UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ____
Commission File Number: 000-16772
| | | | | | | | | | | | | | | | | | | | | | | |
PEOPLES BANCORP INC. |
(Exact name of Registrant as specified in its charter) |
Ohio | | | | 31-0987416 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
138 Putnam Street, | P.O. Box 738, | | | | |
Marietta, | Ohio | | | | 45750 |
(Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: | | | | (740) | | 373-3155 |
| Not Applicable | |
| (Former name, former address and former fiscal year, if changed since last report) | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, without par value | PEBO | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
Large accelerated filer | o | Accelerated filer | ☒ |
Non-accelerated filer | o | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 28,272,53728,297,358 common shares, without par value, at NovemberAugust 4, 2021.2022.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | September 30, 2021 | December 31, 2020 | | June 30, 2022 | December 31, 2021 |
| (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 balances due from banks | Cash and balances due from banks | $ | 129,842 | | $ | 60,902 | | Cash and balances due from banks | $ | 92,207 | | $ | 74,354 | |
Interest-bearing deposits in other banks | Interest-bearing deposits in other banks | 369,840 | | 91,198 | | Interest-bearing deposits in other banks | 306,178 | | 341,373 | |
Total cash and cash equivalents | Total cash and cash equivalents | 499,682 | | 152,100 | | Total cash and cash equivalents | 398,385 | | 415,727 | |
Available-for-sale investment securities, at fair value (amortized cost of $1,294,654 at September 30, 2021 and $734,544 at December 31, 2020) (a) | 1,297,090 | | 753,013 | | |
Held-to-maturity investment securities, at amortized cost (fair value of $240,000 at September 30, 2021 and $68,082 at December 31, 2020) (a) | 243,100 | | 66,458 | | |
Available-for-sale investment securities, at fair value (amortized cost of $1,389,621 at June 30, 2022 and $1,283,146 at December 31, 2021) (a) | | Available-for-sale investment securities, at fair value (amortized cost of $1,389,621 at June 30, 2022 and $1,283,146 at December 31, 2021) (a) | 1,267,598 | | 1,275,493 | |
Held-to-maturity investment securities, at amortized cost (fair value of $341,088 at June 30, 2022 and $369,955 at December 31, 2021) (a) | | Held-to-maturity investment securities, at amortized cost (fair value of $341,088 at June 30, 2022 and $369,955 at December 31, 2021) (a) | 400,720 | | 374,129 | |
Other investment securities | Other investment securities | 34,486 | | 37,560 | | Other investment securities | 41,655 | | 33,987 | |
Total investment securities (a) | Total investment securities (a) | 1,574,676 | | 857,031 | | Total investment securities (a) | 1,709,973 | | 1,683,609 | |
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 | | Loans and leases, net of deferred fees and costs (b) | 4,575,905 | | 4,481,600 | |
Allowance for credit losses | Allowance for credit losses | (77,382) | | (50,359) | | Allowance for credit losses | (52,346) | | (63,967) | |
Net loans | 4,413,646 | | 3,352,581 | | |
Net loans and leases (c) | | Net loans and leases (c) | 4,523,559 | | 4,417,633 | |
Loans held for sale | Loans held for sale | 2,699 | | 4,659 | | Loans held for sale | 2,128 | | 3,791 | |
Bank premises and equipment, net of accumulated depreciation | Bank premises and equipment, net of accumulated depreciation | 91,210 | | 60,094 | | Bank premises and equipment, net of accumulated depreciation | 86,523 | | 89,260 | |
Bank owned life insurance | Bank owned life insurance | 72,920 | | 71,591 | | Bank owned life insurance | 104,339 | | 73,358 | |
Goodwill | Goodwill | 267,015 | | 171,260 | | Goodwill | 289,976 | | 264,193 | |
Other intangible assets | Other intangible assets | 28,400 | | 13,337 | | Other intangible assets | 38,156 | | 26,816 | |
Other assets | Other assets | 109,504 | | 78,111 | | Other assets | 125,253 | | 89,134 | |
Total assets | Total assets | $ | 7,059,752 | | $ | 4,760,764 | | Total assets | $ | 7,278,292 | | $ | 7,063,521 | |
Liabilities | Liabilities | | Liabilities | |
Deposits: | Deposits: | | Deposits: | |
Non-interest-bearing | Non-interest-bearing | $ | 1,559,993 | | $ | 997,323 | | Non-interest-bearing | $ | 1,661,865 | | $ | 1,641,422 | |
Interest-bearing | Interest-bearing | 4,272,027 | | 2,913,136 | | Interest-bearing | 4,267,360 | | 4,221,130 | |
Total deposits | Total deposits | 5,832,020 | | 3,910,459 | | Total deposits | 5,929,225 | | 5,862,552 | |
Short-term borrowings | Short-term borrowings | 184,693 | | 73,261 | | Short-term borrowings | 326,442 | | 166,482 | |
Long-term borrowings | Long-term borrowings | 99,411 | | 110,568 | | Long-term borrowings | 123,687 | | 99,475 | |
| Accrued expenses and other liabilities | Accrued expenses and other liabilities | 111,746 | | 90,803 | | Accrued expenses and other liabilities | 112,114 | | 89,987 | |
Total liabilities | Total liabilities | 6,227,870 | | 4,185,091 | | Total liabilities | 6,491,468 | | 6,218,496 | |
Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2021 and at December 31, 2020 | — | | — | | |
Common stock, no par value, 50,000,000 shares authorized, 29,806,435 shares issued at September 30, 2021 and 21,193,402 shares issued at December 31, 2020, including at each date shares held in treasury | 685,428 | | 422,536 | | |
Preferred shares, no par value, 50,000 shares authorized, no shares issued at June 30, 2022 and at December 31, 2021 | | Preferred shares, no par value, 50,000 shares authorized, no shares issued at June 30, 2022 and at December 31, 2021 | — | | — | |
Common stock, no par value, 50,000,000 shares authorized, 29,836,491 shares issued at June 30, 2022 and 29,814,401 shares issued at December 31, 2021, including at each date shares held in treasury | | Common stock, no par value, 50,000,000 shares authorized, 29,836,491 shares issued at June 30, 2022 and 29,814,401 shares issued at December 31, 2021, including at each date shares held in treasury | 684,416 | | 686,282 | |
Retained earnings | Retained earnings | 189,508 | | 190,691 | | Retained earnings | 234,608 | | 207,076 | |
Accumulated other comprehensive (loss) income, net of deferred income taxes | (5,888) | | 1,336 | | |
Treasury stock, at cost, 1,599,593 shares at September 30, 2021 and 1,686,046 shares at December 31, 2020 | (37,166) | | (38,890) | | |
Accumulated other comprehensive loss, net of deferred income taxes | | Accumulated other comprehensive loss, net of deferred income taxes | (93,359) | | (11,619) | |
Treasury stock, at cost, 1,610,525 shares at June 30, 2022 and 1,577,359 shares at December 31, 2021 | | Treasury stock, at cost, 1,610,525 shares at June 30, 2022 and 1,577,359 shares at December 31, 2021 | (38,841) | | (36,714) | |
Total stockholders’ equity | Total stockholders’ equity | 831,882 | | 575,673 | | Total stockholders’ equity | 786,824 | | 845,025 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 7,059,752 | | $ | 4,760,764 | | Total liabilities and stockholders’ equity | $ | 7,278,292 | | $ | 7,063,521 | |
(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $236,$286, respectively, at SeptemberJune 30, 20212022 and $0 and $60,$286, respectively, at December 31, 2020.2021.
(b) Also referred to throughout this documentQuarterly Report on Form 10-Q as "total loans" and "loans held for investment."
(c) Also referred to throughout this Quarterly Report on Form 10-Q as "net loans"
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands, except per share data) | 2022 | 2021 | | 2022 | 2021 |
Interest income: | Interest income: | | Interest income: | |
Interest and fees on loans and leases | Interest and fees on loans and leases | $ | 40,748 | | $ | 35,580 | | | $ | 115,196 | | $ | 104,651 | | Interest and fees on loans and leases | $ | 56,764 | | $ | 38,711 | | | $ | 106,964 | | $ | 74,448 | |
Interest and dividends on taxable investment securities | Interest and dividends on taxable investment securities | 3,755 | | 2,786 | | | 9,497 | | 12,310 | | Interest and dividends on taxable investment securities | 6,967 | | 3,168 | | | 13,017 | | 5,742 | |
Interest on tax-exempt investment securities | Interest on tax-exempt investment securities | 882 | | 614 | | | 2,358 | | 1,903 | | Interest on tax-exempt investment securities | 1,026 | | 865 | | | 2,041 | | 1,476 | |
Other interest income | Other interest income | 82 | | 33 | | | 175 | | 317 | | Other interest income | 299 | | 53 | | | 459 | | 93 | |
Total interest income | Total interest income | 45,467 | | 39,013 | | | 127,226 | | 119,181 | | Total interest income | 65,056 | | 42,797 | | | 122,481 | | 81,759 | |
Interest expense: | Interest expense: | | Interest expense: | |
Interest on deposits | Interest on deposits | 2,399 | | 2,669 | | | 7,793 | | 10,582 | | Interest on deposits | 2,014 | | 2,577 | | | 4,067 | | 5,394 | |
Interest on short-term borrowings | Interest on short-term borrowings | 91 | | 742 | | | 283 | | 2,355 | | Interest on short-term borrowings | 261 | | 92 | | | 599 | | 192 | |
Interest on long-term borrowings | Interest on long-term borrowings | 399 | | 483 | | | 1,334 | | 1,629 | | Interest on long-term borrowings | 1,313 | | 468 | | | 2,037 | | 935 | |
| Total interest expense | Total interest expense | 2,889 | | 3,894 | | | 9,410 | | 14,566 | | Total interest expense | 3,588 | | 3,137 | | | 6,703 | | 6,521 | |
Net interest income | Net interest income | 42,578 | | 35,119 | | | 117,816 | | 104,615 | | Net interest income | 61,468 | | 39,660 | | | 115,778 | | 75,238 | |
Provision for credit losses | 8,994 | | 4,728 | | | 7,333 | | 33,531 | | |
Net interest income after provision for credit losses | 33,584 | | 30,391 | | | 110,483 | | 71,084 | | |
(Recovery of) provision for credit losses | | (Recovery of) provision for credit losses | (780) | | 3,088 | | | (7,587) | | (1,661) | |
Net interest income after (recovery of) provision for credit losses | | Net interest income after (recovery of) provision for credit losses | 62,248 | | 36,572 | | | 123,365 | | 76,899 | |
| Non-interest income: | Non-interest income: | | Non-interest income: | |
Electronic banking income | Electronic banking income | 4,326 | | 3,765 | | | 12,655 | | 10,568 | | Electronic banking income | 5,419 | | 4,418 | | | 10,672 | | 8,329 | |
Insurance income | | Insurance income | 3,646 | | 3,335 | | | 8,377 | | 8,556 | |
Trust and investment income | Trust and investment income | 4,158 | | 3,435 | | | 12,223 | | 10,013 | | Trust and investment income | 4,246 | | 4,220 | | | 8,522 | | 8,065 | |
Insurance income | 3,367 | | 3,608 | | | 11,923 | | 10,929 | | |
Deposit account service charges | Deposit account service charges | 2,549 | | 2,266 | | | 6,578 | | 6,995 | | Deposit account service charges | 3,558 | | 2,044 | | | 6,984 | | 4,029 | |
Mortgage banking income | Mortgage banking income | 766 | | 2,658 | | | 2,726 | | 4,346 | | Mortgage banking income | 352 | | 820 | | | 788 | | 1,960 | |
Bank owned life insurance income | Bank owned life insurance income | 437 | | 462 | | | 1,329 | | 1,514 | | Bank owned life insurance income | 797 | | 446 | | | 1,228 | | 892 | |
Commercial loan swap fees | Commercial loan swap fees | 73 | | 68 | | | 194 | | 1,267 | | Commercial loan swap fees | 270 | | 61 | | | 438 | | 121 | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | (308) | | (28) | | | (459) | | (237) | | Net loss on asset disposals and other transactions | (152) | | (124) | | | (279) | | (151) | |
Net (loss) gain on investment securities | Net (loss) gain on investment securities | (166) | | 2 | | | (704) | | 383 | | Net (loss) gain on investment securities | (44) | | (202) | | | 86 | | (538) | |
Other non-interest income | Other non-interest income | 1,144 | | 534 | | | 2,605 | | 1,393 | | Other non-interest income | 1,294 | | 803 | | | 2,620 | | 1,461 | |
Total non-interest income | Total non-interest income | 16,346 | | 16,770 | | | 49,070 | | 47,171 | | Total non-interest income | 19,386 | | 15,821 | | | 39,436 | | 32,724 | |
Non-interest expense: | Non-interest expense: | | Non-interest expense: | |
Salaries and employee benefit costs | Salaries and employee benefit costs | 25,589 | | 19,410 | | | 68,276 | | 57,313 | | Salaries and employee benefit costs | 27,585 | | 21,928 | | | 55,314 | | 42,687 | |
Net occupancy and equipment expense | | Net occupancy and equipment expense | 4,768 | | 3,289 | | | 9,856 | | 6,616 | |
Professional fees | Professional fees | 6,426 | | 1,720 | | | 13,459 | | 5,247 | | Professional fees | 2,280 | | 3,565 | | | 5,952 | | 7,033 | |
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 | | Data processing and software expense | 3,033 | | 2,411 | | | 5,949 | | 4,865 | |
Electronic banking expense | Electronic banking expense | 2,037 | | 2,095 | | | 6,006 | | 5,839 | | Electronic banking expense | 2,727 | | 2,075 | | | 5,486 | | 3,969 | |
Amortization of other intangible assets | Amortization of other intangible assets | 1,279 | | 857 | | | 3,267 | | 2,314 | | Amortization of other intangible assets | 2,034 | | 1,368 | | | 3,742 | | 1,988 | |
FDIC insurance premiums | | FDIC insurance premiums | 1,018 | | 326 | | | 2,212 | | 789 | |
Marketing expense | Marketing expense | 1,223 | | 456 | | | 2,810 | | 1,561 | | Marketing expense | 860 | | 676 | | | 1,855 | | 1,587 | |
Other loan expenses | | Other loan expenses | 445 | | 494 | | | 1,277 | | 956 | |
Franchise tax expense | Franchise tax expense | 810 | | 882 | | | 2,487 | | 2,645 | | Franchise tax expense | 1,102 | | 822 | | | 1,866 | | 1,677 | |
FDIC insurance premium | 807 | | 570 | | | 1,596 | | 717 | | |
Other loan expenses | 487 | | 342 | | | 1,443 | | 1,255 | | |
Communication expense | Communication expense | 411 | | 283 | | | 1,079 | | 857 | | Communication expense | 649 | | 386 | | | 1,274 | | 668 | |
Other non-interest expense | Other non-interest expense | 12,711 | | 2,479 | | | 17,762 | | 7,665 | | Other non-interest expense | 3,398 | | 2,559 | | | 6,745 | | 5,051 | |
Total non-interest expense | Total non-interest expense | 57,860 | | 34,315 | | | 135,746 | | 100,445 | | Total non-interest expense | 49,899 | | 39,899 | | | 101,528 | | 77,886 | |
(Loss) income before income taxes | (7,930) | | 12,846 | | | 23,807 | | 17,810 | | |
Income tax (benefit) expense | (2,172) | | 2,636 | | | 3,999 | | 3,616 | | |
Net (loss) income | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | | |
Income before income taxes | | Income before income taxes | 31,735 | | 12,494 | | | 61,273 | | 31,737 | |
Income tax expense | | Income tax expense | 6,847 | | 2,391 | | | 12,808 | | 6,171 | |
Net income | | Net income | $ | 24,888 | | $ | 10,103 | | | $ | 48,465 | | $ | 25,566 | |
| (Loss) earnings per common share - basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | | |
(Loss) earnings per common share - diluted | $ | (0.28) | | $ | 0.51 | | | $ | 0.99 | | $ | 0.70 | | |
Earnings per common share - basic | | Earnings per common share - basic | $ | 0.89 | | $ | 0.52 | | | $ | 1.73 | | $ | 1.32 | |
Earnings per common share - diluted | | Earnings per common share - diluted | $ | 0.88 | | $ | 0.51 | | | $ | 1.72 | | $ | 1.31 | |
Weighted-average number of common shares outstanding - basic | 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 - basic | 27,919,133 | | 19,317,454 | | | 27,962,405 | | 19,300,156 | |
Weighted-average number of common shares outstanding - diluted | Weighted-average number of common shares outstanding - diluted | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | | Weighted-average number of common shares outstanding - diluted | 28,061,736 | | 19,461,934 | | | 28,041,145 | | 19,448,544 | |
Cash dividends declared | Cash dividends declared | $ | 7,093 | | $ | 6,770 | | | $ | 20,991 | | $ | 20,622 | | Cash dividends declared | $ | 10,757 | | $ | 7,065 | | | $ | 20,933 | | $ | 13,898 | |
Cash dividends declared per common share | Cash dividends declared per common share | $ | 0.36 | | $ | 0.34 | | | $ | 1.07 | | $ | 1.02 | | Cash dividends declared per common share | $ | 0.38 | | $ | 0.36 | | | $ | 0.74 | | $ | 0.71 | |
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 | | Three Months Ended | | Six Months Ended | |
| | September 30, | | September 30, | | June 30, | | June 30, | |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 | | 2022 | 2021 | |
Net (loss) income | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | | |
Net income | | Net income | $ | 24,888 | | $ | 10,103 | | | $ | 48,465 | | $ | 25,566 | | |
Other comprehensive (loss) income: | Other comprehensive (loss) income: | | Other comprehensive (loss) income: | | |
Available-for-sale investment securities: | Available-for-sale investment securities: | | Available-for-sale investment securities: | | |
Gross unrealized holding (loss) gain arising during the period | Gross unrealized holding (loss) gain arising during the period | (7,685) | | (2,974) | | | (16,738) | | 15,480 | | Gross unrealized holding (loss) gain arising during the period | (42,648) | | 3,525 | | | (114,284) | | (9,053) | | |
Related tax benefit (expense) | Related tax benefit (expense) | 1,592 | | 624 | | | 3,493 | | (3,251) | | Related tax benefit (expense) | 10,238 | | (741) | | | 26,686 | | 1,901 | | |
Reclassification adjustment for net loss (gain) included in net (loss) income | 166 | | (2) | | | 704 | | (383) | | |
Related tax (benefit) expense | (44) | | — | | | (157) | | 80 | | |
Reclassification adjustment for net gain (loss) included in net income | | Reclassification adjustment for net gain (loss) included in net income | 44 | | 202 | | | (86) | | 538 | | |
Related tax (expense) benefit | | Related tax (expense) benefit | (10) | | (42) | | | 20 | | (113) | | |
| Net effect on other comprehensive (loss) income | Net effect on other comprehensive (loss) income | (5,971) | | (2,352) | | | (12,698) | | 11,926 | | Net effect on other comprehensive (loss) income | (32,376) | | 2,944 | | | (87,664) | | (6,727) | | |
Defined benefit plan: | Defined benefit plan: | | 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 | | |
Net gain arising during the period | | Net gain arising during the period | 75 | | 3 | | | 61 | | 8 | | |
Related tax expense | | Related tax expense | (17) | | — | | | (14) | | (1) | | |
Amortization of unrecognized gain and service cost on benefit plans | Amortization of unrecognized gain and service cost on benefit plans | 20 | | 33 | | | 81 | | 97 | | Amortization of unrecognized gain and service cost on benefit plans | 17 | | 31 | | | 38 | | 61 | | |
Related tax expense | Related tax expense | (5) | | (7) | | | (18) | | (21) | | Related tax expense | (4) | | (6) | | | (9) | | (13) | | |
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 | Net effect on other comprehensive income | 1,537 | | 25 | | | 1,592 | | 73 | | Net effect on other comprehensive income | 71 | | 28 | | | 76 | | 55 | | |
Cash flow hedges: | Cash flow hedges: | | Cash flow hedges: | | |
Net gain (loss) arising during the period | Net gain (loss) arising during the period | 858 | | 803 | | | 4,800 | | (9,661) | | Net gain (loss) arising during the period | 2,104 | | (294) | | | 7,560 | | 3,942 | | |
Related tax (expense) benefit | Related tax (expense) benefit | (90) | | (168) | | | (918) | | 2,029 | | Related tax (expense) benefit | (492) | | 62 | | | (1,712) | | (828) | | |
Net effect on other comprehensive income (loss) | Net effect on other comprehensive income (loss) | 768 | | 635 | | | 3,882 | | (7,632) | | Net effect on other comprehensive income (loss) | 1,612 | | (232) | | | 5,848 | | 3,114 | | |
Total other comprehensive (loss) income, net of tax | Total other comprehensive (loss) income, net of tax | (3,666) | | (1,692) | | | (7,224) | | 4,367 | | Total other comprehensive (loss) income, net of tax | (30,693) | | 2,740 | | | (81,740) | | (3,558) | | |
Total comprehensive (loss) income | Total comprehensive (loss) income | $ | (9,424) | | $ | 8,518 | | | $ | 12,584 | | $ | 18,561 | | Total comprehensive (loss) income | $ | (5,805) | | $ | 12,843 | | | $ | (33,275) | | $ | 22,008 | | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity | | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | | Common Shares | Retained Earnings | Treasury Stock | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | |
Balance, June 30, 2021 | | $ | 422,652 | | $ | 202,359 | | $ | (2,222) | | $ | (37,284) | | $ | 585,505 | | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | | $ | 684,243 | | $ | 220,477 | | $ | (62,666) | | $ | (33,713) | | $ | 808,341 | |
| Net loss | | — | | (5,758) | | — | | — | | (5,758) | | |
Net income | | Net income | | — | | 24,888 | | — | | — | | 24,888 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | | — | | — | | (3,666) | | — | | (3,666) | | Other comprehensive loss, net of tax | | — | | — | | (30,693) | | — | | (30,693) | |
| Cash dividends declared | Cash dividends declared | | — | | (7,093) | | | — | | (7,093) | | Cash dividends declared | | — | | (10,757) | | | — | | (10,757) | |
| Reissuance of treasury stock for common share awards | Reissuance of treasury stock for common share awards | | (51) | | — | | — | | 51 | | — | | Reissuance of treasury stock for common share awards | | (727) | | — | | — | | 727 | | — | |
| Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 78 | | 78 | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (78) | | (78) | | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (206) | | (206) | |
| Common shares repurchased under share repurchase program then in effect | | Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (5,987) | | (5,987) | |
Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 277 | | — | | — | | — | | 277 | | Common shares issued under dividend reinvestment plan | | 296 | | — | | — | | — | | 296 | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | 16 | | — | | — | | 44 | | 60 | | Common shares issued under compensation plan for Boards of Directors | | 13 | | — | | — | | 115 | | 128 | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | 37 | | — | | — | | 101 | | 138 | | Common shares issued under employee stock purchase plan | | 15 | | — | | — | | 145 | | 160 | |
Stock-based compensation | Stock-based compensation | | 598 | | — | | — | | — | | 598 | | Stock-based compensation | | 576 | | — | | — | | — | | 576 | |
| 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 | | |
| Balance, June 30, 2022 | | Balance, June 30, 2022 | | $ | 684,416 | | $ | 234,608 | | $ | (93,359) | | $ | (38,841) | | $ | 786,824 | |
| | | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity | | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | | Common Shares | Retained Earnings | Treasury Stock | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | |
Balance, December 31, 2020 | | $ | 422,536 | | $ | 190,691 | | $ | 1,336 | | $ | (38,890) | | $ | 575,673 | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | | $ | 686,282 | | $ | 207,076 | | $ | (11,619) | | $ | (36,714) | | $ | 845,025 | |
| Net income | Net income | | — | | 19,808 | | — | | — | | 19,808 | | Net income | | — | | 48,465 | | — | | — | | 48,465 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | | — | | — | | (7,224) | | — | | (7,224) | | Other comprehensive loss, net of tax | | — | | — | | (81,740) | | — | | (81,740) | |
| Cash dividends declared | Cash dividends declared | | — | | (20,991) | | — | | — | | (20,991) | | Cash dividends declared | | — | | (20,933) | | — | | — | | (20,933) | |
| Reissuance of treasury stock for common share awards | Reissuance of treasury stock for common share awards | | (2,223) | | — | | — | | 2,223 | | — | | Reissuance of treasury stock for common share awards | | (4,725) | | — | | — | | 4,725 | | — | |
| Reissuance of treasury stock for deferred compensation plan for Boards of Directors | Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 74 | | 74 | | Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 78 | | 78 | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,076) | | (1,076) | | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,436) | | (1,436) | |
| Common shares repurchased under share repurchase program then in effect | | Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (5,987) | | (5,987) | |
Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 655 | | — | | — | | — | | 655 | | Common shares issued under dividend reinvestment plan | | 601 | | — | | — | | — | | 601 | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | 81 | | — | | — | | 228 | | 309 | | Common shares issued under compensation plan for Boards of Directors | | 44 | | — | | — | | 208 | | 252 | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | 98 | | — | | — | | 275 | | 373 | | Common shares issued under employee stock purchase plan | | 61 | | — | | — | | 285 | | 346 | |
Stock-based compensation | Stock-based compensation | | 2,382 | | — | | — | | — | | 2,382 | | Stock-based compensation | | 2,153 | | — | | — | | — | | 2,153 | |
| 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 | | |
| Balance, June 30, 2022 | | Balance, June 30, 2022 | | $ | 684,416 | | $ | 234,608 | | $ | (93,359) | | $ | (38,841) | | $ | 786,824 | |
| | | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity | | | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | | Common Shares | Retained Earnings | Treasury Stock | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | |
Balance, June 30, 2020 | | $ | 421,236 | | $ | 173,572 | | $ | 4,634 | | $ | (30,265) | | $ | 569,177 | | |
Balance, March 31, 2021 | | Balance, March 31, 2021 | | $ | 422,370 | | $ | 199,321 | | $ | (4,962) | | $ | (37,836) | | $ | 578,893 | |
| Net income | Net income | | — | | 10,210 | | — | | — | | 10,210 | | Net income | | — | | 10,103 | | — | | — | | 10,103 | |
Other comprehensive income, net of tax | Other comprehensive income, net of tax | | — | | — | | (1,692) | | — | | (1,692) | | Other comprehensive income, net of tax | | — | | — | | 2,740 | | — | | 2,740 | |
| Cash dividends declared | Cash dividends declared | | — | | (6,770) | | — | | — | | (6,770) | | Cash dividends declared | | — | | (7,065) | | — | | — | | (7,065) | |
| Reissuance of treasury stock for common share awards | Reissuance of treasury stock for common share awards | | (321) | | — | | — | | 321 | | — | | Reissuance of treasury stock for common share awards | | (432) | | — | | — | | 432 | | — | |
| Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 72 | | 72 | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (87) | | (87) | |
| 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 | Common shares issued under dividend reinvestment plan | | 220 | | — | | — | | — | | 220 | | Common shares issued under dividend reinvestment plan | | 90 | | — | | — | | — | | 90 | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | (11) | | — | | — | | 63 | | 52 | | Common shares issued under compensation plan for Boards of Directors | | 12 | | — | | — | | 43 | | 55 | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | (23) | | — | | — | | 134 | | 111 | | Common shares issued under employee stock purchase plan | | 26 | | — | | — | | 92 | | 118 | |
Stock-based compensation | Stock-based compensation | | 614 | | — | | — | | — | | 614 | | Stock-based compensation | | 586 | | — | | — | | — | | 586 | |
| Balance, September 30, 2020 | | $ | 421,715 | | $ | 177,012 | | $ | 2,942 | | $ | (34,813) | | $ | 566,856 | | |
Balance, June 30, 2021 | | Balance, June 30, 2021 | | $ | 422,652 | | $ | 202,359 | | $ | (2,222) | | $ | (37,284) | | $ | 585,505 | |
| | | | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| | | Common Shares | Retained Earnings | Treasury Stock | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | |
Balance, December 31, 2019 | | $ | 420,876 | | $ | 187,149 | | $ | (1,425) | | $ | (12,207) | | $ | 594,393 | | |
Balance, December 31, 2020 | | Balance, December 31, 2020 | | $ | 422,536 | | $ | 190,691 | | $ | 1,336 | | $ | (38,890) | | $ | 575,673 | |
| Net income | Net income | | — | | 14,194 | | — | | — | | 14,194 | | Net income | | — | | 25,566 | | — | | — | | 25,566 | |
Other comprehensive income, net of tax | | — | | — | | 4,367 | | — | | 4,367 | | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | — | | — | | (3,558) | | — | | (3,558) | |
| Cash dividends declared | Cash dividends declared | | — | | (20,622) | | — | | — | | (20,622) | | Cash dividends declared | | — | | (13,898) | | — | | — | | (13,898) | |
| Reissuance of treasury stock for common share awards | Reissuance of treasury stock for common share awards | | (2,583) | | — | | — | | 2,583 | | — | | Reissuance of treasury stock for common share awards | | (2,172) | | — | | — | | 2,172 | | — | |
| Reissuance of treasury stock for deferred compensation plan for Boards of Directors | Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 59 | | 59 | | 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 | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,052) | | (1,052) | | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (998) | | (998) | |
Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (25,000) | | (25,000) | | |
| Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 463 | | — | | — | | — | | 463 | | Common shares issued under dividend reinvestment plan | | 378 | | — | | — | | — | | 378 | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | 9 | | — | | — | | 316 | | 325 | | Common shares issued under compensation plan for Boards of Directors | | 65 | | — | | — | | 184 | | 249 | |
Common shares issued under performance unit awards, net of tax | | 41 | | — | | — | | 138 | | 179 | | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | (40) | | — | | — | | 350 | | 310 | | Common shares issued under employee stock purchase plan | | 61 | | — | | — | | 174 | | 235 | |
Stock-based compensation | Stock-based compensation | | 2,949 | | — | | — | | — | | 2,949 | | Stock-based compensation | | 1,784 | | — | | — | | — | | 1,784 | |
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 | | |
| Balance, June 30, 2021 | | Balance, June 30, 2021 | | $ | 422,652 | | $ | 202,359 | | $ | (2,222) | | $ | (37,284) | | $ | 585,505 | |
(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 | | Six Months Ended |
| | September 30, | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 66,722 | | $ | 55,992 | | Net cash provided by operating activities | $ | 62,708 | | $ | 38,675 | |
Investing activities: | Investing activities: | | Investing activities: | |
Available-for-sale investment securities: | Available-for-sale investment securities: | | Available-for-sale investment securities: | |
Purchases | Purchases | (715,263) | | (171,251) | | Purchases | (233,126) | | (317,502) | |
Proceeds from sales | Proceeds from sales | 480,127 | | 11,582 | | Proceeds from sales | 8,732 | | 58,483 | |
Proceeds from principal payments, calls and prepayments | Proceeds from principal payments, calls and prepayments | 227,574 | | 248,021 | | Proceeds from principal payments, calls and prepayments | 112,795 | | 146,148 | |
Held-to-maturity investment securities: | Held-to-maturity investment securities: | | Held-to-maturity investment securities: | |
Purchases | Purchases | (181,331) | | (8,404) | | Purchases | (38,622) | | (116,941) | |
Proceeds from principal payments | Proceeds from principal payments | 3,774 | | 3,834 | | Proceeds from principal payments | 11,109 | | 2,586 | |
Other investment securities: | Other investment securities: | | Other investment securities: | |
Purchases | Purchases | (1,221) | | (5,901) | | Purchases | (11,013) | | (541) | |
Proceeds from sales | Proceeds from sales | 8,552 | | 7,937 | | Proceeds from sales | 3,101 | | 5,696 | |
| Net decrease (increase) in loans held for investment | 156,598 | | (505,161) | | |
Net decrease in loans held for investment | | Net decrease in loans held for investment | 70,872 | | 116,441 | |
Net expenditures for premises and equipment | Net expenditures for premises and equipment | (5,893) | | (3,702) | | Net expenditures for premises and equipment | (3,462) | | (2,850) | |
Proceeds from sales of other real estate owned | Proceeds from sales of other real estate owned | 153 | | 96 | | Proceeds from sales of other real estate owned | 307 | | 113 | |
| Purchase of bank owned life insurance | | Purchase of bank owned life insurance | (30,000) | | — | |
Proceeds from bank owned life insurance contracts | Proceeds from bank owned life insurance contracts | — | | 109 | | Proceeds from bank owned life insurance contracts | 248 | | — | |
Business acquisitions, net of cash received | Business acquisitions, net of cash received | 136,119 | | (94,856) | | Business acquisitions, net of cash received | (85,793) | | (116,644) | |
Investment in limited partnership and tax credit funds | Investment in limited partnership and tax credit funds | (2,900) | | (13) | | Investment in limited partnership and tax credit funds | (1,151) | | (4,996) | |
Net cash provided by (used in) investing activities | 106,289 | | (517,709) | | |
Net cash used in investing activities | | Net cash used in investing activities | (196,003) | | (230,007) | |
Financing activities: | Financing activities: | | Financing activities: | |
Net increase in non-interest-bearing deposits | Net increase in non-interest-bearing deposits | 69,557 | | 311,704 | | Net increase in non-interest-bearing deposits | 20,443 | | 183,722 | |
Net increase in interest-bearing deposits | Net increase in interest-bearing deposits | 95,881 | | 348,779 | | Net increase in interest-bearing deposits | 46,485 | | 138,442 | |
Net increase (decrease) in short-term borrowings | Net increase (decrease) in short-term borrowings | 32,625 | | (154,914) | | Net increase (decrease) in short-term borrowings | 154,915 | | (21,765) | |
Proceeds from long-term borrowings | Proceeds from long-term borrowings | — | | 50,000 | | Proceeds from long-term borrowings | 11,255 | | — | |
Payments on long-term borrowings | Payments on long-term borrowings | (2,156) | | (1,857) | | Payments on long-term borrowings | (89,217) | | (563) | |
| Cash dividends paid | Cash dividends paid | (20,915) | | (20,147) | | Cash dividends paid | (21,081) | | (13,898) | |
Purchase of treasury stock under share repurchase program | Purchase of treasury stock under share repurchase program | — | | (25,000) | | Purchase of treasury stock under share repurchase program | (5,987) | | — | |
Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | 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) | | Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | (1,436) | | (998) | |
Proceeds from issuance of common shares | Proceeds from issuance of common shares | 655 | | 262 | | Proceeds from issuance of common shares | 576 | | 365 | |
| Net cash provided by financing activities | Net cash provided by financing activities | 174,571 | | 507,775 | | Net cash provided by financing activities | 115,953 | | 285,305 | |
Net increase in cash and cash equivalents | 347,582 | | 46,058 | | |
Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (17,342) | | 93,973 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 152,100 | | 115,193 | | Cash and cash equivalents at beginning of period | 415,727 | | 152,100 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 499,682 | | $ | 161,251 | | Cash and cash equivalents at end of period | $ | 398,385 | | $ | 246,073 | |
| Supplemental cash flow information: | Supplemental cash flow information: | | Supplemental cash flow information: | |
Interest paid | Interest paid | $ | 10,262 | | $ | 15,179 | | Interest paid | $ | 6,585 | | $ | 7,374 | |
Income taxes paid | Income taxes paid | 6,450 | | 7,500 | | Income taxes paid | 1,797 | | 5,250 | |
| Supplemental noncash disclosures: | Supplemental noncash disclosures: | | Supplemental noncash disclosures: | |
Transfers from loans to other real estate owned | 210 | | 163 | | |
Transfers from total loans to other real estate owned | | Transfers from total loans to other real estate owned | 55 | | 210 | |
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 | 101 | | 38 | | Lease right-of-use assets obtained in exchange for lessee operating lease liabilities | 27 | | 79 | |
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, 20202021 ("Peoples' 20202021 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’ 20202021 Form 10-K, as updated by the information contained in this quarterly reportQuarterly Report on Form 10-Q for the quarterly period ended SeptemberJune 30, 20212022 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after SeptemberJune 30, 20212022 for potential recognition or disclosure in these unaudited condensed consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2020,2021, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 20202021 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’ 20202021 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 UpdateUpdated ("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, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance was further updated by ASU allows relief where the benchmark interest rate2021-01. This update is changed on a loan, lease or hedging relationship betweeneffective as of March 12, 2020
and through December 31, 2022. This ASU was early adopted as of September 30, 2021, and isdoes not expected to have a significant impact on Peoples' consolidated financial statements,Consolidated Financial Statements, but is expected to reduce the accounting burden of assessing contracts impacted by reference rate reform.
ASU 2019-122022-01 - Income TaxesFair Value Hedging - Portfolio Layer Method - Derivatives and Hedging (Topic 740): Simplifying815). This ASU clarifies the Accountingguidance in ASC 815 on fair value hedge accounting of interest rate risk for Income Taxes. Theportfolios of financial assets. This ASU expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. For entities that have already adopted ASU 2017-12, as Peoples has, the amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance. These amendments2022-01 are effective for fiscal years beginning after December 15, 2020, and2022, including interim periods within those fiscal years. Peoples adoptedThe amendments in this ASU asmay also be early adopted, including adoption in any interim period. Peoples is currently evaluating the impact of January 1, 2021. The adoption ofthe amendments in this ASU did noton Peoples' consolidated financial statements.
ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. This ASU eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors and amends the guidance on disclosures to include current-period gross write-offs by year of origination. This ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. For entities that have a material effectalready adopted ASU 2016-13, as Peoples has, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU may also be early adopted, including adoption in any interim period. Peoples is currently evaluating the impact of the amendments in this ASU on Peoples' consolidated financial statements.
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' 20202021 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, 2021 | | December 31, 2020 | | | June 30, 2022 | | December 31, 2021 |
(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. Treasury and government agencies | | U.S. Treasury and government agencies | | $ | 175,255 | | $ | — | | $ | — | | | $ | 35,604 | | $ | — | | $ | — | |
U.S. government sponsored agencies | U.S. government sponsored agencies | | $ | — | | $ | 78,481 | | $ | — | | | $ | — | | $ | 5,363 | | $ | — | | U.S. government sponsored agencies | | — | | 82,465 | | — | | | — | | 81,739 | | — | |
States and political subdivisions | States and political subdivisions | | — | | 252,919 | | — | | | — | | 114,919 | | — | | States and political subdivisions | | — | | 249,402 | | — | | | — | | 259,319 | | — | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | — | | 898,459 | | — | | | — | | 623,218 | | — | | Residential mortgage-backed securities | | — | | 691,735 | | — | | | — | | 828,517 | | — | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | | — | | 62,552 | | — | | | — | | 4,783 | | — | | Commercial mortgage-backed securities | | — | | 58,301 | | — | | | — | | 63,519 | | — | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | | — | | 4,679 | | — | | | — | | 4,730 | | — | | Bank-issued trust preferred securities | | — | | 10,440 | | — | | | — | | 6,795 | | — | |
| Total available-for-sale securities | Total available-for-sale securities | | — | | 1,297,090 | | — | | | — | | 753,013 | | — | | Total available-for-sale securities | | $ | 175,255 | | $ | 1,092,343 | | $ | — | | | $ | 35,604 | | $ | 1,239,889 | | $ | — | |
Equity investment securities (a) | Equity investment securities (a) | | 145 | | 245 | | — | | | 107 | | 192 | | — | | Equity investment securities (a) | | 135 | | 192 | | — | | | 160 | | 184 | | — | |
Derivative assets (b) | Derivative assets (b) | | — | | 15,653 | | — | | | — | | 27,332 | | — | | Derivative assets (b) | | — | | 20,145 | | — | | | — | | 12,163 | | — | |
Liabilities: | Liabilities: | | | Liabilities: | | |
Derivative liabilities (c) | Derivative liabilities (c) | | $ | — | | $ | 22,904 | | $ | — | | | $ | — | | $ | 39,395 | | $ | — | | Derivative liabilities (c) | | $ | — | | $ | 17,602 | | $ | — | | | $ | — | | $ | 17,183 | | $ | — | |
(a) Included in "Other investment securities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
(b) Included in "Other assets" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
(c) Included in "Accrued expenses and other liabilities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Available-for-Sale Investment Securities: The fair values reportedused 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, London Interbank Offered Rate ("LIBOR")LIBOR (or other relevant) yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from quoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).
Derivative Assets and Liabilities: Derivative assets and liabilities are recognized on the Unaudited Consolidated Balance Sheets at their fair value within "Other assets", and "Accrued expenses and other liabilities", respectively. The fair value for derivative financial instruments is determined based on market prices, broker-dealer quotations on similar products, or other related market input parameters (Level 2).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy during the nine months ended Septemberat June 30, 20212022 and December 31, 2020.2021.
| | | | Non-Recurring Fair Value Measurements at Reporting Date | | | Non-Recurring Fair Value Measurements at Reporting Date |
| | | September 30, 2021 | | December 31, 2020 | | | June 30, 2022 | | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | (Dollars in thousands) | | Level 2 | Level 3 | | | Level 2 | Level 3 |
| | | | Level 2 | Level 3 |
Assets: | Assets: | | | Assets: | | |
Loans held for sale | | $ | — | | $ | 2,751 | | $ | — | | | $ | — | | $ | 4,733 | | $ | — | | |
Collateral dependent loans | | Collateral dependent loans | | $ | — | | $ | 1,021 | | | | $ | — | | $ | 430 | |
Loans held for sale (a) | | Loans held for sale (a) | | $ | 749 | | $ | — | | | | $ | 418 | | $ | — | |
Other real estate owned ("OREO") | Other real estate owned ("OREO") | | $ | — | | $ | — | | $ | 11,268 | | | $ | — | | $ | — | | $ | 134 | | Other real estate owned ("OREO") | | $ | — | | $ | — | | | | $ | — | | $ | 87 | |
Servicing rights (a)(b) | | $ | — | | $ | — | | $ | 2,294 | | | $ | — | | $ | — | | $ | 2,591 | | |
Servicing rights (b)(c) | | Servicing rights (b)(c) | | $ | — | | $ | 24 | | | | $ | — | | $ | 22 | |
(a) Loans held for sale are presented gross of a valuation allowance of $52 and $0 as of June 30, 2022 and December 31, 2021, respectively.
(b) Included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.
(b)(c) Peoples established a valuation allowance on servicing rights of $16$6 at SeptemberJune 30, 20212022 and $161$12 at December 31, 2020, as the2021. The fair value of the servicing rights on 10-year fixed rate loans was less than the carrying value.
Collateral Dependent Loans:Loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty are considered collateral dependent. Peoples utilizes outside third-party appraisal services to value the underlying collateral, for which Peoples uses to report the loans at their fair value (Level 3).
Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally 1-4one-to-four family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2).
Other Real Estate Owned: OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of OREO quarterly for impairment considering market activity andbasis, but is based on recent real estate appraisals.appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approachapproach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3). The increase in OREO for the nine months ended September 30, 2021 was due to the OREO acquired in the Premier Financial Bancorp Inc. ("Premier") acquisition.
Servicing Rights: Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). The carrying value of servicing rights is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of servicing rights quarterly for impairment.
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, 2021 | | December 31, 2020 | (Dollars in thousands) | | Fair Value Hierarchy Level | June 30, 2022 | | December 31, 2021 |
| 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 | $ | 499,682 | | $ | 499,682 | | | $ | 152,100 | | $ | 152,100 | | Cash and cash equivalents | | 1 | $ | 398,385 | | $ | 398,385 | | | $ | 415,727 | | $ | 415,727 | |
| 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 | | | — | | — | | U.S. government sponsored agencies | | 2 | 50,990 | | 44,438 | | | 36,431 | | 35,513 | |
States and political subdivisions(a) | States and political subdivisions(a) | | 2 | 124,181 | | 122,435 | | | 35,139 | | 35,484 | | States and political subdivisions(a) | | 2 | 151,320 | | 122,078 | | | 151,688 | | 150,138 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | 2 | 41,035 | | 41,501 | | | 25,890 | | 26,742 | | Residential mortgage-backed securities | | 2 | 112,095 | | 99,970 | | | 110,708 | | 110,159 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | | 2 | 47,889 | | 46,917 | | | 5,429 | | 5,856 | | Commercial mortgage-backed securities | | 2 | 86,601 | | 74,602 | | | 75,588 | | 74,145 | |
Total held-to-maturity securities | Total held-to-maturity securities | | | 243,100 | | 240,000 | | | 66,458 | | 68,082 | | Total held-to-maturity securities | | | 401,006 | | 341,088 | | | 374,415 | | 369,955 | |
| Other investment securities: | Other investment securities: | | | Other investment securities: | | |
Other investment securities at cost: | Other investment securities at cost: | | | Other investment securities at cost: | | |
Federal Home Loan Bank ("FHLB") stock | Federal Home Loan Bank ("FHLB") stock | | n/a | 17,918 | | 17,918 | | | 21,718 | | 21,718 | | Federal Home Loan Bank ("FHLB") stock | | N/A | 17,308 | | 17,308 | | | 17,308 | | 17,308 | |
Federal Reserve Bank ("FRB") stock | Federal Reserve Bank ("FRB") stock | | n/a | 13,311 | | 13,311 | | | 13,311 | | 13,311 | | Federal Reserve Bank ("FRB") stock | | N/A | 21,226 | | 21,226 | | | 13,311 | | 13,311 | |
Total other investment securities at cost | Total other investment securities at cost | | | 31,229 | | 31,229 | | | 35,029 | | 35,029 | | Total other investment securities at cost | | | 38,534 | | 38,534 | | | 30,619 | | 30,619 | |
Other investment securities at fair value: | Other investment securities at fair value: | | | Other investment securities at fair value: | | |
Nonqualified deferred compensation (a)(b) | Nonqualified deferred compensation (a)(b) | | 2 | 2,083 | | 2,083 | | | 1,867 | | 1,867 | | Nonqualified deferred compensation (a)(b) | | 1 | 2,016 | | 2,016 | | | 2,240 | | 2,240 | |
Other investment securities (b)(c) | Other investment securities (b)(c) | | 2 | 784 | | 784 | | | 365 | | 365 | | Other investment securities (b)(c) | | 2 | 779 | | 779 | | | 784 | | 784 | |
Total other investment securities at fair value | | | 2,867 | | 2,867 | | | 2,232 | | 2,232 | | |
Total other investment securities (b) | | | 34,096 | | 34,096 | | | 37,261 | | 37,261 | | |
Total other investment securities | | Total other investment securities | | | 41,329 | | 41,329 | | | 33,643 | | 33,643 | |
| Loans and leases, net of deferred fees and costs(d) | Loans and leases, net of deferred fees and costs(d) | | 3 | 4,491,028 | | 4,595,800 | | | 3,402,940 | | 3,458,732 | | Loans and leases, net of deferred fees and costs(d) | | 3 | 4,575,905 | | 4,350,080 | | | 4,481,600 | | 4,510,605 | |
Bank owned life insurance | Bank owned life insurance | | 3 | 72,920 | | 72,920 | | | 71,591 | | 71,591 | | Bank owned life insurance | | 2 | 104,339 | | 104,339 | | | 73,358 | | 73,358 | |
Liabilities: | Liabilities: | | | Liabilities: | | |
Deposits | Deposits | | 2 | $ | 5,832,020 | | $ | 5,546,935 | | | $ | 3,910,459 | | $ | 3,773,602 | | Deposits | | 2 | $ | 5,929,225 | | $ | 5,039,094 | | | $ | 5,862,552 | | $ | 5,546,552 | |
Short-term borrowings | Short-term borrowings | | 2 | 184,693 | | 186,028 | | | 73,261 | | 74,170 | | Short-term borrowings | | 2 | 326,442 | | 329,191 | | | 166,482 | | 164,990 | |
Long-term borrowings | Long-term borrowings | | 2 | 99,411 | | 106,497 | | | 110,568 | | 117,364 | | Long-term borrowings | | 2 | 123,687 | | 124,728 | | | 99,475 | | 101,664 | |
(a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $286 as of June 30, 2022 and December 31, 2021.
(b) Nonqualified deferred compensation includes mutual funds as part of the investment.
(b)(c) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at SeptemberJune 30, 20212022
and at December 31, 2020,2021, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
table above and not included in this table.
(d) Loans and leases, net of deferred fees and costs, are presented gross of an allowance for credit losses of $52.3 million and $64.0 million as of June 30, 2022 and December 31, 2021, respectively.
For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instruments.instrument. These financial instruments include cash and cash equivalents, demand and other non-maturity deposits, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash on hand and balances due from banks is a reasonable estimate of fair value (Level 1).
Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBORrelevant 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 serviceservices 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).
Other Investment Securities: Other investment securities at cost are not recorded at fair value as they are not marketable securities. Other investment securities at fair value are valued using quoted prices in an active market (Level 1) or quoted prices in less active markets (Level 2).
Loans and Leases, Net of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity.held-to-maturity. Peoples considered interest rate, credit and market factors in estimating the fair value of loans and leases (Level 3). Fair values for loans and leases are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans and leases with similar terms, the credit risk associated with the loans and leases and other market factors, including liquidity.
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3)2). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.
Deposits: The fair value of fixed maturityfixed-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). Demand and other non-fixed-maturity deposits are estimated using a discounted cash flow calculation based on maturity, attrition and re-pricing assumptions.
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, thatwhich 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) | (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2021 | | |
June 30, 2022 | | June 30, 2022 | |
Obligations of: | Obligations of: | | Obligations of: | |
| U.S. Treasury and government agencies | | U.S. Treasury and government agencies | $ | 179,095 | | $ | — | | $ | (3,840) | | $ | 175,255 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 78,916 | | $ | 102 | | $ | (537) | | $ | 78,481 | | U.S. government sponsored agencies | 92,245 | | 4 | | (9,784) | | 82,465 | |
States and political subdivisions | States and political subdivisions | 252,706 | | 3,220 | | (3,007) | | 252,919 | | States and political subdivisions | 278,567 | | 250 | | (29,415) | | 249,402 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 894,848 | | 10,453 | | (6,842) | | 898,459 | | Residential mortgage-backed securities | 762,511 | | 1,678 | | (72,454) | | 691,735 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 63,568 | | 85 | | (1,101) | | 62,552 | | Commercial mortgage-backed securities | 66,465 | | 5 | | (8,169) | | 58,301 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 4,616 | | 233 | | (170) | | 4,679 | | Bank-issued trust preferred securities | 10,738 | | 63 | | (361) | | 10,440 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 1,294,654 | | $ | 14,093 | | $ | (11,657) | | $ | 1,297,090 | | Total available-for-sale securities | $ | 1,389,621 | | $ | 2,000 | | $ | (124,023) | | $ | 1,267,598 | |
December 31, 2020 | | |
December 31, 2021 | | December 31, 2021 | |
Obligations of: | Obligations of: | | Obligations of: | |
| U.S. Treasury and government agencies | | U.S. Treasury and government agencies | $ | 35,609 | | $ | 12 | | $ | (17) | | $ | 35,604 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 4,960 | | $ | 403 | | $ | — | | $ | 5,363 | | U.S. government sponsored agencies | 83,019 | | 58 | | (1,338) | | 81,739 | |
States and political subdivisions | States and political subdivisions | 110,401 | | 4,642 | | (124) | | 114,919 | | States and political subdivisions | 259,508 | | 3,187 | | (3,376) | | 259,319 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 609,865 | | 15,377 | | (2,024) | | 623,218 | | Residential mortgage-backed securities | 833,328 | | 6,565 | | (11,376) | | 828,517 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 4,622 | | 161 | | — | | 4,783 | | Commercial mortgage-backed securities | 64,971 | | 42 | | (1,494) | | 63,519 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 4,696 | | 192 | | (158) | | 4,730 | | Bank-issued trust preferred securities | 6,711 | | 215 | | (131) | | 6,795 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 734,544 | | $ | 20,775 | | $ | (2,306) | | $ | 753,013 | | Total available-for-sale securities | $ | 1,283,146 | | $ | 10,079 | | $ | (17,732) | | $ | 1,275,493 | |
The gross gains and losses realized by Peoples from sales of available-for-sale securities for the periods ended SeptemberJune 30 were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 | | 2022 | 2021 |
Gross gains realized | Gross gains realized | $ | 150 | | $ | 2 | | | $ | 786 | | $ | 386 | | Gross gains realized | $ | 14 | | $ | 297 | | | $ | 160 | | $ | 636 | |
Gross losses realized | Gross losses realized | (316) | | — | | | (1,490) | | (3) | | Gross losses realized | (58) | | (499) | | | (74) | | (1,174) | |
Net (loss) gain realized | Net (loss) gain realized | $ | (166) | | $ | 2 | | | $ | (704) | | $ | 383 | | Net (loss) gain realized | $ | (44) | | $ | (202) | | | $ | 86 | | $ | (538) | |
The cost of investment securities sold, and any resulting gain or loss, were based on the specific identification method and recognized as of the trade date.
The following table presents a summary of available-for-sale investment securities that had been in a continuous unrealized loss loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2021 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
| | | | | | | | | | |
U.S. government sponsored agencies | $ | 49,570 | | $ | 537 | | $ | 7 | | | $ | — | | $ | — | | $ | — | | | $ | 49,570 | | $ | 537 | |
States and political subdivisions | 128,402 | | 3,007 | | 76 | | | — | | — | | — | | | 128,402 | | 3,007 | |
Residential mortgage-backed securities | 466,518 | | 6,079 | | 72 | | | 36,160 | | 763 | | 16 | | | 502,678 | | 6,842 | |
Commercial mortgage-backed securities | 48,974 | | 1,101 | | 17 | | | — | | — | | — | | | 48,974 | | 1,101 | |
Bank-issued trust preferred securities | — | | — | | — | | | 1,830 | | 170 | | 2 | | | 1,830 | | 170 | |
| | | | | | | | | | |
Total | $ | 693,464 | | $ | 10,724 | | 172 | | | $ | 37,990 | | $ | 933 | | 18 | | | $ | 731,454 | | $ | 11,657 | |
December 31, 2020 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
States and political subdivisions | $ | 17,651 | | $ | 124 | | 5 | | | $ | — | | $ | — | | — | | | $ | 17,651 | | $ | 124 | |
Residential mortgage-backed securities | 156,659 | | 1,795 | | 45 | | | 9,892 | | 229 | | 13 | | | 166,551 | | 2,024 | |
| | | | | | | | | | |
Bank-issued trust preferred securities | 494 | | 6 | | 1 | | | 1,848 | | 152 | | 2 | | | 2,342 | | 158 | |
| | | | | | | | | | |
Total | $ | 174,804 | | $ | 1,925 | | 51 | | | $ | 11,740 | | $ | 381 | | 15 | | | $ | 186,544 | | $ | 2,306 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
June 30, 2022 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
U.S. Treasury and government agencies | $ | 175,255 | | $ | 3,840 | | 31 | | | $ | — | | $ | — | | — | | | $ | 175,255 | | $ | 3,840 | |
U.S. government sponsored agencies | 69,803 | | 8,146 | | 19 | | | 6,658 | | 1,638 | | 2 | | | 76,461 | | 9,784 | |
States and political subdivisions | 143,145 | | 18,282 | | 141 | | | 47,152 | | 11,133 | | 21 | | | 190,297 | | 29,415 | |
Residential mortgage-backed securities | 575,723 | | 57,557 | | 207 | | | 91,863 | | 14,897 | | 24 | | | 667,586 | | 72,454 | |
Commercial mortgage-backed securities | 40,586 | | 5,112 | | 18 | | | 16,608 | | 3,057 | | 6 | | | 57,194 | | 8,169 | |
Bank-issued trust preferred securities | 7,221 | | 280 | | 4 | | | 919 | | 81 | | 1 | | | 8,140 | | 361 | |
| | | | | | | | | | |
Total | $ | 1,011,733 | | $ | 93,217 | | 420 | | | $ | 163,200 | | $ | 30,806 | | 54 | | | $ | 1,174,933 | | $ | 124,023 | |
December 31, 2021 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
U.S. Treasury and government agencies | $ | 16,914 | | $ | 17 | | 6 | | | $ | — | | $ | — | | — | | | $ | 16,914 | | $ | 17 | |
U.S. government sponsored agencies | 72,406 | | 1,192 | | 13 | | | 4,854 | | 146 | | 1 | | | 77,260 | | 1,338 | |
States and political subdivisions | 101,397 | | 2,075 | | 71 | | | 30,853 | | 1,301 | | 11 | | | 132,250 | | 3,376 | |
Residential mortgage-backed securities | 573,139 | | 9,051 | | 113 | | | 51,103 | | 2,325 | | 14 | | | 624,242 | | 11,376 | |
Commercial mortgage-backed securities | 60,134 | | 1,494 | | 21 | | | — | | — | | — | | | 60,134 | | 1,494 | |
Bank-issued trust preferred securities | 2,991 | | 9 | | 1 | | | 878 | | 122 | | 1 | | | 3,869 | | 131 | |
| | | | | | | | | | |
Total | $ | 826,981 | | $ | 13,838 | | 225 | | | $ | 87,688 | | $ | 3,894 | | 27 | | | $ | 914,669 | | $ | 17,732 | |
Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At SeptemberJune 30, 2021,2022, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At SeptemberJune 30, 2021,2022, Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both SeptemberJune 30, 20212022 and December 31, 20202021 were largely attributable to changes in market interest rates and spreads since the securities were purchased, and were not credit relatedcredit-related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment securities was $5.7$6.3 million at SeptemberJune 30, 20212022 and $2.7$5.5 million at December 31, 2020.2021.
At SeptemberJune 30, 2021,2022, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or 23 positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Neither of the 2All 3 positions had a fair value of less than 90% of its book value. Management analyzed the underlying credit quality of these mortgage-backedmortgage-
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 lossesloss with respect to the 21 bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at SeptemberJune 30, 2021 were2022 was attributable to the subordinated nature of the debt.
The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at SeptemberJune 30, 2021.2022. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.
| (Dollars in thousands) | (Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total | (Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | Amortized cost | | Amortized cost | |
Obligations of: | Obligations of: | | Obligations of: | |
| U.S. Treasury and government agencies | | U.S. Treasury and government agencies | $ | 10,071 | | $ | 169,024 | | $ | — | | $ | — | | $ | 179,095 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | — | | $ | 1,996 | | $ | 66,436 | | $ | 10,484 | | $ | 78,916 | | U.S. government sponsored agencies | 2,807 | | 29,294 | | 51,848 | | 8,296 | | 92,245 | |
States and political subdivisions | States and political subdivisions | 7,314 | | 28,647 | | 67,074 | | 149,671 | | 252,706 | | States and political subdivisions | 19,729 | | 55,670 | | 69,708 | | 133,460 | | 278,567 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 7 | | 981 | | 56,615 | | 837,245 | | 894,848 | | Residential mortgage-backed securities | 30 | | 2,033 | | 62,316 | | 698,132 | | 762,511 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,887 | | — | | 34,169 | | 27,512 | | 63,568 | | Commercial mortgage-backed securities | 5,531 | | 909 | | 34,741 | | 25,284 | | 66,465 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | — | | — | | 4,616 | | — | | 4,616 | | Bank-issued trust preferred securities | — | | 4,238 | | 6,500 | | — | | 10,738 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 9,208 | | $ | 31,624 | | $ | 228,910 | | $ | 1,024,912 | | $ | 1,294,654 | | Total available-for-sale securities | $ | 38,168 | | $ | 261,168 | | $ | 225,113 | | $ | 865,172 | | $ | 1,389,621 | |
Fair value | Fair value | | Fair value | |
Obligations of: | Obligations of: | | Obligations of: | |
| U.S. Treasury and government agencies | | U.S. Treasury and government agencies | $ | 9,972 | | $ | 165,283 | | $ | — | | $ | — | | $ | 175,255 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | — | | $ | 2,069 | | $ | 66,161 | | $ | 10,251 | | $ | 78,481 | | U.S. government sponsored agencies | 2,802 | | 27,614 | | 45,391 | | 6,658 | | 82,465 | |
States and political subdivisions | States and political subdivisions | 7,375 | | 29,538 | | 68,100 | | 147,906 | | 252,919 | | States and political subdivisions | 19,757 | | 54,919 | | 63,328 | | 111,398 | | 249,402 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 7 | | 1,006 | | 56,712 | | 840,734 | | 898,459 | | Residential mortgage-backed securities | 30 | | 1,999 | | 58,905 | | 630,801 | | 691,735 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,907 | | — | | 33,763 | | 26,882 | | 62,552 | | Commercial mortgage-backed securities | 5,529 | | 876 | | 30,501 | | 21,395 | | 58,301 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | — | | — | | 4,679 | | — | | 4,679 | | Bank-issued trust preferred securities | — | | 4,294 | | 6,146 | | — | | 10,440 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 9,289 | | $ | 32,613 | | $ | 229,415 | | $ | 1,025,773 | | $ | 1,297,090 | | Total available-for-sale securities | $ | 38,090 | | $ | 254,985 | | $ | 204,271 | | $ | 770,252 | | $ | 1,267,598 | |
Total weighted-average yield | Total weighted-average yield | 2.07 | % | 2.56 | % | 1.19 | % | 1.58 | % | 1.54 | % | Total weighted-average yield | 3.70 | % | 2.18 | % | 1.60 | % | 1.96 | % | 1.99 | % |
Held-to-maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
| (Dollars in thousands) | (Dollars in thousands) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | (Dollars in thousands) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2021 | | | | |
June 30, 2022 | | June 30, 2022 | | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 29,995 | | $ | — | | $ | 85 | | $ | (933) | | $ | 29,147 | | U.S. government sponsored agencies | $ | 50,990 | | $ | — | | $ | 12 | | $ | (6,564) | | $ | 44,438 | |
States and political subdivisions | States and political subdivisions | 124,417 | | (236) | | 675 | | (2,421) | | 122,435 | | States and political subdivisions | 151,320 | | (286) | | 153 | | (29,109) | | 122,078 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 41,035 | | — | | 661 | | (195) | | 41,501 | | Residential mortgage-backed securities | 112,095 | | — | | — | | (12,125) | | 99,970 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 47,889 | | — | | 236 | | (1,208) | | 46,917 | | Commercial mortgage-backed securities | 86,601 | | — | | — | | (11,999) | | 74,602 | |
Total held-to-maturity securities | Total held-to-maturity securities | $ | 243,336 | | $ | (236) | | $ | 1,657 | | $ | (4,757) | | $ | 240,000 | | Total held-to-maturity securities | $ | 401,006 | | $ | (286) | | $ | 165 | | $ | (59,797) | | $ | 341,088 | |
December 31, 2020 | | | | |
December 31, 2021 | | December 31, 2021 | | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | |
U.S. government sponsored agencies | | U.S. government sponsored agencies | $ | 36,431 | | $ | — | | $ | 86 | | $ | (1,004) | | $ | 35,513 | |
States and political subdivisions | States and political subdivisions | $ | 35,199 | | $ | (60) | | $ | 510 | | $ | (165) | | $ | 35,484 | | States and political subdivisions | 151,688 | | (286) | | 1,006 | | (2,270) | | 150,138 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 25,890 | | — | | 852 | | — | | 26,742 | | Residential mortgage-backed securities | 110,708 | | — | | 370 | | (919) | | 110,159 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 5,429 | | — | | 427 | | — | | 5,856 | | Commercial mortgage-backed securities | 75,588 | | — | | 182 | | (1,625) | | 74,145 | |
Total held-to-maturity securities | Total held-to-maturity securities | $ | 66,518 | | $ | (60) | | $ | 1,789 | | $ | (165) | | $ | 68,082 | | Total held-to-maturity securities | $ | 374,415 | | $ | (286) | | $ | 1,644 | | $ | (5,818) | | $ | 369,955 | |
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for anyeither of the three and ninesix months ended SeptemberJune 30, 2021 and 2020.2022 or 2021.
Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are obligations of states and political subdivisions with the remaining securities issued by U.S. government sponsored agencies. Peoples analyzed these securities using cumulative default rate averages for investment grade municipal securities. Since December 31, 2020, Peoples has purchased securities and designated them as held-to maturity and, as a result, at September 30, 2021, Peoples recorded $236,000$286,000 of allowance for credit losses for held-to-maturity securities compared to $60,000 at each of June 30, 2022, and December 31, 2020.
2021.
The following table presents a summary of held-to-maturity investment securities that had been in a continuous unrealized loss position:
| | | Less than 12 Months | | 12 Months or More | | Total | | 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, 2021 | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | |
Obligations of: | Obligations of: | | Obligations of: | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 25,587 | | $ | 933 | | 5 | | | — | | — | | — | | | $ | 25,587 | | $ | 933 | | U.S. government sponsored agencies | $ | 10,845 | | $ | 1,300 | | 4 | | | 20,958 | | 5,264 | | 5 | | | $ | 31,803 | | $ | 6,564 | |
States and political subdivisions | States and political subdivisions | 89,532 | | 2,421 | | 37 | | | — | | — | | — | | | 89,532 | | 2,421 | | States and political subdivisions | 87,008 | | 20,941 | | 58 | | | 26,097 | | 8,168 | | 9 | | | 113,105 | | 29,109 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 17,426 | | 195 | | 2 | | | — | | — | | — | | | 17,426 | | 195 | | Residential mortgage-backed securities | 99,944 | | 12,125 | | 26 | | | — | | — | | — | | | 99,944 | | 12,125 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 39,641 | | 1,208 | | 11 | | | — | | — | | — | | | 39,641 | | 1,208 | | Commercial mortgage-backed securities | 69,102 | | 10,015 | | 30 | | | 6,407�� | | 1,984 | | 1 | | | 75,509 | | 11,999 | |
Total | Total | $ | 172,186 | | $ | 4,757 | | 55 | | | $ | — | | $ | — | | — | | | $ | 172,186 | | $ | 4,757 | | Total | $ | 266,899 | | $ | 44,381 | | 118 | | | $ | 53,462 | | $ | 15,416 | | 15 | | | $ | 320,361 | | $ | 59,797 | |
December 31, 2020 | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | |
Obligations of: | Obligations of: | | Obligations of: | |
U.S. government sponsored agencies | | U.S. government sponsored agencies | $ | 17,328 | | $ | 504 | | 6 | | | 14,635 | | 500 | | 2 | | | $ | 31,963 | | $ | 1,004 | |
States and political subdivisions | States and political subdivisions | $ | 18,662 | | $ | 165 | | 5 | | | $ | — | | $ | — | | — | | | $ | 18,662 | | $ | 165 | | States and political subdivisions | 61,954 | | 1,041 | | 34 | | | 27,328 | | 1,229 | | 6 | | | 89,282 | | 2,270 | |
| Residential mortgage-backed securities | | Residential mortgage-backed securities | 88,937 | | 919 | | 17 | | | — | | — | | — | | | 88,937 | | 919 | |
Commercial mortgage-backed securities | | Commercial mortgage-backed securities | 67,338 | | 1,625 | | 21 | | | — | | — | | — | | | 67,338 | | 1,625 | |
Total | Total | $ | 18,662 | | $ | 165 | | 5 | | | $ | — | | $ | — | | — | | | $ | 18,662 | | $ | 165 | | Total | $ | 235,557 | | $ | 4,089 | | 78 | | | $ | 41,963 | | $ | 1,729 | | 8 | | | $ | 277,520 | | $ | 5,818 | |
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at SeptemberJune 30, 2021.2022. The weighted-average yields are based on the amortized cost and are computed on a fully taxable-equivalent basis using a blended federal and state corporate income tax rate of 23.3% and 22.3%. for the periods ending June 30, 2022 and December 31, 2021, respectively. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.
| (Dollars in thousands) | (Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total | (Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | Amortized cost | | Amortized cost | |
Obligations of: | Obligations of: | | | Obligations of: | | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | — | | $ | — | | $ | — | | $ | 29,995 | | $ | 29,995 | | U.S. government sponsored agencies | $ | — | | $ | 19,151 | | $ | 2,174 | | $ | 29,665 | | $ | 50,990 | |
States and political subdivisions | States and political subdivisions | — | | 989 | | 2,511 | | 120,917 | | 124,417 | | States and political subdivisions | — | | 5,207 | | 9,241 | | 136,872 | | 151,320 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | — | | 1,939 | | — | | 39,096 | | 41,035 | | Residential mortgage-backed securities | — | | 1,308 | | — | | 110,787 | | 112,095 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 355 | | — | | 8,655 | | 38,879 | | 47,889 | | Commercial mortgage-backed securities | 336 | | 12,966 | | 21,399 | | 51,900 | | 86,601 | |
Total held-to-maturity securities | Total held-to-maturity securities | $ | 355 | | $ | 2,928 | | $ | 11,166 | | $ | 228,887 | | $ | 243,336 | | Total held-to-maturity securities | $ | 336 | | $ | 38,632 | | $ | 32,814 | | $ | 329,224 | | $ | 401,006 | |
Fair value | Fair value | | | | Fair value | | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | — | | $ | — | | $ | — | | $ | 29,147 | | $ | 29,147 | | U.S. government sponsored agencies | $ | — | | $ | 18,707 | | $ | 1,918 | | $ | 23,813 | | $ | 44,438 | |
States and political subdivisions | States and political subdivisions | — | | 1,132 | | 2,794 | | 118,509 | | 122,435 | | States and political subdivisions | — | | 4,943 | | 8,067 | | 109,068 | | 122,078 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | — | | 2,015 | | — | | 39,486 | | 41,501 | | Residential mortgage-backed securities | — | | 1,302 | | — | | 98,668 | | 99,970 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 358 | | — | | 8,844 | | 37,715 | | 46,917 | | Commercial mortgage-backed securities | 335 | | 12,893 | | 19,065 | | 42,309 | | 74,602 | |
Total held-to-maturity securities | Total held-to-maturity securities | $ | 358 | | $ | 3,147 | | $ | 11,638 | | $ | 224,857 | | $ | 240,000 | | Total held-to-maturity securities | $ | 335 | | $ | 37,845 | | $ | 29,050 | | $ | 273,858 | | $ | 341,088 | |
Total weighted-average yield | Total weighted-average yield | 2.25 | % | 2.29 | % | 2.37 | % | 2.05 | % | 2.07 | % | Total weighted-average yield | 1.46 | % | 2.11 | % | 1.65 | % | 1.85 | % | 1.85 | % |
Other Investment Securities
Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB stock and FRB stock.
The following table summarizes the carrying value of Peoples' other investment securities:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
FHLB stock | $ | 17,918 | | $ | 21,718 | |
FRB stock | 13,311 | | 13,311 | |
Nonqualified deferred compensation | 2,083 | | 1,867 | |
Equity investment securities | 390 | | 299 | |
Other investment securities | 784 | | 365 | |
Total other investment securities | $ | 34,486 | | $ | 37,560 | |
The following table summarizes the carrying value of Peoples' other investment securities:
| | | | | | | | |
(Dollars in thousands) | June 30, 2022 | December 31, 2021 |
FHLB stock | $ | 17,308 | | $ | 17,308 | |
FRB stock | 21,226 | | 13,311 | |
Nonqualified deferred compensation | 2,016 | | 2,240 | |
Equity investment securities | 326 | | 344 | |
Other investment securities | 779 | | 784 | |
Total other investment securities | $ | 41,655 | | $ | 33,987 | |
During the ninesix months ended SeptemberJune 30, 2021,2022, Peoples redeemed $7.5purchased $7.9 million of FHLBFRB stock as requested by the FHLB. FRB as a result of the Premier Financial Bancorp, Inc. ("Premier") acquisition on September 17, 2021.
During the three months ended SeptemberJune 30, 2021, Peoples acquired $3.7 million in FHLB stock in the Merger with Premier.
During the three2022 and nine months ended September 30, 2021,, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized loss of $11,000 and an unrealized gain of $18,000. For the six months ended June 30, 2022 and 2021, Peoples recognized a loss of $18,000 and $91,000, respectively. During the three and nine months ended September 30, 2020, Peoples recordeda gain of $73,000, respectively, for the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $1,000 and an unrealized loss of $15,000, respectively..
At SeptemberJune 30, 2021,2022, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.
Pledged Securities
Peoples has pledged available-for-sale investment securities and held-to-maturity investment securities to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements. Peoples has also pledged available-for-sale investment securities to secure additional borrowing capacity at the FHLB and the FRB as well as to derivative counterparties as collateral on unrealized interest rate swaps.
The following table summarizes the carrying value of Peoples' pledged securities:
| | | | Carrying Amount | | | Carrying Amount |
(Dollars in thousands) | (Dollars in thousands) | | September 30, 2021 | | December 31, 2020 | (Dollars in thousands) | | June 30, 2022 | | December 31, 2021 |
| 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 | | $ | 851,966 | | | $ | 547,244 | | Available-for-sale | | $ | 1,002,333 | | | $ | 795,496 | |
Held-to-maturity | Held-to-maturity | | 143,467 | | | 28,287 | | Held-to-maturity | | 297,880 | | | 160,643 | |
Securing collateral for cash flow hedge swaps: | Securing collateral for cash flow hedge swaps: | | | Securing collateral for cash flow hedge swaps: | | |
Available-for-sale | Available-for-sale | | 36,314 | | | — | | Available-for-sale | | — | | | 18,208 | |
Held-to-maturity | | Held-to-maturity | | — | | | 9,936 | |
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 | | 7,036 | | | 2,175 | | Available-for-sale | | 4,818 | | | 6,504 | |
Held-to-maturity | Held-to-maturity | | 556 | | | — | | Held-to-maturity | | 1,828 | | | 549 | |
|
Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' footprint. Peoples also originates insurance premium finance loans and leases nationwide through its Peoples Premium Finance and North Star Leasing divisions, and Vantage Financial, LLC ("Vantage") subsidiary, respectively. Loans and leases throughout this document are referred to as "total loans" and "loans held for investment".
The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | December 31, 2021 |
Construction | Construction | $ | 174,784 | | $ | 106,792 | | Construction | $ | 202,588 | | $ | 210,232 | |
Commercial real estate, other | Commercial real estate, other | 1,629,116 | | 929,853 | | Commercial real estate, other | 1,460,023 | | 1,550,081 | |
Commercial and industrial | Commercial and industrial | 858,538 | | 973,645 | | Commercial and industrial | 858,452 | | 891,392 | |
Premium finance | Premium finance | 134,755 | | 114,758 | | Premium finance | 152,237 | | 136,136 | |
Leases | Leases | 111,446 | | — | | Leases | 314,522 | | 122,508 | |
Residential real estate | Residential real estate | 768,134 | | 574,007 | | Residential real estate | 743,005 | | 771,718 | |
Home equity lines of credit | Home equity lines of credit | 161,370 | | 120,913 | | Home equity lines of credit | 169,335 | | 163,593 | |
Consumer, indirect | Consumer, indirect | 543,256 | | 503,527 | | Consumer, indirect | 563,088 | | 530,532 | |
Consumer, direct | Consumer, direct | 108,702 | | 79,094 | | Consumer, direct | 111,804 | | 104,652 | |
Deposit account overdrafts | Deposit account overdrafts | 927 | | 351 | | Deposit account overdrafts | 851 | | 756 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 4,491,028 | | $ | 3,402,940 | | Total loans, at amortized cost | $ | 4,575,905 | | $ | 4,481,600 | |
On September 17, 2021,March 7, 2022, 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 "Note 13 Acquisitions" for more detail on the acquisition of leases from NSL.Vantage, which included $157.5 million of leases. During the first six months of 2022, Peoples experienced elevated levels of payoffs and amortization of previously-acquired loans, which partially offset organic loan growth.
Peoples began participating asis a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020. Peoples originated PPP loans of $159.2 million during the first nine months of 2021 and $488.9 million of PPP loans during the full year of 2020.lender. At SeptemberJune 30, 2021,2022, the PPP loans (including $28.2 million acquired from Premier) had an amortized cost of $135.8$15.2 million, and were included in the commercial and industrial loan balance.balances. As of SeptemberJune 30, 2021,2022, deferred loan origination fees, net of deferred origination costs, totaled $4.0 million.$0.4 million for PPP loans. During the thirdsecond quarter of 2021,2022, Peoples recorded amortization of net deferred loan origination fees of $3.8$0.6 million on PPP loans compared to $1.9$3.4 million for the thirdsecond 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.2021. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in "Net interest income".
Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest receivable on loans was $12.4$12.0 million at Septemberboth June 30, 20212022 and $10.9 million at December 31, 2020.2021.
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.
The amortized cost of loans on nonaccrual status and of loans delinquent for 90 days or more and accruing werewas as follows:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Nonaccrual (a) | Accruing Loans 90+ Days Past Due | | Nonaccrual (a) | Accruing Loans 90+ Days Past Due | (Dollars in thousands) | Nonaccrual (a) | Accruing Loans 90+ Days Past Due | | Nonaccrual (a) | Accruing Loans 90+ Days Past Due |
Construction | Construction | $ | — | | $ | — | | | $ | 4 | | $ | — | | Construction | $ | 5 | | $ | — | | | $ | 6 | | $ | 90 | |
Commercial real estate, other | Commercial real estate, other | 17,301 | | 1,912 | | | 9,111 | | — | | Commercial real estate, other | 14,253 | | 330 | | | 17,067 | | 689 | |
Commercial and industrial | Commercial and industrial | 5,356 | | 98 | | | 6,192 | | 50 | | Commercial and industrial | 1,849 | | 89 | | | 3,572 | | 1,139 | |
Premium finance | Premium finance | — | | 368 | | | — | | 204 | | Premium finance | — | | 304 | | | — | | 865 | |
Leases | Leases | 1,411 | | 1,736 | | | — | | — | | Leases | 1,573 | | 5,722 | | | 1,581 | | — | |
Residential real estate | Residential real estate | 9,735 | | 1,156 | | | 8,375 | | 1,975 | | Residential real estate | 9,194 | | 1,687 | | | 9,647 | | 805 | |
Home equity lines of credit | Home equity lines of credit | 976 | | 61 | | | 867 | | 82 | | Home equity lines of credit | 890 | | 89 | | | 1,039 | | 50 | |
Consumer, indirect | Consumer, indirect | 1,069 | | — | | | 1,073 | | 39 | | Consumer, indirect | 1,558 | | 15 | | | 1,574 | | — | |
Consumer, direct | Consumer, direct | 186 | | 32 | | | 171 | | 17 | | Consumer, direct | 166 | | — | | | 279 | | 85 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 36,034 | | $ | 5,363 | | | $ | 25,793 | | $ | 2,367 | | Total loans, at amortized cost | $ | 29,488 | | $ | 8,236 | | | $ | 34,765 | | $ | 3,723 | |
(a) There were $0.6$2.3 million of nonaccrual loans for which there was no allowance for credit losses at SeptemberJune 30, 20212022 and $1.3$2.6 million at December 31, 2020.2021.
During the first ninesix months of 2021,2022, nonaccrual loans increaseddeclined compared to December 31, 2020,2021, which was primarily due to the non-accrualpayoff of 1 commercial relationship, coupled with other smaller reductions. The increase in accruing loans acquired from Premier, which added $13.0 million in nonaccrual loans at90+ days past due, compared to December 31, 2021, was the endresult of the third quarteradditional leases acquired in the Vantage acquisition, the majority of 2021.which related to in-process renewals. As of SeptemberJune 30, 2021,2022, the short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current borrowers Peoples had made were insignificant. Under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), borrowers that are considered current are those thatif they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made in accordance with the CARES Act were not included in Peoples' nonaccrual or accruing loans 90+ days past due at SeptemberJune 30, 2021. During the third quarter of 2021, accruing loans 90+ days past due increased primarily due to the loans acquired from Premier.2022.
The amount of interest income recognized on loans past due 90 days or more during the three and ninesix months ended SeptemberJune 30, 20212022 was $0.2 million and $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, 2021 | | |
June 30, 2022 | | June 30, 2022 | |
Construction | Construction | $ | 146 | | $ | 16 | | $ | — | | $ | 162 | | $ | 174,622 | | $ | 174,784 | | Construction | $ | 5 | | $ | — | | $ | — | | $ | 5 | | $ | 202,583 | | $ | 202,588 | |
Commercial real estate, other | Commercial real estate, other | 4,513 | | 2,349 | | 14,116 | | 20,978 | | 1,608,138 | | 1,629,116 | | Commercial real estate, other | 2,294 | | 4,133 | | 10,804 | | 17,231 | | 1,442,792 | | 1,460,023 | |
Commercial and industrial | Commercial and industrial | 924 | | 566 | | 5,324 | | 6,814 | | 851,724 | | 858,538 | | Commercial and industrial | 2,385 | | 200 | | 1,938 | | 4,523 | | 853,929 | | 858,452 | |
Premium finance | Premium finance | 440 | | 281 | | 368 | | 1,089 | | 133,666 | | 134,755 | | Premium finance | 444 | | 190 | | 304 | | 938 | | 151,299 | | 152,237 | |
Leases | Leases | 393 | | 194 | | 1,736 | | 2,323 | | 109,123 | | 111,446 | | Leases | 789 | | 7,665 | | 3,936 | | 12,390 | | 302,132 | | 314,522 | |
Residential real estate | Residential real estate | 4,138 | | 2,649 | | 5,353 | | 12,140 | | 755,994 | | 768,134 | | Residential real estate | 4,465 | | 2,091 | | 5,516 | | 12,072 | | 730,933 | | 743,005 | |
Home equity lines of credit | Home equity lines of credit | 487 | | 166 | | 758 | | 1,411 | | 159,959 | | 161,370 | | Home equity lines of credit | 927 | | 290 | | 554 | | 1,771 | | 167,564 | | 169,335 | |
Consumer, indirect | Consumer, indirect | 2,977 | | 477 | | 346 | | 3,800 | | 539,456 | | 543,256 | | Consumer, indirect | 3,859 | | 776 | | 495 | | 5,130 | | 557,958 | | 563,088 | |
Consumer, direct | Consumer, direct | 134 | | 224 | | 101 | | 459 | | 108,243 | | 108,702 | | Consumer, direct | 357 | | 48 | | 34 | | 439 | | 111,365 | | 111,804 | |
Deposit account overdrafts | Deposit account overdrafts | — | | — | | — | | — | | 927 | | 927 | | Deposit account overdrafts | — | | — | | — | | — | | 851 | | 851 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 14,152 | | $ | 6,922 | | $ | 28,102 | | $ | 49,176 | | $ | 4,441,852 | | $ | 4,491,028 | | Total loans, at amortized cost | $ | 15,525 | | $ | 15,393 | | $ | 23,581 | | $ | 54,499 | | $ | 4,521,406 | | $ | 4,575,905 | |
December 31, 2020 | | |
Construction | $ | — | | $ | 344 | | $ | 4 | | $ | 348 | | $ | 106,444 | | $ | 106,792 | | |
Commercial real estate, other | 1,943 | | 283 | | 8,643 | | 10,869 | | 918,984 | | 929,853 | | |
Commercial and industrial | 567 | | 552 | | 4,535 | | 5,654 | | 967,991 | | 973,645 | | |
Premium finance | 928 | | 1,073 | | 204 | | 2,205 | | 112,553 | | 114,758 | | |
Residential real estate | 6,739 | | 2,688 | | 5,512 | | 14,939 | | 559,068 | | 574,007 | | |
Home equity lines of credit | 309 | | 58 | | 780 | | 1,147 | | 119,766 | | 120,913 | | |
Consumer, indirect | 4,362 | | 733 | | 348 | | 5,443 | | 498,084 | | 503,527 | | |
Consumer, direct | 424 | | 43 | | 123 | | 590 | | 78,504 | | 79,094 | | |
Deposit account overdrafts | — | | — | | — | | — | | 351 | | 351 | | |
Total loans, at amortized cost | $ | 15,272 | | $ | 5,774 | | $ | 20,149 | | $ | 41,195 | | $ | 3,361,745 | | $ | 3,402,940 | | |
| | | | | | | | | | | | | | | | | | | | |
| Loans Past Due | Current Loans | Total Loans |
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total |
December 31, 2021 | | | | | | |
Construction | $ | 658 | | $ | — | | $ | 90 | | $ | 748 | | $ | 209,484 | | $ | 210,232 | |
Commercial real estate, other | 2,891 | | 1,600 | | 12,561 | | 17,052 | | 1,533,029 | | 1,550,081 | |
Commercial and industrial | 1,132 | | 1,278 | | 3,595 | | 6,005 | | 885,387 | | 891,392 | |
Premium finance | 751 | | 266 | | 865 | | 1,882 | | 134,254 | | 136,136 | |
Leases | 426 | | 247 | | 1,581 | | 2,254 | | 120,254 | | 122,508 | |
Residential real estate | 8,276 | | 2,241 | | 5,188 | | 15,705 | | 756,013 | | 771,718 | |
Home equity lines of credit | 1,137 | | 619 | | 625 | | 2,381 | | 161,212 | | 163,593 | |
Consumer, indirect | 4,220 | | 895 | | 615 | | 5,730 | | 524,802 | | 530,532 | |
Consumer, direct | 457 | | 135 | | 200 | | 792 | | 103,860 | | 104,652 | |
Deposit account overdrafts | — | | — | | — | | — | | 756 | | 756 | |
Total loans, at amortized cost | $ | 19,948 | | $ | 7,281 | | $ | 25,320 | | $ | 52,549 | | $ | 4,429,051 | | $ | 4,481,600 | |
Delinquency trends remained stable, as 98.9%98.8% of Peoples' loan portfolio was considered “current” at SeptemberJune 30, 2021,2022, compared to 98.8% at December 31, 2020.2021.
Pledged Loans
Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, home equity lines of credit and commercial real estate loans under a blanket collateral agreement to secure borrowings from the FHLB. Peoples also has pledged eligible commercial and industrial loans to secure borrowings with the FRB. Loans pledged are summarized as follows:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | December 31, 2021 |
Loans pledged to FHLB | Loans pledged to FHLB | $ | 752,382 | | $ | 740,584 | | Loans pledged to FHLB | $ | 797,689 | | $ | 769,863 | |
Loans pledged to FRB | Loans pledged to FRB | 135,504 | | 107,340 | | Loans pledged to FRB | 354,119 | | 294,728 | |
Credit Quality Indicators
As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20202021 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 and leases acquired from Vantage and Premier, is as follows:
“Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist.
“Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position.
“Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the weaknesses are not corrected.
“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain
important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of each of these loans as an estimated loss is deferred until its more exact status may be determined.
“Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category.
Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard,” or “loss” consistent with the regulatory definitions and requirements of these classes. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the prospect of collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as “pass" for disclosure purposes.
The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at SeptemberJune 30, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 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:
| | | | | Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans | (Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans Converted to Term | Total Loans |
Construction | Construction | |
| | Construction | |
| |
Pass | Pass | $ | 27,670 | | $ | 56,361 | | $ | 554 | | $ | 15,089 | | $ | 824 | | $ | 1,194 | | $ | 3,199 | | $ | 2,003 | | $ | 104,891 | | Pass | $ | 25,664 | | $ | 115,352 | | $ | 39,773 | | $ | 17,453 | | $ | 432 | | $ | 397 | | $ | 1,805 | | $ | 9,668 | | $ | 200,876 | |
Special mention | Special mention | — | | — | | 496 | | — | | — | | 143 | | — | | — | | 639 | | Special mention | — | | 289 | | — | | — | | — | | 133 | | — | | — | | 422 | |
Substandard | Substandard | — | | — | | — | | 186 | | — | | 1,076 | | — | | — | | 1,262 | | Substandard | — | | — | | — | | — | | 72 | | 1,218 | | — | | — | | 1,290 | |
| Total | Total | 27,670 | | 56,361 | | 1,050 | | 15,275 | | 824 | | 2,413 | | 3,199 | | 2,003 | | 106,792 | | Total | 25,664 | | 115,641 | | 39,773 | | 17,453 | | 504 | | 1,748 | | 1,805 | | 9,668 | | 202,588 | |
Commercial real estate, other | Commercial real estate, other | |
| | Commercial real estate, other | |
| |
Pass | Pass | 116,441 | | 125,373 | | 99,522 | | 94,465 | | 99,668 | | 215,385 | | 109,160 | | 9,748 | | 860,014 | | Pass | 96,447 | | 224,101 | | 251,620 | | 215,276 | | 116,977 | | 424,176 | | 21,434 | | 10,296 | | 1,350,031 | |
Special mention | Special mention | 297 | | 5,806 | | 999 | | 5,296 | | 5,125 | | 12,932 | | 3,967 | | 60 | | 34,422 | | Special mention | — | | 201 | | 3,211 | | 7,214 | | 3,755 | | 27,180 | | 87 | | 45 | | 41,648 | |
Substandard | Substandard | — | | 1,191 | | 677 | | 1,709 | | 1,663 | | 27,066 | | 3,033 | | 110 | | 35,339 | | Substandard | — | | 680 | | 1,683 | | 1,834 | | 758 | | 62,844 | | 359 | | 33 | | 68,158 | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | 78 | | — | | — | | 78 | | Doubtful | — | | — | | — | | — | | — | | 170 | | — | | — | | 170 | |
Loss | | Loss | — | | — | | — | | — | | — | | 16 | | — | | — | | 16 | |
Total | | Total | 96,447 | | 224,982 | | 256,514 | | 224,324 | | 121,490 | | 514,386 | | 21,880 | | 10,374 | | 1,460,023 | |
Commercial and industrial | | Commercial and industrial | |
Pass | | Pass | 62,032 | | 199,826 | | 92,972 | | 82,546 | | 47,802 | | 113,990 | | 208,432 | | 14,528 | | 807,600 | |
Special mention | | Special mention | — | | 110 | | 12,090 | | 1,231 | | 257 | | 5,098 | | 3,953 | | 7 | | 22,739 | |
Substandard | | Substandard | 46 | | 413 | | 1,765 | | 3,123 | | 2,996 | | 8,802 | | 10,751 | | 143 | | 27,896 | |
Doubtful | | Doubtful | — | | — | | — | | — | | — | | 217 | | — | | 100 | | 217 | |
| Total | Total | 116,738 | | 132,370 | | 101,198 | | 101,470 | | 106,456 | | 255,461 | | 116,160 | | 9,918 | | 929,853 | | Total | 62,078 | | 200,349 | | 106,827 | | 86,900 | | 51,055 | | 128,107 | | 223,136 | | 14,778 | | 858,452 | |
Premium finance | | Premium finance | |
Pass | | Pass | 125,587 | | 26,650 | | — | | — | | — | | — | | — | | — | | 152,237 | |
| Total | | Total | 125,587 | | 26,650 | | — | | — | | — | | — | | — | | — | | 152,237 | |
Leases | | Leases | |
Pass | | Pass | 110,206 | | 109,865 | | 50,679 | | 26,496 | | 5,945 | | 2,034 | | — | | — | | 305,225 | |
Special mention | | Special mention | 918 | | 4,326 | | 46 | | 67 | | 72 | | — | | — | | — | | 5,429 | |
Substandard | | Substandard | 127 | | 1,529 | | 460 | | 471 | | 1,281 | | — | | — | | — | | 3,868 | |
Total | | Total | 111,251 | | 115,720 | | 51,185 | | 27,034 | | 7,298 | | 2,034 | | — | | — | | 314,522 | |
| | | | | Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | (Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans | (Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | 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 | Residential real estate | | Residential real estate | |
Pass | Pass | 47,147 | | 40,223 | | 24,235 | | 29,142 | | 43,105 | | 309,795 | | 65,168 | | 305 | | 558,815 | | Pass | 47,234 | | 141,838 | | 64,003 | | 46,524 | | 31,153 | | 396,348 | | — | | — | | 727,100 | |
| Substandard | Substandard | — | | — | | — | | — | | — | | 15,048 | | — | | — | | 15,048 | | Substandard | — | | — | | — | | — | | — | | 15,698 | | — | | — | | 15,698 | |
| Loss | Loss | — | | — | | — | | — | | — | | 144 | | — | | — | | 144 | | Loss | — | | — | | — | | — | | — | | 207 | | — | | — | | 207 | |
Total | Total | 47,147 | | 40,223 | | 24,235 | | 29,142 | | 43,105 | | 324,987 | | 65,168 | | 305 | | 574,007 | | Total | 47,234 | | 141,838 | | 64,003 | | 46,524 | | 31,153 | | 412,253 | | — | | — | | 743,005 | |
Home equity lines of credit | Home equity lines of credit | | Home equity lines of credit | |
Pass | Pass | 16,469 | | 13,513 | | 12,548 | | 12,382 | | 11,869 | | 40,626 | | 13,506 | | 4,091 | | 120,913 | | Pass | 18,117 | | 37,484 | | 21,488 | | 16,056 | | 14,615 | | 60,756 | | 419 | | 4,443 | | 168,935 | |
| Substandard | | Substandard | — | | — | | — | | — | | — | | 400 | | — | | — | | 400 | |
| Total | Total | 16,469 | | 13,513 | | 12,548 | | 12,382 | | 11,869 | | 40,626 | | 13,506 | | 4,091 | | 120,913 | | Total | 18,117 | | 37,484 | | 21,488 | | 16,056 | | 14,615 | | 61,156 | | 419 | | 4,443 | | 169,335 | |
Consumer, indirect | Consumer, indirect | | Consumer, indirect | |
Pass | Pass | 210,014 | | 92,696 | | 71,807 | | 39,608 | | 17,156 | | 11,563 | | 60,683 | | — | | 503,527 | | Pass | 149,613 | | 185,660 | | 128,044 | | 47,675 | | 32,493 | | 19,603 | | — | | — | | 563,088 | |
| Total | Total | 210,014 | | 92,696 | | 71,807 | | 39,608 | | 17,156 | | 11,563 | | 60,683 | | — | | 503,527 | | Total | 149,613 | | 185,660 | | 128,044 | | 47,675 | | 32,493 | | 19,603 | | — | | — | | 563,088 | |
Consumer, direct | Consumer, direct | | Consumer, direct | |
Pass | Pass | 31,689 | | 15,923 | | 11,085 | | 4,531 | | 2,529 | | 4,193 | | 9,144 | | — | | 79,094 | | Pass | 33,346 | | 37,122 | | 20,084 | | 9,154 | | 5,692 | | 6,406 | | — | | — | | 111,804 | |
| Total | Total | 31,689 | | 15,923 | | 11,085 | | 4,531 | | 2,529 | | 4,193 | | 9,144 | | — | | 79,094 | | Total | 33,346 | | 37,122 | | 20,084 | | 9,154 | | 5,692 | | 6,406 | | — | | — | | 111,804 | |
Deposit account overdrafts | Deposit account overdrafts | 351 | | — | | — | | — | | — | | — | | — | | — | | 351 | | Deposit account overdrafts | 851 | | — | | — | | — | | — | | — | | — | | — | | 851 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 977,333 | | $ | 452,383 | | $ | 294,098 | | $ | 243,312 | | $ | 230,434 | | $ | 722,058 | | $ | 483,322 | | $ | 48,793 | | $ | 3,402,940 | | Total loans, at amortized cost | $ | 670,188 | | $ | 1,085,446 | | $ | 687,918 | | $ | 475,120 | | $ | 264,300 | | $ | 1,145,693 | | $ | 247,240 | | $ | 39,263 | | $ | 4,575,905 | |
The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the then most recent analysis performed at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Term Loans at Amortized Cost by Origination Year | | | |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Construction | | | | | | |
| | |
Pass | $ | 85,276 | | $ | 78,026 | | $ | 29,514 | | $ | 3,498 | | $ | 1,233 | | $ | 2,982 | | $ | 2,411 | | $ | 6,948 | | $ | 202,940 | |
Special mention | 290 | | — | | — | | 735 | | 3,850 | | 137 | | — | | — | | 5,012 | |
Substandard | — | | — | | 947 | | 77 | | 153 | | 1,103 | | — | | — | | 2,280 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 85,566 | | 78,026 | | 30,461 | | 4,310 | | 5,236 | | 4,222 | | 2,411 | | 6,948 | | 210,232 | |
Commercial real estate, other | | | | | |
| | |
Pass | 253,259 | | 259,113 | | 217,938 | | 143,094 | | 143,975 | | 392,212 | | 21,320 | | 11,940 | | 1,430,911 | |
Special mention | 157 | | 2,716 | | 7,875 | | 3,839 | | 6,292 | | 31,626 | | — | | 49 | | 52,505 | |
Substandard | — | | 1,675 | | 824 | | 691 | | 3,124 | | 59,415 | | 371 | | 37 | | 66,100 | |
Doubtful | — | | — | | — | | — | | — | | 542 | | — | | — | | 542 | |
Loss | — | | — | | — | | — | | — | | 23 | | — | | — | | 23 | |
Total | 253,416 | | 263,504 | | 226,637 | | 147,624 | | 153,391 | | 483,818 | | 21,691 | | 12,026 | | 1,550,081 | |
Commercial and industrial | | | | | | | | |
Pass | 299,117 | | 105,646 | | 84,144 | | 56,361 | | 22,182 | | 100,030 | | 174,848 | | 15,888 | | 842,328 | |
Special mention | 82 | | 11,745 | | 2,559 | | 2,179 | | 132 | | 5,445 | | 7,563 | | 9 | | 29,705 | |
Substandard | 465 | | 2,059 | | 2,691 | | 812 | | 4,995 | | 3,342 | | 3,085 | | 367 | | 17,449 | |
Doubtful | — | | — | | — | | — | | — | | 1,648 | | 262 | | 100 | | 1,910 | |
| | | | | | | | | |
Total | 299,664 | | 119,450 | | 89,394 | | 59,352 | | 27,309 | | 110,465 | | 185,758 | | 16,364 | | 891,392 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Term Loans at Amortized Cost by Origination Year | | | |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Premium finance | | | | | | | | | |
Pass | 135,896 | | 240 | | — | | — | | — | | — | | — | | — | | 136,136 | |
Total | 135,896 | | 240 | | — | | — | | — | | — | | — | | — | | 136,136 | |
Leases | | | | | | | | | |
Pass | 78,048 | | 25,954 | | 13,368 | | 2,972 | | 337 | | — | | — | | — | | 120,679 | |
Special mention | 34 | | 29 | | 22 | | 159 | | 4 | | — | | — | | — | | 248 | |
Substandard | 196 | | 438 | | 462 | | 479 | | 6 | | — | | — | | — | | 1,581 | |
Total | 78,278 | | 26,421 | | 13,852 | | 3,610 | | 347 | | — | | — | | — | | 122,508 | |
Residential real estate | | | | | | | | |
Pass | 141,845 | | 74,169 | | 53,434 | | 33,690 | | 44,377 | | 407,541 | | — | | — | | 755,056 | |
| | | | | | | | | |
Substandard | — | | — | | — | | — | | — | | 16,302 | | — | | — | | 16,302 | |
| | | | | | | | | |
Loss | — | | — | | — | | — | | — | | 360 | | — | | — | | 360 | |
Total | 141,845 | | 74,169 | | 53,434 | | 33,690 | | 44,377 | | 424,203 | | — | | — | | 771,718 | |
Home equity lines of credit | | | | | | | | |
Pass | 35,898 | | 23,276 | | 18,035 | | 16,124 | | 14,991 | | 53,302 | | 1,967 | | 3,287 | | 163,593 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 35,898 | | 23,276 | | 18,035 | | 16,124 | | 14,991 | | 53,302 | | 1,967 | | 3,287 | | 163,593 | |
Consumer, indirect | | | | | | | | | |
Pass | 226,287 | | 163,830 | | 63,353 | | 45,672 | | 21,754 | | 9,636 | | — | | —�� | | 530,532 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 226,287 | | 163,830 | | 63,353 | | 45,672 | | 21,754 | | 9,636 | | — | | — | | 530,532 | |
Consumer, direct | | | | | | | | | |
Pass | 47,308 | | 26,792 | | 13,293 | | 8,411 | | 3,218 | | 5,630 | | — | | — | | 104,652 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 47,308 | | 26,792 | | 13,293 | | 8,411 | | 3,218 | | 5,630 | | — | | — | | 104,652 | |
Deposit account overdrafts | 756 | | — | | — | | — | | — | | — | | — | | — | | 756 | |
Total loans, at amortized cost | $ | 1,304,914 | | $ | 775,708 | | $ | 508,459 | | $ | 318,793 | | $ | 270,623 | | $ | 1,091,276 | | $ | 211,827 | | $ | 38,625 | | $ | 4,481,600 | |
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 generalgenerally 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, 2021 | | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | | December 31, 2021 |
| Construction | Construction | $ | 4,276 | | | | $ | — | | | Construction | $ | 342 | | | | $ | 1,291 | | |
Commercial real estate, other | Commercial real estate, other | 35,820 | | | | 8,467 | | | Commercial real estate, other | 11,196 | | | | 37,220 | | |
Commercial and industrial | Commercial and industrial | 11,446 | | | | 6,333 | | | Commercial and industrial | 2,310 | | | | 8,340 | | |
Residential real estate | Residential real estate | 1,321 | | | | 1,670 | | | Residential real estate | 1,946 | | | | 2,877 | | |
Home equity lines of credit | Home equity lines of credit | 393 | | | | 403 | | | Home equity lines of credit | 385 | | | | 391 | | |
| Total collateral dependent loans | Total collateral dependent loans | $ | 53,256 | | | | $ | 16,873 | | | Total collateral dependent loans | $ | 16,179 | | | | $ | 50,119 | | |
The increasedecrease in collateral dependent loans at SeptemberJune 30, 2021,2022, compared to December 31, 2020,2021, was primarily due to $39.1 million in3 large commercial relationships that were no longer considered collateral dependent loans acquired from Premier.at June 30, 2022.
Troubled Debt Restructurings
The following tables summarize the loans that were modified as troubled debt restructurings ("TDRs")TDRs during the three and ninesix months ended SeptemberJune 30:
| | | Three Months Ended | | Three 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 | | |
Construction | 1 | | $ | 6 | | $ | 6 | | $ | 6 | | |
June 30, 2022 | | June 30, 2022 | |
| Commercial real estate, other | Commercial real estate, other | 2 | | 14 | | 14 | | 14 | | Commercial real estate, other | 2 | | $ | 184 | | $ | 184 | | $ | 184 | |
Commercial and industrial | Commercial and industrial | 3 | | 327 | | 327 | | 327 | | Commercial and industrial | 5 | | 1,422 | | 1,426 | | 1,031 | |
| Residential real estate | | Residential real estate | 11 | | 438 | | 463 | | 457 | |
Home equity lines of credit | | Home equity lines of credit | 2 | | 110 | | 110 | | 110 | |
Consumer, indirect | | Consumer, indirect | 7 | | 108 | | 108 | | 108 | |
Consumer, direct | | Consumer, direct | 1 | | 31 | | 31 | | 31 | |
Consumer | | Consumer | 8 | | 139 | | 139 | | 139 | |
Total | | Total | 28 | | $ | 2,293 | | $ | 2,322 | | $ | 1,921 | |
| June 30, 2021 | | June 30, 2021 | |
| Commercial real estate, other | | Commercial real estate, other | 1 | | $ | 23 | | $ | 23 | | $ | 23 | |
| Leases | Leases | 2 | | 182 | | 184 | | 178 | | Leases | 4 | | 225 | | 233 | | 233 | |
Residential real estate | Residential real estate | 46 | | 1,952 | | 1,956 | | 1,955 | | Residential real estate | 5 | | 245 | | 245 | | 245 | |
Home equity lines of credit | Home equity lines of credit | 5 | | 55 | | 55 | | 55 | | Home equity lines of credit | 4 | | 260 | | 260 | | 258 | |
Consumer, indirect | Consumer, indirect | 9 | | 95 | | 95 | | 95 | | Consumer, indirect | 6 | | 62 | | 62 | | 62 | |
Consumer, direct | Consumer, direct | 3 | | 9 | | 9 | | 9 | | Consumer, direct | 5 | | 38 | | 38 | | 38 | |
Consumer | Consumer | 12 | | 104 | | 104 | | 104 | | Consumer | 11 | | 100 | | 100 | | 100 | |
Total | Total | 71 | | $ | 2,640 | | $ | 2,646 | | $ | 2,639 | | Total | 25 | | $ | 853 | | $ | 861 | | $ | 859 | |
| 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.
| (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.
|
| | | Nine Months Ended | | Six 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 | | |
June 30, 2022 | | June 30, 2022 | |
| Commercial real estate, other | | Commercial real estate, other | 3 | | $ | 287 | | $ | 287 | | $ | 284 | |
Commercial and industrial | | Commercial and industrial | 5 | | 1,422 | | 1,427 | | 1,031 | |
| Residential real estate | | Residential real estate | 26 | | 1,333 | | 1,378 | | 1,367 | |
Home equity lines of credit | | Home equity lines of credit | 4 | | 178 | | 178 | | 177 | |
Consumer, indirect | | Consumer, indirect | 16 | | 210 | | 210 | | 210 | |
Consumer, direct | | Consumer, direct | 3 | | 44 | | 44 | | 44 | |
Consumer | | Consumer | 19 | | 254 | | 254 | | 254 | |
Total | | Total | 57 | | $ | 3,474 | | $ | 3,524 | | $ | 3,113 | |
| June 30, 2021 | | June 30, 2021 | |
Construction | Construction | 2 | | $ | 350 | | $ | 350 | | $ | 350 | | Construction | 1 | | $ | 344 | | $ | 344 | | 344 | |
Commercial real estate, other | Commercial real estate, other | 3 | | 37 | | 37 | | 37 | | Commercial real estate, other | 1 | | 23 | | 23 | | $ | 23 | |
Commercial and industrial | 3 | | 327 | | 327 | | 327 | | |
| Leases | Leases | 5 | | 340 | | 348 | | 334 | | Leases | 4 | | 225 | | 233 | | 233 | |
Residential real estate | Residential real estate | 54 | | 2,367 | | 2,376 | | 2,366 | | Residential real estate | 8 | | 415 | | 419 | | 416 | |
Home equity lines of credit | Home equity lines of credit | 9 | | 315 | | 315 | | 307 | | Home equity lines of credit | 4 | | 260 | | 260 | | 258 | |
Consumer, indirect | Consumer, indirect | 16 | | 200 | | 200 | | 192 | | Consumer, indirect | 10 | | 140 | | 140 | | 135 | |
Consumer, direct | Consumer, direct | 8 | | 48 | | 48 | | 45 | | Consumer, direct | 7 | | 50 | | 50 | | 50 | |
Consumer | Consumer | 24 | | 248 | | 248 | | 237 | | Consumer | 17 | | 190 | | 190 | | 185 | |
Total | Total | 100 | | $ | 3,984 | | $ | 4,001 | | $ | 3,958 | | Total | 35 | | $ | 1,457 | | $ | 1,469 | | $ | 1,459 | |
| September 30, 2020 | | |
| Commercial real estate, other | 5 | | $ | 2,533 | | $ | 2,533 | | $ | 1,430 | | |
Commercial and industrial | 5 | | 3,803 | | 3,803 | | 3,804 | | |
Residential real estate | 16 | | 1,237 | | 1,267 | | 1,261 | | |
Home equity lines of credit | 7 | | 123 | | 123 | | 121 | | |
Consumer, indirect | 23 | | 235 | | 235 | | 216 | | |
Consumer, direct | 5 | | 68 | | 68 | | 63 | | |
Consumer | 28 | | 303 | | 303 | | 279 | | |
Total | 61 | | $ | 7,999 | | $ | 8,029 | | $ | 6,895 | | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
| (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, the borrowers that are considered to be current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of accounting for TDRs, as defined in ASC 310-40.
The following table presents thosePeoples had 2 loans totaling $16,000 that were modified into a TDRas TDRs during the yearpast twelve months that subsequently defaulted (i.e., 90 days or more past due following a modification)modification during the nine-month periods ended September 30:year).
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | September 30, 2020 | |
(Dollars in thousands) | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Credit Losses | | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Credit Losses | | | |
| | | | | | | | | | |
Commercial real estate, other | — | | $ | — | | — | | | 1 | | $ | 54 | | — | | | | |
Residential real estate | 3 | | 113 | | — | | | — | | — | | — | | | | |
| | | | | | | | | | |
Total | 3 | | $ | 113 | | $ | — | | | 1 | | $ | 54 | | $ | — | | | | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
Peoples had no commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR.
Allowance for Credit Losses
Changes in the allowance for credit losses for the three and six months ended SeptemberJune 30, 20212022 and SeptemberJune 30, 20202021 are summarized below:
| (Dollars in thousands) | (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 | (Dollars in thousands) | Beginning Balance, March 31, 2022 | Initial Allowance for Acquired Purchased Credit Deteriorated Assets (a) | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | (Recovery of) Provision for Credit Losses (b) | Charge-offs | Recoveries | Ending Balance, June 30, 2022 |
Construction | Construction | $ | 914 | | $ | 2,127 | | $ | 638 | | $ | (243) | | $ | — | | $ | — | | $ | 3,436 | | Construction | $ | 2,731 | | $ | — | | $ | — | | $ | (1,200) | | $ | — | | $ | — | | $ | 1,531 | |
Commercial real estate, other | Commercial real estate, other | 17,233 | | 13,374 | | 5,384 | | (179) | | — | | 4 | | 35,816 | | Commercial real estate, other | 21,055 | | (234) | | — | | (2,267) | | (22) | | 176 | | 18,708 | |
Commercial and industrial | Commercial and industrial | 8,686 | | 4,286 | | 1,059 | | (3) | | (654) | | 4 | | 13,378 | | Commercial and industrial | 10,114 | | (253) | | — | | (871) | | (420) | | 2 | | 8,572 | |
Premium finance | Premium finance | 998 | | — | | — | | 146 | | (7) | | — | | 1,137 | | Premium finance | 345 | | — | | — | | (12) | | (30) | | 8 | | 311 | |
Leases | Leases | 3,715 | | — | | — | | 1,101 | | (431) | | 120 | | 4,505 | | Leases | 5,875 | | 292 | | — | | 1,847 | | (493) | | 64 | | 7,585 | |
Residential real estate | Residential real estate | 4,837 | | 2,394 | | 2,645 | | (312) | | (44) | | 48 | | 9,568 | | Residential real estate | 6,495 | | 12 | | — | | (142) | | (47) | | 14 | | 6,332 | |
Home equity lines of credit | Home equity lines of credit | 1,504 | | 41 | | 674 | | 148 | | (180) | | 37 | | 2,224 | | Home equity lines of credit | 1,894 | | — | | — | | (170) | | (25) | | — | | 1,699 | |
Consumer, indirect | Consumer, indirect | 8,841 | | — | | — | | (2,308) | | (416) | | 43 | | 6,160 | | Consumer, indirect | 5,172 | | — | | — | | 1,428 | | (449) | | 83 | | 6,234 | |
Consumer, direct | Consumer, direct | 1,161 | | 112 | | 180 | | (362) | | (29) | | 17 | | 1,079 | | Consumer, direct | 1,036 | | — | | — | | 334 | | (60) | | 11 | | 1,321 | |
Deposit account overdrafts | Deposit account overdrafts | 53 | | — | | — | | 124 | | (135) | | 37 | | 79 | | Deposit account overdrafts | 51 | | — | | — | | 355 | | (405) | | 52 | | 53 | |
Total | Total | $ | 47,942 | | $ | 22,334 | | $ | 10,580 | | $ | (1,888) | | $ | (1,896) | | $ | 310 | | $ | 77,382 | | Total | $ | 54,768 | | $ | (183) | | $ | — | | $ | (698) | | $ | (1,951) | | $ | 410 | | $ | 52,346 | |
(a)Includes purchase price adjustments related to acquisitions previously completed but within the 12-month measurement period.
(b)Amount does not include the provision for the allowance for credit losses on unfunded commitments.
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(Dollars in thousands) | Beginning Balance, March 31, 2021 | 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 (a) | Charge-offs | Recoveries | Ending Balance, June 30, 2021 |
Construction | $ | 829 | | $ | — | | $ | — | | $ | 85 | | $ | — | | $ | — | | $ | 914 | |
Commercial real estate, other | 17,834 | | — | | — | | (601) | | (4) | | 4 | | 17,233 | |
Commercial and industrial | 10,108 | | — | | — | | (1,435) | | (5) | | 18 | | 8,686 | |
Premium finance | 1,160 | | — | | — | | (155) | | (7) | | — | | 998 | |
Leases | — | | 493 | | 3,288 | | 349 | | (525) | | 110 | | 3,715 | |
Residential real estate | 4,935 | | — | | — | | (2) | | (136) | | 40 | | 4,837 | |
Home equity lines of credit | 1,494 | | — | | — | | 14 | | (4) | | — | | 1,504 | |
Consumer, indirect | 7,522 | | — | | — | | 1,525 | | (269) | | 63 | | 8,841 | |
Consumer, direct | 970 | | — | | — | | 211 | | (31) | | 11 | | 1,161 | |
Deposit account overdrafts | 45 | | — | | — | | 53 | | (89) | | 44 | | 53 | |
Total | $ | 44,897 | | $ | 493 | | $ | 3,288 | | $ | 44 | | $ | (1,070) | | $ | 290 | | $ | 47,942 | |
(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.
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(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 ninesix months ended SeptemberJune 30, 20212022 and SeptemberJune 30, 20202021 are summarized below:
| | (Dollars in thousands) | (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 | (Dollars in thousands) | Beginning Balance, December 31, 2021 | Initial Allowance for Acquired Purchased Credit Deteriorated Assets (a) | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | (Recovery of) Provision for Credit Losses (b) | Charge-offs | Recoveries | Ending Balance, June 30, 2022 |
Construction | Construction | $ | 1,887 | | $ | 2,127 | | $ | 638 | | $ | (1,216) | | $ | — | | $ | — | | $ | 3,436 | | Construction | $ | 2,999 | | $ | — | | $ | — | | $ | (1,468) | | $ | — | | $ | — | | $ | 1,531 | |
Commercial real estate, other | Commercial real estate, other | 17,536 | | 13,374 | | 5,384 | | (325) | | (161) | | 8 | | 35,816 | | Commercial real estate, other | 29,147 | | (451) | | — | | (9,913) | | (300) | | 225 | | 18,708 | |
Commercial and industrial | Commercial and industrial | 12,763 | | 4,286 | | 1,059 | | (3,800) | | (952) | | 22 | | 13,378 | | Commercial and industrial | 11,063 | | (418) | | — | | (1,196) | | (883) | | 6 | | 8,572 | |
Premium finance | Premium finance | 1,095 | | — | | — | | 72 | | (30) | | — | | 1,137 | | Premium finance | 379 | | — | | — | | (32) | | (44) | | 8 | | 311 | |
Leases | Leases | — | | 493 | | 3,288 | | 1,450 | | (956) | | 230 | | 4,505 | | Leases | 4,797 | | 424 | | — | | 3,090 | | (966) | | 240 | | 7,585 | |
Residential real estate | Residential real estate | 6,044 | | 2,394 | | 2,645 | | (1,305) | | (313) | | 103 | | 9,568 | | Residential real estate | 7,233 | | (509) | | — | | (64) | | (356) | | 28 | | 6,332 | |
Home equity lines of credit | Home equity lines of credit | 1,860 | | 41 | | 674 | | (196) | | (196) | | 41 | | 2,224 | | Home equity lines of credit | 2,005 | | (11) | | — | | (283) | | (41) | | 29 | | 1,699 | |
Consumer, indirect | Consumer, indirect | 8,030 | | — | | — | | (891) | | (1,190) | | 211 | | 6,160 | | Consumer, indirect | 5,326 | | (41) | | — | | 1,614 | | (834) | | 169 | | 6,234 | |
Consumer, direct | Consumer, direct | 1,081 | | 112 | | 180 | | (252) | | (96) | | 54 | | 1,079 | | Consumer, direct | 961 | | — | | — | | 534 | | (196) | | 22 | | 1,321 | |
Deposit account overdrafts | Deposit account overdrafts | 63 | | — | | — | | 208 | | (327) | | 135 | | 79 | | Deposit account overdrafts | 57 | | — | | — | | 554 | | (664) | | 106 | | 53 | |
Total | Total | $ | 50,359 | | $ | 22,827 | | $ | 13,868 | | $ | (6,255) | | $ | (4,221) | | $ | 804 | | $ | 77,382 | | Total | $ | 63,967 | | $ | (1,006) | | $ | — | | $ | (7,164) | | $ | (4,284) | | $ | 833 | | $ | 52,346 | |
(a)Amount does not includeIncludes purchase price adjustments related to acquisitions previously completed but were within the provision for the allowance for credit losses on unfunded commitments.
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(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, 2020.12-month measurement period.
(b)Amount does not include the provision for the allowance for credit losses on unfunded commitments.
During | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
(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, June 30, 2021 |
Construction | $ | 1,887 | | $ | — | | $ | — | | $ | (973) | | $ | — | | $ | — | | $ | 914 | |
Commercial real estate, other | 17,536 | | — | | — | | (146) | | (161) | | 4 | | 17,233 | |
Commercial and industrial | 12,763 | | — | | — | | (3,797) | | (298) | | 18 | | 8,686 | |
Premium finance | 1,095 | | — | | — | | (74) | | (23) | | — | | 998 | |
Leases | — | | 493 | | 3,288 | | 349 | | (525) | | 110 | | 3,715 | |
Residential real estate | 6,044 | | — | | — | | (993) | | (269) | | 55 | | 4,837 | |
Home equity lines of credit | 1,860 | | — | | — | | (344) | | (16) | | 4 | | 1,504 | |
Consumer, indirect | 8,030 | | — | | — | | 1,417 | | (774) | | 168 | | 8,841 | |
Consumer, direct | 1,081 | | — | | — | | 110 | | (67) | | 37 | | 1,161 | |
Deposit account overdrafts | 63 | | — | | — | | 84 | | (192) | | 98 | | 53 | |
Total | $ | 50,359 | | $ | 493 | | $ | 3,288 | | $ | (4,367) | | $ | (2,325) | | $ | 494 | | $ | 47,942 | |
(a)Amount does not include 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 duringon unfunded commitments.s adopted ASU 2016-13 - Financial Instruments
(a)Amount does not include the third quarter of 2021 related toprovision for the purchaseallowance for credit deteriorated loans acquired from Premier. losses on unfunded commitments
During the second quarter of 2021,2022, Peoples recorded provision fora recovery of credit losses to establish the allowance for credit lossesloans of $3.3$0.7 million for the acquired non-purchased credit deteriorated leases from NSL along with an increasedriven by a reduction in allowance for creditindividually analyzed loans, as well as changes in loss of $0.5 million related todrivers used in the purchase creditCECL model. Leases designated as purchased
credit deteriorated leases("PCD") acquired from NSL. Lastly, economic assumptions and loss drivers used in the CECL model continued to improve in the current year, partially offsetting the increase in allowance driven by the aforementioned acquired loans and leases. The PPP loans originated during 2021 and 2020 are guaranteed by the SBA, and therefore, had no impact onVantage increased the allowance for credit losses at September 30, 2021by $292,000. Net charge-offs for the second quarter of 2022 were $1.5 million, and at December 31, 2020.included charge-offs of 3 leases aggregating $0.5 million.
At SeptemberJune 30, 2021,2022, Peoples had recorded an allowance for unfunded commitments of $2.4$2.1 million, an increasea decrease compared to $2.2 million at June 30, 2021,March 31, 2022 and a decrease compared to $2.9$2.5 million at December 31, 2020. The total amount of unfunded commitments had increased compared to June 30, 2021 due to the unfunded commitments associated with the Premier acquisition and decreased compared to December 31, 2020 due to the improved economic forecast conditions.2021. The allowance for unfunded commitments (also referred to as "unfunded commitment liability") is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets. The change in the allowance for unfunded commitments is also reflected in the "Provision"(Recovery of) provision for (recovery of) credit losses" line of the Unaudited Consolidated Statements of Operations.
Note 5 Goodwill and Other Intangible Assets Goodwill
The following table details changes in the recorded amount of goodwill:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | December 31, 2021 |
Goodwill, beginning of year | Goodwill, beginning of year | $ | 171,260 | | $ | 165,701 | | Goodwill, beginning of year | $ | 264,193 | | $ | 171,260 | |
Goodwill recorded from acquisitions | Goodwill recorded from acquisitions | 95,755 | | 5,559 | | Goodwill recorded from acquisitions | 25,783 | | 92,933 | |
Goodwill, end of period | Goodwill, end of period | $ | 267,015 | | $ | 171,260 | | Goodwill, end of period | $ | 289,976 | | $ | 264,193 | |
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On March 11, 2022, Peoples Insurance Agency, Inc. entered into an Asset Purchase Agreement with Elite Insurance Agency and consummated the acquisition on April 1, 2022. In the second quarter of 2022, Peoples recorded $2.3 million of preliminary goodwill related to this acquisition. Peoples Bank entered into thean Asset Purchase Agreement, dated March 24, 20217, 2022 with NSL. The transaction closed after the close of business on March 31, 2021 and Peoples Bank began operating the acquired business asVantage, at which point Vantage became a divisionlegal subsidiary of Peoples Bank on April 1, 2021.Bank. In the first half of 2022, Peoples preliminarily recorded $24.7 million of goodwill related to this acquisition, which was offset partially by adjustments of $1.2 million to Premier's goodwill balance during the measurement period. On April 1, 2021, Peoples recorded $24.7 million of goodwill related to the acquisition from NSL.of NS Leasing, LLC ("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.the acquisition of an insurance agency. On September 17, 2021, Peoples completed the merger with Premier, for which Peoples preliminarily recorded $71.0$66.9 million of goodwill. In 2020, Peoples completed its acquisition of Premium Finance, recording $5.5 million in goodwill. Also, in 2020 Peoples Insurance completed an acquisition of a property and casualty-focused independent insurance agency for which $0.1 million of goodwill was recorded. For additional information on these acquisitions, refer to "Note 13 Acquisitions."
Other Intangible Assets
Other intangible assets were comprised of the following at end of period, SeptemberJune 30, 20212022, and end of year,at December 31, 2020:2021:
| (Dollars in thousands) | (Dollars in thousands) | Core Deposits | | Customer Relationships | | Total | (Dollars in thousands) | Core Deposits | | Customer Relationships | | Total |
September 30, 2021 | | |
June 30, 2022 | | June 30, 2022 | |
Gross intangibles | Gross intangibles | $ | 25,805 | | | $ | 25,096 | | | $ | 50,901 | | Gross intangibles | $ | 26,466 | | | $ | 25,173 | | | $ | 51,639 | |
| Intangibles recorded from acquisitions (a) | | Intangibles recorded from acquisitions (a) | — | | | 14,067 | | | 14,067 | |
Accumulated amortization | Accumulated amortization | (17,813) | | | (8,256) | | | (26,069) | | Accumulated amortization | (19,879) | | | (12,178) | | | (32,057) | |
Total acquisition-related intangibles | Total acquisition-related intangibles | $ | 7,992 | | | $ | 16,840 | | | $ | 24,832 | | Total acquisition-related intangibles | $ | 6,587 | | | $ | 27,062 | | | $ | 33,649 | |
Servicing rights | Servicing rights | | 2,294 | | Servicing rights | | 2,016 | |
Indefinite-lived intangibles(b) | Indefinite-lived intangibles(b) | | 1,274 | | Indefinite-lived intangibles(b) | | 2,491 | |
Total other intangibles | Total other intangibles | | $ | 28,400 | | Total other intangibles | | $ | 38,156 | |
| December 31, 2020 | | |
December 31, 2021 | | December 31, 2021 | |
Gross intangibles | Gross intangibles | $ | 22,233 | | | $ | 12,495 | | | $ | 34,728 | | Gross intangibles | $ | 22,233 | | | $ | 12,495 | | | $ | 34,728 | |
| Intangibles recorded from acquisitions (c) | | Intangibles recorded from acquisitions (c) | 4,233 | | | 13,014 | | | 17,247 | |
Accumulated amortization | Accumulated amortization | (17,298) | | | (6,579) | | | (23,877) | | Accumulated amortization | (19,048) | | | (9,603) | | | (28,651) | |
Total acquisition-related intangibles | Total acquisition-related intangibles | $ | 4,935 | | | $ | 5,916 | | | $ | 10,851 | | Total acquisition-related intangibles | $ | 7,418 | | | $ | 15,906 | | | $ | 23,324 | |
Servicing rights | Servicing rights | | 2,486 | | Servicing rights | | 2,218 | |
| Indefinite-lived intangibles (d) | | Indefinite-lived intangibles (d) | | 1,274 | |
Total other intangibles | Total other intangibles | | $ | 13,337 | | Total other intangibles | | $ | 26,816 | |
|
(a) Customer relationship intangible assets included $1.2 million of non-compete intangible assets related to the Vantage acquisition and
$0.1 million of non-compete intangible assets related to the Elite insurance agency acquisition.
(b) Included $1.2 million of trade name intangible assets related to the Vantage acquisition and $1.3 million of trade name
intangible assets related to the NSL acquisition.
(c) Customer relationship intangible assets consisted of $0.3 million of non-compete intangible assets related to the NSL acquisition.
(d) Included $1.3 million of trade name intangible assets related to the NSL acquisition.
Other intangible assets preliminarily recorded for the six months ended June 30, 2022 included $10.8 million of customer relationship intangible assets, and $1.2 million of non-compete intangible assets related to the Vantage acquisition. Peoples also recorded $2.0 million of customer relationship intangible assets and $0.1 million of non-compete intangible assets related to the acquisition of Elite Insurance Agency.
Other intangible assets recorded from the above-mentioned acquisitions year-to-date as of September 30,in 2021 were $13.0included $12.7 million of customer relationship intangible assets related to the NSL and Peoples Insurance acquisitions, andacquisition, $4.2 million of core deposit intangible assets related to Premier.the Premier merger, and $0.3 million of non-compete intangible assets, and $1.3 million of trade name intangible assets, both related to the NSL acquisition. Refer to "Note 13 Acquisitions" for additional information. Other intangible assets recorded in 2020 included $5.0 million of customer relationship intangible assets from the Premium Finance and Peoples Insurance acquisitions.
The following table details estimated aggregate future amortization of other intangible assets at SeptemberJune 30, 2021:2022:
| (Dollars in thousands) | (Dollars in thousands) | | Core Deposits | | Customer Relationships | | Total | (Dollars in thousands) | | Core Deposits | | Customer Relationships | | Total |
2021 | | $ | 574 | | | $ | 934 | | | $ | 1,508 | | |
2022 | | 1,620 | | | 4,014 | | | 5,634 | | |
Remaining six months of 2022 | | Remaining six months of 2022 | | $ | 788 | | | $ | 3,234 | | | $ | 4,022 | |
2023 | 2023 | | 1,257 | | | 3,712 | | | 4,969 | | 2023 | | 1,257 | | | 6,269 | | | 7,526 | |
2024 | 2024 | | 1,058 | | | 2,733 | | | 3,791 | | 2024 | | 1,058 | | | 5,325 | | | 6,383 | |
2025 | 2025 | | 891 | | | 1,941 | | | 2,832 | | 2025 | | 891 | | | 4,255 | | | 5,146 | |
2026 | | 2026 | | 731 | | | 3,114 | | | 3,845 | |
Thereafter | Thereafter | | 2,592 | | | 3,506 | | | 6,098 | | Thereafter | | 1,862 | | | 4,865 | | | 6,727 | |
Total | Total | | $ | 7,992 | | | $ | 16,840 | | | $ | 24,832 | | Total | | $ | 6,587 | | | $ | 27,062 | | | $ | 33,649 | |
The weighted average amortization period of other intangible assets is 8.19.8 years.
Servicing Rights
The following is an analysis of activity of servicing rights for the periods ended September 30,2021June 30, 2022 and December 31, 2020:2021:
| (Dollars in thousands) | (Dollars in thousands) | | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | | June 30, 2022 | December 31, 2021 |
Balance, beginning of year | Balance, beginning of year | | $ | 2,486 | | $ | 2,742 | | Balance, beginning of year | | $ | 2,218 | | $ | 2,486 | |
Amortization | Amortization | | (591) | | (1,121) | | Amortization | | (318) | | (775) | |
Servicing rights originated | Servicing rights originated | | 415 | | 1,026 | | Servicing rights originated | | 110 | | 519 | |
| Valuation allowance | | (16) | | (161) | | |
Change in valuation allowance | | Change in valuation allowance | | 6 | | (12) | |
Balance, end of period | Balance, end of period | | $ | 2,294 | | $ | 2,486 | | Balance, end of period | | $ | 2,016 | | $ | 2,218 | |
Peoples accounts for its servicing rights under the amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of SeptemberJune 30, 2022, Peoples recorded a reduction to the valuation allowance of $6,000 related to changes in the fair value of servicing rights. During 2021, Peoples hashad recorded a valuation allowance of $16,000 $12,000 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 30,2021June 30, 2022 and December 31, 2020:2021:
| | | September 30, 2021 | December 31, 2020 | | June 30, 2022 | December 31, 2021 |
| | Minimum | Maximum | Minimum | Maximum | | Minimum | Maximum | Minimum | Maximum |
Discount rates | Discount rates | | 8.3 | % | 10.8 | % | 8.3 | % | 10.8 | % | Discount rates | | 9.8 | % | 12.3 | % | 8.3 | % | 10.8 | % |
Prepayment speeds | Prepayment speeds | | 8.4 | % | 27.2 | % | 12.8 | % | 21.1 | % | Prepayment speeds | | 7.8 | % | 23.2 | % | 8.9 | % | 27.1 | % |
The fair value of servicing rights was $2.3$3.3 million and $2.6 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
Peoples’ deposit balances were comprised of the following:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | December 31, 2021 |
Retail CDs: | Retail CDs: | | Retail CDs: | |
$100 or more | $100 or more | $ | 343,324 | | $ | 220,532 | | $100 or more | $ | 293,783 | | $ | 320,574 | |
Less than $100 | Less than $100 | 348,356 | | 225,398 | | Less than $100 | 290,476 | | 323,185 | |
Retail CDs | Retail CDs | 691,680 | | 445,930 | | Retail CDs | 584,259 | | 643,759 | |
Interest-bearing deposit accounts | Interest-bearing deposit accounts | 1,140,639 | | 692,113 | | Interest-bearing deposit accounts | 1,143,010 | | 1,167,460 | |
Savings accounts | Savings accounts | 1,016,755 | | 628,190 | | Savings accounts | 1,080,053 | | 1,036,738 | |
Money market deposit accounts | Money market deposit accounts | 637,635 | | 591,373 | | Money market deposit accounts | 645,242 | | 651,169 | |
Governmental deposit accounts | Governmental deposit accounts | 679,305 | | 385,384 | | Governmental deposit accounts | 728,057 | | 617,259 | |
| Brokered deposit accounts (a) | Brokered deposit accounts (a) | 106,013 | | 170,146 | | Brokered deposit accounts (a) | 86,739 | | 104,745 | |
Total interest-bearing deposits | Total interest-bearing deposits | 4,272,027 | | 2,913,136 | | Total interest-bearing deposits | 4,267,360 | | 4,221,130 | |
Non-interest-bearing deposits | Non-interest-bearing deposits | 1,559,993 | | 997,323 | | Non-interest-bearing deposits | 1,661,865 | | 1,641,422 | |
Total deposits | Total deposits | $ | 5,832,020 | | $ | 3,910,459 | | Total deposits | $ | 5,929,225 | | $ | 5,862,552 | |
(a) At September 30, 2021, brokeredBrokered deposit accounts included $100.0include $85.0 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 Federal Deposit Insurance Corporation ("FDIC") limit of $250,000 were $134.3$129.8 million and $89.0$121.3 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, 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, including the remainder of 2022, and thereafter are as follows:
| (Dollars in thousands) | (Dollars in thousands) | Retail | Brokered | Total | (Dollars in thousands) | Retail | Brokered | Total |
Remaining three months ending December 31, 2021 (a) | $ | 142,996 | | $ | 101,307 | | $ | 244,303 | | |
Year ending December 31, 2022 | 375,448 | | 4,216 | | 379,664 | | |
Remaining six months ending December 31, 2022 (a) | | Remaining six months ending December 31, 2022 (a) | $ | 354,213 | | $ | 86,245 | | $ | 440,458 | |
Year ending December 31, 2023 | Year ending December 31, 2023 | 66,339 | | 490 | | 66,829 | | Year ending December 31, 2023 | 110,249 | | 494 | | 110,743 | |
Year ending December 31, 2024 | Year ending December 31, 2024 | 62,021 | | — | | 62,021 | | Year ending December 31, 2024 | 58,361 | | — | | 58,361 | |
Year ending December 31, 2025 | Year ending December 31, 2025 | 22,021 | | — | | 22,021 | | Year ending December 31, 2025 | 25,332 | | — | | 25,332 | |
Year ending December 31, 2026 | | Year ending December 31, 2026 | 27,648 | | — | | 27,648 | |
Thereafter | Thereafter | 22,855 | | — | | 22,855 | | Thereafter | 8,456 | | — | | 8,456 | |
Total CDs | Total CDs | $ | 691,680 | | $ | 106,013 | | $ | 797,693 | | Total CDs | $ | 584,259 | | $ | 86,739 | | $ | 670,998 | |
(a) Brokered deposit accounts include $100.0$85.0 million of brokered demand deposits.
At SeptemberJune 30, 2021,2022, Peoples had 1613 effective interest rate swaps, with an aggregate notional value of $150.0$125.0 million, of which $100.0$85.0 million were funded by brokered demand and savings deposits. Brokered demand deposits hedged by interest rate swaps are expected to be extended every 90 days through the maturity dates of the swaps. Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments."
Note 7 Stockholders’ Equity The following table details the progression in Peoples’ common shares and treasury stock during the ninesix months ended SeptemberJune 30, 2021:2022:
| | | | Common Shares | Treasury Stock | | | Common Shares | Treasury Stock |
Shares at December 31, 2020 | | 21,193,402 | | 1,686,046 | | |
Shares at December 31, 2021 | | Shares at December 31, 2021 | | 29,814,401 | | 1,577,359 | |
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 | | — | | 29,135 | | Release of restricted common shares | | — | | 38,010 | |
Cancellation of restricted common shares | Cancellation of restricted common shares | | — | | 7,168 | | Cancellation of restricted common shares | | — | | 1,880 | |
| Grant of restricted common shares | Grant of restricted common shares | | — | | (101,926) | | Grant of restricted common shares | | — | | (203,081) | |
Grant of unrestricted common shares | Grant of unrestricted common shares | | — | | (5,747) | | Grant of unrestricted common shares | | — | | (700) | |
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 | | — | | 5,309 | | Purchase of treasury stock | | — | | 6,459 | |
Disbursed out of treasury stock | Disbursed out of treasury stock | | — | | (2,983) | | Disbursed out of treasury stock | | — | | (3,039) | |
| Common shares repurchased under share repurchase program | | Common shares repurchased under share repurchase program | | — | | 214,220 | |
Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 23,348 | | — | | Common shares issued under dividend reinvestment plan | | 22,090 | | — | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | — | | (5,535) | | Common shares issued under compensation plan for Boards of Directors | | — | | (8,738) | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | — | | (11,874) | | Common shares issued under employee stock purchase plan | | — | | (11,845) | |
Issuance of common shares related to the merger with Premier Financial Bancorp, Inc. | | 8,589,685 | | — | | |
| Shares at September 30, 2021 | | 29,806,435 | | 1,599,593 | | |
| Shares at June 30, 2022 | | Shares at June 30, 2022 | | 29,836,491 | | 1,610,525 | |
On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $30.0 million of Peoples' outstanding common shares, replacing the February 27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. At SeptemberJune 30, 2021,2022, Peoples had not repurchased any214,220 common shares totaling $6.0 million under the share repurchase program authorized on January 28, 2021.
Under Peoples' Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At SeptemberJune 30, 2021,2022, Peoples had no preferred shares issued or outstanding.
On OctoberJuly 25, 2021,2022, Peoples' Board of Directors declared a quarterly cash dividend of $0.36$0.38 per common share, payable on NovemberAugust 22, 2021,2022, to shareholders of record on NovemberAugust 8, 2021.2022. The following table details the cash dividends declared per common share during the fourthree quarters of 20212022 and the comparable periods of 2020:2021:
| | | 2021 | 2020 | | 2022 | 2021 |
First quarter | First quarter | $ | 0.35 | | 0.34 | | First quarter | $ | 0.36 | | $ | 0.35 | |
Second quarter | Second quarter | 0.36 | | 0.34 | | Second quarter | 0.38 | | 0.36 | |
Third quarter | Third quarter | 0.36 | | 0.34 | | Third quarter | 0.38 | | 0.36 | |
Fourth quarter | $ | 0.36 | | $ | 0.35 | | |
| Total dividends declared | Total dividends declared | $ | 1.43 | | $ | 1.37 | | Total dividends declared | $ | 1.12 | | $ | 1.07 | |
Accumulated Other Comprehensive (Loss) Income
The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income for the ninesix months ended SeptemberJune 30, 2021:2022:
| | | | | | | | | | | | | | |
(Dollars in thousands) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Loss on Cash Flow Hedge | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2020 | $ | 14,592 | | $ | (3,872) | | $ | (9,384) | | $ | 1,336 | |
Reclassification adjustments to net income: | | | | |
Realized gain on sale of securities, net of tax | 547 | | — | | — | | 547 | |
Realized loss due to settlement and curtailment, net of tax | — | | 111 | | — | | 111 | |
Other comprehensive (loss) income, net of reclassifications and tax | (13,245) | | 1,481 | | 3,882 | | (7,882) | |
Balance, September 30, 2021 | $ | 1,894 | | $ | (2,280) | | $ | (5,502) | | $ | (5,888) | |
| | | | | | | | | | | | | | |
(Dollars in thousands) | Unrealized Loss on Securities | Unrecognized Net Pension and Postretirement Costs (Benefit) | Unrealized (Loss) Gain on Cash Flow Hedge | Accumulated Other Comprehensive (Loss) |
Balance, December 31, 2021 | $ | (5,946) | | $ | (1,881) | | $ | (3,792) | | $ | (11,619) | |
Reclassification adjustments to net income: | | | | |
Realized loss on sale of securities, net of tax | (66) | | — | | — | | (66) | |
| | | | |
Other comprehensive (loss) income, net of reclassifications and tax | (87,598) | | 76 | | 5,848 | | (81,674) | |
Balance, June 30, 2022 | $ | (93,610) | | $ | (1,805) | | $ | 2,056 | | $ | (93,359) | |
Note 8 Employee Benefit Plans Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the employee’s annual compensation during the years 2003 through 2009, plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples may elect to receive or to commence receiving such person's retirement benefits as of the later of such person's normal retirement date or the first day of the month first following the date such person makes an election to receive his or her retirement benefits.
Peoples also provides post-retirement health and life insurance benefits to certain former employees and directors. Only those individuals who retired before January 27, 2012 were eligible for life insurance benefits. As of January 1, 2011, all retirees who desire to participate in the Peoples Bank medical plan do so by electing COBRA, which provides up to 18 months of coverage; retirees over the age of 65 also have the option to pay to participate in a group Medicare supplemental plan. Peoples only pays 100% of the cost of health benefits for those individuals who retired before January 1, 1993. For all others, the retiree is responsible for most, if not all, of the cost of the health benefits. Peoples’ policy is to fund the cost of the benefits as they arise.
The expected long-term rate of return on plan assets, which was determined as of January 1, 2021,2022, is 7.0%. The following table details the components of the net periodic cost for the plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations:
| | | Pension Benefits | | Pension Benefits |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 | | 2022 | 2021 |
Interest cost | Interest cost | $ | 60 | | $ | 80 | | | $ | 194 | | $ | 256 | | Interest cost | $ | 66 | | $ | 67 | | | $ | 132 | | $ | 134 | |
Expected return on plan assets | Expected return on plan assets | (143) | | (187) | | | (492) | | (577) | | Expected return on plan assets | (168) | | (175) | | | (336) | | (349) | |
Amortization of net loss | Amortization of net loss | 21 | | 35 | | | 84 | | 101 | | Amortization of net loss | 20 | | 32 | | | 40 | | 63 | |
Settlement of benefit obligation | 143 | | 531 | | | 143 | | 1,050 | | |
Net periodic loss (income) | $ | 81 | | $ | 459 | | | $ | (71) | | $ | 830 | | |
| Net periodic income | | Net periodic income | $ | (82) | | $ | (76) | | | $ | (164) | | $ | (152) | |
Under US GAAP, Peoples is required to recognize a settlement gain or loss when the aggregate amount of lump-sum distributions to participants equals or exceeds the sum of the service and interest cost components of the net periodic pension cost. The amount of settlement gain or loss recognized is the pro rata amount of the unrealized gain or loss existing immediately prior to the settlement. In general, both the projected benefit obligation and the fair value of plan assets are required to be remeasured in order to determine the settlement gain or loss.
Peoples recordeddid not record a settlement charge of $143,000 duringfor the three and ninesix months ended SeptemberJune 30, 2021 under the noncontributory defined benefit pension plan. Peoples recorded settlement charges of $531,000 and $1.1 million, respectively, during the three and nine months ended September2022 or June 30, 20202021 under the noncontributory defined benefit pension plan.
Note 9 Earnings Per Common Share The calculations of basic and diluted (loss) earnings per common share were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands, except per common share data) | (Dollars in thousands, except per common share data) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands, except per common share data) | 2022 | 2021 | | 2022 | 2021 |
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 | | |
Net income available to common shareholders | | Net income available to common shareholders | $ | 24,888 | | $ | 10,103 | | | $ | 48,465 | | $ | 25,566 | |
Less: Dividends paid on unvested common shares | | Less: Dividends paid on unvested common shares | (102) | | (81) | | | (150) | | (150) | |
Add: Undistributed loss allocated to unvested common shares | | Add: Undistributed loss allocated to unvested common shares | (19) | | (5) | | | (40) | | (15) | |
Net earnings allocated to common shareholders | | Net earnings allocated to common shareholders | $ | 24,767 | | $ | 10,017 | | | $ | 48,275 | | $ | 25,401 | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | | Weighted-average common shares outstanding | 27,919,133 | | 19,317,454 | | | 27,962,405 | | 19,300,156 | |
Effect of potentially dilutive common shares | Effect of potentially dilutive common shares | 148,752 | | 133,186 | | | 138,819 | | 135,944 | | Effect of potentially dilutive common shares | 142,603 | | 144,480 | | | 78,740 | | 148,388 | |
Total weighted-average diluted common shares outstanding | Total weighted-average diluted common shares outstanding | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | | Total weighted-average diluted common shares outstanding | 28,061,736 | | 19,461,934 | | | 28,041,145 | | 19,448,544 | |
| (Loss) earnings per common share: | | |
Earnings per common share: | | Earnings per common share: | |
Basic | Basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | | Basic | $ | 0.89 | | $ | 0.52 | | | $ | 1.73 | | $ | 1.32 | |
Diluted | Diluted | $ | (0.28) | | $ | 0.51 | | | $ | 0.99 | | $ | 0.70 | | Diluted | $ | 0.88 | | $ | 0.51 | | | $ | 1.72 | | $ | 1.31 | |
Anti-dilutive common shares excluded from calculation: | Anti-dilutive common shares excluded from calculation: | | Anti-dilutive common shares excluded from calculation: | |
Restricted shares | — | | 69,459 | | | — | | 67,759 | | |
Restricted common shares | | Restricted common shares | 188,468 | | — | | | 906 | | — | |
Note 10 Derivative Financial Instruments Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the "Other assets" and the "Accrued expenses and other liabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, while cash activity related to these derivativesderivative financial instruments is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows.
Derivative Financial Instruments and Hedging Activities - Risk Management Objective of Using Derivative Financial Instruments
Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. Peoples also manages interest rate risk through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the values of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate derivative financial instruments that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.
Cash Flow Hedges of Interest Rate Risk
Peoples' objectives in using interest rate derivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. At SeptemberJune 30, 2021,2022, Peoples had entered into 1613 interest rate swap contracts with an aggregate notional value of $150.0$125.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month brokered CDs and brokered demand deposits,90-day FHLB Advances, which will continue to be rolled through the life of the swaps. At SeptemberJune 30, 2021,2022, the interest rate swaps were designated as cash flow hedges of $100.0$85.0 million in brokered demand deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0$40.0 million of interest rate swaps were designated as cash flow hedges of 90-day FHLB Advances.
For derivative financial instruments designated as cash flow hedges, the effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest expense as interest payments are made or received on Peoples' variable-rate liabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the 90-day advances or brokered CDs are matched to the reset dates and payment dates on the receipt of the three-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. During the three and nine months ended SeptemberJune 30, 2022, and 2021, Peoples had recorded reclassifications of losses to earnings of $766,000$0.4 million and $2.3$0.8 million, respectively. DuringFor the three and ninesix months ended SeptemberJune 30, 2020,2022 and 2021, Peoples hadrecorded reclassifications of losses to earnings of $732,000$1.0 million and $1.2$1.6 million, respectively. During the next twelve months, Peoples estimates that minimal interest expense$1.2 million of AOCI will be reclassified.reclassified as a reduction to interest expense.
The following table summarizes information about the interest rate swaps designated as cash flow hedges:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | December 31, 2021 |
Notional amount | Notional amount | $ | 150,000 | | $ | 160,000 | | Notional amount | $ | 125,000 | | $ | 125,000 | |
Weighted average pay rates | Weighted average pay rates | 2.13 | % | 2.18 | % | Weighted average pay rates | 2.26 | % | 2.26 | % |
Weighted average receive rates | Weighted average receive rates | 0.76 | % | 0.38 | % | Weighted average receive rates | 3.00 | % | 1.10 | % |
Weighted average maturity | Weighted average maturity | 3.8 years | 4.4 years | Weighted average maturity | 3.1 years | 3.6 years |
Pre-tax unrealized losses included in AOCI | $ | (7,143) | | $ | (11,879) | | |
Pre-tax unrealized gains (losses) included in AOCI | | Pre-tax unrealized gains (losses) included in AOCI | $ | 2,680 | | $ | (4,879) | |
The following table presents net gains or(gains) losses 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 | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 | | 2022 | 2021 |
Amount of (gain) loss recognized in AOCI, pre-tax | $ | (858) | | $ | (803) | | | $ | (4,800) | | $ | 9,661 | | |
Amount of (gains) losses recognized in AOCI, pre-tax | | Amount of (gains) losses recognized in AOCI, pre-tax | $ | (2,104) | | $ | 294 | | | $ | (7,560) | | $ | (3,942) | |
|
The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value | (Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
| Included in "Other assets": | | Included in "Other assets": | |
Interest rate swaps related to debt | | Interest rate swaps related to debt | $ | 115,000 | | $ | 2,547 | | | $ | — | | $ | — | |
| Included in "Accrued expenses and other liabilities": | Included in "Accrued expenses and other liabilities": | | Included in "Accrued expenses and other liabilities": | |
Interest rate swaps related to debt | Interest rate swaps related to debt | $ | 150,000 | | $ | 7,252 | | | $ | 160,000 | | $ | 12,063 | | Interest rate swaps related to debt | $ | 10,000 | | $ | 3 | | | $ | 125,000 | | $ | 5,020 | |
| |
Non-Designated Hedges
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operations or financial condition at or for the three and ninesix months ended SeptemberJune 30, 20212022 and atas of or for the year ended December 31, 2020.2021.
The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
:
:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
Included in "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 | |
| | | | | |
37
| | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
Included in "Other assets": | | | | | |
Interest rate swaps related to commercial loans | $ | 430,406 | | $ | 17,599 | | | $ | 419,733 | | $ | 12,163 | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to commercial loans | $ | 430,406 | | $ | 17,599 | | | $ | 419,733 | | $ | 12,163 | |
| | | | | |
Pledged Collateral
Peoples pledges or receives collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps is in a net liabilityliability 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, Peoples had zero and $41.0 million, respectively, ofno cash pledged, while the counterparties had no amount$10.0 million of cash pledged at either date. CashJune 30, 2022 and none pledged was included in "Interest-bearing deposits in other banks" on the Audited Consolidated Balance Sheet as ofat December 31, 2020.2021. Peoples had no pledged $36.3investment securities and $28.1 million and zero in investment securities at SeptemberJune 30, 20212022 and December 31, 2020, respectively.
2021, respectively, while the counterparties had pledged $3.2 million at June 30, 2022 and none at December 31, 2021.
Note 11 Stock-Based Compensation Under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted common share awards, stock appreciation rights, performance units and unrestricted common share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is 891,340. The maximum number of common shares that can be issued for incentive stock options is 500,000 common shares. Since February 2009, Peoples has granted restricted common shares to employees, and periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2020 and 2021, Peoples granted unrestricted common shares to non-employee directors (in addition to their directors' fees paid in common shares). In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.
Restricted Common Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on the restricted common shares awarded to employees expire after periods ranging from one to five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first ninesix months of 2021,2022, Peoples granted an aggregate of 76,819154,645 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant date; provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well-capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date.
The following table summarizes the changes to Peoples’ restricted common shares for the ninesix months ended SeptemberJune 30, 2021:2022:
| | | Time-Based Vesting | | Performance-Based Vesting | | 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 | | 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 | | |
Outstanding at January 1, 2022 | | Outstanding at January 1, 2022 | 88,922 | | $ | 25.44 | | | 247,346 | | $ | 32.19 | |
Awarded | Awarded | 25,107 | | 32.58 | | | 76,819 | | 31.48 | | Awarded | 48,436 | | 31.58 | | | 154,645 | | 32.21 | |
Released | Released | (9,127) | | 35.63 | | | (73,611) | | 35.43 | | Released | (8,041) | | 32.89 | | | (100,091) | | 32.20 | |
Forfeited | Forfeited | (500) | | 34.75 | | | (6,668) | | 32.42 | | Forfeited | — | | — | | | (1,880) | | 32.15 | |
Outstanding at September 30 | 83,238 | | $ | 25.01 | | | 247,532 | | $ | 32.19 | | |
Outstanding at June 30, 2022 | | Outstanding at June 30, 2022 | 129,317 | | $ | 27.28 | | | 300,020 | | $ | 32.19 | |
For the ninesix months ended SeptemberJune 30, 2021,2022, the total intrinsic value for restricted common shares released was $2.6$3.5 million compared to $2.0$2.5 million for the ninesix months ended SeptemberJune 30, 2020.2021.
Stock-Based Compensation
Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares, 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 recognizes stock-based compensation over the performance period, based on the portion of the
awards that was expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15%. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 | | 2022 | 2021 |
Employee stock-based compensation expense: | Employee stock-based compensation expense: | | Employee stock-based compensation expense: | |
Stock grant expense | Stock grant expense | $ | 597 | | $ | 615 | | | $ | 2,381 | | $ | 2,950 | | Stock grant expense | $ | 576 | | $ | 585 | | | $ | 2,153 | | $ | 1,784 | |
Employee stock purchase plan expense | Employee stock purchase plan expense | 21 | | 17 | | | $ | 55 | | $ | 47 | | Employee stock purchase plan expense | 24 | | 18 | | | 52 | | 34 | |
Performance unit benefit | — | | — | | | $ | — | | $ | (12) | | |
| Total employee stock-based compensation expense | Total employee stock-based compensation expense | 618 | | 632 | | | $ | 2,436 | | $ | 2,985 | | Total employee stock-based compensation expense | 600 | | 603 | | | $ | 2,205 | | $ | 1,818 | |
Non-employee director stock-based compensation expense | Non-employee director stock-based compensation expense | 60 | | 53 | | | $ | 310 | | $ | 288 | | Non-employee director stock-based compensation expense | 127 | | 55 | | | $ | 251 | | $ | 250 | |
Total stock-based compensation expense | Total stock-based compensation expense | 678 | | 685 | | | $ | 2,746 | | $ | 3,273 | | Total stock-based compensation expense | 727 | | 658 | | | $ | 2,456 | | $ | 2,068 | |
Recognized tax benefit | Recognized tax benefit | (151) | | (144) | | | (612) | | (687) | | Recognized tax benefit | (166) | | (138) | | | (560) | | (434) | |
Net stock-based compensation expense | Net stock-based compensation expense | $ | 527 | | $ | 541 | | | $ | 2,134 | | $ | 2,586 | | Net stock-based compensation expense | $ | 561 | | $ | 520 | | | $ | 1,896 | | $ | 1,634 | |
Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the ninesix months ended SeptemberJune 30, 20212022 and 2020.2021. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares on that date. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was $3.0$5.3 million at SeptemberJune 30, 2021,2022, which will be recognized over a weighted-average period of 1.92.2 years. On April 1, 2020, an aggregate of 18,952 unrestricted common shares were granted as a one-time special award to employees under the level of Vice President, with a related stock-based compensation expense of $396,000 being recognized.
In addition to the portion of directors' fees paid in common shares, non-employee director stock-based compensation expense included $135,000 during the first nine months of 2021, and $120,000 during the first nine months of 2020, reflecting separate grants of unrestricted common shares aggregating 4,347 and 3,680 common shares, respectively.
The following table details Peoples' revenue from contracts with customers:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, | | September 30, | | June 30, | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 | (Dollars in thousands) | 2022 | 2021 | | 2022 | 2021 |
Insurance income: | Insurance income: | | Insurance income: | |
Commission and fees from sale of insurance policies (a) | Commission and fees from sale of insurance policies (a) | $ | 3,231 | | $ | 3,493 | | | $ | 9,603 | | $ | 9,117 | | Commission and fees from sale of insurance policies (a) | $ | 3,544 | | $ | 3,195 | | | $ | 6,587 | | $ | 6,371 | |
Fees related to third-party administration services (a) | Fees related to third-party administration services (a) | 76 | | 107 | | | 276 | | 375 | | Fees related to third-party administration services (a) | 92 | | 106 | | | 163 | | 200 | |
Performance-based commissions (b) | Performance-based commissions (b) | 60 | | 9 | | | 2,044 | | 1,437 | | Performance-based commissions (b) | 10 | | 34 | | | 1,356 | | 1,985 | |
Trust and investment income (a) | Trust and investment income (a) | 4,158 | | 3,435 | | | 12,223 | | 10,013 | | Trust and investment income (a) | 4,246 | | 4,220 | | | 8,522 | | 8,065 | |
Electronic banking income: | Electronic banking income: | | Electronic banking income: | |
Interchange income (a) | Interchange income (a) | 3,280 | | 3,011 | | | 9,930 | | 8,255 | | Interchange income (a) | 4,302 | | 3,603 | | | 8,415 | | 6,650 | |
Promotional and usage income (a) | Promotional and usage income (a) | 1,046 | | 755 | | | 2,725 | | 2,313 | | Promotional and usage income (a) | 1,117 | | 815 | | | 2,257 | | 1,679 | |
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) | 933 | | 848 | | | 2,597 | | 2,677 | | Ongoing maintenance fees for deposit accounts (a) | 1,307 | | 853 | | | 2,618 | | 1,664 | |
Transactional-based fees (b) | 1,616 | | 1,418 | | | 3,981 | | 4,318 | | |
Transaction-based fees (b) | | Transaction-based fees (b) | 2,251 | | 1,191 | | | 4,366 | | 2,366 | |
Commercial loan swap fees (b) | Commercial loan swap fees (b) | 73 | | 68 | | | 194 | | 1,267 | | Commercial loan swap fees (b) | 270 | | 61 | | | 438 | | 121 | |
Other non-interest income transactional-based fees (b) | 207 | | 94 | | | 601 | | 624 | | |
Other non-interest income transaction-based fees (b) | | Other non-interest income transaction-based fees (b) | 315 | | 249 | | | 572 | | 393 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | $ | 14,680 | | $ | 13,238 | | | $ | 44,174 | | $ | 40,396 | | Total revenue from contracts with customers | $ | 17,454 | | $ | 14,327 | | | $ | 35,294 | | $ | 29,494 | |
Timing of revenue recognition: | Timing of revenue recognition: | | Timing of revenue recognition: | |
Services transferred over time | Services transferred over time | $ | 12,724 | | $ | 11,649 | | | $ | 37,354 | | $ | 32,750 | | Services transferred over time | $ | 14,608 | | $ | 12,792 | | | $ | 28,562 | | $ | 24,629 | |
Services transferred at a point in time | Services transferred at a point in time | 1,956 | | 1,589 | | | 6,820 | | 7,646 | | Services transferred at a point in time | 2,846 | | 1,535 | | | 6,732 | | 4,865 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | $ | 14,680 | | $ | 13,238 | | | $ | 44,174 | | $ | 40,396 | | Total revenue from contracts with customers | $ | 17,454 | | $ | 14,327 | | | $ | 35,294 | | $ | 29,494 | |
(a) Services transferred over time.
(b) Services transferred at a point in time.
Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance obligations, but has not yet been received related to electronic banking income and certain insurance income. This income typically relates to bonuses for which Peoples is eligible, but will not receive until a certain time in the future. Peoples records contract liabilities for payments received for commission income related to the sale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income.
The following table details the changes in Peoples' contract assets and contract liabilities for the nine-monthsix-month period ended SeptemberJune 30, 2021:2022:
| | | Contract Assets | Contract Liabilities | | Contract Assets | Contract Liabilities |
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
Balance, January 1, 2021 | $ | 1,247 | | $ | 5,224 | | |
Balance, January 1, 2022 | | Balance, January 1, 2022 | $ | 743 | | $ | 4,811 | |
Additional income receivable | Additional income receivable | 144 | | — | | Additional income receivable | 149 | | — | |
Additional deferred income | | Additional deferred income | — | | 305 | |
| Receipt of income previously receivable | (701) | | — | | |
Recognition of income previously deferred | Recognition of income previously deferred | — | | (488) | | Recognition of income previously deferred | — | | (63) | |
Balance, September 30, 2021 | $ | 690 | | $ | 4,736 | | |
Balance, June 30, 2022 | | Balance, June 30, 2022 | $ | 892 | | $ | 5,053 | |
Elite Agency, Inc
On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with 5 locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite Agency, Inc. ("Elite"), pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $3.8 million. Peoples recognized preliminary intangibles of $2.1 million, primarily comprised of a customer relationship intangible.
Vantage Financial, LLC
On March 7, 2022, Peoples Bank purchased 100% of the equity of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota. Peoples Bank acquired assets comprising Vantage's lease business, including $157.5 million in leases and certain third-party debt in the amount of $107.1 million. Under the terms of the agreement, Peoples Bank paid cash consideration of $54.0 million, and also repaid $28.9 million in recourse debt on behalf of Vantage, for total consideration of $82.9 million. Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide-array of industries.
Peoples recorded acquisition-related expenses during the first six months of 2022 of $1.5 million related to the Vantage acquisition, which included $1.1 million in professional fees.
The following table provides the preliminary purchase price calculation as of the date of the acquisition of Vantage, and the assets acquired and liabilities assumed at their estimated fair values, and the amounts are subject to adjustment for up to one year after March 7, 2022. Valuations subject to change include leases, other intangible assets and borrowings.
| | | | | | | | |
(Dollars in thousands) | | | Fair Value | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total purchase price | | | $ | 82,893 | | |
| | | | |
| | | | |
Net assets at fair value | | | | |
Assets | | | | |
Cash and due from banks | | | $ | 1,444 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Leases | | | 157,941 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Allowance for credit losses (on PCD leases) | | | (424) | | |
Net leases | | | 157,517 | | |
| | | | |
| | | | |
| | | | |
Bank premises and equipment | | | 116 | | |
Other intangible assets | | | 13,207 | | |
Other assets | | | 1,506 | | |
| | | | |
Total assets | | | $ | 173,790 | | |
Liabilities | | | | |
Borrowings | | | $ | 107,089 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Accrued expenses and other liabilities | | | $ | 8,550 | | |
Total liabilities | | | $ | 115,639 | | |
Net assets | | | $ | 58,151 | | |
Goodwill | | | $ | 24,742 | | |
The goodwill recorded in connection with the Vantage acquisition is related to expected synergies to be gained from the combination of Vantage with Peoples' operations. The employees retained from the Vantage acquisition should allow Peoples to continue to grow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill.
The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended June 30, 2022, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at June 30, 2022:
| | | | | |
(Dollars in thousands) | Change in fair value |
Net assets | |
| |
| |
Net leases | $ | 17,303 | |
Bank premises and equipment | (1,810) | |
| |
Other assets | (97) | |
Change in total assets | $ | 15,396 | |
Borrowings | (320) | |
Accrued expenses and other liabilities | 71 | |
Change in total liabilities | $ | (249) | |
Change in net assets | $ | 15,645 | |
Change in goodwill | $ | (15,645) | |
The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date:
| | | | | | | | | | | | | | | |
| | |
(Dollars in thousands) | | Par Value | Allowance for Credit Losses | Non-Credit (Discount) Premium | Fair Value |
Purchased credit deteriorated leases | | | | | |
| | | | | |
| | | | | |
| | | | | |
Leases | | $ | 3,501 | | $ | (424) | | $ | 737 | | $ | 3,814 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Fair value | | $ | 3,501 | | $ | (424) | | $ | 737 | | $ | 3,814 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Premier Financial Bancorp, Inc.
On September 17, 2021, Peoples completed its merger with Premier. Premier merged into Peoples, and Premier’s wholly-owned subsidiaries, Premier Bank, Inc., and Citizens Deposit Bank and Trust, Inc., which combined operateoperated 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.during the first six months of 2022 of $427,000.
Peoples recorded the estimate of fair value based on initial valuations available at September 17, 2021. Due to the timing2021, and has revised fair values of the transaction closing dateacquired assets and this Form 10-Q, these estimated fair values are considered preliminaryliabilities in the periods since based on subsequent information obtained where those facts and circumstances existed as of September 30, 2021, andthe acquisition date. The estimates of fair value 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,and 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 Mergermerger with Premier, and the assets acquired and liabilities assumed at their estimated fair values.
| (Dollars in thousands) | (Dollars in thousands) | | Unpaid Principal Balance | Fair Value | | (Dollars in thousands) | | Unpaid Principal Balance | Fair Value | |
| Premier common shares | Premier common shares | | | 14,811,200 | | | Premier common shares | | | 14,811,200 | | |
Number of common shares of Peoples issued for each common share of Premier | Number of common shares of Peoples issued for each common share of Premier | | | 0.58 | | | Number of common shares of Peoples issued for each common share of Premier | | | 0.58 | | |
Price per Peoples common share, based at closing date | Price per Peoples common share, based at closing date | | | $ | 30.49 | | | Price per Peoples common share, based at closing date | | | $ | 30.49 | | |
Common share consideration | Common share consideration | | | 261,899 | | | Common share consideration | | | 261,899 | | |
Cash paid in lieu of fractional common shares | Cash paid in lieu of fractional common shares | | | 25 | | | Cash paid in lieu of fractional common shares | | | 25 | | |
Total consideration | Total consideration | | | $ | 261,924 | | | Total consideration | | | $ | 261,924 | | |
Net assets at fair value | Net assets at fair value | | | | Net assets at fair value | | | |
Assets | Assets | | | | Assets | | | |
Cash and due from banks | Cash and due from banks | | | $ | 251,763 | | | Cash and due from banks | | | $ | 248,360 | | |
Interest-bearing deposits in other banks | Interest-bearing deposits in other banks | | | 1,025 | | | Interest-bearing deposits in other banks | | | 1,025 | | |
Total cash and cash equivalents | Total cash and cash equivalents | | | 252,788 | | | Total cash and cash equivalents | | | 249,385 | | |
Available-for-sale investment securities | Available-for-sale investment securities | | | 563,294 | | | Available-for-sale investment securities | | | 551,953 | | |
| Other investment securities | Other investment securities | | | 4,159 | | | Other investment securities | | | 4,159 | | |
Total investment securities | Total investment securities | | | 567,453 | | | Total investment securities | | | 556,112 | | |
| Loans: | Loans: | | | | Loans: | | | |
Construction | Construction | | 97,262 | | 93,819 | | | Construction | | 97,262 | | 96,025 | | |
Commercial real estate, other | Commercial real estate, other | | 544,950 | | 517,315 | | | Commercial real estate, other | | 544,950 | | 534,869 | | |
Commercial and industrial | Commercial and industrial | | 132,293 | | 127,880 | | | Commercial and industrial | | 132,293 | | 131,979 | | |
| Residential real estate | Residential real estate | | 332,269 | | 327,508 | | | Residential real estate | | 332,269 | | 331,544 | | |
Home equity lines of credit | Home equity lines of credit | | 46,969 | | 45,841 | | | Home equity lines of credit | | 46,969 | | 45,910 | | |
| Consumer | Consumer | | 21,083 | | 21,527 | | | Consumer | | 20,961 | | 21,513 | | |
Total loans | Total loans | | 1,174,826 | | 1,133,890 | | | Total loans | | 1,174,704 | | 1,161,840 | | |
| Allowance for credit losses (on PCD loans) | | Allowance for credit losses (on PCD loans) | | | (15,513) | | |
Net loans | | Net loans | | | 1,146,327 | |
Bank premises and equipment | Bank premises and equipment | | | 33,835 | | | Bank premises and equipment | | | 30,098 | | |
Other intangible assets | Other intangible assets | | | 4,233 | | | Other intangible assets | | | 4,233 | | |
OREO | OREO | | | 11,101 | | | OREO | | | 11,081 | | |
Other assets | Other assets | | | 19,671 | | | Other assets | | | 26,982 | | |
Total assets | Total assets | | | $ | 2,022,971 | | | Total assets | | | $ | 2,024,218 | | |
Liabilities | | Liabilities | | | |
Deposits: | | Deposits: | | | |
Non-interest-bearing | | Non-interest-bearing | | | $ | 733,157 | | |
Interest-bearing | | Interest-bearing | | | 1,018,387 | | |
Total deposits | | Total deposits | | | 1,751,544 | | |
Short-term borrowings | | Short-term borrowings | | | 63,807 | | |
Long-term borrowings | | Long-term borrowings | | | 6,070 | | |
Accrued expenses and other liabilities | | Accrued expenses and other liabilities | | | 7,813 | | |
Total liabilities | | Total liabilities | | | 1,829,234 | | |
Net assets | | Net assets | | | 194,984 | | |
Goodwill | | Goodwill | | | $ | 66,940 | | |
The estimated fair values presented in the above table reflect additional information that was obtained during the six months ended June 30, 2022, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at June 30, 2022:
| | | | | | | | | | |
(Dollars in thousands) | | Unpaid Principal BalanceChange in fair value | 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 |
| |
GoodwillNet loans | | | $ | 70,9891,580 | |
| |
| |
Other assets | (353) | |
Change in total assets | $ | 1,227 | |
| |
| |
Change in net assets | $ | 1,227 | |
Change in goodwill | $ | (1,227) | |
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 | |
| | | | | |
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| | | | | |
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 | |
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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. | | | | | | | | | | | | | | | |
| | |
(Dollars in thousands) | | Par Value | Allowance for Credit Losses | Non-Credit (Discount) Premium | Fair Value |
Purchased credit deteriorated loans | | | | | |
Construction | | $ | 20,143 | | $ | (2,005) | | $ | (214) | | $ | 17,924 | |
Commercial real estate, other | | 97,193 | | (9,053) | | (2,123) | | 86,017 | |
Commercial and industrial | | 9,948 | | (3,630) | | 113 | | 6,431 | |
| | | | | |
Residential real estate | | 18,349 | | (696) | | (251) | | 17,402 | |
Home equity lines of credit | | 1,291 | | (55) | | (72) | | 1,164 | |
| | | | | |
Consumer | | 929 | | (74) | | 37 | | 892 | |
Fair value | | $ | 147,853 | | $ | (15,513) | | $ | (2,510) | | $ | 129,830 | |
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NS Leasing, LLC
Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $116.5 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. NSL underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. Peoples also recorded and paid 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 $111.4approximately $3.0 million. Peoples accounted for this transaction as a business combination under the acquisition method.
The recorded goodwill associated with the NSL acquisition is related to expected synergies and operational efficiencies to be gained from the combination of NSL with Peoples' operations. The employees retained from the NSL acquisition should allow Peoples to continue to grow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill.
The bonus earn-out provision recorded by Peoples related to the NSL acquisition was determined based on a weighting
The following table provides the preliminary purchase price calculation as of the date of acquisition for NSL and the assets acquired and liabilities assumed at their estimatedrecorded fair values.
| | | | | | |
(Dollars in thousands) | | |
Total purchase price (a) | $ | 118,846 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Net assets at fair value | | |
Assets | | |
Cash and due from banks | $ | 216 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Net leases | 82,833 | | |
Bank premises and equipment, net of accumulated depreciation | 470 | | |
Other intangible assets | 14,009 | | |
Other assets | 1,225 | | |
Total assets | $ | 98,753 | | |
Liabilities | | |
| | |
| | |
| | |
| | |
| | |
Accrued expenses and other liabilities | $ | 4,627 | | |
Total liabilities | $ | 4,627 | | |
Net assets | $ | 94,126 | | |
Goodwill | $ | 24,720 | | |
(a) Includes preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. Peoples recorded an additional $0.4$0.7 million in non-interest expense related to an update to the estimated earn-out provision.
The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2021, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at September 30, 2021:
| | | | | |
(Dollars in thousands) | Change in fair value |
Net assets | |
| |
| |
| |
| |
Other intangible assets | $ | (474) | |
Other assets | (380) | |
Accrued expenses and other liabilities | 380 | |
Change in goodwill | $ | (474) | |
Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. Acquired purchased credit deteriorated leases are reported net of the unamortized fair value adjustment.
The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date:
| | | | | | |
(Dollars in thousands) | NSL | |
Purchased credit deteriorated leases | | |
Par value | $ | 5,248 | | |
Allowance for credit losses | (493) | | |
Non-credit premium | 85 | | |
Fair value | $ | 4,840 | | |
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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 ninesix 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.2022 of $90,000.
Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). As a lessor, Peoples has made an accounting policy election to exclude from consideration in the contract, and from variable payments not included in the consideration in the contract, all sales and other similar taxes assessed. Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.
Lessor Arrangements
Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers leases past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, leases are typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses.
Peoples began originating leases with the acquisition of leases from NSL.NSL in the second quarter of 2021, and expanded its lease portfolio with the acquisition of Vantage in the first quarter of 2022. The leases acquired from NSL were determined to be sales-type leases, as the premise for the leases is dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. 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. The leases acquired from Vantage were determined to be either sales-type or direct financing leases based primarily on whether they included a dollar buy-out or a fair market value buy-out, respectively. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, health care, manufacturing, office, restaurant, information technology and other equipment. These leases include estimated residual value, which are assessed for impairment as part of the allowance for credit losses. Other non-interest income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' 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 | | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | | | September 30, 2021 | | (Dollars in thousands) | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Interest and fees on leases (a) | Interest and fees on leases (a) | $ | 4,810 | | | | 9,025 | | | Interest and fees on leases (a) | $ | 10,541 | | | $ | 4,215 | | | $ | 16,643 | | | $ | 4,215 | |
Other non-interest income | Other non-interest income | 471 | | | | 716 | | | Other non-interest income | 431 | | | 245 | | | 1,206 | | | 245 | |
Total lease income | Total lease income | $ | 5,281 | | | | $ | 9,741 | | | Total lease income | $ | 10,972 | | | $ | 4,460 | | | $ | 17,849 | | | $ | 4,460 | |
(a)Included in "Interest and fees on loans"loans and leases" on the Unaudited Consolidated Statements of Operations.
For additional information, see "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed
Consolidated Financial Statements.
The following table summarizes the net investmentsinvestment in sales-type leases, which areis included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets:
| | | | | | |
(Dollars in thousands) | SeptemberJune 30, 20212022 | |
Lease payments receivable, at amortized cost | $ | 139,445325,643 | | |
Estimated residual values | 12037,171 | | |
Initial direct costs | 8022,549 | | |
Deferred revenue | (28,921)(50,841) | | |
TotalNet investment in leases at amortized cost | 111,446314,522 | | |
Allowance for credit losses - leases | (4,505)(7,585) | | |
Net investment in sales-type leases, after allowance for credit losses | $ | 106,941306,937 | | |
The following table summarizes the contractual maturities of leases:
| | | | | |
(Dollars in thousands) | Balance |
Remaining threesix months ending December 31, 2021 | $ | 13,980 | |
Year ending December 31, 2022 | 46,706$ | 52,258 | |
Year ending December 31, 2023 | 36,52473,212 | |
Year ending December 31, 2024 | 24,09379,314 | |
Year ending December 31, 2025 | 13,60568,007 | |
Year ending December 31, 2026 | 35,707 | |
Thereafter | 4,53717,145 | |
Lease payments receivable, at amortized cost | $ | 139,445325,643 | |
Lessee Arrangements
Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At SeptemberJune 30, 2021,2022, Peoples did not have any leases that met the criteria for finance leases. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating lease ROU assets exclude lease incentives. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term and do not have a ROU asset or lease liability.
The table below details Peoples' lease expense, which is included in "Net occupancy and equipment expense" in the Unaudited Consolidated Statements of Operations:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
Operating lease expense | Operating lease expense | $ | 358 | | | $ | 334 | | | 1,038 | | | 995 | | Operating lease expense | $ | 660 | | | $ | 350 | | | 1,263 | | | 680 | |
Short-term lease expense | Short-term lease expense | 72 | | | 71 | | | 244 | | | 231 | | Short-term lease expense | 179 | | | 100 | | | 347 | | | 172 | |
Total lease expense | Total lease expense | $ | 430 | | | $ | 405 | | | $ | 1,282 | | | $ | 1,226 | | Total lease expense | $ | 839 | | | $ | 450 | | | $ | 1,610 | | | $ | 852 | |
Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.
The following table details the ROU assets, the lease liabilities and other information related to Peoples' operating leases:leases at the dates shown:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | December 31, 2020 | (Dollars in thousands) | June 30, 2022 | December 31, 2021 |
ROU assets: | ROU assets: | | ROU assets: | |
Other assets | Other assets | $ | 8,732 | | $ | 6,522 | | Other assets | $ | 7,501 | | $ | 7,911 | |
Lease liabilities: | Lease liabilities: | | Lease liabilities: | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | $ | 9,040 | | $ | 6,776 | | Accrued expenses and other liabilities | $ | 8,226 | | $ | 8,674 | |
Other information: | Other information: | | Other information: | |
Weighted-average remaining lease term | Weighted-average remaining lease term | 9.5 years | 12.4 years | Weighted-average remaining lease term | 8.9 years | 9.5 years |
Weighted-average discount rate | Weighted-average discount rate | 2.39 | % | 3.14 | % | Weighted-average discount rate | 2.37 | % | 2.36 | % |
|
During the three and nine months ended SeptemberJune 30, 2022 and 2021, Peoples paid cash of $345,000$650,000 and $1,005,000,$340,000, respectively, for operating leases. DuringFor the three and ninesix months ended SeptemberJune 30, 2020,2022 and 2021, Peoples paid cash of $320,000$1.2 million and $960,000,$0.7 million, respectively, for operating leases.
The following table summarizes the maturity of remaining lease liabilities:
| | | | | |
(Dollars in thousands) | Balance |
Remaining threesix months ending December 31, 2021 | $ | 728 | |
Year ending December 31, 2022 | 2,270$ | 1,483 | |
Year ending December 31, 2023 | 1,6122,033 | |
Year ending December 31, 2024 | 9541,210 | |
Year ending December 31, 2025 | 765750 | |
Year ending December 31, 2026 | 579 | |
Thereafter | 4,3963,383 | |
Total undiscounted lease payments | $ | 10,7259,438 | |
Imputed interest | $ | (1,685)(1,212) | |
Total lease liabilities | $ | 9,0408,226 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three and ninesix months ended SeptemberJune 30, 20212022 and SeptemberJune 30, 2020.2021. This MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the MD&A that follows:
| | | | | | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, expect per share data) | 2021 | 2020 | | 2021 | 2020 |
Operating Data (a) | | | | | |
Total interest income | $ | 45,467 | | $ | 39,013 | | | $ | 127,226 | | $ | 119,181 | |
Total interest expense | 2,889 | | 3,894 | | | 9,410 | | 14,566 | |
Net interest income | 42,578 | | 35,119 | | | 117,816 | | 104,615 | |
Provision for credit losses | 8,994 | | 4,728 | | | 7,333 | | 33,531 | |
Net (loss) gain on investment securities | (166) | | 2 | | | (704) | | 383 | |
Net loss on asset disposals and other transactions | (308) | | (28) | | | (459) | | (237) | |
Total non-interest income excluding net gains and losses (b) | 16,820 | | 16,796 | | | 50,233 | | 47,025 | |
Total non-interest expense | 57,860 | | 34,315 | | | 135,746 | | 100,445 | |
Net (loss) income (c) | (5,758) | | 10,210 | | | 19,808 | | 14,194 | |
Balance Sheet Data (a) | | | | | |
Total investment securities | $ | 1,574,676 | | $ | 928,560 | | | $ | 1,574,676 | | $ | 928,560 | |
Loans and leases, net of deferred fees and costs ("total loans") | 4,491,028 | | 3,472,085 | | | 4,491,028 | | 3,472,085 | |
Allowance for credit losses | 77,382 | | 58,128 | | | 77,382 | | 58,128 | |
Goodwill and other intangible assets | 295,415 | | 185,397 | | | 295,415 | | 185,397 | |
Total assets | 7,059,752 | | 4,911,807 | | | 7,059,752 | | 4,911,807 | |
Non-interest-bearing deposits | 1,559,993 | | 982,912 | | | 1,559,993 | | 982,912 | |
Brokered deposits | 106,013 | | 260,753 | | | 106,013 | | 260,753 | |
Other interest-bearing deposits | 4,166,014 | | 2,697,905 | | | 4,166,014 | | 2,697,905 | |
Short-term borrowings | 184,693 | | 182,063 | | | 184,693 | | 182,063 | |
Junior subordinated debentures held by subsidiary trust | 12,928 | | 7,571 | | | 12,928 | | 7,571 | |
Other long-term borrowings | 86,483 | | 103,815 | | | 86,483 | | 103,815 | |
Total stockholders' equity | 831,882 | | 566,856 | | | 831,882 | | 566,856 | |
Tangible assets (d) | 6,764,337 | | 4,726,410 | | | 6,764,337 | | 4,726,410 | |
Tangible equity (d) | 536,467 | | 381,459 | | | 536,467 | | 381,459 | |
Per Common Share Data (a) | | | | | |
(Loss) earnings per common share – basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
(Loss) earnings per common share – diluted | (0.28) | | 0.51 | | | 0.99 | | 0.70 | |
Cash dividends declared per common share | 0.36 | | 0.34 | | | 1.07 | | 1.02 | |
Book value per common share (e) | 29.43 | | 28.74 | | | 29.43 | | 28.74 | |
Tangible book value per common share (d)(e) | $ | 18.98 | | $ | 19.34 | | | $ | 18.98 | | $ | 19.34 | |
Weighted-average number of common shares outstanding – basic | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Weighted-average number of common shares outstanding – diluted | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
Common shares outstanding at end of period (e) | 28,265,791 | | 19,721,783 | | | 28,265,791 | | 19,721,783 | |
Closing share price at end of period (e) | $ | 31.61 | | $ | 19.09 | | | $ | 31.61 | | $ | 19.09 | |
| | | | | | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, expect per share data) | 2021 | 2020 | | 2021 | 2020 |
Significant Ratios (a) | | | | | |
Return on average stockholders' equity (f) | (3.64) | % | 7.16 | % | | 4.44 | % | 3.28 | % |
Return on average tangible equity (f)(g) | (4.76) | % | 11.36 | % | | 7.82 | % | 5.38 | % |
Return on average assets (f) | (0.42) | % | 0.83 | % | | 0.51 | % | 0.40 | % |
Return on average assets adjusted for non-core items (f)(h) | 0.66 | % | 0.91 | % | | 1.02 | % | 0.47 | % |
Average stockholders' equity to average assets | 11.47 | % | 11.56 | % | | 11.48 | % | 12.29 | % |
Average total loans to average deposits | 77.17 | % | 87.44 | % | | 79.48 | % | 86.15 | % |
Net interest margin (f)(i) | 3.50 | % | 3.14 | % | | 3.41 | % | 3.27 | % |
Efficiency ratio (j) | 94.70 | % | 64.12 | % | | 78.38 | % | 64.37 | % |
Efficiency ratio adjusted for non-core items (k) | 63.93 | % | 61.81 | % | | 64.32 | % | 62.44 | % |
Pre-provision net revenue to total average assets (l) | 0.11 | % | 1.43 | % | | 0.83 | % | 1.45 | % |
Dividend payout ratio (m)(n) | NM | 66.31 | % | | NM | 145.29 | % |
Total loans to deposits (e) | 77.05 | % | 88.04 | % | | 77.05 | % | 88.04 | % |
Total investment securities as percentage of total assets (e) | 22.30 | % | 18.90 | % | | 22.30 | % | 18.90 | % |
Asset Quality Ratios (a) | | | | | |
Nonperforming loans as a percent of total loans (e)(o) | 0.92 | % | 0.84 | % | | 0.92 | % | 0.84 | % |
Nonperforming assets as a percent of total assets (e)(o) | 0.75 | % | 0.60 | % | | 0.75 | % | 0.60 | % |
Nonperforming assets as a percent of total loans and OREO (e)(o) | 1.17 | % | 0.85 | % | | 1.17 | % | 0.85 | % |
Criticized loans as a percent of total loans (e)(p) | 5.23 | % | 3.55 | % | | 5.23 | % | 3.55 | % |
Classified loans as a percent of total loans (e)(q) | 3.18 | % | 2.19 | % | | 3.18 | % | 2.19 | % |
Allowance for credit losses as a percent of total loans (e) | 1.72 | % | 1.67 | % | | 1.72 | % | 1.67 | % |
Allowance for credit losses as a percent of nonperforming loans (e)(o) | 186.93 | % | 198.72 | % | | 186.93 | % | 198.72 | % |
Provision for credit losses as a percent of average total loans | 1.01 | % | 0.55 | % | | 0.28 | % | 1.40 | % |
Net charge-offs as a percentage of average total loans | 0.18 | % | 0.08 | % | | 0.13 | % | 0.04 | % |
Capital Information (a)(e) | | | | | |
Common equity tier 1 capital ratio (r) | 12.30 | % | 12.83 | % | | 12.30 | % | 12.83 | % |
Tier 1 risk-based capital ratio | 12.58 | % | 13.07 | % | | 12.58 | % | 13.07 | % |
Total risk-based capital ratio (tier 1 and tier 2) | 13.83 | % | 14.33 | % | | 13.83 | % | 14.33 | % |
Tier 1 leverage ratio | 11.20 | % | 8.62 | % | | 11.20 | % | 8.62 | % |
Common equity tier 1 capital | $ | 567,172 | | $ | 398.553 | | | $ | 567,172 | | $ | 398.553 | |
Tier 1 capital | 580,100 | | 406,124 | | | 580,100 | | 406,124 | |
Total capital (tier 1 and tier 2) | 637,802 | | 445,101 | | | 637,802 | | 445,101 | |
Total risk-weighted assets | $ | 4,611,321 | | $ | 3,106,817 | | | $ | 4,611,321 | | $ | 3,106,817 | |
Total stockholders' equity to total assets | 11.78 | % | 11.54 | % | | 11.78 | % | 11.54 | % |
Tangible equity to tangible assets (d) | 7.93 | % | 8.07 | % | | 7.93 | % | 8.07 | % |
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(a)Reflects the impact of the acquisitions of Premium Finance on July 1, 2020, NSL beginning April 1, 2021, and of Premier beginning September 17, 2021.
(b)Total non-interest income excluding net gains and losses, is a Non-US GAAP financial measure since it excludes all gains and/or losses included in earnings. Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found under the caption "Efficiency Ratio (Non-US GAAP)."
(c)Net loss for the for the third quarter of 2021 included non-core non-interest expense totaling $18.4 million. Net income for the first nine months of 2021 included non-core non-interest expense totaling $23.8 million. Net income for the third quarter of 2020 and for the first nine months of 2020, included non-core non-interest expenses of $1.2 million and $3.0 million, respectively. Additional information regarding the non-core non-interest expense can be found under the caption "Core Non-Interest Expense (Non-US GAAP)."
(d)These amounts represent Non-US GAAP financial measures since they exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity and total assets. Additional information regarding the calculation of these Non-US GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.”
(e)Data presented as of the end of the period indicated.
(f)Ratios are presented on an annualized basis.
(g)Return on average tangible equity ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Return on Average Tangible Equity Ratio (Non-US GAAP).”
(h)Return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement
charges and severance expenses included in earnings. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)."
(i)Information presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal rate of 21% for 2020.
(j)The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses). This amount represents a Non-US GAAP financial measure since it excludes amortization of other intangible assets, and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Efficiency Ratio (Non-US GAAP).”
(k)The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses. This amount represents a Non-US GAAP financial measure since it excludes the impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement charges and severance expenses included in earnings, and uses FTE net interest income. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Efficiency Ratio (Non-US GAAP).”
(l)Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Pre-Provision Net Revenue (Non-US GAAP).”
(m)The dividend payout ratio is calculated based on dividends declared during the period divided by net income, where applicable, for the period.
(n)NM = not meaningful.
(o)Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned.
(p)Includes loans categorized as special mention, substandard and doubtful.
(q)Includes loans categorized as substandard and doubtful.
(r)Peoples' capital conservation buffer was 5.83% at September 30, 2021 and 6.33% at September 30, 2020, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019.
Forward-Looking Statements
Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions.
These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These factors include, but are not limited to:
(1)the ever-changing effects of the global COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants 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 ourPeoples' 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, effectiveness and effectivenessacceptance of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;
(2)changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other factors and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") in response to such economic conditions, which may adversely impact market interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;
(3)the effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay;
(4)the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and the recently-completed acquisitionacquisitions of NSL and Vantage, 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)(5)competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;
(5)(6)uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular
the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;
(6)(7)the effects of easing restrictions on participants in the financial services industry;
(7)(8)local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;
(8)(9)Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;
(10)changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of the COVID-19 pandemic and adversely impact the amount of interest income generated;
(10)(11)Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
(11)(12)future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses;
(13)changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;
(12)(14)the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;
(13)(15)the discontinuationreplacement of the LIBOR andLondon Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;
(14)(16)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)(17)the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
(16)(18)Peoples' ability to receive dividends from its subsidiaries;
(17)(19)Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(18)(20)the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;
(19)(21)Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;
(20)(22)Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;
(21)(23)operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent;
(22)(24)changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated;
(23)(25)the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;
(24)(26)the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence;
(25)(27)the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;
(26)(28)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)(29)risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;
(28)(30)Peoples' ability to integrate the NSL acquisitionand Vantage acquisitions, and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;
(29)(31)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)(32)changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases;
(33)the effect of a fall in stock market prices on the asset and wealth management business;
(34)Peoples' continued ability to grow deposits;
(31)the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;
(32)uncertainty regarding the impact of changes to the U.S. presidential administration and Congress on the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates and the response to and management of the COVID-19 pandemic, infrastructure spending and social programs; and,
(33)(35)other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021 and the heading "ITEM 1A. RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10-
Q for the quarterly period ended March 31, 2022. Peoples encourages readers of this Form 10-Q to understand forward-looking statements to be strategic objectives rather than absolute targets of future performance. Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website.
All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.
This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 20202021 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.
Business Overview
The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.
Peoples is a diversified financial services holding company that makes available a complete line of banking, products, such as deposit accounts, lending productstrust and trust services.investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples also offers a complete array of insurance products commercial leasing and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services.through Peoples Insurance Agency, LLC. a subsidiary of Peoples Bank. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank also offers insurance premium finance lending nationwide through its Peoples Premium Finance division and, since April 1, 2021,division. Peoples also offers lease financing through its North Star Leasing division.division and through Vantage, a subsidiary of Peoples Bank. As of SeptemberJune 30, 2021,2022, Peoples has 135had 136 locations, including 119117 full-service bank branches in Ohio, West Virginia, Kentucky, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation (the "FDIC"). Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant account policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at SeptemberJune 30, 2022, which have been disclosed in Peoples' 2021 which are discussedForm 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q. This Management's Discussion and Analysis should be read in conjunction with the policies disclosed in Peoples’ 20202021 Form 10-K.
Summary of Recent Transactions and Events
The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:
◦On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Elite Agency, Inc. ("Elite"), pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $3.8 million. Peoples recognized preliminary intangibles of $2.1 million, primarily comprised of a customer relationship intangible.
◦On March 7, 2022, Peoples completed its acquisition of Vantage pursuant to an Asset Purchase Agreement, dated February 16, 2022, in which Peoples Bank purchased 100% of the equity of Vantage. Peoples Bank acquired assets comprising Vantage's lease business, including $157.5 million in leases and certain third-party debt in the amount of $107.1 million. Peoples paid total consideration of $82.9 million. Based in Excelsior, Minnesota, Vantage offers mid-ticket equipment leases primarily for business essential information technology equipment across a wide array of industries. Peoples recorded
preliminary goodwill in the amount of $24.7 million and preliminary other intangible assets of $13.2 million, which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.
◦On September 17, 2021, Peoples completed its merger with Premier, 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”“Premier Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million. At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of
Peoples Bank. Peoples acquired $1.1$1.2 billion in loans and $1.8 billion in deposits. Peoples preliminarilydeposits and recorded $71.0preliminary goodwill of $66.9 million in goodwill and $4.2 million in other intangible assets of $4.2 million in connection with the Merger.Premier Merger as of September 17, 2021.
◦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 bewas 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 potentialan 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 a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million. As of September 30, 2021, equipment leases had grown to $111.4 million.
◦Peoples began originating loans during the second quarter of 2020, and continued to originate loans during the first five months of 2021 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts." As of SeptemberJune 30, 2021,2022, Peoples had $135.8$15.2 million aggregate principal amount in PPP loans outstanding (including $28.2$5.6 million acquired in the merger with Premier)Premier Merger), which were included in commercial and industrial loan balances, compared to $187.6$41.9 million (including $15.0 million acquired in the Premier Merger) at June 30, 2021 and $366.9 million at DecemberMarch 31, 2020.2022. Peoples recognized interest income of $3.1$0.6 million for deferred loan fees/cost accretioncosts and $0.4 million$79,000 of interest income on PPP loans during the thirdsecond quarter of 2021,2022, compared to $1.2 million and $154,000, respectively, for the first quarter of 2022, and $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 2020.2021. During the first ninesix months of 2021,2022, Peoples recognized interest income of $11.2$1.8 million for deferred loan fees/fee/cost accretion and $2.0 million$232,000 of interest income on PPP loans, compared to $3.8$8.1 million for deferred loan fees/loan/ fee costs accretion and $2.1$1.6 million of interest income during the first ninesix months of 2020.
◦Peoples provided relief solutions to consumer and commercial borrowers, including forbearance and modifications, during the COVID-19 pandemic. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."
◦On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares. This program replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of Peoples' outstanding common shares, which Peoples' Board of Directors had authorized on February 27, 2020 and which was terminated on January 28, 2021. There were no common share repurchases during the first nine months of 2021, under the existing share repurchase program. On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. This program had replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares, which Peoples' Board of Directors had approved on November 3, 2015 and which was terminated on February 27, 2020. During the third quarter of 2020, Peoples repurchased 235,684 of Peoples' common shares through Peoples' then-effective common share repurchase program for a total of $5.0 million. For the first nine months of 2020, Peoples repurchased 1,119,752 in common shares for a total of $25.0 million.
◦During the thirdsecond quarter of 2021,2022, Peoples recorded a provision forrecovery of credit losses of $9.0$0.8 million, compared to a provision forrecovery of credit losses of $3.1$6.8 million in the linked quarter and a provision for credit losses of $4.7$3.1 million in the third quarter of 2020. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. The change in the amount of the provision for credit losses compared to the third quarter of 2020 was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to
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 $148,0002021. For the first half of 2022, Peoples recorded a recovery of credit losses of $7.6 million compared to a recovery of credit losses of $1.7 million for 2021. The release of credit losses for the third quarterfirst two quarters of 2020. These expenses were primarily related2022 was driven by improvements in economic forecasts, coupled with loan payoffs and sales during certain periods. For more information, please refer to providing Peoples' employees mealsthe section titled "RESULTS OF OPERATIONS - (Recovery of) Provision for Credit Losses" found later in support of local businesses and assisting employees with childcare and elder care needs, as well as taking extra precautions in cleaning facilities.this discussion.
◦During the thirdsecond quarter of 2021,2022, Peoples incurred $16.2$0.6 million of acquisition-related expenses, compared to $1.4 million in the first quarter of 2022 and $2.4 million in the second quarter of 2021 and $335,000 in2021. For the third quarterfirst six months of 2020. Acquisition-related2022, Peoples incurred $2.0 million of acquisition-related expenses for the nine months ended September 30, 2021 were $20.5 million, compared to $412,000$4.3 million for the same period last year.2021. The acquisition-related expenses in 2022 were primarily related to the Vantage acquisition, while the 2021 expenses were primarily related to the NSL acquisition and the Premier 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.Merger.
◦In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve firstBoard lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3,in two separate actions in the first quarter of 2020 then lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020. The Federal Funds Target Rateto a range wasof 0% - 0.25% as of March 31, 2020 and maintained this rate as of September 30, 2021.until March 16, 2022. The Federal Reserve Board increased the Federal Funds Target Rate range to 0.25% to 0.50% on March 16, 2022, to 0.75% to 1.00% on May 4, 2022, to 1.50% to 1.75% on June 15, 2022, and has stated it anticipates continuing to raise rates throughout 2022.
The impact of these transactions and events, where material, is discussed in the applicable sections of this MD&A.
EXECUTIVE SUMMARY
Peoples recorded areported net lossincome of $5.8$24.9 million for the thirdsecond quarter of 2021, or $0.282022, representing earnings per diluted common share compared toof $0.88. In comparison, Peoples recognized earnings per diluted common share of $0.84 for the first quarter of 2022, and earnings per diluted common share of $0.51 for the second quarter of 2021. Peoples recorded net income of $10.1$48.5 million, or $0.51$1.72 per diluted common share for the second quarter of 2021, and net income of $10.2six months ended 2022, compared to $25.6 million, or $0.51$1.31 per diluted common share, for the third quarter of 2020.six months ended June 30, 2021. Non-core items, and the related tax effect of each, in net (loss) income primarily included acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses,acquisition and gains and losses on investment securities, asset disposals and other transactions.COVID-related expenses. Non-core items negatively impacted earnings per diluted common share by $0.71$0.02 for the thirdsecond quarter of 2021,2022, $0.04 for the first quarter of 2022, and $0.10 for the second quarter of 2021, and by $0.05 for the third quarter of 2020. Net income in the third quarter of 2021 was largely affected by the acquisition of Premier.
For the first nine months of 2021, net income was $19.8 million, or $0.99 per diluted common share, compared to net income of $14.2 million, or $0.70 per diluted common share, for the nine months ended September 30, 2020. The increase in earnings was impacted primarily by the change in provision for credit losses in 2021 as compared to 2020.2021. Non-core items negatively impacted earnings per diluted common share by $0.98$0.06 and $0.12$0.21 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively.
Net interest income was $42.6 million for the third quarter of 2021, up 7% compared to $39.7$61.5 million for the second quarter of 2021, and2022, an increase of 21%$7.2 million, or 13%, compared to $35.1 million for the third quarter of 2020.linked quarter. Net interest margin was 3.50%3.84% for the thirdsecond quarter of 2021,2022, compared to 3.41% for the linked quarter. The increase in net interest income and net interest margin reflects the positive impact of accretion income, net of amortization expense, coupled with the recent increases in market interest rates, which expanded loan yields by 44 basis points compared to the linked quarter. Net interest income for the second quarter of 2022 increased $21.8 million, or 55%, compared to the second quarter of 2021. Net interest margin increased 39 basis points compared to 3.45% for the second quarter of 2021, and 3.14% for the third quarter of 2020. Compared to the linked quarter and third quarter of 2020,2021. The increase in net interest income and margin were improved duecompared to the growth in leases and premium finance loans, coupled with the partial period impactsecond quarter of the Premier acquisition and lower cost of funds. Net interest income and margin both have been negatively impacted2021 was driven by the excess liquidity environment presentincreases in market interest rates and the financial services sector since the beginningacquisitions of the COVID-19 pandemic by way of increased low yielding cash reserves. Net interest incomePremier and net interest margin continue to be impacted by the low interest rate environment caused by COVID-19 that continued throughout the third quarter of 2021.Vantage. For the first ninesix months of 2021,2022, net interest income increased $13.2$40.5 million, or 13%54%, compared to the first ninesix months of 2020,2021, while net interest margin increased 1427 basis points to 3.41%3.63%. The changeincrease in net interest income was driven by the resultacquisitions 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 loansPremier and leases due to the Premier, NSLVantage, core growth, and Premium Finance acquisitions.
an increase in market interest rates. Accretion income, net of amortization expense, from acquisitions was $1.0$3.9 million for the thirdsecond quarter of 2021,2022, $2.7 million for the first quarter of 2022 and $0.8 million for the second quarter of 2021, and $0.5 million for the third quarter of 2020, which added 825 basis points, 717 basis points and 57 basis points, respectively, to net interest margin. The increase in accretion income for the current quarter was a result of the acquisition of Vantage. Accretion income, net of amortization expense, from acquisitions was $2.2$6.7 million for the ninesix months ended SeptemberJune 30, 2021,2022, compared to $2.6$1.2 million for the ninesix months ended SeptemberJune 30, 2020,2021, which added 621 and 86 basis points, respectively, to net interest margin. The increase in accretion income for the first six months of 2022 compared to 2021 was a result of the acquisitions of NSL, Premier, and Vantage.
DuringThe recovery of credit losses was $0.8 million for the thirdsecond quarter of 2021, Peoples recorded2022, compared to a provision forrecovery of credit losses of $9.0$6.8 million compared tofor the linked quarter and a provision for credit losses of $3.1 million for the second quarter of 2021 and a provision for2021. The release of credit losses of $4.7 million forin the thirdsecond quarter of 2020.2022 was largely attributable to a reduction in reserves for individually analyzed loans coupled with changes in loss drivers. Net charge-offs for the thirdsecond quarter of 20212022 were $1.6$1.5 million, or 0.18%0.14% of average total loans annualized, compared to net charge-offs of $1.9 million, or 0.17% of average total loans annualized, for the linked quarter and net charge-offs of $0.8 million, or 0.09% of average total loans annualized, for the linkedsecond quarter of 2021. For additional information on credit trends and netthe allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below.
The recovery of credit losses during the first six months of 2022 was $7.6 million, compared to a recovery of credit losses of $1.7 million for the first six months of 2021. Net charge-offs for the first six months of $0.72022 were $3.5 million, or 0.08%0.15% of average total loans annualized, compared to net charge-offs of $1.8 million, or 0.11% annualized, for the third quarterfirst six months of 2020. Net charge-offs for the third quarter2021. The recovery 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 quarterfirst half 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 losses2022 was primarily due to the impact of economic assumptions used in the CECL model, and Peoples' ownwhile the recovery of credit portfolio developments related to COVID-19,losses during the first half of 2021 was impacted by economic assumptions used in the CECL model, offset by the day-one allowancesallowance for credit losses required in connection withfrom the acquisitionsacquisition of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.
The provisionTotal non-interest income, excluding net gains and losses, for credit losses during the first nine monthssecond quarter of 2021 was $7.32022 declined $0.5 million compared to a provision for creditthe linked quarter. The decrease in non-interest income, excluding net gains and losses, was the result of $33.5lower insurance income, which included annual performance-based insurance commissions of $1.3 million forthat are recognized in the first nine months of 2020. Net charge-offs for the first nine months of 2021 were $3.4 million, or 0.13% of average total loans annualized, compared to net charge-offs of $0.9 million, or 0.04% annualized, for the first nine months of 2020. The change in the provision for credit losses compared to the first nine months of 2020 was primarily due to improved economic factors and updated loss drivers and their impact on assumptions used in the CECL model throughout the first nine months of 2021.
For the third quarter of 2021, total non-interesteach year. The decrease was partially offset by an increase of $0.4 million in bank owned life insurance income, increased $0.5which includes $248,000 recognized on a one-time death benefit and an additional $30.0 million or 3%, comparedof new investment in bank owned life insurance policies. Compared to the second quarter of 2021, and decreased $0.4 million, or 3%, from the third quarter of 2020. The rise in non-interest income, compared to the linked quarter was the result of anexcluding net gains and losses, increased $3.4 million. Deposit account service charges increased $1.5 million and electronic banking income increased $1.0 million. The increase in overdraft fees included in deposit account service charges was primarily attributable to overdraft and NSF fees driven by a larger customer base following the Premier Merger. Electronic banking income increased in the second quarter of $0.5 million and a $0.2 million2022 due to an increase in the interchange income recognized on leases related to the early termination of leases and other fees, offsetearned from customers' debit card usage, driven partially by declinescustomers added in trust and investment income, electronic banking income and mortgage banking income. Net losses of $0.5 million realized during the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sales of securities during the third quarter of 2021, compared to net losses of $0.3 million for the linked quarter, and net gains of $26,000 for the third quarter of 2020.Merger.
For the ninefirst six months ended September 30, 2021,of 2022, total non-interest income, excluding gains and losses, increased $1.9$6.2 million, or 19%, compared to the ninefirst six months ended September 30, 2020.of 2021. The increase was driven by higher trustgrowth of $3.0 million, or 73%, in deposit account service charges and investment income, associated with new accounts and increased market values of assets under administration and management, coupled with higher$2.3 million, or 28%, in electronic banking income and $716,000income.
Total non-interest expense increased $18.0decreased $1.7 million, or 45%3%, for the thirdthree months ended June 30, 2022, compared to the linked quarter. The decrease in total non-interest expense for the second quarter of 2021 compared2022 was attributable to decreases in professional fees, acquisition-related expenses, net occupancy and equipment expense, and FDIC insurance premiums. Total non-interest expense in the second and first quarter of 2022 also contained non-core expenses, including acquisition-related expenses of $0.6 million and $1.4 million, respectively. Compared to the second quarter of 2021, and $23.5 million, or 69%, compared to the third quarter of 2020. The increase in total non-interest expense for the third quarter of 2021 compared to the linked quarter wasincreased $10.0 million, or 25%, primarily due to the recognition of $16.5 million of acquisition-related expenses due to the closing of the Premier acquisition during the quarter. Total non-interest expense in the third quarter of 2021 also contained other non-core expenses such as a one-time expense related to contract renewal negotiations of Peoples Bank's core banking systems of $1.9 million, and $0.2 million in COVID-19-related expenses. During the second quarter of 2021, non-core expenses included acquisition-related expenses of $2.4 million and $0.2 million in COVID-19-related expenses. For the third quarter of 2020, non-core expenses included $531,000 of pension settlement charges, $335,000 of acquisition-related expenses, $192,000 of severance expenses and $148,000 of COVID-19-related expenses. Compared to the third quarter of 2020, the increase in total non-interest expense was primarily due to an increase in acquisition-related expenses of $16.2 million, an increase in salaries and employee benefit costs of $6.2$5.7 million, an increase in net occupancy and equipment expense of $1.5 million, an increase in amortization of intangible assets of $0.4$0.7 million, and an increase in FDIC insurance premiums of $0.7 million. TheThose increases in salaries and employee benefit costs and amortization of intangible assets were primarily the result of the acquisitionsPremier Merger and the acquisition of Premier and NSL.the equipment financing business from Vantage.
For the first ninesix months of 2021,ended June 30, 2022, total non-interest expense increased $35.3$23.6 million, or 30%, compared to the same period last year.first six months of 2021. The variance was driven primarily by increasesan increase of $20.5$12.6 million in acquisition-related expenses. The remainder of the increase was largely due to a $7.2 million rise in salaries and employee benefitbenefits costs, which was driven by the added ongoing costs of the recent acquisitions, along with higher sales$3.2 million in net occupancy and incentive compensation from increased production, growthequipment expense, $1.8 million in medical insurance and 401(k) costs, while data processing and software costs also increased $2.1 million. These changes were partially offset by decreases in pension settlement charges and COVID-19-related expenses. Similar to the quarterly comparisons, the acquisitions of Premier, NSL and Premium Finance increased salaries and employee benefit costs, as well as amortization of intangible assets.
Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets, divided by fully tax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses,$1.5 million in electronic banking expense.
The efficiency ratio for the thirdsecond quarter of 20212022 was 94.7%58.8%, compared to 66.8% for the linked quarter, and 68.6% for the second quarter of 2021, and 64.1% for the third quarter of 2020.2021. The change in the efficiency ratio compared to the linked quarter was primarily due to the increases in accretion and market interest rates coupled with decreases in professional fees, acquisition-related expenses, mentioned above.salaries and employee benefits, net occupancy and equipment expense, and FDIC insurance premiums. The efficiency ratio, when adjusted for non-core items, was 63.9%58.0% for the thirdsecond quarter of 2021,2022, compared to 64.8% for the linked quarter and 64.0% for the second quarter of 2021 and 61.8% for the third quarter of 2020.2021. The efficiency ratio for the nine months ended September 30, 2021 was 78.4% compared to 64.4% for the nine months ended September 30, 2020. When adjusted for non-core items, the efficiency ratio was 64.3% foris typically higher in the first nine monthsquarter of
2021 compared the year driven by the higher salaries and employee benefit costs, specifically by higher payroll taxes, employer contributions to 62.4%health savings accounts and stock-based compensation expenses for the first nine months of 2020.certain employees. Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.
Peoples recorded an income tax benefitexpense of $2.2$6.8 million for the thirdsecond quarter of 2021,2022, compared to income tax expense of $6.0 million for the linked quarter and 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 thirdsecond quarter of 2021. The increase in income tax expense for the ninesecond quarter of 2022, compared to income tax expense for the linked quarter, was due to an increase its pre-tax income and increase in the effective tax rates. The increase in income tax expense for the three months ended SeptemberJune 30, 2021,2022, compared to the ninethree months ended SeptemberJune 30, 2020,2021, was due tolargely driven by higher pre-tax income.income and increased effective tax rates.
At SeptemberJune 30, 2021,2022, total assets were $7.06$7.28 billion, compared to $7.06 billion at December 31, 2021 and $5.07 billion at June 30, 2021 and $4.76 billion at2021. The growth in total assets of 3% compared to December 31, 2020. Total assets grew 39%2021 was largely attributable to the Vantage acquisition, which added $157.5 million in leases as of the acquisition date. The 44% increase compared to June 30, 2021 was driven primarily by $1.1 billion of loans and was largely attributable to$0.6 billion of investment securities added in the Premier acquisition, which added $1.1 billion in loans, $563.3 million in investment securities, andMerger as of 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,merger date, along with the $83.3 million of leases acquired from NSL, subsequent growth in leasesVantage 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.$157.5 million. The allowance for credit losses at SeptemberJune 30, 2021 increased2022 decreased to $77.4$52.4 million, or 1.72%1.14% of total loans, primarily driven by due to continued improvement in economic factors and changes in loss drivers used in the CECL model, compared to $50.4$64.0 million and 1.48%1.43%, respectively, at December 31, 2020. Total assets increased $2.0 billion, or 39%2021, and $47.9 million and 1.42%, compared to the linked quarter. The increase was a result of the Premier acquisition.respectively, at June 30, 2021.
Total liabilities were $6.23$6.49 billion at SeptemberJune 30, 2021,2022, up from $6.22 billion at December 31, 2021 and $4.48 billion at June 30, 2021 and $4.19 billion at December 31, 2020.2021. The increase in total liabilities compared to June 30,December 31, 2021 was primarily due to deposits acquiredincreases of $110.8 million in governmental deposit accounts and $43.3 million in savings accounts, and $74.6 million of long-term borrowings assumed from Premier of $1.8 billion, as well as retail repurchase agreements of $63.8 million.Vantage. 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 SeptemberJune 30, 2021 totalwere $1.82 billion in deposits acquired in the Premier Merger.
Total stockholders' equity was $831.9at June 30, 2022 decreased by $21.5 million compared to March 31, 2022, which reflected an increaseother comprehensive loss of $256.2$30.7 million and dividends paid of $10.8 million, partially offset by net income for the quarter of $24.9 million. Total stockholders' equity at June 30, 2022 decreased by $58.2 million compared to December 31, 2020. The increase in total stockholders' equity2021, which 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 paiddue to shareholders and the change in accumulated other comprehensive income to an accumulated other comprehensive loss of $7.2 million.$81.7 million and dividends paid of $20.9 million, partially offset by net income of $48.5 million for the first six months of 2022. The other comprehensive losses were the result of the changes in the market value of available-for-sale investment securities, which were driven by changes in market interest rates.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Federal Reserve’s monetary policy, the level and degree of pricing competition for loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.
Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on
obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 22.3%23.3% for 20212022 and using a statutory federal corporate income tax rate of 21% for 2020.2021.
The following table details the calculation of FTE net interest income:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Net interest income | Net interest income | $ | 42,578 | | $ | 39,660 | | $ | 35,119 | | | $ | 117,816 | | $ | 104,615 | | Net interest income | $ | 61,468 | | $ | 54,310 | | $ | 39,660 | | | $ | 115,778 | | $ | 75,238 | |
Taxable equivalent adjustment | Taxable equivalent adjustment | 351 | | 324 | | 262 | | | 970 | | 803 | | Taxable equivalent adjustment | 414 | | 391 | | 324 | | | 806 | | 578 | |
Fully tax-equivalent net interest income | Fully tax-equivalent net interest income | $ | 42,929 | | $ | 39,984 | | $ | 35,381 | | | $ | 118,786 | | $ | 105,418 | | Fully tax-equivalent net interest income | $ | 61,882 | | $ | 54,701 | | $ | 39,984 | | | $ | 116,584 | | $ | 75,816 | |
The following tables detail Peoples’ average balance sheets for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| September 30, 2021 | | June 30, 2021 | | September 30, 2020 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 199,007 | | $ | 82 | | 0.16 | % | | $ | 180,730 | | $ | 53 | | 0.12 | % | | $ | 97,430 | | $ | 33 | | 0.13 | % |
| | | | | | | | | | | |
Investment securities (a)(b): | | | | | | | | | | | |
Taxable | 979,278 | | 3,799 | | 1.55 | % | | 883,948 | | 3,217 | | 1.45 | % | | 851,092 | | 2,832 | | 1.33 | % |
Nontaxable | 173,459 | | 1,136 | | 2.62 | % | | 168,015 | | 1,095 | | 2.61 | % | | 101,403 | | 778 | | 3.07 | % |
Total investment securities | 1,152,737 | | 4,935 | | 1.71 | % | | 1,051,963 | | 4,312 | | 1.64 | % | | 952,495 | | 3,610 | | 1.52 | % |
Loans (b)(c): | | | | | | | | | | | |
Construction | 125,178 | | 1,196 | | 3.74 | % | | 87,075 | | 979 | | 4.45 | % | | 105,488 | | 1,179 | | 4.37 | % |
Commercial real estate, other | 993,259 | | 9,507 | | 3.75 | % | | 916,604 | | 8,829 | | 3.81 | % | | 857,830 | | 8,854 | | 4.04 | % |
Commercial and industrial | 789,555 | | 8,933 | | 4.43 | % | | 887,756 | | 9,241 | | 4.12 | % | | 1,047,105 | | 8,145 | | 3.04 | % |
Premium finance | 122,828 | | 1,542 | | 4.91 | % | | 108,387 | | 1,298 | | 4.74 | % | | 92,533 | | 1,871 | | 7.91 | % |
Leases | 97,068 | | 4,810 | | 19.39 | % | | 86,519 | | 4,215 | | 19.27 | % | | — | | — | | — | % |
Residential real estate (d) | 652,184 | | 6,648 | | 4.08 | % | | 607,691 | | 6,429 | | 4.23 | % | | 661,694 | | 7,870 | | 4.76 | % |
Home equity lines of credit | 126,888 | | 1,271 | | 3.97 | % | | 119,354 | | 1,180 | | 3.97 | % | | 125,351 | | 1,278 | | 4.06 | % |
Consumer, indirect | 541,329 | | 5,509 | | 4.04 | % | | 529,180 | | 5,313 | | 4.03 | % | | 477,962 | | 5,103 | | 4.25 | % |
Consumer, direct | 86,935 | | 1,385 | | 6.32 | % | | 80,409 | | 1,272 | | 6.35 | % | | 82,139 | | 1,332 | | 6.45 | % |
Total loans | 3,535,224 | | 40,801 | | 4.55 | % | | 3,422,975 | | 38,756 | | 4.50 | % | | 3,450,102 | | 35,632 | | 4.08 | % |
Allowance for credit losses | (51,610) | | | | | (46,967) | | | | | (56,519) | | | |
Net loans | 3,483,614 | | 40,801 | | 4.61 | % | | 3,376,008 | | 38,756 | | 4.56 | % | | 3,393,583 | | 35,632 | | 4.14 | % |
Total earning assets | 4,835,358 | | 45,818 | | 3.74 | % | | 4,608,701 | | 43,121 | | 3.72 | % | | 4,443,508 | | 39,275 | | 3.49 | % |
Goodwill and other intangible assets | 232,361 | | | | | 222,553 | | | | | 185,816 | | | |
Other assets | 407,428 | | | | | 351,892 | | | | | 277,290 | | | |
Total assets | $ | 5,475,147 | | | | | $ | 5,183,146 | | | | | $ | 4,906,614 | | | |
Interest-bearing deposits: | | | | | | | | | | | |
Savings accounts | $ | 737,771 | | $ | 23 | | 0.01 | % | | $ | 680,825 | | $ | 21 | | 0.01 | % | | $ | 589,100 | | $ | 34 | | 0.02 | % |
Governmental deposit accounts | 542,855 | | 458 | | 0.33 | % | | 496,906 | | 551 | | 0.44 | % | | 398,653 | | 511 | | 0.51 | % |
Interest-bearing demand accounts | 795,565 | | 74 | | 0.04 | % | | 733,913 | | 66 | | 0.04 | % | | 671,987 | | 66 | | 0.04 | % |
Money market accounts | 533,497 | | 67 | | 0.05 | % | | 564,593 | | 94 | | 0.07 | % | | 589,078 | | 216 | | 0.15 | % |
Retail certificates of deposit (e) | 457,073 | | 951 | | 0.83 | % | | 424,279 | | 980 | | 0.93 | % | | 467,431 | | 1,524 | | 1.30 | % |
Brokered deposits (e) | 155,779 | | 826 | | 2.10 | % | | 167,109 | | 865 | | 2.08 | % | | 258,875 | | 318 | | 0.49 | % |
Total interest-bearing deposits | 3,222,540 | | 2,399 | | 0.30 | % | | 3,067,625 | | 2,577 | | 0.34 | % | | 2,975,124 | | 2,669 | | 0.36 | % |
Borrowed funds: | | | | | | | | | | | |
Short-term FHLB advances | 17,174 | | 78 | | 1.80 | % | | 19,176 | | 81 | | 1.69 | % | | 137,174 | | 732 | | 2.12 | % |
Repurchase agreements and other | 63,226 | | 13 | | 0.08 | % | | 50,852 | | 11 | | 0.09 | % | | 43,184 | | 10 | | 0.09 | % |
Total short-term borrowings | 80,400 | | 91 | | 0.45 | % | | 70,028 | | 92 | | 0.53 | % | | 180,358 | | 742 | | 1.64 | % |
Long-term FHLB advances | 86,561 | | 316 | | 1.45 | % | | 101,161 | | 392 | | 1.55 | % | | 103,906 | | 402 | | 1.54 | % |
| | | | | | | | | | | |
Other borrowings | 8,470 | | 83 | | 3.92 | % | | 7,669 | | 76 | | 3.96 | % | | 7,551 | | 81 | | 4.29 | % |
Total long-term borrowings | 95,031 | | 399 | | 1.67 | % | | 108,830 | | 468 | | 1.72 | % | | 111,457 | | 483 | | 1.73 | % |
Total borrowed funds | 175,431 | | 490 | | 1.11 | % | | 178,858 | | 560 | | 1.26 | % | | 291,815 | | 1,225 | | 1.67 | % |
Total interest-bearing liabilities | 3,397,971 | | 2,889 | | 0.34 | % | | 3,246,483 | | 3,137 | | 0.39 | % | | 3,266,939 | | 3,894 | | 0.47 | % |
Non-interest-bearing deposits | 1,358,652 | | | | | 1,272,623 | | | | | 970,353 | | | |
Other liabilities | 90,741 | | | | | 82,209 | | | | | 102,267 | | | |
Total liabilities | 4,847,364 | | | | | 4,601,315 | | | | | 4,339,559 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total stockholders’ equity | 627,783 | | | | | 581,831 | | | | | 567,055 | | | |
Total liabilities and stockholders’ equity | $ | 5,475,147 | | | | | $ | 5,183,146 | | | | | $ | 4,906,614 | | | |
Interest rate spread (b) | | $ | 42,929 | | 3.40 | % | | | $ | 39,984 | | 3.33 | % | | | $ | 35,381 | | 3.02 | % |
Net interest margin (b) | 3.50 | % | | | | 3.45 | % | | | | 3.14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| June 30, 2022 | | March 31, 2022 | | June 30, 2021 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 182,456 | | $ | 299 | | 0.66 | % | | $ | 332,098 | | $ | 160 | | 0.20 | % | | $ | 180,730 | | $ | 53 | | 0.12 | % |
| | | | | | | | | | | |
Investment securities (a)(b): | | | | | | | | | | | |
Taxable | 1,515,647 | | 7,014 | | 1.85 | % | | 1,465,998 | | 6,096 | | 1.66 | % | | 883,948 | | 3,217 | | 1.45 | % |
Nontaxable | 193,112 | | 1,344 | | 2.78 | % | | 204,381 | | 1,316 | | 2.58 | % | | 168,015 | | 1,095 | | 2.61 | % |
Total investment securities | 1,708,759 | | 8,358 | | 1.96 | % | | 1,670,379 | | 7,412 | | 1.78 | % | | 1,051,963 | | 4,312 | | 1.64 | % |
Loans (b)(c): | | | | | | | | | | | |
Construction | 209,822 | | 2,216 | | 4.18 | % | | 225,676 | | 2,155 | | 3.82 | % | | 87,075 | | 979 | | 4.45 | % |
Commercial real estate, other | 1,353,201 | | 15,599 | | 4.56 | % | | 1,362,434 | | 14,782 | | 4.34 | % | | 916,604 | | 8,829 | | 3.81 | % |
Commercial and industrial | 864,023 | | 8,715 | | 3.99 | % | | 888,598 | | 8,023 | | 3.61 | % | | 887,756 | | 9,241 | | 4.12 | % |
Premium finance | 143,898 | | 1,778 | | 4.89 | % | | 132,758 | | 1,164 | | 3.51 | % | | 108,387 | | 1,298 | | 4.74 | % |
Leases | 288,360 | | 10,541 | | 14.46 | % | | 162,277 | | 6,102 | | 15.04 | % | | 86,519 | | 4,215 | | 19.27 | % |
Residential real estate (d) | 888,809 | | 9,326 | | 4.20 | % | | 913,730 | | 9,766 | | 4.28 | % | | 607,691 | | 6,429 | | 4.23 | % |
Home equity lines of credit | 167,935 | | 1,748 | | 4.17 | % | | 163,339 | | 1,612 | | 4.00 | % | | 119,354 | | 1,180 | | 3.97 | % |
Consumer, indirect | 541,135 | | 5,243 | | 3.89 | % | | 523,770 | | 5,045 | | 3.91 | % | | 529,180 | | 5,313 | | 4.03 | % |
Consumer, direct | 111,541 | | 1,647 | | 5.92 | % | | 106,298 | | 1,595 | | 6.09 | % | | 80,409 | | 1,272 | | 6.35 | % |
Total loans | 4,568,724 | | 56,813 | | 4.94 | % | | 4,478,880 | | 50,244 | | 4.50 | % | | 3,422,975 | | 38,756 | | 4.50 | % |
Allowance for credit losses | (54,148) | | | | | (61,947) | | | | | (46,967) | | | |
Net loans | 4,514,576 | | 56,813 | | 5.00 | % | | 4,416,933 | | 50,244 | | 4.56 | % | | 3,376,008 | | 38,756 | | 4.56 | % |
Total earning assets | 6,405,791 | | 65,470 | | 4.06 | % | | 6,419,410 | | 57,816 | | 3.61 | % | | 4,608,701 | | 43,121 | | 3.72 | % |
Goodwill and other intangible assets | 329,243 | | | | | 304,124 | | | | | 222,553 | | | |
Other assets | 386,629 | | | | | 344,282 | | | | | 351,892 | | | |
Total assets | $ | 7,121,663 | | | | | $ | 7,067,816 | | | | | $ | 5,183,146 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| June 30, 2022 | | March 31, 2022 | | June 30, 2021 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Interest-bearing deposits: | | | | | | | | | | | |
Savings accounts | $ | 1,076,028 | | $ | 45 | | 0.02 | % | | $ | 1,050,813 | | $ | 34 | | 0.01 | % | | $ | 680,825 | | $ | 21 | | 0.01 | % |
Governmental deposit accounts | 704,632 | | 471 | | 0.27 | % | | 670,419 | | 447 | | 0.27 | % | | 496,906 | | 551 | | 0.44 | % |
Interest-bearing demand accounts | 1,177,751 | | 115 | | 0.04 | % | | 1,171,266 | | 92 | | 0.03 | % | | 733,913 | | 66 | | 0.04 | % |
Money market accounts | 641,066 | | 104 | | 0.07 | % | | 650,272 | | 97 | | 0.06 | % | | 564,593 | | 94 | | 0.07 | % |
Retail certificates of deposit | 602,225 | | 747 | | 0.50 | % | | 626,978 | | 871 | | 0.56 | % | | 424,279 | | 980 | | 0.93 | % |
Brokered deposits (e) | 87,006 | | 532 | | 2.45 | % | | 91,531 | | 512 | | 2.27 | % | | 167,109 | | 865 | | 2.08 | % |
Total interest-bearing deposits | 4,288,708 | | 2,014 | | 0.19 | % | | 4,261,279 | | 2,053 | | 0.20 | % | | 3,067,625 | | 2,577 | | 0.34 | % |
Borrowed funds: | | | | | | | | | | | |
Short-term FHLB advances (e) | 53,846 | | 237 | | 1.77 | % | | 55,000 | | 313 | | 2.31 | % | | 19,176 | | 81 | | 1.69 | % |
Repurchase agreements and other | 96,589 | | 24 | | 0.10 | % | | 99,346 | | 25 | | 0.10 | % | | 50,852 | | 11 | | 0.09 | % |
Total short-term borrowings | 150,435 | | 261 | | 0.70 | % | | 154,346 | | 338 | | 0.89 | % | | 70,028 | | 92 | | 0.53 | % |
Long-term FHLB advances | 58,498 | | 257 | | 1.76 | % | | 85,653 | | 306 | | 1.45 | % | | 101,161 | | 392 | | 1.55 | % |
| | | | | | | | | | | |
Other borrowings | 94,097 | | 1,056 | | 4.44 | % | | 43,445 | | 418 | | 3.85 | % | | 7,669 | | 76 | | 3.96 | % |
Total long-term borrowings | 152,595 | | 1,313 | | 3.44 | % | | 129,098 | | 724 | | 2.26 | % | | 108,830 | | 468 | | 1.72 | % |
Total borrowed funds | 303,030 | | 1,574 | | 2.08 | % | | 283,444 | | 1,062 | | 1.51 | % | | 178,858 | | 560 | | 1.26 | % |
Total interest-bearing liabilities | 4,591,738 | | 3,588 | | 0.31 | % | | 4,544,723 | | 3,115 | | 0.28 | % | | 3,246,483 | | 3,137 | | 0.39 | % |
Non-interest-bearing deposits | 1,648,067 | | | | | 1,606,665 | | | | | 1,272,623 | | | |
Other liabilities | 90,457 | | | | | 81,676 | | | | | 82,209 | | | |
Total liabilities | 6,330,262 | | | | | 6,233,064 | | | | | 4,601,315 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total stockholders’ equity | 791,401 | | | | | 834,752 | | | | | 581,831 | | | |
Total liabilities and stockholders’ equity | $ | 7,121,663 | | | | | $ | 7,067,816 | | | | | $ | 5,183,146 | | | |
Interest rate spread (b) | | $ | 61,882 | | 3.75 | % | | | $ | 54,701 | | 3.33 | % | | | $ | 39,984 | | 3.33 | % |
Net interest margin (b) | 3.84 | % | | | | 3.41 | % | | | | 3.45 | % |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | For the Nine Months Ended | | For the Six Months Ended |
| | September 30, 2021 | | September 30, 2020 | | June 30, 2022 | | June 30, 2021 |
(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 | Short-term investments | $ | 175,755 | | $ | 175 | | 0.13 | % | | $ | 111,852 | | $ | 317 | | 0.38 | % | Short-term investments | $ | 256,864 | | $ | 459 | | 0.36 | % | | $ | 163,937 | | $ | 93 | | 0.11 | % |
| Investment securities (a)(b): | Investment securities (a)(b): | | | Investment securities (a)(b): | | |
Taxable | Taxable | 899,531 | | 9,636 | | 1.43 | % | | 894,008 | | 12,448 | | 1.86 | % | Taxable | 1,490,960 | | 13,110 | | 1.76 | % | | 858,999 | | 5,834 | | 1.36 | % |
Nontaxable | Nontaxable | 149,636 | | 3,035 | | 2.70 | % | | 103,827 | | 2,409 | | 3.09 | % | Nontaxable | 198,716 | | 2,661 | | 2.68 | % | | 137,527 | | 1,868 | | 2.72 | % |
Total investment securities | Total investment securities | 1,049,167 | | 12,671 | | 1.61 | % | | 997,835 | | 14,857 | | 1.99 | % | Total investment securities | 1,689,676 | | 15,771 | | 1.87 | % | | 996,526 | | 7,702 | | 1.55 | % |
Loans (b)(c): | Loans (b)(c): | | | Loans (b)(c): | | |
Construction | Construction | 108,859 | | 3,169 | | 3.84 | % | | 108,426 | | 3,656 | | 4.43 | % | Construction | 217,705 | | 4,371 | | 3.99 | % | | 100,565 | | 1,973 | | 3.90 | % |
Commercial real estate, other | Commercial real estate, other | 930,150 | | 26,938 | | 3.82 | % | | 848,202 | | 27,784 | | 4.30 | % | Commercial real estate, other | 1,357,792 | | 30,381 | | 4.45 | % | | 898,072 | | 17,431 | | 3.86 | % |
Commercial and industrial | Commercial and industrial | 872,421 | | 28,773 | | 4.35 | % | | 892,483 | | 24,411 | | 3.59 | % | Commercial and industrial | 876,242 | | 16,738 | | 3.80 | % | | 914,542 | | 19,833 | | 4.31 | % |
Premium finance | Premium finance | 112,925 | | 4,137 | | 4.83 | % | | 31,069 | | 1,871 | | 7.91 | % | Premium finance | 138,359 | | 2,942 | | 4.23 | % | | 107,891 | | 2,595 | | 4.78 | % |
Leases | Leases | 61,551 | | 9,025 | | 19.34 | % | | — | | — | | — | % | Leases | 225,667 | | 16,643 | | 14.67 | % | | 43,499 | | 4,215 | | 19.27 | % |
Residential real estate (d) | Residential real estate (d) | 624,993 | | 19,749 | | 4.21 | % | | 669,852 | | 24,498 | | 4.88 | % | Residential real estate (d) | 901,201 | | 19,092 | | 4.24 | % | | 611,172 | | 13,101 | | 4.29 | % |
Home equity lines of credit | Home equity lines of credit | 122,720 | | 3,638 | | 3.96 | % | | 128,540 | | 4,546 | | 4.72 | % | Home equity lines of credit | 165,649 | | 3,360 | | 4.09 | % | | 120,602 | | 2,367 | | 3.96 | % |
Consumer, indirect | Consumer, indirect | 526,900 | | 16,025 | | 4.07 | % | | 438,784 | | 14,066 | | 4.28 | % | Consumer, indirect | 532,501 | | 10,288 | | 3.90 | % | | 519,566 | | 10,516 | | 4.08 | % |
Consumer, direct | Consumer, direct | 82,151 | | 3,896 | | 6.34 | % | | 78,904 | | 3,978 | | 6.73 | % | Consumer, direct | 108,934 | | 3,242 | | 6.00 | % | | 79,718 | | 2,511 | | 6.35 | % |
Total loans | Total loans | 3,442,670 | | 115,350 | | 4.44 | % | | 3,196,260 | | 104,810 | | 4.34 | % | Total loans | 4,524,050 | | 107,057 | | 4.72 | % | | 3,395,627 | | 74,542 | | 4.38 | % |
Allowance for credit losses | Allowance for credit losses | (49,483) | | | (44,323) | | | Allowance for credit losses | (58,026) | | | (48,403) | | |
Net loans | Net loans | 3,393,187 | | 115,350 | | 4.50 | % | | 3,151,937 | | 104,810 | | 4.40 | % | Net loans | 4,466,024 | | 107,057 | | 4.78 | % | | 3,347,224 | | 74,542 | | 4.45 | % |
Total earning assets | Total earning assets | 4,618,109 | | 128,196 | | 3.68 | % | | 4,261,624 | | 119,984 | | 3.73 | % | Total earning assets | 6,412,564 | | 123,287 | | 3.84 | % | | 4,507,687 | | 82,337 | | 3.65 | % |
Goodwill and other intangible assets | Goodwill and other intangible assets | 213,232 | | | | | 180,291 | | | Goodwill and other intangible assets | 316,753 | | | | | 203,509 | | |
Other assets | Other assets | 360,842 | | | | | 264,238 | | | Other assets | 364,911 | | | | | 337,164 | | |
Total assets | Total assets | $ | 5,192,183 | | | | | $ | 4,706,153 | | | Total assets | $ | 7,094,228 | | | | | $ | 5,048,360 | | |
Interest-bearing deposits: | Interest-bearing deposits: | | | Interest-bearing deposits: | | |
Savings accounts | Savings accounts | $ | 688,782 | | $ | 79 | | 0.02 | % | | $ | 558,514 | | $ | 140 | | 0.03 | % | Savings accounts | $ | 1,063,490 | | $ | 79 | | 0.01 | % | | $ | 663,882 | | $ | 56 | | 0.02 | % |
Governmental deposit accounts | Governmental deposit accounts | 490,170 | | 1,602 | | 0.44 | % | | 366,139 | | 1,671 | | 0.61 | % | Governmental deposit accounts | 687,620 | | 919 | | 0.27 | % | | 463,391 | | 1,145 | | 0.50 | % |
Interest-bearing demand accounts | Interest-bearing demand accounts | 743,562 | | 205 | | 0.04 | % | | 652,198 | | 385 | | 0.08 | % | Interest-bearing demand accounts | 1,174,526 | | 207 | | 0.04 | % | | 717,129 | | 131 | | 0.04 | % |
Money market accounts | Money market accounts | 554,194 | | 294 | | 0.07 | % | | 547,291 | | 1,271 | | 0.31 | % | Money market accounts | 645,644 | | 201 | | 0.06 | % | | 564,714 | | 226 | | 0.08 | % |
Retail certificates of deposit (e) | Retail certificates of deposit (e) | 440,454 | | 3,054 | | 0.93 | % | | 479,185 | | 5,453 | | 1.52 | % | Retail certificates of deposit (e) | 614,533 | | 1,617 | | 0.53 | % | | 432,006 | | 2,103 | | 0.98 | % |
Brokered deposits (e) | Brokered deposits (e) | 166,000 | | 2,559 | | 2.06 | % | | 214,516 | | 1,662 | | 1.03 | % | Brokered deposits (e) | 89,256 | | 1,044 | | 2.36 | % | | 171,194 | | 1,733 | | 2.04 | % |
Total interest-bearing deposits | Total interest-bearing deposits | 3,083,162 | | 7,793 | | 0.34 | % | | 2,817,843 | | 10,582 | | 0.50 | % | Total interest-bearing deposits | 4,275,069 | | 4,067 | | 0.19 | % | | 3,012,316 | | 5,394 | | 0.36 | % |
Borrowed funds: | Borrowed funds: | | | Borrowed funds: | | |
Short-term FHLB advances(e) | Short-term FHLB advances(e) | 18,773 | | 246 | | 1.75 | % | | 160,287 | | 2,285 | | 1.90 | % | Short-term FHLB advances(e) | 54,420 | | 550 | | 2.04 | % | | 19,586 | | 169 | | 1.74 | % |
Repurchase agreements and other | Repurchase agreements and other | 55,100 | | 37 | | 0.09 | % | | 45,613 | | 70 | | 0.26 | % | Repurchase agreements and other | 97,960 | | 49 | | 0.10 | % | | 50,969 | | 23 | | 0.09 | % |
Total short-term borrowings | Total short-term borrowings | 73,873 | | 283 | | 0.51 | % | | 205,900 | | 2,355 | | 1.54 | % | Total short-term borrowings | 152,380 | | 599 | | 0.79 | % | | 70,555 | | 192 | | 0.55 | % |
Long-term FHLB advances | Long-term FHLB advances | 96,765 | | 1,099 | | 1.52 | % | | 109,536 | | 1,341 | | 1.64 | % | Long-term FHLB advances | 72,001 | | 563 | | 1.58 | % | | 101,952 | | 782 | | 1.55 | % |
| Repurchase agreement and other borrowings | Repurchase agreement and other borrowings | 7,926 | | 235 | | 3.95 | % | | 9,148 | | 288 | | 5.40 | % | Repurchase agreement and other borrowings | 68,911 | | 1,474 | | 4.25 | % | | 7,650 | | 153 | | 4.00 | % |
Total long-term borrowings | Total long-term borrowings | 104,691 | | 1,334 | | 1.70 | % | | 118,684 | | 1,629 | | 1.93 | % | Total long-term borrowings | 140,912 | | 2,037 | | 2.90 | % | | 109,602 | | 935 | | 1.72 | % |
Total borrowed funds | Total borrowed funds | 178,564 | | 1,617 | | 1.21 | % | | 324,584 | | 3,984 | | 1.64 | % | Total borrowed funds | 293,292 | | 2,636 | | 1.80 | % | | 180,157 | | 1,127 | | 1.26 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 3,261,726 | | 9,410 | | 0.39 | % | | 3,142,427 | | 14,566 | | 0.62 | % | Total interest-bearing liabilities | 4,568,361 | | 6,703 | | 0.29 | % | | 3,192,473 | | 6,521 | | 0.41 | % |
Non-interest-bearing deposits | Non-interest-bearing deposits | 1,248,330 | | | | 892,301 | | | Non-interest-bearing deposits | 1,627,480 | | | | 1,192,254 | | |
Other liabilities | Other liabilities | 86,209 | | | | | 92,986 | | | Other liabilities | 85,431 | | | | | 83,912 | | |
Total liabilities | Total liabilities | 4,596,265 | | | | 4,127,714 | | | Total liabilities | 6,281,272 | | | | 4,468,639 | | |
| Stockholders’ equity | 595,918 | | | | | 578,439 | | | |
Total stockholders’ equity | | Total stockholders’ equity | 812,956 | | | | | 579,721 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 5,192,183 | | | | | $ | 4,706,153 | | | Total liabilities and stockholders’ equity | $ | 7,094,228 | | | | | $ | 5,048,360 | | |
Interest rate spread (b) | Interest rate spread (b) | | $ | 118,786 | | 3.29 | % | | $ | 105,418 | | 3.11 | % | Interest rate spread (b) | | $ | 116,584 | | 3.55 | % | | $ | 75,816 | | 3.24 | % |
Net interest margin (b) | Net interest margin (b) | | | 3.41 | % | | | 3.27 | % | Net interest margin (b) | | | 3.63 | % | | | 3.36 | % |
(a)Average balances are based on carrying value.
(b)Interest income and yields are presented on a fully tax-equivalent basis using a blended federal and state corporate income tax rate of 22.3%23.3% for 20212022 and a statutory federal corporate income tax rate of 21% for 2020.2021.
(c)Average balances include nonaccrual and impaired loans. Interest income includes interest earned and received on nonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for all periods presented.
(d)Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.
(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 ofPeoples' average balances compared to prior periods have been impacted by recent acquisitions, which included: (i) Vantage on March 7, 2022, which added to average lease and borrowed funds balances; (ii) Premier on September 17, 2021, which impactedadded to average short-term investments, average total loan and deposit balances for the partial period in which the balances were included for the third quarter of 2021. Compared to the third quarter of 2020,investment securities, average total loans grew mostlyand average total deposits; and (iii) NSL on April 1, 2021, which added to average lease balances. Peoples has maintained high cash balances in recent periods due to the leases acquired. Compared to the third quarter of 2020, average total deposit balances grew significantly due to thean influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers.
In addition, average total loan balances for the first nine months of 2021 were higher than the prior year period due to the lease, Premium Finance and Premier balances acquired,deposits, coupled with the PPP loans originated since the start of the pandemic and loan growth. The average total deposit balances compared to 2020 grew considerably due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers, while the Premier acquired balances had a minimal impact on the period.proceeds.
The following table provides an analysis of the changes in FTE net interest income:
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| Three Months Ended September 30, 2021 Compared to | | Nine Months Ended September 30, 2021 Compared to |
(Dollars in thousands) | June 30, 2021 | | September 30, 2020 | | September 30, 2020 |
Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) |
INTEREST INCOME: | | | | | | | | | | | |
Short-term investments | $ | 22 | | $ | 7 | | $ | 29 | | | $ | 9 | | $ | 41 | | $ | 50 | | | $ | (314) | | $ | 172 | | $ | (142) | |
| | | | | | | | | | | |
Investment Securities (b): | | | | | | | | | | | |
Taxable | 224 | | 358 | | 582 | | | 506 | | 461 | | 967 | | | (2,939) | | 127 | | (2,812) | |
Nontaxable | 4 | | 37 | | 41 | | | (695) | | 1,053 | | 358 | | | (489) | | 1,115 | | 626 | |
Total investment income | 228 | | 395 | | 623 | | | (189) | | 1,514 | | 1,325 | | | (3,428) | | 1,242 | | (2,186) | |
Loans (b): | | | | | | | | | | | |
Construction | (848) | | 1,065 | | 217 | | | (746) | | 763 | | 17 | | | (510) | | 23 | | (487) | |
Commercial real estate, other | (883) | | 1,561 | | 678 | | | (3,242) | | 3,895 | | 653 | | | (4,252) | | 3,406 | | (846) | |
Commercial and industrial | 3,146 | | (3,454) | | (308) | | | 10,684 | | (9,896) | | 788 | | | 5,242 | | (880) | | 4,362 | |
Premium finance | 52 | | 192 | | 244 | | | (2,749) | | 2,420 | | (329) | | | (1,379) | | 3,645 | | 2,266 | |
Leases | 28 | | 567 | | 595 | | | — | | 4,810 | | 4,810 | | | — | | 9,025 | | 9,025 | |
Residential real estate | (1,179) | | 1,398 | | 219 | | | (1,110) | | (112) | | (1,222) | | | (3,182) | | (1,567) | | (4,749) | |
Home equity lines of credit | 3 | | 88 | | 91 | | | (84) | | 77 | | (7) | | | (709) | | (199) | | (908) | |
Consumer, indirect | 20 | | 176 | | 196 | | | (1,347) | | 1,753 | | 406 | | | (1,121) | | 3,080 | | 1,959 | |
Consumer, direct | (33) | | 146 | | 113 | | | (176) | | 229 | | 53 | | | (320) | | 238 | | (82) | |
Total loan income | 306 | | 1,739 | | 2,045 | | | 1,230 | | 3,939 | | 5,169 | | | (6,231) | | 16,771 | | 10,540 | |
Total interest income | $ | 556 | | $ | 2,141 | | $ | 2,697 | | | $ | 1,050 | | $ | 5,494 | | $ | 6,544 | | | $ | (9,973) | | $ | 18,185 | | $ | 8,212 | |
INTEREST EXPENSE: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Savings accounts | $ | — | | $ | 2 | | $ | 2 | | | $ | (51) | | $ | 40 | | $ | (11) | | | $ | (104) | | $ | 43 | | $ | (61) | |
Governmental deposit accounts | (365) | | 272 | | (93) | | | (742) | | 689 | | (53) | | | (720) | | 651 | | (69) | |
Interest-bearing demand accounts | 2 | | 6 | | 8 | | | (21) | | 29 | | 8 | | | (257) | | 77 | | (180) | |
Money market accounts | (22) | | (5) | | (27) | | | (131) | | (17) | | (148) | | | (1,002) | | 48 | | (954) | |
Retail certificates of deposit | (372) | | 343 | | (29) | | | (540) | | (33) | | (573) | | | (1,987) | | (412) | | (2,399) | |
Brokered deposits | 71 | | (110) | | (39) | | | 1,351 | | (844) | | 507 | | | 1,548 | | (674) | | 874 | |
Total deposit cost | (686) | | 508 | | (178) | | | (134) | | (136) | | (270) | | | (2,522) | | (267) | | (2,789) | |
Borrowed funds: | | | | | | | | | | | |
Short-term borrowings | 22 | | (23) | | (1) | | | (102) | | (549) | | (651) | | | (221) | | (1,851) | | (2,072) | |
Long-term borrowings | (30) | | (39) | | (69) | | | (55) | | (29) | | (84) | | | (109) | | (186) | | (295) | |
Total borrowed funds cost | (8) | | (62) | | (70) | | | (157) | | (578) | | (735) | | | (330) | | (2,037) | | (2,367) | |
Total interest expense | (694) | | 446 | | (248) | | | (291) | | (714) | | (1,005) | | | (2,852) | | (2,304) | | (5,156) | |
Fully tax-equivalent net interest income | $ | 1,250 | | $ | 1,695 | | $ | 2,945 | | | $ | 1,341 | | $ | 6,208 | | $ | 7,549 | | | $ | (7,121) | | $ | 20,489 | | $ | 13,368 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Three Months Ended June 30, 2022 Compared to | | Six Months Ended June 30, 2022 Compared to |
(Dollars in thousands) | March 31, 2022 | | June 30, 2021 | | June 30, 2021 |
Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) |
INTEREST INCOME: | | | | | | | | | | | |
Short-term investments | $ | 598 | | $ | (459) | | $ | 139 | | | $ | 255 | | $ | (9) | | $ | 246 | | | $ | 277 | | $ | 89 | | $ | 366 | |
| | | | | | | | | | | |
Investment Securities (b): | | | | | | | | | | | |
Taxable | 706 | | 212 | | 918 | | | 1,052 | | 2,745 | | 3,797 | | | (8,752) | | 16,028 | | 7,276 | |
Nontaxable | 362 | | (334) | | 28 | | | 77 | | 172 | | 249 | | | (3,065) | | 3,858 | | 793 | |
Total investment income | 1,068 | | (122) | | 946 | | | 1,129 | | 2,917 | | 4,046 | | | (11,817) | | 19,886 | | 8,069 | |
Loans (b): | | | | | | | | | | | |
Construction | 728 | | (667) | | 61 | | | (400) | | 1,637 | | 1,237 | | | 47 | | 2,351 | | 2,398 | |
Commercial real estate, other | 1,428 | | (611) | | 817 | | | 1,978 | | 4,792 | | 6,770 | | | 2,977 | | 9,973 | | 12,950 | |
Commercial and industrial | 1,953 | | (1,261) | | 692 | | | (283) | | (243) | | (526) | | | (2,290) | | (805) | | (3,095) | |
Premium finance | 506 | | 108 | | 614 | | | 41 | | 439 | | 480 | | | (747) | | 1,094 | | 347 | |
Leases | (1,583) | | 6,022 | | 4,439 | | | (6,910) | | 13,236 | | 6,326 | | | (3,119) | | 15,547 | | 12,428 | |
Residential real estate | (177) | | (263) | | (440) | | | (364) | | 3,261 | | 2,897 | | | (455) | | 6,446 | | 5,991 | |
Home equity lines of credit | 82 | | 54 | | 136 | | | 65 | | 503 | | 568 | | | 82 | | 911 | | 993 | |
Consumer, indirect | (157) | | 355 | | 198 | | | (627) | | 557 | | (70) | | | (830) | | 602 | | (228) | |
Consumer, direct | (206) | | 258 | | 52 | | | (525) | | 900 | | 375 | | | (418) | | 1,149 | | 731 | |
Total loan income | 2,574 | | 3,995 | | 6,569 | | | (7,025) | | 25,082 | | 18,057 | | | (4,753) | | 37,268 | | 32,515 | |
Total interest income | $ | 4,240 | | $ | 3,414 | | $ | 7,654 | | | $ | (5,641) | | $ | 27,990 | | $ | 22,349 | | | $ | (16,293) | | $ | 57,243 | | $ | 40,950 | |
INTEREST EXPENSE: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Savings accounts | $ | 10 | | $ | 1 | | $ | 11 | | | $ | 9 | | $ | 15 | | $ | 24 | | | $ | (18) | | $ | 41 | | $ | 23 | |
Governmental deposit accounts | (23) | | 47 | | 24 | | | (939) | | 859 | | (80) | | | (1,198) | | 972 | | (226) | |
Interest-bearing demand accounts | 22 | | 1 | | 23 | | | 6 | | 43 | | 49 | | | (13) | | 89 | | 76 | |
Money market accounts | 16 | | (9) | | 7 | | | (15) | | 25 | | 10 | | | (94) | | 69 | | (25) | |
Retail certificates of deposit | (93) | | (31) | | (124) | | | (1,853) | | 1,620 | | (233) | | | (2,120) | | 1,634 | | (486) | |
Brokered deposits | 140 | | (120) | | 20 | | | 821 | | (1,154) | | (333) | | | 651 | | (1,340) | | (689) | |
Total deposit cost | 72 | | (111) | | (39) | | | (1,971) | | 1,408 | | (563) | | | (2,792) | | 1,465 | | (1,327) | |
Borrowed funds: | | | | | | | | | | | |
Short-term borrowings | (70) | | (7) | | (77) | | | 6 | | 163 | | 169 | | | 36 | | 371 | | 407 | |
Long-term borrowings | 372 | | 217 | | 589 | | | 293 | | 552 | | 845 | | | (413) | | 1,515 | | 1,102 | |
Total borrowed funds cost | 302 | | 210 | | 512 | | | 299 | | 715 | | 1,014 | | | (377) | | 1,886 | | 1,509 | |
Total interest expense | 374 | | 99 | | 473 | | | (1,672) | | 2,123 | | 451 | | | (3,169) | | 3,351 | | 182 | |
Fully tax-equivalent net interest income | $ | 3,866 | | $ | 3,315 | | $ | 7,181 | | | $ | (3,969) | | $ | 25,867 | | $ | 21,898 | | | $ | (13,124) | | $ | 53,892 | | $ | 40,768 | |
(a)The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the dollar amounts of the change in each.
(b)Interest income and yields are presented on a fully tax-equivalent basis using a blended federal and state corporate income tax rate of 22.3%23.3% for 20212022 and a statutory federal corporate income tax rate of 21% for 2020.2021.
Compared to the linked quarter, net interest income increased 13% and net interest margin expanded by 43 basis points. Both increases were driven higher by accretion income from acquisitions and the recent rise in market interest rates. Loan yields grew by
44 basis points, of which 34 basis points was attributable to higher accretion income. Deposit costs remained stable, while borrowing costs increased by 57 basis points and was mostly related to the acquired borrowings from the Vantage acquisition.
Net interest income grew 7%55% over the prior year quarter and net interest margin increased 39 basis points. The recent acquisitions have positively impacted net interest income, coupled with organic growth and the increase in market interest rates. During the second quarter of 2022, compared to the linkedprior year quarter, benefiting fromloan yields grew 44 basis points due to the Premierrising interest rate environment, while deposit costs declined 15 basis points driven by a reduction in higher-interest bearing deposits, and borrowing costs increased 82 basis points as a result of the non-recourse debt assumed in the acquisition growthof Vantage.
For the first half of 2022, net interest income and net interest margin grew 54% and 27 basis points, respectively, compared to 2021. During that same time, loan yields increased 34 basis points, which was partially offset by higher borrowing costs. Net interest income has been positively impacted due to the acquisitions in leases and Premium Finance balances, and the overall growth in interest-earning assets, coupled with lower deposit costs.recent periods. 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 associated with PPP loans of $3.1$0.6 million, $1.2 million and $3.4 million during the thirdsecond and first quarters of 2022 and the second quartersquarter of 2021, respectively, along with $0.4 million$79,000, $154,000, and $0.7$0.8 million of interest earned on PPP loans, during the thirdrespective periods. For the first half of 2022, interest income recognized on deferred loan fees/costs related to PPP loans was $1.8 million, and second quartersinterest earned was $232,000, compared to $8.1 million and $1.6 million, respectively, for the first half of 2021, respectively. Net2021. The interest margin grew fiveincome recognized on PPP loans added 2 basis points, to 3.50% for the third quarter of 2021 compared to 3.45% for the linked quarter. The increase in net interest margin was driven by the PPP income, which benefited net interest margin by 185 basis points for the third quarter of 2021 compared toand 15 basis points for the second quarter of 2021, while excess liquidity resulted in inflated cash balances which reduced net interest margin by 13 basis points compared to 12 basis points for the linked quarter.
Compared to the third quarter of 2020, net interest income increased 21%, which was due to the acquired leases, premium finance loans and additional PPP income from the deferred loan fees recognized, as well as controlled funding costs. Net interest margin expanded 36 basis points compared to 3.14% for the third quarter of 2020. The lease portfolio added $4.8 million to net interest income, and 28 basis points to net interest margin for the thirdsecond and first quarters of 2022 and the second quarter of 2021. In late March of 2020, the Federal Reserve lowered the Federal Funds effective target range 1502021, respectively, while adding 4 basis points and 21 basis points to 0.00% to 0.25%. The majority of Peoples' variable rate loan portfolio is tied to LIBOR or a prime rate, which continued to be lower than historical levels.
For the first nine months of 2021, net interest income grew 13%, and was driven by the addition of the lease and premium finance portfolios, along with PPP income, coupled with lower funding costs. Compared to the first nine months of 2020, net interest margin grew by 14 basis pointsfor the first half of 2022 and was driven by the 20 basis point addition of the leasing portfolio, while the PPP income contributed 20 basis points during 2021, compared to 6 basis points for 2020.respectively.
Accretion income, net of amortization expense, from acquisitions was $1.0$3.9 million for the thirdsecond quarter of 2021, $0.82022, $2.7 million for the linked quarter and $0.5$0.8 million for the thirdsecond quarter of 2020,2021, which added 825 basis points, 717 basis points and 57 basis points, respectively, to net interest margin. For the first nine monthshalf of 2021,2022, accretion income net of amortization expense, from acquisitions totaled $2.2$6.7 million and added 621 basis points to net interest margin compared to $2.6$1.2 million and 86 basis points for 2020.the first half of 2021, with the increase from the prior year due to the acquired loans and leases from the Premier Merger and Vantage acquisition, respectively.
Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this MD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."
(Recovery of) Provision forFor Credit Losses
The following table details Peoples’ (recovery of) provision for credit losses:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Provision for other credit losses | $ | 8,870 | | $ | 3,035 | | $ | 4,574 | | | $ | 7,125 | | $ | 33,171 | | |
(Recovery of) provision for other credit losses | | (Recovery of) provision for other credit losses | $ | (1,135) | | $ | (7,006) | | $ | 3,035 | | | $ | (8,141) | | $ | (1,745) | |
Provision for checking account overdraft credit losses | Provision for checking account overdraft credit losses | 124 | | 53 | | 154 | | | 208 | | 360 | | Provision for checking account overdraft credit losses | 355 | | 199 | | 53 | | | 554 | | 84 | |
Provision for credit losses | $ | 8,994 | | $ | 3,088 | | $ | 4,728 | | | $ | 7,333 | | $ | 33,531 | | |
(Recovery of) provision for credit losses | | (Recovery of) provision for credit losses | $ | (780) | | $ | (6,807) | | $ | 3,088 | | | $ | (7,587) | | $ | (1,661) | |
As a percentage of average total loans (a) | As a percentage of average total loans (a) | 1.01 | % | 0.36 | % | 0.55 | % | | 0.28 | % | 1.40 | % | As a percentage of average total loans (a) | (0.07) | % | (0.62) | % | 0.36 | % | | (0.34) | % | (0.10) | % |
(a) Presented on an annualized basis. | (a) Presented on an annualized basis. | | (a) Presented on an annualized basis. | |
The (recovery of) 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. DuringFor the thirdsecond quarter of 2021, Peoples recorded a provision for2022, the recovery of credit losses was driven by the reduction in allowance for individually analyzed loans, as well as changes in loss drivers used in the CECL model.
For the first quarter of $11.0 million2022, the recovery of credit losses was related to an improvement in order to establishthe economic forecast, along with payoffs of several loans during the quarter, which were partially offset by $387,000 for the establishment of an allowance for credit losses for non-purchasethe non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating toleases from the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowanceVantage acquisition.
The provision for credit losses recorded during the thirdsecond quarter of 2021 relatedwas primarily due to the purchase credit deteriorated loans acquired from Premier. Excluding the day-one allowance for credit losses of $3.3 million related to loansthe leases acquired from Premier,NSL. Excluding leases, the releasereduction of specific reserves on individually evaluated loans positively impacted the allowance for credit losses for the second quarter of 2021.
For the first half of 2022, the recovery of credit losses was mostly due to improvements in the economic forecast and loss drivers, coupled with releases of allowance for credit losses was based on changes in economic factors and loss drivers used inindividually analyzed loans. For the CECL model. Compared tofirst six months of 2021, the third quarterrecovery of 2020, the change in the provision for credit losses was primarily dueassociated with improved economic forecasts compared to prior periods, which was partially offset by the impactestablishment of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, coupled with the day-one allowance for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.
Compared to the first nine months of 2020, the provision for credit losses declined significantly, as the economic forecasts utilized within the CECL model experienced notable recovery compared to those utilized during 2020, which had been impacted by the onset of the COVID-19 pandemic.acquired leases.
Additional information regarding changes in the allowance for credit losses and loan credit quality can be found later in this MD&A under the caption “FINANCIAL CONDITION - Allowance for Credit Losses.”
Net (Loss) Gain Included in Total Non-Interest Income
Net (loss) gain include gains includes losses and lossesgains on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses and gains for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Net (loss) gain on investment securities | Net (loss) gain on investment securities | $ | (166) | | $ | (202) | | $ | 2 | | | $ | (704) | | $ | 383 | | Net (loss) gain on investment securities | $ | (44) | | $ | 130 | | $ | (202) | | | $ | 86 | | $ | (538) | |
| 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 | $ | (270) | | $ | (132) | | $ | (43) | | | $ | (429) | | $ | (258) | | Net loss on other assets | $ | (119) | | $ | (22) | | $ | (132) | | | $ | (141) | | $ | (159) | |
Net (loss) gain on OREO | Net (loss) gain on OREO | (32) | | 8 | | 15 | | | (24) | | (1) | | Net (loss) gain on OREO | (33) | | (1) | | 8 | | | (34) | | 8 | |
| Net (loss) gain on other transactions | (6) | | — | | — | | | (6) | | 22 | | |
Net loss on other transactions | | Net loss on other transactions | — | | (104) | | — | | | (104) | | — | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | $ | (308) | | $ | (124) | | $ | (28) | | | $ | (459) | | $ | (237) | | Net loss on asset disposals and other transactions | $ | (152) | | $ | (127) | | $ | (124) | | | $ | (279) | | $ | (151) | |
Net losses forLosses on asset disposals and other transactions increased in the thirdsecond quarter of 2021 wererelative to the linked and prior year quarters, driven primarily by losses on the disposal of fixedrepossessed assets, acquired from Premier andlosses on the sale of investment securities duringand losses on the third quartersale of 2021.OREO properties acquired from Premier. During the third quarterfirst three months of 2021,2022, Peoples sold a portion of its available-for-saleseveral investment securities, and reinvested the proceeds into higher-yielding investments.
For the first nine months of 2021,resulting in a net gain on investment securities. This gain was offset by a net loss on investment securities was recorded dueother transactions primarily driven by an adjustment to the gain on sale of investment securitiesloans recognized in orderthe fourth quarter of 2021, which was driven by changes to reinvest proceeds into higher-yielding investment securities. the acquisition-date fair value of Premier loans acquired that were subsequently sold.
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. Thesale, which was partially offset by a net gain of $76,000 on repossessed assets. For the first ninesix months of 2021, included a net loss on other assets relatedinvestment securities was recorded due to the write-downsale of a closed office in the second quarter of 2021 and the disposal of fixed assets acquired from Premier. The first nine months of 2020 included a net gain on investment securities that was recorded in connection with sales oforder to reinvest proceeds into higher yielding investment securities. For the first nine months of 2020, net loss on other assets was driven by losses on repossessed assets.
Total Non-Interest Income, Excluding Net Gains and Losses
Total non-interest income, excluding net gains and losses, accounted for 28%comprised 24% 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, 2021second quarter of 2022, compared to 29%27% for the linked quarter and 32%29% for the third quarterprior year quarter. For the first half of 2020.2022, total non-interest income, excluding net gains and losses, totaled 26% of total revenues compared to 31% for 2021. The recent decline in this ratio compared to the prior periods was driven by an increase inprimarily due to higher net interest income due toassociated with the recent acquisition of leases acquired from NSL.Vantage and Premier Merger, coupled with the increase in the market interest rate environment.
For the thirdsecond quarter of 2021,2022, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients. The following table details Peoples' e-banking income:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
| E-banking income | E-banking income | $ | 4,326 | | $ | 4,418 | | $ | 3,765 | | | $ | 12,655 | | $ | 10,568 | | E-banking income | $ | 5,419 | | $ | 5,253 | | $ | 4,418 | | | $ | 10,672 | | $ | 8,329 | |
Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. The decreases inE-banking income increased compared to the linked quarter primarily due to increased customer activity. Compared to the prior year quarter and first half of 2021, e-banking income grew 23% and 28%, respectively, from increased customer activity, coupled with the addition of the Premier customers during the third quarter of 2021.
The following table details Peoples' insurance income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | | 2022 | 2021 |
| | | | | | |
| | | | | | |
Property and casualty insurance commissions | $ | 3,039 | | $ | 2,862 | | $ | 2,765 | | | $ | 5,901 | | $ | 5,520 | |
| | | | | | |
| | | | | | |
Performance-based commissions | 10 | | 1,346 | | 35 | | | 1,356 | | 1,985 | |
Life and health insurance commissions | 506 | | 452 | | 430 | | | 956 | | 852 | |
Other fees and charges | 92 | | 72 | | 105 | | | 164 | | 199 | |
Insurance income | $ | 3,647 | | $ | 4,732 | | $ | 3,335 | | | $ | 8,377 | | $ | 8,556 | |
| | | | | | |
Insurance income declined compared to each of the linked quarter, and was mostly due to the recognition of $1.3 million of annual performance-based insurance commissions recorded during the first quarter of each year. Compared to the prior year quarter, were driven byinsurance income grew due to additional customers, while the increased usage of debit cards by customers, resulting from the COVID-19 pandemic. The increased usage has continued through the first nine months of 2021, resulting in higher e-banking incomedecline compared to the same period in 2020.first half of 2021 was driven by lower performance-based commissions.
Peoples' fiduciary income and brokerage income continued to be based primarily upon the value of assets under administration and management, with additional income generated from transaction commissions, cross-selling of products and additional retirement
plan services business. The following tables detail Peoples’ trust and investment income and related assets under administration and management:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Fiduciary income | Fiduciary income | $ | 1,944 | | $ | 2,095 | | $ | 1,710 | | | $ | 5,941 | | $ | 5,112 | | Fiduciary income | $ | 1,999 | | $ | 1,965 | | $ | 2,095 | | | $ | 3,964 | | $ | 3,997 | |
Brokerage income | Brokerage income | 1,577 | | 1,494 | | 1,165 | | | 4,408 | | 3,324 | | Brokerage income | 1,631 | | 1,649 | | 1,494 | | | 3,280 | | 2,831 | |
Employee benefit fees | Employee benefit fees | 637 | | 631 | | 560 | | | 1,874 | | 1,577 | | Employee benefit fees | 616 | | 662 | | 631 | | | 1,278 | | 1,237 | |
Trust and investment income | Trust and investment income | $ | 4,158 | | $ | 4,220 | | $ | 3,435 | | | $ | 12,223 | | $ | 10,013 | | Trust and investment income | $ | 4,246 | | $ | 4,276 | | $ | 4,220 | | | $ | 8,522 | | $ | 8,065 | |
Fiduciary income and brokerage income arewere mostly driven byflat in the current quarter relative to the linked quarter, with the timing of brokerage fee income mitigating the decrease in assets under management, and fees for tax preparation and estate services mitigating the decrease in trust assets. An improvement in the values of assets under administration and management, which have increased in recent periods as the market values of existing accounts have been positively impacted and grown, coupled with new accounts added, contributed to the growth in trust and investment income compared to prior periods. Employee benefit fees continue to increase compared to prior periods as Peoples focuses on growing the numberfirst half of employee benefit plans it manages.2021.
The following table details Peoples' assets under administration and management:
| | | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
| Trust | Trust | $ | 1,937,123 | | $ | 1,963,884 | | $ | 1,916,892 | | $ | 1,885,324 | | $ | 1,609,270 | | Trust | $ | 1,731,454 | | $ | 1,927,828 | | $ | 2,009,871 | | $ | 1,937,123 | | $ | 1,963,884 | |
Brokerage | Brokerage | 1,133,668 | | 1,119,247 | | 1,071,126 | | 1,009,521 | | 921,688 | | Brokerage | 1,068,261 | | 1,152,530 | | 1,183,927 | | 1,133,668 | | 1,119,247 | |
Total | Total | $ | 3,070,791 | | $ | 3,083,131 | | $ | 2,988,018 | | $ | 2,894,845 | | $ | 2,530,958 | | Total | $ | 2,799,715 | | $ | 3,080,358 | | $ | 3,193,798 | | $ | 3,070,791 | | $ | 3,083,131 | |
Quarterly average | Quarterly average | $ | 3,105,476 | | $ | 3,051,027 | | $ | 2,927,458 | | $ | 2,663.485 | | $ | 2,510,978 | | Quarterly average | $ | 2,927,405 | | $ | 3,106,021 | | $ | 3,126,398 | | $ | 3,077,554 | | $ | 3,051,027 | |
The slight declinedeclines in assets under administration and management at SeptemberJune 30, 2021,2022, compared to each prior period end, was largelythe linked quarter and December 31, 2021, were driven by thea decrease in market values late induring the third quarterfirst half 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 compared2022 due to the linked quarter. Compared to the third quarter of 2020, insurance income declined 7%, driven by decreases in life and health insurance commissions, offset partially by an increase in property and casualty insurance commissions. For the first nine months of 2021, insurance income increased $1.0 million, or 9%. This increase was driven by higher property and casualty, and performance-based commissions. Annually Peoples receives performance-based income commissions that are related to how much loss is incurred by underlying policies and the overall performance of the insurance carriers. The insurance income compared to prior periods was positively impacted by the addition of new customers.
recent economic downturn. 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 | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Overdraft and non-sufficient funds fees | Overdraft and non-sufficient funds fees | $ | 1,420 | | $ | 1,012 | | $ | 1,216 | | | $ | 3,429 | | $ | 3,741 | | Overdraft and non-sufficient funds fees | $ | 2,019 | | $ | 1,902 | | $ | 1,012 | | | $ | 3,921 | | $ | 2,009 | |
Account maintenance fees | Account maintenance fees | 934 | | 854 | | 848 | | | 2,598 | | 2,677 | | Account maintenance fees | 1,306 | | 1,311 | | 854 | | | 2,617 | | 1,664 | |
Other fees and charges | Other fees and charges | 195 | | 178 | | 202 | | | 551 | | 577 | | Other fees and charges | 233 | | 213 | | 178 | | | 446 | | 356 | |
Deposit account service charges | Deposit account service charges | $ | 2,549 | | $ | 2,044 | | $ | 2,266 | | | $ | 6,578 | | $ | 6,995 | | Deposit account service charges | $ | 3,558 | | $ | 3,426 | | $ | 2,044 | | | $ | 6,984 | | $ | 4,029 | |
The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges for the third quarter of 2021 grewincreased compared to the linked quarter, prior year quarter and the third quarterfirst half of 2020 due largely to an increase in volume of overdraft and non-sufficient fees charged2021 due to increased customer activity. Deposit account service charges were negatively impacted duringactivity in recent quarters, compared to the second quartervery low levels of early 2021 and the third quarter of 2020, mostly due toassociated with fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic. ForAlso contributing to the first nine months of 2021,increase compared to the same periodprior year quarter and first half of 2020, deposit account service charges declined and were impacted by2021 was the COVID-19 pandemic items already mentioned.additional customers associated with the Premier Merger.
The following table details the other items included within Peoples' total non-interest income:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
| Mortgage banking income | Mortgage banking income | 766 | | 820 | | 2,658 | | | 2,726 | | 4,346 | | Mortgage banking income | 352 | | 436 | | 820 | | | 788 | | 1,960 | |
Bank owned life insurance income | Bank owned life insurance income | 437 | | 446 | | 462 | | | 1,329 | | 1,514 | | Bank owned life insurance income | 797 | | 431 | | 446 | | | 1,228 | | 892 | |
Commercial loan swap fees | Commercial loan swap fees | 73 | | 61 | | 68 | | | 194 | | 1,267 | | Commercial loan swap fees | 270 | | 168 | | 61 | | | 438 | | 121 | |
Other non-interest income | Other non-interest income | 1,144 | | 803 | | 534 | | | 2,605 | | 1,393 | | Other non-interest income | 1,294 | | 1,326 | | 803 | | | 2,620 | | 1,461 | |
Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage banking income declined during the third quarter of 2021, compared to the linked quarter, and the prior year quarter as refinancing activity slowedand first half of 2021 due to the increased interest rate environment in recent quarters and a lower volume of new loan originations due to the lack of inventory of homes for sale. Compared to the first nine months of 2020, mortgage banking income declined 37%, because of lower origination volume caused by a lower inventory of homes for sale and less refinancing activity because of an increase in interest rates above historically low levels experienced as a result of the COVID-19 pandemic.
In the thirdsecond quarter of 2021,2022, Peoples recognized a gain of $0.4 million on the sale of $11.0sold $4.6 million in loans to the secondary market with servicing retained and $0.2 million on the sale of $10.3$6.1 million in loans with servicing released. Inreleased, compared to $7.2 million and $7.9 million, respectively, for the first quarter of 2022, and $15.8 million and $7.8 million, respectively, for the second quarter of 2021, Peoples recognized a gain of $0.6 million on the sale of $15.8 million in loans with servicing retained and $185,000 on the sale of $7.8 million in loans with servicing released. In the third quarter of 2020 Peoples recognized a gain of $1.6 million on the sale of $35.2 million in loans sold servicing retained and a gain of $1.0 million on $68.2 million in loans sold servicing released.2021. For the first nine monthshalf of 2021, Peoples recognized a gain of $1.8 million on the sale of $44.0sold $33.0 million in loans to the secondary market with servicing retained, and a gain of $0.6 million on the sale of $27.7$17.4 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 comparedfor the current quarter included a $248,000 death benefit related to the linked quarter andcash surrender value of the third quarter of 2020. For the first nine months of 2021,underlying policy. Peoples also invested an additional $30.0 million in bank owned life insurance declined 12%, primarilypolicies during the second quarter of 2022. For the first half of 2022, the increased bank owned life insurance income compared to the first half of 2021, was due to a $109,000 tax-freethe aforementioned death benefit recognized during the first quarter of 2020.proceeds and additional investment.
Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. CommercialDuring the second quarter of 2022, commercial loan swap fees were up slightlyincreased as a result of several new commercial loan swaps in the period, driven by the recent increases in interest rates, compared to less activity in the linked and prior year quarter, and first half of 2021.
Other non-interest income was relatively flat compared to the linked quarter and the third quarter of 2020.quarter. Compared to the first nine months of 2020, commercial loan swap fees declined due to a lower volume of transactions during 2021 compared to the high volume of transactions entered into during the first nine months of 2020.
Other non-interest income increased compared to the linkedprior year quarter and the third quarterfirst half of 2020 and was driven by other fee income of $0.5 million recognized on leases related to the early termination of leases and other fees in the third quarter of 2021
compared to $0.2 million recognized in the second quarter of 2021. There was no income related to the early termination of leases in the third quarter of 2020, as NSL was not acquired until the second quarter of 2021. For the nine months ended September 30, 2021, other non-interest income was higherincreased 61% and 79%, respectively, due to fee income recognized with the recognition of $0.6 million related to fees received for the early termination of leases and lease syndications.leasing divisions.
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 | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Base salaries and wages | Base salaries and wages | $ | 17,493 | | $ | 13,488 | | $ | 13,019 | | | $ | 43,746 | | $ | 38,489 | | Base salaries and wages | $ | 18,408 | | $ | 17,676 | | $ | 13,488 | | | $ | 36,084 | | $ | 26,253 | |
Sales-based and incentive compensation | Sales-based and incentive compensation | 4,013 | | 4,593 | | 3,493 | | | 12,034 | | 9,320 | | Sales-based and incentive compensation | 4,913 | | 3,636 | | 4,593 | | | 8,549 | | 8,021 | |
Employee benefits | Employee benefits | 2,619 | | 2,821 | | 1,930 | | | 8,338 | | 6,471 | | Employee benefits | 3,321 | | 3,621 | | 2,821 | | | 6,942 | | 5,719 | |
Payroll taxes and other employment costs | Payroll taxes and other employment costs | 1,635 | | 1,343 | | 1,148 | | | 4,471 | | 3,584 | | Payroll taxes and other employment costs | 1,389 | | 2,091 | | 1,343 | | | 3,480 | | 2,836 | |
Stock-based compensation | Stock-based compensation | 618 | | 604 | | 632 | | | 2,437 | | 2,985 | | Stock-based compensation | 600 | | 1,605 | | 604 | | | 2,205 | | 1,819 | |
Deferred personnel costs | Deferred personnel costs | (789) | | (921) | | (812) | | | (2,750) | | (3,536) | | Deferred personnel costs | (1,046) | | (900) | | (921) | | | (1,946) | | (1,961) | |
Salaries and employee benefit costs | Salaries and employee benefit costs | $ | 25,589 | | $ | 21,928 | | $ | 19,410 | | | $ | 68,276 | | $ | 57,313 | | Salaries and employee benefit costs | $ | 27,585 | | $ | 27,729 | | $ | 21,928 | | | $ | 55,314 | | $ | 42,687 | |
Full-time equivalent employees: | Full-time equivalent employees: | | | | | Full-time equivalent employees: | | | | |
Actual at end of period | Actual at end of period | 1,181 | | 925 | | 886 | | | 1,181 | | 886 | | Actual at end of period | 1,261 | | 1,245 | | 925 | | | 1,261 | | 925 | |
Average during the period | Average during the period | 990 | | 914 | | 890 | | | 942 | | 893 | | Average during the period | 1,255 | | 1,215 | | 914 | | | 1,241 | | 907 | |
Base salaries and wages increased 30%4% compared to the linked quarter and increased 34%36% compared to the thirdsecond quarter of 2020.2021. The increaseincreases for the thirdsecond quarter of 2021 compared to prior periods was primarily due to the acquisition of Premier, which included $3.4 million in acquisition-related severance expense. For the first nine months of 2021, base salaries and wages increased 14%2022 compared to the first nine months of 2020 as a result oflinked quarter and the acquisition-related severance expense for Premier andprior year quarter were driven by the additional salaries associated with NSLthe acquisition of Vantage, and a full nine months of Premium Finance.the Premier Merger, respectively.
The decreaseincrease in sales-based and incentive compensation for the thirdsecond quarter of 20212022 compared to the linked quarter was primarily due to lower incentive compensation related to insurance and mortgage banking. For the first nine monthssales incentives earned by Vantage employees.
The decrease in employee benefits for second quarter of 2022, compared to the same periodlinked quarter, was primarily due to annual contributions to employee health benefit accounts which occur primary 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.
first quarter of each year. The increase in employee benefits for first nine monthscompared to the second quarter 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 NSLVantage employees. During the second quarter of 2021, Peoples increased the matching contribution to participant's 401(k) accounts, retroactive to January 1, 2021. This true-up was completed in the second quarter of 2021 and drove the increase in employee benefits for the third quarter of 2021 compared to the third quarter of 2020.
The increase in payrollPayroll taxes and other employment costs decreased compared to linkedthe first quarter wasof 2022, primarily driven by higher payroll taxes recognized in the first quarter of each year. Those costs increased for the first half of the year relative to the prior year period due to the taxes associated with the acquisition-related severance expense recognized in the third quarter of 2021. The increase in payroll taxes and other employment costs for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily related to higher base salaries and wages, coupled with the additional associates ofretained from the Premier Merger, and NSL.North Star and Vantage acquisitions.
Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years, adjusted for an estimate of the portion of awards that will be forfeited. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the first nine monthssecond quarter of 20212022 decreased compared to the linked quarter, which included expense related to stock grants to retirement eligible individuals and the annual vesting of prior stock grants. Stock-based compensation for the first nine monthshalf of 2020the year increased 21% compared to the first half of the prior year due to an additional $396,000 of unrestricted grants of common share awards to associates at the level of Assistant Vice President or below grantedemployees added in the second quarteracquisition of 2020.Vantage and the Premier Merger.
Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. The decrease inHigher deferred personnel costs compared to the linked quarter was primarily due to a reductionan increase in 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.
Peoples' net occupancy and equipment expense was comprised of the following:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Depreciation | Depreciation | $ | 1,365 | | $ | 1,398 | | $ | 1,507 | | | $ | 4,134 | | $ | 4,519 | | Depreciation | $ | 1,770 | | $ | 1,823 | | $ | 1,398 | | | $ | 3,593 | | $ | 2,769 | |
Repairs and maintenance costs | Repairs and maintenance costs | 1,017 | | 903 | | 767 | | | 2,863 | | 2,225 | | Repairs and maintenance costs | 1,245 | | 1,378 | | 903 | | | 2,625 | | 1,846 | |
Net rent expense | Net rent expense | 371 | | 382 | | 340 | | | 1,093 | | 960 | | Net rent expense | 756 | | 685 | | 382 | | | 1,441 | | 722 | |
Property taxes, utilities and other costs | Property taxes, utilities and other costs | 798 | | 606 | | 769 | | | 2,077 | | 1,984 | | Property taxes, utilities and other costs | 997 | | 1,202 | | 606 | | | 2,197 | | 1,279 | |
Net occupancy and equipment expense | Net occupancy and equipment expense | $ | 3,551 | | $ | 3,289 | | $ | 3,383 | | | $ | 10,167 | | $ | 9,688 | | Net occupancy and equipment expense | $ | 4,768 | | $ | 5,088 | | $ | 3,289 | | | $ | 9,856 | | $ | 6,616 | |
Depreciation on capitalized assets has declined during the second and third quarters of 2021, compared to both the thirdlinked quarter of 2020, and the first nine months of 2020 as a result of certain capitalized assets and improvements reaching the end of their depreciable lives. In addition, Peoples recognized higher buildinglives, coupled with lower repairs and maintenance costs during the first nine months of 2021, compared to 2020 due to various projects including painting, window replacements, drive-thru enhancements and parking lot sealing. Property taxes, utilities and other costs also increased during the nine months ended September 30, 2021,from snow removal expenses compared to the first nine monthsquarter of 2020 as a result2022. Compared to the second quarter and first half 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.
Net2021, net occupancy and equipment expense increased 5% compared to45% and 49%, respectively, with the first nine months of 2020 mainly due to increased expenses associated with maintainingincreases driven by the Premium Finance location for a full period, the acquisitionadditional geographic locations from NSL in second quarter of 2021 and the partial period impact of the merger with Premier in the third quarter of 2021.recent acquisitions.
The following table details the other items included in total non-interest expense:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Professional fees | Professional fees | $ | 6,426 | | $ | 3,565 | | $ | 1,720 | | | $ | 13,459 | | $ | 5,247 | | Professional fees | $ | 2,280 | | $ | 3,672 | | $ | 3,565 | | | $ | 5,952 | | $ | 7,033 | |
Data processing and software expense | Data processing and software expense | 2,529 | | 2,411 | | 1,838 | | | 7,394 | | 5,344 | | Data processing and software expense | 3,033 | | 2,916 | | 2,411 | | | 5,949 | | 4,865 | |
E-banking expense | E-banking expense | 2,037 | | 2,075 | | 2,095 | | | 6,006 | | 5,839 | | E-banking expense | 2,727 | | 2,759 | | 2,075 | | | 5,486 | | 3,969 | |
Amortization of other intangible assets | Amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | | Amortization of other intangible assets | 2,034 | | 1,708 | | 1,368 | | | 3,742 | | 1,988 | |
FDIC insurance premiums | | FDIC insurance premiums | 1,018 | | 1,194 | | 326 | | | 2,212 | | 789 | |
Marketing expense | Marketing expense | 1,223 | | 676 | | 456 | | | 2,810 | | 1,561 | | Marketing expense | 860 | | 995 | | 676 | | | 1,855 | | 1,587 | |
Other loan expenses | | Other loan expenses | 445 | | 832 | | 494 | | | 1,277 | | 956 | |
Franchise tax expense | Franchise tax expense | 810 | | 822 | | 882 | | | 2,487 | | 2,645 | | Franchise tax expense | 1,102 | | 764 | | 822 | | | 1,866 | | 1,677 | |
FDIC insurance premiums | 807 | | 326 | | 570 | | | 1,596 | | 717 | | |
Other loan expenses | 487 | | 494 | | 342 | | | 1,443 | | 1,255 | | |
Communication expense | Communication expense | 411 | | 386 | | 283 | | | 1,079 | | 857 | | Communication expense | 649 | | 625 | | 386 | | | 1,274 | | 668 | |
Other non-interest expense | Other non-interest expense | 12,711 | | 2,559 | | 2,479 | | | 17,762 | | 7,665 | | Other non-interest expense | 3,398 | | 3,347 | | 2,559 | | | 6,745 | | 5,051 | |
Professional fees increased $2.9decreased $1.4 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 $319,000primarily due to lower acquisition-related expenses. Professional fees for the third quarterfirst half of 2020. For the first nine months of 2021, professional fees nearly doubledyear decreased $1.1 million compared to the first half of the prior year, and included $6.2 million of acquisition-related expenses for 2021, compared to $363,000 for 2020.
The change in data processing and software expense compared to prior periods was driven by systems and software upgrades, annual contractual increases and overall growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers; software upgrades; and additional network capacity and security features in the latter part of 2020 and first quarter of 2021.
E-banking expense was down slightly compared to the linked quarter, and is directly correlated to e-banking income, with the decrease due to lower costs associated with ATM processing expenses.
Peoples' amortization of other intangible assets isprimarily driven by acquisition-related activity. Amortization of other intangible assets for the third quarter of 2021 was down $89,000 comparedexpenses related to the second quarter of 2021 due to adjustments toPremier Merger which had been realized in the fair value of intangible assets acquired from NSL, and the related changes to intangible amortization post-acquisition. Amortization of other intangible assets increased $422,000 compared to the third quarter of 2020 as a result of the NSL acquisition effective after the close of business on March 31, 2021.prior year.
MarketingData processing and software expense increased relative to prior year periods, driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.
E-banking expense increased compared to the second quarter of 2021 due primarilyand first half of 2021, and is correlated to additional advertising campaigns relatinge-banking income, which also increased over those same periods.
Amortization of other intangible assets is associated with acquisition-related activity, and grew 19% compared to the addition of Premier locations. Additionally, in giving backlinked quarter, due to the community, Peoples' contributions increased duringVantage acquisition. Compared to the thirdsecond quarter of 2021, amortization of other intangible assets increased $0.7 million as Peoples merged with Premier, and included a donationacquired Vantage on September 17, 2021 and March 7, 2022, respectively. Amortization of other intangible assets grew 88% versus the first half 2021 due to each of Marietta Collegethe Premier Merger, and the Ohio Valley Museumacquisitions of Discovery.North Star and Vantage.
Peoples' FDIC insurance premiums decreased compared to the linked quarter, as Peoples recognized a prior year adjustment in the first quarter relating to its larger assessment base as a result of the liabilities assumed from Premier. FDIC insurance premiums increased compared to the prior year quarter, as Peoples recorded increased premiums after the acquisition of Premier.
Marketing expense declined 14% compared to the linked quarter, and increased 27% versus the prior year quarter. The decrease from the linked quarter was mainly due to a vendor credit related to prior year customer debit card spend. The increase relative to the prior year quarter was driven by higher public relations and media spend associated with the acquisition of Premier, and recent community-based spend in celebration of Peoples' 120th anniversary.
Other loan expenses decreased $0.4 million compared to the linked quarter driven by the timing of the reimbursement of appraisal costs. Compared to the first half of 2021, other loan expenses grew 34% and were mostly related to higher indirect lending volume and increased collection expense driven by the Premier Merger.
Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end.
Peoples' FDIC insurance premiums increased compared to The increase versus the linked quarter due towas driven by a declinecredit received in the leverage ratio which was impacted by the NSL acquisition in the secondfirst quarter and decreased compared to December 31, 2020. Compared to the first nine months of 2020, the FDIC insurance premiums grew as a result of credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium. The FDIC insurance credits were related to the level2022 for an overpayment of the Federal Deposit Insurance Fund ("DIF") that had continuedprior year's franchise taxes.
Communications expense increased 68% compared to be above the target threshold for banks with total consolidated assets of less than $10 billion to recognize credits. Peoples utilized the remaining credits that had been issued to it in the second quarter of 2020.
Other loan expenses decreased slightly2021 and 91% compared to the linked quarterfirst half of 2021. The growth relative to those periods was due to lower expenses associated with business loans. Compared to the third quarter of 2020, other loan expenses increased mostly due to higher expenses associated with real estate loans and home equity lines of credit. Other loan expenses for the nine months ended September 30, 2021 increased $188,000 compared to the nine months ended September 30, 2020 due to increased loan origination activity.
Compared to the linked quarter, third quarter of 2020, and first nine months of 2020, communications expense grew as a result of upgraded networking to certain branches (including new branches acquired from Premier coupled with the addition of the NSL and Premium FinanceVantage locations acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.
Other non-interest expense increased $10.2 million33% compared to the thirdprior year quarter and 34% versus the first half of 2020, and was2021 driven by higher ongoing costs associated with Peoples' recent acquisitions, mostly due to $9.6 million in acquisition-related expenses recognized during the third quarter of 2021.increased postage, travel and entertainment, insurance and supplies expense.
Income Tax Expense
Peoples recorded an income tax benefitexpense of $2.2$6.8 million for the thirdsecond quarter of 2021,2022, compared to income tax expense of $2.4$6.0 million for the linked quarter and income tax expense of $2.6$2.4 million for the thirdsecond quarter of 2020.2021. The income tax benefit during the third quarter of 2021, and theincrease in income tax expense recognized duringfor the second quarter of 2022, compared to the linked quarter, and the third quarterwas due to an increase in Peoples' effective tax rate driven by an expansion of 2020 was heavily related to the amount of pre-tax income recognized during each period. Pretax income was impacted by acquisition-related expensesits footprint associated with the Premier acquisition during the third quarter of 2021. Peoples recordedVantage, and higher pre-tax income. The increase in income tax expense of $4.0 million for the ninesix months ended SeptemberJune 30, 2021,2022 compared to $3.6 million for the ninesix months ended September 30, 2020. Pretax income for the nine months ended SeptemberJune 30, 2021, was largely impacteddriven by acquisition-related expenses, contract negotiation expenses and other non-core expenses.higher pre-tax income.
Additional information regarding income taxes can be found in "Note 1213 Income Taxes" of the Notes to the Condensed Consolidated Financial Statements included in Peoples' 20202021 Form 10-K.
Pre-Provision Net Revenue (Non-US GAAP)
Pre-provision net revenue ("PPNR") has become a key financial measure used by state and federal bank regulatory agencies when assessing the capital adequacy of financial institutions. PPNR is defined as net interest income plus total non-interest income, excluding all gains and losses, minus total non-interest expense. As a result, PPNR represents the earnings capacity that can be either retained in order to build capital or used to absorb unexpected losses and preserve existing capital. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings.
The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
Pre-provision net revenue: | Pre-provision net revenue: | | Pre-provision net revenue: | |
(Loss) income before income taxes | $ | (7,930) | | $ | 12,494 | | $ | 12,846 | | | $ | 23,807 | | $ | 17,810 | | |
Income before income taxes | | Income before income taxes | $ | 31,735 | | $ | 29,538 | | $ | 12,494 | | | $ | 61,273 | | $ | 31,737 | |
Add: provision for credit losses | Add: provision for credit losses | 8,994 | | 3,088 | | 4,728 | | | 7,333 | | 33,531 | | Add: provision for credit losses | — | | — | | 3,088 | | | — | | — | |
| Add: loss on OREO | Add: loss on OREO | 32 | | — | | — | | | 32 | | 17 | | Add: loss on OREO | 32 | | 1 | | — | | | 33 | | — | |
Add: loss on investment securities | Add: loss on investment securities | 316 | | 499 | | — | | | 1,490 | | 2 | | Add: loss on investment securities | 44 | | — | | 202 | | | 44 | | 538 | |
Add: loss on other assets | Add: loss on other assets | 363 | | 238 | | 115 | | | 687 | | 258 | | Add: loss on other assets | 119 | | 22 | | 132 | | | 141 | | 159 | |
Add: loss on other transactions | Add: loss on other transactions | 6 | | — | | — | | | 6 | | — | | Add: loss on other transactions | — | | 104 | | — | | | 104 | | — | |
Less: gain on OREO | Less: gain on OREO | — | | 8 | | 15 | | | 8 | | 16 | | Less: gain on OREO | — | | — | | 8 | | | — | | 8 | |
| Less: recovery of credit losses | | Less: recovery of credit losses | 780 | | 6,807 | | — | | | 7,587 | | 1,661 | |
Less: gain on investment securities | Less: gain on investment securities | 150 | | 297 | | 2 | | | 786 | | 385 | | Less: gain on investment securities | — | | 130 | | — | | | 130 | | — | |
| Less: gain on other assets | 93 | | 106 | | 72 | | | 258 | | 22 | | |
| Pre-provision net revenue | Pre-provision net revenue | $ | 1,538 | | $ | 15,908 | | $ | 17,600 | | | $ | 32,303 | | $ | 51,195 | | Pre-provision net revenue | $ | 31,150 | | $ | 22,728 | | $ | 15,908 | | | $ | 53,878 | | $ | 30,765 | |
| | Total average assets | Total average assets | $5,475,147 | $5,183,146 | $4,906,614 | | $5,192,183 | $ | 4,706,153 | | Total average assets | $7,121,663 | $7,067,816 | $5,183,146 | | $7,094,228 | $5,048,360 |
Pre-provision net revenue to total average assets (annualized) | Pre-provision net revenue to total average assets (annualized) | 0.11 | % | 1.23 | % | 1.43 | % | | 0.83 | % | 1.45 | % | Pre-provision net revenue to total average assets (annualized) | 1.75 | % | 1.30 | % | 1.23 | % | | 1.53 | % | 1.23 | % |
| Weighted-average common shares outstanding - diluted | Weighted-average common shares outstanding - diluted | 20,789,271 | 19,461,934 | 19,637,689 | | 19,890,672 | 19,998,353 | Weighted-average common shares outstanding - diluted | 28,061,736 | 28,129,131 | 19,461,934 | | 28,041,145 | 19,448,544 |
Pre-provision net revenue per common share - diluted | Pre-provision net revenue per common share - diluted | $ | 0.07 | | $ | 0.81 | | $ | 0.90 | | | $ | 1.61 | | $ | 2.55 | | Pre-provision net revenue per common share - diluted | $ | 1.11 | | $ | 0.81 | | $ | 0.81 | | | $ | 1.91 | | $ | 1.63 | |
The decreaseincrease in PPNR compared to the linked quarter andwas driven by increased net interest income reflecting the thirdpositive impact of recent increase in market interest rates. PPNR grew compared to the second quarter of 2020 was2021 and first half of 2021, mostly due to the impact of the Premier Merger and the Vantage and NSL acquisitions improving net interest income, the recent increases in market interest rates, and higher non-core acquisition-related expenses recognized during the third quarter of 2021.non-interest income.
Core Non-Interest Expense (Non-US GAAP)
Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream. This measure is Non-US GAAP since it excludes the impact of all acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution.
The following table provides a reconciliation of this Non-US GAAP measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
| Core non-interest expense: | Core non-interest expense: | | Core non-interest expense: | |
Total non-interest expense | Total non-interest expense | $ | 57,860 | | $ | 39,899 | | $ | 34,315 | | | $ | 135,746 | | 100,445 | | Total non-interest expense | $ | 49,899 | | $ | 51,629 | | $ | 39,899 | | | $ | 101,528 | | $ | 77,886 | |
| Less: acquisition-related expenses | Less: acquisition-related expenses | 16,209 | | 2,400 | | 335 | | | 20,520 | | 412 | | Less: acquisition-related expenses | 602 | | 1,373 | | 2,400 | | | 1,975 | | 4,311 | |
Less: pension settlement charges | 143 | | — | | 531 | | | 143 | | 1,050 | | |
| Less: severance expenses | Less: severance expenses | — | | 14 | | 192 | | | 63 | | 284 | | Less: severance expenses | — | | — | | 14 | | | — | | 63 | |
| Less: COVID-19-related expenses | Less: COVID-19-related expenses | 181 | | 210 | | 148 | | | 683 | | 1,206 | | Less: COVID-19-related expenses | 29 | | 94 | | 210 | | | 123 | | 502 | |
Less: Peoples Bank Foundation, Inc. contribution | Less: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | 500 | | — | | Less: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | — | | 500 | |
Less: contract negotiation expenses | 1,851 | | — | | — | | | 1,851 | | — | | |
| Core non-interest expense | Core non-interest expense | $ | 39,476 | | $ | 37,275 | | $ | 33,109 | | | $ | 111,986 | | $ | 97,493 | | Core non-interest expense | $ | 49,268 | | $ | 50,162 | | $ | 37,275 | | | $ | 99,430 | | $ | 72,510 | |
Efficiency Ratio (Non-US GAAP)
The efficiency ratio is a key financial measure used to monitor performance. The efficiency ratio is calculated as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income excluding net gains and losses. This measure is Non-US GAAP since it excludes amortization of other intangible assets and all gains and losses included in earnings, and uses fully tax-equivalent net interest income.
The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
| Efficiency ratio: | Efficiency ratio: | | Efficiency ratio: | |
Total non-interest expense | Total non-interest expense | $ | 57,860 | | $ | 39,899 | | $ | 34,315 | | | $ | 135,746 | | $ | 100,445 | | Total non-interest expense | $ | 49,899 | | $ | 51,629 | | $ | 39,899 | | | $ | 101,528 | | $ | 77,886 | |
Less: amortization of other intangible assets | Less: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | | Less: amortization of other intangible assets | 2,034 | | 1,708 | | 1,368 | | | 3,742 | | 1,988 | |
Adjusted total non-interest expense | Adjusted total non-interest expense | $ | 56,581 | | $ | 38,531 | | $ | 33,458 | | | $ | 132,479 | | $ | 98,131 | | Adjusted total non-interest expense | 47,865 | | 49,921 | | 38,531 | | | 97,786 | | 75,898 | |
| Total non-interest income | Total non-interest income | $ | 16,346 | | $ | 15,821 | | $ | 16,770 | | | $ | 49,070 | | $ | 47,171 | | Total non-interest income | 19,386 | | 20,050 | | 15,821 | | | 39,436 | | 32,724 | |
Less: net gain on investment securities | — | | — | | 2 | | | — | | 383 | | |
Add: net loss on investment securities | (166) | | (202) | | — | | | (704) | | — | | |
Add: net loss on asset disposals and other transactions | (308) | | (124) | | (28) | | | (459) | | (237) | | |
| Less: net (loss) gain on investment securities | | Less: net (loss) gain on investment securities | (44) | | 130 | | (202) | | | 86 | | (538) | |
Less: net (loss) on asset disposals and other transactions | | Less: net (loss) on asset disposals and other transactions | (152) | | (127) | | (124) | | | (279) | | (151) | |
Total non-interest income excluding net gains and losses | Total non-interest income excluding net gains and losses | $ | 16,820 | | $ | 16,147 | | $ | 16,796 | | | $ | 50,233 | | $ | 47,025 | | Total non-interest income excluding net gains and losses | 19,582 | | 20,047 | | 16,147 | | | 39,629 | | 33,413 | |
| Net interest income | Net interest income | $ | 42,578 | | $ | 39,660 | | $ | 35,119 | | | $ | 117,816 | | $ | 104,615 | | Net interest income | 61,468 | | 54,310 | | 39,660 | | | 115,778 | | 75,238 | |
Add: fully tax-equivalent adjustment (a) | Add: fully tax-equivalent adjustment (a) | 351 | | 324 | | 262 | | | 970 | | 803 | | Add: fully tax-equivalent adjustment (a) | 414 | | 391 | | 324 | | | 806 | | 578 | |
Net interest income on a fully tax-equivalent basis | Net interest income on a fully tax-equivalent basis | $ | 42,929 | | $ | 39,984 | | $ | 35,381 | | | $ | 118,786 | | $ | 105,418 | | Net interest income on a fully tax-equivalent basis | 61,882 | | 54,701 | | 39,984 | | | 116,584 | | 75,816 | |
| Adjusted revenue | Adjusted revenue | $ | 59,749 | | $ | 56,131 | | $ | 52,177 | | | $ | 169,019 | | $ | 152,443 | | Adjusted revenue | $ | 81,464 | | $ | 74,748 | | $ | 56,131 | | | $ | 156,213 | | $ | 109,229 | |
| Efficiency ratio | Efficiency ratio | 94.70 | % | 68.64 | % | 64.12 | % | | 78.38 | % | 64.37 | % | Efficiency ratio | 58.76 | % | 66.79 | % | 68.64 | % | | 62.60 | % | 69.49 | % |
| 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 | $ | 39,476 | | $ | 37,275 | | $ | 33,109 | | | $ | 111,986 | | $ | 97,493 | | Core non-interest expense | $ | 49,268 | | $ | 50,162 | | $ | 37,275 | | | $ | 99,430 | | $ | 72,510 | |
Less: amortization of other intangible assets | Less: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | | Less: amortization of other intangible assets | 2,034 | | 1,708 | | 1,368 | | | 3,742 | | 1,988 | |
Adjusted core non-interest expense | Adjusted core non-interest expense | $ | 38,197 | | $ | 35,907 | | $ | 32,252 | | | $ | 108,719 | | $ | 95,179 | | Adjusted core non-interest expense | 47,234 | | 48,454 | | 35,907 | | | 95,688 | | 70,522 | |
| Core non-interest income excluding net gains and losses | $ | 16,820 | | $ | 16,147 | | $ | 16,796 | | | $ | 50,233 | | $ | 47,025 | | |
Non-interest income excluding net gains and losses | | Non-interest income excluding net gains and losses | 19,582 | | 20,047 | | 16,147 | | | 39,629 | | 33,413 | |
Net interest income on a fully tax-equivalent basis | Net interest income on a fully tax-equivalent basis | 42,929 | | 39,984 | | 35,381 | | | 118,786 | | 105,418 | | Net interest income on a fully tax-equivalent basis | 61,882 | | 54,701 | | 39,984 | | | 116,584 | | 75,816 | |
Adjusted revenue | Adjusted revenue | $ | 59,749 | | $ | 56,131 | | $ | 52,177 | | | $ | 169,019 | | $ | 152,443 | | Adjusted revenue | $ | 81,464 | | $ | 74,748 | | $ | 56,131 | | | $ | 156,213 | | $ | 109,229 | |
| Efficiency ratio adjusted for non-core items | Efficiency ratio adjusted for non-core items | 63.93 | % | 63.97 | % | 61.81 | % | | 64.32 | % | 62.44 | % | Efficiency ratio adjusted for non-core items | 57.98 | % | 64.82 | % | 63.97 | % | | 61.25 | % | 64.56 | % |
(a) Based on a 21% statutory federal corporate income tax rate.rate of 23.3% for period ended June 30, 2022, 22.9% for the period ended March 31, 2022, and 21.0% for period ended June 30, 2021.
The efficiency ratio for the thirdsecond 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 ratio2022 decreased compared to the linked quarter, was primarily due to thehigher net interest income driven by increases in market interest rates, coupled with decreases in acquisition-related expenses.expenses, salaries and employee benefits, and FDIC insurance premiums. The efficiency ratio, adjusted for non-core items, also decreased and the decrease was 63.9% forattributable to the thirditems previously mentioned. Additionally, compared to the second quarter of 2021 compared to 64.0% for the linked quarter and 61.8% for the third quarter of 2020. Impacting the adjusted ratios were higher salaries and employee benefits due to the Premier and NSL acquisitions along with higher advertising expenses and increased repair and maintenance expenses.
For the first nine monthshalf of 2021, the efficiency ratio grewand adjusted efficiency ratio, both declined due to improvements in net interest income from the recent acquisitions, coupled with higher non-interest income, outpacing increases in 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.expense.
Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)
In addition to return on average assets, management uses return on average assets adjusted for non-core items to monitor performance. The return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution.
The following table provides a reconciliation of this Non-US GAAP 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 | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
| Annualized net (loss) income adjusted for non-core items: | | |
Net (loss) income | $ | (5,758) | | $ | 10,103 | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | | |
Annualized net income adjusted for non-core items: | | Annualized net income adjusted for non-core items: | |
Net income | | Net income | $ | 24,888 | | $ | 23,577 | | $ | 10,103 | | | $ | 48,465 | | $ | 25,566 | |
| Add: net loss on investment securities | Add: net loss on investment securities | 166 | | 202 | | — | | | 704 | | — | | Add: net loss on investment securities | 44 | | — | | 202 | | | — | | 538 | |
Less: tax effect of net loss on investment securities (a) | Less: tax effect of net loss on investment securities (a) | 35 | | 42 | | — | | | 148 | | — | | Less: tax effect of net loss on investment securities (a) | 9 | | — | | 42 | | | — | | 113 | |
Less: net gain on investment securities | Less: net gain on investment securities | — | | — | | 2 | | | — | | 383 | | Less: net gain on investment securities | — | | 130 | | — | | | 86 | | — | |
Add: tax effect of net gain on investment securities (a) | Add: tax effect of net gain on investment securities (a) | — | | — | | — | | | — | | 80 | | Add: tax effect of net gain on investment securities (a) | — | | 27 | | — | | | 18 | | — | |
Add: net loss on asset disposals and other transactions | Add: net loss on asset disposals and other transactions | 308 | | 124 | | 28 | | | 459 | | 237 | | Add: net loss on asset disposals and other transactions | 152 | | 127 | | 124 | | | 279 | | 151 | |
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) | 65 | | 26 | | 6 | | | 96 | | 50 | | Less: tax effect of net loss on asset disposals and other transactions (a) | 32 | | 27 | | 26 | | | 59 | | 32 | |
| Add: acquisition-related expenses | Add: acquisition-related expenses | 16,209 | | 2,400 | | 335 | | | 20,520 | | 412 | | Add: acquisition-related expenses | 602 | | 1,373 | | 2,400 | | | 1,975 | | 4,311 | |
Less: tax effect of acquisition-related expenses (a) | Less: tax effect of acquisition-related expenses (a) | 3,404 | | 504 | | 70 | | | 4,309 | | 87 | | Less: tax effect of acquisition-related expenses (a) | 126 | | 288 | | 504 | | | 415 | | 905 | |
Add: pension settlement charges | 143 | | — | | 531 | | | 143 | | 1,050 | | |
Less: tax effect of pension settlement charges (a) | 30 | | — | | 112 | | | 30 | | 221 | | |
| Add: severance expenses | Add: severance expenses | — | | 14 | | 192 | | | 63 | | 284 | | Add: severance expenses | — | | — | | 14 | | | — | | 63 | |
Less: tax effect of severance expenses (a) | Less: tax effect of severance expenses (a) | — | | 3 | | 40 | | | 13 | | 60 | | Less: tax effect of severance expenses (a) | — | | — | | 3 | | | — | | 13 | |
Add: COVID-19-related expenses | Add: COVID-19-related expenses | 181 | | 210 | | 148 | | | 683 | | 1,206 | | Add: COVID-19-related expenses | 29 | | 94 | | 210 | | | 123 | | 502 | |
Less: tax effect of COVID-19-related expenses (a) | Less: tax effect of COVID-19-related expenses (a) | 38 | | 44 | | 31 | | | 143 | | 253 | | Less: tax effect of COVID-19-related expenses (a) | 6 | | 20 | | 44 | | | 26 | | 105 | |
Add: Peoples Bank Foundation, Inc. contribution | Add: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | 500 | | — | | 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 | | — | | Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) | — | | — | | — | | | — | | 105 | |
| Add: contract negotiation fees | 1,851 | | — | | — | | | 1,851 | | — | | |
Less: tax effect of contract negotiation fees | 389 | | — | | — | | | 389 | | — | | |
| Net income adjusted for non-core items (after tax) | Net income adjusted for non-core items (after tax) | $ | 9,139 | | $ | 12,434 | | $ | 11,183 | | | $ | 39,498 | | $ | 16,409 | | Net income adjusted for non-core items (after tax) | $ | 25,542 | | $ | 24,733 | | $ | 12,434 | | | $ | 50,274 | | $ | 30,358 | |
Days in the period | Days in the period | 92 | | 91 | | 92 | | | 273 | | 274 | | Days in the period | 91 | | 90 | | 91 | | | 181 | | 181 | |
Days in the year | Days in the year | 365 | | 365 | | 366 | | | 365 | | 366 | | Days in the year | 365 | | 365 | | 365 | | | 365 | | 365 | |
Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | | |
Annualized net income | | Annualized net income | $ | 99,825 | | $ | 95,618 | | $ | 40,523 | | | $ | 97,733 | | $ | 51,556 | |
Annualized net income adjusted for non-core items (after tax) | Annualized net income adjusted for non-core items (after tax) | $ | 36,258 | | $ | 49,873 | | $ | 44,489 | | | $ | 52,809 | | $ | 21,919 | | Annualized net income adjusted for non-core items (after tax) | $ | 102,449 | | $ | 100,306 | | $ | 49,873 | | | $ | 101,381 | | $ | 61,219 | |
Return on average assets: | Return on average assets: | | Return on average assets: | |
Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | | |
Annualized net income | | Annualized net income | $ | 99,825 | | $ | 95,618 | | $ | 40,523 | | | $ | 97,733 | | $ | 51,556 | |
Total average assets | Total average assets | 5,475,147 | | 5,183,146 | | 4,906,614 | | | 5,192,183 | | 4,706,153 | | Total average assets | 7,121,663 | | 7,067,816 | | 5,183,146 | | | 7,094,228 | | 5,048,360 | |
Return on average assets | Return on average assets | (0.42) | % | 0.78 | % | 0.83 | % | | 0.51 | % | 0.40 | % | Return on average assets | 1.40 | % | 1.35 | % | 0.78 | % | | 1.38 | % | 1.02 | % |
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) | $ | 36,258 | | $ | 49,873 | | $ | 44,489 | | | $ | 52,809 | | $ | 21,919 | | Annualized net income adjusted for non-core items (after tax) | $ | 102,449 | | $ | 100,306 | | $ | 49,873 | | | $ | 101,381 | | $ | 61,219 | |
Total average assets | Total average assets | 5,475,147 | | 5,183,146 | | 4,906,614 | | | 5,192,183 | | 4,706,153 | | Total average assets | 7,121,663 | | 7,067,816 | | 5,183,146 | | | 7,094,228 | | 5,048,360 | |
Return on average assets adjusted for non-core items | Return on average assets adjusted for non-core items | 0.66 | % | 0.96 | % | 0.91 | % | | 1.02 | % | 0.47 | % | Return on average assets adjusted for non-core items | 1.44 | % | 1.42 | % | 0.96 | % | | 1.43 | % | 1.21 | % |
(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 declinedimproved compared to the linked quarter, due to the higher net interest income driven by increases in market interest rates, coupled with decreases in acquisition-related expenses, salaries and employee benefits, and FDIC insurance premiums.
The increase in return on average assets for the second quarter of 2022, compared to the second quarter of 2021 and the first half of 2022 compared to the first half of 2021, was attributable to higher net interest income and non-interest income, which were driven by the recent acquisitions.
incentive compensation. The return on average assets and the return on average assets adjusted for non-core items both grew compared to the first nine months of 2020. The increases were mostly due to the previously mentioned higher provision for credit losses recorded during the first nine months of 2020. For additional information related to the changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”
Return on Average Tangible Equity Ratio (Non-US GAAP)
The return on average tangible equity ratio is a key financial measure used to monitor performance. This ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible equity. This measure is Non-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | June 30, 2022 | March 31, 2022 | June 30, 2021 | | June 30, |
(Dollars in thousands) | (Dollars in thousands) | | 2021 | 2020 | (Dollars in thousands) | | 2022 | 2021 |
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 (loss) income | $ | (5,758) | | $ | 10,103 | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | | |
Net income | | Net income | $ | 24,888 | | $ | 23,577 | | $ | 10,103 | | | $ | 48,465 | | $ | 25,566 | |
Add: amortization of other intangible assets | Add: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | | Add: amortization of other intangible assets | 2,034 | | 1,708 | | 1,368 | | | 3,742 | | 1,988 | |
Less: tax effect of amortization of other intangible assets (a) | Less: tax effect of amortization of other intangible assets (a) | 269 | | 287 | | 180 | | | 686 | | 486 | | Less: tax effect of amortization of other intangible assets (a) | 427 | | 359 | | 287 | | | 786 | | 417 | |
Net income excluding amortization of other intangible assets | Net income excluding amortization of other intangible assets | $ | (4,748) | | $ | 11,184 | | $ | 10,887 | | | $ | 22,389 | | $ | 16,022 | | Net income excluding amortization of other intangible assets | $ | 26,495 | | $ | 24,926 | | $ | 11,184 | | | $ | 51,421 | | $ | 27,137 | |
Days in the period | Days in the period | 92 | | 91 | | 92 | | | 273 | | 274 | | Days in the period | 91 | | 90 | | 91 | | | 181 | | 181 | |
Days in the year | Days in the year | 365 | | 365 | | 366 | | | 365 | | 366 | | Days in the year | 365 | | 365 | | 365 | | | 365 | | 365 | |
Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | | |
Annualized net (loss) income excluding amortization of other intangible assets | $ | (18,837) | | $ | 44,859 | | $ | 43,311 | | | $ | 29,934 | | $ | 21,402 | | |
Annualized net income | | Annualized net income | $ | 99,825 | | $ | 95,618 | | $ | 40,523 | | | $ | 97,733 | | $ | 51,556 | |
Annualized net income excluding amortization of other intangible assets | | Annualized net income excluding amortization of other intangible assets | $ | 106,271 | | $ | 101,089 | | $ | 44,859 | | | $ | 103,694 | | $ | 54,724 | |
Average tangible equity: | Average tangible equity: | | Average tangible equity: | |
Total average stockholders' equity | Total average stockholders' equity | $ | 627,783 | | $ | 581,831 | | $ | 567,055 | | | $ | 595,918 | | $ | 578,439 | | Total average stockholders' equity | $ | 791,401 | | $ | 834,752 | | $ | 581,831 | | | $ | 812,956 | | $ | 579,721 | |
Less: average goodwill and other intangible assets | Less: average goodwill and other intangible assets | 232,361 | | 222,553 | | 185,816 | | | 213,232 | | 180,291 | | Less: average goodwill and other intangible assets | 329,243 | | 304,124 | | 222,553 | | | 316,753 | | 203,509 | |
Average tangible equity | Average tangible equity | $ | 395,422 | | $ | 359,278 | | $ | 381,239 | | | $ | 382,686 | | $ | 398,148 | | Average tangible equity | $ | 462,158 | | $ | 530,628 | | $ | 359,278 | | | $ | 496,203 | | $ | 376,212 | |
Return on average stockholders' equity ratio: | Return on average stockholders' equity ratio: | | Return on average stockholders' equity ratio: | |
Annualized net income | Annualized net income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | | Annualized net income | $ | 99,825 | | $ | 95,618 | | $ | 40,523 | | | $ | 97,733 | | $ | 51,556 | |
Average stockholders' equity | Average stockholders' equity | $ | 627,783 | | $ | 581,831 | | $ | 567,055 | | | $ | 595,918 | | $ | 578,439 | | Average stockholders' equity | $ | 791,401 | | $ | 834,752 | | $ | 581,831 | | | $ | 812,956 | | $ | 579,721 | |
Return on average stockholders' equity | Return on average stockholders' equity | (3.64) | % | 6.96 | % | 7.16 | % | | 4.44 | % | 3.28 | % | Return on average stockholders' equity | 12.61 | % | 11.45 | % | 6.96 | % | | 12.02 | % | 8.89 | % |
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 | $ | (18,837) | | $ | 44,859 | | $ | 43,311 | | | $ | 29,934 | | $ | 21,402 | | Annualized net income excluding amortization of other intangible assets | $ | 106,271 | | $ | 101,089 | | $ | 44,859 | | | $ | 103,694 | | $ | 54,724 | |
Average tangible equity | Average tangible equity | $ | 395,422 | | $ | 359,278 | | $ | 381,239 | | | $ | 382,686 | | $ | 398,148 | | Average tangible equity | $ | 462,158 | | $ | 530,628 | | $ | 359,278 | | | $ | 496,203 | | $ | 376,212 | |
Return on average tangible equity | Return on average tangible equity | (4.76) | % | 12.49 | % | 11.36 | % | | 7.82 | % | 5.38 | % | Return on average tangible equity | 22.99 | % | 19.05 | % | 12.49 | % | | 20.90 | % | 14.55 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average stockholders' equity and average tangible equity ratios were higher in the current quarter and the first half of 2022 relative to all prior periods, due to higher total net interest income driven by the recent increases in market interest rates and loans and leases added in the Premier Merger and acquisitions of Vantage and NSL, coupled with higher non-interest income. At the same time, the average tangible equity was negatively impacted by the provisionVantage acquisition, for (recovery of) credit losses during eachwhich People did not issue any equity, and recorded additional goodwill and other intangible assets. Additionally, average tangible equity declined compared to the first quarter of the respective periods, as well as non-core items recognized2022 due to a higher accumulated other comprehensive loss during the periods. Intangible assets grew at September 30, 2021, compared to June 30, 2021, as Peoples recorded the intangibles and goodwill associated with the Premier acquisition, which increased average tangible equity. Additionally, during the first nine monthssecond quarter of 2020, Peoples recorded high amounts of provision for credit losses, which negatively impacted net income,2022 as a result of the COVID-19 pandemic.impact of the interest rate environment on the available-for-sale investment securities portfolio.
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 SeptemberJune 30, 2021,2022, Peoples' interest-bearing deposits in other banks had increased $278.6decreased $35.2 million from December 31, 2020.2021. Peoples paid $82.9 million in cash for the Vantage acquisition during the first quarter of 2022. The total cash and cash equivalents balance included $321.0$297.4 million of excess cash reserves being maintained at the FRB of Cleveland at SeptemberJune 30, 2021,2022, compared to $25.1$318.1 million at December 31, 2020. Peoples also acquired $252.8 million in cash and cash equivalents from Premier.2021. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances, coupled with increased liquidity needs due to the COVID-19 pandemic.balances.
Through the first ninesix months of 2021,2022, Peoples' total cash and cash equivalents increased $347.6decreased $17.3 million as Peoples had net cash provided byused in investing activities of $106.3$196.0 million, which more than offset cash provided by financing activities of $174.6$116.0 million and by operating activities of $66.7$62.7 million. Peoples' investing activities reflected a net decrease of $156.6 million in loans and an aggregate of $896.6 million in purchases of available-for-sale and held-to-maturity investment securities which were partially offset by an aggregatetotaling $233.1 million, cash outflows for business combinations of $711.5$85.8 million, net of a decrease in netloans held for investment of $70.9 million and proceeds from sales, principal payments, calls and prepayments onof available-for-sale and held-to-maturity investment securities. Financingsecurities of $112.8 million. The cash provided by financing activities included a $165.4 million net increase in deposits and an increase of $32.6 millionwas largely driven by increases in short-term borrowings as well as no purchases of treasury stock under$154.9 million, and in interest-bearing deposits of $46.5 million, the share repurchase program and $20.9 millionlatter of cash dividends paid.which was driven by higher governmental deposits, which are seasonal in nature.
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, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | Weighted Average Yield | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
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. Treasury and government agencies | | U.S. Treasury and government agencies | 2.24 | % | $ | 175,255 | | $ | 167,406 | | $ | 35,604 | | $ | — | | $ | — | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 78,481 | | $ | 14,235 | | $ | 18,471 | | $ | 5,363 | | $ | 5,383 | | U.S. government sponsored agencies | 1.48 | % | 82,465 | | 80,654 | | 81,739 | | 78,481 | | 14,235 | |
States and political subdivisions | States and political subdivisions | 252,919 | | 223,853 | | 218,484 | | 114,919 | | 104,126 | | States and political subdivisions | 2.64 | % | 249,402 | | 231,644 | | 259,319 | | 252,919 | | 223,853 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 898,459 | | 579,152 | | 596,181 | | 623,218 | | 726,992 | | Residential mortgage-backed securities | 1.78 | % | 691,735 | | 753,353 | | 828,517 | | 898,459 | | 579,152 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 62,552 | | 27,631 | | 27,481 | | 4,783 | | 10,568 | | Commercial mortgage-backed securities | 1.65 | % | 58,301 | | 58,112 | | 63,519 | | 62,552 | | 27,631 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 4,679 | | 4,766 | | 4,730 | | 4,730 | | 4,633 | | Bank-issued trust preferred securities | 2.83 | % | 10,440 | | 10,670 | | 6,795 | | 4,679 | | 4,766 | |
| Total fair value | Total fair value | $ | 1,297,090 | | $ | 849,637 | | $ | 865,347 | | $ | 753,013 | | $ | 851,702 | | Total fair value | | $ | 1,267,598 | | $ | 1,301,839 | | $ | 1,275,493 | | $ | 1,297,090 | | $ | 849,637 | |
Total amortized cost | Total amortized cost | $ | 1,294,654 | | $ | 839,682 | | $ | 859,120 | | $ | 734,544 | | $ | 829,899 | | Total amortized cost | | $ | 1,389,621 | | $ | 1,381,259 | | $ | 1,283,146 | | $ | 1,294,654 | | $ | 839,682 | |
Net unrealized gain | $ | 2,436 | | $ | 9,955 | | $ | 6,227 | | $ | 18,469 | | $ | 21,803 | | |
Net unrealized (loss) gain | | Net unrealized (loss) gain | | $ | (122,023) | | $ | (79,420) | | $ | (7,653) | | $ | 2,436 | | $ | 9,955 | |
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 | | $ | — | | $ | — | | U.S. government sponsored agencies | 1.99 | % | $ | 50,990 | | $ | 38,486 | | $ | 36,431 | | $ | 29,995 | | $ | 30,103 | |
States and political subdivisions (a) | States and political subdivisions (a) | 124,181 | | 102,224 | | 92,436 | | 35,139 | | 3,539 | | States and political subdivisions (a) | 2.15 | % | 151,034 | | 151,217 | | 151,402 | | 124,181 | | 102,224 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 41,035 | | 24,067 | | 24,878 | | 25,890 | | 26,926 | | Residential mortgage-backed securities | 1.55 | % | 112,095 | | 115,613 | | 110,708 | | 41,035 | | 24,067 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 47,889 | | 23,830 | | 18,705 | | 5,429 | | 5,678 | | Commercial mortgage-backed securities | 1.69 | % | 86,601 | | 79,340 | | 75,588 | | 47,889 | | 23,830 | |
Total amortized cost | Total amortized cost | $ | 243,100 | | $ | 180,224 | | $ | 166,230 | | $ | 66,458 | | $ | 36,143 | | Total amortized cost | | $ | 400,720 | | $ | 384,656 | | $ | 374,129 | | $ | 243,100 | | $ | 180,224 | |
Other investment securities | Other investment securities | $ | 34,486 | | $ | 32,584 | | $ | 34,026 | | $ | 37,560 | | $ | 40,715 | | Other investment securities | | $ | 41,655 | | $ | 41,840 | | $ | 33,987 | | $ | 34,486 | | $ | 32,584 | |
Total investment securities: | Total investment securities: | | Total investment securities: | |
Amortized cost | Amortized cost | $ | 1,572,240 | | $ | 1,052,490 | | $ | 1,059,376 | | $ | 838,562 | | $ | 906,757 | | Amortized cost | | $ | 1,831,996 | | $ | 1,807,755 | | $ | 1,691,262 | | $ | 1,572,240 | | $ | 1,052,490 | |
Carrying value | Carrying value | $ | 1,574,676 | | $ | 1,062,445 | | $ | 1,065,603 | | $ | 857,031 | | $ | 928,560 | | Carrying value | | $ | 1,709,973 | | $ | 1,728,335 | | $ | 1,683,609 | | $ | 1,574,676 | | $ | 1,062,445 | |
| |
(a)Amortized cost is presented net of the allowance for credit losses of $286 at June 30, 2022 and December 31, 2021; $236 at September 30, 2021;2021 and $201 at June 30, 2021; $182 at March 31, 2021; $60 at December 31, 20202021.
For the first quarter of 2022, total investment securities increased compared to the prior quarter, largely due to investments made in U.S. Treasury and $6 at September 30, 2020.government agencies' obligations, in an effort to deploy cash, improve investment yields and reduce risk, partially offset by the reduction in market value of available-for-sale securities driven by the recent increases in market interest rates.
During the third quarter of 2021, Peoples acquired investment securities in the Premier acquisition, investment securities totaling $563.3 million. Peoples sold $400.6 million of available-for-sale investment securities and reinvested $358.7 million ofMerger, driving the proceeds into higher-yielding investments. The increase compared to December 31, 2020 was driven by the Premier acquisition and an increase in available-for-sale commercial-mortgage backed securities that were purchased during the first nine months of 2021, coupled with purchases of available for sale and held-to-maturity obligations of state and political subdivisions, which were purchased in an effort to reduce the impact of premium amortization on the securities that were sold. At December 31, 2020, the investment security portfolio decreased compared to prior periods, as Peoples had worked to execute the strategy to sell securities that had high premium
amortization, and reinvest into investment securities; however, not all proceeds from those sales had been reinvested by December 31, 2020.June 30, 2021.
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, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Originated loans: | Originated loans: | | Originated loans: | |
Construction | Construction | $ | 108,334 | | $ | 97,424 | | $ | 75,189 | | $ | 103,169 | | $ | 103,948 | | Construction | $ | 144,062 | | $ | 171,934 | | $ | 137,437 | | $ | 108,334 | | $ | 97,424 | |
Commercial real estate, other | Commercial real estate, other | 838,333 | | 836,613 | | 832,399 | | 780,324 | | 752,480 | | Commercial real estate, other | 899,774 | | 854,721 | | 861,610 | | 838,333 | | 836,613 | |
Commercial real estate | Commercial real estate | 946,667 | | 934,037 | | 907,588 | | 883,493 | | 856,428 | | Commercial real estate | 1,043,836 | | 1,026,655 | | 999,047 | | 946,667 | | 934,037 | |
Commercial and industrial | Commercial and industrial | 715,169 | | 778,122 | | 935,150 | | 943,024 | | 1,029,613 | | Commercial and industrial | 777,050 | | 791,307 | | 779,064 | | 715,169 | | 778,122 | |
Premium finance | Premium finance | 134,755 | | 117,039 | | 109,129 | | 100,571 | | 60,908 | | Premium finance | 152,237 | | 145,813 | | 136,121 | | 134,755 | | 117,039 | |
Leases | Leases | 49,464 | | 24,217 | | — | | — | | — | | Leases | 149,894 | | 97,168 | | 69,169 | | 49,464 | | 24,217 | |
Residential real estate | Residential real estate | 334,838 | | 324,321 | | 306,440 | | 281,623 | | 284,645 | | Residential real estate | 373,010 | | 364,989 | | 350,595 | | 334,838 | | 324,321 | |
Home equity lines of credit | Home equity lines of credit | 98,806 | | 95,376 | | 92,540 | | 93,296 | | 91,701 | | Home equity lines of credit | 115,935 | | 107,414 | | 104,176 | | 98,806 | | 95,376 | |
Consumer, indirect | Consumer, indirect | 543,243 | | 537,926 | | 519,749 | | 503,526 | | 491,663 | | Consumer, indirect | 563,088 | | 524,778 | | 530,532 | | 543,243 | | 537,926 | |
Consumer, direct | Consumer, direct | 80,746 | | 78,736 | | 75,998 | | 75,591 | | 75,106 | | Consumer, direct | 95,371 | | 87,994 | | 81,330 | | 80,746 | | 78,736 | |
Consumer | Consumer | 623,989 | | 616,662 | | 595,747 | | 579,117 | | 566,769 | | Consumer | 658,459 | | 612,772 | | 611,862 | | 623,989 | | 616,662 | |
Deposit account overdrafts | Deposit account overdrafts | 927 | | 498 | | 298 | | 351 | | 519 | | Deposit account overdrafts | 851 | | 699 | | 756 | | 927 | | 498 | |
Total originated loans | Total originated loans | $ | 2,904,615 | | $ | 2,890,272 | | $ | 2,946,892 | | $ | 2,881,475 | | $ | 2,890,583 | | Total originated loans | $ | 3,271,272 | | $ | 3,146,817 | | $ | 3,050,790 | | $ | 2,904,615 | | $ | 2,890,272 | |
Acquired loans (a): | Acquired loans (a): | | Acquired loans (a): | |
Construction | Construction | $ | 66,450 | | $ | 3,175 | | $ | 3,510 | | $ | 3,623 | | $ | 4,103 | | Construction | $ | 58,526 | | $ | 66,371 | | $ | 72,795 | | $ | 66,450 | | $ | 3,175 | |
Commercial real estate, other | Commercial real estate, other | 790,783 | | 111,647 | | 132,850 | | 149,529 | | 160,759 | | Commercial real estate, other | 560,249 | | 602,511 | | 688,471 | | 790,783 | | 111,647 | |
Commercial real estate | Commercial real estate | 857,233 | | 114,822 | | 136,360 | | 153,152 | | 164,862 | | Commercial real estate | 618,775 | | 668,882 | | 761,266 | | 857,233 | | 114,822 | |
Commercial and industrial | Commercial and industrial | 143,369 | | 27,629 | | 29,611 | | 30,621 | | 34,396 | | Commercial and industrial | 81,402 | | 95,844 | | 112,328 | | 143,369 | | 27,629 | |
Premium finance | Premium finance | — | | 49 | | 1,461 | | 14,187 | | 43,217 | | Premium finance | — | | — | | 15 | | — | | 49 | |
Leases | Leases | 61,982 | | 71,426 | | — | | — | | — | | Leases | 164,628 | | 169,900 | | 53,339 | | 61,982 | | 71,426 | |
Residential real estate | Residential real estate | 433,296 | | 242,276 | | 267,260 | | 292,384 | | 304,804 | | Residential real estate | 369,995 | | 391,440 | | 421,123 | | 433,296 | | 242,276 | |
Home equity lines of credit | Home equity lines of credit | 62,564 | | 23,025 | | 24,886 | | 27,617 | | 30,234 | | Home equity lines of credit | 53,400 | | 54,874 | | 59,417 | | 62,564 | | 23,025 | |
Consumer, indirect | Consumer, indirect | 13 | | — | | — | | 1 | | 36 | | Consumer, indirect | — | | — | | — | | 13 | | — | |
Consumer, direct | Consumer, direct | 27,956 | | 2,700 | | 3,206 | | 3,503 | | 3,953 | | Consumer, direct | 16,433 | | 19,396 | | 23,322 | | 27,956 | | 2,700 | |
Consumer | Consumer | 27,969 | | 2,700 | | 3,206 | | 3,504 | | 3,989 | | Consumer | 16,433 | | 19,396 | | 23,322 | | 27,969 | | 2,700 | |
Total acquired loans | Total acquired loans | $ | 1,586,413 | | $ | 481,927 | | $ | 462,784 | | $ | 521,465 | | $ | 581,502 | | Total acquired loans | $ | 1,304,633 | | $ | 1,400,336 | | $ | 1,430,810 | | $ | 1,586,413 | | $ | 481,927 | |
Total loans | Total loans | $ | 4,491,028 | | $ | 3,372,199 | | $ | 3,409,676 | | $ | 3,402,940 | | $ | 3,472,085 | | Total loans | $ | 4,575,905 | | $ | 4,547,153 | | $ | 4,481,600 | | $ | 4,491,028 | | $ | 3,372,199 | |
| Percent of loans to total loans: | Percent of loans to total loans: | | | Percent of loans to total loans: | | |
Construction | Construction | 3.9 | % | 3.0 | % | 2.3 | % | 3.1 | % | 3.1 | % | Construction | 4.4 | % | 5.2 | % | 4.7 | % | 3.9 | % | 3.0 | % |
Commercial real estate, other | Commercial real estate, other | 36.3 | % | 28.1 | % | 28.3 | % | 27.3 | % | 26.3 | % | Commercial real estate, other | 32.0 | % | 32.1 | % | 34.7 | % | 36.3 | % | 28.1 | % |
Commercial real estate | Commercial real estate | 40.2 | % | 31.1 | % | 30.6 | % | 30.4 | % | 29.4 | % | Commercial real estate | 36.4 | % | 37.3 | % | 39.4 | % | 40.2 | % | 31.1 | % |
Commercial and industrial | Commercial and industrial | 19.1 | % | 23.9 | % | 28.3 | % | 28.6 | % | 30.6 | % | Commercial and industrial | 18.8 | % | 19.5 | % | 19.9 | % | 19.1 | % | 23.9 | % |
Premium finance | Premium finance | 3.0 | % | 3.5 | % | 3.2 | % | 3.4 | % | 3.0 | % | Premium finance | 3.3 | % | 3.2 | % | 3.0 | % | 3.0 | % | 3.5 | % |
Leases | Leases | 2.5 | % | 2.8 | % | — | % | — | % | — | % | Leases | 6.9 | % | 5.9 | % | 2.7 | % | 2.5 | % | 2.8 | % |
Residential real estate | Residential real estate | 17.1 | % | 16.8 | % | 16.8 | % | 16.9 | % | 17.0 | % | Residential real estate | 16.2 | % | 16.6 | % | 17.2 | % | 17.1 | % | 16.8 | % |
Home equity lines of credit | Home equity lines of credit | 3.6 | % | 3.5 | % | 3.5 | % | 3.6 | % | 3.5 | % | Home equity lines of credit | 3.7 | % | 3.6 | % | 3.7 | % | 3.6 | % | 3.5 | % |
Consumer, indirect | Consumer, indirect | 12.1 | % | 16.0 | % | 15.3 | % | 14.8 | % | 14.2 | % | Consumer, indirect | 12.3 | % | 11.5 | % | 11.8 | % | 12.1 | % | 16.0 | % |
Consumer, direct | Consumer, direct | 2.4 | % | 2.4 | % | 2.3 | % | 2.3 | % | 2.3 | % | Consumer, direct | 2.4 | % | 2.4 | % | 2.3 | % | 2.4 | % | 2.4 | % |
Consumer | Consumer | 14.5 | % | 18.4 | % | 17.6 | % | 17.1 | % | 16.5 | % | Consumer | 14.7 | % | 13.9 | % | 14.1 | % | 14.5 | % | 18.4 | % |
| 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 | $ | 441,085 | | $ | 454,399 | | $ | 469,788 | | $ | 485,972 | | $ | 490,170 | | Residential real estate loans being serviced for others | $ | 410,007 | | $ | 420,024 | | $ | 430,597 | | $ | 441,085 | | $ | 454,399 | |
|
(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 June 30, 2022 increased $28.8 million compared to March 31, 2022, and were driven by increases of $38.3 million in consumer indirect loans and $47.4 million in leases, $15.5 million of which related to a purchase accounting adjustment on the Vantage portfolio, partially offset by a reduction in construction loans of $35.7 million. The acquired loan decrease was driven by payoffs of commercial real estate and commercial and industrial loans in the Premier Merger.
The increase in loans at September 30, 2021, increased $1.1 billion compared to June 30, 2021. The increase compared to June 30, 2021, was mostly driven byprimarily due to the Premier Merger, which added $1.1 billion in loans acquired from Premier, coupled with organic growth in premium finance loans of $17.7 million, growthloans. The increase 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,from December 31, 2021 compared to March 31, 202131,2022, 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.Vantage.
The decline in construction loan balances of $28.0 million at March 31, 2021, compared to December 31, 2020, was mainly due to construction projects being completed and construction loans then converting to permanent financing.
Loan Concentration
Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio.
Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following tables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at SeptemberJune 30, 2021:2022:
| (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 | $ | 76,292 | | $ | 135,048 | | $ | 211,340 | | 47.7 | % | Apartment complexes | $ | 64,451 | | $ | 95,898 | | $ | 160,349 | | 36.5 | % |
Mixed-use facilities | Mixed-use facilities | 14,641 | | 43,992 | | 58,633 | | 13.2 | % | Mixed-use facilities | 39,333 | | 19,205 | | 58,538 | | 13.3 | % |
Assisted living facilities and nursing homes | Assisted living facilities and nursing homes | 15,804 | | 30,708 | | 46,512 | | 10.5 | % | Assisted living facilities and nursing homes | 18,106 | | 15,775 | | 33,881 | | 7.7 | % |
Land only | Land only | 25,959 | | 12,968 | | 38,927 | | 8.8 | % | Land only | 18,106 | | 12,207 | | 30,313 | | 6.9 | % |
Office buildings and complexes | Office buildings and complexes | 3,523 | | 15,969 | | 19,492 | | 4.4 | % | Office buildings and complexes | 11,711 | | 10,321 | | 22,032 | | 5.0 | % |
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 | % | Lodging and lodging related | 5,170 | | 1,379 | | 6,549 | | 1.5 | % |
Retail | Retail | 5,408 | | 6,470 | | 11,878 | | 2.7 | % | Retail | 8,654 | | 2,023 | | 10,677 | | 2.4 | % |
Residential property | Residential property | 4,529 | | 4,932 | | 9,461 | | 2.1 | % | Residential property | 8,699 | | 7,156 | | 15,855 | | 3.6 | % |
Industrial | | Industrial | 8,393 | | 7,651 | | 16,044 | | 3.6 | % |
| Day care facilities - owner occupied | | Day care facilities - owner occupied | 3,960 | | 4,000 | | 7,960 | | 1.8 | % |
| Other (a) | Other (a) | 11,878 | | 7,118 | | 18,996 | | 4.3 | % | Other (a) | 16,005 | | 61,514 | | 77,519 | | 17.7 | % |
Total construction | Total construction | $ | 174,784 | | $ | 268,587 | | $ | 443,371 | | 100.0 | % | Total construction | $ | 202,588 | | $ | 237,129 | | $ | 439,717 | | 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 | $ | 78,614 | | $ | 3,199 | | $ | 81,813 | | 4.9 | % | Owner occupied | $ | 75,510 | | $ | 3,243 | | $ | 78,753 | | 5.2 | % |
Non-owner occupied | Non-owner occupied | 93,863 | | 3,795 | | 97,658 | | 5.8 | % | Non-owner occupied | 80,295 | | 4,011 | | 84,306 | | 5.6 | % |
Total office buildings and complexes | Total office buildings and complexes | 172,477 | | 6,994 | | 179,471 | | 10.7 | % | Total office buildings and complexes | 155,805 | | 7,254 | | 163,059 | | 10.8 | % |
Retail facilities: | Retail facilities: | | Retail facilities: | |
Owner occupied | Owner occupied | 55,417 | | 1,752 | | 57,169 | | 3.4 | % | Owner occupied | 43,491 | | 711 | | 44,202 | | 2.9 | % |
Non-owner occupied | Non-owner occupied | 128,759 | | 471 | | 129,230 | | 7.7 | % | Non-owner occupied | 128,410 | | 1,226 | | 129,636 | | 8.6 | % |
Total retail facilities | Total retail facilities | 184,176 | | 2,223 | | 186,399 | | 11.1 | % | Total retail facilities | 171,901 | | 1,937 | | 173,838 | | 11.5 | % |
Mixed-use facilities: | Mixed-use facilities: | | Mixed-use facilities: | |
Owner occupied | Owner occupied | 55,549 | | 1,582 | | 57,131 | | 3.4 | % | Owner occupied | 51,186 | | 274 | | 51,460 | | 3.4 | % |
Non-owner occupied | Non-owner occupied | 63,214 | | 458 | | 63,672 | | 3.8 | % | Non-owner occupied | 58,225 | | 775 | | 59,000 | | 3.9 | % |
Total mixed-use facilities | Total mixed-use facilities | 118,763 | | 2,040 | | 120,803 | | 7.2 | % | Total mixed-use facilities | 109,411 | | 1,049 | | 110,460 | | 7.3 | % |
Apartment complexes | Apartment complexes | 98,159 | | 1,468 | | 99,627 | | 5.9 | % | Apartment complexes | 109,585 | | 3,825 | | 113,410 | | 7.5 | % |
Light industrial facilities: | Light industrial facilities: | | | Light industrial facilities: | | |
Owner occupied | Owner occupied | 79,414 | | 1,531 | | 80,945 | | 4.8 | % | Owner occupied | 96,708 | | 1,610 | | 98,318 | | 6.5 | % |
Non-owner occupied | Non-owner occupied | 34,473 | | 757 | | 35,230 | | 2.1 | % | Non-owner occupied | 40,963 | | 3,662 | | 44,625 | | 3.0 | % |
Total light industrial facilities | Total light industrial facilities | 113,887 | | 2,288 | | 116,175 | | 6.9 | % | Total light industrial facilities | 137,671 | | 5,272 | | 142,943 | | 9.5 | % |
Assisted living facilities and nursing homes | Assisted living facilities and nursing homes | 81,539 | | 750 | | 82,289 | | 4.9 | % | Assisted living facilities and nursing homes | 72,498 | | 250 | | 72,748 | | 4.8 | % |
Warehouse facilities: | Warehouse facilities: | | Warehouse facilities: | |
Owner occupied | Owner occupied | 38,685 | | 1,400 | | 40,085 | | 2.4 | % | Owner occupied | 35,884 | | 1,471 | | 37,355 | | 2.5 | % |
Non-owner occupied | Non-owner occupied | 38,614 | | 27 | | 38,641 | | 2.3 | % | Non-owner occupied | 35,681 | | 163 | | 35,844 | | 2.4 | % |
Total warehouse facilities | Total warehouse facilities | 77,299 | | 1,427 | | 78,726 | | 4.7 | % | Total warehouse facilities | 71,565 | | 1,634 | | 73,199 | | 4.9 | % |
Lodging and lodging related: | Lodging and lodging related: | | Lodging and lodging related: | |
Owner occupied | Owner occupied | 15,131 | | 210 | | 15,341 | | 0.9 | % | Owner occupied | 13,659 | | 2,553 | | 16,212 | | 1.1 | % |
Non-owner occupied | Non-owner occupied | 119,043 | | 150 | | 119,193 | | 7.1 | % | Non-owner occupied | 88,329 | | 430 | | 88,759 | | 5.9 | % |
Total lodging and lodging related | Total lodging and lodging related | 134,174 | | 360 | | 134,534 | | 8.0 | % | Total lodging and lodging related | 101,988 | | 2,983 | | 104,971 | | 7.0 | % |
Education services: | Education services: | | Education services: | |
Owner occupied | Owner occupied | 15,615 | | 98 | | 15,713 | | 0.9 | % | Owner occupied | 17,887 | | 98 | | 17,985 | | 1.2 | % |
Non-owner occupied | Non-owner occupied | 22,460 | | 4,000 | | 26,460 | | 1.6 | % | Non-owner occupied | 22,140 | | 4,000 | | 26,140 | | 1.7 | % |
Total education services | Total education services | 38,075 | | 4,098 | | 42,173 | | 2.5 | % | Total education services | 40,027 | | 4,098 | | 44,125 | | 2.9 | % |
| Healthcare facilities: | | Healthcare facilities: | |
Owner occupied | | Owner occupied | 24,114 | | 401 | | 24,515 | | 1.6 | % |
Non-owner occupied | | Non-owner occupied | 10,842 | | — | | 10,842 | | 0.7 | % |
Total healthcare facilities | | Total healthcare facilities | 34,956 | | 401 | | 35,357 | | 2.3 | % |
Restaurant/bar facilities: | Restaurant/bar facilities: | | Restaurant/bar facilities: | |
Owner occupied | Owner occupied | 22,361 | | — | | 22,361 | | 1.3 | % | Owner occupied | 23,959 | | 74 | | 24,033 | | 1.6 | % |
Non-owner occupied | Non-owner occupied | 14,644 | | — | | 14,644 | | 0.9 | % | Non-owner occupied | 10,780 | | 298 | | 11,078 | | 0.7 | % |
Total restaurant/bar facilities | Total restaurant/bar facilities | 37,005 | | — | | 37,005 | | 2.2 | % | Total restaurant/bar facilities | 34,739 | | 372 | | 35,111 | | 2.3 | % |
| Agriculture | Agriculture | 32,865 | | 1,976 | | 34,841 | | 2.1 | % | Agriculture | 26,744 | | 1,474 | | 28,218 | | 1.9 | % |
Other (a) | Other (a) | 540,697 | | 26,225 | | 566,922 | | 33.8 | % | Other (a) | 393,133 | | 18,584 | | 411,717 | | 27.3 | % |
Total commercial real estate, other | Total commercial real estate, other | $ | 1,629,116 | | $ | 49,849 | | $ | 1,678,965 | | 100.0 | % | Total commercial real estate, other | $ | 1,460,023 | | $ | 49,133 | | $ | 1,509,156 | | 100.0 | % |
|
(a) All other outstanding balances are less than 2% of the total loan portfolio.
Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Maryland. In all other states, the aggregate outstanding balances of commercial loans in each state were less than 4% of total loans at either Septemberboth June 30, 2021 or2022 and December 31, 2020.2021. The repayment of premium finance loans are secured by the underlying insurance policy prepaid premium, and therefore, have no geographical impact from a repayment perspective. The repayment of leases areis secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.
COVID-19 Loan Impacts
Small Business Administration Paycheck Protection Program
In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers
and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria
are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.
Peoples is a PPP participating lender, and the PPP loans originated (including $28.2 million acquired in the merger with Premier) are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following tables detail Peoples' PPP loans and related income:
| | | | | | | | | | | | | | | | | |
(Dollars in millions) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
PPP aggregate outstanding principal balances | $ | 139.8 | | $ | 194.7 | | $ | 349.9 | | $ | 374.8 | | $ | 472.0 | |
PPP net deferred loan origination fees | 4.0 | | 7.1 | | 9.3 | | 7.9 | | 11.6 | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, | | | | | | | | | | | | | | | | | |
(Dollars in millions) | (Dollars in millions) | | 2021 | 2020 | (Dollars in millions) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Amortization of net deferred loan origination fees | $ | 3.1 | | $ | 3.4 | | $ | 1.9 | | | $ | 11.2 | | $ | 3.8 | | |
PPP aggregate outstanding principal balances | | PPP aggregate outstanding principal balances | $ | 15.2 | | $ | 42.9 | | $ | 89.3 | | $ | 139.8 | | $ | 194.7 | |
PPP net deferred loan origination fees | | PPP net deferred loan origination fees | 0.4 | | 1.0 | | 2.2 | | 4.0 | | 7.1 | |
Accretion of net deferred loan origination fees | | Accretion of net deferred loan origination fees | 0.6 | | 1.2 | | 1.8 | | 3.1 | | 3.4 | |
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, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Commercial real estate | Commercial real estate | $ | 39,252 | | $ | 18,147 | | $ | 18,663 | | $ | 19,423 | | $ | 21,549 | | Commercial real estate | $ | 20,239 | | $ | 23,786 | | $ | 32,146 | | $ | 39,252 | | $ | 18,147 | |
Commercial and industrial | Commercial and industrial | 13,378 | | 8,686 | | 10,108 | | 12,763 | | 13,099 | | Commercial and industrial | 8,572 | | 10,114 | | 11,063 | | 13,378 | | 8,686 | |
Premium finance | Premium finance | 1,137 | | 998 | | 1,160 | | 1,095 | | 986 | | Premium finance | 311 | | 345 | | 379 | | 1,137 | | 998 | |
Leases | Leases | 4,505 | | 3,715 | | — | | — | | — | | Leases | 7,585 | | 5,875 | | 4,797 | | 4,505 | | 3,715 | |
Total commercial | 58,272 | | 31,546 | | 29,931 | | 33,281 | | 35,634 | | |
| Residential real estate | Residential real estate | 9,568 | | 4,837 | | 4,935 | | 6,044 | | 5,988 | | Residential real estate | 6,332 | | 6,495 | | 7,233 | | 9,568 | | 4,837 | |
Home equity lines of credit | Home equity lines of credit | 2,224 | | 1,504 | | 1,494 | | 1,860 | | 1,797 | | Home equity lines of credit | 1,699 | | 1,894 | | 2,005 | | 2,224 | | 1,504 | |
Consumer, indirect | Consumer, indirect | 6,160 | | 8,841 | | 7,522 | | 8,030 | | 12,772 | | Consumer, indirect | 6,234 | | 5,172 | | 5,326 | | 6,160 | | 8,841 | |
Consumer, direct | Consumer, direct | 1,079 | | 1,161 | | 970 | | 1,081 | | 1,861 | | Consumer, direct | 1,321 | | 1,036 | | 961 | | 1,079 | | 1,161 | |
Consumer | 7,239 | | 10,002 | | 8,492 | | 9,111 | | 14,633 | | |
| Deposit account overdrafts | Deposit account overdrafts | 79 | | 53 | | 45 | | 63 | | 76 | | Deposit account overdrafts | 53 | | 51 | | 57 | | 79 | | 53 | |
Allowance for credit losses | Allowance for credit losses | $ | 77,382 | | $ | 47,942 | | $ | 44,897 | | $ | 50,359 | | $ | 58,128 | | Allowance for credit losses | $ | 52,346 | | $ | 54,768 | | $ | 63,967 | | $ | 77,382 | | $ | 47,942 | |
As a percent of total loans | As a percent of total loans | 1.72 | % | 1.42 | % | 1.32 | % | 1.48 | % | 1.67 | % | As a percent of total loans | 1.14 | % | 1.20 | % | 1.43 | % | 1.72 | % | 1.42 | % |
DuringThe allowance for credit losses declined at June 30, 2022 compared to March 31, 2022, as a result of improved loss drivers and releases related to individually analyzed loans. The reduction in the third quarter ofallowance for credit losses compared to December 31, 2021 was due to improvements in economic forecasts and loss drivers, along with reductions in loan balances from acquired loans due to payoffs during the quarter. Peoples recorded a$387,000 of provision for credit losses during the first quarter of 2022 to establish the allowance for credit losses for non-purchase credit deteriorated leases acquired from Vantage.
The increase in the allowance for credit losses at September 30, 2021, compared to June 30, 2021, was related to the provision for credit losses recorded in the amount of $11.0 million in order to establish an allowance for credit losses for non-purchasenon-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier.Premier Merger. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchasepurchased credit deteriorated loans acquired from Premier. The increases at September 30, 2021 compared to prior periods are due to the Premier and NSL acquisitions.
During the second quarter, Peoples increased its allowance for credit losses due to the establishment of an allowance for credit losses on the leases acquired from NSL. Peoples recorded $3.3 million in provision for credit losses during the second quarter of 2021 in order to establish the allowance for credit losses for the acquired leases and $493,000 to establish the allowance for credit losses on leases identified as purchase credit deteriorated at the acquisition date and added an additional $427,000 in allowance for credit losses on growth in leases during the second quarter of 2021. The decreases in the allowance for credit losses for March 31, 2021 compared to December 31, 2020, and from December 31, 2020 compared to September 30, 2020, were due to developments related to COVID-19 and the resulting positive impact on the economic assumptions used in estimating the allowance for credit losses under the CECL model.
During much of 2020, Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts that included the impact of COVID-19 on certain economic factors. These forecasts included higher unemployment rates nationally and in Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL
model, compared to prior periods. During the third quarter of 2020, Peoples also recorded allowance for credit losses associated with the loans acquired from Triumph Premium Finance on July 1, 2020, which had included $84.7 million in loans at the acquisition date.
Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 20202021 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
The following table summarizes Peoples’ net charge-offs and recoveries: | | | | | | | | | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Gross charge-offs: | | | | | |
| | | | | |
Commercial real estate, other | $ | — | | $ | 4 | | $ | 157 | | $ | 274 | | $ | 109 | |
| | | | | |
Commercial and industrial | 654 | | 5 | | 293 | | 465 | | 146 | |
Premium finance | 7 | | 7 | | 16 | | 1 | | 2 | |
Leases | 431 | | 525 | | — | | — | | — | |
Residential real estate | 44 | | 136 | | 133 | | 98 | | 121 | |
Home equity lines of credit | 180 | | 4 | | 12 | | 80 | | — | |
Consumer, indirect | 416 | | 269 | | 505 | | 498 | | 370 | |
Consumer, direct | 29 | | 31 | | 36 | | 59 | | 15 | |
Consumer | 445 | | 300 | | 541 | | 557 | | 385 | |
Deposit account overdrafts | 135 | | 89 | | 103 | | 139 | | 202 | |
Total gross charge-offs | $ | 1,896 | | $ | 1,070 | | $ | 1,255 | | $ | 1,614 | | $ | 965 | |
Recoveries: | | | | | |
| | | | | |
Commercial real estate, other | $ | 4 | | $ | 4 | | $ | — | | $ | 74 | | $ | 4 | |
| | | | | |
Commercial and industrial | 4 | | 18 | | — | | 512 | | — | |
Premium finance | — | | — | | — | | — | | — | |
Leases | 120 | | 110 | | — | | — | | — | |
Residential real estate | 48 | | 40 | | 15 | | 45 | | 100 | |
Home equity lines of credit | 37 | | — | | 4 | | 1 | | 2 | |
Consumer, indirect | 43 | | 63 | | 105 | | 41 | | 64 | |
Consumer, direct | 17 | | 11 | | 26 | | 12 | | 13 | |
Consumer | 60 | | 74 | | 131 | | 53 | | 77 | |
Deposit account overdrafts | 37 | | 44 | | 54 | | 30 | | 47 | |
Total recoveries | $ | 310 | | $ | 290 | | $ | 204 | | $ | 715 | | $ | 230 | |
Net charge-offs (recoveries): | | | | | |
| | | | | |
Commercial real estate, other | $ | (4) | | $ | — | | $ | 157 | | $ | 200 | | $ | 105 | |
| | | | | |
Commercial and industrial | 650 | | (13) | | 293 | | (47) | | 146 | |
Premium finance | 7 | | 7 | | 16 | | 1 | | 2 | |
Leases | 311 | | 415 | | — | | — | | — | |
Residential real estate | (4) | | 96 | | 118 | | 53 | | 21 | |
Home equity lines of credit | 143 | | 4 | | 8 | | 79 | | (2) | |
Consumer, indirect | 373 | | 206 | | 400 | | 457 | | 306 | |
Consumer, direct | 12 | | 20 | | 10 | | 47 | | 2 | |
Consumer | 385 | | 226 | | 410 | | 504 | | 308 | |
Deposit account overdrafts | 98 | | 45 | | 49 | | 109 | | 155 | |
Total net charge-offs | $ | 1,586 | | $ | 780 | | $ | 1,051 | | $ | 899 | | $ | 735 | |
| | | Three Months Ended | | Three Months Ended |
(Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Gross charge-offs: | | Gross charge-offs: | | | | |
| Commercial real estate, other | | Commercial real estate, other | $ | 22 | | $ | 278 | | $ | 226 | | $ | — | | $ | 4 | |
| Commercial and industrial | | Commercial and industrial | 420 | | 463 | | 105 | | 654 | | 5 | |
Premium finance | | Premium finance | 30 | | 14 | | 15 | | 7 | | 7 | |
Leases | | Leases | 493 | | 473 | | 478 | | 431 | | 525 | |
Residential real estate | | Residential real estate | 47 | | 309 | | 72 | | 44 | | 136 | |
Home equity lines of credit | | Home equity lines of credit | 25 | | 16 | | 1 | | 180 | | 4 | |
Consumer, indirect | | Consumer, indirect | 449 | | 385 | | 566 | | 416 | | 269 | |
Consumer, direct | | Consumer, direct | 60 | | 136 | | 56 | | 29 | | 31 | |
Consumer | | Consumer | 509 | | 521 | | 622 | | 445 | | 300 | |
Deposit account overdrafts | | Deposit account overdrafts | 405 | | 259 | | 248 | | 135 | | 89 | |
Total gross charge-offs | | Total gross charge-offs | $ | 1,951 | | $ | 2,333 | | $ | 1,767 | | $ | 1,896 | | $ | 1,070 | |
Recoveries: | | Recoveries: | | |
| Commercial real estate, other | | Commercial real estate, other | $ | 176 | | $ | 49 | | $ | 196 | | $ | 4 | | $ | 4 | |
| Commercial and industrial | | Commercial and industrial | 2 | | 4 | | 4 | | 4 | | 18 | |
Premium finance | | Premium finance | 8 | | — | | — | | — | | — | |
Leases | | Leases | 64 | | 176 | | 109 | | 120 | | 110 | |
Residential real estate | | Residential real estate | 14 | | 14 | | 40 | | 48 | | 40 | |
Home equity lines of credit | | Home equity lines of credit | — | | 29 | | — | | 37 | | — | |
Consumer, indirect | | Consumer, indirect | 83 | | 86 | | 42 | | 43 | | 63 | |
Consumer, direct | | Consumer, direct | 11 | | 11 | | 58 | | 17 | | 11 | |
Consumer | | Consumer | 94 | | 97 | | 100 | | 60 | | 74 | |
Deposit account overdrafts | | Deposit account overdrafts | 52 | | 54 | | 42 | | 37 | | 44 | |
Total recoveries | | Total recoveries | $ | 410 | | $ | 423 | | $ | 491 | | $ | 310 | | $ | 290 | |
Net charge-offs (recoveries): | | Net charge-offs (recoveries): | | |
| Commercial real estate, other | | Commercial real estate, other | $ | (154) | | $ | 229 | | $ | 30 | | $ | (4) | | $ | — | |
| Commercial and industrial | | Commercial and industrial | 418 | | 459 | | 101 | | 650 | | (13) | |
Premium finance | | Premium finance | 22 | | 14 | | 15 | | 7 | | 7 | |
Leases | | Leases | 429 | | 297 | | 369 | | 311 | | 415 | |
Residential real estate | | Residential real estate | 33 | | 295 | | 32 | | (4) | | 96 | |
Home equity lines of credit | | Home equity lines of credit | 25 | | (13) | | 1 | | 143 | | 4 | |
Consumer, indirect | | Consumer, indirect | 366 | | 299 | | 524 | | 373 | | 206 | |
Consumer, direct | | Consumer, direct | 49 | | 125 | | (2) | | 12 | | 20 | |
Consumer | | Consumer | 415 | | 424 | | 522 | | 385 | | 226 | |
Deposit account overdrafts | | Deposit account overdrafts | 353 | | 205 | | 206 | | 98 | | 45 | |
Total net charge-offs | | Total net charge-offs | $ | 1,541 | | $ | 1,910 | | $ | 1,276 | | $ | 1,586 | | $ | 780 | |
Ratio of net charge-offs to average total loans (annualized): | 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 | — | % | — | % | 0.02 | % | 0.02 | % | 0.01 | % | Commercial real estate, other | (0.01) | % | 0.02 | % | — | % | — | % | — | % |
| Commercial and industrial | Commercial and industrial | 0.08 | % | — | % | 0.04 | % | (0.01) | % | 0.02 | % | Commercial and industrial | 0.04 | % | 0.03 | % | 0.01 | % | 0.08 | % | — | % |
| Leases | Leases | 0.03 | % | 0.05 | % | — | % | — | % | — | % | Leases | 0.04 | % | 0.03 | % | 0.03 | % | 0.03 | % | 0.05 | % |
Residential real estate | Residential real estate | — | % | 0.01 | % | 0.01 | % | 0.01 | % | — | % | Residential real estate | — | % | 0.03 | % | — | % | — | % | 0.01 | % |
Home equity lines of credit | Home equity lines of credit | 0.02 | % | — | % | — | % | — | % | — | % | Home equity lines of credit | — | % | — | % | — | % | 0.02 | % | — | % |
Consumer, indirect | Consumer, indirect | 0.04 | % | 0.02 | % | 0.05 | % | 0.05 | % | 0.03 | % | Consumer, indirect | 0.03 | % | 0.03 | % | 0.05 | % | 0.04 | % | 0.02 | % |
Consumer, direct | Consumer, direct | — | % | — | % | — | % | 0.01 | % | — | % | Consumer, direct | 0.01 | % | 0.01 | % | — | % | — | % | — | % |
Consumer | Consumer | 0.04 | % | 0.02 | % | 0.05 | % | 0.06 | % | 0.03 | % | Consumer | 0.04 | % | 0.04 | % | 0.05 | % | 0.04 | % | 0.02 | % |
Deposit account overdrafts | Deposit account overdrafts | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.02 | % | Deposit account overdrafts | 0.03 | % | 0.02 | % | 0.02 | % | 0.01 | % | 0.01 | % |
Total | Total | 0.18 | % | 0.09 | % | 0.13 | % | 0.10 | % | 0.08 | % | Total | 0.14 | % | 0.17 | % | 0.11 | % | 0.18 | % | 0.09 | % |
Each with "--%" not meaningful.
Net charge-offs during the thirdsecond quarter of 20212022 were 0.18%0.14% of average total loans on an annualized basis. Although,Peoples has anticipated an increase in the net charge-offs to average total loans, as recent periods have been below historical levels. Compared to
the prior quarter, both commercial real estate and residential real estate gross charge-offs in many loan categories declined compared to the linked quarter, the primary factor in the increase of total gross charge-offs was onedecreased, while commercial and industrial loan charge-off of $500,000 during the quarter. Peoples recognized a $450,000 charge-off on a commercial and industrial loan relationship, while also recording a $508,000 recovery on a previously charged-off commercial and industrial loan relationship during the fourth quarter of 2020. During the second quarter of 2020, Peoples recorded a $750,000 recovery on a commercial loan relationship that had been previously charged-off.real estate experienced higher recoveries.
The following table details Peoples’ nonperforming assets:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Loans 90+ days past due and accruing: | Loans 90+ days past due and accruing: | | Loans 90+ days past due and accruing: | |
| Construction | | Construction | $ | — | | $ | — | | $ | 90 | | $ | — | | $ | — | |
Commercial real estate, other | Commercial real estate, other | $ | 1,912 | | $ | 1,361 | | $ | 55 | | $ | — | | $ | 80 | | Commercial real estate, other | 330 | | 603 | | 689 | | 1,912 | | 1,361 | |
| Commercial and industrial | Commercial and industrial | 98 | | 161 | | — | | 50 | | 74 | | Commercial and industrial | 89 | | 53 | | 1,139 | | 98 | | 161 | |
Premium finance | Premium finance | 368 | | 216 | | 109 | | 205 | | — | | Premium finance | 304 | | 613 | | 865 | | 368 | | 216 | |
Leases | Leases | 1,736 | | 1,522 | | — | | — | | — | | Leases | 5,722 | | 3,921 | | — | | 1,736 | | 1,522 | |
Residential real estate | Residential real estate | 1,156 | | 342 | | 662 | | 1,975 | | 2,548 | | Residential real estate | 1,687 | | 677 | | 805 | | 1,156 | | 342 | |
Home equity lines of credit | Home equity lines of credit | 61 | | 60 | | 180 | | 82 | | 27 | | Home equity lines of credit | 89 | | 75 | | 50 | | 61 | | 60 | |
Consumer, indirect | Consumer, indirect | — | | 39 | | 24 | | 39 | | 86 | | Consumer, indirect | 15 | | 17 | | — | | — | | 39 | |
Consumer, direct | Consumer, direct | 32 | | 40 | | 14 | | 17 | | — | | Consumer, direct | — | | — | | 85 | | 32 | | 40 | |
Consumer | Consumer | 32 | | 79 | | 38 | | 56 | | 86 | | Consumer | 15 | | 17 | | 85 | | 32 | | 79 | |
Total loans 90+ days past due and accruing | Total loans 90+ days past due and accruing | $ | 5,363 | | $ | 3,741 | | $ | 1,044 | | $ | 2,368 | | $ | 2,815 | | Total loans 90+ days past due and accruing | $ | 8,236 | | $ | 5,959 | | $ | 3,723 | | $ | 5,363 | | $ | 3,741 | |
Nonaccrual loans: | Nonaccrual loans: | | | Nonaccrual loans: | | |
Construction | Construction | $ | — | | $ | 4 | | $ | 4 | | $ | 4 | | $ | 4 | | Construction | $ | 5 | | $ | 6 | | $ | 6 | | $ | — | | $ | 4 | |
Commercial real estate, other | Commercial real estate, other | 17,207 | | 7,965 | | 8,084 | | 8,744 | | 8,762 | | Commercial real estate, other | 11,795 | | 14,745 | | 16,849 | | 17,207 | | 7,965 | |
Commercial real estate | 17,207 | | 7,969 | | 8,088 | | 8,748 | | 8,766 | | |
Commercial and industrial | Commercial and industrial | 4,133 | | 3,938 | | 4,067 | | 4,017 | | 4,067 | | Commercial and industrial | 1,748 | | 2,394 | | 2,505 | | 4,133 | | 3,938 | |
Leases | Leases | 1,411 | | — | | — | | — | | — | | Leases | 1,573 | | 1,731 | | 1,581 | | 1,411 | | — | |
Residential real estate | Residential real estate | 8,046 | | 5,811 | | 6,182 | | 6,080 | | 6,027 | | Residential real estate | 7,463 | | 7,459 | | 8,016 | | 8,046 | | 5,811 | |
Home equity lines of credit | Home equity lines of credit | 661 | | 572 | | 624 | | 708 | | 754 | | Home equity lines of credit | 567 | | 604 | | 687 | | 661 | | 572 | |
Consumer, indirect | Consumer, indirect | 850 | | 704 | | 825 | | 883 | | 801 | | Consumer, indirect | 1,351 | | 1,408 | | 1,302 | | 850 | | 704 | |
Consumer, direct | Consumer, direct | 177 | | 100 | | 146 | | 160 | | 148 | | Consumer, direct | 166 | | 231 | | 273 | | 177 | | 100 | |
Consumer | Consumer | 1,027 | | 804 | | 971 | | 1,043 | | 949 | | Consumer | 1,517 | | 1,639 | | 1,575 | | 1,027 | | 804 | |
Total nonaccrual loans | Total nonaccrual loans | $ | 32,485 | | $ | 19,094 | | $ | 19,932 | | $ | 20,596 | | $ | 20,563 | | Total nonaccrual loans | $ | 24,668 | | $ | 28,578 | | $ | 31,219 | | $ | 32,485 | | $ | 19,094 | |
Nonaccrual troubled debt restructurings ("TDRs"): | Nonaccrual troubled debt restructurings ("TDRs"): | | Nonaccrual troubled debt restructurings ("TDRs"): | |
| Commercial real estate, other | Commercial real estate, other | $ | 94 | | $ | 99 | | $ | 337 | | 367 | | $ | 772 | | Commercial real estate, other | $ | 2,458 | | $ | 197 | | $ | 218 | | $ | 94 | | 99 | |
Commercial and industrial | | Commercial and industrial | 101 | | 999 | | 1,067 | | 1,223 | | 1,774 | |
Residential real estate | | Residential real estate | 1,731 | | 1,676 | | 1,631 | | 1,689 | | 1,784 | |
Home equity lines of credit | | Home equity lines of credit | 323 | | 333 | | 352 | | 315 | | 129 | |
Consumer, indirect | | Consumer, indirect | 207 | | 220 | | 272 | | 219 | | 193 | |
Consumer, direct | | Consumer, direct | — | | — | | 6 | | 9 | | 6 | |
Consumer | | Consumer | 207 | | 220 | | 278 | | 228 | | 199 | |
Total nonaccrual TDRs | | Total nonaccrual TDRs | $ | 4,820 | | $ | 3,425 | | $ | 3,546 | | $ | 3,549 | | $ | 3,985 | |
Total nonperforming loans ("NPLs") | | Total nonperforming loans ("NPLs") | $ | 37,724 | | $ | 37,962 | | $ | 38,488 | | $ | 41,397 | | $ | 26,820 | |
OREO: | | OREO: | | |
Commercial | | Commercial | $ | 9,065 | | $ | 9,106 | | $ | 9,105 | | $ | 10,804 | | $ | — | |
Residential | | Residential | 145 | | 301 | | 391 | | 464 | | 239 | |
Total OREO | | Total OREO | $ | 9,210 | | $ | 9,407 | | $ | 9,496 | | $ | 11,268 | | $ | 239 | |
Total nonperforming assets ("NPAs") | | Total nonperforming assets ("NPAs") | $ | 46,934 | | $ | 47,369 | | $ | 47,984 | | $ | 52,665 | | $ | 27,059 | |
Criticized loans (a) | | Criticized loans (a) | $ | 181,395 | | $ | 190,315 | | $ | 194,016 | | $ | 234,845 | | $ | 113,802 | |
Classified loans (b) | | Classified loans (b) | 115,483 | | 109,530 | | 106,547 | | 142,628 | | 69,166 | |
| | | | | | | | | | | | | | | | | |
(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 | % |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Asset Quality Ratios (c): | | | | | |
Nonaccrual loans as a percent of total loans (d) | 0.64 | % | 0.70 | % | 0.78 | % | 0.80 | % | 0.68 | % |
NPLs as a percent of total loans (d) | 0.82 | % | 0.83 | % | 0.86 | % | 0.92 | % | 0.79 | % |
NPAs as a percent of total assets (d) | 0.64 | % | 0.65 | % | 0.68 | % | 0.75 | % | 0.53 | % |
NPAs as a percent of total loans and OREO (d) | 1.02 | % | 1.04 | % | 1.07 | % | 1.17 | % | 0.80 | % |
Allowance for credit losses as a percent of nonaccrual loans | 177.52 | % | 171.13 | % | 184.00 | % | 214.75 | % | 207.73 | % |
Allowance for credit losses as a percent of NPLs (d) | 138.76 | % | 144.27 | % | 166.20 | % | 186.93 | % | 178.75 | % |
Criticized loans as a percent of total loans (a) | 3.96 | % | 4.19 | % | 4.33 | % | 5.23 | % | 3.37 | % |
Classified loans as a percent of total loans (b) | 2.52 | % | 2.41 | % | 2.38 | % | 3.18 | % | 2.05 | % |
| | | | | |
(a) Includes loans categorized as special mention, substandard or doubtful.
(b) Includes loans categorized as substandard or doubtful.
(c) Data presented as of the end of the period indicated.
(d) Nonperforming loans ("NPL") include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets ("NPA") include nonperforming loans and OREO.
DuringCompared to March 31, 2022, Peoples' NPAs declined to 0.64%, from 0.65%, with the third quarter of 2021, nonperforming assets increased $25.6 million, or 95%, compared to June 30, 2021. The increase in nonperforming assets compared to the prior quarter wasreduction primarily attributable to nonperforminga reduction in nonaccrual commercial and industrial loans and other real estate owned acquired from Premier. The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios both increased compared to June 30, 2021, due to the acquired nonperforming loans. Theoffset by an increase in nonperforming assets of $1.1 million at June 30, 2021, compared to March 31, 2021, was primarilypast due to acquisition of NSL. Nonperforming assets declined $2.3 million at March 31, 2021, compared to December 31, 2020, and was mostly due to several small relationships in both loansleases. Loans 90+ days past due and accruing and nonaccrual loans.
Criticizedincreased compared to December 31, 2021, mostly due to the Vantage acquisition. During the second quarter of 2022, criticized loans, which are those categorized as special mention, substandard or doubtful, increased $121.0declined $8.9 million, or 106%, compared to June 30, 2021 and increased $111.6 million, or 91%, compared to September 30, 2020. The increase in the amount of criticized loans compared to June 30, 2021 was the result of criticized loans acquired from Premier, offset by the pay-off of six commercial and industrial loans with an aggregate principal balance of $12.3 million and several smaller loans. Criticized loans declined $2.6 million at June 30, 2021, which was primarily due to the payoff of several smaller commercial loans.
Classifiedwhile classified loans, which are those categorized as substandard or doubtful, grew $6.0 million.
During the third quarter of 2021, nonperforming assets, criticized and classified loans increased by $73.5 million, or 106%, compareddue to June 30, 2021, and were up $66.6 million, or 88%, compared to September 30, 2020. The increase was driven by loans acquired from Premier.the Premier Merger.
On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40.
On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.
Deposits
The following table details Peoples’ deposit balances:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Non-interest-bearing deposits (a) | Non-interest-bearing deposits (a) | $ | 1,559,993 | | $ | 1,181,045 | | $ | 1,206,034 | | $ | 997,323 | | $ | 982,912 | | Non-interest-bearing deposits (a) | $ | 1,661,865 | | $ | 1,666,668 | | $ | 1,641,422 | | $ | 1,559,993 | | $ | 1,181,045 | |
Interest-bearing deposits: | Interest-bearing deposits: | | | Interest-bearing deposits: | | |
Interest-bearing demand accounts (a) | Interest-bearing demand accounts (a) | 1,140,639 | | 732,478 | | 722,470 | | 692,113 | | 666,134 | | Interest-bearing demand accounts (a) | 1,143,010 | | 1,179,199 | | 1,167,460 | | 1,140,639 | | 732,478 | |
Savings accounts | Savings accounts | 1,016,755 | | 689,086 | | 676,345 | | 628,190 | | 589,625 | | Savings accounts | 1,080,053 | | 1,065,678 | | 1,036,738 | | 1,016,755 | | 689,086 | |
Retail certificates of deposit ("CDs") | Retail certificates of deposit ("CDs") | 691,680 | | 417,466 | | 433,214 | | 445,930 | | 461,216 | | Retail certificates of deposit ("CDs") | 584,259 | | 612,936 | | 643,759 | | 691,680 | | 417,466 | |
Money market deposit accounts | Money market deposit accounts | 637,635 | | 547,412 | | 586,099 | | 591,373 | | 581,398 | | Money market deposit accounts | 645,242 | | 656,266 | | 651,169 | | 637,635 | | 547,412 | |
Governmental deposit accounts | Governmental deposit accounts | 679,305 | | 498,390 | | 511,937 | | 385,384 | | 409,967 | | Governmental deposit accounts | 728,057 | | 734,784 | | 617,259 | | 679,305 | | 498,390 | |
Brokered deposits | Brokered deposits | 106,013 | | 166,746 | | 168,130 | | 170,146 | | 260,753 | | Brokered deposits | 86,739 | | 87,395 | | 104,745 | | 106,013 | | 166,746 | |
Total interest-bearing deposits | Total interest-bearing deposits | 4,272,027 | | 3,051,578 | | 3,098,195 | | 2,913,136 | | 2,969,093 | | Total interest-bearing deposits | 4,267,360 | | 4,336,258 | | 4,221,130 | | 4,272,027 | | 3,051,578 | |
Total deposits | Total deposits | $ | 5,832,020 | | $ | 4,232,623 | | $ | 4,304,229 | | $ | 3,910,459 | | $ | 3,952,005 | | Total deposits | $ | 5,929,225 | | $ | 6,002,926 | | $ | 5,862,552 | | $ | 5,832,020 | | $ | 4,232,623 | |
Demand deposits as a percent of total deposits | Demand deposits as a percent of total deposits | 46 | % | 45 | % | 45 | % | 43 | % | 42 | % | Demand deposits as a percent of total deposits | 47 | % | 47 | % | 48 | % | 46 | % | 45 | % |
|
(a)The sum of amounts presented is considered total demand deposits.
At SeptemberJune 30, 2021,2022, period-end deposits decreased $73.7 million, or 1%, compared to March 31, 2022, and increased $1.6$1.7 billion, or 38%40%, compared to June 30, 2021,2021. The decrease was driven by a decline in interest bearing transaction accounts of $36.2 million, a decrease in retail certificates of deposits of $28.7 million, and increased $1.9 billion, or 48%, compared to September 30, 2020.a decrease of $11.0 million in money market deposit accounts. The increase in total deposits at September 30, 2021, compared to June 30, 2021, was driven primarily by $1.8 billion in deposits acquired in the merger with Premier including $392.2 million in non-interest bearing deposits, $652.9 million in interest-bearing demand accounts, $327.0 million in savings accounts, $285.4 million in retail CDs, $155.6 million in money market accounts and $11.1 million in brokered deposits. The decrease in total deposits at June 30, 2021 compared to March 31, 2021 was related to declines in money market deposits, non-interest bearing deposits, and retail CDs. At March 31, 2021, compared to December 31, 2020, Peoples experienced a significant increase in governmental deposit accounts, which was mostly due to seasonal fluctuation within these accounts.
from Premier. Total deposits in all periods presented through March 31, 2022, were higher due to customers maintaining larger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic. In prior quarterly periods in the table above,prior to June 30, 2022, Peoples experienced increases in most low-cost deposit categories.
Peoples reduced its reliance on brokered deposits in each quarterly period, beginning after June 30, 2020.2021. This decline was largely due to the increase in deposit balances from customers, which allowed Peoples to reduce its position in the higher-cost brokered CDs during each period. As part of its funding strategy, Peoples hedges 90-day brokered deposits with interest rate swaps. The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits. As of SeptemberJune 30, 2021,2022, Peoples had 16thirteen effective interest rate swaps, with an aggregate notional value of $150.0$125.0 million, of which $100.0$85.0 million were designated as cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0$40.0 million of interest rate swaps hedged 90-day FHLB advances, which are also expected to be extended every 90 days through the maturity dates of the swaps. Peoples continually evaluates the overall balance sheet position given the interest rate environment.
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Short-term borrowings: | Short-term borrowings: | | Short-term borrowings: | |
| FHLB 90-day advances | FHLB 90-day advances | $ | 50,000 | | $ | — | | $ | — | | $ | — | | $ | 110,000 | | FHLB 90-day advances | $ | 40,000 | | $ | 40,000 | | $ | 40,000 | | $ | 50,000 | | $ | — | |
Current portion of long-term FHLB advances | Current portion of long-term FHLB advances | 15,000 | | 15,000 | | 20,000 | | 20,000 | | 25,000 | | Current portion of long-term FHLB advances | — | | 15,000 | | 15,000 | | 15,000 | | 15,000 | |
Retail repurchase agreements | Retail repurchase agreements | 119,693 | | 51,496 | | 47,868 | | 53,261 | | 47,063 | | Retail repurchase agreements | 286,442 | | 89,275 | | 111,482 | | 119,693 | | 51,496 | |
| Total short-term borrowings | Total short-term borrowings | $ | 184,693 | | $ | 66,496 | | $ | 67,868 | | $ | 73,261 | | $ | 182,063 | | Total short-term borrowings | $ | 326,442 | | $ | 144,275 | | $ | 166,482 | | $ | 184,693 | | $ | 66,496 | |
Long-term borrowings: | Long-term borrowings: | | | Long-term borrowings: | | |
FHLB advances | FHLB advances | $ | 86,483 | | $ | 87,393 | | $ | 102,645 | | $ | 102,957 | | $ | 103,815 | | FHLB advances | $ | 35,348 | | $ | 85,564 | | $ | 85,825 | | $ | 86,483 | | $ | 87,393 | |
| Vantage non-recourse debt | | Vantage non-recourse debt | 74,622 | | 102,364 | | — | | — | | — | |
Junior subordinated debt securities | Junior subordinated debt securities | 12,928 | | 7,688 | | 7,650 | | 7,611 | | 7,571 | | Junior subordinated debt securities | 13,717 | | 13,682 | | 13,650 | | 12,928 | | 7,688 | |
Total long-term borrowings | Total long-term borrowings | $ | 99,411 | | $ | 95,081 | | $ | 110,295 | | $ | 110,568 | | $ | 111,386 | | Total long-term borrowings | $ | 123,687 | | $ | 201,610 | | $ | 99,475 | | $ | 99,411 | | $ | 95,081 | |
Total borrowed funds | Total borrowed funds | $ | 284,104 | | $ | 161,577 | | $ | 178,163 | | $ | 183,829 | | $ | 293,449 | | Total borrowed funds | $ | 450,129 | | $ | 345,885 | | $ | 265,957 | | $ | 284,104 | | $ | 161,577 | |
Borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. TotalBorrowed funds increased compared to March 31, 2022, driven by a large individual customer deposit, thereby increasing retail repurchase agreements at June 30, 2022. The increase in total borrowed funds increased 76%at September 30, 2021, compared to June 30, 2021, was primarily due to the addition of $63.8 million retail repurchase agreements from Premier.
repurchase agreements from Premier. The decline in borrowed funds at September 30, 2021, compared to September 30, 2020 was mostly due to swap funding being moved to brokered deposits rather than the use of rolling 90-day advances to fund liquidity needs, which was partially offset by the acquired retail repurchase agreements from Premier during the third quarter of 2021.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities increased $23.8 million, or 27%, compared to June 30, 2021 and increased $12.2 million compared to September 30, 2020. The increase compared to the end of the second quarter of 2021 was the result of an increase in interest payable and other liabilities offset by with changes related to the fair value of swap derivatives at September 30, 2021. The increase compared to the end of the third quarter of 2020 was also the result of an increase in accrued interest payable offset by a decrease in the fair value of swap derivatives . Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Capital/Stockholders’ Equity
At SeptemberJune 30, 2021,2022, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. In order to avoid limitations on dividends, equity repurchases and compensation, Peoples must exceed the three minimum required ratios by at least the capital conservation buffer of 2.50%, which applies to the common equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At SeptemberJune 30, 2021,2022, Peoples had a capital conservation buffer of 5.83%4.81%.
The following table details Peoples' risk-based capital levels and corresponding ratios:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Capital Amounts: | Capital Amounts: | | | Capital Amounts: | | |
Common Equity Tier 1 | Common Equity Tier 1 | $ | 567,172 | | $ | 383,502 | | $ | 418,089 | | $ | 409,400 | | $ | 398,553 | | Common Equity Tier 1 | $ | 564,708 | | $ | 547,215 | | $ | 577,565 | | $ | 567,172 | | $ | 383,502 | |
Tier 1 | Tier 1 | 580,100 | | 391,190 | | 425,739 | | 417,011 | | 406,124 | | Tier 1 | 578,425 | | 560,897 | | 591,215 | | 580,100 | | 391,190 | |
Total (Tier 1 and Tier 2) | Total (Tier 1 and Tier 2) | 637,802 | | 431,424 | | 463,872 | | 456,384 | | 445,101 | | Total (Tier 1 and Tier 2) | 622,516 | | 607,493 | | 648,948 | | 637,802 | | 431,424 | |
Net risk-weighted assets | Net risk-weighted assets | $ | 4,611,321 | | $ | 3,382,736 | | $ | 3,365,637 | | $ | 3,146,767 | | $ | 3,106,817 | | Net risk-weighted assets | $ | 4,857,818 | | $ | 4,752,428 | | $ | 4,614,258 | | $ | 4,611,321 | | $ | 3,382,736 | |
Capital Ratios: | Capital Ratios: | | Capital Ratios: | |
Common Equity Tier 1 | Common Equity Tier 1 | 12.30 | % | 11.34 | % | 12.42 | % | 13.01 | % | 12.83 | % | Common Equity Tier 1 | 11.62 | % | 11.51 | % | 12.52 | % | 12.30 | % | 11.34 | % |
Tier 1 | Tier 1 | 12.58 | % | 11.56 | % | 12.65 | % | 13.25 | % | 13.07 | % | Tier 1 | 11.91 | % | 11.80 | % | 12.81 | % | 12.58 | % | 11.56 | % |
Total (Tier 1 and Tier 2) | Total (Tier 1 and Tier 2) | 13.83 | % | 12.75 | % | 13.78 | % | 14.50 | % | 14.33 | % | Total (Tier 1 and Tier 2) | 12.81 | % | 12.78 | % | 14.06 | % | 13.83 | % | 12.75 | % |
Tier 1 leverage ratio | Tier 1 leverage ratio | 11.20 | % | 7.87 | % | 9.00 | % | 8.97 | % | 8.62 | % | Tier 1 leverage ratio | 8.38 | % | 8.29 | % | 8.67 | % | 11.20 | % | 7.87 | % |
DuringPeoples' regulatory capital and related ratio levels improved during the thirdsecond quarter of 2021, Peoples' reported a2022 driven by higher net lossinterest income. The ratios were negatively impacted in the prior quarter by the cash acquisition of $5.8 millionVantage, for which Peoples recorded goodwill and intangible assets for which the impact was partially offset by net income exceeding dividends declared dividendsduring the period. Regulatory capital ratios increased as of $7.1 million. However, regulatory capital levels increased due to the merger with Premier. Net risk-weighted assets grewSeptember 30, 2021, 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 wasMerger, which included in net risk-weighted assets and there was no capital issued in connection with the NSL acquisition.
In 2020, Peoples repurchased common shares during each quarteran equity issuance of the year, which reduced regulatory capital levels. Peoples also completed the Premium Finance acquisition on July 1, 2020, which impacted regulatory capital levels due to the recognition of goodwill and intangibles associated with the acquisition. Peoples did not repurchase any common shares in the first nine months of 2021.$261.9 million.
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent Non-US GAAP financial measures since their calculation removes the impact of goodwill and other intangible assets acquired through acquisitions on amounts reported in the Unaudited Consolidated Balance Sheets. Management believes this information is useful to investors since it facilitates the comparison of Peoples' operating performance, financial condition and trends to peers, especially those without a similar level of intangible assets to that of Peoples. Further, intangible assets generally are difficult to convert into cash, especially during a financial crisis, and could decrease substantially in value should there be deterioration in the overall franchise value. As a result, tangible equity represents a conservative measure of the capacity for Peoples to incur losses but remain solvent.
The following table reconciles the calculation of these Non-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements:
| (Dollars in thousands) | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | (Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Tangible equity: | Tangible equity: | | Tangible equity: | |
Total stockholders' equity | Total stockholders' equity | $ | 831,882 | | $ | 585,505 | | $ | 578,893 | | $ | 575,673 | | $ | 566,856 | | Total stockholders' equity | $ | 786,824 | | $ | 808,340 | | $ | 845,025 | | $ | 831,882 | | $ | 585,505 | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 295,415 | | 221,576 | | 184,007 | | 184,597 | | 185,397 | | Less: goodwill and other intangible assets | 328,132 | | 341,865 | | 291,009 | | 295,415 | | 221,576 | |
Tangible equity | Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | | Tangible equity | $ | 458,692 | | $ | 466,475 | | $ | 554,016 | | $ | 536,467 | | $ | 363,929 | |
| Tangible assets: | Tangible assets: | | | Tangible assets: | | |
Total assets | Total assets | $ | 7,059,752 | | $ | 5,067,634 | | $ | 5,143,052 | | $ | 4,760,764 | | $ | 4,911,807 | | Total assets | $ | 7,278,292 | | $ | 7,239,261 | | $ | 7,063,521 | | $ | 7,059,752 | | $ | 5,067,634 | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 295,415 | | 221,576 | | 184,007 | | 184,597 | | 185,397 | | Less: goodwill and other intangible assets | 328,132 | | 341,865 | | 291,009 | | 295,415 | | 221,576 | |
Tangible assets | Tangible assets | $ | 6,764,337 | | $ | 4,846,058 | | $ | 4,959,045 | | $ | 4,576,167 | | $ | 4,726,410 | | Tangible assets | $ | 6,950,160 | | $ | 6,897,396 | | $ | 6,772,512 | | $ | 6,764,337 | | $ | 4,846,058 | |
| Tangible book value per common share: | Tangible book value per common share: | | Tangible book value per common share: | |
Tangible equity | Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | | Tangible equity | $ | 458,692 | | $ | 466,475 | | $ | 554,016 | | $ | 536,467 | | $ | 363,929 | |
Common shares outstanding | Common shares outstanding | 28,265,791 | | 19,660,877 | | 19,629,633 | | 19,563,979 | | 19,721,783 | | Common shares outstanding | 28,290,115 | | 28,453,175 | | 28,297,771 | | 28,265,791 | | 19,660,877 | |
| Tangible book value per common share | Tangible book value per common share | $ | 18.98 | | $ | 18.51 | | $ | 20.12 | | $ | 19.99 | | $ | 19.34 | | Tangible book value per common share | $ | 16.21 | | $ | 16.39 | | $ | 19.58 | | $ | 18.98 | | $ | 18.51 | |
| Tangible equity to tangible assets ratio: | Tangible equity to tangible assets ratio: | | Tangible equity to tangible assets ratio: | |
Tangible equity | Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | | Tangible equity | $ | 458,692 | | $ | 466,475 | | $ | 554,016 | | $ | 536,467 | | $ | 363,929 | |
Tangible assets | Tangible assets | $ | 6,764,337 | | $ | 4,846,058 | | $ | 4,959,045 | | $ | 4,576,167 | | $ | 4,726,410 | | Tangible assets | $ | 6,950,160 | | $ | 6,897,396 | | $ | 6,772,512 | | $ | 6,764,337 | | $ | 4,846,058 | |
| Tangible equity to tangible assets | Tangible equity to tangible assets | 7.93 | % | 7.51 | % | 7.96 | % | 8.55 | % | 8.07 | % | Tangible equity to tangible assets | 6.60 | % | 6.76 | % | 8.18 | % | 7.93 | % | 7.51 | % |
| | |
Tangible book value per common share increaseddeclined to $18.98 at September 30, 2021, compared to $18.51$16.21 at June 30, 2021.2022, compared to $16.39 at March 31, 2022. The change in tangible book value per common share was due to tangible equity increasing atdeclining as a higher rate than shares outstanding duringresult of other comprehensive losses recognized on available-for-sale investment securities, which were driven by changes in market interest rates. Also contributing to the third quarter of 2021.decline compared to December 31, 2021, was a $81.7 million increase in accumulated other comprehensive loss. The increase in tangible book value per common share at December 31, 2020, compared to September 30, 2020, was the result of higher stockholders' equity as net income exceeded dividends declared during the period, as well as a reduction in common shares outstanding as Peoples actively repurchased common shares.
The tangible equity to tangible assets ratio increased at September 30, 2021, compared to June 30, 2021. This increase was driven by higher tangible assets related to the merger with Premier which provided for increases in loans, investment securities, cash and cash equivalents, and other assets, coupled with the intangible assets recorded during the third quarter of 2021 associated with the merger with Premier and the NSL acquisition. The decline in the tangible equity to tangible assets ratio at March 31, 2021 compared to December 31, 2020, was largely due to an increase in other assets that was driven by the NSL acquisition, for which the purchase price was paid and recorded on March 31, 2021. The higher tangible equity to tangible assets ratio at December 31, 2020, compared to September 30, 2020, was attributable to higher tangiblethe Premier Merger, and related equity while tangible assets declined due to reductions in investment securities and total loans.issued.
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' 20202021 Form 10-K.
The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands):
| Increase (Decrease) in Interest Rate | Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated Increase (Decrease) in Economic Value of Equity | Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated Decrease in Economic Value of Equity |
(in Basis Points) | (in Basis Points) | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 | (in Basis Points) | June 30, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 |
300 | 300 | $ | 26,191 | | | 12.5 | % | | $ | 22,034 | | 17.3 | % | | $ | 12,475 | | | 1.0 | % | | $ | 117,235 | | 15.7 | % | 300 | $ | 27,881 | | | 11.1 | % | | $ | 24,903 | | 11.7 | % | | $ | (22,151) | | | (1.6) | % | | $ | (24,232) | | (2.0) | % |
200 | 200 | 17,360 | | | 8.3 | % | | 15,899 | | 12.5 | % | | 11,544 | | | 0.9 | % | | 95,189 | | 12.7 | % | 200 | 18,446 | | | 7.3 | % | | 16,312 | | 7.7 | % | | (15,790) | | | (1.1) | % | | (16,541) | | (1.3) | % |
100 | 100 | 8,646 | | | 4.1 | % | | 8,981 | | 7.1 | % | | 10,550 | | | 0.8 | % | | 60,384 | | 8.1 | % | 100 | 9,148 | | | 3.6 | % | | 7,899 | | 3.7 | % | | (9,132) | | | (0.7) | % | | (5,308) | | (0.4) | % |
(100) | (100) | (9,792) | | | (4.7) | % | | (7,030) | | (5.5) | % | | (120,471) | | | (9.6) | % | | (116,205) | | (15.5) | % | (100) | (16,168) | | | (6.4) | % | | (8,615) | | (4.1) | % | | (58,315) | | | (4.2) | % | | (91,568) | | (7.4) | % |
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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.and decrease as interest rates increase. The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income or asset duration.
While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in the balance sheet, interest rates typically move in a nonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that might occur as a result of the Federal Reserve increasing short-term interest rates in the future could be offset by an inverse movement in long-term 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 SeptemberJune 30, 2021,2022, consideration of the bear steepener and bull flattener scenarios provides insights which were not captured by parallel shifts. These scenarios were evaluated as the current environment suggests these may be possible outcomes for the trajectory of interest rates.
The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are generally 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 SeptemberJune 30, 2021,2022, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.8%0.1% and 5.5%2.9%, 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 SeptemberJune 30, 2021,2022, the bull flattener scenario resulted in a decreasesmall decreases in both net interest income and the economic value of equity of -0.5%-0.1% and -0.9%-0.1%, respectively. Peoples was within theits policy limitations for this alternative scenario as of SeptemberJune 30, 2021,2022, which setsset 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 SeptemberJune 30, 2021,2022, Peoples had entered into sixteenthirteen interest rate swap contracts with an aggregate notional value of $150.0$125.0 million. Additional information regarding Peoples’ interest rate swaps can be found in “Note 10 Derivative Financial Instruments” of the Notes to the Unaudited Condensed Consolidated Financial Statements.
At SeptemberJune 30, 2021,2022, 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.income. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 20202021 was largely attributable to increased effective duration in the investment securities portfolio.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 20202021 Form 10-K.
At SeptemberJune 30, 2021,2022, Peoples Bank had liquid assets of $607.8$383.4 million, which represented 7.7%4.7% of total assets and unfunded loan commitments. Peoples also had an additional $246.5$248.0 million of unpledged investment securities not included in the measurement of liquid assets.
Management believes the current balance of cash and cash equivalents, anticipated investment portfolio cash flows and the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.
Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from the government fiscal stimulus, the PPP and other government actions. Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes; however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement funds are received. At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit. This decrease is related to the receipt of PPP loan proceeds and other increased cash flows to certain companies. Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses. The utilization percentage for consumer line of credit products has been relatively steady.
Off-Balance Sheet Activities and Contractual Obligations
In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.
Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.
Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.
The following table details the total contractual amount of loan commitments and standby letters of credit:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Home equity lines of credit | $ | 177,963 | | $ | 134,516 | | $ | 124,027 | | $ | 117,792 | | $ | 113,185 | |
Unadvanced construction loans | 271,483 | | 207,403 | | 190,715 | | 141,009 | | 123,338 | |
Other loan commitments | 646,374 | | 542,429 | | 555,102 | | 535,250 | | 498,472 | |
Loan commitments | $ | 1,095,820 | | $ | 884,348 | | $ | 869,844 | | $ | 794,051 | | $ | 734,995 | |
Standby letters of credit | $ | 12,358 | | $ | 10,252 | | $ | 10,295 | | $ | 14,342 | | $ | 13,177 | |
The increase in loan commitments at September 30, 2021 was primarily the result of the Premier acquisition. Management does not anticipate that Peoples Bank’s current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends. | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | June 30, 2022 | March 31, 2022 | December 31, 2021 | September 30, 2021 | June 30, 2021 |
Home equity lines of credit | $ | 188,803 | | $ | 184,616 | | $ | 177,262 | | $ | 177,963 | | $ | 134,516 | |
Unadvanced construction loans | 237,129 | | 203,719 | | 227,135 | | 271,483 | | 207,403 | |
Other loan commitments | 566,624 | | 616,696 | | 577,170 | | 646,374 | | 542,429 | |
Loan commitments | $ | 992,556 | | $ | 1,005,031 | | $ | 981,567 | | $ | 1,095,820 | | $ | 884,348 | |
Standby letters of credit | $ | 15,977 | | $ | 12,729 | | $ | 12,805 | | $ | 12,358 | | $ | 10,252 | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Peoples' management, with the participation of Peoples' President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer, has evaluated the effectiveness of Peoples’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of SeptemberJune 30, 2021.2022. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:
(a)information required to be disclosed by Peoples in this 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’as previously disclosed within "ITEM 9A. CONTROLS AND PROCEDURES" of Peoples' 2021 Form 10-K, Peoples did not design effective controls supporting acquired purchased credit deteriorated loan accounting and the related allowance for credit losses aggregated to a material weakness in internal control over financial reporting; and
(d)as part of Peoples' efforts to remediate the material weakness described above, new controls and procedures have been designed and are in process of being implemented. Therefore, Peoples' President and Chief Executive Officer, and its Executive Vice President, Chief Financial Officer and Treasurer concluded that, as of June 30, 2022, Peoples' disclosure controls and procedures were effectivenot effective. Despite the foregoing, Management has concluded the financial statements fairly present in all material respects, Peoples' financial position, results of operations and cash flows as of the end ofdates, and for the fiscal quarter covered byperiods presented in this Quarterly Report on Form 10-Q.10-Q, in conformity with US GAAP.
Changes in Internal Control Over Financial Reporting
There were noThe remediation activities described above, and discussed in further detail in "ITEM 9A. CONTROLS AND PROCEDURES" of Peoples' 2021 Form 10-K and under "ITEM 1A. RISK FACTORS" in Part II of Peoples' Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, are changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended SeptemberJune 30, 2021, that have2022. These changes may materially affected,affect, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of their respective businesses or operations, Peoples or one of its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Peoples cannot state what the eventual outcome of any such matters will be. However, based on management's current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Peoples.
ITEM 1A. RISK FACTORS
The disclosure below supplements the risk factors previously disclosed under “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 20202021 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended SeptemberJune 30, 2021:2022:
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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 | |
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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) |
April 1 – 30, 2022 | 74,754 | | (1) | $ | 28.46 | | (1) | 70,644 | | $ | 27,999,870 | |
May 1 – 31, 2022 | 143,576 | | (1)(2)(3) | $ | 27.69 | | (1)(2)(3) | 143,576 | | $ | 24,023,642 | |
June 1 – 30, 2022 | 1,206 | | (2)(3) | $ | 27.28 | | (2)(3) | — | | $ | 24,023,642 | |
Total | 219,536 | | | $ | 27.95 | | | 214,220 | | $ | 24,023,642 | |
(1)On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares. There were no214,220 common shares repurchased under the share repurchase program during the three months ended SeptemberJune 30, 2021.2022.
(2)Information reported includes an aggregate of 1,3632,180 common shares and 356 common shares withheld to satisfy income taxes associated with restricted common shares which were granted under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan and vested during August 2021.April 2022 and June 2022.
(3)Information reported includes 7001,930 common shares and 850 common shares purchased in open market transactions during September 2021April 2022 and June 2022, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS | | | | | | | | | | | | | | |
Exhibit Number | | Description | | Exhibit Location |
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| | Agreement and Plan of Merger, dated as of March 26, 2021, by and between Peoples Bancorp Inc. and Premier Financial Bancorp, Inc.+ | | Incorporated herein by reference to Exhibit 2.1Included as Annex A to the Current Reportpreliminary proxy statement/prospectus which forms a part of the Registration Statement of Peoples Bancorp Inc. ("Peoples") on Form 8-K dated andS-4/A filed on March 31,June 1, 2021 (File(Registration No. 0-16772)333-256040) |
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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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| | Certificate of Amendment by the Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on July 28, 2021) | | Incorporated herein by reference to Exhibit 3.1(g) to Peoples' Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (File No. 0-16772) ("Peoples' June 30, 2021 Form 10-Q") |
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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(a)(5) of SEC Regulation S-K. A copy of any omitted schedules or exhibits will be furnished supplementally by Peoples Bancorp Inc. to the SEC, or the staff of the SEC, on a confidential basis upon request. |
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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| | 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 SeptemberJune 30, 20212022 of Peoples Bancorp Inc. are the following documents formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at SeptemberJune 30, 20212022 (Unaudited) and December 31, 2020;2021; (ii) Consolidated Statements of Operations (Unaudited) for the three months and ninesix months ended SeptemberJune 30, 20212022 and 2020;2021; (iii) Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the three months and ninesix months ended SeptemberJune 30, 20212022 and 2020;2021; (iv) Consolidated Statements of Stockholders' Equity (Unaudited) for the ninethree months and six months ended SeptemberJune 30, 20212022 and 2020;2021; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the ninesix months ended SeptemberJune 30, 20212022 and 2020;2021; 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: | November 5, 2021August 4, 2022 | By: /s/ | CHARLES W. SULERZYSKI |
| | | Charles W. Sulerzyski |
| | | President and Chief Executive Officer |
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Date: | November 5, 2021August 4, 2022 | By: /s/ | KATIE BAILEY |
| | | Katie Bailey |
| | | Executive Vice President, |
| | | Chief Financial Officer and Treasurer |