,602 | | 12,795 | | 4.12 | % | Consumer, indirect | 526,900 | | 16,025 | | 4.07 | % | | 438,784 | | 14,066 | | 4.28 | % |
Consumer, direct | Consumer, direct | 78,904 | | 3,978 | | 6.73 | % | | 78,687 | | 4,143 | | 7.04 | % | Consumer, direct | 82,151 | | 3,896 | | 6.34 | % | | 78,904 | | 3,978 | | 6.73 | % |
Total loans | Total loans | 3,196,260 | | 104,810 | | 4.34 | % | | 2,801,373 | | 107,326 | | 5.07 | % | Total loans | 3,442,670 | | 115,350 | | 4.44 | % | | 3,196,260 | | 104,810 | | 4.34 | % |
Less: Allowance for credit losses(d) | (44,323) | | | (21,117) | | | |
Allowance for credit losses | | Allowance for credit losses | (49,483) | | | (44,323) | | |
Net loans | Net loans | 3,151,937 | | 104,810 | | 4.40 | % | | 2,780,256 | | 107,326 | | 5.12 | % | Net loans | 3,393,187 | | 115,350 | | 4.50 | % | | 3,151,937 | | 104,810 | | 4.40 | % |
Total earning assets | Total earning assets | 4,261,624 | | 119,984 | | 3.73 | % | | 3,772,208 | | 128,587 | | 4.52 | % | Total earning assets | 4,618,109 | | 128,196 | | 3.68 | % | | 4,261,624 | | 119,984 | | 3.73 | % |
Goodwill and other intangible assets | Goodwill and other intangible assets | 180,291 | | | | | 172,175 | | | Goodwill and other intangible assets | 213,232 | | | | | 180,291 | | |
Other assets | Other assets | 264,238 | | | | | 235,280 | | | Other assets | 360,842 | | | | | 264,238 | | |
Total assets | Total assets | $ | 4,706,153 | | | | | $ | 4,179,663 | | | Total assets | $ | 5,192,183 | | | | | $ | 4,706,153 | | |
Interest-bearing deposits: | Interest-bearing deposits: | | | Interest-bearing deposits: | | |
Savings accounts | Savings accounts | $ | 558,514 | | $ | 140 | | 0.03 | % | | $ | 506,847 | | $ | 326 | | 0.09 | % | Savings accounts | $ | 688,782 | | $ | 79 | | 0.02 | % | | $ | 558,514 | | $ | 140 | | 0.03 | % |
Governmental deposit accounts | Governmental deposit accounts | 366,139 | | 1,671 | | 0.61 | % | | 325,773 | | 2,396 | | 0.98 | % | Governmental deposit accounts | 490,170 | | 1,602 | | 0.44 | % | | 366,139 | | 1,671 | | 0.61 | % |
Interest-bearing demand accounts | Interest-bearing demand accounts | 652,198 | | 385 | | 0.08 | % | | 597,089 | | 857 | | 0.19 | % | Interest-bearing demand accounts | 743,562 | | 205 | | 0.04 | % | | 652,198 | | 385 | | 0.08 | % |
Money market accounts | Money market accounts | 547,291 | | 1,248 | | 0.30 | % | | 414,966 | | 1,972 | | 0.64 | % | Money market accounts | 554,194 | | 294 | | 0.07 | % | | 547,291 | | 1,271 | | 0.31 | % |
Retail certificates of deposit | 479,185 | | 5,453 | | 1.52 | % | | 457,030 | | 5,750 | | 1.68 | % | |
Brokered deposits | 214,516 | | 1,685 | | 1.05 | % | | 282,473 | | 5,421 | | 2.57 | % | |
Retail certificates of deposit (e) | | Retail certificates of deposit (e) | 440,454 | | 3,054 | | 0.93 | % | | 479,185 | | 5,453 | | 1.52 | % |
Brokered deposits (e) | | Brokered deposits (e) | 166,000 | | 2,559 | | 2.06 | % | | 214,516 | | 1,662 | | 1.03 | % |
Total interest-bearing deposits | Total interest-bearing deposits | 2,817,843 | | 10,582 | | 0.50 | % | | 2,584,178 | | 16,722 | | 0.87 | % | Total interest-bearing deposits | 3,083,162 | | 7,793 | | 0.34 | % | | 2,817,843 | | 10,582 | | 0.50 | % |
Borrowed funds: | Borrowed funds: | | | Borrowed funds: | | |
Short-term FHLB advances | Short-term FHLB advances | 160,287 | | 2,285 | | 1.90 | % | | 194,398 | | 3,342 | | 2.30 | % | Short-term FHLB advances | 18,773 | | 246 | | 1.75 | % | | 160,287 | | 2,285 | | 1.90 | % |
Repurchase agreements and other | Repurchase agreements and other | 45,613 | | 70 | | 0.26 | % | | 46,328 | | 214 | | 0.62 | % | Repurchase agreements and other | 55,100 | | 37 | | 0.09 | % | | 45,613 | | 70 | | 0.26 | % |
Total short-term borrowings | Total short-term borrowings | 205,900 | | 2,355 | | 1.54 | % | | 240,726 | | 3,556 | | 1.97 | % | Total short-term borrowings | 73,873 | | 283 | | 0.51 | % | | 205,900 | | 2,355 | | 1.54 | % |
Long-term FHLB advances | Long-term FHLB advances | 109,536 | | 1,341 | | 1.64 | % | | 91,359 | | 1,409 | | 2.06 | % | Long-term FHLB advances | 96,765 | | 1,099 | | 1.52 | % | | 109,536 | | 1,341 | | 1.64 | % |
| Repurchase agreement and other borrowings | Repurchase agreement and other borrowings | 9,148 | | 288 | | 5.40 | % | | 7,347 | | 402 | | 7.30 | % | Repurchase agreement and other borrowings | 7,926 | | 235 | | 3.95 | % | | 9,148 | | 288 | | 5.40 | % |
Total long-term borrowings | Total long-term borrowings | 118,684 | | 1,629 | | 1.93 | % | | 98,706 | | 1,811 | | 2.45 | % | Total long-term borrowings | 104,691 | | 1,334 | | 1.70 | % | | 118,684 | | 1,629 | | 1.93 | % |
Total borrowed funds | Total borrowed funds | 324,584 | | 3,984 | | 1.64 | % | | 339,432 | | 5,367 | | 2.11 | % | Total borrowed funds | 178,564 | | 1,617 | | 1.21 | % | | 324,584 | | 3,984 | | 1.64 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 3,142,427 | | 14,566 | | 0.62 | % | | 2,923,610 | | 22,089 | | 1.01 | % | Total interest-bearing liabilities | 3,261,726 | | 9,410 | | 0.39 | % | | 3,142,427 | | 14,566 | | 0.62 | % |
Non-interest-bearing deposits | Non-interest-bearing deposits | 892,301 | | | | 642,276 | | | Non-interest-bearing deposits | 1,248,330 | | | | 892,301 | | |
Other liabilities | Other liabilities | 92,986 | | | | | 56,075 | | | Other liabilities | 86,209 | | | | | 92,986 | | |
Total liabilities | Total liabilities | 4,127,714 | | | | 3,621,961 | | | Total liabilities | 4,596,265 | | | | 4,127,714 | | |
| Total stockholders’ equity | 578,439 | | | | | 557,702 | | | |
| Stockholders’ equity | | Stockholders’ equity | 595,918 | | | | | 578,439 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 4,706,153 | | | | | $ | 4,179,663 | | | Total liabilities and stockholders’ equity | $ | 5,192,183 | | | | | $ | 4,706,153 | | |
Interest rate spread (c) | | $ | 105,418 | | 3.11 | % | | $ | 106,498 | | 3.51 | % | |
Net interest margin (c) | | 3.27 | % | | 3.74 | % | |
Interest rate spread (b) | | Interest rate spread (b) | | $ | 118,786 | | 3.29 | % | | $ | 105,418 | | 3.11 | % |
Net interest margin (b) | | Net interest margin (b) | | | 3.41 | % | | | 3.27 | % |
(a)The three and nine month periods ended September 30, 2019 do not reflect an adjustment related to the balance sheet interest rate swap transactions. Interest related to interest rate swap transactions is included in interest expense on short-term FHLB advances and interest expense on retail certificates of deposit.
(b)Average balances are based on carrying value.
(c)(b)Interest income and yields are presented on a fully tax-equivalent basis, using a 21%blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate.rate of 21% for 2020.
(d)On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of $1.5 million unfunded commitment liability included in accrued expense and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
(e)(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.
(f)(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.
(e)Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered deposits for the periods presented in which FHLB advances and brokered deposits were being utilized.
Peoples completed the acquisition of Premier on September 17, 2021, which impacted average total loan and deposit balances for the partial period in which the balances were impacted duringincluded for the third quarter of 2021. Compared to the third quarter of 2020, average total loans grew mostly due to the leases acquired. Compared to the third quarter of 2020, average total deposit balances grew significantly due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers.
In addition, average total loan balances for the first nine months of 20202021 were higher than the prior year period due to the lease, Premium Finance and Premier balances acquired, coupled with the PPP loans originated since the start of the pandemic and loan growth. The average total deposit balances compared to 2020 grew considerably due to the premium finance loans acquired.
influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers, while the Premier acquired balances had a minimal impact on the period.
The following table provides an analysis of the changes in FTE net interest income:
| | | | Three Months Ended September 30, 2020 Compared to | | Nine Months Ended September 30, 2020 Compared to | | Three Months Ended September 30, 2021 Compared to | | Nine Months Ended September 30, 2021 Compared to |
(Dollars in thousands) | (Dollars in thousands) | June 30, 2020 | | September 30, 2019 | | September 30, 2019 | (Dollars in thousands) | June 30, 2021 | | September 30, 2020 | | September 30, 2020 |
Increase (decrease) in: | Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) |
INTEREST INCOME: | INTEREST INCOME: | | INTEREST INCOME: | |
Short-term investments | Short-term investments | $ | 47 | | $ | (62) | | $ | (15) | | | $ | (1,765) | | $ | 1,292 | | $ | (473) | | | $ | (1,775) | | $ | 1,147 | | $ | (628) | | Short-term investments | $ | 22 | | $ | 7 | | $ | 29 | | | $ | 9 | | $ | 41 | | $ | 50 | | | $ | (314) | | $ | 172 | | $ | (142) | |
| Investment Securities (b) (c): | | |
Investment Securities (b): | | Investment Securities (b): | |
Taxable | Taxable | (1,124) | | (232) | | (1,356) | | | (2,867) | | (287) | | (3,154) | | | (4,991) | | (400) | | (5,391) | | Taxable | 224 | | 358 | | 582 | | | 506 | | 461 | | 967 | | | (2,939) | | 127 | | (2,812) | |
Nontaxable | Nontaxable | (11) | | (13) | | (24) | | | (1) | | (95) | | (96) | | | (2) | | (66) | | (68) | | Nontaxable | 4 | | 37 | | 41 | | | (695) | | 1,053 | | 358 | | | (489) | | 1,115 | | 626 | |
Total investment income | Total investment income | (1,135) | | (245) | | (1,380) | | | (2,868) | | (382) | | (3,250) | | | (4,993) | | (466) | | (5,459) | | Total investment income | 228 | | 395 | | 623 | | | (189) | | 1,514 | | 1,325 | | | (3,428) | | 1,242 | | (2,186) | |
Loans (b)(c): | | | | | | | |
Loans (b): | | Loans (b): | | | | | | |
Construction | Construction | 538 | | (585) | | (47) | | | (267) | | 133 | | (134) | | | (628) | | (416) | | (1,044) | | Construction | (848) | | 1,065 | | 217 | | | (746) | | 763 | | 17 | | | (510) | | 23 | | (487) | |
Commercial real estate, other | Commercial real estate, other | (514) | | 495 | | (19) | | | (3,628) | | 1,175 | | (2,453) | | | (6,687) | | 1,246 | | (5,441) | | Commercial real estate, other | (883) | | 1,561 | | 678 | | | (3,242) | | 3,895 | | 653 | | | (4,252) | | 3,406 | | (846) | |
Commercial and industrial | Commercial and industrial | (1,907) | | 3,081 | | 1,174 | | | (15,258) | | 17,164 | | 1,906 | | | (11,269) | | 13,679 | | 2,410 | | Commercial and industrial | 3,146 | | (3,454) | | (308) | | | 10,684 | | (9,896) | | 788 | | | 5,242 | | (880) | | 4,362 | |
Premium finance | | Premium finance | 52 | | 192 | | 244 | | | (2,749) | | 2,420 | | (329) | | | (1,379) | | 3,645 | | 2,266 | |
Leases | | Leases | 28 | | 567 | | 595 | | | — | | 4,810 | | 4,810 | | | — | | 9,025 | | 9,025 | |
Residential real estate | Residential real estate | (142) | | (245) | | (387) | | | (715) | | 682 | | (33) | | | 411 | | 1,339 | | 1,750 | | Residential real estate | (1,179) | | 1,398 | | 219 | | | (1,110) | | (112) | | (1,222) | | | (3,182) | | (1,567) | | (4,749) | |
Home equity lines of credit | Home equity lines of credit | (179) | | (36) | | (215) | | | (605) | | (94) | | (699) | | | (1,156) | | (141) | | (1,297) | | Home equity lines of credit | 3 | | 88 | | 91 | | | (84) | | 77 | | (7) | | | (709) | | (199) | | (908) | |
Consumer, indirect | Consumer, indirect | (606) | | 1,155 | | 549 | | | 84 | | 567 | | 651 | | | 533 | | 738 | | 1,271 | | Consumer, indirect | 20 | | 176 | | 196 | | | (1,347) | | 1,753 | | 406 | | | (1,121) | | 3,080 | | 1,959 | |
Consumer, direct | Consumer, direct | (202) | | 242 | | 40 | | | (172) | | 9 | | (163) | | | (163) | | (2) | | (165) | | Consumer, direct | (33) | | 146 | | 113 | | | (176) | | 229 | | 53 | | | (320) | | 238 | | (82) | |
Total loan income | Total loan income | (3,012) | | 4,107 | | 1,095 | | | (20,561) | | 19,636 | | (925) | | | (18,959) | | 16,443 | | (2,516) | | Total loan income | 306 | | 1,739 | | 2,045 | | | 1,230 | | 3,939 | | 5,169 | | | (6,231) | | 16,771 | | 10,540 | |
Total interest income | Total interest income | $ | (4,100) | | $ | 3,800 | | $ | (300) | | | $ | (25,194) | | $ | 20,546 | | $ | (4,648) | | | $ | (25,727) | | $ | 17,124 | | $ | (8,603) | | Total interest income | $ | 556 | | $ | 2,141 | | $ | 2,697 | | | $ | 1,050 | | $ | 5,494 | | $ | 6,544 | | | $ | (9,973) | | $ | 18,185 | | $ | 8,212 | |
INTEREST EXPENSE: | INTEREST EXPENSE: | | | | | | | INTEREST EXPENSE: | | | | | | |
Deposits: | Deposits: | | | | | | | Deposits: | | | | | | |
Savings accounts | Savings accounts | $ | (4) | | $ | 5 | | $ | 1 | | | $ | (186) | | $ | 94 | | $ | (92) | | | $ | (235) | | $ | 49 | | $ | (186) | | Savings accounts | $ | — | | $ | 2 | | $ | 2 | | | $ | (51) | | $ | 40 | | $ | (11) | | | $ | (104) | | $ | 43 | | $ | (61) | |
Governmental deposit accounts | Governmental deposit accounts | 30 | | 36 | | 66 | | | (1,290) | | 810 | | (480) | | | (1,145) | | 420 | | (725) | | Governmental deposit accounts | (365) | | 272 | | (93) | | | (742) | | 689 | | (53) | | | (720) | | 651 | | (69) | |
Interest-bearing demand accounts | Interest-bearing demand accounts | (15) | | 10 | | (5) | | | (521) | | 209 | | (312) | | | (591) | | 119 | | (472) | | Interest-bearing demand accounts | 2 | | 6 | | 8 | | | (21) | | 29 | | 8 | | | (257) | | 77 | | (180) | |
Money market accounts | Money market accounts | (201) | | 56 | | (145) | | | (1,929) | | 1,357 | | (572) | | | (1,492) | | 768 | | (724) | | Money market accounts | (22) | | (5) | | (27) | | | (131) | | (17) | | (148) | | | (1,002) | | 48 | | (954) | |
Retail certificates of deposit | Retail certificates of deposit | (296) | | (50) | | (346) | | | (609) | | (122) | | (731) | | | (694) | | 397 | | (297) | | Retail certificates of deposit | (372) | | 343 | | (29) | | | (540) | | (33) | | (573) | | | (1,987) | | (412) | | (2,399) | |
Brokered deposits | Brokered deposits | (968) | | 782 | | (186) | | | (1,290) | | (13) | | (1,303) | | | (2,655) | | (1,081) | | (3,736) | | Brokered deposits | 71 | | (110) | | (39) | | | 1,351 | | (844) | | 507 | | | 1,548 | | (674) | | 874 | |
Total deposit cost | Total deposit cost | (1,454) | | 839 | | (615) | | | (5,825) | | 2,335 | | (3,490) | | | (6,812) | | 672 | | (6,140) | | Total deposit cost | (686) | | 508 | | (178) | | | (134) | | (136) | | (270) | | | (2,522) | | (267) | | (2,789) | |
Borrowed funds: | Borrowed funds: | | | | | | | Borrowed funds: | | | | | | |
Short-term borrowings | Short-term borrowings | 184 | | (16) | | 168 | | | (113) | | (295) | | (408) | | | (1,016) | | (185) | | (1,201) | | Short-term borrowings | 22 | | (23) | | (1) | | | (102) | | (549) | | (651) | | | (221) | | (1,851) | | (2,072) | |
Long-term borrowings | Long-term borrowings | 122 | | (227) | | (105) | | | (554) | | 491 | | (63) | | | (432) | | 250 | | (182) | | Long-term borrowings | (30) | | (39) | | (69) | | | (55) | | (29) | | (84) | | | (109) | | (186) | | (295) | |
Total borrowed funds cost | Total borrowed funds cost | 306 | | (243) | | 63 | | | (667) | | 196 | | (471) | | | (1,448) | | 65 | | (1,383) | | Total borrowed funds cost | (8) | | (62) | | (70) | | | (157) | | (578) | | (735) | | | (330) | | (2,037) | | (2,367) | |
Total interest expense | Total interest expense | (1,148) | | 596 | | (552) | | | (6,492) | | 2,531 | | (3,961) | | | (8,260) | | 737 | | (7,523) | | Total interest expense | (694) | | 446 | | (248) | | | (291) | | (714) | | (1,005) | | | (2,852) | | (2,304) | | (5,156) | |
Fully tax-equivalent net interest income | Fully tax-equivalent net interest income | $ | (2,952) | | $ | 3,204 | | $ | 252 | | | $ | (18,702) | | $ | 18,015 | | $ | (687) | | | $ | (17,467) | | $ | 16,387 | | $ | (1,080) | | Fully tax-equivalent net interest income | $ | 1,250 | | $ | 1,695 | | $ | 2,945 | | | $ | 1,341 | | $ | 6,208 | | $ | 7,549 | | | $ | (7,121) | | $ | 20,489 | | $ | 13,368 | |
(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 changeschange in each.
(b)On January 1, 2020, Peoples adopted ASU 2016-13 and adopted the CECL model, which resulted in the establishment of a $7,000 allowance for credit losses for held-to-maturity investment securities; an increase in loan balances of $2.6 million to establish the allowance for credit losses for purchased credit deteriorated loans; an increase to the allowance for credit losses (which was the "allowance for loan losses" prior to January 1, 2020) of $5.8 million; the addition of a $1.5 million unfunded commitment liability included in accrued expense and other liabilities; and a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
(c)Interest income and yields are presented on a fully tax-equivalent basis using a 21%blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate.
Net interest income increased 1%grew 7% compared to the linked quarter, asbenefiting from the Premier acquisition, growth in leases and Premium Finance balances, and the overall growth in interest-earning assets, coupled with lower deposit costs. Net interest income and net interest margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves. Peoples recognized interest income on deferred loan fees/costs of $3.1 million and $3.4 million during the third and second quarters of 2021, respectively, along with $0.4 million and $0.7 million of interest earned on PPP loans during the third and second quarters of 2021, respectively. Net interest margin grew five basis points to 3.50% for the third quarter of 2021 compared to 3.45% for the linked quarter. The increase in net interest margin was driven by the PPP loan income, and premium finance loan income, coupled withwhich benefited net interest margin by 18 basis points for the third quarter of 2021 compared to 15 basis points for the second quarter of 2021, while excess liquidity resulted in inflated cash balances which reduced deposit and borrowing costs, more than offset reductions in loan and securities yields. Thenet interest margin by 13 basis points compared to 12 basis points for the linked quarter.
Compared to the third quarter of 2020, continued to be impacted by the actions taken by the Federal Reserve earlier in the year in responsenet interest income increased 21%, which was due to the COVID-19 pandemic.acquired leases, premium finance loans and additional PPP income from the deferred loan fees recognized, as well as controlled funding costs. Net interest margin expanded 36 basis points compared to 3.14% for the third quarter of 2020. The lease portfolio added $4.8 million to net interest income, and 28 basis points to net interest margin, for the third quarter of 2021. In late March of 2020, the Federal Reserve lowered the Federal Funds effective target range 150 basis points during the first quarter of 2020 to 0.00% to 0.25%. The majority of Peoples' variable rate loan portfolio is tied to LIBOR or a prime rate, which continued to be lower than historical levels. The low interest rate environment also drove higher premium amortization on Peoples' investment securities portfolio, which was $636,000 higher than in
For the linked quarter, thereby reducingfirst nine months of 2021, net interest income and net interest margin. Net interest margin decreased 5 basis points compared to the linked quarter driven by reduced accretion during the quarter.
Net interest income for the third quarter of 2020 decreased $635,000, or 2%grew 13%, compared to the third quarter of 2019. Net interest margin decreased 52 basis points compared to 3.66% for the third quarter of 2019. The decrease in net interest income compared to the third quarter of 2019and was driven by lower yields on loans and investments, offset by PPP loan incomethe addition of the lease and premium finance loanportfolios, along with PPP income, coupled with lower interest expense paid on deposits, all of which were impacted by the Federal Reserve's reactionfunding costs. Compared to COVID-19.
For the first nine months of 2020, net interest margin grew by 14 basis points and was driven by the 20 basis point addition of the leasing portfolio, while the PPP income declined $1.1 million, or 1%,contributed 20 basis points during 2021 compared to the first nine months of 2019 and net interest margin decreased 476 basis points to 3.27%. The lower net interest income and net interest margin compared to 2019 were the result of lower interest rates, increased premium amortization on Peoples' investment securities portfolio and loans repricing faster than deposits, caused by the Federal Reserve's reaction to COVID-19. Funding costs declined compared to the first nine months of 2019, as interest rates on deposits were lowered and borrowing costs were controlled.for 2020.
Accretion income, net of amortization expense, from acquisitions was $547,000$1.0 million for the third quarter of 2021, $0.8 million for the linked quarter and $0.5 million for the third quarter of 2020, $955,000 for the linked quarter and $1.2 million for the third quarter of 2019, which added 58 basis points, 97 basis points and 125 basis points, respectively, to net interest margin. AccretionFor the first nine months of 2021, accretion income, net of amortization expense, from acquisitions wastotaled $2.2 million, and added 6 basis points to net interest margin, compared to $2.6 million, for the nine months ended September 30, 2020, compared to $3.1 million for the nine months ended September 30, 2019, which addedand 8 basis points and 11 basis points, respectively, to net interest margin. Accelerated amortization was the result of increased prepayments and refinance activity caused by the low interest rate environment.for 2020.
Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this discussion.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 discussionMD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."
Provision for Credit Losses
The following table details Peoples’ provision for credit losses:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Provision for other credit losses | Provision for other credit losses | $ | 4,574 | | $ | 11,773 | | $ | 731 | | | $ | 33,171 | | $ | 846 | | Provision for other credit losses | $ | 8,870 | | $ | 3,035 | | $ | 4,574 | | | $ | 7,125 | | $ | 33,171 | |
Provision for checking account overdraft credit losses | Provision for checking account overdraft credit losses | 154 | | 61 | | 274 | | | 360 | | 522 | | Provision for checking account overdraft credit losses | 124 | | 53 | | 154 | | | 208 | | 360 | |
Provision for credit losses | Provision for credit losses | $ | 4,728 | | $ | 11,834 | | $ | 1,005 | | | $ | 33,531 | | $ | 1,368 | | Provision for credit losses | $ | 8,994 | | $ | 3,088 | | $ | 4,728 | | | $ | 7,333 | | $ | 33,531 | |
As a percentage of average total loans (a) | As a percentage of average total loans (a) | 0.55 | % | 1.46 | % | 0.14 | % | | 1.40 | % | 0.07 | % | As a percentage of average total loans (a) | 1.01 | % | 0.36 | % | 0.55 | % | | 0.28 | % | 1.40 | % |
(a) Presented on an annualized basis. | (a) Presented on an annualized basis. | | (a) Presented on an annualized basis. | |
The provision for credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. During the third quarter of 2020, the2021, Peoples recorded a provision for credit losses was driven by the economic forecasts utilized within Peoples' CECL model, which predicted lower levels of defaults due$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 COVID-19 pandemicacquisition of Premier. Peoples also recorded a $22.3 million increase in the current quarter, compared to the prior quarter. Peoples recorded a lower provisionallowance for credit losses during the third quarter of 2020, compared2021 related to the linked quarter, driven primarily bypurchase credit deteriorated loans acquired from Premier. Excluding the improvement in the one-year economic forecast used for the third quarter, which was less severe than the deterioration in the one-year economic forecast used for the second quarter. For the first nine months of 2020, Peoples recorded a significant aggregate provisionday-one allowance for credit losses related to loans acquired from Premier, the impacts from the economic assumptions used in estimating therelease of allowance for credit losses underwas based on changes in economic factors and loss drivers used in the CECL model. The COVID-19 pandemic causedCompared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic outlook and assumptions used in the CECL model and Peoples' own credit portfolio developments related to be unfavorable and, as a result, causedCOVID-19, coupled with the need for a higherday-one allowance for credit losses forrequired in connection with the year. Net charge-offs foracquisitions of Premier in the third quarter of 2020 were $735,000, or 0.08% of average total loans annualized, compared to net recoveries of $369,000, or (0.05)% of average total loans annualized, for2021 and NSL in the linked quarter and net charge-offs of $777,000, or 0.11% of average total loans annualized, for the thirdsecond quarter of 2019.2021.
During the first quarter of 2020, Peoples adopted ASU 2016-13, and utilized the CECL model to determine its allowance for credit losses, while prior periods used the incurred loss model. The CECL model utilized by Peoples relies on economic forecasts, as
wellCompared to the first nine months of 2020, the provision for credit losses declined significantly, as other key assumptions including prepayments, probability of default and loss given default. Under the incurred loss model (the accounting methodology prior to 2020), the process for estimating allowance for loan losses considered various factors that affect losses, such as changes in Peoples’ loan quality and historical loss experience. Given the relatively low recent loss history, the incurred loss model was highly dependent on qualitative factors to arrive at an appropriate allowance for loan losses in periods prior to 2020. These qualitative factors included current economic conditions, and other environmental factors such as changes in real estate market conditions, unemployment, and the economic impactforecasts utilized within the CECL model experienced notable recovery compared to those utilized during 2020, which had been impacted by the onset of tariffs.the COVID-19 pandemic.
Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this discussionMD&A under the caption “FINANCIAL CONDITION - Allowance for Credit Losses.”
Net Gains (Losses)(Loss) Gain Included in Total Non-Interest Income
Net gains (losses)(loss) gain include gains and losses on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net gains (losses):losses for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Net gain on investment securities | $ | 2 | | $ | 62 | | $ | 97 | | | $ | 383 | | $ | 70 | | |
Net (loss) gain on investment securities | | Net (loss) gain on investment securities | $ | (166) | | $ | (202) | | $ | 2 | | | $ | (704) | | $ | 383 | |
| Net (loss) gain on asset disposals and other transactions: | Net (loss) gain on asset disposals and other transactions: | | Net (loss) gain on asset disposals and other transactions: | |
Net loss on other assets | Net loss on other assets | $ | (43) | | $ | (145) | | $ | (73) | | | $ | (258) | | $ | (504) | | Net loss on other assets | $ | (270) | | $ | (132) | | $ | (43) | | | $ | (429) | | $ | (258) | |
Net gain (loss) on OREO | 15 | | 1 | | (5) | | | (1) | | (54) | | |
Net (loss) gain on OREO | | Net (loss) gain on OREO | (32) | | 8 | | 15 | | | (24) | | (1) | |
| Net gain on other transactions | — | | 22 | | — | | | 22 | | 5 | | |
Net (loss) gain on other transactions | | Net (loss) gain on other transactions | (6) | | — | | — | | | (6) | | 22 | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | $ | (28) | | $ | (122) | | $ | (78) | | | $ | (237) | | $ | (553) | | Net loss on asset disposals and other transactions | $ | (308) | | $ | (124) | | $ | (28) | | | $ | (459) | | $ | (237) | |
Net losses for the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sale of investment securities during the third quarter of 2021. During the third quarter of 2020,2021, Peoples recognizedsold a portion of its available-for-sale investment securities and reinvested the proceeds into higher-yielding investments.
For the first nine months of 2021, a net loss on investment securities was recorded due to the sale of investment securities in order to reinvest proceeds into higher-yielding investment securities. During the second quarter of 2021, net loss on other assets was due to a market value write-down of $208,000 related to a closed office that was held for sale. The first nine months of 2021 included a net loss on other assets related to the salewrite-down of a former bank branch. Duringclosed office in the second quarter of 2020, Peoples recognized net losses on repossessed assets. During the third quarter of 2019, net losses were incurred on2021 and the disposal of fixed assets.
assets acquired from Premier. The first nine months of 2020 included a net gain on investment securities that was recorded in connection with sales of investment securities. For the first nine months of 2020, net gains on investment securities were recorded related to the sale of investment securities that primarily occurred in the first quarter, while the net loss on other assets was driven by losses on repossessed assets. For the first nine months of 2019, the net loss on other assets was mostly due to the write-off of fixed assets acquired from First Prestonsburg, coupled with market value write-downs related to closed offices that were held for sale.
Total Non-Interest Income, Excluding Net Gains and Losses
Total non-interest income, excluding net gains and losses, accounted for 28% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the three months ended September 30, 2021 compared to 29% for the linked quarter and 32% for the third quarter of 2020. The recent decline in this ratio was driven by an increase in net interest income due to the acquisition of leases acquired from NSL.
For the third quarter of 2021, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients. The following table details Peoples' e-banking income:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
| E-banking income | E-banking income | $ | 3,765 | | $ | 3,523 | | $ | 3,577 | | | $ | 10,568 | | $ | 9,831 | | E-banking income | $ | 4,326 | | $ | 4,418 | | $ | 3,765 | | | $ | 12,655 | | $ | 10,568 | |
Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. The increasedecreases in e-banking income compared to each of the linked quarter wasand the prior year quarter were driven by the increased usage of debit cards due toby customers, resulting from the lifting of many restrictions and the stay-at-home orders put in place in Peoples' markets at the end of the first quarter of 2020, in response to COVID-19. InCOVID-19 pandemic. The increased usage has continued through the first nine months of 2021, resulting in higher e-banking grew 7%income compared to the previous year due partially to the full nine-month impact of the First Prestonsburg acquired accounts and the increased usage of debit cards by more customers.
The following table details Peoples' insurance income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, |
(Dollars in thousands) | | 2020 | 2019 |
| | | | | | |
| | | | | | |
Property and casualty insurance commissions | 2,528 | | 2,506 | | 2,606 | | | 7,624 | | 7,960 | |
| | | | | | |
| | | | | | |
Life and health insurance commissions | 965 | | 427 | | 567 | | | 1,494 | | 1,552 | |
Performance-based commissions | 8 | | 138 | | 74 | | | 1,437 | | 1,495 | |
Other fees and charges | 107 | | 120 | | 139 | | | 374 | | 486 | |
Insurance income | $ | 3,608 | | $ | 3,191 | | $ | 3,386 | | | $ | 10,929 | | $ | 11,493 | |
The 13% increasesame period in insurance income for the third quarter of 2020, compared to the linked quarter, was largely related to a one-time $591,000 revenue recognition adjustment recorded for life and health insurance commissions in the third quarter of 2020.
Peoples' fiduciary income and brokerage revenuesincome 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 tables detail Peoples’ trust and investment income and related assets under administration and management:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Fiduciary income | Fiduciary income | $ | 1,710 | | $ | 1,780 | | $ | 1,621 | | | $ | 5,112 | | $ | 5,094 | | Fiduciary income | $ | 1,944 | | $ | 2,095 | | $ | 1,710 | | | $ | 5,941 | | $ | 5,112 | |
Brokerage income | Brokerage income | 1,165 | | 999 | | 1,048 | | | 3,324 | | 3,051 | | Brokerage income | 1,577 | | 1,494 | | 1,165 | | | 4,408 | | 3,324 | |
Employee benefits fees | 560 | | 537 | | 536 | | | 1,577 | | 1,573 | | |
Employee benefit fees | | Employee benefit fees | 637 | | 631 | | 560 | | | 1,874 | | 1,577 | |
Trust and investment income | Trust and investment income | $ | 3,435 | | $ | 3,316 | | $ | 3,205 | | | $ | 10,013 | | $ | 9,718 | | Trust and investment income | $ | 4,158 | | $ | 4,220 | | $ | 3,435 | | | $ | 12,223 | | $ | 10,013 | |
Fiduciary income isand brokerage income are mostly driven by managed asset balances near the endvalues of assets under administration and management, which have increased in recent periods as the quartermarket values of 2020 alongexisting accounts have been positively impacted and grown, coupled with annual tax preparationnew accounts added compared to prior periods. Employee benefit fees generally recorded in the second quarter of the year, when the work is completed. Brokerage income is also driven by managed asset balances. However, it is generally calculated based on balances at the beginning of each quarter, which caused thecontinue to increase compared to prior periods as Peoples focuses on growing the second quarternumber of 2020.employee benefit plans it manages.
The following table details Peoples' assets under administration and management:
| | | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
| Trust | Trust | $ | 1,609,270 | | $ | 1,552,785 | | $ | 1,385,161 | | $ | 1,572,933 | | $ | 1,504,036 | | Trust | $ | 1,937,123 | | $ | 1,963,884 | | $ | 1,916,892 | | $ | 1,885,324 | | $ | 1,609,270 | |
Brokerage | Brokerage | 921,688 | | 885,138 | | 816,260 | | 944,002 | | 904,191 | | Brokerage | 1,133,668 | | 1,119,247 | | 1,071,126 | | 1,009,521 | | 921,688 | |
Total | Total | $ | 2,530,958 | | $ | 2,437,923 | | $ | 2,201,421 | | $ | 2,516,935 | | $ | 2,408,227 | | Total | $ | 3,070,791 | | $ | 3,083,131 | | $ | 2,988,018 | | $ | 2,894,845 | | $ | 2,530,958 | |
Quarterly average | Quarterly average | $ | 2,510,978 | | $ | 2,351,701 | | $ | 2,425,849 | | $ | 2,458,770 | | $ | 2,397,515 | | Quarterly average | $ | 3,105,476 | | $ | 3,051,027 | | $ | 2,927,458 | | $ | 2,663.485 | | $ | 2,510,978 | |
The increaseslight decline in assets under administration and management from $2.4 billion at June 30, 2020 to $2.5 billion at September 30, 2020,2021, compared to each prior period end, was duelargely driven by the decrease in market values late in the third quarter of 2021, while the quarterly average increased compared to prior quarters.
The following table details Peoples' insurance income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
| | | | | | |
| | | | | | |
Property and casualty insurance commissions | $ | 2,836 | | $ | 2,765 | | $ | 2,528 | | | $ | 8,356 | | $ | 7,624 | |
| | | | | | |
| | | | | | |
Life and health insurance commissions | 396 | | 430 | | 965 | | | 1,248 | | 1,494 | |
Performance-based commissions | 59 | | 35 | | 8 | | | 2,044 | | 1,437 | |
Other fees and charges | 76 | | 105 | | 107 | | | 275 | | 374 | |
Insurance income | $ | 3,367 | | $ | 3,335 | | $ | 3,608 | | | $ | 11,923 | | $ | 10,929 | |
For the third quarter of 2021, insurance income was relatively flat compared to the improvementslinked quarter. Compared to the third quarter of 2020, insurance income declined 7%, driven by decreases in life and health insurance commissions, offset partially by an increase in property and casualty insurance commissions. For the stock market.first nine months of 2021, insurance income increased $1.0 million, or 9%. This increase was driven by higher property and casualty, and performance-based commissions. Annually Peoples receives performance-based income commissions that are related to how much loss is incurred by underlying policies and the overall performance of the insurance carriers. The insurance income compared to prior periods was positively impacted by the addition of new customers.
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 | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Overdraft and non-sufficient funds fees | Overdraft and non-sufficient funds fees | $ | 1,216 | | $ | 876 | | $ | 1,970 | | | $ | 3,741 | | $ | 5,149 | | Overdraft and non-sufficient funds fees | $ | 1,420 | | $ | 1,012 | | $ | 1,216 | | | $ | 3,429 | | $ | 3,741 | |
Account maintenance fees | Account maintenance fees | 848 | | 849 | | 1,049 | | | 2,677 | | 2,813 | | Account maintenance fees | 934 | | 854 | | 848 | | | 2,598 | | 2,677 | |
Other fees and charges | Other fees and charges | 202 | | 184 | | 214 | | | 577 | | 589 | | Other fees and charges | 195 | | 178 | | 202 | | | 551 | | 577 | |
Deposit account service charges | Deposit account service charges | $ | 2,266 | | $ | 1,909 | | $ | 3,233 | | | $ | 6,995 | | $ | 8,551 | | Deposit account service charges | $ | 2,549 | | $ | 2,044 | | $ | 2,266 | | | $ | 6,578 | | $ | 6,995 | |
The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Income from depositDeposit account service charges increasedfor the third quarter of 2021 grew compared to the linked quarter and declined from the third quarter of 20192020 due largely to an increase in volume of overdraft and non-sufficient fees charged due to customer activity. Deposit account service charges were negatively impacted during the second quarter of 2021 and the third quarter of 2020, mostly due to fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic. For the first nine months of 2019. The increase in the current quarter,2021, compared to the prior quarter, was the resultsame period of higher overdraft and non-sufficient funds. For the three
and nine months ended September 30, 2020, compared to the prior year periods, the decreases in deposit account service fees, which was directly correlated to the developments related to COVID-19, specifically the PPP loan proceeds, fiscal stimulus providedcharges declined and were impacted by the government and changed customer habits.COVID-19 pandemic items already mentioned.
The following table details the other items included within Peoples' total non-interest income:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
| Mortgage banking income | Mortgage banking income | 2,658 | | 938 | | 1,204 | | | 4,346 | | 2,992 | | Mortgage banking income | 766 | | 820 | | 2,658 | | | 2,726 | | 4,346 | |
Bank owned life insurance income | Bank owned life insurance income | 462 | | 470 | | 487 | | | 1,514 | | 1,462 | | Bank owned life insurance income | 437 | | 446 | | 462 | | | 1,329 | | 1,514 | |
Commercial loan swap fees | Commercial loan swap fees | 68 | | 955 | | 772 | | | 1,267 | | 1,434 | | Commercial loan swap fees | 73 | | 61 | | 68 | | | 194 | | 1,267 | |
Other non-interest income | Other non-interest income | 534 | | 422 | | 510 | | | 1,393 | | 2,113 | | Other non-interest income | 1,144 | | 803 | | 534 | | | 2,605 | | 1,393 | |
Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. The increases in mortgageMortgage banking income fromdeclined during the third quarter of 2021, compared to the linked quarter thirdand the prior year quarter as refinancing activity slowed and a lower volume of 2019 andnew loan originations due to the lack of inventory of homes for sale. Compared to the first nine months of 2019 were mainly due to higher refinancings2020, mortgage banking income declined 37%, because of lower origination volume caused by a lower inventory of homes for sale and less refinancing activity because of an increase in interest rates above historically low levels experienced as a result of the interest rate environment.COVID-19 pandemic.
In the third quarter of 2020,2021, Peoples sold $35.2recognized a gain of $0.4 million on the sale of $11.0 million in loans to the secondary market with servicing retained and sold $68.2$0.2 million on the sale of $10.3 million in loans with servicing released, compared to $21.4released. In the second quarter of 2021, Peoples recognized a gain of $0.6 million on the sale of $15.8 million in loans with servicing retained and $42.0$185,000 on the sale of $7.8 million respectively, in the linked quarter, and $31.7 million and $15.6 million, respectively, inloans with servicing released. In the third quarter of 2019.2020 Peoples recognized a gain of $1.6 million on the sale of $35.2 million in loans sold servicing retained and a gain of $1.0 million on $68.2 million in loans sold servicing released. For the first nine months of 2021, Peoples recognized a gain of $1.8 million on the sale of $44.0 million in loans to the secondary market with servicing retained and a gain of $0.6 million on the sale of $27.7 million in loans with servicing released. For the first nine months of 2020, Peoples recognized a gain of $2.5 million on the sale of $78.6 million in loans sold servicing retained and a gain of $1.8 million on the sale of $124.2 million in loans sold servicing released. The volume of sales has a direct impact on the amount of mortgage banking income.
Bank owned life insurance income was down compared to the linked quarter and the third quarter of 2020. For the first nine months of 2021, bank owned life insurance declined 12%, primarily due to a $109,000 tax-free death benefit recognized during the first quarter of 2020.
Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. Commercial loan swap fees in the third quarter of 2020 decreased $887,000were up slightly compared to the linked quarter and $704,000 compared to the third quarter of 2019, in each case driven by decreased customer demand. For2020. Compared to the first nine months of 2020, commercial loan swap income was downfees declined due to a lower volume of transactions during 2021 compared to the same period in 2019, due tohigh volume of transactions entered into during the larger sizefirst nine months of the transactions in 2019.2020.
Bank owned life insuranceOther non-interest income was relatively flatincreased compared to the priorlinked quarter and the third quarter of 2019.2020 and was driven by other fee income of $0.5 million recognized on leases related to the early termination of leases and other fees in the third quarter of 2021
compared to $0.2 million recognized in the second quarter of 2021. There was no income related to the early termination of leases in the third quarter of 2020, as NSL was not acquired until the second quarter of 2021. For the nine months ended September 30, 2020, bank owned life insurance2021, other non-interest income was uphigher due to a $109,000 tax-free death benefit recognized in the first quarterrecognition of 2020, which was not duplicated during$0.6 million related to fees received for the nine months ended September 30, 2019.
early termination of leases and lease syndications.
Non-Interest Expense
Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Base salaries and wages | Base salaries and wages | $ | 13,019 | | $ | 12,774 | | $ | 12,592 | | | $ | 38,489 | | $ | 38,819 | | Base salaries and wages | $ | 17,493 | | $ | 13,488 | | $ | 13,019 | | | $ | 43,746 | | $ | 38,489 | |
Sales-based and incentive compensation | Sales-based and incentive compensation | 3,493 | | 3,165 | | 2,986 | | | 9,320 | | 8,691 | | Sales-based and incentive compensation | 4,013 | | 4,593 | | 3,493 | | | 12,034 | | 9,320 | |
Employee benefits | Employee benefits | 1,930 | | 1,997 | | 1,869 | | | 6,471 | | 6,525 | | Employee benefits | 2,619 | | 2,821 | | 1,930 | | | 8,338 | | 6,471 | |
Payroll taxes and other employment costs | Payroll taxes and other employment costs | 1,148 | | 1,074 | | 1,256 | | | 3,584 | | 3,841 | | Payroll taxes and other employment costs | 1,635 | | 1,343 | | 1,148 | | | 4,471 | | 3,584 | |
Stock-based compensation | Stock-based compensation | 632 | | 970 | | 950 | | | 2,985 | | 3,088 | | Stock-based compensation | 618 | | 604 | | 632 | | | 2,437 | | 2,985 | |
Deferred personnel costs | Deferred personnel costs | (812) | | (1,995) | | (722) | | | (3,536) | | (2,007) | | Deferred personnel costs | (789) | | (921) | | (812) | | | (2,750) | | (3,536) | |
Salaries and employee benefit costs | Salaries and employee benefit costs | $ | 19,410 | | $ | 17,985 | | $ | 18,931 | | | $ | 57,313 | | $ | 58,957 | | Salaries and employee benefit costs | $ | 25,589 | | $ | 21,928 | | $ | 19,410 | | | $ | 68,276 | | $ | 57,313 | |
Full-time equivalent employees: | Full-time equivalent employees: | | | | Full-time equivalent employees: | | | | |
Actual at end of period | Actual at end of period | 886 | | 894 | | 910 | | | 886 | | 910 | | Actual at end of period | 1,181 | | 925 | | 886 | | | 1,181 | | 886 | |
Average during the period | Average during the period | 890 | | 892 | | 913 | | | 893 | | 897 | | Average during the period | 990 | | 914 | | 890 | | | 942 | | 893 | |
Base salaries and wages increased 2%30% compared to the linked quarter and 3%increased 34% compared to the third quarter of 2019.2020. The increase for the third quarter of 20202021 compared to linked quarterprior periods was primarily due to the acquisition of Premier, which included $3.4 million in acquisition-related severance expenseexpense. For the first nine months of $192,000 recognized in the third quarter of 2020. The key driver of the increase for the third quarter of 20202021, base salaries and wages increased 14% compared to the third quarterfirst nine months of 2019 was2020 as a result of the annual merit increasesacquisition-related severance expense for Premier and the continued movement towardsadditional salaries associated with NSL and a $15 per hour minimum wage throughout Peoples' organization that was largely implemented asfull nine months of January 1, 2020.
The increasedecrease in sales-based and incentive compensation for the third quarter of 20202021 compared to the linked quarter was primarily due to lower incentive compensation related to insurance and mortgage banking. For the first nine months of 2021 compared to the same period in 2020, the increase was driven by the overall company performance relative to measures used in calculating incentive awards and higher sales-based compensation from insurance and trust and investments.
The increase in employee benefits for first nine months of 2021, compared to first nine months of 2020, was due to an increase to the employer 401(k) match made during 2021, as well as higher medical costs with the addition of the Premier and NSL employees. During the second quarter of 20202021, Peoples increased the matching contribution to participant's 401(k) accounts, retroactive to January 1, 2021. This true-up was completed in the second quarter of 2021 and drove the increase in employee benefits for the third quarter of 2021 compared to the third quarter of 2020.
The increase in payroll taxes and other employment costs, compared to linked quarter, was primarily due to higher sales-based compensationthe taxes associated with the acquisition-related severance expense recognized in the third quarter of 2021. The increase in payroll taxes and other employment costs for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily related to mortgage banking reflectinghigher base salaries and wages, coupled with the increased volumeadditional associates of real estate loans sold in the secondary market.Premier and NSL.
Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, adjusted for an estimate of the portion of awards that will be forfeited. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the third quarterfirst nine months of 2020 declined2021 decreased compared to the linked quarter,first nine months of 2020 due to aan additional $396,000 award of unrestricted grants of common sharesshare awards to associates at the level of Assistant Vice President andor below that occurred during the second quarter of 2020 but was not repeatedgranted in the thirdsecond quarter of 2020.
Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year, which increasedyear. The decrease in 2020deferred personnel costs compared to 2019. Materially impacting the comparisonlinked quarter was due to a reduction loan origination volume. The decrease in deferred personnel costs in the first
nine months of 2021 compared to first nine months of 2020 was driven by the recognition of $921,000 in deferred personnel costs during the second quarter of 2020 related to the origination of PPP loans. In addition, higher production in residential real estate and commercial loans during the third quarter of 2020 contributed to the change in deferred personnel costs compared to the linked quarter. Increased production in residential real estate and indirect consumer loans drove up deferred personnel costs compared to the first nine months of 2019, with the first nine months of 2020 also being impacted by the additional deferred costs related to the PPP loan originations.
Peoples' net occupancy and equipment expense was comprised of the following:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Depreciation | Depreciation | $ | 1,507 | | $ | 1,557 | | $ | 1,451 | | | $ | 4,519 | | $ | 4,194 | | Depreciation | $ | 1,365 | | $ | 1,398 | | $ | 1,507 | | | $ | 4,134 | | $ | 4,519 | |
Repairs and maintenance costs | Repairs and maintenance costs | 767 | | 701 | | 803 | | | 2,225 | | 2,288 | | Repairs and maintenance costs | 1,017 | | 903 | | 767 | | | 2,863 | | 2,225 | |
Net rent expense | Net rent expense | 340 | | 315 | | 182 | | | 960 | | 720 | | Net rent expense | 371 | | 382 | | 340 | | | 1,093 | | 960 | |
Property taxes, utilities and other costs | Property taxes, utilities and other costs | 769 | | 578 | | 662 | | | 1,984 | | 2,006 | | Property taxes, utilities and other costs | 798 | | 606 | | 769 | | | 2,077 | | 1,984 | |
Net occupancy and equipment expense | Net occupancy and equipment expense | $ | 3,383 | | $ | 3,151 | | $ | 3,098 | | | $ | 9,688 | | $ | 9,208 | | Net occupancy and equipment expense | $ | 3,551 | | $ | 3,289 | | $ | 3,383 | | | $ | 10,167 | | $ | 9,688 | |
ComparedDepreciation on capitalized assets has declined during the second and third quarters of 2021, compared to both the third quarter of 2019,2020, and the first nine months of 2020 as a result of certain capitalized assets and improvements reaching the end of their depreciable lives. In addition, Peoples recognized higher building maintenance costs during the first nine months of 2021, compared to 2020 due to various projects including painting, window replacements, drive-thru enhancements and parking lot sealing. Property taxes, utilities and other costs also increased during the nine months ended September 30, 2019, net2021, compared to the first nine months of 2020 as a result of an increase in other costs, primarily driven by low-cost furniture and fixtures not capitalized, offset by a reduction in utilities and property taxes.
Net occupancy and equipment expense was impacted by increased net rent expense5% compared to the first nine months of 2020 mainly due to increased expenses associated with maintaining the Premium Finance location for a full period, the acquisition from NSL in second quarter of 2021 and depreciation related to investmentsthe partial period impact of the merger with Premier in technological infrastructure and equipment (mainly ATMs), and branding for additional full-service bank branches from the First Prestonsburg acquisition.third quarter of 2021.
The following table details the other items included in total non-interest expense:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Professional fees | | Professional fees | $ | 6,426 | | $ | 3,565 | | $ | 1,720 | | | $ | 13,459 | | $ | 5,247 | |
Data processing and software expense | | Data processing and software expense | 2,529 | | 2,411 | | 1,838 | | | 7,394 | | 5,344 | |
E-banking expense | E-banking expense | $ | 2,095 | | 1,879 | | $ | 2,070 | | | $ | 5,839 | | $ | 5,340 | | E-banking expense | 2,037 | | 2,075 | | 2,095 | | | 6,006 | | 5,839 | |
Data processing and software expense | 1,838 | | 1,754 | | 1,572 | | | 5,344 | | 4,684 | | |
Professional fees | 1,720 | | 1,834 | | 1,544 | | | 5,247 | | 5,164 | | |
Amortization of other intangible assets | | Amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Marketing expense | | Marketing expense | 1,223 | | 676 | | 456 | | | 2,810 | | 1,561 | |
Franchise tax expense | Franchise tax expense | 882 | | 881 | | 797 | | | 2,645 | | 2,274 | | Franchise tax expense | 810 | | 822 | | 882 | | | 2,487 | | 2,645 | |
Amortization of other intangible assets | 857 | | 728 | | 953 | | | 2,314 | | 2,471 | | |
FDIC insurance premiums | FDIC insurance premiums | 570 | | 152 | | — | | | 717 | | 752 | | FDIC insurance premiums | 807 | | 326 | | 570 | | | 1,596 | | 717 | |
Marketing expense | 456 | | 632 | | 634 | | | 1,561 | | 1,718 | | |
Foreclosed real estate and other loan expenses | 342 | | 335 | | 600 | | | 1,255 | | 1,324 | | |
Other loan expenses | | Other loan expenses | 487 | | 494 | | 342 | | | 1,443 | | 1,255 | |
Communication expense | Communication expense | 283 | | 294 | | 268 | | | 857 | | 863 | | Communication expense | 411 | | 386 | | 283 | | | 1,079 | | 857 | |
Other non-interest expense | Other non-interest expense | 2,479 | | 2,180 | | 2,526 | | | 7,665 | | 10,974 | | Other non-interest expense | 12,711 | | 2,559 | | 2,479 | | | 17,762 | | 7,665 | |
E-banking expense was upProfessional fees increased $2.9 million from the linked quarter and $4.7 million from the third quarter of 2020 primarily due to investment banking fees and other acquisition-related expenses, which were related to the purchase of NSL and the merger with Premier. Professional fees included acquisition-related expenses of $2.4 million for the third quarter of 2021, $1.8 million for the second quarter of 2021, and $319,000 for the third quarter of 2020. For the first nine months of 2021, professional fees nearly doubled compared to the linked quarter, dueprior year, and included $6.2 million of acquisition-related expenses for 2021, compared to an increased usage by customers as a result of the COVID-19 pandemic, which in turn increased the volume of transactions involving debit cards and Peoples' internet and mobile banking service. The increase in expenses related to Peoples' internet and mobile banking services was driven by increases in customer accounts and customer usage of mobile and online banking tools, the acquisition of First Prestonsburg in April 2019, and the annual contractual increase in the cost of each unit of service in internet and mobile banking.$363,000 for 2020.
The increasechange in data processing and software expense compared to prior periods was driven by systems and software upgrades, annual contractual increases and overall growth, which included: the implementation of enhanced functionalities for Peoples' core
banking system, including making certain mobile banking tools available to customers; software upgrades; and additional network capacity and security features.features in the latter part of 2020 and first quarter of 2021.
Professional fees decreased $114,000 fromE-banking expense was down slightly compared to the linked quarter, and is directly correlated to e-banking income, with the decrease due to lower costs associated with ATM processing expenses.
Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the third quarter of 2021 was down $89,000 compared to the second quarter of 2020, primarily2021 due to lower legal expensesadjustments to the fair value of intangible assets acquired from NSL, and exam and audit fees. Comparedthe related changes to intangible amortization post-acquisition. Amortization of other intangible assets increased $422,000 compared to the third quarter of 2019, professional fees were up2020 as a result of the NSL acquisition effective after the close of business on March 31, 2021.
Marketing expense increased compared to the second quarter of 2021 due an increaseprimarily to additional advertising campaigns relating to the addition of Premier locations. Additionally, in examgiving back to the community, Peoples' contributions increased during the third quarter of 2021 and audit feesincluded a donation to each of Marietta College and other professional fees.the Ohio Valley Museum of Discovery.
Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. Expenses related
Peoples' FDIC insurance premiums increased compared to state franchise taxes,the linked quarter, due to a decline in the leverage ratio which includes Ohio FIT, increasedwas impacted by the NSL acquisition in the second quarter, and decreased compared to December 31, 2020. Compared to the first nine months of 2020, compared to the comparable period in 2019 due to higher equity as of December 31, 2019 compared to December 31, 2018, coupled with additional taxes in KentuckyFDIC insurance premiums grew as a result of credits used by Peoples during the First Prestonsburg acquisition in 2019.
Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the third quarterfirst two quarters of 2020 was up compared to the second quarter of 2020 as a result of the amortization expense associated with the premium finance acquisition. Compared to the third quarter of 2019, and first nine months of 2019, amortization of other intangible assets declined due to the reduced amortization from previous acquisitions.
Peoples used credits to partially offset its FDIC insurance premium during the second quarter of 2020. However, there were credits available to offset the entire third quarter of 2019 FDIC insurance premium. The FDIC insurance credits were related to the level of the Federal Deposit Insurance Fund ("DIF") that had continued to be above the target threshold for banks with total consolidated assets of less than $10 billion to recognize credits. Peoples utilized the remaining credits that had been issued to it in the second quarter of 2020. Additionally, one of the factors that is used to calculate the FDIC insurance premium is the bank's leverage ratio. The calculation of that ratio includes the PPP loans, unlike the other capital ratios. This difference in calculation also contributed
Other loan expenses decreased slightly compared to the increase in the FDIC insurance premium forlinked quarter due to lower expenses associated with business loans. Compared to the third quarter of 2020.
Marketing expense decreased2020, other loan expenses increased mostly due to higher expenses associated with real estate loans and home equity lines of credit. Other loan expenses for the nine months ended September 30, 2021 increased $188,000 compared to the secondnine months ended September 30, 2020 due to increased loan origination activity.
Compared to the linked quarter, third quarter of 2020, due to COVID-19-related expenses incurred during the second quarterand first nine months of 2020, which includedcommunications expense grew as a $250,000 donationresult of upgraded networking to food bankscertain branches (including new branches acquired from Premier coupled with the addition of the NSL and pantries in Peoples' geographic area. MarketingPremium Finance locations acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.
Other non-interest expense decreasedincreased $10.2 million compared to the third quarter of 2019 due to decreases in electronic2020, and print media, ad agency fees and other public relations expenses.
Foreclosed real estate and other loan expenses increased slightly compared to the prior quarter. Compared to the third quarter of 2019, foreclosed real estate and other loan expenses declinedwas mostly due to higher deferral of costs associated with increased origination volume of consumer indirect loans$9.6 million in acquisition-related expenses recognized during the third quarter of 2020.
Other non-interest expense increased $299,000 compared to the linked quarter, and was mostly due to higher acquisition-related expenses and increased pension settlement charges. Peoples recognized pension settlement charges during the third quarter of 2020 of $531,000, compared to $151,000 for the second quarter of 2020 and none during the third quarter of 2019. For the first nine months of 2020, other non-interest expense decreased $3.3 million, compared to the first nine months of 2019, and was mostly driven by a reduction of $6.8 million in acquisition-related expenses, and travel and entertainment expenses of $747,000. These decreases were partially offset by pension settlement charges of $1.1 million recognized during 2020, while no similar costs were incurred during 2019.
2021.
Income Tax Expense
Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and income tax expense of $2.6 million for the third quarter of 2020, compared to2020. The income tax benefit during the third quarter of 2021, and the income tax expense of $1.1 million forrecognized during the linked quarter and an expense of $3.3 million for the third quarter of 2019. The income tax expense during the third quarter of 2020 was driven byheavily related to the amount of pre-tax income of $12.8 million, whichrecognized during each period. Pretax income was impacted by acquisition-related expenses associated with the $4.7 million provision for credit losses recordedPremier acquisition during the quarter. The variance between eachthird quarter of the comparative periods was the result of pre-tax income in 2020 related to the variability in the provision for credit losses2021. Peoples recorded during the first nine months of 2020 and an additional income tax expense adjustment of $575,000$4.0 million for the nine months ended September 30, 2021, compared to $3.6 million for the nine months ended September 30, 2020. Pretax income for the nine months ended September 30, 2021 was largely impacted by acquisition-related expenses, contract negotiation expenses and $288,000 in the third and second quarters of 2020, respectively.other non-core expenses.
Additional information regarding income taxes can be found in "Note 12 Income Taxes" of the Notes to the Condensed Consolidated Financial Statements included in Peoples' 20192020 Form 10-K.
Pre-Provision Net Revenue (non-US(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-USNon-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings.
The following table provides a reconciliation of this non-USNon-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, 2020 | June 30, 2020 | September 30, 2019 | | September 30, |
(Dollars in thousands) | | 2020 | 2019 |
Pre-provision net revenue: | | | | | | |
Income before income taxes | $ | 12,846 | | $ | 5,885 | | 18,149 | | | $ | 17,810 | | $ | 47,731 | |
Add: provision for credit losses (a) | 4,728 | | 11,834 | | 1,005 | | | 33,531 | | 1,368 | |
| | | | | | |
Add: loss on OREO | — | | — | | 5 | | | 17 | | 54 | |
Add: loss on investment securities | — | | — | | — | | | — | | 57 | |
Add: loss on other assets | 43 | | 145 | | 73 | | | 258 | | 504 | |
| | | | | | |
Less: gain on OREO | 15 | | 1 | | — | | | 16 | | — | |
| | | | | | |
Less: gain on investment securities | 2 | | 62 | | 97 | | | 383 | | 127 | |
| | | | | | |
Less: gain on other transactions | — | | 22 | | — | | | 22 | | 5 | |
Pre-provision net revenue | $ | 17,600 | | $ | 17,779 | | $ | 19,135 | | | $ | 51,195 | | $ | 49,582 | |
| | | | | | |
| | | | | | |
Total average assets | $ | 4,906,614 | | $ | 4,828,016 | | $ | 4,311,389 | | | $ | 4,706,153 | | $ | 4,179,663 | |
Pre-provision net revenue to total average assets (annualized) | 1.43 | % | 1.48 | % | 1.76 | % | | 1.45 | % | 1.59 | % |
| | | | | | |
Weighted-average common shares outstanding - diluted | 19,637,689 | 19,858,880 | | 20,595,769 | | 19,998,353 | 20,178,634 | |
Pre-provision net revenue per common share - diluted | $ | 0.90 | | $0.89 | $0.92 | | $2.55 | $ | 2.44 | |
(a)On January 1, 2020, Peoples adopted ASU 2016-13 and implemented the CECL model. Prior to the adoption of CECL, the provision for credit losses was the "provision for loan losses." The provision for credit losses includes changes related to the allowance for credit losses on loans, which includes purchased credit deteriorated loans, held-to-maturity investment securities, and the unfunded commitment liability. | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Pre-provision net revenue: | | | | | | |
(Loss) income before income taxes | $ | (7,930) | | $ | 12,494 | | $ | 12,846 | | | $ | 23,807 | | $ | 17,810 | |
Add: provision for credit losses | 8,994 | | 3,088 | | 4,728 | | | 7,333 | | 33,531 | |
| | | | | | |
Add: loss on OREO | 32 | | — | | — | | | 32 | | 17 | |
Add: loss on investment securities | 316 | | 499 | | — | | | 1,490 | | 2 | |
Add: loss on other assets | 363 | | 238 | | 115 | | | 687 | | 258 | |
Add: loss on other transactions | 6 | | — | | — | | | 6 | | — | |
Less: gain on OREO | — | | 8 | | 15 | | | 8 | | 16 | |
| | | | | | |
Less: gain on investment securities | 150 | | 297 | | 2 | | | 786 | | 385 | |
| | | | | | |
Less: gain on other assets | 93 | | 106 | | 72 | | | 258 | | 22 | |
Pre-provision net revenue | $ | 1,538 | | $ | 15,908 | | $ | 17,600 | | | $ | 32,303 | | $ | 51,195 | |
| | | | | | |
| | | | | | |
Total average assets | $5,475,147 | $5,183,146 | $4,906,614 | | $5,192,183 | $ | 4,706,153 | |
Pre-provision net revenue to total average assets (annualized) | 0.11 | % | 1.23 | % | 1.43 | % | | 0.83 | % | 1.45 | % |
| | | | | | |
Weighted-average common shares outstanding - diluted | 20,789,271 | 19,461,934 | 19,637,689 | | 19,890,672 | 19,998,353 |
Pre-provision net revenue per common share - diluted | $ | 0.07 | | $ | 0.81 | | $ | 0.90 | | | $ | 1.61 | | $ | 2.55 | |
The decrease in PPNR during the third quarter of 2020 was mostly due to an increase in non-interest expense compared to the linked quarter and the third quarter of 2019. Compared to the first nine months of 2019, PPNR increased2020 was mostly due to higher non-core acquisition-related expenses incurredrecognized during the 2019 periods coupled with a decrease in net interest income due to the low interest rate environment.
2021.
Core Non-Interest Expense (non-US(Non-US GAAP)
Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream. This measure is non-USNon-US GAAP since it excludes the impact of all acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and COVID-19-related expense.
a Peoples Bank Foundation, Inc. contribution.
The following tables provide reconciliationstable provides a reconciliation of this non-USNon-US GAAP measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
| Core non-interest expense: | Core non-interest expense: | | Core non-interest expense: | |
Total non-interest expense | Total non-interest expense | $ | 34,315 | | $ | 31,805 | | $ | 32,993 | | | $ | 100,445 | | 103,729 | | Total non-interest expense | $ | 57,860 | | $ | 39,899 | | $ | 34,315 | | | $ | 135,746 | | 100,445 | |
| Less: acquisition-related expenses | Less: acquisition-related expenses | 335 | | 47 | | 199 | | | 412 | | 7,222 | | Less: acquisition-related expenses | 16,209 | | 2,400 | | 335 | | | 20,520 | | 412 | |
Less: pension settlement charges | Less: pension settlement charges | 531 | | 151 | | — | | | 1,050 | | — | | Less: pension settlement charges | 143 | | — | | 531 | | | 143 | | 1,050 | |
Less: severance expenses | Less: severance expenses | 192 | | 79 | | 88 | | | 284 | | 130 | | Less: severance expenses | — | | 14 | | 192 | | | 63 | | 284 | |
| Less: COVID-19-related expense | 148 | | 918 | | — | | | 1,206 | | — | | |
Less: COVID-19-related expenses | | Less: COVID-19-related expenses | 181 | | 210 | | 148 | | | 683 | | 1,206 | |
Less: Peoples Bank Foundation, Inc. contribution | | Less: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | 500 | | — | |
Less: contract negotiation expenses | | Less: contract negotiation expenses | 1,851 | | — | | — | | | 1,851 | | — | |
Core non-interest expense | Core non-interest expense | $ | 33,109 | | $ | 30,610 | | $ | 32,706 | | | $ | 97,493 | | $ | 96,377 | | Core non-interest expense | $ | 39,476 | | $ | 37,275 | | $ | 33,109 | | | $ | 111,986 | | $ | 97,493 | |
Efficiency Ratio (non-US(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-USNon-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.
The following table provides a reconciliation of this non-USNon-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 | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
| Efficiency ratio: | Efficiency ratio: | | Efficiency ratio: | |
Total non-interest expense | Total non-interest expense | $ | 34,315 | | $ | 31,805 | | $ | 32,993 | | | $ | 100,445 | | $ | 103,729 | | Total non-interest expense | $ | 57,860 | | $ | 39,899 | | $ | 34,315 | | | $ | 135,746 | | $ | 100,445 | |
Less: amortization of other intangible assets | Less: amortization of other intangible assets | 857 | | 728 | | 953 | | | 2,314 | | 2,471 | | Less: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Adjusted total non-interest expense | Adjusted total non-interest expense | $ | 33,458 | | $ | 31,077 | | $ | 32,040 | | | $ | 98,131 | | $ | 101,258 | | Adjusted total non-interest expense | $ | 56,581 | | $ | 38,531 | | $ | 33,458 | | | $ | 132,479 | | $ | 98,131 | |
| Total non-interest income | Total non-interest income | $ | 16,770 | | $ | 14,664 | | $ | 16,393 | | | $ | 47,171 | | $ | 47,111 | | Total non-interest income | $ | 16,346 | | $ | 15,821 | | $ | 16,770 | | | $ | 49,070 | | $ | 47,171 | |
Less: net gain on investment securities | Less: net gain on investment securities | 2 | | 62 | | 97 | | | 383 | | 70 | | Less: net gain on investment securities | — | | — | | 2 | | | — | | 383 | |
Less: net loss on asset disposals and other transactions | (28) | | (122) | | (78) | | | (237) | | (553) | | |
Add: net loss on investment securities | | Add: net loss on investment securities | (166) | | (202) | | — | | | (704) | | — | |
Add: net loss on asset disposals and other transactions | | Add: net loss on asset disposals and other transactions | (308) | | (124) | | (28) | | | (459) | | (237) | |
Total non-interest income excluding net gains and losses | Total non-interest income excluding net gains and losses | $ | 16,796 | | $ | 14,724 | | $ | 16,374 | | | $ | 47,025 | | $ | 47,594 | | Total non-interest income excluding net gains and losses | $ | 16,820 | | $ | 16,147 | | $ | 16,796 | | | $ | 50,233 | | $ | 47,025 | |
| Net interest income | Net interest income | $ | 35,119 | | $ | 34,860 | | $ | 35,754 | | | $ | 104,615 | | $ | 105,717 | | Net interest income | $ | 42,578 | | $ | 39,660 | | $ | 35,119 | | | $ | 117,816 | | $ | 104,615 | |
Add: fully tax-equivalent adjustment (a) | Add: fully tax-equivalent adjustment (a) | 262 | | 269 | | 314 | | | 803 | | 781 | | Add: fully tax-equivalent adjustment (a) | 351 | | 324 | | 262 | | | 970 | | 803 | |
Net interest income on a fully tax-equivalent basis | Net interest income on a fully tax-equivalent basis | $ | 35,381 | | $ | 35,129 | | $ | 36,068 | | | $ | 105,418 | | $ | 106,498 | | Net interest income on a fully tax-equivalent basis | $ | 42,929 | | $ | 39,984 | | $ | 35,381 | | | $ | 118,786 | | $ | 105,418 | |
| Adjusted revenue | Adjusted revenue | $ | 52,177 | | $ | 49,853 | | $ | 52,442 | | | $ | 152,443 | | $ | 154,092 | | Adjusted revenue | $ | 59,749 | | $ | 56,131 | | $ | 52,177 | | | $ | 169,019 | | $ | 152,443 | |
| Efficiency ratio | Efficiency ratio | 64.12 | % | 62.34 | % | 61.10 | % | | 64.37 | % | 65.71 | % | Efficiency ratio | 94.70 | % | 68.64 | % | 64.12 | % | | 78.38 | % | 64.37 | % |
| Efficiency ratio adjusted for non-core items: | Efficiency ratio adjusted for non-core items: | | Efficiency ratio adjusted for non-core items: | |
Core non-interest expense | Core non-interest expense | $ | 33,109 | | $ | 30,610 | | $ | 32,706 | | | $ | 97,493 | | $ | 96,377 | | Core non-interest expense | $ | 39,476 | | $ | 37,275 | | $ | 33,109 | | | $ | 111,986 | | $ | 97,493 | |
Less: amortization of other intangible assets | Less: amortization of other intangible assets | 857 | | 728 | | 953 | | | 2,314 | | 2,471 | | Less: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Adjusted core non-interest expense | Adjusted core non-interest expense | $ | 32,252 | | $ | 29,882 | | $ | 31,753 | | | $ | 95,179 | | $ | 93,906 | | Adjusted core non-interest expense | $ | 38,197 | | $ | 35,907 | | $ | 32,252 | | | $ | 108,719 | | $ | 95,179 | |
| Core non-interest income excluding net gains and losses | Core non-interest income excluding net gains and losses | $ | 16,796 | | $ | 14,724 | | $ | 16,374 | | | $ | 47,025 | | $ | 47,594 | | Core non-interest income excluding net gains and losses | $ | 16,820 | | $ | 16,147 | | $ | 16,796 | | | $ | 50,233 | | $ | 47,025 | |
Net interest income on a fully tax-equivalent basis | Net interest income on a fully tax-equivalent basis | 35,381 | | 35,129 | | 36,068 | | | 105,418 | | 106,498 | | Net interest income on a fully tax-equivalent basis | 42,929 | | 39,984 | | 35,381 | | | 118,786 | | 105,418 | |
Adjusted revenue | Adjusted revenue | $ | 52,177 | | $ | 49,853 | | $ | 52,442 | | | $ | 152,443 | | $ | 154,092 | | Adjusted revenue | $ | 59,749 | | $ | 56,131 | | $ | 52,177 | | | $ | 169,019 | | $ | 152,443 | |
| Efficiency ratio adjusted for non-core items | Efficiency ratio adjusted for non-core items | 61.81 | % | 59.94 | % | 60.55 | % | | 62.44 | % | 60.94 | % | Efficiency ratio adjusted for non-core items | 63.93 | % | 63.97 | % | 61.81 | % | | 64.32 | % | 62.44 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The efficiency ratio increasefor the third quarter of 2021 was 94.7%, compared to 68.6% for the linked quarter, and 64.1% for the third quarter of 2020. The change in the efficiency ratio compared to the linked quarter was driven by higher non-interest expense. Compared to the third quarter of 2019, the efficiency ratio increased mainlyprimarily due to the acquisition-related expenses that were recognized during the 2019 period.expenses. The efficiency ratio, adjusted for non-core items, was impacted by higher core non-interest expenses, primarily FDIC insurance premiums, in63.9% for the third quarter of 2020,2021, compared to 64.0% for the secondlinked quarter and 61.8% for the third quarter of 2020. The efficiency ratioImpacting the adjusted for non-core items was negatively impacted by lower revenueratios were higher salaries and employee benefits due to the Premier and NSL acquisitions along with higher core non-interestadvertising expenses primarily FDIC insurance premiums, compared toand increased repair and maintenance expenses.
For the first nine months of 2019.
2021, the efficiency ratio grew due to higher total non-interest expense associated with the acquisition-related expenses mentioned above, operating expenses associated with the NSL and Premium Finance acquired divisions, a reduction in deferred loan costs from the PPP loans, and increased sales and incentive-based compensation from higher production. Return on Average Assets Adjusted for Non-Core Items Ratio (non-US(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-USNon-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and COVID-19-related expenses.a Peoples Bank Foundation, Inc. contribution.
The following table provides a reconciliation of this non-USNon-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 | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
| Annualized net income adjusted for non-core items: | | |
Net income | $ | 10,210 | | $ | 4,749 | | $ | 14,868 | | | $ | 14,194 | | $ | 38,835 | | |
Annualized net (loss) income adjusted for non-core items: | | Annualized net (loss) income adjusted for non-core items: | |
Net (loss) income | | Net (loss) income | $ | (5,758) | | $ | 10,103 | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
| Add: net loss on investment securities | | Add: net loss on investment securities | 166 | | 202 | | — | | | 704 | | — | |
Less: tax effect of net loss on investment securities (a) | | Less: tax effect of net loss on investment securities (a) | 35 | | 42 | | — | | | 148 | | — | |
Less: net gain on investment securities | Less: net gain on investment securities | 2 | | 62 | | 97 | | | 383 | | 70 | | Less: net gain on investment securities | — | | — | | 2 | | | — | | 383 | |
Add: tax effect of net gain on investment securities (a) | Add: tax effect of net gain on investment securities (a) | — | | 13 | | 20 | | | 80 | | 15 | | Add: tax effect of net gain on investment securities (a) | — | | — | | — | | | — | | 80 | |
Add: net loss on asset disposals and other transactions | Add: net loss on asset disposals and other transactions | 28 | | 28 | | 78 | | | 237 | | 553 | | Add: net loss on asset disposals and other transactions | 308 | | 124 | | 28 | | | 459 | | 237 | |
Less: tax effect of net loss on asset disposals and other transactions (a) | Less: tax effect of net loss on asset disposals and other transactions (a) | 6 | | 6 | | 16 | | | 50 | | 116 | | Less: tax effect of net loss on asset disposals and other transactions (a) | 65 | | 26 | | 6 | | | 96 | | 50 | |
| Add: acquisition-related expenses | Add: acquisition-related expenses | 335 | | 47 | | 199 | | | 412 | | 7,222 | | Add: acquisition-related expenses | 16,209 | | 2,400 | | 335 | | | 20,520 | | 412 | |
Less: tax effect of acquisition-related expenses (a) | Less: tax effect of acquisition-related expenses (a) | 70 | | 10 | | 42 | | | 87 | | 1,517 | | Less: tax effect of acquisition-related expenses (a) | 3,404 | | 504 | | 70 | | | 4,309 | | 87 | |
Add: pension settlement charges | Add: pension settlement charges | 531 | | 151 | | — | | | 1,050 | | — | | Add: pension settlement charges | 143 | | — | | 531 | | | 143 | | 1,050 | |
Less: tax effect of pension settlement charges (a) | Less: tax effect of pension settlement charges (a) | 112 | | 32 | | — | | | 221 | | — | | Less: tax effect of pension settlement charges (a) | 30 | | — | | 112 | | | 30 | | 221 | |
Add: severance expenses | Add: severance expenses | 192 | | 79 | | 88 | | | 284 | | 130 | | Add: severance expenses | — | | 14 | | 192 | | | 63 | | 284 | |
Less: tax effect of severance expenses (a) | Less: tax effect of severance expenses (a) | 40 | | 17 | | 18 | | | 60 | | 27 | | Less: tax effect of severance expenses (a) | — | | 3 | | 40 | | | 13 | | 60 | |
Add: COVID-19-related expenses | Add: COVID-19-related expenses | 148 | | 918 | | — | | | 1,206 | | — | | Add: COVID-19-related expenses | 181 | | 210 | | 148 | | | 683 | | 1,206 | |
Less: tax effect of COVID-19-related expenses (a) | Less: tax effect of COVID-19-related expenses (a) | 31 | | 193 | | — | | | 253 | | — | | Less: tax effect of COVID-19-related expenses (a) | 38 | | 44 | | 31 | | | 143 | | 253 | |
Add: Peoples Bank Foundation, Inc. contribution | | Add: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | 500 | | — | |
Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) | | Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) | — | | — | | — | | | 105 | | — | |
| Add: contract negotiation fees | | Add: contract negotiation fees | 1,851 | | — | | — | | | 1,851 | | — | |
Less: tax effect of contract negotiation fees | | Less: tax effect of contract negotiation fees | 389 | | — | | — | | | 389 | | — | |
Net income adjusted for non-core items (after tax) | Net income adjusted for non-core items (after tax) | $ | 11,183 | | $ | 5,665 | | $ | 15,080 | | | $ | 16,409 | | $ | 45,025 | | Net income adjusted for non-core items (after tax) | $ | 9,139 | | $ | 12,434 | | $ | 11,183 | | | $ | 39,498 | | $ | 16,409 | |
Days in the period | Days in the period | 92 | | 91 | | 92 | | | 274 | | 273 | | Days in the period | 92 | | 91 | | 92 | | | 273 | | 274 | |
Days in the year | Days in the year | 366 | | 366 | | 365 | | | 366 | | 365 | | Days in the year | 365 | | 365 | | 366 | | | 365 | | 366 | |
Annualized net income | $ | 40,618 | | $ | 19,100 | | $ | 58,987 | | | $ | 18,960 | | $ | 51,922 | | |
Annualized net (loss) income | | Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Annualized net income adjusted for non-core items (after tax) | Annualized net income adjusted for non-core items (after tax) | $ | 44,489 | | $ | 22,785 | | $ | 59,828 | | | $ | 21,919 | | $ | 60,198 | | Annualized net income adjusted for non-core items (after tax) | $ | 36,258 | | $ | 49,873 | | $ | 44,489 | | | $ | 52,809 | | $ | 21,919 | |
Return on average assets: | Return on average assets: | | Return on average assets: | |
Annualized net income | $ | 40,618 | | $ | 19,100 | | $ | 58,987 | | | $ | 18,960 | | $ | 51,922 | | |
Annualized net (loss) income | | Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Total average assets | Total average assets | 4,906,614 | | 4,828,016 | | 4,311,389 | | | 4,706,153 | | 4,179,663 | | Total average assets | 5,475,147 | | 5,183,146 | | 4,906,614 | | | 5,192,183 | | 4,706,153 | |
Return on average assets | Return on average assets | 0.83 | % | 0.40 | % | 1.37 | % | | 0.40 | % | 1.24 | % | Return on average assets | (0.42) | % | 0.78 | % | 0.83 | % | | 0.51 | % | 0.40 | % |
Return on average assets adjusted for non-core items: | Return on average assets adjusted for non-core items: | | Return on average assets adjusted for non-core items: | |
Annualized net income adjusted for non-core items (after tax) | Annualized net income adjusted for non-core items (after tax) | $ | 44,489 | | $ | 22,785 | | $ | 59,828 | | | $ | 21,919 | | $ | 60,198 | | Annualized net income adjusted for non-core items (after tax) | $ | 36,258 | | $ | 49,873 | | $ | 44,489 | | | $ | 52,809 | | $ | 21,919 | |
Total average assets | Total average assets | 4,906,614 | | 4,828,016 | | 4,311,389 | | | 4,706,153 | | 4,179,663 | | Total average assets | 5,475,147 | | 5,183,146 | | 4,906,614 | | | 5,192,183 | | 4,706,153 | |
Return on average assets adjusted for non-core items | Return on average assets adjusted for non-core items | 0.91 | % | 0.47 | % | 1.39 | % | | 0.47 | % | 1.44 | % | Return on average assets adjusted for non-core items | 0.66 | % | 0.96 | % | 0.91 | % | | 1.02 | % | 0.47 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average assets declined during the third quarter of 2021, compared to the linked quarter and the third quarter of 2020. The decrease was driven by the provision for credit losses recognized in the third quarter due to the Premier acquisition and higher total non-interest expense recognized during the third quarter of 2021, which was mostly due to acquisition-related expenses. The return on average assets adjusted for non-core items both improved during the third quarter of 2020, compared to the linked quarter. The improvements were mostly due to a reduction in provision for credit lossesdeclined compared to the linked quarter coupled withdue to the higher total non-interest income.salaries and
incentive compensation. The return on average assets and the return on average assets adjusted for non-core items both declined during the third quarter of 2020, compared to the third quarter of 2019. These declines were primarily caused by the provision for credit losses of $4.7 million recorded during the third quarter of 2020 drove most of the decline in the ratios. The return on average assets and the return on average assets adjusted for non-core items both decreased during the first nine months of 2020,grew compared to the first nine months of 2019.2020. The increases were mostly due to the previously mentioned higher provision for credit losses totaled $33.5 million forrecorded during the first nine
months ended September 30, 2020, and was largely the reason for the decrease in the ratios.2020. For additional information related to the increasedchanges in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”
Return on Average Tangible Equity Ratio (non-US(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-USNon-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 | | Three Months Ended | | Nine Months Ended |
| | September 30, 2020 | June 30, 2020 | September 30, 2019 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2020 | 2019 | (Dollars in thousands) | | 2021 | 2020 |
Annualized net income excluding amortization of other intangible assets: | Annualized net income excluding amortization of other intangible assets: | | Annualized net income excluding amortization of other intangible assets: | |
Net income | $ | 10,210 | | $ | 4,749 | | $ | 14,868 | | | $ | 14,194 | | $ | 38,835 | | |
Net (loss) income | | Net (loss) income | $ | (5,758) | | $ | 10,103 | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
Add: amortization of other intangible assets | Add: amortization of other intangible assets | 857 | | 728 | | 953 | | | 2,314 | | 2,471 | | Add: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Less: tax effect of amortization of other intangible assets (a) | Less: tax effect of amortization of other intangible assets (a) | 180 | | 153 | | 200 | | | 486 | | 519 | | Less: tax effect of amortization of other intangible assets (a) | 269 | | 287 | | 180 | | | 686 | | 486 | |
Net income excluding amortization of other intangible assets | Net income excluding amortization of other intangible assets | $ | 10,887 | | $ | 5,324 | | $ | 15,621 | | | $ | 16,022 | | $ | 40,787 | | Net income excluding amortization of other intangible assets | $ | (4,748) | | $ | 11,184 | | $ | 10,887 | | | $ | 22,389 | | $ | 16,022 | |
Days in the period | Days in the period | 92 | | 91 | | 92 | | | 274 | | 273 | | Days in the period | 92 | | 91 | | 92 | | | 273 | | 274 | |
Days in the year | Days in the year | 366 | | 366 | | 365 | | | 366 | | 365 | | Days in the year | 365 | | 365 | | 366 | | | 365 | | 366 | |
Annualized net income | $ | 40,618 | | $ | 19,100 | | $ | 58,987 | | | $ | 18,960 | | $ | 51,922 | | |
Annualized net income excluding amortization of other intangible assets | $ | 43,311 | | $ | 21,413 | | $ | 61,975 | | | $ | 21,402 | | $ | 54,532 | | |
Annualized net (loss) income | | Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Annualized net (loss) income excluding amortization of other intangible assets | | Annualized net (loss) income excluding amortization of other intangible assets | $ | (18,837) | | $ | 44,859 | | $ | 43,311 | | | $ | 29,934 | | $ | 21,402 | |
Average tangible equity: | Average tangible equity: | | Average tangible equity: | |
Total average stockholders' equity | Total average stockholders' equity | $ | 567,055 | | $ | 572,141 | | $ | 583,269 | | | $ | 578,439 | | $ | 557,702 | | Total average stockholders' equity | $ | 627,783 | | $ | 581,831 | | $ | 567,055 | | | $ | 595,918 | | $ | 578,439 | |
Less: average goodwill and other intangible assets | Less: average goodwill and other intangible assets | 185,816 | | 177,012 | | 179,487 | | | 180,291 | | 172,175 | | Less: average goodwill and other intangible assets | 232,361 | | 222,553 | | 185,816 | | | 213,232 | | 180,291 | |
Average tangible equity | Average tangible equity | $ | 381,239 | | $ | 395,129 | | $ | 403,782 | | | $ | 398,148 | | $ | 385,527 | | Average tangible equity | $ | 395,422 | | $ | 359,278 | | $ | 381,239 | | | $ | 382,686 | | $ | 398,148 | |
Return on average stockholders' equity ratio: | Return on average stockholders' equity ratio: | | Return on average stockholders' equity ratio: | |
Annualized net income | Annualized net income | $ | 40,618 | | $ | 19,100 | | $ | 58,987 | | | $ | 18,960 | | $ | 51,922 | | Annualized net income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Average stockholders' equity | Average stockholders' equity | $ | 567,055 | | $ | 572,141 | | $ | 583,269 | | | $ | 578,439 | | $ | 557,702 | | Average stockholders' equity | $ | 627,783 | | $ | 581,831 | | $ | 567,055 | | | $ | 595,918 | | $ | 578,439 | |
Return on average stockholders' equity | Return on average stockholders' equity | 7.16 | % | 3.34 | % | 10.11 | % | | 3.28 | % | 9.31 | % | Return on average stockholders' equity | (3.64) | % | 6.96 | % | 7.16 | % | | 4.44 | % | 3.28 | % |
Return on average tangible equity ratio: | Return on average tangible equity ratio: | | Return on average tangible equity ratio: | |
Annualized net income excluding amortization of other intangible assets | Annualized net income excluding amortization of other intangible assets | $ | 43,311 | | $ | 21,413 | | $ | 61,975 | | | $ | 21,402 | | $ | 54,532 | | Annualized net income excluding amortization of other intangible assets | $ | (18,837) | | $ | 44,859 | | $ | 43,311 | | | $ | 29,934 | | $ | 21,402 | |
Average tangible equity | Average tangible equity | $ | 381,239 | | $ | 395,129 | | $ | 403,782 | | | $ | 398,148 | | $ | 385,527 | | Average tangible equity | $ | 395,422 | | $ | 359,278 | | $ | 381,239 | | | $ | 382,686 | | $ | 398,148 | |
Return on average tangible equity | Return on average tangible equity | 11.36 | % | 5.42 | % | 15.35 | % | | 5.38 | % | 14.14 | % | Return on average tangible equity | (4.76) | % | 12.49 | % | 11.36 | % | | 7.82 | % | 5.38 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average stockholders' equity and average tangible equity ratios continued to bewere impacted by higherthe provision for (recovery of) credit losses. However,losses during each of the respective periods, as well as non-core items recognized during the periods. Intangible assets grew at September 30, 2021, compared to June 30, 2021, as Peoples recorded the linked quarter,intangibles and goodwill associated with the ratios improved due to a decline inPremier acquisition, which increased average tangible equity. Additionally, during the first nine months of 2020, Peoples recorded high amounts of provision for credit losses, which negatively impacted net income, as a result of $7.1 million from the second quarter.COVID-19 pandemic.
For additional information related to changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”
FINANCIAL CONDITION
Cash and Cash Equivalents
At September 30, 2020,2021, Peoples' interest-bearing deposits in other banks had increased $41.4$278.6 million from December 31, 2019.2020. The total cash and cash equivalentequivalents balance included $22.4$321.0 million of excess cash reserves being maintained at the FRB of Cleveland at September 30, 2020,2021, compared to $15.6$25.1 million at December 31, 2019.2020. Peoples also acquired $252.8 million in cash and cash equivalents from Premier. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances, coupled with increased liquidity needs due to the COVID-19 pandemic.
Through the first nine months of 2020,2021, Peoples' total cash and cash equivalents increased $46.1$347.6 million as Peoples' net cash used in investing activities of $517.7 million was less than the sum ofPeoples had net cash provided by investing activities of $106.3 million, financing activities of $174.6 million and operating activities of $507.8 million and $56.0 million, respectively.$66.7 million. Peoples' investing activities reflected a net increasedecrease of $505.2$156.6 million in loans and $171.3an aggregate of $896.6 million in purchases of available-for-sale and held-to-maturity investment securities, which were partially offset by $263.4an aggregate of $711.5 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a $660.5$165.4 million net increase in deposits and $50.0 millionan increase of proceeds from long-term borrowings, offset partially by a decrease of $154.9$32.6 million in short-term borrowings, as well as the purchase of $25.0 millionno purchases of treasury stock under the share repurchase program and $20.1$20.9 million of cash dividends paid.
Further information regarding the management of Peoples' liquidity position can be found later in this discussion under “Interest Rate Sensitivity and Liquidity.”
Investment Securities
The following table provides information regarding Peoples’ investment portfolio:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Available-for-sale securities, at fair value: | Available-for-sale securities, at fair value: | | Available-for-sale securities, at fair value: | |
Obligations of: | Obligations of: | | Obligations of: | |
| U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 5,383 | | $ | 5,396 | | $ | 6,361 | | $ | 8,209 | | $ | 12,145 | | U.S. government sponsored agencies | $ | 78,481 | | $ | 14,235 | | $ | 18,471 | | $ | 5,363 | | $ | 5,383 | |
States and political subdivisions | States and political subdivisions | 104,126 | | 107,032 | | 108,812 | | 114,104 | | 115,613 | | States and political subdivisions | 252,919 | | 223,853 | | 218,484 | | 114,919 | | 104,126 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 726,992 | | 748,867 | | 823,893 | | 791,009 | | 835,172 | | Residential mortgage-backed securities | 898,459 | | 579,152 | | 596,181 | | 623,218 | | 726,992 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 10,568 | | 12,157 | | 17,061 | | 18,088 | | 20,461 | | Commercial mortgage-backed securities | 62,552 | | 27,631 | | 27,481 | | 4,783 | | 10,568 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 4,633 | | 4,399 | | 4,708 | | 4,691 | | 4,644 | | Bank-issued trust preferred securities | 4,679 | | 4,766 | | 4,730 | | 4,730 | | 4,633 | |
| Total fair value | Total fair value | $ | 851,702 | | $ | 877,851 | | $ | 960,835 | | $ | 936,101 | | $ | 988,035�� | | Total fair value | $ | 1,297,090 | | $ | 849,637 | | $ | 865,347 | | $ | 753,013 | | $ | 851,702 | |
Total amortized cost | Total amortized cost | $ | 829,899 | | $ | 853,072 | | $ | 932,179 | | $ | 929,395 | | $ | 976,286 | | Total amortized cost | $ | 1,294,654 | | $ | 839,682 | | $ | 859,120 | | $ | 734,544 | | $ | 829,899 | |
Net unrealized gain | Net unrealized gain | $ | 21,803 | | $ | 24,779 | | $ | 28,656 | | $ | 6,706 | | $ | 11,749 | | Net unrealized gain | $ | 2,436 | | $ | 9,955 | | $ | 6,227 | | $ | 18,469 | | $ | 21,803 | |
Held-to-maturity securities, at amortized cost: | Held-to-maturity securities, at amortized cost: | | Held-to-maturity securities, at amortized cost: | |
Obligations of: | Obligations of: | | Obligations of: | |
U.S. government sponsored agencies | | U.S. government sponsored agencies | $ | 29,995 | | $ | 30,103 | | $ | 30,211 | | $ | — | | $ | — | |
States and political subdivisions (a) | States and political subdivisions (a) | $ | 3,539 | | $ | 3,538 | | $ | 3,838 | | $ | 4.346 | | $ | 4,395 | | States and political subdivisions (a) | 124,181 | | 102,224 | | 92,436 | | 35,139 | | 3,539 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 26,926 | | 28,075 | | 29,070 | | 21,494 | | 22,412 | | Residential mortgage-backed securities | 41,035 | | 24,067 | | 24,878 | | 25,890 | | 26,926 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 5,678 | | 5,754 | | 5,830 | | 5,907 | | 7,022 | | Commercial mortgage-backed securities | 47,889 | | 23,830 | | 18,705 | | 5,429 | | 5,678 | |
Total amortized cost | Total amortized cost | $ | 36,143 | | $ | 37,367 | | $ | 38,738 | | $ | 27,405.346 | | $ | 33,829 | | Total amortized cost | $ | 243,100 | | $ | 180,224 | | $ | 166,230 | | $ | 66,458 | | $ | 36,143 | |
Other investment securities | Other investment securities | $ | 40,715 | | $ | 42,656 | | $ | 46,924 | | $ | 42,730 | | $ | 43,045 | | Other investment securities | $ | 34,486 | | $ | 32,584 | | $ | 34,026 | | $ | 37,560 | | $ | 40,715 | |
Total investment securities: | Total investment securities: | | Total investment securities: | |
Amortized cost | Amortized cost | $ | 906,757 | | $ | 933,095 | | $ | 1,017,841 | | $ | 1,003,872 | | $ | 1,053,160 | | Amortized cost | $ | 1,572,240 | | $ | 1,052,490 | | $ | 1,059,376 | | $ | 838,562 | | $ | 906,757 | |
Carrying value | Carrying value | $ | 928,560 | | $ | 957,874 | | $ | 1,046,497 | | $ | 1,006,236.346 | | $ | 1,064,909 | | Carrying value | $ | 1,574,676 | | $ | 1,062,445 | | $ | 1,065,603 | | $ | 857,031 | | $ | 928,560 | |
| |
(a)Amortized cost is presented net of the allowance for credit losses of $6,000$236 at September 30, 2020,2021; $201 at June 30, 2021; $182 at March 31, 2021; $60 at December 31, 2020 and March 31, 2020.
At$6 at September 30, 2020,2020.
During the fair valuethird quarter of 2021, Peoples acquired, in the Premier acquisition, investment securities totaling $563.3 million. Peoples sold $400.6 million of available-for-sale investment securities declined $26.1and reinvested $358.7 million or 3%,of the proceeds into higher-yielding investments. The increase compared to June 30,
2020. The decrease compared to all prior periodsDecember 31, 2020 was driven by the paydownsPremier acquisition and maturitiesan increase in available-for-sale commercial-mortgage backed securities that were purchased during the first nine months of 2021, coupled with purchases of available for sale and held-to-maturity obligations of state and political subdivisions, which were purchased in an effort to reduce the impact of premium amortization on the securities primarily residential mortgage-backed securities. Not all of these proceedsthat were reinvested intosold. At December 31, 2020, the investment security portfolio mostly due to low reinvestment rates on investment securities, coupled with liquidity needs as deposits declineddecreased compared to June 30,prior periods, as Peoples had worked to execute the strategy to sell securities that had high premium
amortization, and reinvest into investment securities; however, not all proceeds from those sales had been reinvested by December 31, 2020.
Additional information regarding Peoples' investment portfolio can be found in "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Loans
The following table provides information regarding outstanding loan balances:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Originated loans: | Originated loans: | | Originated loans: | |
Construction | Construction | $ | 103,948 | | $ | 105,493 | | $ | 106,415 | | $ | 83,283 | | $ | 100,338 | | Construction | $ | 108,334 | | $ | 97,424 | | $ | 75,189 | | $ | 103,169 | | $ | 103,948 | |
Commercial real estate, other | Commercial real estate, other | 752,480 | | 738,292 | | 707,339 | | 671,576 | | 659,103 | | Commercial real estate, other | 838,333 | | 836,613 | | 832,399 | | 780,324 | | 752,480 | |
Commercial real estate | Commercial real estate | 856,428 | | 843,785 | | 813,754 | | 754,859 | | 759,441 | | Commercial real estate | 946,667 | | 934,037 | | 907,588 | | 883,493 | | 856,428 | |
Commercial and industrial | Commercial and industrial | 1,090,521 | | 1,032,970 | | 611,791 | | 622,175 | | 564,279 | | Commercial and industrial | 715,169 | | 778,122 | | 935,150 | | 943,024 | | 1,029,613 | |
Premium finance | | Premium finance | 134,755 | | 117,039 | | 109,129 | | 100,571 | | 60,908 | |
Leases | | Leases | 49,464 | | 24,217 | | — | | — | | — | |
Residential real estate | Residential real estate | 284,645 | | 285,407 | | 293,078 | | 314,935 | | 308,964 | | Residential real estate | 334,838 | | 324,321 | | 306,440 | | 281,623 | | 284,645 | |
Home equity lines of credit | Home equity lines of credit | 91,701 | | 90,612 | | 91,344 | | 93,013 | | 92,910 | | Home equity lines of credit | 98,806 | | 95,376 | | 92,540 | | 93,296 | | 91,701 | |
Consumer, indirect | Consumer, indirect | 491,663 | | 450,296 | | 418,022 | | 417,127 | | 423,217 | | Consumer, indirect | 543,243 | | 537,926 | | 519,749 | | 503,526 | | 491,663 | |
Consumer, direct | Consumer, direct | 75,106 | | 74,614 | | 71,230 | | 70,852 | | 72,699 | | Consumer, direct | 80,746 | | 78,736 | | 75,998 | | 75,591 | | 75,106 | |
Consumer | Consumer | 566,769 | | 524,910 | | 489,252 | | 487,979 | | 495,916 | | Consumer | 623,989 | | 616,662 | | 595,747 | | 579,117 | | 566,769 | |
Deposit account overdrafts | Deposit account overdrafts | 519 | | 592 | | 610 | | 878 | | 1,081 | | Deposit account overdrafts | 927 | | 498 | | 298 | | 351 | | 519 | |
Total originated loans | Total originated loans | $ | 2,890,583 | | $ | 2,778,276 | | $ | 2,299,829 | | $ | 2,273,839 | | $ | 2,222,591 | | Total originated loans | $ | 2,904,615 | | $ | 2,890,272 | | $ | 2,946,892 | | $ | 2,881,475 | | $ | 2,890,583 | |
Acquired loans (a): | Acquired loans (a): | | Acquired loans (a): | |
Construction | Construction | $ | 4,103 | | $ | 4,460 | | $ | 4,450 | | $ | 5,235 | | $ | 4,435 | | Construction | $ | 66,450 | | $ | 3,175 | | $ | 3,510 | | $ | 3,623 | | $ | 4,103 | |
Commercial real estate, other | Commercial real estate, other | 160,759 | | 176,128 | | 190,478 | | 161,662 | | 171,096 | | Commercial real estate, other | 790,783 | | 111,647 | | 132,850 | | 149,529 | | 160,759 | |
Commercial real estate | Commercial real estate | 164,862 | | 180,588 | | 194,928 | | 166,897 | | 175,531 | | Commercial real estate | 857,233 | | 114,822 | | 136,360 | | 153,152 | | 164,862 | |
Commercial and industrial | Commercial and industrial | 77,613 | | 37,356 | | 42,739 | | 40,818 | | 43,961 | | Commercial and industrial | 143,369 | | 27,629 | | 29,611 | | 30,621 | | 34,396 | |
Premium finance | | Premium finance | — | | 49 | | 1,461 | | 14,187 | | 43,217 | |
Leases | | Leases | 61,982 | | 71,426 | | — | | — | | — | |
Residential real estate | Residential real estate | 304,804 | | 327,677 | | 332,288 | | 346,541 | | 358,053 | | Residential real estate | 433,296 | | 242,276 | | 267,260 | | 292,384 | | 304,804 | |
Home equity lines of credit | Home equity lines of credit | 30,234 | | 32,772 | | 36,667 | | 39,691 | | 41,942 | | Home equity lines of credit | 62,564 | | 23,025 | | 24,886 | | 27,617 | | 30,234 | |
Consumer, indirect | Consumer, indirect | 36 | | 38 | | 44 | | 58 | | 67 | | Consumer, indirect | 13 | | — | | — | | 1 | | 36 | |
Consumer, direct | Consumer, direct | 3,953 | | 4,312 | | 4,942 | | 5,681 | | 8,171 | | Consumer, direct | 27,956 | | 2,700 | | 3,206 | | 3,503 | | 3,953 | |
Consumer | Consumer | 3,989 | | 4,350 | | 4,986 | | 5,739 | | 8,238 | | Consumer | 27,969 | | 2,700 | | 3,206 | | 3,504 | | 3,989 | |
Total acquired loans | Total acquired loans | $ | 581,502 | | $ | 582,743 | | $ | 611,608 | | $ | 599,686 | | $ | 627,725 | | Total acquired loans | $ | 1,586,413 | | $ | 481,927 | | $ | 462,784 | | $ | 521,465 | | $ | 581,502 | |
Total loans | Total loans | $ | 3,472,085 | | $ | 3,361,019 | | $ | 2,911,437 | | $ | 2,873,525 | | $ | 2,850,316 | | Total loans | $ | 4,491,028 | | $ | 3,372,199 | | $ | 3,409,676 | | $ | 3,402,940 | | $ | 3,472,085 | |
| Percent of loans to total loans: | Percent of loans to total loans: | | | Percent of loans to total loans: | | |
Construction | Construction | 3.1 | % | 3.3 | % | 3.8 | % | 3.1 | % | 3.8 | % | Construction | 3.9 | % | 3.0 | % | 2.3 | % | 3.1 | % | 3.1 | % |
Commercial real estate, other | Commercial real estate, other | 26.3 | % | 27.2 | % | 30.8 | % | 29.0 | % | 29.1 | % | Commercial real estate, other | 36.3 | % | 28.1 | % | 28.3 | % | 27.3 | % | 26.3 | % |
Commercial real estate | Commercial real estate | 29.4 | % | 30.5 | % | 34.6 | % | 32.1 | % | 32.9 | % | Commercial real estate | 40.2 | % | 31.1 | % | 30.6 | % | 30.4 | % | 29.4 | % |
Commercial and industrial | Commercial and industrial | 33.6 | % | 31.9 | % | 22.5 | % | 23.1 | % | 21.3 | % | Commercial and industrial | 19.1 | % | 23.9 | % | 28.3 | % | 28.6 | % | 30.6 | % |
Premium finance | | Premium finance | 3.0 | % | 3.5 | % | 3.2 | % | 3.4 | % | 3.0 | % |
Leases | | Leases | 2.5 | % | 2.8 | % | — | % | — | % | — | % |
Residential real estate | Residential real estate | 17.0 | % | 18.2 | % | 21.5 | % | 23.0 | % | 23.4 | % | Residential real estate | 17.1 | % | 16.8 | % | 16.8 | % | 16.9 | % | 17.0 | % |
Home equity lines of credit | Home equity lines of credit | 3.5 | % | 3.7 | % | 4.4 | % | 4.6 | % | 4.7 | % | Home equity lines of credit | 3.6 | % | 3.5 | % | 3.5 | % | 3.6 | % | 3.5 | % |
Consumer, indirect | Consumer, indirect | 14.2 | % | 13.4 | % | 14.4 | % | 14.5 | % | 14.9 | % | Consumer, indirect | 12.1 | % | 16.0 | % | 15.3 | % | 14.8 | % | 14.2 | % |
Consumer, direct | Consumer, direct | 2.3 | % | 2.3 | % | 2.6 | % | 2.7 | % | 2.8 | % | Consumer, direct | 2.4 | % | 2.4 | % | 2.3 | % | 2.3 | % | 2.3 | % |
Consumer | Consumer | 16.5 | % | 15.7 | % | 17.0 | % | 17.2 | % | 17.7 | % | Consumer | 14.5 | % | 18.4 | % | 17.6 | % | 17.1 | % | 16.5 | % |
| Total percentage | Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Residential real estate loans being serviced for others | Residential real estate loans being serviced for others | $ | 490,170 | | $ | 491,545 | | $ | 503,158 | | $ | 496,802 | | $ | 488,724 | | Residential real estate loans being serviced for others | $ | 441,085 | | $ | 454,399 | | $ | 469,788 | | $ | 485,972 | | $ | 490,170 | |
|
(a) Includes all loans acquired, and related loan discount recorded as part of acquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of such credit actions (for example, renewals and increases in lines of credit).
Period-end total loan balances at September 30, 2020 increased $111.1 million, or 3%, compared to June 30, 2020. The increase compared to June 30, 2020 was mostly driven by loans from the premium finance acquisition completed at the beginning of the third quarter of 2020, which totaled $104.1 million in loan balances at September 30, 2020, and were included in the acquired commercial and industrial loan balances. Excluding the PPP loan balances, Peoples' originated loans grew by 16% annualized compared to June 30, 2020. The growth was due to loans acquired from the premium finance acquisition, higher consumer indirect loan balances, which were up $41.4 million, or 37% annualized, while commercial real estate loan balances increased $14.2 million, or 8% annualized, compared to June 30, 2020.
The increase compared to September 30, 2019 was largely due to the PPP loans added during the second quarter of 2020, coupled with growth in commercial real estate, commercial and industrial, and consumer indirect balances. Acquired loans increased due to the premium finance acquisition, which increased the commercial and industrial balances, but was offset by a decrease in balances in all other loan segments, as these loans either payoff or are re-underwritten, at which point Peoples no longer considers the loan acquired.
Period-end total loan balances at September 30, 2021 increased $1.1 billion compared to June 30, 2021. The increase compared to June 30, 2021 was mostly driven by $1.1 billion in loans acquired from Premier, coupled with organic growth in premium finance loans of $17.7 million, growth in leases of $15.8 million, and organic loan growth of $14.3 million, offset partially by $132.2 million in forgiveness received on PPP loans during the quarter. Excluding the PPP loan balances, Peoples' total originated loans grew by 6% annualized compared to June 30, 2021.
The decrease in commercial and industrial loan balances at June 30, 2021 compared to March 31, 2021 was mostly driven by $186.4 million in forgiveness proceeds received on PPP loans during the second quarter. This decrease was partially offset by $95.6 million in leases acquired from NSL, coupled with growth in in commercial real estate and consumer indirect loans.
The decline in construction loan balances of $28.0 million at March 31, 2021, compared to December 31, 2020, was mainly due to construction projects being completed and construction loans then converting to permanent financing.
Loan Concentration
Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio.
Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following table providestables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at September 30, 2020:2021:
| (Dollars in thousands) | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
| Construction: | Construction: | | Construction: | |
Apartment complexes | Apartment complexes | $ | 42,967 | | $ | 49,000 | | $ | 91,967 | | 41.5 | % | Apartment complexes | $ | 76,292 | | $ | 135,048 | | $ | 211,340 | | 47.7 | % |
Mixed-use facilities | | Mixed-use facilities | 14,641 | | 43,992 | | 58,633 | | 13.2 | % |
Assisted living facilities and nursing homes | Assisted living facilities and nursing homes | 17,614 | | 30,258 | | 47,872 | | 21.6 | % | Assisted living facilities and nursing homes | 15,804 | | 30,708 | | 46,512 | | 10.5 | % |
Land only | | Land only | 25,959 | | 12,968 | | 38,927 | | 8.8 | % |
Office buildings and complexes | | Office buildings and complexes | 3,523 | | 15,969 | | 19,492 | | 4.4 | % |
Storage facility | | Storage facility | 8,966 | | 5,291 | | 14,257 | | 3.2 | % |
Lodging and lodging related | | Lodging and lodging related | 7,784 | | 6,091 | | 13,875 | | 3.1 | % |
Retail | Retail | 2,387 | | 10,847 | | 13,234 | | 6.0 | % | Retail | 5,408 | | 6,470 | | 11,878 | | 2.7 | % |
Lodging and lodging related | — | | 10,301 | | 10,301 | | 4.6 | % | |
Gas station facilities | 6,613 | | 37 | | 6,650 | | 3.0 | % | |
Office buildings | 6,124 | | 43 | | 6,167 | | 2.8 | % | |
Land only | 5,133 | | 737 | | 5,870 | | 2.6 | % | |
Land development | 4,998 | | 690 | | 5,688 | | 2.6 | % | |
Residential property | Residential property | 2,061 | | 3,018 | | 5,079 | | 2.3 | % | Residential property | 4,529 | | 4,932 | | 9,461 | | 2.1 | % |
| Other (a) | Other (a) | 20,154 | | 8,561 | | 28,715 | | 13.0 | % | Other (a) | 11,878 | | 7,118 | | 18,996 | | 4.3 | % |
Total construction | Total construction | $ | 108,051 | | $ | 113,492 | | $ | 221,543 | | 100.0 | % | Total construction | $ | 174,784 | | $ | 268,587 | | $ | 443,371 | | 100.0 | % |
(a) All other outstanding balances are less than 2% of the total loan portfolio.
| (Dollars in thousands) | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total | (Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, other: | Commercial real estate, other: | | Commercial real estate, other: | |
Office buildings and complexes: | Office buildings and complexes: | | | Office buildings and complexes: | | |
Owner occupied | Owner occupied | $ | 73,353 | | $ | 1,541 | | $ | 74,894 | | 8.0 | % | Owner occupied | $ | 78,614 | | $ | 3,199 | | $ | 81,813 | | 4.9 | % |
Non-owner occupied | Non-owner occupied | 62,463 | | 3,235 | | 65,698 | | 7.0 | % | Non-owner occupied | 93,863 | | 3,795 | | 97,658 | | 5.8 | % |
Total office buildings and complexes | Total office buildings and complexes | 135,816 | | 4,776 | | 140,592 | | 15.0 | % | Total office buildings and complexes | 172,477 | | 6,994 | | 179,471 | | 10.7 | % |
Apartment complexes | 106,136 | | 7,000 | | 113,136 | | 12.0 | % | |
Retail facilities: | | Retail facilities: | |
Owner occupied | | Owner occupied | 55,417 | | 1,752 | | 57,169 | | 3.4 | % |
Non-owner occupied | | Non-owner occupied | 128,759 | | 471 | | 129,230 | | 7.7 | % |
Total retail facilities | | Total retail facilities | 184,176 | | 2,223 | | 186,399 | | 11.1 | % |
Mixed-use facilities: | Mixed-use facilities: | | Mixed-use facilities: | |
Owner occupied | Owner occupied | 56,726 | | 1,594 | | 58,320 | | 6.2 | % | Owner occupied | 55,549 | | 1,582 | | 57,131 | | 3.4 | % |
Non-owner occupied | Non-owner occupied | 37,890 | | 732 | | 38,622 | | 4.1 | % | Non-owner occupied | 63,214 | | 458 | | 63,672 | | 3.8 | % |
Total mixed-use facilities | Total mixed-use facilities | 94,616 | | 2,326 | | 96,942 | | 10.3 | % | Total mixed-use facilities | 118,763 | | 2,040 | | 120,803 | | 7.2 | % |
Retail facilities: | | | | |
Owner occupied | 39,159 | | 1,120 | | 40,279 | | 4.3 | % | |
Non-owner occupied | 56,140 | | 250 | | 56,390 | | 6.0 | % | |
Total retail facilities | 95,299 | | 1,370 | | 96,669 | | 10.3 | % | |
Apartment complexes | | Apartment complexes | 98,159 | | 1,468 | | 99,627 | | 5.9 | % |
Light industrial facilities: | Light industrial facilities: | | | Light industrial facilities: | | |
Owner occupied | Owner occupied | 51,232 | | 866 | | 52,098 | | 5.5 | % | Owner occupied | 79,414 | | 1,531 | | 80,945 | | 4.8 | % |
Non-owner occupied | Non-owner occupied | 20,987 | | 1,088 | | 22,075 | | 2.3 | % | Non-owner occupied | 34,473 | | 757 | | 35,230 | | 2.1 | % |
Total light industrial facilities | Total light industrial facilities | 72,219 | | 1,954 | | 74,173 | | 7.8 | % | Total light industrial facilities | 113,887 | | 2,288 | | 116,175 | | 6.9 | % |
Assisted living facilities and nursing homes | | Assisted living facilities and nursing homes | 81,539 | | 750 | | 82,289 | | 4.9 | % |
Warehouse facilities: | Warehouse facilities: | | Warehouse facilities: | |
Owner occupied | Owner occupied | 34,742 | | 3,650 | | 38,392 | | 4.1 | % | Owner occupied | 38,685 | | 1,400 | | 40,085 | | 2.4 | % |
Non-owner occupied | Non-owner occupied | 24,600 | | 6 | | 24,606 | | 2.6 | % | Non-owner occupied | 38,614 | | 27 | | 38,641 | | 2.3 | % |
Total warehouse facilities | Total warehouse facilities | 59,342 | | 3,656 | | 62,998 | | 6.7 | % | Total warehouse facilities | 77,299 | | 1,427 | | 78,726 | | 4.7 | % |
Assisted living facilities and nursing homes | 62,657 | | 250 | | 62,907 | | 6.7 | % | |
Lodging and lodging related: | Lodging and lodging related: | | Lodging and lodging related: | |
Owner occupied | Owner occupied | 12,573 | | 45 | | 12,618 | | 1.3 | % | Owner occupied | 15,131 | | 210 | | 15,341 | | 0.9 | % |
Non-owner occupied | Non-owner occupied | 40,492 | | — | | 40,492 | | 4.3 | % | Non-owner occupied | 119,043 | | 150 | | 119,193 | | 7.1 | % |
Total lodging and lodging related | Total lodging and lodging related | 53,065 | | 45 | | 53,110 | | 5.6 | % | Total lodging and lodging related | 134,174 | | 360 | | 134,534 | | 8.0 | % |
Education services: | Education services: | | Education services: | |
Owner occupied | Owner occupied | 13,369 | | 98 | | 13,467 | | 1.4 | % | Owner occupied | 15,615 | | 98 | | 15,713 | | 0.9 | % |
Non-owner occupied | Non-owner occupied | 21,512 | | — | | 21,512 | | 2.3 | % | Non-owner occupied | 22,460 | | 4,000 | | 26,460 | | 1.6 | % |
Total education services | Total education services | 34,881 | | 98 | | 34,979 | | 3.7 | % | Total education services | 38,075 | | 4,098 | | 42,173 | | 2.5 | % |
Gas station facilities: | | |
| Restaurant/bar facilities: | | Restaurant/bar facilities: | |
Owner occupied | Owner occupied | 18,031 | | — | | 18,031 | | 1.9 | % | Owner occupied | 22,361 | | — | | 22,361 | | 1.3 | % |
Non-owner occupied | Non-owner occupied | 5,059 | | — | | 5,059 | | 0.5 | % | Non-owner occupied | 14,644 | | — | | 14,644 | | 0.9 | % |
Total gas station facilities | 23,090 | | — | | 23,090 | | 2.4 | % | |
Agriculture | 19,586 | | 734 | | 20,320 | | 2.2 | % | |
Total restaurant/bar facilities | | Total restaurant/bar facilities | 37,005 | | — | | 37,005 | | 2.2 | % |
| Agriculture | | Agriculture | 32,865 | | 1,976 | | 34,841 | | 2.1 | % |
Other (a) | Other (a) | 156,532 | | 6,005 | | 162,537 | | 17.3 | % | Other (a) | 540,697 | | 26,225 | | 566,922 | | 33.8 | % |
Total commercial real estate, other | Total commercial real estate, other | $ | 913,239 | | $ | 28,214 | | $ | 941,453 | | 100.0 | % | Total commercial real estate, other | $ | 1,629,116 | | $ | 49,849 | | $ | 1,678,965 | | 100.0 | % |
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(a) All other outstanding balances are less than 2% of the total loan portfolio.
Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and West Virginia.Maryland. In all other states, the aggregate outstanding balances of commercial loans in each state were not materialless than 4% of total loans at either September 30, 20202021 or December 31, 2019.2020. The repayment of premium finance loans are secured by the underlying insurance policy, and therefore, have no geographical impact from a repayment perspective. The repayment of leases are secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.
COVID-19 Loan Impacts
Small Business Administration Paycheck Protection Program
In March 2020, the CARES Act created a new loan guarantee program called 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 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 as of September 30, 2020, Peoples had principal balances ofthe PPP loans of $472.0originated (including $28.2 million net of payoffs duringacquired in the quarter,merger with Premier) are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which totaled $11.6 million at September 30, 2020. For the third quarter of 2020, Peoples recorded amortization of net deferred loan origination fees of $1.9 million on PPP loans, and had recorded $3.8 million for the first nine months of 2020. The 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.
JobsOhio Partnership
Peoples has also been selected to partner with JobsOhio, a private nonprofit organization charged with economic development. JobsOhio will provide a 90% guarantee on the first $25 million of increased exposure to small businesses, where customers may obtain up to $200,000 of additional financing, subject to certain eligibility requirements. Through September 30, 2020, Peoples had assisted 176 Ohio small businesses with approximately $10.0 million in loans.
Payment Relief and Loan Modifications
Peoples is also providing relief solutions to consumer and commercial borrowers. For consumer borrowers, Peoples is providing interest-only payment options to customers for a period of up to 90 days, with the ability to extend if needed. Peoples is also providing forbearance to its consumer borrowers which allows them to defer their principal and interest payments for up to 90 days for non-residential real estate consumer The following tables detail Peoples' PPP loans and up to 180 days for residential real estate consumer loans. In addition, for commercial borrowers who meet certain criteria, Peoples is providing interest-only payment options, principal and interest deferrals, and increased financing. Peoples continues to prudently work with borrowers and review any additional requests for deferment more closely. These requests are maintained within the CARES Act guidance and have not exceeded twelve consecutive months of deferred payment.related income:
The majority of the modifications granted to customers expired during the third quarter of 2020, and at September 30, 2020, Peoples had approximately $13.6 million of deferments outstanding. Of this total, commercial loan deferments comprised $8.7 million, while consumer loans totaled $4.9 million. Borrowers within the lodging industry account for nearly 60% of the additional deferments requested. The lodging industry continues to be impacted by the COVID-19 pandemic, with a negative outlook for travel demand among both business and leisure customers. | | | | | | | | | | | | | | | | | |
(Dollars in millions) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
PPP aggregate outstanding principal balances | $ | 139.8 | | $ | 194.7 | | $ | 349.9 | | $ | 374.8 | | $ | 472.0 | |
PPP net deferred loan origination fees | 4.0 | | 7.1 | | 9.3 | | 7.9 | | 11.6 | |
Portfolio Exposure
Peoples has evaluated its portfolio exposure to certain industries most impacted by the COVID-19 pandemic, which includes restaurants, lodging and lodging related businesses, floorplans, office and retail facilities, as well as daycare facilities. Peoples has been proactive in working with clients within these industries, and is keeping in close communication with them. Peoples has made loan modifications, when it is prudent to do so, and is monitoring early warnings signs of risk within these industry segments. These segments comprise approximately 60% of the total commercial loan modifications approved in response to COVID-19.
Below is a table detailing Peoples' outstanding balance of loans as of September 30, 2020, within certain industries that have been impacted:
| | | | | | | | | | | | | | |
(Dollars in thousands) | Outstanding Balance | % of Total Loans | Loan-to-Value | Total Commitment |
Restaurants (a) | $ | 217,275 | | 6.3 | % | 60.3 | % | $ | 229,645 | |
Multifamily | 132,602 | | 3.8 | % | 64.7 | % | 184,788 | |
Floorplans (b) | 68,600 | | 2.0 | % | 100.0 | % | 146,100 | |
Assisted living facilities and nursing homes (c) | 95,897 | | 2.8 | % | 72.3 | % | 121,990 | |
Lodging and lodging related (d) | 73,893 | | 2.1 | % | 67.5 | % | 84,689 | |
Total | $ | 588,267 | | 17.0 | % | | $ | 767,212 | |
(a)Restaurants outstanding balance includes $60.3 million in PPP loans.
(b)Individual units financed under dealer floor plan agreements are generally financed in line with industry standards at 100% of manufacturer invoice, auction cost, or wholesale value.
(c)Assisted living facilities and nursing homes outstanding balance includes $15.5 million in PPP loans.
(d)Lodging and lodging related outstanding balance includes $2.3 million in PPP loans.
Compared to June 30, 2020, outstanding balances to impacted industries decreased $1.1 million, while total commitments grew by $20.1 million, with most of the increase in commitment amounts related to floorplans. The additional floorplan commitment was related to a dealership that is part of a larger auto group and has strong credit metrics.
Approximately 73% of Peoples' outstanding balance to restaurants was to McDonald's franchise operators, which have additional guarantor support, as well as McDonald's corporate assistance with rent and service fee deferments. Peoples had approximately $115.9 million of deferments to restaurant operators granted due to the pandemic. Of the $115.9 million of deferments, approximately $95.3 million of the deferments expired in June and July, while another $15.4 million expired at the end of August.
The total restaurant portfolio outstanding balance of non-McDonald’s operators was $58.7 million at September 30, 2020, which included $27.4 million of PPP loans. The loans to non-McDonald's operators included $4.8 million of loans for which there is a government guarantee enhancement through the CARES Act. Two loans remained on deferment at September 30, 2020, totaling approximately $2.3 million in outstanding balances.
In addition, for multifamily loans, Peoples has sponsors with extensive experience and substantial liquidity. The top five relationships, in terms of aggregate credit exposures, accounted for 45% of the portfolio balances. The top five relationships consist of five properties with an average loan-to-value of 70%. Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 80%. Additional support is provided by guarantor strength on the majority of these relationships. One of the largest loans in the portfolio accounts for 11% of the portfolio balances. The loan has notable guarantor support, with a reported unencumbered liquidity level of more than $200 million.
For floorplan loans, Peoples has a detailed monitoring and audit process, and performs collateral audits frequently.
Approximately 80% of the assisted living facilities and nursing homes are private pay and are not dependent upon Medicare, and as of September 30, 2020, Peoples had no requests from these customers for relief.
The majority of Peoples' lodging and lodging related outstanding balances are loans to larger established franchises. This portfolio includes $2.3 million of PPP loans. The top three relationships, in terms of aggregate credit exposures, account for 70% of the portfolio balance. Peoples has provided payment relief to 80% of the lodging and lodging related portfolio, which consists of primarily 13 properties, which have an average loan-to-value ratio of 68%. Peoples' commercial loan policy for this specific property type is a maximum loan-to-value of 65%. These properties include ten nationally franchised locations, while two of the remaining properties are cabin rentals, which have not been as heavily impacted by the pandemic. The guarantor liquidity is strong on half of the properties securing the lodging and lodging related portfolio.
Peoples' exposure to energy loans was not material at September 30, 2020. Energy loan balances were $3.8 million, or less than 1% of total loans, as of September 30, 2020, with a total commitment of $5.6 million. Peoples' energy loans are mostly to operators who provide support services for oil and gas companies.
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in millions) | | 2021 | 2020 |
Amortization of net deferred loan origination fees | $ | 3.1 | | $ | 3.4 | | $ | 1.9 | | | $ | 11.2 | | $ | 3.8 | |
Allowance for Credit Losses
The amount of the allowance for credit losses at the end of each period represents management's estimate of expected losses from existing loans based upon its quarterly analysis of the loan portfolio. While this process involves allocations being made to specific loans and pools of loans, the entire allowance is available for all losses expected within the loan portfolio.
The following details management's allocation of the allowance for credit losses:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Commercial real estate | Commercial real estate | $ | 21,549 | | $ | 21,810 | | $ | 13,884 | | $ | 7,333 | | $ | 8,466 | | Commercial real estate | $ | 39,252 | | $ | 18,147 | | $ | 18,663 | | $ | 19,423 | | $ | 21,549 | |
Commercial and industrial | Commercial and industrial | 14,085 | | 10,106 | | 8,743 | | 8,432 | | 7,162 | | Commercial and industrial | 13,378 | | 8,686 | | 10,108 | | 12,763 | | 13,099 | |
Premium finance | | Premium finance | 1,137 | | 998 | | 1,160 | | 1,095 | | 986 | |
Leases | | Leases | 4,505 | | 3,715 | | — | | — | | — | |
Total commercial | Total commercial | 35,634 | | 31,916 | | 22,627 | | 15,765 | | 15,628 | | Total commercial | 58,272 | | 31,546 | | 29,931 | | 33,281 | | 35,634 | |
Residential real estate | Residential real estate | 5,988 | | 6,380 | | 5,744 | | 1,191 | | 1,162 | | Residential real estate | 9,568 | | 4,837 | | 4,935 | | 6,044 | | 5,988 | |
Home equity lines of credit | Home equity lines of credit | 1,797 | | 1,755 | | 1,695 | | 546 | | 567 | | Home equity lines of credit | 2,224 | | 1,504 | | 1,494 | | 1,860 | | 1,797 | |
Consumer, indirect | Consumer, indirect | 12,772 | | 12,293 | | 10,878 | | 2,937 | | 3,247 | | Consumer, indirect | 6,160 | | 8,841 | | 7,522 | | 8,030 | | 12,772 | |
Consumer, direct | Consumer, direct | 1,861 | | 1,941 | | 1,803 | | 294 | | 339 | | Consumer, direct | 1,079 | | 1,161 | | 970 | | 1,081 | | 1,861 | |
Consumer | Consumer | 14,633 | | 14,234 | | 12,681 | | 3,231 | | 3,586 | | Consumer | 7,239 | | 10,002 | | 8,492 | | 9,111 | | 14,633 | |
Deposit account overdrafts | Deposit account overdrafts | 76 | | 77 | | 86 | | 94 | | 128 | | Deposit account overdrafts | 79 | | 53 | | 45 | | 63 | | 76 | |
Originated allowance for credit losses | 58,128 | | 54,362 | | 42,833 | | 20,827 | | 21,071 | | |
| Acquired allowance for credit losses(a) | — | | — | | — | | 729 | | 514 | | |
Allowance for credit losses(b) | $ | 58,128 | | $ | 54,362 | | $ | 42,833 | | $ | 21,556 | | $ | 21,585 | | |
Allowance for credit losses | | Allowance for credit losses | $ | 77,382 | | $ | 47,942 | | $ | 44,897 | | $ | 50,359 | | $ | 58,128 | |
As a percent of total loans | As a percent of total loans | 1.67 | % | 1.62 | % | 1.47 | % | 0.75 | % | 0.76 | % | As a percent of total loans | 1.72 | % | 1.42 | % | 1.32 | % | 1.48 | % | 1.67 | % |
(a) AsDuring the third quarter of March 31, 2020, the amounts previously included2021, Peoples recorded a provision for credit losses of $11.0 million in "acquiredorder to establish an allowance for credit losses" is includedlosses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the originatedallowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. The increases at September 30, 2021 compared to prior periods are due to the Premier and NSL acquisitions.
During the second quarter, Peoples increased its allowance for credit losses due to the establishment of an allowance for credit losses on the leases acquired from NSL. Peoples recorded $3.3 million in provision for credit losses during the second quarter of 2021 in order to establish the allowance for credit losses for the acquired leases and $493,000 to establish the allowance for credit losses on leases identified as purchase credit deteriorated at the acquisition date and added an additional $427,000 in allowance for credit losses on growth in leases during the second quarter of 2021. The decreases in the allowance for credit losses for March 31, 2021 compared to December 31, 2020, and from December 31, 2020 compared to September 30, 2020, were due to developments related to COVID-19 and the resulting positive impact on the economic assumptions used in estimating the allowance for credit losses under the CECL model.
(b) As of March 31, 2020, Peoples calculated the allowance for credit losses using the CECL model, while previous periods used the incurred loss model.
Peoples implemented ASU 2016-13 on January 1, 2020, which resulted in an increase of $5.8 million in allowance for credit losses. The remaining significant increase in the allowance for credit losses at March 31, 2020 compared to December 31, 2019 was mostly due to the recent COVID-19 pandemic, and the resulting impact on economic forecasts utilized in the CECL model. Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors.
During the third quarter of 2020, Peoples recorded a specific reserve of $1.9 million on a commercial relationship that had been uniquely impacted by COVID-19. In addition, Peoples increased its allowance for credit losses mostly due to the premium finance company acquisition completed on July 1, 2020, which included $84.8 million in loans at the acquisition date. The economic forecasts at the end of September 2020 included more positive indications within unemployment and Ohio Gross Domestic Product compared to June 30, 2020. The PPP loans originated during the second and third quarter of 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit losses at September 30, 2020 and June 30, 2020. The PPP loans did have a negative impact on the allowance for credit losses as a percent of total loans at September 30, 2020 and June 30, 2020, as they were included in total loans but had no related allowance for credit losses. The PPP loans reduced the allowance for credit losses as a percent of total loans by 26 basis points at September 30, 2020 and 25 basis points at June 30, 2020.
During the second quartermuch of 2020, Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts atthat included the endimpact of June 2020.COVID-19 on certain economic factors. These forecasts included higher unemployment rates nationally and in Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL
model, compared to March 31,prior periods. During the third quarter of 2020, and January 1, 2020. This was similar to the impact that COVID-19 had on economic forecasts at March 31, 2020, whichPeoples also resulted in a higherrecorded allowance for credit losses compared to December 31, 2019.associated with the loans acquired from Triumph Premium Finance on July 1, 2020, which had included $84.7 million in loans at the acquisition date.
Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2020 Form 10-K and "Note 4 Loans"Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
The following table summarizes Peoples’ net charge-offs and recoveries: | | | | | | | | | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Gross charge-offs: | | | | | |
| | | | | |
Commercial real estate, other | $ | — | | $ | 4 | | $ | 157 | | $ | 274 | | $ | 109 | |
| | | | | |
Commercial and industrial | 654 | | 5 | | 293 | | 465 | | 146 | |
Premium finance | 7 | | 7 | | 16 | | 1 | | 2 | |
Leases | 431 | | 525 | | — | | — | | — | |
Residential real estate | 44 | | 136 | | 133 | | 98 | | 121 | |
Home equity lines of credit | 180 | | 4 | | 12 | | 80 | | — | |
Consumer, indirect | 416 | | 269 | | 505 | | 498 | | 370 | |
Consumer, direct | 29 | | 31 | | 36 | | 59 | | 15 | |
Consumer | 445 | | 300 | | 541 | | 557 | | 385 | |
Deposit account overdrafts | 135 | | 89 | | 103 | | 139 | | 202 | |
Total gross charge-offs | $ | 1,896 | | $ | 1,070 | | $ | 1,255 | | $ | 1,614 | | $ | 965 | |
Recoveries: | | | | | |
| | | | | |
Commercial real estate, other | $ | 4 | | $ | 4 | | $ | — | | $ | 74 | | $ | 4 | |
| | | | | |
Commercial and industrial | 4 | | 18 | | — | | 512 | | — | |
Premium finance | — | | — | | — | | — | | — | |
Leases | 120 | | 110 | | — | | — | | — | |
Residential real estate | 48 | | 40 | | 15 | | 45 | | 100 | |
Home equity lines of credit | 37 | | — | | 4 | | 1 | | 2 | |
Consumer, indirect | 43 | | 63 | | 105 | | 41 | | 64 | |
Consumer, direct | 17 | | 11 | | 26 | | 12 | | 13 | |
Consumer | 60 | | 74 | | 131 | | 53 | | 77 | |
Deposit account overdrafts | 37 | | 44 | | 54 | | 30 | | 47 | |
Total recoveries | $ | 310 | | $ | 290 | | $ | 204 | | $ | 715 | | $ | 230 | |
Net charge-offs (recoveries): | | | | | |
| | | | | |
Commercial real estate, other | $ | (4) | | $ | — | | $ | 157 | | $ | 200 | | $ | 105 | |
| | | | | |
Commercial and industrial | 650 | | (13) | | 293 | | (47) | | 146 | |
Premium finance | 7 | | 7 | | 16 | | 1 | | 2 | |
Leases | 311 | | 415 | | — | | — | | — | |
Residential real estate | (4) | | 96 | | 118 | | 53 | | 21 | |
Home equity lines of credit | 143 | | 4 | | 8 | | 79 | | (2) | |
Consumer, indirect | 373 | | 206 | | 400 | | 457 | | 306 | |
Consumer, direct | 12 | | 20 | | 10 | | 47 | | 2 | |
Consumer | 385 | | 226 | | 410 | | 504 | | 308 | |
Deposit account overdrafts | 98 | | 45 | | 49 | | 109 | | 155 | |
Total net charge-offs | $ | 1,586 | | $ | 780 | | $ | 1,051 | | $ | 899 | | $ | 735 | |
The following table summarizes Peoples’ net charge-offs and recoveries:
| | | Three Months Ended | | Three Months Ended |
(Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Gross charge-offs: | | | | | |
Ratio of net charge-offs to average total loans (annualized): | | Ratio of net charge-offs to average total loans (annualized): |
| Commercial real estate, other | Commercial real estate, other | $ | 109 | | $ | 135 | | $ | 10 | | $ | — | | $ | — | | Commercial real estate, other | — | % | — | % | 0.02 | % | 0.02 | % | 0.01 | % |
| Commercial and industrial | Commercial and industrial | 148 | | 15 | | 937 | | 738 | | 261 | | Commercial and industrial | 0.08 | % | — | % | 0.04 | % | (0.01) | % | 0.02 | % |
| Leases | | Leases | 0.03 | % | 0.05 | % | — | % | — | % | — | % |
Residential real estate | Residential real estate | 121 | | 16 | | 118 | | 55 | | 81 | | Residential real estate | — | % | 0.01 | % | 0.01 | % | 0.01 | % | — | % |
Home equity lines of credit | Home equity lines of credit | — | | 9 | | 14 | | 10 | | 36 | | Home equity lines of credit | 0.02 | % | — | % | — | % | — | % | — | % |
Consumer, indirect | Consumer, indirect | 370 | | 336 | | 721 | | 563 | | 447 | | Consumer, indirect | 0.04 | % | 0.02 | % | 0.05 | % | 0.05 | % | 0.03 | % |
Consumer, direct | Consumer, direct | 15 | | 51 | | 62 | | 61 | | 54 | | Consumer, direct | — | % | — | % | — | % | 0.01 | % | — | % |
Consumer | Consumer | 385 | | 387 | | 783 | | 624 | | 501 | | Consumer | 0.04 | % | 0.02 | % | 0.05 | % | 0.06 | % | 0.03 | % |
Deposit account overdrafts | Deposit account overdrafts | 202 | | 119 | | 213 | | 219 | | 283 | | Deposit account overdrafts | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.02 | % |
Total gross charge-offs | $ | 965 | | $ | 681 | | $ | 2,075 | | $ | 1,646 | | $ | 1,162 | | |
Recoveries: | | | |
| Commercial real estate, other | $ | 4 | | $ | 6 | | $ | 116 | | $ | 53 | | $ | 86 | | |
| Commercial and industrial | — | | 805 | | 1,204 | | 322 | | 81 | | |
Residential real estate | 100 | | 100 | | 57 | | 9 | | 87 | | |
Home equity lines of credit | 2 | | 8 | | 1 | | 1 | | 8 | | |
Consumer, indirect | 64 | | 72 | | 125 | | 41 | | 67 | | |
Consumer, direct | 13 | | 10 | | 14 | | 7 | | 5 | | |
Consumer | 77 | | 82 | | 139 | | 48 | | 72 | | |
Deposit account overdrafts | 47 | | 49 | | 60 | | 48 | | 51 | | |
Total recoveries | $ | 230 | | $ | 1,050 | | $ | 1,577 | | $ | 481 | | $ | 385 | | |
Net charge-offs (recoveries): | | |
| Commercial real estate, other | $ | 105 | | $ | 129 | | $ | (106) | | $ | (53) | | $ | (86) | | |
| Commercial and industrial | 148 | | (790) | | (267) | | 416 | | 180 | | |
Residential real estate | 21 | | (84) | | 61 | | 46 | | (6) | | |
Home equity lines of credit | (2) | | 1 | | 13 | | 9 | | 28 | | |
Consumer, indirect | 306 | | 264 | | 596 | | 522 | | 380 | | |
Consumer, direct | 2 | | 41 | | 48 | | 54 | | 49 | | |
Consumer | 308 | | 305 | | 644 | | 576 | | 429 | | |
Deposit account overdrafts | 155 | | 70 | | 153 | | 171 | | 232 | | |
Total net charge-offs (recoveries) | $ | 735 | | $ | (369) | | $ | 498 | | $ | 1,165 | | $ | 777 | | |
Ratio of net charge-offs (recoveries) to average total loans (annualized): | |
| Commercial real estate, other | 0.01 | % | 0.02 | % | (0.01) | % | (0.01) | % | (0.01) | % | |
| Commercial and industrial | 0.02 | % | (0.11) | % | (0.04) | % | 0.06 | % | 0.03 | % | |
Residential real estate | — | % | (0.01) | % | 0.01 | % | 0.01 | % | — | % | |
| Consumer, indirect | 0.03 | % | 0.03 | % | 0.08 | % | 0.07 | % | 0.05 | % | |
Consumer, direct | — | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | |
Consumer | 0.03 | % | 0.04 | % | 0.09 | % | 0.08 | % | 0.06 | % | |
Deposit account overdrafts | 0.02 | % | 0.01 | % | 0.02 | % | 0.02 | % | 0.03 | % | |
Total | Total | 0.08 | % | (0.05) | % | 0.07 | % | 0.16 | % | 0.11 | % | Total | 0.18 | % | 0.09 | % | 0.13 | % | 0.10 | % | 0.08 | % |
Each with "--%" not meaningful.
Net charge-offs during the third quarter of 20202021 were 0.08%0.18% of average total loans on an annualized basis. The increasesAlthough, gross charge-offs in net charge-offs during the third quarter of 2020many loan categories declined compared to the linked quarter, the primary factor in the increase of total gross charge-offs was one commercial and industrial loan charge-off of $500,000 during the firstquarter. Peoples recognized a $450,000 charge-off on a commercial and industrial loan relationship, while also recording a $508,000 recovery on a previously charged-off commercial and industrial loan relationship during the fourth quarter of 2020 were related to a $750,000 recovery during2020. During the second quarter of 2020, Peoples recorded a $750,000 recovery on a single commercial loan relationship that had been previously charged-off, while a $1.2 million recovery occurred during the first quarter of 2020 on the same relationship.
The following table details Peoples’ nonperforming assets:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Loans 90+ days past due and accruing (a): | | |
Loans 90+ days past due and accruing: | | Loans 90+ days past due and accruing: | |
| Commercial real estate, other | Commercial real estate, other | $ | 80 | | $ | 130 | | $ | — | | $ | 907 | | $ | 582 | | Commercial real estate, other | $ | 1,912 | | $ | 1,361 | | $ | 55 | | $ | — | | $ | 80 | |
| Commercial and industrial | Commercial and industrial | 74 | | — | | 806 | | 155 | | 572 | | Commercial and industrial | 98 | | 161 | | — | | 50 | | 74 | |
Premium finance | | Premium finance | 368 | | 216 | | 109 | | 205 | | — | |
Leases | | Leases | 1,736 | | 1,522 | | — | | — | | — | |
Residential real estate | Residential real estate | 2,548 | | 1,618 | | 557 | | 2,677 | | 3,095 | | Residential real estate | 1,156 | | 342 | | 662 | | 1,975 | | 2,548 | |
Home equity lines of credit | Home equity lines of credit | 27 | | 46 | | 143 | | 108 | | 183 | | Home equity lines of credit | 61 | | 60 | | 180 | | 82 | | 27 | |
Consumer, indirect | Consumer, indirect | 86 | | 57 | | — | | — | | — | | Consumer, indirect | — | | 39 | | 24 | | 39 | | 86 | |
Consumer, direct | Consumer, direct | — | | 29 | | 37 | | 85 | | 83 | | Consumer, direct | 32 | | 40 | | 14 | | 17 | | — | |
Consumer | Consumer | 86 | | 86 | | 37 | | 85 | | 83 | | Consumer | 32 | | 79 | | 38 | | 56 | | 86 | |
Total loans 90+ days past due and accruing | Total loans 90+ days past due and accruing | $ | 2,815 | | $ | 1,880 | | $ | 1,543 | | $ | 3,932 | | $ | 4,515 | | Total loans 90+ days past due and accruing | $ | 5,363 | | $ | 3,741 | | $ | 1,044 | | $ | 2,368 | | $ | 2,815 | |
Nonaccrual loans (a): | | | |
Nonaccrual loans: | | Nonaccrual loans: | | |
Construction | Construction | $ | 4 | | $ | 4 | | $ | 99 | | 411 | | $ | 230 | | Construction | $ | — | | $ | 4 | | $ | 4 | | $ | 4 | | $ | 4 | |
Commercial real estate, other | Commercial real estate, other | 8,762 | | 9,413 | | 9,167 | | 6,699 | | 6,723 | | Commercial real estate, other | 17,207 | | 7,965 | | 8,084 | | 8,744 | | 8,762 | |
Commercial real estate | Commercial real estate | 8,766 | | 9,417 | | 9,266 | | 7,110 | | 6,953 | | Commercial real estate | 17,207 | | 7,969 | | 8,088 | | 8,748 | | 8,766 | |
Commercial and industrial | Commercial and industrial | 4,067 | | 4,745 | | 4,408 | | 1,824 | | 883 | | Commercial and industrial | 4,133 | | 3,938 | | 4,067 | | 4,017 | | 4,067 | |
Leases | | Leases | 1,411 | | — | | — | | — | | — | |
Residential real estate | Residential real estate | 6,027 | | 8,867 | | 6,156 | | 4,471 | | 4,237 | | Residential real estate | 8,046 | | 5,811 | | 6,182 | | 6,080 | | 6,027 | |
Home equity lines of credit | Home equity lines of credit | 754 | | 687 | | 978 | | 955 | | 893 | | Home equity lines of credit | 661 | | 572 | | 624 | | 708 | | 754 | |
Consumer, indirect | Consumer, indirect | 801 | | 802 | | 637 | | 629 | | 568 | | Consumer, indirect | 850 | | 704 | | 825 | | 883 | | 801 | |
Consumer, direct | Consumer, direct | 148 | | 208 | | 122 | | 48 | | 55 | | Consumer, direct | 177 | | 100 | | 146 | | 160 | | 148 | |
Consumer | Consumer | 949 | | 1,010 | | 759 | | 677 | | 623 | | Consumer | 1,027 | | 804 | | 971 | | 1,043 | | 949 | |
Total nonaccrual loans | Total nonaccrual loans | $ | 20,563 | | $ | 24,726 | | $ | 21,567 | | $ | 15,037 | | $ | 13,589 | | Total nonaccrual loans | $ | 32,485 | | $ | 19,094 | | $ | 19,932 | | $ | 20,596 | | $ | 20,563 | |
Nonaccrual troubled debt restructurings ("TDRs"): | Nonaccrual troubled debt restructurings ("TDRs"): | | Nonaccrual troubled debt restructurings ("TDRs"): | |
| Commercial real estate, other | Commercial real estate, other | $ | 772 | | $ | 265 | | $ | 410 | | $ | 102 | | $ | 112 | | Commercial real estate, other | $ | 94 | | $ | 99 | | $ | 337 | | 367 | | $ | 772 | |
Commercial and industrial | 2,250 | | — | | 602 | | 331 | | 332 | | |
Residential real estate | 2,481 | | 38 | | 2,484 | | 1,890 | | 1,770 | | |
Home equity lines of credit | 165 | | — | | 174 | | 210 | | 194 | | |
Consumer, indirect | 160 | | — | | 197 | | 211 | | 203 | | |
Consumer, direct | 45 | | — | | 48 | | — | | — | | |
Consumer | 205 | | — | | 245 | | 211 | | 203 | | |
Total nonaccrual TDRs | $ | 5,873 | | $ | 303 | | $ | 3,915 | | $ | 2,744 | | $ | 2,611 | | |
Total nonperforming loans ("NPLs") | $ | 29,251 | | $ | 26,909 | | $ | 27,025 | | $ | 21,713 | | $ | 20,715 | | |
OREO: | | | |
Commercial | $ | 145 | | $ | 145 | | $ | 145 | | $ | 145 | | $ | 145 | | |
Residential | $ | 148 | | $ | 91 | | $ | 81 | | $ | 82 | | $ | 144 | | |
Total OREO | $ | 293 | | $ | 236 | | $ | 226 | | $ | 227 | | $ | 289 | | |
Total nonperforming assets ("NPAs") | $ | 29,544 | | $ | 27,145 | | $ | 27,251 | | $ | 21,940 | | $ | 21,004 | | |
Criticized loans (b) | $ | 123,219 | | $ | 105,499 | | $ | 90,881 | | $ | 96,830 | | $ | 100,434 | | |
Classified loans (c) | 76,009 | | 66,567 | | 68,787 | | 66,154 | | 58,938 | | |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 |
Asset Quality Ratios: | | | | | |
NPLs as a percent of total loans (d)(e) | 0.84 | % | 0.80 | % | 0.93 | % | 0.75 | % | 0.73 | % |
NPAs as a percent of total assets (d)(e) | 0.60 | % | 0.54 | % | 0.61 | % | 0.50 | % | 0.48 | % |
NPAs as a percent of total loans and OREO (d)(e) | 0.85 | % | 0.80 | % | 0.94 | % | 0.76 | % | 0.74 | % |
Allowance for credit losses as a percent of NPLs (d)(e) | 198.72 | % | 202.02 | % | 158.49 | % | 99.28 | % | 104.20 | % |
Criticized loans as a percent of total loans (b)(d) | 3.55 | % | 3.14 | % | 3.12 | % | 3.37 | % | 3.52 | % |
Classified loans as a percent of total loans (c)(d) | 2.19 | % | 1.98 | % | 2.36 | % | 2.30 | % | 2.07 | % |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Commercial and industrial | 1,223 | | 1,774 | | 2,034 | | 2,175 | | 2,250 | |
Residential real estate | 1,689 | | 1,784 | | 2,064 | | 2,295 | | 2,481 | |
Home equity lines of credit | 315 | | 129 | | 156 | | 159 | | 165 | |
Consumer, indirect | 219 | | 193 | | 206 | | 190 | | 160 | |
Consumer, direct | 9 | | 6 | | 15 | | 11 | | 45 | |
Consumer | 228 | | 199 | | 221 | | 201 | | 205 | |
Total nonaccrual TDRs | $ | 3,549 | | $ | 3,985 | | $ | 4,812 | | $ | 5,197 | | $ | 5,873 | |
Total nonperforming loans ("NPLs") | $ | 41,397 | | $ | 26,820 | | $ | 25,788 | | $ | 28,161 | | $ | 29,251 | |
OREO: | | | | | |
Commercial | $ | 10,804 | | $ | — | | $ | — | | $ | — | | $ | 145 | |
Residential | $ | 464 | | $ | 239 | | $ | 134 | | $ | 134 | | $ | 148 | |
Total OREO | $ | 11,268 | | $ | 239 | | $ | 134 | | $ | 134 | | $ | 293 | |
Total nonperforming assets ("NPAs") | $ | 52,665 | | $ | 27,059 | | $ | 25,922 | | $ | 28,295 | | $ | 29,544 | |
Criticized loans (a) | $ | 234,845 | | $ | 113,802 | | $ | 116,424 | | $ | 126,619 | | $ | 123,219 | |
Classified loans (b) | 142,628 | | 69,166 | | 76,095 | | 72,518 | | 76,009 | |
Asset Quality Ratios (c): | | | | | |
NPLs as a percent of total loans (d) | 0.92 | % | 0.79 | % | 0.76 | % | 0.82 | % | 0.84 | % |
NPAs as a percent of total assets (d) | 0.75 | % | 0.53 | % | 0.50 | % | 0.59 | % | 0.60 | % |
NPAs as a percent of total loans and OREO(d) | 1.17 | % | 0.80 | % | 0.76 | % | 0.84 | % | 0.85 | % |
Allowance for credit losses as a percent of NPLs (d) | 186.93 | % | 178.75 | % | 174.10 | % | 180.14 | % | 198.72 | % |
Criticized loans as a percent of total loans (a) | 5.23 | % | 3.37 | % | 3.41 | % | 3.72 | % | 3.55 | % |
Classified loans as a percent of total loans (b) | 3.18 | % | 2.05 | % | 2.23 | % | 2.13 | % | 2.19 | % |
(a) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting.
(b) Includes loans categorized as special mention, substandard or doubtful.
(c)(b) Includes loans categorized as substandard or doubtful.
(d)(c) Data presented as of the end of the period indicated.
(e)(d) Nonperforming loans include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.
During the third quarter of 2020,2021, nonperforming assets increased $2.4$25.6 million, or 95%, compared to June 30, 2020.2021. The growth was partially due to an increase in nonaccrual loans which was relatednonperforming assets compared to the relationship for which Peoples placed a specific reserve at September 30, 2020. Loans 90+ days past dueprior quarter was primarily attributable to nonperforming loans and accruing also increased compared to June 30, 2020, and was mostly due to several smaller residentialother real estate loans.owned acquired from Premier. The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios both increased compared to June 30, 2020,2021, due to the additionalacquired nonperforming loans during the third quarterloans. The increase in nonperforming assets of 2020. The decline in the ratios$1.1 million at June 30, 20202021, compared to March 31, 2020,2021, was largelyprimarily due to the additional PPPacquisition of NSL. Nonperforming assets declined $2.3 million at March 31, 2021, compared to December 31, 2020, and was mostly due to several small relationships in both loans originated during the second quarter of 2020, which increased total loans and total assets.
The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to theand nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting.loans.
Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $17.7$121.0 million, or 17%106%, compared to June 30, 20202021 and $26.4increased $111.6 million, or 27%91%, compared to December 31, 2019. September 30, 2020. The increase in the amount of criticized loans compared to June 30, 2021 was the result of criticized loans acquired from Premier, offset by the pay-off of six commercial and industrial loans with an aggregate principal balance of $12.3 million and several smaller loans. Criticized loans declined $2.6 million at June 30, 2021, which was primarily due to the payoff of several smaller commercial loans.
Classified loans, which are those categorized as substandard or doubtful, grew $9.4increased by $73.5 million, or 14%106%, compared to June 30, 2020,2021, and were up $9.9$66.6 million, or 15%88%, compared to December 31, 2019. For the third quarter of 2020, $17.5 million of downgrades to criticizedSeptember 30, 2020. The increase was driven by loans were related to COVID-19, with classified loans including $9.3 million of COVID-related downgrades.acquired from Premier.
On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that arewere 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 inTDRs 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) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Non-interest-bearing deposits (a) | Non-interest-bearing deposits (a) | $ | 982,912 | | $ | 1,005,732 | | $ | 727,266 | | $ | 671,208 | | $ | 677,232 | | Non-interest-bearing deposits (a) | $ | 1,559,993 | | $ | 1,181,045 | | $ | 1,206,034 | | $ | 997,323 | | $ | 982,912 | |
Interest-bearing deposits: | Interest-bearing deposits: | | | Interest-bearing deposits: | | |
Interest-bearing demand accounts (a) | Interest-bearing demand accounts (a) | 666,134 | | 666,181 | | 637,011 | | 635,720 | | 622,496 | | Interest-bearing demand accounts (a) | 1,140,639 | | 732,478 | | 722,470 | | 692,113 | | 666,134 | |
Savings accounts | Savings accounts | 589,625 | | 580,703 | | 527,295 | | 521,914 | | 526,372 | | Savings accounts | 1,016,755 | | 689,086 | | 676,345 | | 628,190 | | 589,625 | |
Retail certificates of deposit ("CDs") | Retail certificates of deposit ("CDs") | 461,216 | | 474,593 | | 487,153 | | 490,830 | | 488,942 | | Retail certificates of deposit ("CDs") | 691,680 | | 417,466 | | 433,214 | | 445,930 | | 461,216 | |
Money market deposit accounts | Money market deposit accounts | 581,398 | | 598,641 | | 485,999 | | 469,893 | | 441,989 | | Money market deposit accounts | 637,635 | | 547,412 | | 586,099 | | 591,373 | | 581,398 | |
Governmental deposit accounts | Governmental deposit accounts | 409,967 | | 377,787 | | 400,184 | | 293,908 | | 337,941 | | Governmental deposit accounts | 679,305 | | 498,390 | | 511,937 | | 385,384 | | 409,967 | |
Brokered deposits | Brokered deposits | 260,753 | | 321,247 | | 133,522 | | 207,939 | | 262,230 | | Brokered deposits | 106,013 | | 166,746 | | 168,130 | | 170,146 | | 260,753 | |
Total interest-bearing deposits | Total interest-bearing deposits | 2,969,093 | | 3,019,152 | | 2,671,164 | | 2,620,204 | | 2,679,970 | | Total interest-bearing deposits | 4,272,027 | | 3,051,578 | | 3,098,195 | | 2,913,136 | | 2,969,093 | |
Total deposits | Total deposits | $ | 3,952,005 | | $ | 4,024,884 | | $ | 3,398,430 | | $ | 3,291,412 | | $ | 3,357,202 | | Total deposits | $ | 5,832,020 | | $ | 4,232,623 | | $ | 4,304,229 | | $ | 3,910,459 | | $ | 3,952,005 | |
Demand deposits as a percent of total deposits | | Demand deposits as a percent of total deposits | 46 | % | 45 | % | 45 | % | 43 | % | 42 | % |
|
(a)The sum of amounts presented is considered total demand deposits.
At September 30, 2020,2021, period-end deposits decreased $72.9 million,increased $1.6 billion, or 2%38%, compared to June 30, 2020,2021, and increased $594.8 million,$1.9 billion, or 18%48%, compared to September 30, 2019.2020. The increase in total deposits compared to June 30, 2021 was driven primarily by $1.8 billion in deposits acquired in the merger with Premier including $392.2 million in non-interest bearing deposits, $652.9 million in interest-bearing demand accounts, $327.0 million in savings accounts, $285.4 million in retail CDs, $155.6 million in money market accounts and $11.1 million in brokered deposits. The decrease in total deposits at June 30, 2021 compared to the second quarter of 2020March 31, 2021 was related to decreasesdeclines in brokeredmoney market deposits, non-interest bearing deposits, and retail CDs, which were partially offset by anCDs. At March 31, 2021, compared to December 31, 2020, Peoples experienced a significant increase in governmental deposits. As brokered CDs and retail CDs matured, the liquiditydeposit accounts, which was used for the purchase of the premium finance company at the beginning of the third quarter of 2020. The growthmostly due to seasonal fluctuation within these accounts.
Total deposits in non-interest-bearing deposits during the second quarter was relatedall periods presented were higher due to customers maintaining higherlarger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic. In prior quarterly periods in the table above, Peoples experienced increases in mostlymost low-cost deposit categories.
In the prior quarterly periods noted in the table above, Peoples had reduced its reliance on higher-rate brokered deposits in each quarterly period, beginning after June 30, 2020. This decline was largely due to the increase in deposit balances from customers, which included one-way buy Certificateallowed Peoples to reduce its position in the higher-cost brokered CDs during each period. As part of Deposit Account Registry Services. This was partially offset by the issuance ofits funding strategy, Peoples hedges 90-day brokered deposits to fundwith interest rate swaps. During each of the fourth and third quarters of 2019, Peoples issued $10.0 million of 90-day brokered deposits to fund one interest rate swap with a notional value of $10.0 million. The swap willswaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits. TheAs of September 30, 2021, Peoples had 16 effective interest rate swaps, with an aggregate notional value of $150.0 million, of which $100.0 million were designated as cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps.
Total demand deposit accounts comprised 42% The remaining $50.0 million of total deposits at September 30, 2020 and June 30, 2020, and 39% at September 30, 2019.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 continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts, while utilizing brokered deposits as a funding source when necessary.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) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Short-term borrowings: | Short-term borrowings: | | Short-term borrowings: | |
Overnight borrowings | $ | — | | $ | — | | $ | 64,000 | | $ | 141,000 | | $ | 106,000 | | |
| FHLB 90-day advances | FHLB 90-day advances | 110,000 | | 110,000 | | 110,000 | | 110,000 | | 110,000 | | FHLB 90-day advances | $ | 50,000 | | $ | — | | $ | — | | $ | — | | $ | 110,000 | |
Current portion of long-term FHLB advances | Current portion of long-term FHLB advances | 25,000 | | 25,000 | | 45,000 | | 23,009 | | 23,069 | | Current portion of long-term FHLB advances | 15,000 | | 15,000 | | 20,000 | | 20,000 | | 25,000 | |
Retail repurchase agreements | Retail repurchase agreements | 47,063 | | 42,912 | | 40,661 | | 42,968 | | 49,081 | | Retail repurchase agreements | 119,693 | | 51,496 | | 47,868 | | 53,261 | | 47,063 | |
| Total short-term borrowings | Total short-term borrowings | $ | 182,063 | | $ | 177,912 | | $ | 259,661 | | $ | 316,977 | | $ | 288,150 | | Total short-term borrowings | $ | 184,693 | | $ | 66,496 | | $ | 67,868 | | $ | 73,261 | | $ | 182,063 | |
Long-term borrowings: | Long-term borrowings: | | | Long-term borrowings: | | |
FHLB advances | FHLB advances | $ | 103,815 | | $ | 105,005 | | $ | 125,300 | | $ | 75,672 | | $ | 76,785 | | FHLB advances | $ | 86,483 | | $ | 87,393 | | $ | 102,645 | | $ | 102,957 | | $ | 103,815 | |
| Junior subordinated debt securities | Junior subordinated debt securities | 7,571 | | 7,531 | | 7,491 | | 7,451 | | 7,409 | | Junior subordinated debt securities | 12,928 | | 7,688 | | 7,650 | | 7,611 | | 7,571 | |
Total long-term borrowings | Total long-term borrowings | $ | 111,386 | | $ | 112,536 | | $ | 132,791 | | $ | 83,123 | | $ | 84,194 | | Total long-term borrowings | $ | 99,411 | | $ | 95,081 | | $ | 110,295 | | $ | 110,568 | | $ | 111,386 | |
Total borrowed funds | Total borrowed funds | $ | 293,449 | | $ | 290,448 | | $ | 392,452 | | $ | 400,100 | | $ | 372,344 | | Total borrowed funds | $ | 284,104 | | $ | 161,577 | | $ | 178,163 | | $ | 183,829 | | $ | 293,449 | |
Peoples' overnight borrowings are maintained in connection with the management of Peoples' daily liquidity position. Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. Total borrowed funds were relatively flatincreased 76% compared to June 30, 2020, as Peoples utilized cash and cash equivalents, coupled with paydowns and proceeds from maturities from its investment securities portfolio2021, primarily due to satisfy mostthe addition of its liquidity needs. As of September 30, 2020,$63.8 million retail
Peoples had 17 effective interest rate swaps, with an aggregate notional value of $160.0 million, $110.0 million of which were funded by FHLB 90-day advances, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0 million of interest rate swaps were funded by 90-day brokered deposits, 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.repurchase agreements from Premier. The decline in borrowed funds at JuneSeptember 30, 2020,2021, compared to March 31,September 30, 2020 was mostly due to swap funding being moved to brokered deposits rather than the reduced needuse of overnight borrowingsrolling 90-day advances to fund liquidity needs, as Peoples experienced an influx in deposit balanceswhich was partially offset by the acquired retail repurchase agreements from Premier during the period, whichthird quarter of 2021.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities increased $23.8 million, or 27%, compared to June 30, 2021 and increased $12.2 million compared to September 30, 2020. The increase compared to the end of the second quarter of 2021 was mostlythe result of an increase in interest payable and other liabilities offset by with changes related to PPP proceeds and government fiscal stimulus. During the firstfair value of swap derivatives at September 30, 2021. The increase compared to the end of the third quarter of 2020 Peoples borrowed $50.0 million through long-term FHLB putable, non-amortizing fixed-rates advances.
was also the result of an increase in accrued interest payable offset by a decrease in the fair value of swap derivatives . Additional information regarding Peoples' interest rate swaps can be found in "Note 910 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Capital/Stockholders’ Equity
At September 30, 2020,2021, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. In order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At September 30, 2020,2021, Peoples had a capital conservation buffer of 6.33%5.83%. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at September 30, 2020.
The following table details Peoples' risk-based capital levels and corresponding ratios:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Capital Amounts: | Capital Amounts: | | | Capital Amounts: | | |
Common Equity Tier 1 | Common Equity Tier 1 | $ | 398,553 | | $ | 408,619 | | $ | 415,768 | | $ | 427,415 | | $ | 417,468 | | Common Equity Tier 1 | $ | 567,172 | | $ | 383,502 | | $ | 418,089 | | $ | 409,400 | | $ | 398,553 | |
Tier 1 | Tier 1 | 406,124 | | 416,150 | | 423,259 | | 434,866 | | 424,877 | | Tier 1 | 580,100 | | 391,190 | | 425,739 | | 417,011 | | 406,124 | |
Total (Tier 1 and Tier 2) | Total (Tier 1 and Tier 2) | 445,101 | | 454,641 | | 459,727 | | 456,422 | | 446,462 | | Total (Tier 1 and Tier 2) | 637,802 | | 431,424 | | 463,872 | | 456,384 | | 445,101 | |
Net risk-weighted assets | Net risk-weighted assets | $ | 3,106,817 | | $ | 3,072,178 | | $ | 2,988,263 | | $ | 2,930,355 | | $ | 2,933,848 | | Net risk-weighted assets | $ | 4,611,321 | | $ | 3,382,736 | | $ | 3,365,637 | | $ | 3,146,767 | | $ | 3,106,817 | |
Capital Ratios: | Capital Ratios: | | Capital Ratios: | |
Common Equity Tier 1 | Common Equity Tier 1 | 12.83 | % | 13.30 | % | 13.91 | % | 14.59 | % | 14.23 | % | Common Equity Tier 1 | 12.30 | % | 11.34 | % | 12.42 | % | 13.01 | % | 12.83 | % |
Tier 1 | Tier 1 | 13.07 | % | 13.55 | % | 14.16 | % | 14.84 | % | 14.48 | % | Tier 1 | 12.58 | % | 11.56 | % | 12.65 | % | 13.25 | % | 13.07 | % |
Total (Tier 1 and Tier 2) | Total (Tier 1 and Tier 2) | 14.33 | % | 14.80 | % | 15.38 | % | 15.58 | % | 15.22 | % | Total (Tier 1 and Tier 2) | 13.83 | % | 12.75 | % | 13.78 | % | 14.50 | % | 14.33 | % |
Tier 1 leverage ratio | Tier 1 leverage ratio | 8.62 | % | 8.97 | % | 10.06 | % | 10.41 | % | 10.28 | % | Tier 1 leverage ratio | 11.20 | % | 7.87 | % | 9.00 | % | 8.97 | % | 8.62 | % |
During the third quarter of 2020, Peoples repurchased 235,684, or $5.02021, Peoples' reported a net loss of $5.8 million and declared dividends of common shares under Peoples' share repurchase program pursuant$7.1 million. However, regulatory capital levels increased due to the then effective Rule 10b5-1 plan. Peoples continues to evaluate repurchases under its share-repurchase program as appropriate, based on market conditions and other relevant factors. At September 30, 2020, Peoples continued to have strong capital levels. Peoples is closely monitoring capital levels, in light of the COVID-19 pandemic, and the potential impact of its effect upon future earnings. Peoples has stress tested its capital metrics, and will continue to adjust capital levers as necessary to ensure adequate capital is maintained.
In addition to the repurchase of common shares during the third quarter of 2020, Peoples' capital ratios at September 30, 2020merger with Premier. Net risk-weighted assets grew compared to June 30, 2021 mostly due to the merger with Premier, along with growth in premium finance loans and growth in leases during the quarter. The NSL acquisition negatively impacted the regulatory capital ratios at March 31, 2021, as the purchase price was included in net risk-weighted assets and there was no capital issued in connection with the NSL acquisition.
In 2020, werePeoples repurchased common shares during each quarter of the year, which reduced regulatory capital levels. Peoples also completed the Premium Finance acquisition on July 1, 2020, which impacted byregulatory capital levels due to the recognition of goodwill and intangibles associated with the premium finance company acquisition. Additionally, for the third quarter of 2020, net income of $10.2 million exceeded dividends declared of $6.8 million.
The declinePeoples did not repurchase any common shares in capital ratios at June 30, 2020 compared to March 31, 2020, and December 31, 2019, was related to the low net income recorded during the first and second quartersnine months of 2020, coupled with common share repurchases and dividends declared during those periods. During 2019, Peoples' capital ratios increased primarily due to earnings, which exceeded dividends declared and paid.
As a result of the implementation of ASU 2016-13 on January 1, 2020, Peoples recorded a one-time transition adjustment to retained earnings of $3.7 million. This adjustment reflected the increase in the allowance for credit losses for loans (excluding the gross up of loan balances related to the establishment of an allowance for credit losses for purchased credit deteriorated loans), the allowance for credit losses for held-to-maturity investment securities and the addition of an unfunded commitment liability, net of statutory federal corporate income taxes. Based on current accounting guidance, Peoples is electing to utilize the five-year phase-in period for the transition adjustment due to the implementation of ASU 2016-13. This phase-in period also includes a 25% deferment of the impact on regulatory capital of the estimated increase in the allowance for credit losses related to the CECL model, which is applied during the first two years of application. For the first two years of the phase-in period, 100% of the transition adjustment due
to ASU 2016-13 is excluded for regulatory capital purposes, along with 25% of the increase in the allowance for credit losses compared to the January 1, 2020 allowance for credit losses. In year three of the phase-in, 75% of the transition adjustment, and the cumulative 25% increase in the allowance for credit losses compared to January 1, 2020, are excluded from regulatory capital, while 50% and 25% of these amounts are excluded in years four and five, respectively, under this phase-in period.2021.
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent non-USNon-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-USNon-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Tangible equity: | Tangible equity: | | Tangible equity: | |
Total stockholders' equity | Total stockholders' equity | $ | 566,856 | | $ | 569,177 | | $ | 583,721 | | $ | 594,393 | | $ | 588,533 | | Total stockholders' equity | $ | 831,882 | | $ | 585,505 | | $ | 578,893 | | $ | 575,673 | | $ | 566,856 | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 185,397 | | 176,625 | | 177,447 | | 177,503 | | 179,126 | | Less: goodwill and other intangible assets | 295,415 | | 221,576 | | 184,007 | | 184,597 | | 185,397 | |
Tangible equity | Tangible equity | $ | 381,459 | | $ | 392,552 | | $ | 406,274 | | $ | 416,890 | | $ | 409,407 | | Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | |
| Tangible assets: | Tangible assets: | | | Tangible assets: | | |
Total assets | Total assets | $ | 4,911,807 | | $ | 4,985,819 | | $ | 4,469,120 | | $ | 4,354,165 | | $ | 4,396,148 | | Total assets | $ | 7,059,752 | | $ | 5,067,634 | | $ | 5,143,052 | | $ | 4,760,764 | | $ | 4,911,807 | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 185,397 | | 176,625 | | 177,447 | | 177,503 | | 179,126 | | Less: goodwill and other intangible assets | 295,415 | | 221,576 | | 184,007 | | 184,597 | | 185,397 | |
Tangible assets | Tangible assets | $ | 4,726,410 | | $ | 4,809,194 | | $ | 4,291,673 | | $ | 4,176,662 | | $ | 4,217,022 | | Tangible assets | $ | 6,764,337 | | $ | 4,846,058 | | $ | 4,959,045 | | $ | 4,576,167 | | $ | 4,726,410 | |
| Tangible book value per common share: | Tangible book value per common share: | | Tangible book value per common share: | |
Tangible equity | Tangible equity | $ | 381,459 | | $ | 392,552 | | $ | 406,274 | | $ | 416,890 | | $ | 409,407 | | Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | |
Common shares outstanding | Common shares outstanding | 19,721,783 | | 19,925,083 | | 20,346,843 | | 20,698,941 | | 20,700,630 | | Common shares outstanding | 28,265,791 | | 19,660,877 | | 19,629,633 | | 19,563,979 | | 19,721,783 | |
| Tangible book value per common share | Tangible book value per common share | $ | 19.34 | | $ | 19.70 | | $ | 19.97 | | $ | 20.14 | | $ | 19.78 | | Tangible book value per common share | $ | 18.98 | | $ | 18.51 | | $ | 20.12 | | $ | 19.99 | | $ | 19.34 | |
| Tangible equity to tangible assets ratio: | Tangible equity to tangible assets ratio: | | Tangible equity to tangible assets ratio: | |
Tangible equity | Tangible equity | $ | 381,459 | | $ | 392,552 | | $ | 406,274 | | $ | 416,890 | | $ | 409,407 | | Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | |
Tangible assets | Tangible assets | $ | 4,726,410 | | $ | 4,809,194 | | $ | 4,291,673 | | $ | 4,176,662 | | $ | 4,217,022 | | Tangible assets | $ | 6,764,337 | | $ | 4,846,058 | | $ | 4,959,045 | | $ | 4,576,167 | | $ | 4,726,410 | |
| Tangible equity to tangible assets | Tangible equity to tangible assets | 8.07 | % | 8.16 | % | 9.47 | % | 9.98 | % | 9.71 | % | Tangible equity to tangible assets | 7.93 | % | 7.51 | % | 7.96 | % | 8.55 | % | 8.07 | % |
| | |
Tangible book value per common share declinedincreased to $18.98 at September 30, 20202021, compared to $18.51 at June 30, 2020. This decline2021. The change in tangible book value per common share was driven by the goodwill and other intangible assets recorded in connection with the premium finance company acquisition, along with the share repurchase of $5.0 million completeddue to tangible equity increasing at a higher rate than shares outstanding during the third quarter of 2020.2021. The decreaseincrease in tangible book value per common share at December 31, 2020, compared to September 30, 2020, was the result of higher stockholders' equity as net income exceeded dividends declared during the period, as well as a reduction in common shares outstanding as Peoples actively repurchased common shares.
The tangible equity to tangible assets ratio increased at September 30, 2021 compared to June 30, 2021. This increase was driven by higher tangible assets related to the merger with Premier which provided for increases in loans, investment securities, cash and cash equivalents, and other assets, coupled with the intangible assets recorded during the third quarter of 2021 associated with the merger with Premier and the NSL acquisition. The decline in the tangible book valueequity to tangible assets ratio at June 30,March 31, 2021 compared to December 31, 2020, was largely due to an increase in other assets that was driven by the NSL acquisition, for which the purchase price was paid and recorded on March 31, 2021. The higher tangible equity to tangible assets ratio at December 31, 2020, compared to March 31, 2020, was due to the increased tangible assets arising from the PPP loan originations, which negatively impacted the ratio at June 30, 2020 by 86 basis points. In addition, tangible equity declined at September 30, 2020, was attributable to higher tangible equity, while tangible assets declined due to dividends declared exceeding net income during the second quarter of 2020, coupled with the common share repurchases during the quarter. Compared to December 31, 2019, Peoples' net income has been reduced by higher provision for credit losses,reductions in investment securities and when coupled with the dividends declared and common share repurchases, has driven tangible equity lower.
total loans.
Interest Rate Sensitivity and Liquidity
While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset-liability management function is to measure and manage these risks in order to optimize net interest income within the constraints of prudent capital adequacy, liquidity and safety. This objective requires Peoples to focus on interest rate risk exposure and adequate liquidity through its management of the mix of assets and liabilities, their related cash flows and the rates earned and paid on those assets and liabilities. Ultimately, the asset-liability management function is intended to guide management in the acquisition and disposition of earning assets and selection of appropriate funding sources.
Interest Rate Risk
Interest rate risk ("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings
stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can affect Peoples' exposure to IRR and increase interest costs or reduce revenue streams.
Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 20192020 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):
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Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated Increase (Decrease) in Economic Value of Equity |
(in Basis Points) | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
300 | $ | 20,746 | | | 16.1 | % | | $ | 14,806 | | 11.2 | % | | $ | 149,281 | | | 20.8 | % | | $ | 35,743 | | 3.2 | % |
200 | 15,908 | | | 12.3 | % | | 12,063 | | 9.1 | % | | 134,490 | | | 18.8 | % | | 45,651 | | 4.0 | % |
100 | 9,645 | | | 7.5 | % | | 7,895 | | 6.0 | % | | 87,750 | | | 12.2 | % | | 39,137 | | 3.5 | % |
(100) | (6,423) | | | 5.0 | % | | (12,524) | | (9.5) | % | | (93,294) | | | (13.0) | % | | (63,964) | | (5.7) | % |
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Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated Increase (Decrease) in Economic Value of Equity |
(in Basis Points) | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
300 | $ | 26,191 | | | 12.5 | % | | $ | 22,034 | | 17.3 | % | | $ | 12,475 | | | 1.0 | % | | $ | 117,235 | | 15.7 | % |
200 | 17,360 | | | 8.3 | % | | 15,899 | | 12.5 | % | | 11,544 | | | 0.9 | % | | 95,189 | | 12.7 | % |
100 | 8,646 | | | 4.1 | % | | 8,981 | | 7.1 | % | | 10,550 | | | 0.8 | % | | 60,384 | | 8.1 | % |
(100) | (9,792) | | | (4.7) | % | | (7,030) | | (5.5) | % | | (120,471) | | | (9.6) | % | | (116,205) | | (15.5) | % |
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Estimated changes in net interest income and the economic value of equity are partially driven by assumptions regarding the rate at which non-maturity deposits will reprice given a move in short-term interest rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis.
With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay. These prepayment speeds affect the amount forecasted for cash flow reinvestment, premium amortization, and discount accretion assumed in interest rate risk modeling results. This prepayment activity is generally the result of refinancing activity and tends to increase as longer term interest rates decline, much like the current environment. The assumptions in the interest rate risk model could be incorrect, leading to either a lowerlesser or highergreater impact on net interest income. Peoples generally takes a more conservative approach regarding prepayment speed assumptions.income or asset duration.
While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at September 30, 2020,2021, consideration of the bear steepener and bull flattener scenarios provideprovides insights which were not captured by parallel shifts. These scenarios were evaluated as the current environment suggests these may be possible outcomes for the trajectory of interest rates.
The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are correlated with short-term rates, remain constant, while asset yields, which are correlated with long-term rates, rise. Increased asset yields would not be offset by increases in deposit or funding costs; resulting in an increased amount of net interest income and higher net interest margin. At September 30, 2020,2021, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 3.5%0.8% and 10.6%5.5%, respectively.
The bull flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates fall. In such a scenario, Peoples’ deposit and borrowing costs, which are correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall. Asset yields driven lower by increased investment securities premium amortization would not be offset by reductions in deposit or funding costs; resulting in a decreased amount of net interest income and lower net interest margin. At September 30, 2020,2021, the bull flattener scenario resulted in a decrease in both net interest income and the economic value of equity of 1.3%-0.5% and 2.1%-0.9%, respectively. Peoples was within the policy limitations for this alternative scenario as of September 30, 2020,2021, which sets the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of economic value of equity.
Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples
making fixed payments. As of September 30, 2020,2021, Peoples hashad entered into seventeensixteen interest rate swap contracts with an aggregate notional value of $160.0$150.0 million. Additional information regarding Peoples’ interest rate swaps can be found in “Note 910 Derivative Financial Instruments” of the Notes to the Unaudited Condensed Consolidated Financial Statements.
At September 30, 2020,2021, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income and the economic value of equity. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the increasedecrease in economic value of equity asset sensitivity, as measured, from December 31, 20192020 was largely attributable to greater forecasted impacts of interest rate movements on the amount of premium amortizationincreased effective duration in the investment securities portfolio. The table also illustrates a significant reduction in long-term interest rate risk as evidenced by the change in the modeled impact
As interest rates across the yield curve have fallen, Peoples has experienced and will most likely continue to experience net interest margin compression. The confluence of lower LIBOR rates and increased investment securities prepayment speeds has created further headwinds which prevent margin expansion. Peoples should experience positive impacts from retail CDs and term borrowings maturing and re-pricing lower, the expiration of promotional and contractual interest rates, and non-maturity deposit rate reductions should begin to materialize over the next one to two quarters.
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' 20192020 Form 10-K.
At September 30, 2020,2021, Peoples Bank had liquid assets of $116.7$607.8 million, which represented 2.1%7.7% of total assets and unfunded loan commitments. Peoples also had an additional $102.2$246.5 million of unpledged investment securities not included in the measurement of liquid assets.
Management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.
Peoples is authorized to utilize the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF") to fund originations under the PPP. During the third quarter of 2020, Peoples did not use this borrowing and had no outstanding balance as of September 30, 2020 under the PPPLF.
Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from the government fiscal stimulus, the PPP and other government actions. Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes; however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement isfunds are received. At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit. This decrease is related to the receipt of PPP loan proceeds and other increased cash flows to certain companies. Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses. The utilization percentage for consumer line of credit products has been relatively steady.
Off-Balance Sheet Activities and Contractual Obligations
In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.
Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.
Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and
include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.
The following table details the total contractual amount of loan commitments and standby letters of credit:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Home equity lines of credit | Home equity lines of credit | $ | 113,185 | | $ | 116,634 | | $ | 113,605 | | $ | 112,464 | | $ | 110,127 | | Home equity lines of credit | $ | 177,963 | | $ | 134,516 | | $ | 124,027 | | $ | 117,792 | | $ | 113,185 | |
Unadvanced construction loans | Unadvanced construction loans | 123,338 | | 113,119 | | 97,153 | | 102,491 | | 87,063 | | Unadvanced construction loans | 271,483 | | 207,403 | | 190,715 | | 141,009 | | 123,338 | |
Other loan commitments | Other loan commitments | 498,472 | | 426,776 | | 413,515 | | 353,137 | | 365,343 | | Other loan commitments | 646,374 | | 542,429 | | 555,102 | | 535,250 | | 498,472 | |
Loan commitments | Loan commitments | $ | 734,995 | | $ | 656,529 | | $ | 624,273 | | $ | 568,092 | | $ | 562,533 | | Loan commitments | $ | 1,095,820 | | $ | 884,348 | | $ | 869,844 | | $ | 794,051 | | $ | 734,995 | |
Standby letters of credit | Standby letters of credit | $ | 13,177 | | $ | 12,280 | | $ | 12,883 | | $ | 12,498 | | $ | 14,983 | | Standby letters of credit | $ | 12,358 | | $ | 10,252 | | $ | 10,295 | | $ | 14,342 | | $ | 13,177 | |
The increase in loan commitments at September 30, 2021 was primarily the result of the Premier acquisition. Management does not anticipate that Peoples Bank’s current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends.
ITEM 33. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.
ITEM 44. 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, 2020.2021. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:
(a)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure;
(b)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
(c)Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended September 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 11. LEGAL PROCEEDINGS
In the ordinary course of their respective businesses or operations, Peoples or one of its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Peoples cannot state what the eventual outcome of any such matters will be. However, based on management's current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Peoples.
ITEM 1A1A. RISK FACTORS
The disclosuresdisclosure below supplementsupplements the risk factors previously disclosed under “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 2019 Form 10-K.
The COVID-19 pandemic has adversely impacted Peoples' business and financial results, and the ultimate continued impact on both will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental and nongovernmental authorities in response to the pandemic.
The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, government fiscal stimulus, and legislation designed to deliver monetary aid and other Federal Reserve monetary policy. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, lowered equity market valuations, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in Peoples' 2019 Form 10-K could be exacerbated and such effects could have a material adverse impact on Peoples in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, and human capital, as described in more detail below.
Credit Risk. Peoples' risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength of the business of Peoples' commercial borrowers and the financial circumstances of Peoples' consumer borrowers. Concern about the spread of COVID-19 had caused and is likely to continue to cause business shutdowns and slowdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, which may affect individuals, households and business differently, and decreased consumer confidence generally, all of which may cause Peoples' customers to be unable to make scheduled loan payments.
If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in Peoples' portfolio, Peoples could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover Peoples' exposure. The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with existing loans, the ability to liquidate the real estate collateral securing residential and commercial real estate loans, Peoples' ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of Peoples' lending and services, and the financial condition and credit risk of Peoples' customers, both commercial and consumer. Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent Peoples from making business decisions or may result in a delay in taking certain remediation actions, such as foreclosure. In addition, Peoples has unfunded commitments to extend credit to customers. During a challenging economic environment like now, customers are more dependent on credit commitments and increased borrowings under these commitments could adversely impact Peoples' liquidity.
Furthermore, in an effort to support Peoples' communities during the pandemic, Peoples is participating in the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act whereby loans to small businesses are made and those loans are subject to the regulatory requirements that would require forbearance of loan payments for a specified time or that would limit Peoples' ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, Peoples is at the heightened risk of holding the loan at an unfavorable interest rate as compared to the loans to customers that Peoples would have otherwise extended credit. Rules providing for forgiveness have been constantly evolving, including an automatic forgiveness if the amount of the PPP loan was not larger than a specified floor.
As described in Peoples' 2019 Form 10-K, on January 1, 2020 Peoples adopted ASU 2016-13, Financial Instruments - Credit Losses (“CECL”), which upon adoption resulted in a reduction to the retained earnings balance of $3.7 million, net of income tax, and a pre-tax increase to the allowance for loan losses of approximately $5.8 million. Due to the adoption of ASU 2016-13, Peoples' financial results may be negatively affected as soon as weak or deteriorating economic conditions are forecasted and alter Peoples' expectations for credit losses. In addition, due to the expansion of the time horizon over which Peoples is required to estimate future credit losses under CECL, Peoples may experience increased volatility in future provisions for credit losses. Peoples may also experience a higher or more volatile provision for credit losses due to higher levels of nonperforming loans and net charge-offs if commercial and consumer customers are unable to make scheduled loans payments.
Strategic Risk. Peoples' success may be affected by a variety of external factors that may affect the price or marketability of products and services, changes in interest rates that may increase funding costs, reduced demand for financial products due to economic conditions, and the various responses of governmental and nongovernmental authorities. In recent months, the COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets. Furthermore, many of the governmental actions to curtail the spread of the virus have been directed toward curtailing household and business activity to contain COVID-19. These actions have been rapidly expanding in scope and intensity. For example, in many of Peoples' markets, local governments have acted in the first and early second quarters of 2020 to temporarily close or restrict the operations of most businesses. Many businesses have re-opened; however, the future effects of COVID-19 on economic activity could negatively affect the future banking products Peoples provides, including a decline in loan originations if there are renewed or additional restrictions placed on businesses, including the potential of closing again.
Operational Risk. Current and future restrictions on the access of Peoples' workforce to its facilities could limit Peoples' ability to meet customer service expectations and have a material adverse effect on operations. Peoples relies on business processes and branch activity that largely depend on people and technology, including access to information technology systems as well as information, applications, payment systems and other services provided by third parties.
In response to COVID-19, Peoples has modified its business practices with a portion of employees working remotely from their homes to limit interruptions to operations as much as possible and to help reduce the risk of COVID-19 infecting entire departments. Reduced workforces which may be caused by, but not limited to, illness, quarantine, stay at home or other government mandates, or difficulties transitioning back to an in office environment, could result in an adverse impact to Peoples' operations and financial performance. Employees with health conditions putting them at higher risk of adverse effects from COVID-19 are working remotely. Peoples is encouraging virtual meetings and conference calls in place of in-person meetings, including the annual shareholders meeting which was held virtually this year. Additionally, travel has been restricted. Peoples is promoting social distancing, frequent hand washing and thorough disinfection of all surfaces. Peoples financial service location lobbies have re-opened in June 2020. Branch drive-ups, call center, ATMs and online/mobile banking services continue to operate and are the preferred option of service. Even with the precautions undertaken, the continued spread or prolonged impact of the COVID-19 could negatively impact the availability of key personnel or significant numbers of Peoples' staff, who are necessary to conduct Peoples' business.
Further, technology in employees’ homes may not be as robust as in Peoples' offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in the offices. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risks. These cybersecurity risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of Peoples' information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of Peoples' ability to perform critical functions, including wiring funds, all of which could expose Peoples to risks of data or financial loss, litigation and liability and could seriously disrupt operations and the operations of any impacted customers.
Moreover, Peoples relies on many third parties in business operations, including appraisers of real property collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices, and courthouses. In light of the developing measures responding to the pandemic, many of these entities may limit the availability and access of their services. For example, loan origination could be delayed due to the limited availability of real estate appraisers for the underlying collateral. Loan closings could be delayed due to reductions in available staff in recording offices or the closing of courthouses in certain counties, which slows the process for title work, and mortgage and UCC filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect Peoples' operations.
Interest Rate Risk. Peoples' net interest income, lending activities, deposits and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from COVID-19. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0% to 0.25%, citing concerns about the impact of COVID-19 on markets and stress in the energy sector and maintained this target range as of September 30, 2020. A prolonged period of extremely volatile and unstable market conditions would likely increase Peoples' funding costs and negatively affect market risk mitigation strategies. Higher revenue volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in the fair market values of Peoples' assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of Peoples' assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on Peoples' net income, results of operations and financial condition. Low rates increase the risk in the United States of a negative interest rate environment in which interest rates drop below zero, either broadly or for some
types of instruments. Such an occurrence would likely further reduce the interest Peoples earns on loans and other earning assets, while also likely requiring Peoples to pay to maintain its deposits with the Federal Reserve. Peoples' systems may not be able to adequately handle a negative interest rate environment and not all variable rate instruments are designed for such a circumstance. Peoples cannot predict the nature or timing of future changes in monetary policies in response to the outbreak or the precise effects that they may have on Peoples activities and financial results.
Liquidity Risk. Peoples' ability to access short-term funding or liquidity may be limited as a result of the impact of COVID-19 on local and global markets. This situation could further be exacerbated by a reduced deposit base either through customer withdrawals or non-renewal of term deposits. Market stress from the virus could result in reduced cash flow from earning assets including other-than-temporary impairment on investment securities and sustained repayment shortfalls on loans. It is possible that sources of wholesale funding such as the Federal Home Loan Bank, the Federal Reserve Bank, or the brokered certificate of deposit market would no longer be accessible to fund daily liquidity needs.
Peoples does not yet know the full extent of COVID-19’s effects on its business, operations, or the global economy as a whole, despite experience and knowledge gained throughout the third quarter of 2020. Any future developments will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of Peoples' work from home arrangements, third-party providers’ ability to support operations, and any actions taken by governmental authorities and other third parties to restrict or close businesses in response to the pandemic and how quickly and to what extent normal economic and operating conditions can resume. Even after COVID-19 has subsided, Peoples may continue to experience material adverse impacts on its business as a result of the virus' global economic impact, including the availability of credit, adverse impacts on Peoples' liquidity and any recession that has occurred or may occur in the future.
There have been no other material changes from those risk factors previously disclosed in “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 2019 Form 10-K. Those risk factors are not the only risks Peoples faces. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect Peoples’ business, financial condition and/or operating results.
Changes in the federal, state, or local tax laws may negatively impact our financial performance. On October 28, 2021, President Biden unveiled his revised infrastructure plan, which removed a proposal to implement an increase in the federal corporate income tax rate, but would implement a stock buyback tax as part of a package of tax reforms to help fund the spending proposals in the plan. The revised Biden plan is in the early stages of the legislative process. If adopted as proposed, the stock buyback tax could adversely affect Peoples' determination to repurchase common shares in future periods.
ITEM 22. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended September 30, 2020:2021:
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Period | (a) Total Number of Common Shares Purchased | | (b) Average Price Paid per Common Share | | (c) Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Maximum Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 – 31, 2020 | 56,081 | | (1)(2) | $ | 20.41 | | (1)(2) | 55,121 | | $ | 19,417,594 | |
August 1 – 31, 2020 | 156,334 | | (1)(3) | $ | 20.45 | | (1)(3) | 155,934 | | $ | 16,229,329 | |
September 1 – 30, 2020 | 25,571 | | (1)(2) | $ | 21.27 | | (1)(2) | 24,629 | | $ | 15,702,913 | |
Total | 237,986 | | | $ | 20.53 | | | 235,684 | | $ | 15,702,913 | |
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Period | Total Number of Common Shares Purchased | | Average Price Paid per Common Share | | Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Number (or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 – 31, 2021 | — | |
| $ | — | |
| — | | $ | 30,000,000 | |
August 1 – 31, 2021 | 1,363 | | (2) | $ | 29.07 | | (2) | — | | $ | 30,000,000 | |
September 1 – 30, 2021 | 700 | | (3) | $ | 31.22 | | (3) | — | | $ | 30,000,000 | |
Total | 2,063 | | | $ | 29.80 | | | — | | $ | 30,000,000 | |
(1)On February 28, 2020,January 29, 2021, Peoples announced that on February 27, 2020,January 28, 2021, Peoples' Board of Directors approvedauthorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $40$30 million of itsPeoples' outstanding common shares. The share repurchase program announced on February 28, 2020 replaced the previous repurchase program which was terminated on February 27, 2020. Peoples repurchased 55,121, 155,934 and 24,629There were no common shares repurchased under the current share repurchase program during July, August, andthe three months ended September 2020, respectively.30, 2021.
(2)Information reported includes 960an aggregate of 1,363 common shares withheld to satisfy income taxes associated with restricted common shares which were granted under the Peoples Bancorp Inc. Third Amended and 942Restated 2006 Equity Plan and vested during August 2021.
(3)Information reported includes 700 common shares purchased in open market transactions during July and September respectively,2021 by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.
(3)Information reported includes: an aggregate of 400 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 2020.
ITEM 33. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 44. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 55. OTHER INFORMATION
None
ITEM 66. EXHIBITS
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Exhibit Number | | Description | | Exhibit Location |
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| | Agreement and Plan of Merger, dated as of October 29, 2018, as amendedMarch 26, 2021, by Amendment No. 1 to Agreement and Plan of Merger made and entered into on December 18, 2018, between Peoples Bancorp Inc. and First Prestonsburg BancsharesPremier Financial Bancorp, Inc.+ | | Included as Annex AIncorporated herein by reference to Exhibit 2.1 to the definitive proxy statement/prospectus which forms a part of the Registration StatementCurrent Report of Peoples Bancorp Inc. ("Peoples") on Form S-4/A (Registration8-K dated and filed on March 31, 2021 (File No. 333-228745)0-16772) |
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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) |
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| | 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") |
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| | 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 |
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| | 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”) |
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| | 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) |
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| | 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) |
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| | Amended ArticlesCertificate of Incorporation of Peoples Bancorp Inc. (This document representsAmendment by the Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. in compiled form incorporating all amendments. The compiled document has not been(as filed with the Ohio Secretary of State.)State on July 28, 2021) | | Incorporated herein by reference to Exhibit 3.1(g) to Peoples’ AnnualPeoples' Quarterly Report on Form 10-K10-Q for the fiscal yearquarterly period ended December 31, 2008June 30, 2021 (File No. 0-16772) ("Peoples' June 30, 2021 Form 10-Q") |
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| | 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 |
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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) |
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| | 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 |
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| | 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) |
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+Schedules and exhibits have been omitted pursuant to Item 601(b)(2)601(a)(5) of SEC Regulation S-K, as in effect at the time of filing of the Agreement and Plan of Merger.S-K. A copy of any omitted schedules or exhibits will be furnished supplementally by Peoples Bancorp Inc. to the SEC on a confidential basis upon request. |
PPeoples Bancorp Inc. filed this exhibit with the SEC in paper form originally and this exhibit has not been filed with the SEC in electronic format.
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Exhibit Number | | Description | | Exhibit Location |
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| | 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) |
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| | 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) |
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| | 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") |
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| | 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 |
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| | Indenture, dated February 26, 2004, between First National Bankshares Corporation, as issuer, and Wilmington Trust Company, as trustee, related to Floating Rate Junior Subordinated Debt Securities due 2034 | | Filed herewith |
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| | First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., as successor to First National Bankshares Corporation | | Filed herewith |
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| | Second Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., as successor to Premier Financial Bancorp, Inc. | | Filed herewith |
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| | Amended and Restated Declaration of Trust of FNB Capital Trust One, dated as of February 26, 2004; NOTE: Pursuant to the First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., Premier Financial Bancorp, Inc. succeeded to and was substituted for First National Bankshares Corporation as "Sponsor" and pursuant to theSecond Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded and was substituted for Premier Financial Bancorp, Inc. as "Sponsor" | | Filed herewith |
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| | Notice of Removal of Administrators and Appointment of Replacements, dated September 17, 2021, delivered to Wilmington Trust Company by the Successor Administrators named therein and Peoples Bancorp Inc. | | Filed herewith |
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| | Guarantee Agreement, dated February 26, 2004, between First National Bankshares Corporation, as guarantor, and Wilmington Trust Company, as guarantee trustee, related to the Capital Securities (as defined therein); NOTE: Pursuant to the First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., Premier Financial Bancorp, Inc. succeeded to and was substituted for First National Bankshares Corporation as "Guarantor" and pursuant to theSecond Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded and was substituted for Premier Financial Bancorp, Inc. as "Guarantor" | | Filed herewith |
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| | Peoples Bancorp Inc. Change in Control Agreement between Peoples Bancorp Inc. and Kathryn M. Bailey (adopted October 1, 2020). | | Filed herewith |
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| | Peoples Bancorp Inc. Change in Control Agreement between Peoples Bancorp Inc. and Mark Augenstein (adopted October 1, 2020). | | Filed herewith |
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| | Peoples Bancorp Inc. Change in Control Agreement between Peoples Bancorp Inc. and Tyler J. Wilcox (adopted October 1, 2020). | | Filed herewith |
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| | Separation Agreement and General Release between John C. Rogers (executed on October 5, 2020) and Peoples Bank (executed on October 6, 2020. | | Filed herewith |
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| | Rule 13a-14(a)/15d-14(a) Certifications [President and Chief Executive Officer] | | Filed herewith |
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| | Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President, Chief Financial Officer and Treasurer] | | Filed herewith |
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| | Section 1350 Certifications | | Furnished herewith |
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101.INS | | Inline XBRL Instance Document ## | | Submitted electronically herewith # |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | Submitted electronically herewith # |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Submitted electronically herewith # |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | Submitted electronically herewith # |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Submitted electronically herewith # |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Submitted electronically herewith # |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | | Submitted electronically herewith |
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# Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20202021 of Peoples Bancorp Inc. are the following documents formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 20202021 (Unaudited) and December 31, 2019;2020; (ii) Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 20202021 and 2019;2020; (iii) Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the three and nine months ended September 30, 20202021 and 2019;2020; (iv) Consolidated StatementStatements of Stockholders' Equity (Unaudited) for the nine months ended September 30, 2021 and 2020; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 20202021 and 2019;2020; and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements. |
## The instance document does not appear in the interactive data file because its XBRL tags are imbedded within the Inline XBRL document. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | PEOPLES BANCORP INC. |
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Date: | October 28, 2020November 5, 2021 | By: /s/ | CHARLES W. SULERZYSKI |
| | | Charles W. Sulerzyski |
| | | President and Chief Executive Officer |
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Date: | October 28, 2020November 5, 2021 | By: /s/ | KATIE BAILEY |
| | | KATIE BAILEYKatie Bailey |
| | | Executive Vice President, |
| | | Chief Financial Officer and Treasurer |