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 March 31, 2023
2024
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
![pebonewlogoa26.jpg](https://capedge.com/proxy/10-Q/0000318300-23-000221/pebo-20230331_g1.jpg)
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| | | | | | | | | | | | | | | | | | | | | | | |
PEOPLES BANCORP INC. |
(Exact name of Registrant as specified in its charter) |
Ohio | | | | 31-0987416 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
138 Putnam Street, | P.O. Box 738, | | | | |
Marietta, | Ohio | | | | 45750 |
(Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: | | | | (740) | | 373-3155 |
| Not Applicable | |
| (Former name, former address and former fiscal year, if changed since last report) | |
Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, without par value | PEBO | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | 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: 28,485,21335,493,844 common shares, without par value, at April 28, 2023.30, 2024.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | March 31, 2023 | December 31, 2022 | | March 31, 2024 | December 31, 2023 |
| (Dollars in thousands) | (Dollars in thousands) | (Unaudited) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Assets | |
Assets | |
Assets | Assets | | |
Cash and cash equivalents: | Cash and cash equivalents: | |
Cash and balances due from banks | Cash and balances due from banks | $ | 97,101 | | $ | 94,679 | |
Cash and balances due from banks | |
Cash and balances due from banks | |
Interest-bearing deposits in other banks | Interest-bearing deposits in other banks | 60,053 | | 59,343 | |
Total cash and cash equivalents | Total cash and cash equivalents | 157,154 | | 154,022 | |
Available-for-sale investment securities, at fair value (amortized cost of $1,196,521 at March 31, 2023 and $1,300,719 at December 31, 2022) (a) | 1,049,497 | | 1,131,399 | |
Held-to-maturity investment securities, at amortized cost (fair value of $624,436 at March 31, 2023 and $478,509 at December 31, 2022) (a) | 694,072 | | 560,212 | |
Available-for-sale investment securities, at fair value (amortized cost of $1,262,319 at March 31, 2024 and $1,184,288 at December 31, 2023) (a) | |
Held-to-maturity investment securities, at amortized cost (fair value of $602,112 at March 31, 2024 and $612,022 at December 31, 2023) (a) | |
Other investment securities | Other investment securities | 52,763 | | 51,609 | |
Total investment securities (a) | Total investment securities (a) | 1,796,332 | | 1,743,220 | |
Loans and leases, net of deferred fees and costs (b) | Loans and leases, net of deferred fees and costs (b) | 4,759,718 | | 4,707,150 | |
Allowance for credit losses | Allowance for credit losses | (53,303) | | (53,162) | |
Net loans and leases (c) | Net loans and leases (c) | 4,706,415 | | 4,653,988 | |
Loans held for sale | Loans held for sale | 2,527 | | 2,140 | |
Bank premises and equipment, net of accumulated depreciation | Bank premises and equipment, net of accumulated depreciation | 86,567 | | 82,934 | |
Bank owned life insurance | Bank owned life insurance | 105,999 | | 105,292 | |
Goodwill | Goodwill | 292,597 | | 292,397 | |
Other intangible assets | Other intangible assets | 31,965 | | 33,932 | |
Other assets | Other assets | 131,964 | | 139,379 | |
Total assets | Total assets | $ | 7,311,520 | | $ | 7,207,304 | |
Liabilities | Liabilities | | Liabilities | |
Deposits: | Deposits: | |
Non-interest-bearing | Non-interest-bearing | $ | 1,555,064 | | $ | 1,589,402 | |
Non-interest-bearing | |
Non-interest-bearing | |
Interest-bearing | Interest-bearing | 4,233,463 | | 4,127,539 | |
Total deposits | Total deposits | 5,788,527 | | 5,716,941 | |
Short-term borrowings | Short-term borrowings | 490,670 | | 500,138 | |
Long-term borrowings | Long-term borrowings | 95,629 | | 101,093 | |
| Accrued expenses and other liabilities | Accrued expenses and other liabilities | 117,151 | | 103,804 | |
Accrued expenses and other liabilities | |
Accrued expenses and other liabilities | |
Total liabilities | Total liabilities | 6,491,977 | | 6,421,976 | |
Stockholders’ equity | Stockholders’ equity | | Stockholders’ equity | |
Preferred shares, no par value, 50,000 shares authorized, no shares issued at March 31, 2023 and at December 31, 2022 | — | | — | |
Common shares, no par value, 50,000,000 shares authorized, 29,868,456 shares issued at March 31, 2023 and 29,857,920 shares issued at December 31, 2022, including at each date shares held in treasury | 684,367 | | 686,450 | |
Preferred shares, no par value, 50,000 shares authorized, no shares issued at March 31, 2024 or at December 31, 2023 | |
Common shares, no par value, 50,000,000 shares authorized, 36,747,787 shares issued at March 31, 2024 and 36,736,041 shares issued at December 31, 2023, including at each date shares held in treasury | |
Retained earnings | Retained earnings | 281,771 | | 265,936 | |
Accumulated other comprehensive loss, net of deferred income taxes | Accumulated other comprehensive loss, net of deferred income taxes | (110,979) | | (127,136) | |
Treasury stock, at cost, 1,457,611 shares at March 31, 2023 and 1,643,461 shares at December 31, 2022 | (35,616) | | (39,922) | |
Treasury stock, at cost, 1,355,337 shares at March 31, 2024 and 1,511,348 shares at December 31, 2023 | |
Total stockholders’ equity | Total stockholders’ equity | 819,543 | | 785,328 | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 7,311,520 | | $ | 7,207,304 | |
(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $241,$238, respectively, at March 31, 20232024, and $0 and $238, respectively, at December 31, 2022.2023.
(b) Also referred to throughout this Quarterly Report on Form 10-Q as "total loans" and "loans held for investment."
(c) Also referred to throughout this Quarterly Report on Form 10-Q as "net loans"loans."
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| | Three Months Ended | |
| March 31, | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | March 31, | | | | | March 31, |
(Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | 2023 | 2022 | | (Dollars in thousands, except per share data) | | | | 2024 | 2023 |
Interest income: | Interest income: | | |
Interest and fees on loans and leases | |
Interest and fees on loans and leases | |
Interest and fees on loans and leases | Interest and fees on loans and leases | $ | 71,762 | | $ | 50,200 | | |
Interest and dividends on taxable investment securities | Interest and dividends on taxable investment securities | 11,003 | | 6,050 | | |
Interest on tax-exempt investment securities | Interest on tax-exempt investment securities | 996 | | 1,015 | | |
Other interest income | Other interest income | 388 | | 160 | | |
Total interest income | Total interest income | 84,149 | | 57,425 | | |
Interest expense: | Interest expense: | | |
Interest on deposits | Interest on deposits | 5,661 | | 2,053 | | |
Interest on deposits | |
Interest on deposits | |
Interest on short-term borrowings | Interest on short-term borrowings | 4,457 | | 338 | | |
Interest on long-term borrowings | Interest on long-term borrowings | 1,153 | | 724 | | |
| Total interest expense | Total interest expense | 11,271 | | 3,115 | | |
Total interest expense | |
Total interest expense | |
Net interest income | Net interest income | 72,878 | | 54,310 | | |
Provision for (recovery of) credit losses | 1,853 | | (6,807) | | |
Net interest income after provision for (recovery of) credit losses | 71,025 | | 61,117 | | |
Provision for credit losses | |
Net interest income after provision for credit losses | |
| Non-interest income: | Non-interest income: | | |
| Non-interest income: | |
| Non-interest income: | |
Insurance income | |
Insurance income | |
Insurance income | |
Electronic banking income | Electronic banking income | 5,443 | | 5,253 | | |
Insurance income | 5,425 | | 4,731 | | |
Trust and investment income | Trust and investment income | 4,084 | | 4,276 | | |
Deposit account service charges | Deposit account service charges | 3,523 | | 3,426 | | |
Bank owned life insurance income | |
Lease income | Lease income | 1,077 | | 775 | | |
Bank owned life insurance income | 707 | | 431 | | |
Mortgage banking income | Mortgage banking income | 314 | | 436 | | |
Net loss on investment securities | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | (246) | | (127) | | |
Net (loss) gain on investment securities | (1,935) | | 130 | | |
Other non-interest income | Other non-interest income | 668 | | 719 | | |
Total non-interest income | Total non-interest income | 19,060 | | 20,050 | | |
Non-interest expense: | Non-interest expense: | | |
Salaries and employee benefit costs | |
Salaries and employee benefit costs | |
Salaries and employee benefit costs | Salaries and employee benefit costs | 32,028 | | 27,729 | | |
Net occupancy and equipment expense | Net occupancy and equipment expense | 4,955 | | 5,088 | | |
Data processing and software expense | Data processing and software expense | 4,562 | | 2,916 | | |
Professional fees | Professional fees | 2,881 | | 3,672 | | |
Amortization of other intangible assets | Amortization of other intangible assets | 1,871 | | 1,708 | | |
Electronic banking expense | Electronic banking expense | 1,491 | | 2,759 | | |
Federal Deposit Insurance Corporation ("FDIC") insurance expense | |
Other loan expenses | |
Marketing expense | |
Franchise tax expense | Franchise tax expense | 1,034 | | 764 | | |
Marketing expense | 930 | | 995 | | |
FDIC insurance expense | 801 | | 1,194 | | |
Other loan expenses | 739 | | 832 | | |
Communication expense | Communication expense | 613 | | 625 | | |
Other non-interest expense | Other non-interest expense | 4,574 | | 3,347 | | |
Total non-interest expense | Total non-interest expense | 56,479 | | 51,629 | | |
Income before income taxes | Income before income taxes | 33,606 | | 29,538 | | |
Income tax expense | Income tax expense | 7,046 | | 5,961 | | |
Net income | Net income | $ | 26,560 | | $ | 23,577 | | |
| Earnings per common share - basic | Earnings per common share - basic | $ | 0.95 | | $ | 0.84 | | |
| Earnings per common share - basic | |
| Earnings per common share - basic | |
Earnings per common share - diluted | Earnings per common share - diluted | $ | 0.94 | | $ | 0.84 | | |
Weighted-average number of common shares outstanding - basic | Weighted-average number of common shares outstanding - basic | 27,891,760 | | 28,006,165 | | |
Weighted-average number of common shares outstanding - diluted | Weighted-average number of common shares outstanding - diluted | 28,021,879 | | 28,129,131 | | |
Cash dividends declared | Cash dividends declared | $ | 10,725 | | $ | 10,176 | | |
Cash dividends declared per common share | Cash dividends declared per common share | $ | 0.38 | | $ | 0.36 | | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
| | | | | | | | | | | | |
| Three Months Ended | | | |
| March 31, | | | |
(Dollars in thousands) | 2023 | 2022 | | | | |
Net income | $ | 26,560 | | $ | 23,577 | | | | | |
Other comprehensive income (loss): | | | | | | |
Available-for-sale investment securities: | | | | | | |
Gross unrealized holding gain (loss) arising during the period | 20,362 | | (71,637) | | | | | |
Related tax (expense) benefit | (4,647) | | 16,448 | | | | | |
Reclassification adjustment for net loss (gain) included in net income | 1,935 | | (130) | | | | | |
Related tax (expense) benefit | (452) | | 30 | | | | | |
| | | | | | |
| | | | | | |
Net effect on other comprehensive income (loss) | 17,198 | | (55,289) | | | | | |
Defined benefit plan: | | | | | | |
Net loss arising during the period | — | | (14) | | | | | |
Related tax benefit | — | | 3 | | | | | |
Amortization of unrecognized loss and service cost on benefit plans | 2 | | 21 | | | | | |
Related tax benefit | — | | (5) | | | | | |
| | | | | | |
| | | | | | |
Net effect on other comprehensive income (loss) | 2 | | 5 | | | | | |
Cash flow hedges: | | | | | | |
Net (loss) gain arising during the period | (1,356) | | 5,456 | | | | | |
Related tax benefit (expense) | 313 | | (1,220) | | | | | |
Net effect on other comprehensive income (loss) | (1,043) | | 4,236 | | | | | |
Total other comprehensive gain (loss), net of tax | 16,157 | | (51,048) | | | | | |
Total comprehensive income (loss) | $ | 42,717 | | $ | (27,471) | | | | | |
| | | | | | | | | | | | |
| Three Months Ended | | | |
| March 31, | | | |
(Dollars in thousands) | 2024 | 2023 | | | | |
Net income | $ | 29,584 | | $ | 26,560 | | | | | |
Other comprehensive (loss) income: | | | | | | |
Available-for-sale investment securities: | | | | | | |
Gross unrealized holding (loss) gain arising during the period | (9,887) | | 20,362 | | | | | |
Related tax benefit (expense) | 2,340 | | (4,647) | | | | | |
Reclassification adjustment for net loss included in net income | 1 | | 1,935 | | | | | |
Related tax expense | — | | (452) | | | | | |
| | | | | | |
| | | | | | |
Net effect on other comprehensive (loss) income | (7,546) | | 17,198 | | | | | |
Defined benefit plan: | | | | | | |
| | | | | | |
| | | | | | |
Amortization of unrecognized loss and service cost on benefit plans | — | | 2 | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net effect on other comprehensive (loss) income | — | | 2 | | | | | |
Cash flow hedges: | | | | | | |
Net gain (loss) arising during the period | 256 | | (1,356) | | | | | |
Related tax (expense) benefit | (60) | | 313 | | | | | |
Net effect on other comprehensive (loss) income | 196 | | (1,043) | | | | | |
Total other comprehensive (loss) income, net of tax | (7,350) | | 16,157 | | | | | |
Total comprehensive income | $ | 22,234 | | $ | 42,717 | | | | | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | | Accumulated Other Comprehensive Loss | |
| | | | Accumulated Other Comprehensive Loss | |
| | | | Accumulated Other Comprehensive Loss | | | Total Stockholders' Equity |
| | Common Shares | | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, December 31, 2023 | |
Balance, December 31, 2023 | |
Balance, December 31, 2023 | |
| Net income | |
Net income | |
Net income | |
Other comprehensive loss, net of tax | |
| | | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, December 31, 2022 | | $ | 686,450 | | $ | 265,936 | | $ | (127,136) | | $ | (39,922) | | $ | 785,328 | |
Cash dividends declared | |
| Net income | | — | | 26,560 | | — | | — | | 26,560 | |
Other comprehensive gain, net of tax | | — | | — | | 16,157 | | — | | 16,157 | |
| Cash dividends declared | |
| Cash dividends declared | Cash dividends declared | | — | | (10,725) | | — | | — | | (10,725) | |
| Reissuance of treasury stock for common share awards | Reissuance of treasury stock for common share awards | | (4,685) | | — | | — | | 4,685 | | — | |
Reissuance of treasury stock for common share awards | |
Reissuance of treasury stock for common share awards | |
| 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 | | — | | — | | — | | (920) | | (920) | |
| 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 | |
Common shares repurchased under share repurchase program | |
Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 402 | | — | | — | | — | | 402 | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | 8 | | — | | — | | 128 | | 136 | |
| Common shares issued under employee stock purchase plan | |
Common shares issued under employee stock purchase plan | |
Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | 42 | | — | | — | | 413 | | 455 | |
Stock-based compensation | Stock-based compensation | | 2,150 | | — | | — | | — | | 2,150 | |
| Balance, March 31, 2023 | | $ | 684,367 | | $ | 281,771 | | $ | (110,979) | | $ | (35,616) | | $ | 819,543 | |
Balance, March 31, 2024 | |
| Balance, March 31, 2024 | |
| Balance, March 31, 2024 | |
| | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
| | | | Accumulated Other Comprehensive Loss | |
| | | | Accumulated Other Comprehensive Loss | |
| | | | Accumulated Other Comprehensive Loss | | | Total Stockholders' Equity |
| | Common Shares | | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | (Dollars in thousands) | | Common Shares | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Stockholders' Equity |
Balance, December 31, 2021 | |
Balance, December 31, 2022 | |
Balance, December 31, 2022 | |
Balance, December 31, 2022 | |
| Net income | Net income | | — | | 23,577 | | — | | — | | 23,577 | |
Other comprehensive loss, net of tax | | — | | — | | (51,048) | | — | | (51,048) | |
Net income | |
Net income | |
Other comprehensive income, net of tax | |
| Cash dividends declared | Cash dividends declared | | — | | (10,176) | | — | | — | | (10,176) | |
| Cash dividends declared | |
| Cash dividends declared | |
| Reissuance of treasury stock for common share awards | |
Reissuance of treasury stock for common share awards | |
Reissuance of treasury stock for common share awards | Reissuance of treasury stock for common share awards | | (3,998) | | — | | — | | 3,998 | | — | |
| 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 | | — | | — | | — | | (1,230) | | (1,230) | |
| 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 | |
| Common shares issued under dividend reinvestment plan | |
Common shares issued under dividend reinvestment plan | |
Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 305 | | — | | — | | — | | 305 | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | 31 | | — | | — | | 93 | | 124 | |
| Common shares issued under employee stock purchase plan | |
Common shares issued under employee stock purchase plan | |
Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | 46 | | — | | — | | 140 | | 186 | |
Stock-based compensation | Stock-based compensation | | 1,577 | | — | | — | | — | | 1,577 | |
| Balance, March 31, 2022 | | $ | 684,243 | | $ | 220,477 | | $ | (62,667) | | $ | (33,713) | | $ | 808,340 | |
Balance, March 31, 2023 | |
| Balance, March 31, 2023 | |
| Balance, March 31, 2023 | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | Three Months Ended |
| March 31, |
| Three Months Ended | | | Three Months Ended |
| March 31, | | | March 31, |
(Dollars in thousands) | (Dollars in thousands) | 2023 | 2022 | (Dollars in thousands) | 2024 | 2023 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 47,997 | | $ | 15,710 | |
Investing activities: | Investing activities: | |
Available-for-sale investment securities: | Available-for-sale investment securities: | |
Available-for-sale investment securities: | |
Available-for-sale investment securities: | |
Purchases | |
Purchases | |
Purchases | Purchases | (22,873) | | (165,305) | |
Proceeds from sales | Proceeds from sales | 95,362 | | 4,218 | |
Proceeds from principal payments, calls and prepayments | Proceeds from principal payments, calls and prepayments | 27,922 | | 60,520 | |
Held-to-maturity investment securities: | Held-to-maturity investment securities: | |
Purchases | Purchases | (167,169) | | (15,463) | |
Purchases | |
Purchases | |
Proceeds from principal payments | Proceeds from principal payments | 33,324 | | 4,512 | |
Other investment securities: | Other investment securities: | |
Purchases | Purchases | (4,792) | | (8,208) | |
Purchases | |
Purchases | |
Proceeds from sales | Proceeds from sales | 3,746 | | 237 | |
| Net (increase) decrease in loans held for investment | (52,386) | | 75,740 | |
Net increase in loans held for investment | |
Net increase in loans held for investment | |
Net increase in loans held for investment | |
Net expenditures for premises and equipment | Net expenditures for premises and equipment | (2,757) | | (2,053) | |
Proceeds from sales of other real estate owned | Proceeds from sales of other real estate owned | 107 | | 124 | |
Business acquisitions, net of cash received | |
| Proceeds from bank owned life insurance contracts | |
Proceeds from bank owned life insurance contracts | |
Proceeds from bank owned life insurance contracts | |
| Business acquisitions, net of cash received | (200) | | (80,532) | |
Investment in limited partnership and tax credit funds | |
Investment in limited partnership and tax credit funds | |
Investment in limited partnership and tax credit funds | Investment in limited partnership and tax credit funds | (267) | | (1,151) | |
Net cash used in investing activities | Net cash used in investing activities | (89,983) | | (127,361) | |
Financing activities: | Financing activities: | | Financing activities: | |
Net (decrease) increase in non-interest-bearing deposits | (34,338) | | 25,246 | |
Net decrease in non-interest-bearing deposits | |
Net increase in interest-bearing deposits | Net increase in interest-bearing deposits | 105,991 | | 115,255 | |
Net decrease in short-term borrowings | Net decrease in short-term borrowings | (9,468) | | (27,252) | |
Proceeds from long-term borrowings | Proceeds from long-term borrowings | 2,899 | | — | |
Payments on long-term borrowings | Payments on long-term borrowings | (8,450) | | (260) | |
| Cash dividends paid | Cash dividends paid | (10,993) | | (10,438) | |
| Cash dividends paid | |
| Cash dividends paid | |
Purchase of treasury stock under share repurchase program | |
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 | (920) | | (1,230) | |
Proceeds from issuance of common shares | Proceeds from issuance of common shares | 397 | | 282 | |
| Net cash provided by financing activities | Net cash provided by financing activities | 45,118 | | 101,603 | |
Net increase (decrease) in cash and cash equivalents | 3,132 | | (10,048) | |
| Net cash provided by financing activities | |
| Net cash provided by financing activities | |
Net increase in cash and cash equivalents | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 154,022 | | 415,727 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 157,154 | | $ | 405,679 | |
| Supplemental cash flow information: | Supplemental cash flow information: | |
Supplemental cash flow information: | |
Supplemental cash flow information: | |
Interest paid | |
Interest paid | |
Interest paid | Interest paid | $ | 9,675 | | $ | 2,656 | |
Income taxes paid | Income taxes paid | 105 | | — | |
Supplemental noncash disclosures: | Supplemental noncash disclosures: | |
Transfers from total loans to other real estate owned | Transfers from total loans to other real estate owned | — | | 36 | |
Transfers from total loans to other real estate owned | |
Transfers from total loans to other real estate owned | |
Noncash recognition of new leases | Noncash recognition of new leases | 336 | | 726 | |
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, 20222023 ("Peoples' 20222023 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’ 20222023 Form 10-K, as updated by the information contained in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 20232024 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after March 31, 20232024 for potential recognition or disclosure in these unaudited condensed consolidated financial statements.Unaudited Condensed Consolidated Financial Statements. In the opinion of management, these unaudited condensed consolidated financial statementsUnaudited Condensed Consolidated Financial Statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. Intercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2022,2023, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 20222023 Form 10-K.
The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following paragraphs relatedRefer 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’ 20222023 Form 10-K. Unless otherwise discussed, management believes the impact of any recently issued standards, including those issued but not yet effective, will not have a material impact on Peoples' financial statements taken as a whole.
Accounting Standards Update ("ASU") 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance was further updated by ASU 2021-01. This update was effective as of March 12, 2020 through December 31, 2022. The FASB further updated the guidance with ASU 2022-06, which deferred the sunset date of ASC Topic 848, Reference Rate Reform (Topic 848) from December 31, 2022 to December 31, 2024. ASU 2020-04 was early adopted by Peoples as of September 30, 2021, and did not have a significant impact on Peoples' Consolidated Financial Statements, but is expected to reduce the accounting burden of assessing contracts impacted by reference rate reform. Peoples established a working group, consisting of key stakeholders from throughout the company, to monitor developments relating to LIBOR changes and to guide the transition. This team has worked to successfully ensure that technology systems are prepared for the transition, loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders have been apprised of the transition. Based on the transition progress to date, Peoples ceased originating LIBOR-based products and began originating SOFR-indexed products. Peoples will continue to transition all remaining LIBOR-based products to SOFR-indexed products. Peoples will also continue to evaluate the transition process and align its trajectory with regulatory guidelines regarding the cessation of LIBOR as well as monitor new developments for transitioning to alternative reference rates, if necessary and as needed.
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 Accounting Standards Codification ("ASC") 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. For entities that have already adopted ASU 2016-13, as Peoples has, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
Effective January 1, 2023, Peoples adopted the amendments within ASU 2022-02, using the prospective transition method. The adoption of this guidance did not have a material impact on Peoples' consolidated financial statements.
Pursuant to the guidance in ASU 2022-02, when a loan is restructured, Peoples continues to measure the allowance for credit losses on the loan using a discounted cash flow approach that utilizes a prepayment-adjusted discount rate based on the loan’s restructured terms. Under the TDR accounting model, Peoples modeled a 12-month extension of the contractual terms for TDRs that were to mature within the next 12 months. As Peoples has elected a prospective transition, the extension on a loan that was previously restructured and accounted for as a TDR will continue to be measured as it had been historically in Peoples' allowance for credit losses until the loan is paid off, sold, liquidated, or subsequently restructured. Refer to "Note 4 Loans and Leases" for additional information.
Note 2 Fair Value of Assets and Liabilities Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.”
Depending on the nature of the asset or the liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20222023 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 |
| | | March 31, 2023 | | December 31, 2022 |
| | | Recurring Fair Value Measurements at Reporting Date |
| | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
(Dollars in thousands) | (Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| | Assets: | |
| Assets: | |
| Assets: | Assets: | | | |
Available-for-sale investment securities: | Available-for-sale investment securities: | | |
Available-for-sale investment securities: | |
Available-for-sale investment securities: | |
Obligations of: | |
Obligations of: | |
Obligations of: | Obligations of: | | | |
U.S. Treasury and government agencies | U.S. Treasury and government agencies | | $ | 58,438 | | $ | — | | $ | — | | | $ | 152,422 | | $ | — | | $ | — | |
U.S. Treasury and government agencies | |
U.S. Treasury and government agencies | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | U.S. government sponsored agencies | | — | | 98,311 | | — | | | — | | 88,115 | | — | |
States and political subdivisions | States and political subdivisions | | — | | 224,996 | | — | | | — | | 225,882 | | — | |
States and political subdivisions | |
States and political subdivisions | |
Residential mortgage-backed securities | |
Residential mortgage-backed securities | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | — | | 605,270 | | — | | | — | | 604,653 | | — | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | | — | | 52,153 | | — | | | — | | 50,049 | | — | |
Commercial mortgage-backed securities | |
Commercial mortgage-backed securities | |
Bank-issued trust preferred securities | |
Bank-issued trust preferred securities | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | | — | | 10,329 | | — | | | — | | 10,278 | | — | |
| Total available-for-sale securities | Total available-for-sale securities | | $ | 58,438 | | $ | 991,059 | | $ | — | | | $ | 152,422 | | $ | 978,977 | | $ | — | |
| Total available-for-sale securities | |
| Total available-for-sale securities | |
Equity investment securities (a) | |
Equity investment securities (a) | |
Equity investment securities (a) | Equity investment securities (a) | | 168 | | 199 | | — | | | 147 | | 199 | | — | |
Derivative assets (b) | Derivative assets (b) | | — | | 27,339 | | — | | | — | | 34,123 | | — | |
Derivative assets (b) | |
Derivative assets (b) | |
Liabilities: | |
Liabilities: | |
Liabilities: | Liabilities: | | |
Derivative liabilities (c) | Derivative liabilities (c) | | $ | — | | $ | 23,100 | | $ | — | | | $ | — | | $ | 28,529 | | $ | — | |
Derivative liabilities (c) | |
Derivative liabilities (c) | |
(a) Included in "Other investment securities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
(b) Included in "Other assets" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
(c) Included in "Accrued expenses and other liabilities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 10 Derivative Financial Instruments" of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Available-for-Sale Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBORsecured overnight funding rate ("SOFR") (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 or broker in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from 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 Derivative Liabilities: Derivative assets and derivative liabilities are recognized on the Unaudited Consolidated Balance Sheets at their fair value within "Other assets" and "Accrued expenses and other liabilities", respectively. The fair value for derivative financial instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy at March 31, 20232024 and December 31, 2022.2023.
| | | | Non-Recurring Fair Value Measurements at Reporting Date |
| | | March 31, 2023 | | | December 31, 2022 |
| | | | Non-Recurring Fair Value Measurements at Reporting Date |
| | | March 31, 2024 | | | | | March 31, 2024 | | | December 31, 2023 |
(Dollars in thousands) | (Dollars in thousands) | | Level 2 | Level 3 | | | Level 2 | Level 3 | (Dollars in thousands) | | | Level 2 | Level 3 | | | Level 2 | Level 3 |
| | Level 2 | Level 3 |
| Assets: | Assets: | | | | |
Assets: | |
Assets: | |
Collateral dependent loans | |
Collateral dependent loans | |
Collateral dependent loans | Collateral dependent loans | | $ | — | | $ | 8,860 | | | | $ | — | | $ | 10,354 | |
Loans held for sale (a) | Loans held for sale (a) | | $ | 1,251 | | $ | — | | | | $ | 1,254 | | $ | — | |
Other real estate owned | Other real estate owned | | $ | — | | $ | — | | | | $ | — | | $ | 55 | |
|
(a) Loans held for sale are presented gross of a valuation allowance of $99$138 and $105$163 at March 31, 20232024 and at December 31, 2022,2023, respectively.
Collateral Dependent Loans: Loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty, are considered collateral dependent. Peoples utilizes outside third-party appraisal services to value the underlying collateral, which Peoples then uses to report the loans at their fair value (Level 3).
Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally one-to-four family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2).
Other Real Estate Owned ("OREO"):, OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches, including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3).
Servicing Rights: Servicing rights are included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. The fair value of servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3). The carrying value of servicing rights is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of servicing rights quarterly for impairment.
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 | March 31, 2023 | | December 31, 2022 | (Dollars in thousands) | | Fair Value Hierarchy Level | March 31, 2024 | | December 31, 2023 |
| Carrying Amount | Fair Value | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
| | Assets: | Assets: | | |
Assets: | |
Assets: | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | Cash and cash equivalents | | 1 | $ | 157,154 | | $ | 157,154 | | | $ | 154,022 | | $ | 154,022 | |
| Held-to-maturity investment securities: | Held-to-maturity investment securities: | | |
| Held-to-maturity investment securities: | |
| Held-to-maturity investment securities: | |
Obligations of: | Obligations of: | | |
Obligations of: | |
Obligations of: | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | U.S. government sponsored agencies | | 2 | 194,184 | | 186,446 | | | 132,366 | | 123,020 | |
States and political subdivisions (a) | States and political subdivisions (a) | | 2 | 145,085 | | 114,192 | | | 145,263 | | 108,776 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | 2 | 245,294 | | 230,377 | | | 176,215 | | 157,998 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | | 2 | 105,002 | | 89,919 | | | 101,861 | | 85,354 | |
Commercial mortgage-backed securities | | 3 | 4,748 | | 3,502 | | | 4,748 | | 3,361 | |
| Total held-to-maturity securities | |
Total held-to-maturity securities | |
Total held-to-maturity securities | Total held-to-maturity securities | | | 694,313 | | 624,436 | | | 560,453 | | 478,509 | |
| Other investment securities: | Other investment securities: | | |
| Other investment securities: | |
| Other investment securities: | |
Other investment securities at cost: | |
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 | 27,381 | | 27,381 | | | 26,605 | | 26,605 | |
Federal Home Loan Bank ("FHLB") stock | |
Federal Home Loan Bank ("FHLB") stock | |
Federal Reserve Bank ("FRB") stock | Federal Reserve Bank ("FRB") stock | | N/A | 21,231 | | 21,231 | | | 21,231 | | 21,231 | |
Banker's Bank of Kentucky ("BBKY") stock | | N/A | 355 | | 355 | | | 355 | | 355 | |
| Total other investment securities at cost | |
Total other investment securities at cost | |
Total other investment securities at cost | Total other investment securities at cost | | | 48,967 | | 48,967 | | | 48,191 | | 48,191 | |
Other investment securities at fair value: | Other investment securities at fair value: | | |
Nonqualified deferred compensation (b) | |
Nonqualified deferred compensation (b) | |
Nonqualified deferred compensation (b) | Nonqualified deferred compensation (b) | | 1 | 2,405 | | 2,405 | | | 2,048 | | 2,048 | |
Other investment securities (c) | Other investment securities (c) | | 2 | 1,024 | | 1,024 | | | 1,024 | | 1,024 | |
Total other investment securities | Total other investment securities | | | 52,396 | | 52,396 | | | 51,263 | | 51,263 | |
| Loans and leases, net of deferred fees and costs (d) | Loans and leases, net of deferred fees and costs (d) | | 3 | 4,759,718 | | 4,522,720 | | | 4,707,150 | | 4,516,695 | |
Loans and leases, net of deferred fees and costs (d) | |
Loans and leases, net of deferred fees and costs (d) | |
Bank owned life insurance | Bank owned life insurance | | 2 | 105,999 | | 105,999 | | | 105,292 | | 105,292 | |
Liabilities: | Liabilities: | | |
Deposits | Deposits | | 2 | $ | 5,788,527 | | $ | 4,924,296 | | | $ | 5,716,941 | | $ | 4,682,491 | |
Deposits | |
Deposits | |
Short-term borrowings | Short-term borrowings | | 2 | 490,670 | | 496,786 | | | 500,138 | | 504,584 | |
Long-term borrowings | Long-term borrowings | | 2 | 95,629 | | 96,822 | | | 101,093 | | 101,992 | |
(a) Held-to-maturity investment securities are presented gross of an allowance for credit losses of $241$238 at both March 31, 20232024 and December 31, 2022.2023.
(b) Nonqualified deferred compensation includes mutual funds as part of the investment.
(c) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at March 31, 20232024
and at December 31, 2022,2023, 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 $53.3$64.8 million and $53.2$62.0 million at March 31, 20232024 and at December 31, 2022,2023, respectively.
For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These financial instruments include cash and cash equivalents and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and cash equivalents balances are a reasonable estimate of fair value (Level 1).
Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, relevant yield curves, credit spreads and prices from market makers and live trading systems (Level 2). When observable market data is absent, the independent pricing service estimates prices based on underlying cash flow characteristics and discount rates and compares them to similar securities (Level 3). Management reviews the valuation
methodology and quality controls utilized by the pricing services in management's overall assessment
of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Other Investment Securities: Other investment securities at cost are not recorded at fair value as they are not marketable securities. Other investment securities at fair value are valued using quoted prices in an active market (Level 1) or quoted prices in less active markets (Level 2).
Loans and Leases, Net of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considers interest rate, credit and market factors in estimating the fair value of loans and leases (Level 3). Fair values for loans and leases are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans and leases with similar terms, the credit risk associated with the loans and leases and other market factors, including liquidity.
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 2). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.
Deposits: The fair value of fixed-maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities. Demand and other non-fixed-maturity deposits are estimated using a discounted cash flow calculation based on maturity, attrition and re-pricing assumptions (Level 2).
Short-term Borrowings: The fair value of short-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).
Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2).
Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). These financial assets and financial liabilities include the following: customer relationships, the deposit base, and other information required to compute Peoples’ aggregate fair value, which are not included in the above information. Accordingly, the fair values described above are not intended to represent the aggregate fair value of Peoples.
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 |
March 31, 2023 | |
March 31, 2024 | | March 31, 2024 | |
Obligations of: | Obligations of: | | Obligations of: | |
U.S. Treasury and government agencies | U.S. Treasury and government agencies | $ | 61,584 | | $ | — | | $ | (3,146) | | $ | 58,438 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 109,927 | | 22 | | (11,638) | | 98,311 | |
States and political subdivisions | States and political subdivisions | 254,523 | | 32 | | (29,559) | | 224,996 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 697,452 | | 1,070 | | (93,252) | | 605,270 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 62,256 | | — | | (10,103) | | 52,153 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 10,779 | | 40 | | (490) | | 10,329 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 1,196,521 | | $ | 1,164 | | $ | (148,188) | | $ | 1,049,497 | |
December 31, 2022 | |
Total available-for-sale securities | |
Total available-for-sale securities | |
December 31, 2023 | | December 31, 2023 | |
Obligations of: | Obligations of: | | Obligations of: | |
U.S. Treasury and government agencies | U.S. Treasury and government agencies | $ | 158,473 | | $ | — | | $ | (6,051) | | $ | 152,422 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 101,753 | | 18 | | (13,656) | | 88,115 | |
States and political subdivisions | States and political subdivisions | 261,612 | | 12 | | (35,742) | | 225,882 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 707,025 | | 1,017 | | (103,389) | | 604,653 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 61,091 | | — | | (11,042) | | 50,049 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 10,765 | | 57 | | (544) | | 10,278 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 1,300,719 | | $ | 1,104 | | $ | (170,424) | | $ | 1,131,399 | |
Total available-for-sale securities | |
Total available-for-sale securities | |
The gross gains and losses realized by Peoples from sales of available-for-sale securities for the periods ended March 31 were as follows:
| | Three Months Ended | |
| March 31, | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | March 31, | | | | | March 31, |
(Dollars in thousands) | (Dollars in thousands) | 2023 | 2022 | | (Dollars in thousands) | | | | 2024 | 2023 |
Gross gains realized | Gross gains realized | $ | 78 | | $ | 146 | | |
Gross losses realized | Gross losses realized | (2,013) | | (16) | | |
Net (loss) gain realized | Net (loss) gain realized | $ | (1,935) | | $ | 130 | | |
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 hadhave been in a continuous unrealized loss position for the periods identified:
| | | 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 |
March 31, 2023 | | | | | |
March 31, 2024 | | March 31, 2024 | | | | | | | |
Obligations of: | Obligations of: | |
U.S. Treasury and government agencies | |
U.S. Treasury and government agencies | |
U.S. Treasury and government agencies | U.S. Treasury and government agencies | $ | — | | $ | — | | — | | | $ | 58,438 | | $ | 3,146 | | 18 | | | $ | 58,438 | | $ | 3,146 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 24,093 | | 222 | | 18 | | | 71,220 | | 11,416 | | 14 | | | 95,313 | | 11,638 | |
States and political subdivisions | States and political subdivisions | 52,634 | | 355 | | 96 | | | 161,939 | | 29,204 | | 117 | | | 214,573 | | 29,559 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 22,648 | | 486 | | 32 | | | 572,090 | | 92,766 | | 212 | | | 594,738 | | 93,252 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,627 | | 8 | | 1 | | | 50,526 | | 10,095 | | 23 | | | 52,153 | | 10,103 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 478 | | 22 | | 1 | | | 7,533 | | 468 | | 4 | | | 8,011 | | 490 | |
| Total | Total | $ | 101,480 | | $ | 1,093 | | 148 | | | $ | 921,746 | | $ | 147,095 | | 388 | | | $ | 1,023,226 | | $ | 148,188 | |
December 31, 2022 | | | | | |
Total | |
Total | |
December 31, 2023 | | December 31, 2023 | | | | | | | |
Obligations of: | Obligations of: | |
U.S. Treasury and government agencies | |
U.S. Treasury and government agencies | |
U.S. Treasury and government agencies | U.S. Treasury and government agencies | $ | 112,730 | | $ | 2,772 | | 13 | | | $ | 39,692 | | $ | 3,279 | | 11 | | | $ | 152,422 | | $ | 6,051 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 15,166 | | 249 | | 17 | | | 66,706 | | 13,407 | | 18 | | | 81,872 | | 13,656 | |
States and political subdivisions | States and political subdivisions | 60,324 | | 714 | | 114 | | | 156,900 | | 35,028 | | 117 | | | 217,224 | | 35,742 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 104,959 | | 8,087 | | 105 | | | 488,452 | | 95,302 | | 139 | | | 593,411 | | 103,389 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,874 | | 129 | | 2 | | | 48,175 | | 10,913 | | 21 | | | 50,049 | | 11,042 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 4,400 | | 100 | | 3 | | | 3,556 | | 444 | | 2 | | | 7,956 | | 544 | |
| Total | Total | $ | 299,453 | | $ | 12,051 | | 254 | | | $ | 803,481 | | $ | 158,373 | | 308 | | | $ | 1,102,934 | | $ | 170,424 | |
Total | |
Total | |
Management evaluates available-for-sale investment securities for an allowance for credit losses on a quarterly basis. At March 31, 2023,2024, management concluded that no individual securities at an unrealized loss position required an allowance for credit losses. At March 31, 2023,2024, 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 March 31, 20232024 and December 31, 20222023 were largely attributable to changes in market interest rates and spreads since the securities were purchased, and were not credit-related losses. Accrued interest receivable is not included in investment securities balances, and is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Interest receivable on investment securities was $6.7$9.8 million at March 31, 20232024 and $7.8$8.8 million at December 31, 2022.
At March 31, 2023, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or four positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Of the four positions, three positions had a fair value of less than 90% of their book values. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans underlying these securities. Obligations of the U.S. treasury and government agencies, obligations of U.S. government sponsored agencies, and obligations of states and political subdivisions were issued by the U.S. Treasury Department or Federal government-sponsored entities. The decline in fair values was attributable to changes in interest rates and not credit quality. Therefore, management does not consider these to be impaired securities.2023.
The unrealized loss with respect to the fourthree bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at March 31, 20232024 was attributable to the subordinated nature of the debt.trust preferred securities.
The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at March 31, 2023.2024. 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 | $ | 12,495 | | $ | 49,089 | | $ | — | | $ | — | | $ | 61,584 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 9,309 | | 47,321 | | 45,042 | | 8,255 | | 109,927 | |
States and political subdivisions | States and political subdivisions | 25,699 | | 47,241 | | 67,302 | | 114,281 | | 254,523 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1 | | 1,415 | | 56,175 | | 639,861 | | 697,452 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,635 | | 7,463 | | 29,862 | | 23,296 | | 62,256 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | — | | 6,279 | | 4,500 | | — | | 10,779 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 49,139 | | $ | 158,808 | | $ | 202,881 | | $ | 785,693 | | $ | 1,196,521 | |
Total available-for-sale securities | |
Total available-for-sale securities | |
Fair value | Fair value | | Fair value | |
Obligations of: | Obligations of: | | Obligations of: | |
U.S. Treasury and government agencies | U.S. Treasury and government agencies | $ | 12,195 | | $ | 46,243 | | $ | — | | $ | — | | $ | 58,438 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 9,154 | | 44,088 | | 38,785 | | 6,284 | | 98,311 | |
States and political subdivisions | States and political subdivisions | 25,637 | | 45,497 | | 57,761 | | 96,101 | | 224,996 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1 | | 1,358 | | 51,295 | | 552,616 | | 605,270 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1,627 | | 6,771 | | 24,990 | | 18,765 | | 52,153 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | — | | 6,284 | | 4,045 | | — | | 10,329 | |
| Total available-for-sale securities | Total available-for-sale securities | $ | 48,614 | | $ | 150,241 | | $ | 176,876 | | $ | 673,766 | | $ | 1,049,497 | |
Total available-for-sale securities | |
Total available-for-sale securities | |
Total weighted-average yield | Total weighted-average yield | 2.58 | % | 2.27 | % | 1.69 | % | 1.89 | % | 1.93 | % | Total weighted-average yield | 3.59 | % | 2.31 | % | 2.77 | % | 2.73 | % | 2.70 | % |
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 |
March 31, 2023 | | | |
March 31, 2024 | | March 31, 2024 | | | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | | | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 194,184 | | $ | — | | $ | 385 | | $ | (8,123) | | $ | 186,446 | |
States and political subdivisions | States and political subdivisions | 145,085 | | (241) | | 199 | | (30,851) | | 114,192 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 245,294 | | — | | 1,321 | | (16,345) | | 230,377 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 109,750 | | — | | 49 | | (16,378) | | 93,421 | |
Total held-to-maturity securities | $ | 694,313 | | $ | (241) | | $ | 1,954 | | $ | (71,697) | | $ | 624,436 | |
December 31, 2022 | | | |
Total held-to-maturity investment securities | |
December 31, 2023 | | December 31, 2023 | | | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 132,366 | | $ | — | | $ | 130 | | $ | (9,476) | | $ | 123,020 | |
States and political subdivisions | States and political subdivisions | 145,263 | | (241) | | 162 | | (36,408) | | 108,776 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 176,215 | | — | | 244 | | (18,461) | | 157,998 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 106,609 | | — | | — | | (17,894) | | 88,715 | |
Total held-to-maturity securities | $ | 560,453 | | $ | (241) | | $ | 536 | | $ | (82,239) | | $ | 478,509 | |
Total held-to-maturity investment securities | |
There were no sales of held-to-maturity investment securities forduring either of the three months ended March 31, 20232024 or 2022.2023.
Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. Peoples has determined that the loss given default for U.S. government sponsored enterpriseagencies investment securities is zero, due to the fact that it is unlikely the ultimate guarantor (the U.S. government) would not perform on its implicit guarantee in the event of default. The remaining securities are included in the calculation of the allowance for credit losses for held-to-maturity investment securities. Peoples recorded $241,000reported $0.2 million of allowance for credit losses for held-to-maturity securities at both March 31, 2023,2024, and December 31, 2022.2023.
The following table presents a summary of held-to-maturity investment securities that had been in a continuous unrealized loss position for the periods identified:
| | | 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 |
March 31, 2023 | | | | | |
March 31, 2024 | | March 31, 2024 | | | | | | | |
Obligations of: | Obligations of: | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 81,988 | | $ | 413 | | 14 | | | 30,303 | | 7,710 | | 9 | | | $ | 112,291 | | $ | 8,123 | |
States and political subdivisions | States and political subdivisions | — | | — | | — | | | 110,831 | | 30,851 | | 67 | | | 110,831 | | 30,851 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 67,554 | | 884 | | 20 | | | 87,045 | | 15,461 | | 23 | | | 154,599 | | 16,345 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 22,008 | | 462 | | 5 | | | 65,621 | | 15,916 | | 31 | | | 87,629 | | 16,378 | |
Total | Total | $ | 171,550 | | $ | 1,759 | | 39 | | | $ | 293,800 | | $ | 69,938 | | 130 | | | $ | 465,350 | | $ | 71,697 | |
December 31, 2022 | | | | | |
December 31, 2023 | | December 31, 2023 | | | | | | | |
Obligations of: | Obligations of: | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | U.S. government sponsored agencies | $ | 59,905 | | $ | 651 | | 17 | | | 29,306 | | 8,825 | | 9 | | | $ | 89,211 | | $ | 9,476 | |
States and political subdivisions | States and political subdivisions | 3,590 | | 1,072 | | 3 | | | 101,863 | | 35,336 | | 64 | | | 105,453 | | 36,408 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 71,582 | | 2,904 | | 21 | | | 72,862 | | 15,557 | | 18 | | | 144,444 | | 18,461 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 26,869 | | 650 | | 8 | | | 61,846 | | 17,244 | | 29 | | | 88,715 | | 17,894 | |
Total | Total | $ | 161,946 | | $ | 5,277 | | 49 | | | $ | 265,877 | | $ | 76,962 | | 120 | | | $ | 427,823 | | $ | 82,239 | |
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity investment securities by contractual maturity at March 31, 2023.2024. 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 23.3% for the three months ended23.2% at March 31, 2023 and December 31, 2022, respectively.2024. 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 | 2,126 | | $ | 24,178 | | $ | 71,008 | | $ | 96,872 | | $ | 194,184 | |
States and political subdivisions | States and political subdivisions | — | | 5,214 | | 9,402 | | 130,469 | | 145,085 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | — | | 890 | | — | | 244,404 | | 245,294 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 5,004 | | 6,129 | | 34,744 | | 63,873 | | 109,750 | |
Total held-to-maturity securities | $ | 7,130 | | $ | 36,411 | | $ | 115,154 | | $ | 535,618 | | $ | 694,313 | |
Total held-to-maturity investment securities | |
Fair value | Fair value | | | | Fair value | | | |
Obligations of: | Obligations of: | | | | Obligations of: | | | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 2,102 | | $ | 23,398 | | $ | 70,844 | | $ | 90,102 | | $ | 186,446 | |
States and political subdivisions | States and political subdivisions | — | | 4,944 | | 8,165 | | 101,083 | | 114,192 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | — | | 866 | | — | | 229,511 | | 230,377 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 4,899 | | 5,471 | | 30,996 | | 52,055 | | 93,421 | |
Total held-to-maturity securities | $ | 7,001 | | $ | 34,679 | | $ | 110,005 | | $ | 472,751 | | $ | 624,436 | |
Total held-to-maturity investment securities | |
Total weighted-average yield | Total weighted-average yield | 2.01 | % | 2.01 | % | 4.29 | % | 3.45 | % | 3.50 | % | Total weighted-average yield | 3.85 | % | 2.51 | % | 4.00 | % | 3.51 | % | 3.57 | % |
Other Investment Securities
Peoples' other investment securities on the Unaudited Consolidated Balance Sheets consist largely of shares of FHLB stock and of FRB stock.
The following table summarizes the carrying value of Peoples' other investment securities:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 |
FHLB stock | FHLB stock | $ | 27,381 | | $ | 26,605 | |
FRB stock | FRB stock | 21,231 | | 21,231 | |
Nonqualified deferred compensation | Nonqualified deferred compensation | 2,405 | | 2,048 | |
Equity investment securities | Equity investment securities | 367 | | 346 | |
Other investment securities | Other investment securities | 1,379 | | 1,379 | |
Total other investment securities | Total other investment securities | $ | 52,763 | | $ | 51,609 | |
During the three months ended March 31, 2023,2024, Peoples redeemed $3.7$8.0 million of FHLB stock in order to be in compliance with the requirements of the FHLB. Peoples purchased $4.5$6.5 million of additional FHLB stock during the three months ended March 31, 2023,2024, as a result of the FHLB's capital requirements on FHLB advances during the first quarter.advances.
DuringFor the three months ended March 31, 2024 and 2023, and 2022, Peoples recognized a gain of $21,000 and a loss of $7,000, respectively, forrecorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income"., resulting in an unrealized gains of $47,000 and $21,000, respectively.
At March 31, 2023,2024, 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.equity at March 31, 2024.
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.FRB.
The following table summarizes the carrying amount of Peoples' pledged securities:
| | |
| | | | Carrying Amount | | Carrying Amount |
(Dollars in thousands) | (Dollars in thousands) | | March 31, 2023 | | December 31, 2022 | (Dollars in thousands) | | March 31, 2024 | | December 31, 2023 |
| | 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: | |
Securing public and trust department deposits, and repurchase agreements: | |
Available-for-sale | |
Available-for-sale | |
Available-for-sale | Available-for-sale | | $ | 704,074 | | | $ | 779,244 | |
Held-to-maturity | Held-to-maturity | | 372,372 | | | 312,921 | |
| 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: | |
| Securing additional borrowing capacity at the FHLB and the FRB: | |
Available-for-sale | |
Available-for-sale | |
Available-for-sale | Available-for-sale | | 3,949 | | | 3,972 | |
Held-to-maturity | Held-to-maturity | | 145,867 | | | 128,870 | |
|
Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' footprint. Peoples also originates insurance premium finance loans nationwide through its Peoples Premium Finance division, and originates leases nationwide through its North Star Leasing ("NSL") division and its Vantage Financial, LLC ("Vantage") subsidiary. Throughout this Form 10-Q, loans and leases are referred to as "total loans" and "loans held for investment".
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) | March 31, 2023 | December 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 |
Construction | Construction | $ | 232,296 | | $ | 246,941 | |
Commercial real estate, other | Commercial real estate, other | 1,481,062 | | 1,423,518 | |
Commercial and industrial | Commercial and industrial | 891,139 | | 892,634 | |
Premium finance | Premium finance | 158,263 | | 159,197 | |
Leases | Leases | 354,641 | | 345,131 | |
Residential real estate | Residential real estate | 712,602 | | 723,360 | |
Home equity lines of credit | Home equity lines of credit | 174,383 | | 177,858 | |
Consumer, indirect | Consumer, indirect | 647,177 | | 629,426 | |
Consumer, direct | Consumer, direct | 107,406 | | 108,363 | |
Deposit account overdrafts | Deposit account overdrafts | 749 | | 722 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 4,759,718 | | $ | 4,707,150 | |
Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest receivable on loans was $15.4$24.3 million at March 31, 20232024 and $24.5 million at December 31, 2022.2023.
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.
The amortized cost of loans on nonaccrual status and of loans delinquent for 90 days or more and accruing was as follows:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
(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 | $ | 1 | | $ | — | | | $ | 12 | | $ | — | |
Commercial real estate, other | Commercial real estate, other | 11,345 | | 150 | | | 12,121 | | 167 | |
Commercial and industrial | Commercial and industrial | 3,064 | | 228 | | | 3,462 | | 130 | |
Premium finance | Premium finance | — | | 764 | | | — | | 504 | |
Leases | Leases | 3,884 | | 2,491 | | | 3,178 | | 3,041 | |
Residential real estate | Residential real estate | 8,641 | | 238 | | | 9,496 | | 917 | |
Home equity lines of credit | Home equity lines of credit | 793 | | 127 | | | 820 | | 58 | |
Consumer, indirect | Consumer, indirect | 2,147 | | 13 | | | 2,176 | | — | |
Consumer, direct | Consumer, direct | 105 | | 3 | | | 208 | | 25 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 29,980 | | $ | 4,014 | | | $ | 31,473 | | $ | 4,842 | |
(a) There were $3.4$3.8 million of nonaccrual loans for which there was no allowance for credit losses at March 31, 20232024 and $1.4$1.2 million of nonaccrual loans for which there was no allowance for credit losses at December 31, 2022.2023.
During the first three months of 2023,2024, nonaccrual loans declinedincreased compared to at December 31, 2022,2023, which was primarily due to $0.9one large commercial and industrial loan of approximately $1.9 million of residential real estate being loansthat went on nonaccrual status asduring the first quarter of December 31, 2022 that were accruing as of March 31, 2023.2024. Further, two leases went on nonaccrual status during the quarter which increased the amount reported by $1.4 million. The decreaseincrease in accruing loans 90+ days past due at March 31, 20232024 when compared to at December 31, 2022,2023, was primarily due to reductionsan increase in premium finance loans of $0.7approximately $0.9 million which was partially offset by a decrease in commercial and $0.6 million in residential real estate loans and leases, respectively.industrial loans.
The amount of interest income recognized on accruing loans 90+ days past due 90 days or more and accruing during the three months ended March 31, 20232024 was $0.5 million.
The following table presents the aging of the amortized cost of past due loans:
| | | | | | | | | | | | | | | | | | | | |
| Loans Past Due | Current
Loans
| Total
Loans
|
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total |
March 31, 2023 | | | | | | |
| | Loans Past Due | Current Loans | Total Loans |
| Loans Past Due | | | Loans Past Due | Current Loans | Total Loans |
(Dollars in thousands) | (Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total | Current Loans | Total Loans | (Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total |
March 31, 2024 | |
Construction | |
Construction | |
Construction | Construction | $ | — | | $ | — | | $ | 1 | | $ | 1 | | $ | 232,295 | | $ | 232,296 | |
Commercial real estate, other | Commercial real estate, other | 2,382 | | 36 | | 10,475 | | 12,893 | | 1,468,169 | | 1,481,062 | |
Commercial and industrial | Commercial and industrial | 641 | | 863 | | 2,928 | | 4,432 | | 886,707 | | 891,139 | |
Premium finance | Premium finance | 886 | | 307 | | 764 | | 1,957 | | 156,306 | | 158,263 | |
Leases | Leases | 7,054 | | 2,908 | | 6,310 | | 16,272 | | 338,369 | | 354,641 | |
Residential real estate | Residential real estate | 7,921 | | 1,240 | | 4,521 | | 13,682 | | 698,920 | | 712,602 | |
Home equity lines of credit | Home equity lines of credit | 520 | | 351 | | 594 | | 1,465 | | 172,918 | | 174,383 | |
Consumer, indirect | Consumer, indirect | 3,541 | | 769 | | 811 | | 5,121 | | 642,056 | | 647,177 | |
Consumer, direct | Consumer, direct | 402 | | 8 | | 44 | | 454 | | 106,952 | | 107,406 | |
Deposit account overdrafts | Deposit account overdrafts | — | | — | | — | | — | | 749 | | 749 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 23,347 | | $ | 6,482 | | $ | 26,448 | | $ | 56,277 | | $ | 4,703,441 | | $ | 4,759,718 | |
December 31, 2022 | |
December 31, 2023 | |
Construction | |
Construction | |
Construction | Construction | $ | 196 | | $ | 161 | | $ | 9 | | $ | 366 | | $ | 246,575 | | $ | 246,941 | |
Commercial real estate, other | Commercial real estate, other | 2,279 | | 1,051 | | 10,370 | | 13,700 | | 1,409,818 | | 1,423,518 | |
Commercial and industrial | Commercial and industrial | 2,522 | | 289 | | 3,449 | | 6,260 | | 886,374 | | 892,634 | |
Premium finance | Premium finance | 646 | | 816 | | 504 | | 1,966 | | 157,231 | | 159,197 | |
Leases | Leases | 6,074 | | 1,921 | | 6,218 | | 14,213 | | 330,918 | | 345,131 | |
Residential real estate | Residential real estate | 10,113 | | 2,128 | | 5,519 | | 17,760 | | 705,600 | | 723,360 | |
Home equity lines of credit | Home equity lines of credit | 987 | | 149 | | 552 | | 1,688 | | 176,170 | | 177,858 | |
Consumer, indirect | Consumer, indirect | 5,866 | | 1,048 | | 921 | | 7,835 | | 621,591 | | 629,426 | |
Consumer, direct | Consumer, direct | 703 | | 70 | | 108 | | 881 | | 107,482 | | 108,363 | |
Deposit account overdrafts | Deposit account overdrafts | — | | — | | — | | — | | 722 | | 722 | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 29,386 | | $ | 7,633 | | $ | 27,650 | | $ | 64,669 | | $ | 4,642,481 | | $ | 4,707,150 | |
Delinquency trends remained stable,improved slightly, as 98.8%98.7% of Peoples' loan portfolio was considered “current” at March 31, 2023,2024, compared to 98.6% at December 31, 2022.2023.
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) | March 31, 2023 | December 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 |
Loans pledged to FHLB | Loans pledged to FHLB | $ | 918,075 | | $ | 783,843 | |
Loans pledged to FRB | Loans pledged to FRB | 332,521 | | 339,005 | |
Credit Quality Indicators
As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20222023 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Commercial loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Commercial leases, as well as loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million, are reviewed at least on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, follows:
“Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk gradecategory 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," "doubtful" or "loss" based upon the regulatory definition of these classes and consistent with regulatory requirements. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the prospect of collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being "not rated."
The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at March 31, 2023:2024:
| | | Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total Loans |
Construction | Construction | |
| |
Pass | |
Pass | |
Pass | Pass | $ | 4,420 | | $ | 101,719 | | $ | 87,280 | | $ | 23,208 | | $ | 3,241 | | $ | 9,692 | | $ | — | | $ | — | | $ | 229,560 | |
Special mention | Special mention | 968 | | 1,600 | | — | | — | | — | | 128 | | — | | — | | 2,696 | |
Substandard | Substandard | — | | — | | — | | — | | — | | 40 | | — | | — | | 40 | |
| Total | Total | 5,388 | | 103,319 | | 87,280 | | 23,208 | | 3,241 | | 9,860 | | — | | — | | 232,296 | |
| Total | |
| Total | |
Current period gross charge-offs | Current period gross charge-offs | — | | — | | 9 | | — | | — | | — | | | 9 | |
Commercial real estate, other | Commercial real estate, other | |
| |
Pass | |
Pass | |
Pass | Pass | 76,569 | | 173,133 | | 219,202 | | 223,034 | | 214,534 | | 458,817 | | 25,537 | | — | | 1,390,826 | |
Special mention | Special mention | — | | — | | 184 | | 1,200 | | 5,128 | | 17,998 | | 50 | | — | | 24,560 | |
Substandard | Substandard | — | | — | | 10,027 | | 2,523 | | 1,580 | | 51,290 | | 216 | | — | | 65,636 | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | 40 | | — | | — | | 40 | |
| Total | Total | 76,569 | | 173,133 | | 229,413 | | 226,757 | | 221,242 | | 528,145 | | 25,803 | | — | | 1,481,062 | |
Total | |
Total | |
Current period gross charge-offs | Current period gross charge-offs | — | | — | | — | | — | | — | | 33 | | | 33 | |
Commercial and industrial | Commercial and industrial | |
Pass | |
Pass | |
Pass | Pass | 31,958 | | 157,317 | | 135,973 | | 60,760 | | 70,506 | | 124,255 | | 208,303 | | — | | 789,072 | |
Special mention | Special mention | — | | 8,794 | | 14,375 | | 20,441 | | 2,021 | | 7,579 | | 25,116 | | — | | 78,326 | |
Substandard | Substandard | 4 | | 317 | | 10,065 | | 3,217 | | 2,154 | | 3,038 | | 4,744 | | — | | 23,539 | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | 202 | | — | | — | | 202 | |
| Total | Total | 31,962 | | 166,428 | | 160,413 | | 84,418 | | 74,681 | | 135,074 | | 238,163 | | — | | 891,139 | |
Total | |
Total | |
| | Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total Loans |
Current period gross charge-offs | |
Premium Finance | |
Pass | |
Pass | |
Pass | |
| | | | Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Total Loans |
Current period gross charge-offs | — | | — | | — | | — | | — | | 1 | | | 1 | |
Premium finance | |
Pass | 79,103 | | 79,160 | | — | | — | | — | | — | | — | | — | | 158,263 | |
| Total | |
| Total | |
| Total | Total | 79,103 | | 79,160 | | — | | — | | — | | — | | — | | — | | 158,263 | |
Current period gross charge-offs | Current period gross charge-offs | 23 | | — | | — | | — | | — | | — | | | 23 | |
Leases | Leases | |
Pass | Pass | 68,756 | | 151,048 | | 79,901 | | 29,306 | | 13,233 | | 3,398 | | — | | — | | 345,642 | |
Pass | |
Pass | |
Special mention | Special mention | 16 | | 1,212 | | 2,087 | | 371 | | 7 | | 21 | | — | | — | | 3,714 | |
Substandard | Substandard | 127 | | 1,691 | | 2,091 | | 512 | | 410 | | 454 | | — | | — | | 5,285 | |
Total | Total | 68,899 | | 153,951 | | 84,079 | | 30,189 | | 13,650 | | 3,873 | | — | | — | | 354,641 | |
Current period gross charge-offs | Current period gross charge-offs | — | | 108 | | 189 | | 100 | | 58 | | 14 | | | 469 | |
Residential real estate | Residential real estate | |
Pass | Pass | 10,786 | | 77,494 | | 136,027 | | 57,950 | | 42,022 | | 377,777 | | — | | — | | 702,056 | |
Pass | |
Pass | |
| Substandard | Substandard | — | | — | | 280 | | 146 | | 560 | | 9,488 | | — | | — | | 10,474 | |
Substandard | |
Substandard | |
| Loss | |
Loss | |
Loss | Loss | — | | — | | — | | — | | — | | 72 | | — | | — | | 72 | |
Total | Total | 10,786 | | 77,494 | | 136,307 | | 58,096 | | 42,582 | | 387,337 | | — | | — | | 712,602 | |
Current period gross charge-offs | Current period gross charge-offs | — | | — | | — | | — | | — | | 41 | | | 41 | |
Home equity lines of credit | Home equity lines of credit | |
Pass | Pass | 4,830 | | 43,159 | | 34,111 | | 18,852 | | 13,774 | | 58,278 | | 114 | | 635 | | 173,118 | |
Pass | |
Pass | |
| Substandard | Substandard | — | | — | | 72 | | 21 | | 63 | | 1,105 | | — | | — | | 1,261 | |
| Substandard | |
Substandard | |
Loss | Loss | — | | — | | — | | — | | — | | 4 | | — | | — | | 4 | |
Total | Total | 4,830 | | 43,159 | | 34,183 | | 18,873 | | 13,837 | | 59,387 | | 114 | | 635 | | 174,383 | |
Current period gross charge-offs | Current period gross charge-offs | — | | — | | — | | — | | — | | 19 | | | 19 | |
Consumer, indirect | Consumer, indirect | |
Pass | Pass | 67,265 | | 293,761 | | 135,301 | | 88,220 | | 31,003 | | 28,840 | | — | | — | | 644,390 | |
Pass | |
Pass | |
| Substandard | Substandard | — | | 566 | | 849 | | 590 | | 315 | | 423 | | — | | — | | 2,743 | |
Substandard | |
Substandard | |
| Loss | |
Loss | |
Loss | Loss | — | | 33 | | 10 | | 1 | | — | | — | | — | | — | | 44 | |
Total | Total | 67,265 | | 294,360 | | 136,160 | | 88,811 | | 31,318 | | 29,263 | | — | | — | | 647,177 | |
Current period gross charge-offs | Current period gross charge-offs | 18 | | 471 | | 279 | | 90 | | 21 | | 50 | | | 929 | |
Consumer, direct | Consumer, direct | |
Pass | Pass | 11,420 | | 46,431 | | 24,731 | | 12,561 | | 5,345 | | 6,566 | | — | | — | | 107,054 | |
Pass | |
Pass | |
| Substandard | |
Substandard | |
Substandard | |
|
| | | Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
(Dollars in thousands) | (Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Substandard | — | | 12 | | 35 | | 91 | | 32 | | 167 | | — | | 337 | |
| (Dollars in thousands) | |
(Dollars in thousands) | | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total Loans |
Loss | Loss | — | | — | | — | | — | | — | | 15 | | — | | — | | 15 | |
Total | Total | 11,420 | | 46,443 | | 24,766 | | 12,652 | | 5,377 | | 6,748 | | — | | — | | 107,406 | |
Current period gross charge-offs | Current period gross charge-offs | — | | 40 | | 12 | | 34 | | 10 | | 8 | | | 104 | |
Deposit account overdrafts | Deposit account overdrafts | 749 | | — | | — | | — | | — | | — | | — | | — | | 749 | |
Current period gross charge-offs | Current period gross charge-offs | 227 | | — | | — | | — | | — | | — | | | 227 | |
Total loans, at amortized cost | Total loans, at amortized cost | 356,971 | | 1,137,447 | | 892,601 | | 543,004 | | 405,928 | | 1,159,687 | | 264,080 | | 635 | | 4,759,718 | |
Total current period gross charge-offs | Total current period gross charge-offs | $ | 268 | | $ | 619 | | $ | 489 | | $ | 224 | | $ | 89 | | $ | 166 | | | $ | 1,855 | |
The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the then most recent analysis performed at December 31, 2022:2023:
| | | Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Construction | Construction | |
| |
Pass | |
Pass | |
Pass | Pass | $ | 82,143 | | $ | 110,719 | | $ | 27,893 | | $ | 20,223 | | $ | 656 | | $ | 4,061 | | $ | 44 | | $ | 81 | | $ | 245,739 | |
Special mention | Special mention | — | | — | | — | | — | | — | | 818 | | — | | — | | 818 | |
Substandard | Substandard | — | | 2 | | — | | — | | — | | 382 | | — | | — | | 384 | |
| Total | Total | 82,143 | | 110,721 | | 27,893 | | 20,223 | | 656 | | 5,261 | | 44 | | 81 | | 246,941 | |
| Total | |
| Total | |
Current period gross charge-offs | |
Commercial real estate, other | Commercial real estate, other | |
| |
Pass | |
Pass | |
Pass | Pass | 165,282 | | 224,727 | | 227,799 | | 202,877 | | 110,564 | | 369,578 | | 27,300 | | 5,217 | | 1,328,127 | |
Special mention | Special mention | — | | 189 | | 1,099 | | 5,519 | | 3,111 | | 29,334 | | 105 | | — | | 39,357 | |
Substandard | Substandard | — | | 8,327 | | 2,591 | | 1,366 | | 1,296 | | 42,172 | | 216 | | 190 | | 55,968 | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | 66 | | — | | — | | 66 | |
| Total | Total | 165,282 | | 233,243 | | 231,489 | | 209,762 | | 114,971 | | 441,150 | | 27,621 | | 5,407 | | 1,423,518 | |
Total | |
Total | |
Current period gross charge-offs | |
Commercial and industrial | Commercial and industrial | |
Pass | |
Pass | |
Pass | Pass | 167,937 | | 142,615 | | 72,573 | | 71,497 | | 40,229 | | 91,853 | | 215,116 | | 3,722 | | 801,820 | |
Special mention | Special mention | 10,248 | | 14,981 | | 11,923 | | 2,711 | | 236 | | 4,877 | | 16,235 | | — | | 61,211 | |
Substandard | Substandard | 84 | | 9,801 | | 3,417 | | 2,410 | | 1,459 | | 3,620 | | 8,603 | | 611 | | 29,394 | |
Doubtful | Doubtful | — | | — | | — | | — | | — | | 209 | | — | | — | | 209 | |
| Total | Total | 178,269 | | 167,397 | | 87,913 | | 76,618 | | 41,924 | | 100,559 | | 239,954 | | 4,333 | | 892,634 | |
Total | |
Total | |
Current period gross charge-offs | |
Premium finance | Premium finance | |
Pass | Pass | 158,778 | | 419 | | — | | — | | — | | — | | — | | — | | 159,197 | |
Pass | |
Pass | |
Total | Total | 158,778 | | 419 | | — | | — | | — | | — | | — | | — | | 159,197 | |
Current period gross charge-offs | |
Leases | Leases | |
Pass | 191,148 | | 90,738 | | 34,627 | | 15,951 | | 3,269 | | 1,119 | | — | | — | | 336,852 | |
Special mention | 1,741 | | 2,477 | | 140 | | 22 | | 24 | | — | | — | | — | | 4,404 | |
Substandard | 546 | | 1,840 | | 571 | | 464 | | 454 | | — | | — | | — | | 3,875 | |
Total | 193,435 | | 95,055 | | 35,338 | | 16,437 | | 3,747 | | 1,119 | | — | | — | | 345,131 | |
Residential real estate | |
| | | Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
| Term Loans at Amortized Cost by Origination Year | |
(Dollars in thousands) | (Dollars in thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
(Dollars in thousands) | |
(Dollars in thousands) | | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Pass | |
Special mention | |
Substandard | |
Total | |
Current period gross charge-offs | |
Residential real estate | |
Pass | |
Pass | |
Pass | Pass | 78,313 | | 138,860 | | 58,869 | | 42,840 | | 28,174 | | 364,635 | | — | | — | | 711,691 | |
| Substandard | Substandard | — | | — | | 137 | | 569 | | 563 | | 10,302 | | — | | — | | 11,571 | |
Substandard | |
Substandard | |
| Loss | Loss | — | | — | | — | | — | | — | | 98 | | — | | — | | 98 | |
Loss | |
Loss | |
Total | Total | 78,313 | | 138,860 | | 59,006 | | 43,409 | | 28,737 | | 375,035 | | — | | — | | 723,360 | |
Current period gross charge-offs | |
Home equity lines of credit | Home equity lines of credit | |
Pass | |
Pass | |
Pass | Pass | 41,781 | | 35,768 | | 19,863 | | 14,820 | | 13,800 | | 50,291 | | 334 | | 2,096 | | 176,657 | |
| Substandard | Substandard | — | | 60 | | — | | 53 | | 126 | | 958 | | — | | — | | 1,197 | |
Substandard | |
Substandard | |
| Loss | Loss | — | | — | | — | | — | | — | | 4 | | — | | — | | 4 | |
Loss | |
Loss | |
Total | Total | 41,781 | | 35,828 | | 19,863 | | 14,873 | | 13,926 | | 51,253 | | 334 | | 2,096 | | 177,858 | |
Current period gross charge-offs | |
Consumer, indirect | Consumer, indirect | |
Pass | |
Pass | |
Pass | Pass | 305,814 | | 149,445 | | 100,027 | | 35,988 | | 22,789 | | 12,741 | | — | | — | | 626,804 | |
| Substandard | Substandard | 384 | | 811 | | 659 | | 266 | | 304 | | 193 | | — | | — | | 2,617 | |
| Loss | — | | 5 | | — | | — | | — | | — | | — | | — | | 5 | |
Total | 306,198 | | 150,261 | | 100,686 | | 36,254 | | 23,093 | | 12,934 | | — | | — | | 629,426 | |
Consumer, direct | |
Pass | 50,889 | | 28,351 | | 14,558 | | 6,333 | | 3,725 | | 3,975 | | — | | — | | 107,831 | |
Special mention | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | |
Substandard | Substandard | 97 | | 63 | | 138 | | 46 | | 21 | | 150 | | — | | — | | 515 | |
| Loss | Loss | — | | — | | — | | — | | — | | 17 | | — | | — | | 17 | |
Loss | |
Loss | |
Total | Total | 50,986 | | 28,414 | | 14,696 | | 6,379 | | 3,746 | | 4,142 | | — | | — | | 108,363 | |
Current period gross charge-offs | |
Consumer, direct | |
Pass | |
Pass | |
Pass | |
| Substandard | |
Substandard | |
Substandard | |
| Loss | |
Loss | |
Loss | |
Total | |
Current period gross charge-offs | |
Deposit account overdrafts | Deposit account overdrafts | 722 | | — | | — | | — | | — | | — | | — | | — | | 722 | |
Current period gross charge-offs | |
Total loans, at amortized cost | Total loans, at amortized cost | $ | 1,255,907 | | $ | 960,198 | | $ | 576,884 | | $ | 423,955 | | $ | 230,800 | | $ | 991,453 | | $ | 267,953 | | $ | 11,917 | | $ | 4,707,150 | |
Current period gross charge-offs | |
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 officemulti-family complexes, warehouse buildings, and complexes, multi-family complexes,industrial buildings, 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 multifamily complexes, retail facilities, office buildings and complexes, retail facilities, multifamily complexes,warehouses, industrial buildings, land under development, industrial properties, as well as other commercial or industrial real estate.
•Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable, and other commercial property.
•Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.mortgage, on residential real estate property.
•Home equity lines of credit are generally secured by second mortgages on residential real estate property.
•Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.
•Leases are secured by commercial equipment and other essential business assets.
•Premium finance loans are secured by the unearned portion of the insurance premium being financed.
The following table details Peoples' amortized cost of collateral dependent loans:
| (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | | December 31, 2022 | March 31, 2024 | | December 31, 2023 |
| Commercial real estate, other | Commercial real estate, other | 7,862 | | | | 8,362 | | |
Commercial and industrial | 470 | | | | 1,456 | | |
| Commercial real estate, other | |
| Commercial real estate, other | |
Leases | |
Leases | |
Leases | |
| Residential real estate | |
| Residential real estate | |
| Residential real estate | Residential real estate | 528 | | | | 536 | | |
| Total collateral dependent loans | Total collateral dependent loans | $ | 8,860 | | | | $ | 10,354 | | |
| Total collateral dependent loans | |
| Total collateral dependent loans | |
The decrease increase in collateral dependent loans at March 31, 2023,2024, compared to December 31, 2022,2023, was primarily due to two large relationships that were paid in fullthe addition of a commercial real estate loan and a lease as collateral dependent loans during the three months ended March 31, 2023.2024.
Modifications for Borrowers Experiencing Financial Difficulty Subsequent to the Adoption of ASU 2022-02
As part of Peoples' loss mitigation activities, Peoples may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty. The most common modifications to the contractual terms of a loan to a borrower experiencing financial difficulty include an extension of the maturity date, a reduction in the interest rate for the remaining life of the loan, a temporary period of interest-only payments, and a reduction in the contractual payment amount for either a short period or the remaining term of the loan.
In addition to loan modifications, Peoples also provides other loss mitigation options, such as forbearance and repayment plans, to assist borrowers who experience financial difficulties. In assessing whether or not a borrower is experiencing financial difficulty, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (1) the borrower is currently in payment default on any of the borrower's debt; (2) a payment default is probable in the foreseeable future without the modification; (3) the borrower has declared or is in the process of declaring bankruptcy; and (4) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.
The following table displaystables display the amortized cost of loans that were restructured during the three months ended March 31, 2024 and March 31, 2023, presented by loan classification.
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For the Three Months Ended March 31, 2023 |
| Payment Delay (Only) | | | | | | |
(Dollars in thousands) | Forbearance Plan | Payment Deferral | | Term Extension | Forbearance Plan and Term Extension | | | Total | Percentage of Total by Loan Category(a)(b) |
Construction | $ | — | | $ | 1,600 | | | $ | — | | $ | — | | | | $ | 1,600 | | 0.69 | % |
Commercial real estate | 200 | | — | | | — | | — | | | | 200 | | 0.01 | % |
Commercial and industrial | — | | — | | | 9 | | 335 | | | | 344 | | 0.04 | % |
| | | | | | | | | |
Residential real estate | — | | — | | | 221 | | — | | | | 221 | | 0.03 | % |
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Consumer, indirect | — | | — | | | 28 | | — | | | | 28 | | — | % |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | 200 | | $ | 1,600 | | | $ | 258 | | $ | 335 | | | | $ | 2,393 | | 0.05 | % |
(a) Based on the amortized cost basis as of period end, divided by the period end amortized cost basis of the corresponding class of financing receivable.
(b) Each with "--%" not meaningful.
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| Payment Delay (Only) | | | | | | | |
(Dollars in thousands) | Forbearance Plan | Payment Deferral | | Term Extension | Forbearance Plan and Term Extension | | | | Total | Percentage of Total by Loan Category(a)(b) |
| | | | | | | | | | |
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During the Three Months Ended March 31, 2024 |
Commercial real estate | — | | — | | | $ | 565 | | $ | — | | | | | $ | 565 | | 0.03 | % |
Commercial and industrial | — | | — | | | 10,203 | | — | | | | | 10,203 | | 0.84 | % |
Leasing | — | | 25 | | | — | | — | | | | | 25 | | 0.01 | % |
Residential real estate | — | | — | | | 76 | | — | | | | | 76 | | 0.01 | % |
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Total | $ | — | | $ | 25 | | | $ | 10,844 | | $ | — | | | | | $ | 10,869 | | 0.18 | % |
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During the Three Months Ended March 31, 2023 |
Construction | $ | — | | $ | 1,600 | | | $ | — | | $ | — | | | | | $ | 1,600 | | 0.69 | % |
Commercial real estate | 200 | | — | | | — | | — | | | | | 200 | | 0.01 | % |
Commercial and industrial | — | | — | | | 9 | | 335 | | | | | 344 | | 0.04 | % |
| | | | | | | | | | |
Residential real estate | — | | — | | | 221 | | — | | | | | 221 | | 0.03 | % |
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Consumer, indirect | — | | — | | | 28 | | — | | | | | 28 | | — | % |
| | | | | | | | | | |
| | | | | | | | | | |
Total | $ | 200 | | $ | 1,600 | | | $ | 258 | | $ | 335 | | | | | $ | 2,393 | | 0.05 | % |
(a) Based on the amortized cost basis as of period end, divided by the period end amortized cost basis of the corresponding class of financing receivable. (b) The table presented above excludes loans that were paid off or otherwise no longer included in the loan portfolio of period end. |
The following table summarizes the financial impacts of loan modifications and payment deferrals made to loans during both the three months ended March 31, 2024 and March 31, 2023, presented by loan classification.
| For the Three Months Ended March 31, 2023 | | | Weighted-Average Term Extension (in months) | |
| | Weighted-Average Term Extension (in months) | |
| | Weighted-Average Term Extension (in months) | | Average Amount Capitalized as a Result of a Payment Delay(a) |
During the Three Months Ended March 31, 2024 | | During the Three Months Ended March 31, 2024 |
| | | Weighted-Average Term Extension (in months) | Average Amount Capitalized as a Result of a Payment Delay(a) |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | |
Commercial and industrial | |
Leasing | |
Residential real estate | |
| During the Three Months Ended March 31, 2023 | |
| During the Three Months Ended March 31, 2023 | |
| During the Three Months Ended March 31, 2023 | |
| Commercial and industrial | Commercial and industrial | | 12 | $ | — | |
| Commercial and industrial | |
| Commercial and industrial | |
| Residential real estate | |
Residential real estate | |
Residential real estate | Residential real estate | | 210 | 8,969 | |
| Consumer, indirect | |
Consumer, indirect | |
Consumer, indirect | Consumer, indirect | | 2 | — | |
| | (a) Represents the average amount of delinquency-related amounts that were capitalized as part of the loan balance. Amounts are in whole dollars. | | (a) Represents the average amount of delinquency-related amounts that were capitalized as part of the loan balance. Amounts are in whole dollars. | |
| (a) Represents the average amount of delinquency-related amounts that were capitalized as part of the loan balance. Amounts are in whole dollars. | |
The following table displays the amortized cost of loans that received a completed modification or payment deferral within the previous 12 months and that had a payment default in the period presented. For purposes of this disclosure, Peoples defines loans that had a payment default as loans that were 90 days or more past due following a modification.
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For the Three Months Ended March 31, 2024 |
| Payment Delay as a Result of a Payment Deferral (Only)(a) | | | Total |
| | | | |
| | | | |
Commercial and industrial | $ | 648 | | | | $ | 648 | |
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(a) Represents the sum of amortized cost and gross charge-off as of period end. Excludes loans that liquidated either through foreclosure, deed-in-lieu of foreclosure, or a short sale. |
As of March 31, 2023, there were no loans that were modified for borrowers experiencing financial difficulty since the adoption of ASU 2022-02 on January 1, 2023, and subsequently defaulted during the period. For purposes of this disclosure, Peoples defines loans that had a payment default as loans that are 90 days or more past due following a modification through the three months ended March 31, 2023.
The following table displays an aging analysis of loans that were modified during the twelve months prior to March 31, 2024, presented by classification and class of financing receivable.
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As of March 31, 2024 |
(Dollars in thousands) | 30-59 Days Delinquent | 60-89 Days Delinquent | 90+ Days Delinquent | Total Delinquent | Current | Total |
Construction | $ | — | | $ | — | | $ | — | | $ | — | | $ | 70 | | $ | 70 | |
Commercial real estate | 193 | | — | | — | | 193 | | 2,443 | | 2,636 | |
Commercial and industrial | — | | 667 | | 648 | | 1,315 | | 12,752 | | 14,067 | |
Leasing | — | | — | | — | | — | | 25 | | 25 | |
Residential real estate | 76 | | — | | — | | 76 | | 24 | | 100 | |
Home equity lines of credit | — | | — | | — | | — | | 207 | | 207 | |
| | | | | | |
| | | | | | |
| | | | | | |
Total loans modified(a) | $ | 269 | | $ | 667 | | $ | 648 | | $ | 1,584 | | $ | 15,521 | | $ | 17,105 | |
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(a) Represents the amortized cost basis as of period end. |
The following table displays an aging analysis of loans that were modified on or after January 1, 2023, the date Peoples adopted ASU 2022-02, through March 31, 2023, presented by classification and class of financing receivable.
| As of March 31, 2023 | (Dollars in thousands) | (Dollars in thousands) | 30-59 Days Delinquent | 60-89 Days Delinquent | 90+ Days Delinquent | Total Delinquent | Current | Total | (Dollars in thousands) | 30-59 Days Delinquent | 60-89 Days Delinquent | 90+ Days Delinquent | Total Delinquent | Current | Total |
Construction | Construction | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,600 | | $ | 1,600 | |
Commercial real estate | Commercial real estate | — | | — | | — | | — | | 200 | | 200 | | Commercial real estate | 0 | 200 |
Commercial and industrial | Commercial and industrial | — | | — | | — | | — | | 344 | | 344 | | Commercial and industrial | 0 | 344 |
| Residential real estate | Residential real estate | — | | — | | — | | — | | 221 | | 221 | |
Residential real estate | |
Residential real estate | | 0 | 221 |
| Consumer, indirect | |
Consumer, indirect | |
Consumer, indirect | Consumer, indirect | 28 | | — | | — | | 28 | | — | | 28 | | 28 | 0 | 28 | 0 | 28 |
| Total loans modified(a) | Total loans modified(a) | $ | 28 | | $ | — | | $ | — | | $ | 28 | | $ | 2,365 | | $ | 2,393 | |
| Total loans modified(a) | |
| Total loans modified(a) | |
| (a) Represents the amortized cost basis as of period end. | (a) Represents the amortized cost basis as of period end. | |
(a) Represents the amortized cost basis as of period end. | |
Troubled Debt Restructurings Disclosures Prior to the Adoption of ASU 2022-02
Prior to the adoption of ASU 2022-02, Peoples accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. See “Note 1 Summary of Significant Accounting Policies” in Peoples' 2022 Form 10-K for more information on our TDR policy and the COVID-19 relief from TDR accounting and disclosure requirements, and “Note 1, Summary of Significant Accounting Policies” in this report for more information on the adoption of ASU 2022-02.
The following table summarizes the loans that were modified as TDRs during the three months ended March 31, 2022:
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| | Three Months Ended |
| | Recorded Investment (a) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
| | | | |
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March 31, 2022 | | | | |
Construction | 1 | | $ | 344 | | $ | 344 | | $ | 343 | |
Commercial real estate, other | 1 | | 102 | | 102 | | 102 | |
Commercial and industrial | 1 | | 4 | | 4 | | 4 | |
| | | | |
Residential real estate | 10 | | 493 | | 502 | | 501 | |
Home equity lines of credit | 1 | | 22 | | 22 | | 21 | |
Consumer, indirect | 10 | | 106 | | 106 | | 105 | |
Consumer, direct | 2 | | 14 | | 14 | | 14 | |
Consumer | 12 | | 120 | | 120 | | 119 | |
Total | 26 | | $ | 1,085 | | $ | 1,094 | | $ | 1,090 | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
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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.
Allowance for Credit Losses
As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20222023 Form 10-K, Peoples'Peoples estimates the allowance for credit losses using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. In management's estimation of expected credit losses, Peoples uses a one yearone-year reasonable and supportable period across all segments. Following the reasonable and supportable period, Peoples reverts the macroeconomic variables to their long run average over a four quarterfour-quarter reversion period.
Changes in the allowance for credit losses for the three months ended March 31, 20232024 and March 31, 20222023 are summarized below:
| (Dollars in thousands) | (Dollars in thousands) | Beginning Balance, December 31, 2022 | Initial Allowance for Acquired PCD Assets | | Provision for (Recovery of) Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, March 31, 2023 |
(Dollars in thousands) | |
(Dollars in thousands) | |
Construction | |
Construction | |
Construction | Construction | $ | 1,250 | | $ | — | | | $ | 32 | | $ | (9) | | $ | — | | $ | 1,273 | |
Commercial real estate, other | Commercial real estate, other | 17,710 | | — | | | (1,230) | | (33) | | 27 | | 16,474 | |
Commercial real estate, other | |
Commercial real estate, other | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | 8,229 | | — | | | 79 | | (1) | | — | | 8,307 | |
Premium finance | Premium finance | 344 | | — | | | 103 | | (23) | | 9 | | 433 | |
Premium finance | |
Premium finance | |
Leases | |
Leases | |
Leases | Leases | 8,495 | | — | | | 1,003 | | (469) | | 80 | | 9,109 | |
Residential real estate | Residential real estate | 6,357 | | — | | | 159 | | (41) | | 29 | | 6,504 | |
Residential real estate | |
Residential real estate | |
Home equity lines of credit | |
Home equity lines of credit | |
Home equity lines of credit | Home equity lines of credit | 1,693 | | — | | | 43 | | (19) | | — | | 1,717 | |
Consumer, indirect | Consumer, indirect | 7,448 | | — | | | 1,183 | | (929) | | 79 | | 7,781 | |
Consumer, indirect | |
Consumer, indirect | |
Consumer, direct | |
Consumer, direct | |
Consumer, direct | Consumer, direct | 1,575 | | — | | | 133 | | (104) | | 15 | | 1,619 | |
Deposit account overdrafts | Deposit account overdrafts | 61 | | — | | | 180 | | (227) | | 72 | | 86 | |
Deposit account overdrafts | |
Deposit account overdrafts | |
Total | Total | $ | 53,162 | | $ | — | | | $ | 1,685 | | $ | (1,855) | | $ | 311 | | $ | 53,303 | |
Total | |
Total | |
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(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, December 31, 2021 | Initial Allowance for Acquired PCD Assets (a) | | (Recovery of) Provision for Credit Losses (b) | Charge-offs | Recoveries | Ending Balance, March 31, 2022 |
Construction | $ | 2,999 | | $ | — | | | $ | (268) | | $ | — | | $ | — | | $ | 2,731 | |
Commercial real estate, other | 29,147 | | (217) | | | (7,646) | | (278) | | 49 | | 21,055 | |
Commercial and industrial | 11,063 | | (165) | | | (325) | | (463) | | 4 | | 10,114 | |
Premium finance | 379 | | — | | | (20) | | (14) | | — | | 345 | |
Leases | 4,797 | | 132 | | | 1,243 | | (473) | | 176 | | 5,875 | |
Residential real estate | 7,233 | | (521) | | | 78 | | (309) | | 14 | | 6,495 | |
Home equity lines of credit | 2,005 | | (11) | | | (113) | | (16) | | 29 | | 1,894 | |
Consumer, indirect | 5,326 | | (41) | | | 186 | | (385) | | 86 | | 5,172 | |
Consumer, direct | 961 | | — | | | 200 | | (136) | | 11 | | 1,036 | |
Deposit account overdrafts | 57 | | — | | | 199 | | (259) | | 54 | | 51 | |
Total | $ | 63,967 | | $ | (823) | | | $ | (6,466) | | $ | (2,333) | | $ | 423 | | $ | 54,768 | |
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(Dollars in thousands) | Beginning Balance, December 31, 2022 | Initial Allowance for Acquired PCD Assets (a) | | Provision for (Recovery of) Credit Losses (b) | Charge-offs | Recoveries | Ending Balance, March 31, 2023 |
Construction | $ | 1,250 | | $ | — | | | $ | 32 | | $ | (9) | | $ | — | | $ | 1,273 | |
Commercial real estate, other | 17,710 | | — | | | (1,230) | | (33) | | 27 | | 16,474 | |
Commercial and industrial | 8,229 | | — | | | 79 | | (1) | | — | | 8,307 | |
Premium finance | 344 | | — | | | 103 | | (23) | | 9 | | 433 | |
Leases | 8,495 | | — | | | 1,003 | | (469) | | 80 | | 9,109 | |
Residential real estate | 6,357 | | — | | | 159 | | (41) | | 29 | | 6,504 | |
Home equity lines of credit | 1,693 | | — | | | 43 | | (19) | | — | | 1,717 | |
Consumer, indirect | 7,448 | | — | | | 1,183 | | (929) | | 79 | | 7,781 | |
Consumer, direct | 1,575 | | — | | | 133 | | (104) | | 15 | | 1,619 | |
Deposit account overdrafts | 61 | | — | | | 180 | | (227) | | 72 | | 86 | |
Total | $ | 53,162 | | $ | — | | | $ | 1,685 | | $ | (1,855) | | $ | 311 | | $ | 53,303 | |
(a)Includes purchase price adjustments related to acquisitions previously completed but were within the 12-month measurement period.
(b)Amount does not include the provision for the allowance for credit losses on unfunded commitments.s adopted ASU 2016-13 - Financial Instruments
(c)
(a)Amount does not includeDuring the first quarter of 2024, Peoples recorded a total provision for credit losses of $6.1 million, which was driven by (i) a deterioration in macro-economic conditions used within the current expected credit loss ("CECL") model, (ii) an increase of reserves on individually analyzed loans, (iii) and loan growth. The increase in the allowance for credit losses on unfunded commitmentsat March 31, 2024 when compared to prior periods was driven by the establishment of an allowance for credit losses for loans acquired in the Limestone Merger.
During the first quarter of 2023, Peoples recorded a provision for credit losses for loans of $1.7 million, largely attributable to a deterioration of macro-economic conditions, and an increase in charge-off activity, partially offset by a reduction in reserves for
individually analyzed loans. Net charge-offs for the first quarter of 2023 were $1.5 million, primarily due to net charge-offs of indirect consumer loans of $0.9 million.
During the first quarter of 2022, Peoples recorded a recovery of credit losses of $6.8 million driven by a continued improvement in economic factors and changes in loss drivers used in the CECL model. Leases designated as purchased-credit deteriorated ("PCD") acquired from Vantage increased the allowance for credit losses by $132,000. Net charge-offs for the first quarter of 2022 were $1.9 million, and included charge-offs of two commercial and industrial loans aggregating $0.7 million.
Peoples had recorded an allowance for unfunded commitments of $2.1$1.7 million and $1.8 million as of March 31, 2023, an increase compared to $2.0 million at2024 and December 31, 2022.2023, respectively. The allowance for unfunded commitments (also referred to as "unfunded commitment liability") is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets. The change in the allowance for unfunded commitments is also reflected in the "Provision for (recovery of) credit losses" line of the Unaudited Consolidated Statements of Operations.
Note 5 Goodwill and Other Intangible Assets Goodwill
The following table details changes in the recorded amount of goodwill:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 |
Goodwill, beginning of year | Goodwill, beginning of year | $ | 292,397 | | $ | 264,193 | |
Goodwill recorded from acquisitions | Goodwill recorded from acquisitions | 200 | | 28,204 | |
Goodwill, end of period | Goodwill, end of period | $ | 292,597 | | $ | 292,397 | |
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On January 3,As of the close of business on April 30, 2023, Peoples acquired a trust and investment business, for which it recognized $200,000 in goodwill.
On March 7, 2022, Peoples Bank purchased 100% of the equity of Vantagecompleted its merger with Limestone Bancorp, Inc. ("Limestone") pursuant to an Equity Purchase Agreement and Plan of Merger dated February 16,October 24, 2022, at which point Vantage became a legalLimestone merged with and into Peoples, and immediately thereafter, Limestone Bank, Inc., the subsidiary bank of Limestone, merged with and into Peoples Bank. In 2022,Bank (collectively, the “Limestone Merger”).
As of March 31, 2024, Peoples recorded $27.2$68.8 million of goodwill related to this acquisition, which was offset partially by an adjustment of $1.3 million to the goodwill balanceGoodwill related to the merger with Premier Financial Bancorp, Inc. (“Premier” and the "Premier Merger").Limestone Merger.
Other Intangible Assets
Other intangible assets were comprised of the following at March 31, 2023,2024, and at December 31, 2022:2023:
| (Dollars in thousands) | (Dollars in thousands) | Core Deposits | | Customer Relationships | | Indefinite-Lived Trade Names | | Total | (Dollars in thousands) | Core Deposits | | Customer Relationships | | Indefinite-Lived Trade Names | | Total |
March 31, 2023 | |
March 31, 2024 | |
Gross intangibles | Gross intangibles | $ | 26,464 | | | $ | 39,241 | | | $ | 2,491 | | | $ | 68,196 | |
| Accumulated amortization | (20,983) | | | (16,968) | | | — | | | (37,951) | |
Total acquisition-related intangibles | $ | 5,481 | | | $ | 22,273 | | | $ | 2,491 | | | $ | 30,245 | |
Servicing rights | | 1,720 | |
Total other intangibles | | $ | 31,965 | |
| December 31, 2022 | |
Gross intangibles | |
Gross intangibles | Gross intangibles | $ | 26,464 | | | $ | 25,173 | | | $ | 1,274 | | | $ | 52,911 | |
Intangibles recorded from acquisitions | Intangibles recorded from acquisitions | — | | | 14,067 | | | 1,217 | | | 15,284 | |
Accumulated amortization | Accumulated amortization | (20,667) | | | (15,412) | | | — | | | (36,079) | |
Total acquisition-related intangibles | Total acquisition-related intangibles | $ | 5,797 | | | $ | 23,828 | | | $ | 2,491 | | | $ | 32,116 | |
Servicing rights | Servicing rights | | 1,816 | |
Non-compete agreements | |
Total other intangibles | |
| December 31, 2023 | |
December 31, 2023 | |
December 31, 2023 | |
Gross intangibles | |
Gross intangibles | |
Gross intangibles | |
Intangibles recorded from acquisitions | |
Accumulated amortization | |
Total acquisition-related intangibles | |
Servicing rights | |
Non-compete agreements | |
Total other intangibles | Total other intangibles | | $ | 33,932 | |
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As of March 31, 2024, Peoples recorded no other intangible assets for the three months ended March 31, 2023.
Other intangible assets recorded from the above-mentioned acquisitions in 2022 were $10.8$27.7 million of customer relationship intangible assets, $1.2 million of non-compete intangible assets, and $1.2 million of indefinite-lived trade name intangible assetscore deposit intangibles 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.Limestone Merger. Refer to "Note 13 Acquisitions" for additional information.
The following table details estimated aggregate future amortization of other intangible assets at March 31, 2023:2024:
| (Dollars in thousands) | (Dollars in thousands) | | Core Deposits | | Customer Relationships | | Total | (Dollars in thousands) | | Core Deposits | | Customer Relationships | | Non-Compete Agreements | | Total |
Remaining nine months of 2023 | | $ | 942 | | | $ | 4,705 | | | $ | 5,647 | |
2024 | | 1,058 | | | 5,325 | | | 6,383 | |
Remaining nine months of 2024 | |
2025 | 2025 | | 891 | | | 4,255 | | | 5,146 | |
2026 | 2026 | | 731 | | | 3,114 | | | 3,845 | |
2027 | 2027 | | 572 | | | 2,289 | | | 2,861 | |
2028 | |
Thereafter | Thereafter | | 1,287 | | | 2,585 | | | 3,872 | |
Total | Total | | $ | 5,481 | | | $ | 22,273 | | | $ | 27,754 | |
The weighted average amortization period of other intangible assets is 7.28.5 years.
Peoples’ deposit balances were comprised of the following:
| | | | | | | | |
(Dollars in thousands) | March 31, 2023 | December 31, 2022 |
Retail CDs: | | |
$100 or more | $ | 331,912 | | $ | 263,341 | |
Less than $100 | 290,179 | | 266,895 | |
Retail CDs | 622,091 | | 530,236 | |
Interest-bearing deposit accounts | 1,085,169 | | 1,160,182 | |
Savings accounts | 1,024,638 | | 1,068,547 | |
Money market deposit accounts | 579,106 | | 617,029 | |
Governmental deposit accounts | 649,303 | | 625,965 | |
| | |
Brokered CDs | 273,156 | | 125,580 | |
Total interest-bearing deposits | 4,233,463 | | 4,127,539 | |
Non-interest-bearing deposits | $ | 1,555,064 | | 1,589,402 | |
Total deposits | $ | 5,788,527 | | $ | 5,716,941 | |
| | | | | | | | |
(Dollars in thousands) | March 31, 2024 | December 31, 2023 |
Retail certificates of deposits ("CDs"): | | |
$100 or more | $ | 956,845 | | $ | 815,300 | |
Less than $100 | 723,569 | | 628,117 | |
Total Retail CDs | 1,680,414 | | 1,443,417 | |
Interest-bearing deposit accounts | 1,107,711 | | 1,144,357 | |
Savings accounts | 901,493 | | 919,244 | |
Money market deposit accounts | 859,961 | | 775,488 | |
Governmental deposit accounts | 825,170 | | 726,713 | |
| | |
Brokered CDs | 483,444 | | 575,429 | |
Total interest-bearing deposits | 5,858,193 | | 5,584,648 | |
Non-interest-bearing deposits | $ | 1,468,363 | | 1,567,649 | |
Total deposits | $ | 7,326,556 | | $ | 7,152,297 | |
Uninsured deposits were $2.1 billion $1.7 billion and $1.6$2.0 billion at March 31, 20232024 and at December 31, 2022,2023, respectively. Uninsured amounts are estimated based on the portion of the respective customer account balances that met or exceeded the FDIC limit of $250,000. Peoples pledges investment securities against certain governmental deposit accounts, which covered over $698.9over $865.6 million ofof the uninsured deposit balances at March 31, 2023.2024.
Uninsured time deposits are broken out below by time remaining until maturity.
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | |
(Dollars in thousands) | |
(Dollars in thousands) | |
3 months or less | |
3 months or less | |
3 months or less | 3 months or less | $ | 16,476 | | $ | 19,282 | | |
Over 3 to 6 months | Over 3 to 6 months | 18,190 | | 14,871 | | |
Over 3 to 6 months | |
Over 3 to 6 months | |
Over 6 to 12 months | |
Over 6 to 12 months | |
Over 6 to 12 months | Over 6 to 12 months | 32,554 | | 14,383 | | |
Over 12 months | Over 12 months | 64,405 | | 52,216 | | |
Over 12 months | |
Over 12 months | |
Total | Total | $ | 131,625 | | $ | 100,752 | | |
Total | |
Total | |
The contractual maturities of CDs for each of the next five years, including the remainder of 2023,2024, and thereafter are as follows:
| (Dollars in thousands) | (Dollars in thousands) | Retail | Brokered | Total | (Dollars in thousands) | Retail | Brokered | Total |
Remaining nine months ending December 31, 2023 | $ | 270,212 | | $ | 273,156 | | $ | 543,368 | |
Year ending December 31, 2024 | 271,410 | | — | | 271,410 | |
Remaining nine months ending December 31, 2024 | |
Year ending December 31, 2025 | Year ending December 31, 2025 | 31,984 | | — | | 31,984 | |
Year ending December 31, 2026 | Year ending December 31, 2026 | 19,269 | | — | | 19,269 | |
Year ending December 31, 2027 | Year ending December 31, 2027 | 26,482 | | — | | 26,482 | |
Year ending December 31, 2028 | |
Thereafter | Thereafter | 2,734 | | — | | 2,734 | |
Total CDs | Total CDs | $ | 622,091 | | $ | 273,156 | | $ | 895,247 | |
At March 31, 2023,2024, Peoples had thirteen11 effective interest rate swaps, with an aggregate notional value of $125.0$105.0 million, all of which $125.0 million were funded by brokered CDs. Brokered CDs used to fund interest rate swaps are expected to be extended every 90 days through the maturity dates of the swaps. Additional information regarding Peoples' interest rate swaps can be found in "Note 10 Derivative Financial Instruments."
Note 7 Stockholders’ Equity The following table details the progression in Peoples’ common shares and treasury stock during the three months ended March 31, 2023:2024:
| | | | Common Shares | Treasury Stock |
Shares at December 31, 2022 | | 29,857,920 | | 1,643,461 | |
| |
| | | Common Shares | Treasury Stock |
Shares at December 31, 2023 | |
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 | |
Release of restricted common shares | Release of restricted common shares | | — | | 25,977 | |
Cancellation of restricted common shares | Cancellation of restricted common shares | | — | | 4,557 | |
| Grant of restricted common shares | Grant of restricted common shares | | — | | (196,713) | |
Grant of unrestricted common shares | | — | | (1,300) | |
Grant of restricted common shares | |
Grant of restricted common shares | |
| 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: | Changes related to deferred compensation plan for Boards of Directors: | | |
Purchase of treasury stock | Purchase of treasury stock | | — | | 4,665 | |
Purchase of treasury stock | |
Purchase of treasury stock | |
Disbursed out of treasury stock | Disbursed out of treasury stock | | — | | (730) | |
| Common shares repurchased under share repurchase program | |
Common shares issued under dividend reinvestment plan | Common shares issued under dividend reinvestment plan | | 10,536 | | — | |
Common shares issued under compensation plan for Boards of Directors | Common shares issued under compensation plan for Boards of Directors | | — | | (5,272) | |
| Common shares issued under employee stock purchase plan | Common shares issued under employee stock purchase plan | | — | | (17,034) | |
Common shares issued under employee stock purchase plan | |
Common shares issued under employee stock purchase plan | |
| Shares at March 31, 2023 | | 29,868,456 | | 1,457,611 | |
Shares at March 31, 2024 | |
| Shares at March 31, 2024 | |
| Shares at March 31, 2024 | |
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. AtAs of March 31, 2023,2024, Peoples had repurchased 263,183471,307 common shares totaling $7.4$13.4 million under the share repurchase program. There were no100,905 common shares totaling $3.0 million repurchased during the first three months of 2023.2024.
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 determineddesignated by Peoples' Board of Directors. At March 31, 2023,2024, Peoples had no preferred shares issued or outstanding.
On January 23, 2023, Peoples' Board of Directors declared a quarterly cash dividend of $0.38 per common share, payable on February 21, 2023, to shareholders of record on February 6, 2023. On April 24, 2023,22, 2024, Peoples' Board of Directors declared a quarterly cash dividend of $0.39 per common share, payable on February 20, 2024, to shareholders of record on February 5, 2024. On April 22, 2024, Peoples' Board of Directors declared a quarterly cash dividend of $0.40 per common share, payable on May 22, 2023,20, 2024, to shareholders of record on May 8, 2023.6, 2024. The following table details the cash dividends declared per common share during the first two quarters of 20232024 and the comparable periods of 2022:2023:
| | 2023 | 2022 |
| 2024 | | | 2024 | 2023 |
First quarter | First quarter | $ | 0.38 | | $ | 0.36 | |
Second quarter | Second quarter | 0.39 | | 0.38 | |
| Total dividends declared | Total dividends declared | $ | 0.77 | | $ | 0.74 | |
| Total dividends declared | |
| Total dividends declared | |
Accumulated Other Comprehensive (Loss) Income
The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income forduring the three months ended March 31, 2023:2024:
| (Dollars in thousands) | (Dollars in thousands) | Unrealized (Loss) Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Gain (Loss) on Cash Flow Hedges | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2022 | $ | (129,896) | | $ | (1,633) | | $ | 4,393 | | $ | (127,136) | |
(Dollars in thousands) | |
(Dollars in thousands) | | Unrealized (Loss) Gain on Securities | | Unrealized Gain on Cash Flow Hedges | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2023 | |
Reclassification adjustments to net income: | Reclassification adjustments to net income: | |
Realized loss on sale of securities, net of tax | Realized loss on sale of securities, net of tax | 1,483 | | — | | — | | 1,483 | |
Realized loss on sale of securities, net of tax | |
Realized loss on sale of securities, net of tax | |
| Other comprehensive income (loss), net of reclassifications and tax | 15,715 | | 2 | | (1,043) | | 14,674 | |
Balance, March 31, 2023 | $ | (112,698) | | $ | (1,631) | | $ | 3,350 | | $ | (110,979) | |
Other comprehensive (loss) income, net of reclassifications and tax | |
Other comprehensive (loss) income, net of reclassifications and tax | |
Other comprehensive (loss) income, net of reclassifications and tax | |
Balance, March 31, 2024 | |
Note 8 Employee Benefit Plans Peoples sponsorssponsored a noncontributory defined benefit pension plan that coverscovered substantially all employees hired before January 1, 2010. The plan providesprovided retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirementpost-retirement benefit iswas 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 postretirementpost-retirement benefit iswas based on 2% of the employee’s annual compensation during the years 2003 through 2009, plus accrued interest. Effective January 1, 2010,During the third quarter of 2023, Peoples terminated its pension plan wasby settling the remaining benefit obligation of $7.7 million. The pension plan had been closed to new entrants. Effective Marchentrants since January 1, 2011,2010. Peoples recorded a settlement charge of $2.4 million in the accrualthird quarter 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, under2023 in relation to the termstermination of the pension plan. Effective July 1, 2013, a participant inPeoples does not anticipate further expenses related to 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.termination.
Retirement Savings Plan
Peoples also maintains a retirement savings plan, or 401(k) plan, which covers substantially all employees. The plan provides post-retirement health and life insurance benefitsparticipants with the opportunity to certain former employees and directors. Only those individuals who retired before January 27, 2012 were eligiblesave for life insurance benefits.retirement on a tax-deferred basis. As of January 1, 2011, all retirees who desire to participate in the2021, Peoples Bank medical plan do so by electing COBRA, which providesmatches 100% of participants’ contributions 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%6% of the costparticipants’ compensation. Matching contributions made by Peoples during the first quarter 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.2024 totaled $1.5 million. Matching contributions totaled $5.4 million in 2023 and $4.4 million in 2022.
The expected long-term rate of return on plan assets, which was determined as of January 1, 2023, is 7.0%. The following table details the components of the net periodic cost for the noncontributory defined benefit pension plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations:
| | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended | | |
| March 31, | | |
(Dollars in thousands) | 2023 | 2022 | | | |
Interest cost | $ | 88 | | $ | 66 | | | | |
Expected return on plan assets | (166) | | (168) | | | | |
Amortization of net loss | 2 | | 20 | | | | |
Settlement of benefit obligation | — | | — | | | | |
Net periodic loss | $ | (76) | | $ | (82) | | | | |
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 did not record a settlement charge during the three months ended March 31, 2023 or March 31, 2022 under the noncontributory defined benefit pension plan.
Note 9 Earnings Per Common Share The calculations of basic and diluted earnings per common share were as follows:
| | Three Months Ended | |
| March 31, | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | March 31, | | | | | March 31, |
(Dollars in thousands, except per common share data) | (Dollars in thousands, except per common share data) | 2023 | 2022 | | (Dollars in thousands, except per common share data) | | | | 2024 | 2023 |
Net income available to common shareholders | Net income available to common shareholders | $ | 26,560 | | $ | 23,577 | | |
Less: Dividends paid on unvested common shares | Less: Dividends paid on unvested common shares | (102) | | (48) | | |
Add: Undistributed loss allocated to unvested common shares | (34) | | (21) | | |
Less: Undistributed income allocated to unvested common shares | |
Net earnings allocated to common shareholders | Net earnings allocated to common shareholders | $ | 26,424 | | $ | 23,508 | | |
| Weighted-average common shares outstanding | |
Weighted-average common shares outstanding | |
Weighted-average common shares outstanding | Weighted-average common shares outstanding | 27,891,760 | | 28,006,165 | | |
Effect of potentially dilutive common shares | Effect of potentially dilutive common shares | 130,119 | | 122,966 | | |
Total weighted-average diluted common shares outstanding | Total weighted-average diluted common shares outstanding | 28,021,879 | | 28,129,131 | | |
| Earnings per common share: | Earnings per common share: | | |
Earnings per common share: | |
Earnings per common share: | |
Basic | |
Basic | |
Basic | Basic | $ | 0.95 | | $ | 0.84 | | |
Diluted | Diluted | $ | 0.94 | | $ | 0.84 | | |
Anti-dilutive common shares excluded from calculation: | Anti-dilutive common shares excluded from calculation: | | |
Restricted common shares | Restricted common shares | 155,018 | | — | | |
Restricted common shares | |
Restricted common shares | |
Note 10 Derivative Financial Instruments Peoples utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. The fair value of derivative financial instruments is included in the "Other assets" and the "Accrued expenses and other liabilities" lines in the accompanying Unaudited Consolidated Balance Sheets, while cash activity related to these derivative financial instruments is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows.
Derivative Financial Instruments and Hedging Activities - Risk Management Objective of Using Derivative Financial Instruments
Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. Peoples also manages interest rate risk through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the values of which are determined by interest rates. Peoples’ derivative financial instruments are used to manage differences in the amount, timing and duration of Peoples' known or expected cash receipts and its known or expected cash payments principally related to certain variable rate borrowings. Peoples also has interest rate derivative financial instruments that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in Peoples' assets or liabilities. Peoples manages a matched book with respect to customer-related derivative financial instruments in order to minimize its net risk exposure resulting from such transactions.
Cash Flow Hedges of Interest Rate Risk
Peoples' objectives in using interest rate derivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. At March 31, 2023,2024, Peoples had entered into thirteen11 interest rate swap contracts with an aggregate notional value of $125.0$105.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate.term SOFR. The interest received on the floating rate component is intended to offset the interest paid on rolling three-month brokered CDs, which will continue to be rolled through the life of the interest rate swaps. At both March 31, 20232024 and at December 31, 2022,2023, the interest rate swaps were designated as cash flow hedges of $125.0$105.0 million, in brokered CDs, which are expected to be extended every 90 days through the maturity dates of the interest rate swaps.
For derivative financial instruments designated as cash flow hedges, the effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest expense as interest payments are made or received on Peoples' variable-rate liabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the brokered CDs are matched to the reset dates and payment dates on the receipt of the term SOFR rate (or the three-month LIBOR floating portion prior to June 30, 2023) of the swaps to ensure effectiveness of the cash flow hedge. During the three months ended March 31, 2024, and 2023, and 2022, Peoples had recorded reclassifications of gains to earnings of $0.1 million and reclassifications of losses to earnings of $0.6$0.9 million and $0.1 million, respectively. During the next twelve months, Peoples estimates that $1.3$1.4 million of AOCI will be reclassified as a reductionan addition to interest expense.
The following table summarizes information about the interest rate swaps designated as cash flow hedges:
| | | | | | | | |
(Dollars in thousands) | March 31, 2023 | December 31, 2022 |
Notional amount | $ | 125,000 | | $ | 125,000 | |
Weighted average pay rates | 2.26 | % | 2.26 | % |
Weighted average receive rates | 4.31 | % | 4.44 | % |
Weighted average maturity | 2.3 years | 2.6 years |
Pre-tax changes in fair value included in AOCI | $ | 4,370 | | $ | 5,727 | |
| | | | | | | | |
(Dollars in thousands) | March 31, 2024 | December 31, 2023 |
Notional amount | $ | 105,000 | | $ | 105,000 | |
Weighted average pay rates | 2.22 | % | 2.22 | % |
Weighted average receive rates | 5.02 | % | 4.63 | % |
Weighted average maturity | 1.7 years | 2.0 years |
Pre-tax changes in fair value included in AOCI | $ | 3,689 | | $ | 3,434 | |
The following table presents changes in fair value recorded in AOCI and in the Consolidated Statements of Operations related to the cash flow hedges for three months ended March 31, 2023, and 2022:hedges:
| | | | Three Months Ended | |
| | | Three Months Ended | |
| | | Three Months Ended | |
| | | March 31, | | | | | March 31, |
(Dollars in thousands) | | (Dollars in thousands) | | | | 2024 | 2023 |
Amount of losses (gains) recorded in AOCI, pre-tax | |
| | Three Months Ended | |
| March 31, | |
(Dollars in thousands) | 2023 | 2022 | |
Amount of (losses) gains recorded in AOCI, pre-tax | $ | (1,356) | | $ | 5,456 | | |
|
The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
(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 | |
Interest rate swaps related to debt | Interest rate swaps related to debt | $ | 125,000 | | $ | 4,239 | | | $ | 125,000 | | $ | 5,594 | |
|
Non-Designated Hedges
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples originates variable rate loans with interest rate swaps, where the customer enters into an interest rate swap with Peoples on terms that match the terms of the loan. By entering into the interest rate swap with the customer, Peoples Bank effectively provides the customer with a fixed rate loan while creating a variable rate asset for Peoples Bank. Peoples Bank offsets its exposure in the interest rate swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each interest rate swap is accounted for as a standalone derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operations or financial condition at or for the three months ended March 31, 20232024 and as ofat or for the year ended December 31, 2022.2023.
The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
(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 commercial loans | Interest rate swaps related to commercial loans | $ | 381,196 | | $ | 23,100 | | | $ | 390,126 | | $ | 28,529 | |
Interest rate swaps related to commercial loans | |
Interest rate swaps related to commercial loans | |
| Included in "Accrued expenses and other liabilities": | 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 commercial loans | |
Interest rate swaps related to commercial loans | |
Interest rate swaps related to commercial loans | Interest rate swaps related to commercial loans | $ | 381,196 | | $ | 23,100 | | | $ | 390,126 | | $ | 28,529 | |
|
Pledged Collateral
Peoples pledges or receives collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps is in a net liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps is in a net asset position, the respective counterparties must pledge collateral. At March 31, 20232024 and at December 31, 2022,2023, Peoples had no cash pledged, while counterparties had $16.7$15.5 million of cash pledged at March 31, 20232024 and $20.9$12.8 million of cash pledged at December 31, 2022.2023. Peoples had no pledged investment securities at March 31, 20232024 or at December 31, 2022,2023, while the counterparties had pledged investment securities in the amounts of $2.4$2.1 million at March 31, 20232024 and $2.5$2.2 million at December 31, 2022.2023.
Note 11 Stock-Based Compensation Under the Peoples Bancorp Inc. ThirdFourth 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 891,340.1,493,297. The maximum number of common shares that can be issued for incentive stock options is 500,000750,000 common shares. Since February 2009, Peoples has granted restricted common shares to employees, and periodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.
Restricted Common Shares
Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on the restricted common shares awarded to officers and key employees expire after periods ranging from one to five years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first three months of 2023,2024, Peoples granted an aggregate of 188,372283,712 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 three months ended March 31, 2023:2024:
| | Time-Based Vesting | | | 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 |
Oustanding at January 1, 2023 | 138,522 | | $ | 27.25 | | | 295,875 | | $ | 32.20 | |
Oustanding at January 1, 2024 | |
Awarded | Awarded | 8,341 | | 28.70 | | | 188,372 | | 30.30 | |
Released | Released | (5,316) | | 31.35 | | | (70,458) | | 32.91 | |
Forfeited | Forfeited | — | | — | | | (4,557) | | 31.46 | |
Outstanding at March 31, 2023 | 141,547 | | $ | 27.18 | | | 409,232 | | $ | 31.21 | |
Outstanding at March 31, 2024 | |
For the three months ended March 31, 2023,2024, the total intrinsic value for restricted common shares released was $2.3$2.2 million compared to $3.3$2.3 million for the three months ended March 31, 2022.2023.
Stock-Based Compensation
Peoples recognizes stock-based compensation, which is included as a component of Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares, as well as purchases made by participants in the employee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15%. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:
| | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
(Dollars in thousands) | 2023 | 2022 | | | |
Employee stock-based compensation expense: | | | | | |
Stock grant expense | $ | 2,150 | | $ | 1,577 | | | | |
Employee stock purchase plan expense | 39 | | 28 | | | | |
| | | | | |
Total employee stock-based compensation expense | 2,189 | | 1,605 | | | | |
Non-employee director stock-based compensation expense | 136 | | 124 | | | | |
Total stock-based compensation expense | 2,325 | | 1,729 | | | | |
Recognized tax benefit | (543) | | (396) | | | | |
Net stock-based compensation expense | $ | 1,782 | | $ | 1,333 | | | | |
| | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
(Dollars in thousands) | | | | 2024 | 2023 |
Employee stock-based compensation expense: | | | | | |
Stock grant expense | | | | $ | 3,024 | | $ | 2,150 | |
Employee stock purchase plan expense | | | | 66 | | 39 | |
| | | | | |
Total employee stock-based compensation expense | | | | $ | 3,090 | | $ | 2,189 | |
Non-employee director stock-based compensation expense | | | | $ | 138 | | $ | 136 | |
Total stock-based compensation expense | | | | $ | 3,228 | | $ | 2,325 | |
Recognized tax benefit | | | | (752) | | (543) | |
Net stock-based compensation expense | | | | $ | 2,476 | | $ | 1,782 | |
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 $7.0$9.4 million at March 31, 2023,2024, which will be recognized over a weighted-average period of 2.22.3 years.
The following table details Peoples' revenue from contracts with customers:
| | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
(Dollars in thousands) | | | | 2023 | 2022 |
Insurance income: | | | | | |
Commission and fees from sale of insurance policies (a) | | | | $ | 3,816 | | $ | 3,313 | |
Fees related to third-party administration services (a) | | | | 82 | | 72 | |
| | | | Three Months Ended |
| | | March 31, |
| | | | Three Months Ended |
| | | March 31, | | | | | March 31, |
(Dollars in thousands) | (Dollars in thousands) | | 2023 | 2022 | (Dollars in thousands) | | | | 2024 | 2023 |
Insurance income: | |
Commission and fees from sale of insurance policies (a) | |
Commission and fees from sale of insurance policies (a) | |
Commission and fees from sale of insurance policies (a) | |
Fees related to third-party administration services (a) | |
Performance-based commissions (b) | Performance-based commissions (b) | | 1,527 | | 1,346 | |
Trust and investment income: | Trust and investment income: | | |
Fiduciary income (a) | |
Fiduciary income (a) | |
Fiduciary income (a) | Fiduciary income (a) | | 2,457 | | 1,965 | |
Brokerage income (a) | Brokerage income (a) | | 1,627 | | 2,311 | |
Electronic banking income: | Electronic banking income: | | |
Interchange income (a) | Interchange income (a) | | 4,181 | | 4,113 | |
Interchange income (a) | |
Interchange income (a) | |
Promotional and usage income (a) | Promotional and usage income (a) | | 1,262 | | 1,140 | |
Deposit account service charges: | Deposit account service charges: | | |
Ongoing maintenance fees for deposit accounts (a) | |
Ongoing maintenance fees for deposit accounts (a) | |
Ongoing maintenance fees for deposit accounts (a) | Ongoing maintenance fees for deposit accounts (a) | | 1,461 | | 1,311 | |
Transaction-based fees (b) | Transaction-based fees (b) | | 2,062 | | 2,115 | |
Commercial loan swap fees (b) | Commercial loan swap fees (b) | | — | | 168 | |
Other non-interest income transaction-based fees (b) | Other non-interest income transaction-based fees (b) | | 430 | | 257 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | | $ | 18,905 | | $ | 18,111 | |
Timing of revenue recognition: | Timing of revenue recognition: | | |
Services transferred over time | Services transferred over time | | $ | 14,886 | | $ | 14,225 | |
Services transferred over time | |
Services transferred over time | |
Services transferred at a point in time | Services transferred at a point in time | | 4,019 | | 3,886 | |
Total revenue from contracts with customers | Total revenue from contracts with customers | | $ | 18,905 | | $ | 18,111 | |
(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 three-month period ended March 31, 2023:2024:
| | | Contract Assets | Contract Liabilities | | Contract Assets | Contract Liabilities |
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
Balance, January 1, 2023 | $ | 1,294 | | $ | 5,634 | |
Balance, January 1, 2024 | |
Additional income receivable | Additional income receivable | 50 | | — | |
| Additional deferred income | |
Receipt of income previously receivable | |
Recognition of income previously deferred | Recognition of income previously deferred | — | | (70) | |
Balance, March 31, 2023 | $ | 1,344 | | $ | 5,564 | |
Balance, March 31, 2024 | |
Vantage Financial, LLCLimestone Bancorp, Inc.
On March 7, 2022, Peoples Bank purchased 100%As of the equityclose of Vantage, a nationwide provider of equipment financing headquarteredbusiness on April 30, 2023, Peoples completed the Limestone Merger. In connection with the Limestone Merger, Limestone Bank, Inc., which operated 20 branches in Excelsior, Minnesota.Kentucky, merged into Peoples Bank acquired assets comprising Vantage's lease business, including $154.9 million in leases and certain third-party debtBank. As consideration in the amountLimestone Merger, Limestone shareholders were paid 0.90 common shares of $106.9 million. UnderPeoples for each full share of Limestone that was owned at the termsmerger date, resulting in the issuance of the agreement,6,827,668 common shares by Peoples, Bank paid cashor aggregate consideration of $54.0 million, and also repaid $28.9 million in recourse debt on behalf of Vantage,$177.9 million. Peoples accounted for total consideration of $82.9 million. Vantage offers mid-ticket equipment leases, primarily forthis transaction as a business essential information technology equipment across a wide-array of industries.
combination under the acquisition method. Peoples recorded acquisition-related expenses duringprimarily related to the Limestone Merger, which included $(0.1) million in non-interest expense for the three months ended March 31, 2023 and 2022 of $45,000 and $0.8 million, respectively, in professional fees2024. Peoples recorded acquisition-related expenses related to the Vantage acquisition.Limestone Merger, which included $16.9 million in non-interest expense for the year ended December 31, 2023.
The following table provides the preliminary purchase price calculation as of the date of the acquisition of Vantage,Limestone Merger, and the assets acquired and liabilities assumed at their estimated fair values. The estimated fair values below are subject to adjustment for up to one year after April 30, 2023, which include, but are not limited to, loans, including the designation of PCD loans, deferred tax assets and liabilities, long-term borrowings, and certain other assets and other liabilities.
| | | | | | | | |
(Dollars in thousands) | | | Fair Value | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Total purchase price | | | $ | 82,893177,931 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Net assetsAssets | | | | |
Cash and balances due from banks | | | 6,422 | | |
Interest-bearing deposits in other banks | | | 87,115 | | |
Total cash and cash equivalents | | | 93,537 | | |
Available-for-sale investment securities, at fair value | | | 166,944 | | |
| | | | |
AssetsOther investment securities | | | 5,716 | | |
| | | | |
Cash and due from banksTotal investment securities | | | $172,660 | | 1,444 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
LeasesLoans | | | 155,7261,077,929 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Allowance for credit losses (on purchased credit deteriorated leases)PCD loans) | | | (801)(2,051) | | |
Net leasesloans | | | 154,9251,075,878 | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Bank premises and equipment, net of accumulated depreciation | | | 11617,690 | | |
| | | | | | | | |
(Dollars in thousands) | | | Fair Value | |
Bank owned life insurance | | | 31,343 | | |
| | | | |
| | | | |
| | | | |
Other intangible assets | | | 13,20727,722 | | |
Other assets | | | 1,50636,874 | | |
| | | | |
Total assets | | | $1,455,704 | | 171,198 | |
Liabilities | | | | |
BorrowingsDeposits: | | | | |
| | | | |
$Non-interest-bearing | | | 106,919262,727 | | |
Interest-bearing | | | 971,457 | | | |
Total deposits | | | 1,234,184 | | | |
Short-term borrowings | | | 60,000 | | | |
Long-term borrowings | | | 39,453 | | | |
| | | | |
Accrued expenses and other liabilities | | | 8,55012,967 | | |
Total liabilities | | | $1,346,604 | | 115,469 |
| | | | |
| | | | |
Net assets | | | $109,100 | | 55,729 | |
Goodwill | | | $ | 27,16468,831 | | |
The goodwill recorded in connection with the Vantage acquisitionLimestone Merger is related to expected synergies to be gained from the combination of VantageLimestone with Peoples' operations. The employees retained from the Vantage acquisitionLimestone Merger and the geographic locations of Limestone should allow Peoples to continue to grow the lease portfolio, along withloan and deposit portfolios while also increasing Peoples' resources, andability to penetrate the new markets, which should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill. Peoples recorded a core deposit asset in other intangible assets which included a customer relationship intangible, a trade-name intangible and non-compete agreements related to this transaction.the Limestone Merger.
There were no changes in the estimated fair value that impacted goodwill for the three months ended March 31, 2024.
Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans as to which Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" (or "PCD") loans. Acquired PCD loans are reported net of the unamortized fair value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired purchased credit deteriorated leasesPCD loans as of the acquisition date:
| | (Dollars in thousands) | (Dollars in thousands) | | Par Value | Allowance for Credit Losses | Non-Credit Premium | Fair Value |
Purchased credit deteriorated leases | | |
| (Dollars in thousands) | |
| (Dollars in thousands) | | | Par Value | Allowance for Credit Losses | Non-Credit (Discount) Premium | Fair Value |
PCD loans | |
| Leases | | $ | 3,412 | | $ | (801) | | $ | 1,120 | | $ | 3,731 | |
Commercial real estate, other | |
| Commercial real estate, other | |
| Commercial real estate, other | |
Commercial and industrial | |
| Residential real estate | |
Residential real estate | |
Residential real estate | |
Home equity lines of credit | |
| Consumer | |
Consumer | |
Consumer | |
Fair value | Fair value | | $ | 3,412 | | $ | (801) | | $ | 1,120 | | $ | 3,731 | |
|
Peoples has elected certain practical expedients, in accordance with ASC 842 - Leases ("ASC 842"). As a lessor, Peoples has made an accounting policy election to exclude from the consideration in the contract, and from variable payments not included in the consideration in the contract, all sales and other similar taxes assessed. Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.
Lessor Arrangements
Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment ofin 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 area lease is typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases
deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses.
Peoples began originating leases with the acquisition of leases from NSL in the second quarter of 2021, and expanded its lease portfolio with the acquisition of Vantage in the first quarter of 2022. The leases acquired from NSL were determined to beoriginates sales-type leases through its NSL division, as the premise for these leases isare structured as dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. These leases do not typically contain residual value guarantees; however, if a lease contains a residual value guarantee, Peoples reduces its residual asset risk by obtaining a security deposit from the lessee. ThePeoples also originates leases acquired fromthrough its Vantage were determined to besubsidiary, which are classified as 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 ofrelate to automotive, construction, health care, manufacturing, office, restaurant, information technology and other equipment. TheseFinance leases include an estimated residual value, which is assessed for impairment as part of the allowance for credit losses. Other non-interestLease (loss) income noted in the table below includes gain(i) gains on the early termination of leases, syndicated leases,(ii) fees received for referrals, (iii) gains and other fees.losses recognized on the sales of residual assets and (iv) syndication income. Additional information regarding Peoples' leases can be found in "Note 4 Loans and Leases."
The table below details Peoples' lease income:
| | |
| | | | Three Months Ended | | | Three Months Ended |
(Dollars in thousands) | (Dollars in thousands) | | March 31, 2023 | | March 31, 2022 | (Dollars in thousands) | | | | | March 31, 2024 | | March 31, 2023 |
Interest and fees on leases (a) | Interest and fees on leases (a) | | $ | 9,643 | | | $ | 6,102 | |
Lease income | |
Other non-interest income | Other non-interest income | | 1,077 | | | 775 | |
Total lease income | Total lease income | | $ | 10,720 | | | $ | 6,877 | |
(a)Included in "Interest and fees on loans and leases" in the Unaudited Consolidated Statements
of Operations. For additional information, see "Note 4 Loans and Leases" of the Notes to
the Unaudited Condensed Consolidated Financial Statements.
The following table summarizes the net investment in leases, which is included in "Loans and leases, net of deferred fees and costs" on the Unaudited Consolidated Balance Sheets:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 |
Lease payments receivable, at amortized cost | Lease payments receivable, at amortized cost | $ | 381,549 | | $ | 367,681 | |
Estimated residual values | Estimated residual values | 36,078 | | 35,045 | |
Initial direct costs | Initial direct costs | 4,623 | | 4,233 | |
Deferred revenue | Deferred revenue | (67,609) | | (61,828) | |
Net investment in leases | Net investment in leases | 354,641 | | 345,131 | |
Allowance for credit losses - leases | Allowance for credit losses - leases | (9,109) | | (8,495) | |
Net investment in leases, after allowance for credit losses | Net investment in leases, after allowance for credit losses | $ | 345,532 | | $ | 336,636 | |
The following table summarizes the contractual maturities of leases:
| | | | | |
(Dollars in thousands) | Balance |
Remaining nine months ending December 31, 20232024 | $ | 68,772103,408 | |
Year ending December 31, 2024 | 87,814 | |
Year ending December 31, 2025 | 98,604109,429 | |
Year ending December 31, 2026 | 64,769100,493 | |
Year ending December 31, 2027 | 42,48182,587 | |
Year ending December 31, 2028 | 55,038 | |
Thereafter | 19,10923,032 | |
Lease payments receivable, at amortized cost | $ | 381,549473,987 | |
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 March 31, 2023,2024, Peoples did not have any leases that met the criteria for finance leases. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to
make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement or the remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating 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 aan 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 | | | Three Months Ended |
(Dollars in thousands) | (Dollars in thousands) | | March 31, 2023 | | March 31, 2022 | (Dollars in thousands) | | | | | March 31, 2024 | | March 31, 2023 |
Operating lease expense | Operating lease expense | | 695 | | | 603 | |
Short-term lease expense | Short-term lease expense | | 95 | | | 168 | |
Total lease expense | Total lease expense | | $ | 790 | | | $ | 771 | |
Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.
The following table details the ROU assets, the lease liabilities and other information related to Peoples' operating leases at the dates shown:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 |
ROU assets: | ROU assets: | |
Other assets | Other assets | $ | 7,181 | | $ | 6,825 | |
Other assets | |
Other assets | |
Lease liabilities: | Lease liabilities: | |
Accrued expenses and other liabilities | |
Accrued expenses and other liabilities | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | $ | 7,880 | | $ | 7,551 | |
Other information: | Other information: | |
Weighted-average remaining lease term | Weighted-average remaining lease term | 8.5 years | 8.8 years |
Weighted-average remaining lease term | |
Weighted-average remaining lease term | | 9.2 years | 9.5 years |
Weighted-average discount rate | Weighted-average discount rate | 2.67 | % | 2.70 | % | Weighted-average discount rate | 3.92 | % | 3.34 | % |
Additions for ROU assets obtained during the year | |
|
During both the three months ended March 31, 20232024 and 2022,2023, Peoples paid cash of $0.7 million and $0.6 million, respectively, for operating leases.
The following table summarizes the maturity of remaining lease liabilities:
| | | | | |
(Dollars in thousands) | Balance |
Remaining nine months ending December 31, 20232024 | $ | 2,0082,280 | |
Year ending December 31, 2024 | 1,650 | |
Year ending December 31, 2025 | 1,0882,210 | |
Year ending December 31, 2026 | 9051,950 | |
Year ending December 31, 2027 | 7471,762 | |
Year ending December 31, 2028 | 1,338 | |
Thereafter | 3,0075,412 | |
Total undiscounted lease payments | $ | 9,40514,952 | |
Imputed interest | $ | (1,525)(2,890) | |
Total lease liabilities | $ | 7,88012,062 | |
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 at and for the three months ended March 31, 20232024 and March 31, 2022.2023. This MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.
Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by the fact they are not historical facts and include words such as "anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," "continue," "remain," and similar expressions.
These forward-looking statements reflect management's current expectations based on all information available to management and its knowledge of Peoples' business and operations. Additionally, Peoples' financial condition, results of operations, plans, objectives, future performance and business are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, but are not limited to:
(1)the magnitude and continued durationeffects of the recovery from the COVID-19 pandemic and its ongoing impact on the global economy and financial market conditions and Peoples’ businesses, results of operations and financial conditions;
(2)ongoing increasing interest rate policies, changes in the interest rate environment due to economic conditions and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Federal Reserve Board, including changes in the Federal Funds Target Rate, in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;
(3)(2)the effects of inflationary pressures and the impact of rising interest rates on borrowers’ liquidity and ability to repay;
(4)(3)the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the ongoing increasing interest rate policies of the Federal Reserve Board, the completion and successful integration of planned acquisitions, including the recently-completed acquisition of Vantage and the pending Limestone Merger that closed in April 2023, and the expansion of commercial and consumer lending activities;
(5)(4)competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;
(6)(5)uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation,FDIC, 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;requirements;
(7)(6)the effects of easing restrictions on participants in the financial services industry;
(8)(7)current and future local, regional, national and international economic conditions (including the impact of persistent inflation, supply chain issues or labor shortages, ineffective managementsupply-demand imbalances affecting local real estate prices, high unemployment rates in the local or regional economies in which Peoples operates and/or the U.S. economy generally, an increasing federal government budget deficit, the failure of the U.S. federal budget orgovernment to raise the federal debt ceiling, 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 U.S. global trading partners) and the impact these conditions may have on Peoples, Peoples' customers and Peoples' counterparties, and Peoples' assessment of the impact, which may be different than anticipated;
(9)(8)Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;
(10)(9)changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans, charge-offs, and customer and other counterparties' performance and creditworthiness generally, which may be less favorable than expected in light of recent inflationary pressures and continued elevated interest rates, and may adversely impact the amount of interest income generated;
(11)(10)Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
(12)(11)future credit quality and performance, including expectations regarding future credit losses and the allowance for credit losses;
(13)(12)changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;
(14)(13)the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;
(15)the replacement of the London Interbank Offered Rate ("LIBOR") with other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;
(16)(14)adverse changes in the conditions and trends in the financial markets, including recent inflationary pressures, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;
(17)(15)the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
(18)(16)Peoples' ability to receive dividends from Peoples' subsidiaries;
(19)(17)Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(20)(18)the impact of larger or similar-sized financial institutions encountering problems, such as the recent closures in 2023 of Silicon Valley Bank in California, and Signature Bank in New York, First Republic Bank in California, and Heartland Tri-State Bank in Kansas, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity, including potential increased regulatory requirements, and costs, increased reputational risk and potential impacts to macroeconomic conditions;
(21)(19)Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;
(22)(20)any misappropriation of the confidential information which Peoples possesses could have an adverse impact on Peoples' business and could result in regulatory actions, litigation and other adverse effects;
(21)Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;
(23)(22)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 Peoples' subsidiaries are highly dependent;
(24)(23)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, legislative or regulatory initiatives, or other factors, which may be different than anticipated;
(25)(24)the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;
(26)(25)the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence;
(27)(26)the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics, cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;conflicts (including Russia’s war in Ukraine and the ongoing conflicts in the Middle East);
(28)(27)the potential further deterioration of the U.S. economy due to financial, political or other shocks;
(29)(28)the potential influence on the U.S. financial markets and economy from the effects of climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs;
(30)(29)the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;
(31)(30)risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;
(32)(31)Peoples' ability to integrate the pending Limestone Merger, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;
(33)(32)the risk that expected revenue synergies and cost savings from the pending Limestone Merger, may not be fully realized or realized within the expected time frame;
(34)(33)changes in laws or regulations imposed by Peoples' regulators impacting Peoples' capital actions, including dividend payments and share repurchases;
(34)the vulnerability of Peoples' network and online banking portals, and the systems of parties with whom Peoples contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches;
(35)Peoples' business may be adversely affected by increased political and regulatory scrutiny of corporate environmental, social and governance ("ESG") practices;
(36)the effect of a fall in stock market prices on the asset and wealth management business;
(36)Peoples' continued ability to grow deposits or maintain adequate deposit levels in light of the recent bank failures; and
(37)other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' 20222023 Form 10-K and under the heading "ITEM 1A. RISK FACTORS" in Part II of this Form 10-Q. 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 any forward-looking statements to reflect events or circumstances after the filing of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC's website at http://www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.
All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections.
This discussion and analysis should be read in conjunction with the Audited Consolidated Financial Statements, and Notes thereto,to the Audited Consolidated Financial Statements, contained in Peoples’ 20222023 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.
Business Overview
The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.
Peoples is a diversified financial services holding company that makes available a complete line of banking, trust and investment, insurance, premium financing and equipment leasing solutions through its subsidiaries. Peoples provides services through traditional offices, ATMs,automated teller machines ("ATMs"), interactive teller machines ("ITMs"), mobile banking, and telephone and internet-based banking. Peoples offers a complete array of insurance products through Peoples Insurance, a subsidiary of Peoples Bank. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank offers insurance premium finance lending nationwide through its Peoples Premium Finance division. Peoples also offers lease financing through its North Star Leasing division and through Vantage, a subsidiary of Peoples Bank. As of March 31, 2023,2024, Peoples had 130152 locations, including 113133 full-service bank branches in Ohio, Kentucky, West Virginia, Kentucky, Virginia, Washington D.C. and Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the FRB of Cleveland and the FDIC. Peoples Bank must also follow the regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to US GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant accounting policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and MD&A at March 31, 2023,2024, which have been disclosed in Peoples' 20222023 Form 10-K and updated in "Note 1 Summary of Significant Accounting Policies" in this Form 10-Q. This MD&A should be read in conjunction with the policies disclosed in Peoples’ 20222023 Form 10-K.
Summary of Recent Transactions and Events
The following is a summary of recent transactions and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:
◦On October 25, 2022, Peoples announced the Limestone Merger, a transaction valued at approximately $208.2 million at the time of the announcement. The Limestone Merger closed on April 30, 2023. As of March 31, 2023, Peoples had recognized $1.0 million in acquisition-related expenses associated with this pending transaction.
◦On April 1, 2022, Peoples Insurance acquired substantially all of the assets and rights of an insurance agency with five locations in eastern Kentucky and certain rights to related customer accounts, which were previously developed and
maintained by Elite, pursuant to an Asset Purchase Agreement between Peoples Insurance and Elite. Total consideration for this transaction was $4.4 million. Peoples recognized intangibles of $2.1 million, primarily comprised of a customer relationship intangible.
◦On March 7, 2022,For the first quarter of 2024, Peoples completed its acquisitionincurred $(0.1) million of Vantage pursuantacquisition-related expenses, compared to an Equity Purchase Agreement, dated February 16, 2022,$1.3 million for the fourth quarter of 2023 and $0.6 million for the first quarter of 2023.The acquisition-related expenses in which Peoples Bank purchased 100% of the equity of Vantage. Peoples Bank acquired assets comprising Vantage's lease business, including $154.9 million in leases2024 and certain third-party debt in the amount of $106.9 million. Peoples paid total consideration of $82.9 million. Based in Excelsior, Minnesota, Vantage offers mid-ticket equipment leases2023 were primarily for business essential information technology equipment across a wide array of industries. Peoples recorded goodwill in the amount of $27.2 million and 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.the Limestone Merger.
◦During the first quarter of 2023,2024, Peoples recorded a provision for credit losses of $1.9$6.1 million, compared to a provision for credit losses of $2.3$1.3 million in the linked quarter and a recovery ofprovision for credit losses of $6.8$1.9 million in the first quarter of 2022.2023. The provision for credit losses for the first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses in the linked quarter was largely attributable to higher net charge-offs, offset by an improvement of macro-economic conditions and the release of reserves on individually analyzed loans. The provision for credit losses in the first quarter of 2023 was largely attributable to a deterioration of macro-economic conditions, and an increase in charge-off activity, partially offset by a reduction in reserves for individually analyzed loans. For more information, please refer to the section titled "RESULTS OF OPERATIONS - Provision for (Recovery of) Credit Losses" found later in this discussion.
◦During the firstthird quarter of 2023, Peoples incurred $0.6 millionterminated its pension plan by settling the remaining benefit obligation of acquisition-related expenses, compared$7.7 million. The pension plan had been closed to $0.7new entrants since January 1, 2010. Peoples recorded a settlement charge of $2.4 million in the fourththird quarter of 2022 and $1.4 million2023 in relation to the first quartertermination of 2022. The acquisition-relatedthe pension plan. Peoples does not anticipate further expenses in 2023 were primarily related to the termination.
◦On October 25, 2022, Peoples announced the Limestone Merger, whilea transaction valued at $177.9 million. The Limestone Merger closed as of the acquisition-related expensesclose of business on April 30, 2023. Peoples acquired Limestone's loan portfolio totaling $1.1 billion, $1.2 billion of deposits, $172.7 million of total investment securities, an aggregate of $99.5 million of short-term and long term borrowings, and $93.5 million of total cash and cash equivalents. Peoples also recorded preliminary goodwill in 2022 were primarily related to the Vantage acquisition.amount of $68.8 million and other intangible assets of $27.7 million, which consisted of core deposit intangibles.
◦To combat the effects of ongoing inflationary pressures, the Federal Reserve Board increased the Federal Funds Target Rate range to 0.25% to 0.50% beginning on March 16, 2022, and continued to 0.75%raise rates up to 1.00% on May 4, 2022, to 1.50% to 1.75% on June 15, 2022, to 2.25% to 2.50%5.50% on July 27, 2022,2023. The Federal Reserve Board has kept rates unchanged since July 2023 but has signaled that it expects to 3.00% to 3.25% on September 21, 2022, to 3.75% to 4.00% on November 2, 2022, to 4.25% to 4.50% on December 14, 2022, to 4.50% to 4.75% on February 1, 2023, to 4.75% to 5.00% on March 23, 2023, 5.00% to 5.25% on May 3, 2023 and has stated it may continue to raisebegin reducing rates throughout 2023.sometime in 2024.
The impact of these transactions and events, where material, is discussed in the applicable sections of this MD&A.
EXECUTIVE SUMMARY
Peoples reported net income of $26.6$29.6 million for the first quarter of 2023,2024, representing earnings per diluted common share of $0.94.$0.84. In comparison, Peoples reported net income of $33.8 million, representing earnings per diluted common share of $0.95$0.96, for the fourth quarter of 2022,2023, and net income of $0.84$26.6 million, representing earnings per diluted common share of $0.94, for the first quarter of 2022. Non-core items, and the related tax effect of each, in net income primarily included acquisition-related expenses.2023. Non-core items negatively impacted earnings per diluted common share by $0.01 for the first quarter of 2024, $0.08 for the fourth quarter of 2023, and $0.05 for the first quarter of 2023, $0.03 for the fourth quarter of 2022, and $0.04 for the first quarter of 2022.2023.
Net interest income was $72.9$86.6 million for the first quarter of 2023, an increase2024, a decrease of $2.3$1.7 million, or 3%2.0%, compared to the linked quarter. Net interest margin was 4.53%4.27% for the first quarter of 2023,2024, compared to 4.44% for the linked quarter. The increasesdecreases in net interest income and net interest margin were primarily driven by 50 basis pointsa decrease in accretion income, net of improvementamortization, from our acquisitions. The linked quarter was impacted by a true-up of $1.3 million to the preliminary Limestone-related accretion, which added to net interest income. The small remaining decline in loan yields due to recent increases in marketnet interest rates and a shift in the composition of the loan portfolio into higher-yielding leases, and 41 basis points of improvement in investment yields whenmargin, compared to the linked quarter, was mostly due to purchases of investment securities with higher interest rates and sales of lower-yielding investment securities.excess cash on-hand during the quarter for liquidity purposes. Net interest income for the first quarter of 20232024 increased $18.6$13.8 million, or 34%18.9%, compared to the first quarter of 2022.2023. Net interest margin increased 112 basis points compared to 3.41% for the first quarter of 2022. The increase in net interest income2024 decreased 26 basis points compared to 4.53% for the first quarter of 2022 was2023, driven primarily by increasesan increase in market interest rates and a full quarter of income from the Vantage acquisition.expense on deposits.
Accretion income, net of amortization expense, from acquisitions was $6.6 million for the first quarter of 2024, $9.0 million for the fourth quarter of 2023 and $2.0 million for the first quarter of 2023, $2.2 million for the fourth quarter of 2022 and $2.7 million for the first quarter of 2022, which added 1332 basis points, 1445 basis points and 1713 basis points, respectively, to net interest margin. The decreasesdecrease in accretion income for the first quarter of 20232024 when compared to the linked quarter andwas driven by a fourth quarter 2023 true-up to the preliminary Limestone-related accretion. The increase in accretion income for the current quarter compared to the first quarter of 2022 were driven by less loan accretion due to lower pay-offs and less2023 was a result of the accretion from the merger with Premier Financial Bancorp, Inc. ("Premier") and the Vantage acquisition.
The provision for credit losses was $1.9$6.1 million for the first quarter of 2023,2024, compared to a provision for credit losses of $2.3$1.3 million for the linked quarter and a recovery ofprovision for credit losses of $6.8$1.9 million for the first quarter of 2022.2023. The provisionsprovision for credit losses infor the first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses for the fourth quarter of 2023 and the linked quarter werewas largely attributable to a deteriorationhigher net charge-offs, offset by an improvement of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction inthe release of reserves foron individually analyzed loans. The recovery of credit losses in the first quarter of 2022 was attributable to an improvement in economic factors and loss drivers within the current expected credit loss ("CECL") model. Net charge-offs for the first quarter of 20232024 were $1.5$3.3 million, or 0.13%0.22% of average total loans annualized, compared to net charge-offs of $2.1$3.5 million, or 0.18%0.23% of average total loans annualized, for the linked quarter and net charge-offs of $1.9$1.5 million, or 0.17%0.13% of average total loans annualized, for the first quarter of 2022.2023. For additional information on credit trends and the allowance for credit losses, see the "FINANCIAL CONDITION - Allowance for Credit Losses" section below.
Net gains and losses include gains and losses on investment securities, asset disposals and other transactions, which are included in total non-interest income on the Consolidated Statements of Operations. The net loss realized during the first quarter of 20232024 was $2.2$0.3 million, compared to a net loss of $0.5$2.2 million for each of the linked quarter and athe first quarter of 2023. The net gain of $3,000loss for the first quarter of 2022. During the first quarter of 2023, Peoples executed the sale of $96.72024 was due to $0.3 million of its lower yielding available-for-sale securities for a pre-tax net loss of $2.0 million. Proceeds from the sale were used to pay down overnight borrowings. The realized losses recognized due to these transactions are projected to be earned back within the 2023 fiscal year.on repossessed assets. The net loss for the linked quarter was primarily due to net losses on repossessed assets and net losses onthe sales of $36.5 million of lower yielding available-for-sale investment securities for a pre-tax loss of $1.7 million. The net loss for the first quarter of 2023 was primarily due to a pre-tax net loss of $2.0 million on the sale of $96.7 million of its lower yielding available-for-sale securities.
Total non-interest income, excluding net gains and losses, for the first quarter of 2023 increased $1.72024 decreased $0.2 million compared to the linked quarter. The increasedecrease in non-interest income, excluding net gains and losses, was primarily due to decreases of $1.6 million in lease income and $0.8 million in electronic banking income. The decrease in lease income was due to a $1.7large lease buyout in the fourth quarter of 2023, while the decrease in electronic banking income was due to a decline in customer activity. Partially offsetting the decreases was a $2.2 million increase in insurance income due to seasonal performance-based commissions being earnedpaid in the first quarter of eachthe year. Compared to the first quarter of 2022,2023, total non-interest income, excluding net gains and losses, increased $1.2$4.9 million, primarily due to (i) a $1.1 million increase in insurance income, (ii) a $1.0 million increase in other non-interest income, (iii) a $0.8 million increase in bank owned life insurance income, (iv) a $0.7 million increase in deposit account service charges, (v) a $0.6 million increase in electronic banking income. Insurance income increased due to higher contingency income, new business, and market increases for premiums. Bank owned life insurance increased due to a $0.5 million death benefit in the first quarter of 2024 and additional income which wasfrom policies acquired in the Limestone Merger. The other increases for the first quarter of 2024, when compared to the first quarter of 2023, were primarily due to the additional customers brought in from the Limestone Merger.
Total non-interest expenses for the first three months ended March 31, 2024 were impacted by anticipated annual expenses that occur in the first quarter of each year including annual merit increases, stock-based compensation expenses attributable to an increaseretirement-eligible employees and health savings account ("HSA") contributions. Total non-interest expense for the prior periods were impacted by the Limestone Merger and acquisition-related non-interest expense.
The table below summarizes the amount of acquisition-related expenses for each line item that is a component of non-interest expense. This information is used by Peoples to provide information useful to investors in propertyunderstanding Peoples' operating performance and casualty insurance commissions.trends.
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | December 31, | | March 31, | | |
(Dollars in thousands) | 2024 | | 2023 | | 2023 | | | | |
Non-interest expense: | | | | | | | | | |
Salaries and employee benefit costs | $ | 38,893 | | | $ | 37,370 | | | $ | 32,028 | | | | | |
Net occupancy and equipment expense | 6,283 | | | 5,532 | | | 4,955 | | | | | |
Professional fees | 2,967 | | | 3,266 | | | 2,881 | | | | | |
Data processing and software expense | 5,769 | | | 6,029 | | | 4,562 | | | | | |
Amortization of other intangible assets | 2,788 | | | 3,271 | | | 1,871 | | | | | |
Electronic banking expense | 1,781 | | | 1,991 | | | 1,491 | | | | | |
Marketing expense | 1,056 | | | 1,463 | | | 930 | | | | | |
FDIC insurance premiums | 1,186 | | | 1,260 | | | 801 | | | | | |
Franchise tax expense | 881 | | | 862 | | | 1,034 | | | | | |
Communication expense | 799 | | | 745 | | | 613 | | | | | |
Other loan expenses | 1,076 | | | 726 | | | 739 | | | | | |
Other non-interest expense | 4,986 | | | 5,174 | | | 4,574 | | | | | |
Total non-interest expense | 68,465 | | | 67,689 | | | 56,479 | | | | | |
Acquisition-related non-interest expense: | | | | | | | | | |
Salaries and employee benefit costs | 16 | | | 119 | | | 21 | | | | | |
Net occupancy and equipment expense | — | | | 78 | | | 9 | | | | | |
Professional fees | (38) | | | 530 | | | 291 | | | | | |
Data processing and software expense | (18) | | | 560 | | | — | | | | | |
| | | | | | | | | |
Electronic banking expense | (100) | | | — | | | — | | | | | |
Marketing expense | 10 | | | 20 | | | 10 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other loan expenses | — | | | 1 | | | — | | | | | |
Other non-interest expense | 46 | | | (32) | | | 220 | | | | | |
Total acquisition-related non-interest expense | (84) | | | 1,276 | | | 551 | | | | | |
Non-interest expense excluding acquisition-related expense: | | | | | | | | | |
Salaries and employee benefit costs | 38,877 | | | 37,251 | | | 32,007 | | | | | |
Net occupancy and equipment expense | 6,283 | | | 5,454 | | | 4,946 | | | | | |
Professional fees | 3,005 | | | 2,736 | | | 2,590 | | | | | |
Data processing and software expense | 5,787 | | | 5,469 | | | 4,562 | | | | | |
Amortization of other intangible assets | 2,788 | | | 3,271 | | | 1,871 | | | | | |
Electronic banking expense | 1,881 | | | 1,991 | | | 1,491 | | | | | |
Marketing expense | 1,046 | | | 1,443 | | | 920 | | | | | |
FDIC insurance premiums | 1,186 | | | 1,260 | | | 801 | | | | | |
Franchise tax expense | 881 | | | 862 | | | 1,034 | | | | | |
Communication expense | 799 | | | 745 | | | 613 | | | | | |
Other loan expenses | 1,076 | | | 725 | | | 739 | | | | | |
Other non-interest expense | 4,940 | | | 5,206 | | | 4,354 | | | | | |
Total non-interest expense excluding acquisition-related expense | $ | 68,549 | | | $ | 66,413 | | | $ | 55,928 | | | | | |
| | | | | | | | | |
Total non-interest expense increased $3.1$0.8 million, or 6%1%, for the three months ended March 31, 2023,2024, compared to the linked quarter. The increase inExcluding acquisition-related expense, total non-interest expense for the first quarterincreased $2.1 million, or 3%, primarily due to increases of 2023 was attributable to an increase$1.6 million in salaries and employee benefit costs. The increase in salaries and employee benefit costs was due to anticipated additionalannual expenses typically recognizedthat occur in the first quarter of each year. These expenses includedyear including annual merit increases, stock-based compensation expenses attributable to retirement-eligible employees and employer health savings account ("HSA")HSA contributions.
Compared to the first quarter of 2022,2023, total non-interest expense increased $4.9$12.0 million, or 9%21%. Excluding acquisition-related expenses, non-interest expenses increased $12.6 million, or 23%, primarily due to a increases of $6.9 million in (i) salaries and employee benefit
benefits costs (ii)due to additional employees added in the Limestone Merger and $1.3 million and $1.2 million in net occupancy and equipment expense and data processing and software expense, and (iii) other non-interest expense. The increases wererespectively, due to the recent growth, including through acquisitions. Partially offsetting these increases were decreases in electronic banking expense and professional fees.
The efficiency ratio for the first quarter of 20232024 was 57.8%58.0%, compared to 56.7%56.0% for the linked quarter, and 66.8%57.8% for the first quarter of 2022.2023. The increase in the efficiency ratio compared to the linked quarter was primarily due to the increaseslargely a result of an increase in non-interest expenses, which were partially offset by higher net interest income due to increases in the market interest rates.expense on deposits. The decrease in the efficiency ratio compared to the prior year quarter was primarily due to a decrease in acquisition-related expenses.relatively flat. The efficiency ratio, adjusted for non-core items, was 57.2%58.1% for the first quarter of 2023,2024, compared to 55.9%54.8% for the linked quarter and 64.8%57.19% for the first quarter of 2022. The efficiency ratio is typically higher in the first quarter of the year driven by the aforementioned salaries and employee benefit costs, and specifically by higher payroll taxes, employer HSA contributions and stock-based compensation expenses for certain employees.2023. Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.
Peoples recorded income tax expense of $8.3 million with an effective tax rate of 21.8% for the first quarter of 2024, compared to income tax expense of $9.7 million with an effective tax rate of 22.3% for the linked quarter, and income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023, compared to income2023. Income tax expense of $7.1 million with an effective tax rate of 21.0% for the linked quarter, and income tax expense of $6.0 million with an effective tax rate of 20.2% for the first quarter of 2022. The increase in income tax expense for the three months ended March 31, 2023,2024 compared to the three months ended March 31, 2022,linked quarter decreased due to lower pre-tax income. The increase for the first quarter of 2024 compared to the first quarter of 2023, was driven by higher income before income taxes.pre-tax income.
At March 31, 2023,2024, total assets were $7.31$9.27 billion, compared to $7.21$9.16 billion at December 31, 20222023 and $7.24$7.31 billion at March 31, 2022. The $104.2 million increase in total2023. Total assets at March 31, 2024 increased when compared to at December 31, 2022 was2023 primarily due to increases in held-to-maturity investment securities and loansperiod-end total loan and leases, net of deferred fees and costs, partially offset by a decrease in available-for-sale investment securities. Management underwent an initiative during the first quarter of 2023 to sell lower yielding available-for-sale investment securities whose proceeds were used to pay down higher cost funding. Separately, the increase in thelease balances. The period-end total loan and lease balances was primarily driven by increases of (i) $57.5at March 31, 2024 increased $43.6 million, in other commercial real estate loans, (ii) $17.8 million in indirect consumer loans and (iii) $9.5 million in leases, partially offset by a reductions of $14.6 million in construction loans and $10.8 million in residential real estate loans. The $72.3 million increase in total assetsor 3% annualized, compared to at MarchDecember 31, 2022 was largely attributable to increases in loans and leases as well as the aforementioned net increase in investment securities, partially offset by decreases in interest-bearing deposits at other banks.2023. The increase in the period-end loan and lease balances when compared to at March 31, 2022balance was primarily driven by increases of $122.4(i) $46.8 million in other commercial real estate loans, (ii)$35.8 million in premium finance loans, and (iii) $29.6 million in commercial and industrial loans, partially offset by reductions of (a) $49.3 million in construction loans, (b) $16.2 million in indirect consumer loans, and $87.6(c) $15.2 million in leases, partially offsetdirect consumer loans. Total assets at March 31, 2024 increased compared to March 31, 2023 due to $1.46 billion of assets, primarily loans, acquired in the Limestone Merger. Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance at March 31, 2024 increased $499.3 million, or 10%, driven by a reductionincreases of $43.8$198.1 million, $100.6 million, $80.7 million, $68.1 million, $37.3 million, and $23.5 million in residentialother commercial real estate loans.loans, commercial and industrial loans, premium finance loans, leases, construction loans, and home equity lines of credit, respectively.
Total liabilities were $8.21 billion at March 31, 2024, up from $8.10 billion at December 31, 2023 and $6.49 billion at March 31, 2023, up from $6.42 billion at December 31, 2022 and $6.43 billion at March 31, 2022.2023. The increase in total liabilities when compared to at December 31, 20222023 was attributableprimarily due to an increase of $174.3 million in period-end total deposits, and long-term
$87.6 million in short-term borrowings. The increase in period-end total deposits when compared to at December 31, 20222023 was primarily driven by an increaseincreases of $147.6(i) $237.0 million in brokered certificates of deposits, which are primarily used as a source of funding. Excluding the increase in brokered certificates of deposits, total deposits at March 31, 2023 decreased $76.0 million when compared to at December 31, 2022, primarily due to reductions of (i) $75.0retail CDs, (ii) $98.5 million in interest-bearing deposit accounts (ii) $43.9 million in savings accounts,governmental deposits and (iii) $37.9$84.5 million in money market deposit accounts, and (iv) $34.3partially offset by decreases of (a) $99.3 million in non-interest bearing deposit accounts, partially offset by an increase of $91.9(b) $41.8 million in retail certificatesbrokered CDs, (c) $36.6 million in interest-bearing demand deposit accounts, and (d) $17.8 million in savings accounts. The increase in governmental deposit accounts was due to the seasonality of deposit.the balances, which are typically higher in the first quarter each year. The increase in total liabilities when compared to at March 31, 20222023 was primarily due to an$1.35 billion of liabilities, primarily deposits, acquired in the Limestone Merger. Excluding deposits acquired in the Limestone Merger, period-end total deposits at March 31, 2024 increased $784.8 million, or 14%, compared to at March 31, 2023. The increase was primarily driven by increases of $956.9 million in short-term borrowings,retail CDs, $210.3 million in brokered CDs, and $191.2 million in money market deposit accounts, partially offset by decreases in total depositsof $270.9 million, $191.8 million, and long-term borrowings. Deposits decreased primarily due to reductions$158.4 million in non-interest-bearing deposits,deposit accounts, savings accounts, and interest-bearing demand deposit accounts, governmental deposit accounts, and money market deposit accounts of $111.6 million, $94.0 million, $85.5 million and $77.2 million, respectively, partially offset by an increase of $185.8 million in brokered certificates of deposits.respectively.
Total stockholders' equity at March 31, 20232024 increased by $34.2$8.5 million compared to at December 31, 2022,2023, which reflectedwas primarily due to net income for the first quarter of $26.6 million and a decrease in accumulated other comprehensive loss2024 of $16.2$29.6 million, partially offset by dividends paid of $10.7 million.$13.7 million and a $7.4 million increase in accumulated other comprehensive loss. The change in accumulated other comprehensive loss was primarily the result of the changes in the market value of available-for-sale investment securities during the period. Accumulated unrealized losses related to the available-for-sale investment securities portfolio were $112.7$111.8 million and $129.9$104.2 million at March 31, 20232024 and at December 31, 2022,2023, respectively. TotalThe increase in total stockholders' equity at March 31, 2023 increased by $11.2 million2024 when compared to at March 31, 2022, which2023 was primarily due toalso impacted by net income of $104.3$116.4 million in the last twelve months partially offset by an increaseand a decrease in accumulated other comprehensive loss of $48.3$2.0 million, partially offset by dividends paid of $55.1 million and share repurchases of $6.0 million. The increase in accumulated other comprehensive loss was the result of an increase of $51.5 million in unrealized losses related to the available-for-sale investment securities portfolio from March 31, 2022 to March 31, 2023.
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 FTEfully tax-equivalent ("FTE") net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income
using a blended corporate income tax rate of 23.3% for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9% blended corporate income tax rate23.2% for the three months ended March 31, 2022.2024, and 23.3% for the three months ended December 31, 2023 and March 31, 2023.
The following table details the calculation of FTE net interest income:
| | |
| |
| |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Net interest income | |
Net interest income | |
Net interest income | Net interest income | $ | 72,878 | | $ | 70,613 | | $ | 54,310 | | |
Taxable equivalent adjustment | Taxable equivalent adjustment | 399 | | 412 | | 391 | | |
Fully tax-equivalent net interest income | $ | 73,277 | | $ | 71,025 | | $ | 54,701 | | |
Taxable equivalent adjustment | |
Taxable equivalent adjustment | |
FTE net interest income | |
FTE net interest income | |
FTE net interest income | |
The following tables detail Peoples’ average balance sheets for the periods presented:
| | |
| |
| |
| | | For the Three Months Ended | |
| | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Short-term investments | |
Short-term investments | |
Short-term investments | Short-term investments | $ | 35,223 | | $ | 388 | | 4.47 | % | | $ | 44,421 | | $ | 404 | | 3.61 | % | | $ | 332,098 | | $ | 160 | | 0.20 | % | |
| Investment securities (a)(b): | Investment securities (a)(b): | | | |
| Investment securities (a)(b): | |
| Investment securities (a)(b): | |
Taxable | |
Taxable | |
Taxable | Taxable | 1,597,688 | | 11,049 | | 2.77 | % | | 1,459,879 | | 8,376 | | 2.29 | % | | 1,465,998 | | 6,096 | | 1.66 | % | |
Nontaxable | Nontaxable | 190,566 | | 1,298 | | 2.72 | % | | 192,863 | | 1,365 | | 2.83 | % | | 204,381 | | 1,316 | | 2.58 | % | |
Nontaxable | |
Nontaxable | |
Total investment securities | |
Total investment securities | |
Total investment securities | Total investment securities | 1,788,254 | | 12,347 | | 2.76 | % | | 1,652,742 | | 9,741 | | 2.35 | % | | 1,670,379 | | 7,412 | | 1.78 | % | |
Loans (b)(c): | Loans (b)(c): | | | |
Loans (b)(c): | |
Loans (b)(c): | |
Construction | |
Construction | |
Construction | Construction | 239,492 | | 3,963 | | 6.62 | % | | 234,233 | | 3,596 | | 6.01 | % | | 225,676 | | 2,155 | | 3.82 | % | |
Commercial real estate, other | Commercial real estate, other | 1,333,062 | | 19,794 | | 5.94 | % | | 1,293,500 | | 18,431 | | 5.58 | % | | 1,362,434 | | 14,782 | | 4.34 | % | |
Commercial real estate, other | |
Commercial real estate, other | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | 877,391 | | 14,610 | | 6.66 | % | | 885,111 | | 13,455 | | 5.95 | % | | 888,598 | | 8,023 | | 3.61 | % | |
Premium finance | Premium finance | 147,895 | | 2,150 | | 5.81 | % | | 161,382 | | 1,898 | | 4.60 | % | | 132,758 | | 1,164 | | 3.51 | % | |
Premium finance | |
Premium finance | |
Leases | |
Leases | |
Leases | Leases | 342,583 | | 9,643 | | 11.26 | % | | 325,113 | | 8,448 | | 10.17 | % | | 162,277 | | 6,102 | | 15.04 | % | |
Residential real estate (d) | Residential real estate (d) | 839,822 | | 9,717 | | 4.63 | % | | 853,354 | | 9,321 | | 4.37 | % | | 913,730 | | 9,766 | | 4.28 | % | |
Residential real estate (d) | |
Residential real estate (d) | |
Home equity lines of credit | |
Home equity lines of credit | |
Home equity lines of credit | Home equity lines of credit | 176,327 | | 2,966 | | 6.82 | % | | 177,778 | | 2,723 | | 6.08 | % | | 163,339 | | 1,612 | | 4.00 | % | |
Consumer, indirect | Consumer, indirect | 640,359 | | 7,231 | | 4.58 | % | | 612,696 | | 6,834 | | 4.43 | % | | 523,770 | | 5,045 | | 3.91 | % | |
Consumer, indirect | |
Consumer, indirect | |
Consumer, direct | |
Consumer, direct | |
Consumer, direct | Consumer, direct | 108,488 | | 1,739 | | 6.50 | % | | 113,045 | | 1,763 | | 6.19 | % | | 106,298 | | 1,595 | | 6.09 | % | |
Total loans | Total loans | 4,705,419 | | 71,813 | | 6.12 | % | | 4,656,212 | | 66,469 | | 5.62 | % | | 4,478,880 | | 50,244 | | 4.50 | % | |
Total loans | |
Total loans | |
Allowance for credit losses | |
Allowance for credit losses | |
Allowance for credit losses | Allowance for credit losses | (52,669) | | | (52,253) | | | (61,947) | | | |
Net loans | Net loans | 4,652,750 | | 71,813 | | 6.19 | % | | 4,603,959 | | 66,469 | | 5.68 | % | | 4,416,933 | | 50,244 | | 4.56 | % | |
Net loans | |
Net loans | |
Total earning assets | |
Total earning assets | |
Total earning assets | Total earning assets | 6,476,227 | | 84,548 | | 5.23 | % | | 6,301,122 | | 76,614 | | 4.79 | % | | 6,419,410 | | 57,816 | | 3.61 | % | |
Goodwill and other intangible assets | Goodwill and other intangible assets | 325,545 | | | | | 327,377 | | | 304,124 | | | |
Goodwill and other intangible assets | |
Goodwill and other intangible assets | |
Other assets | |
Other assets | |
Other assets | Other assets | 420,692 | | | | | 438,694 | | | 344,282 | | | |
Total assets | Total assets | $ | 7,222,464 | | | | | $ | 7,067,193 | | | $ | 7,067,816 | | | |
Total assets | |
Total assets | |
Interest-bearing deposits: | |
Interest-bearing deposits: | |
Interest-bearing deposits: | Interest-bearing deposits: | | | | |
Savings accounts | Savings accounts | $ | 1,044,392 | | $ | 136 | | 0.05 | % | | $ | 1,069,646 | | $ | 138 | | 0.05 | % | | $ | 1,050,813 | | $ | 34 | | 0.01 | % | |
Savings accounts | |
Savings accounts | |
Governmental deposit accounts | |
Governmental deposit accounts | |
Governmental deposit accounts | Governmental deposit accounts | 637,959 | | 1,066 | | 0.68 | % | | 688,815 | | 710 | | 0.41 | % | | 670,419 | | 447 | | 0.27 | % | |
Interest-bearing demand accounts | Interest-bearing demand accounts | 1,103,966 | | 180 | | 0.07 | % | | 1,152,709 | | 186 | | 0.06 | % | | 1,171,266 | | 92 | | 0.03 | % | |
Interest-bearing demand accounts | |
Interest-bearing demand accounts | |
Money market accounts | Money market accounts | 583,574 | | 825 | | 0.57 | % | | 615,460 | | 522 | | 0.34 | % | | 650,272 | | 97 | | 0.06 | % | |
Retail certificates of deposit | 576,645 | | 1,750 | | 1.23 | % | | 534,145 | | 717 | | 0.53 | % | | 626,978 | | 871 | | 0.56 | % | |
Brokered deposits (e) | 224,325 | | 1,704 | | 3.08 | % | | 87,934 | | 515 | | 2.32 | % | | 91,531 | | 512 | | 2.27 | % | |
Money market accounts | |
Money market accounts | |
Retail CDs | |
Retail CDs | |
Retail CDs | |
Brokered CDs (e) | |
Brokered CDs (e) | |
Brokered CDs (e) | |
Total interest-bearing deposits | |
Total interest-bearing deposits | |
Total interest-bearing deposits | Total interest-bearing deposits | 4,170,861 | | 5,661 | | 0.55 | % | | 4,148,709 | | 2,788 | | 0.27 | % | | 4,261,279 | | 2,053 | | 0.20 | % | |
Borrowed funds: | Borrowed funds: | | | |
Borrowed funds: | |
Borrowed funds: | |
Short-term FHLB advances (e) | |
Short-term FHLB advances (e) | |
Short-term FHLB advances (e) | Short-term FHLB advances (e) | 377,578 | | 4,314 | | 4.63 | % | | 181,946 | | 1,570 | | 3.42 | % | | 55,000 | | 313 | | 2.31 | % | |
Repurchase agreements and other | Repurchase agreements and other | 93,848 | | 143 | | 0.61 | % | | 96,242 | | 99 | | 0.41 | % | | 99,346 | | 25 | | 0.10 | % | |
Repurchase agreements and other | |
Repurchase agreements and other | |
Total short-term borrowings | Total short-term borrowings | 471,426 | | 4,457 | | 3.83 | % | | 278,188 | | 1,669 | | 2.38 | % | | 154,346 | | 338 | | 0.89 | % | |
Total short-term borrowings | |
Total short-term borrowings | |
Long-term FHLB advances | |
Long-term FHLB advances | |
Long-term FHLB advances | Long-term FHLB advances | 34,015 | | 204 | | 2.43 | % | | 34,297 | | 210 | | 2.43 | % | | 85,653 | | 306 | | 1.45 | % | |
| Long-term notes payable | Long-term notes payable | 50,656 | | 653 | | 5.16 | % | | 53,528 | | 661 | | 4.94 | % | | 29,780 | | 298 | | 4.02 | % | |
Trust Preferred | 13,806 | | 296 | | 8.58 | % | | 13,771 | | 261 | | 7.42 | % | | 13,665 | | 120 | | 3.51 | % | |
| Long-term notes payable | |
| Long-term notes payable | |
Other long-term borrowings (f) | |
Other long-term borrowings (f) | |
Other long-term borrowings (f) | |
Total long-term borrowings | |
Total long-term borrowings | |
Total long-term borrowings | Total long-term borrowings | 98,477 | | 1,153 | | 4.69 | % | | 101,596 | | 1,132 | | 4.45 | % | | 129,098 | | 724 | | 2.26 | % | |
Total borrowed funds | Total borrowed funds | 569,903 | | 5,610 | | 3.98 | % | | 379,784 | | 2,801 | | 2.93 | % | | 283,444 | | 1,062 | | 1.51 | % | |
Total borrowed funds | |
Total borrowed funds | |
Total interest-bearing liabilities | |
Total interest-bearing liabilities | |
Total interest-bearing liabilities | Total interest-bearing liabilities | 4,740,764 | | 11,271 | | 0.96 | % | | 4,528,493 | | 5,589 | | 0.49 | % | | 4,544,723 | | 3,115 | | 0.28 | % | |
Non-interest-bearing deposits | Non-interest-bearing deposits | 1,556,636 | | | | 1,639,580 | | | 1,606,665 | | | |
Non-interest-bearing deposits | |
Non-interest-bearing deposits | |
Other liabilities | Other liabilities | 123,599 | | | | | 130,470 | | | 81,676 | | | |
Other liabilities | |
Other liabilities | |
Total liabilities | |
Total liabilities | |
Total liabilities | Total liabilities | 6,420,999 | | | | 6,298,543 | | | 6,233,064 | | | |
| Total stockholders’ equity | Total stockholders’ equity | 801,465 | | | | | 768,650 | | | 834,752 | | | |
| Total stockholders’ equity | |
| Total stockholders’ equity | |
Total liabilities and stockholders’ equity | |
Total liabilities and stockholders’ equity | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 7,222,464 | | | | | $ | 7,067,193 | | | $ | 7,067,816 | | | |
Interest rate spread (b) | Interest rate spread (b) | | $ | 73,277 | | 4.27 | % | | $ | 71,025 | | 4.30 | % | | $ | 54,701 | | 3.33 | % | |
Interest rate spread (b) | |
Interest rate spread (b) | |
Net interest margin (b) | |
Net interest margin (b) | |
Net interest margin (b) | Net interest margin (b) | 4.53 | % | | | 4.44 | % | | | 3.41 | % | |
|
(a)Average balances are based on carrying value.
(b)Interest income and yields are presented on a fully tax-equivalentan FTE basis, using a 23.3% blended corporate income tax rate for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9%23.2% blended corporate income tax rate for the three months ended March 31, 2022.2024, and 23.3% for the three months ended December 31, 2023 and March 31, 2023.
(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 depositsCDs for the periods presented in which FHLB advances and brokered depositsCDs were being utilized.
(f)Included in other long-term borrowings are trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures.
Peoples' average balances compared to prior periods have been impacted by recent acquisitions, including Vantagethe Limestone Merger as of the close of business on March 7, 2022,April 30, 2023, which added to average leaseloan, deposit and borrowed funds balances. Peoples has begun to reducePeoples' cash balances after previously maintaining high cash balances in recent prior periodshave increased primarily due to an influx of deposits.increase in interest-bearing deposits in other banks, mostly with the FRB. The increases in market interest rates have increased asset yields and deposit outflows (which have increased borrowings).
The following table provides an analysis of the changes in FTE net interest income:
| | | Three Months Ended March 31, 2024 Compared to | |
| | Three Months Ended March 31, 2023 Compared to | |
| | Three Months Ended March 31, 2024 Compared to | |
| | Three Months Ended March 31, 2024 Compared to | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | December 31, 2022 | | March 31, 2022 | |
Increase (decrease) in: | Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | |
Increase (decrease) in: | |
Increase (decrease) in: | |
INTEREST INCOME: | INTEREST INCOME: | | |
INTEREST INCOME: | |
INTEREST INCOME: | |
Short-term investments | |
Short-term investments | |
Short-term investments | Short-term investments | $ | 350 | | $ | (366) | | $ | (16) | | | $ | 1,337 | | $ | (1,109) | | $ | 228 | | |
| Investment Securities (b): | Investment Securities (b): | | |
| Investment Securities (b): | |
| Investment Securities (b): | |
Taxable | |
Taxable | |
Taxable | Taxable | 1,837 | | 836 | | 2,673 | | | 4,363 | | 590 | | 4,953 | | |
Nontaxable | Nontaxable | (42) | | (25) | | (67) | | | 320 | | (338) | | (18) | | |
Nontaxable | |
Nontaxable | |
Total investment income | |
Total investment income | |
Total investment income | Total investment income | 1,795 | | 811 | | 2,606 | | | 4,683 | | 252 | | 4,935 | | |
Loans (b): | Loans (b): | | | | | |
Loans (b): | |
Loans (b): | |
Construction | |
Construction | |
Construction | Construction | 300 | | 67 | | 367 | | | 1,669 | | 139 | | 1,808 | | |
Commercial real estate, other | Commercial real estate, other | 927 | | 436 | | 1,363 | | | 7,144 | | (2,132) | | 5,012 | | |
Commercial real estate, other | |
Commercial real estate, other | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | 1,925 | | (770) | | 1,155 | | | 7,288 | | (701) | | 6,587 | | |
Premium finance | Premium finance | 1,134 | | (882) | | 252 | | | 840 | | 146 | | 986 | | |
Premium finance | |
Premium finance | |
Leases | |
Leases | |
Leases | Leases | 795 | | 400 | | 1,195 | | | (9,374) | | 12,915 | | 3,541 | | |
Residential real estate | Residential real estate | 1,245 | | (849) | | 396 | | | 3,167 | | (3,216) | | (49) | | |
Residential real estate | |
Residential real estate | |
Home equity lines of credit | |
Home equity lines of credit | |
Home equity lines of credit | Home equity lines of credit | 393 | | (150) | | 243 | | | 1,217 | | 137 | | 1,354 | | |
Consumer, indirect | Consumer, indirect | 173 | | 224 | | 397 | | | 954 | | 1,232 | | 2,186 | | |
Consumer, indirect | |
Consumer, indirect | |
Consumer, direct | |
Consumer, direct | |
Consumer, direct | Consumer, direct | 301 | | (325) | | (24) | | | 111 | | 33 | | 144 | | |
Total loan income | Total loan income | 7,193 | | (1,849) | | 5,344 | | | 13,016 | | 8,553 | | 21,569 | | |
Total loan income | |
Total loan income | |
Total interest income | |
Total interest income | |
Total interest income | Total interest income | $ | 9,338 | | $ | (1,404) | | $ | 7,934 | | | $ | 19,036 | | $ | 7,696 | | $ | 26,732 | | |
INTEREST EXPENSE: | INTEREST EXPENSE: | | | | | |
INTEREST EXPENSE: | |
INTEREST EXPENSE: | |
Deposits: | |
Deposits: | |
Deposits: | Deposits: | | | | | |
Savings accounts | Savings accounts | $ | 14 | | $ | (16) | | $ | (2) | | | $ | 104 | | $ | (2) | | $ | 102 | | |
Governmental deposit accounts | 694 | | (338) | | 356 | | | 770 | | (151) | | 619 | | |
Savings accounts | |
Savings accounts | |
Interest-bearing demand accounts | |
Interest-bearing demand accounts | |
Interest-bearing demand accounts | Interest-bearing demand accounts | 24 | | (30) | | (6) | | | 124 | | (36) | | 88 | | |
Money market accounts | Money market accounts | 482 | | (179) | | 303 | | | 798 | | (70) | | 728 | | |
Retail certificates of deposit | 974 | | 59 | | 1,033 | | | 1,355 | | (476) | | 879 | | |
Brokered deposits | 206 | | 983 | | 1,189 | | | 236 | | 956 | | 1,192 | | |
Money market accounts | |
Money market accounts | |
Governmental deposit accounts | |
Governmental deposit accounts | |
Governmental deposit accounts | |
Retail CDs | |
Retail CDs | |
Retail CDs | |
Brokered CDs | |
Brokered CDs | |
Brokered CDs | |
Total deposit cost | |
Total deposit cost | |
Total deposit cost | Total deposit cost | 2,394 | | 479 | | 2,873 | | | 3,387 | | 221 | | 3,608 | | |
Borrowed funds: | Borrowed funds: | | | | | |
Borrowed funds: | |
Borrowed funds: | |
Short-term borrowings | |
Short-term borrowings | |
Short-term borrowings | Short-term borrowings | 738 | | 2,050 | | 2,788 | | | 715 | | 3,404 | | 4,119 | | |
Long-term borrowings | Long-term borrowings | 217 | | (196) | | 21 | | | 1,047 | | (618) | | 429 | | |
Long-term borrowings | |
Long-term borrowings | |
Total borrowed funds cost | |
Total borrowed funds cost | |
Total borrowed funds cost | Total borrowed funds cost | 955 | | 1,854 | | 2,809 | | | 1,762 | | 2,786 | | 4,548 | | |
Total interest expense | Total interest expense | 3,349 | | 2,333 | | 5,682 | | | 5,149 | | 3,007 | | 8,156 | | |
Fully tax-equivalent net interest income | $ | 5,989 | | $ | (3,737) | | $ | 2,252 | | | $ | 13,887 | | $ | 4,689 | | $ | 18,576 | | |
Total interest expense | |
Total interest expense | |
FTE net interest income | |
FTE net interest income | |
FTE net interest income | |
(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-equivalentan FTE basis, using a 23.3% blended corporate income tax rate for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9%23.2% blended corporate income tax rate for the three months ended March 31, 2022.2024, and 23.3% for the three months ended December 31, 2023 and March 31, 2023.
Compared to the linked quarter, net interest income increased 3%decreased $1.7 million, or 2.0%. Net interest margin was 4.27% for the first quarter of 2024, compared to 4.44% for the linked quarter. The decreases in net interest income and net interest margin expanded by 9 basis points. Both increases were primarily driven by 50 basis points of improvement in loan yields due to recent increasesa decrease in market interest rates and a shift inaccretion income, net of amortization, from our acquisitions as well as excess cash on hand during the compositionfirst quarter of the loan portfolio into higher-yielding leases, which resulted in 41 basis points of improvement in investment yields when compared to the linked quarter due to purchases of investment securities with higher interest rates and sales of lower-yielding investment securities. Borrowing costs increased 105 basis points as a result of increase in short-term borrowings due to utilizing overnight FHLB advances and brokered certificates of deposits in recent quarters.2024 for liquidity purposes.
Net interest income for the first quarter of 2024 grew 34%18.9% over the prior year quarter and net interest margin increaseddecreased by 11226 basis points. The increase in net interest income compared to the first quarter of 20222023 was driven by increases in market interest rates, and a full quarter of income from the Vantage acquisition. Compared to the prior year quarter, loan yields grew 162 basis points due to the rising interest rate environment and both acquisitiveLimestone Merger, and organic growth, while borrowing costs increased 247 basis points as a result of increasegrowth. The decrease in short-term borrowings due to the utilization of FHLB overnight advances mentioned above.
Peoples recognized interest income on deferred loan fees/costs associated with PPP loans of $1.2 million during the first quarter of 2022 along with $154,000 of interest earned on PPP loans. The interest income recognized on PPP loans added 5 basis points to net interest margin for the first quarter of 2022. The deferred loan fees/costs associated with PPP loans and interest earned on PPP loans were minimal for2024 compared to the first quarter of 2023, and the linked quarter.was driven primarily by an increase in interest expense on deposits.
Accretion income, net of amortization expense, from acquisitions was $6.6 million for the first quarter of 2024, $9.0 million for the linked quarter and $2.0 million for the first quarter of 2023, $2.2 million for the linked quarter and $2.7 million for the first quarter of 2022, which added 1332 basis points, 1445 basis points and 1713 basis points, respectively, to net interest margin. The decreasesdecrease in accretion income for the first quarter of 20232024, when compared to the linked quarter andwas driven by a fourth quarter 2023 true-up to the preliminary Limestone-related accretion. The increase in accretion income for the first quarter of 2022 were driven by less loan accretion due2024 compared to lower pay-offs and lessthe first quarter of 2023 was a result of accretion from the merger with Premier and the Vantage acquisition.Limestone Merger.
Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this MD&A. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this MD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."
Provision for (Recovery of) Credit Losses
The following table details Peoples’ provision for (recovery of) credit losses:
| | |
| |
| |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
Provision for (recovery of) other credit losses | $ | 1,673 | | $ | 2,023 | | $ | (7,006) | | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Provision for other credit losses | |
Provision for other credit losses | |
Provision for other credit losses | |
Provision for checking account overdraft credit losses | Provision for checking account overdraft credit losses | 180 | | 278 | | 199 | | |
Provision for (recovery of) credit losses | $ | 1,853 | | $ | 2,301 | | $ | (6,807) | | |
Provision for checking account overdraft credit losses | |
Provision for checking account overdraft credit losses | |
Provision for credit losses | |
Provision for credit losses | |
Provision for credit losses | |
As a percentage of average total loans (a) | |
As a percentage of average total loans (a) | |
As a percentage of average total loans (a) | As a percentage of average total loans (a) | 0.16 | % | 0.20 | % | (0.62) | % | |
(a) Presented on an annualized basis. | (a) Presented on an annualized basis. | | |
(a) Presented on an annualized basis. | |
(a) Presented on an annualized basis. | |
The provision for (recovery of) credit losses recorded represents the amount needed to maintain the appropriate level of the allowance for credit losses based on management’s quarterly estimates. The provisionsprovision for credit losses for the first quarter of 2024 was driven by (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The provision for credit losses for the first quarter of 2023 and the linked quarter werewas largely attributable to a deterioration of macro-economic conditions and an increase in charge-off activity, partially offset by a reduction in reserves for individually analyzed loans.
During the first quarter of 2022, Peoples recorded a recovery of credit losses of $6.8 million due to an improvement in the economic forecast, along with payoffs of several loans during the quarter, which were partially offset by $0.4 million for the establishment of an allowance for credit losses for the non-purchased credit deteriorated leases from the Vantage acquisition.
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) GainLoss Included in Total Non-Interest Income
Net (loss) gainloss includes net losses and net gains on investment securities, asset disposals and other transactions, which are recognized in total non-interest income. The following table details Peoples’ net losses and net gains for the periods presented:
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| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
Net (loss) gain on investment securities | $ | (1,935) | | $ | (168) | | $ | 130 | | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Net loss on investment securities | |
Net loss on investment securities | |
Net loss on investment securities | |
| Net loss on asset disposals and other transactions: | |
| Net loss on asset disposals and other transactions: | |
| Net loss on asset disposals and other transactions: | Net loss on asset disposals and other transactions: | | |
Net loss on other assets | Net loss on other assets | $ | (229) | | $ | (278) | | $ | (22) | | |
Net loss on other assets | |
Net loss on other assets | |
Net loss on OREO | |
Net loss on OREO | |
Net loss on OREO | Net loss on OREO | (10) | | — | | (1) | | |
| Net loss on other transactions | Net loss on other transactions | (7) | | (23) | | (104) | | |
| Net loss on other transactions | |
| Net loss on other transactions | |
Net loss on asset disposals and other transactions | Net loss on asset disposals and other transactions | $ | (246) | | $ | (301) | | $ | (127) | | |
Net loss on asset disposals and other transactions | |
Net loss on asset disposals and other transactions | |
The net loss on investment securities inDuring the firstfourth quarter of 2023, due to a $2.0 million pre-tax net loss onPeoples executed the sale of $36.5 million of lower yielding available-for-sale investment securities. Proceeds from the available-for-salesales were used to purchase higher yielding agency investment securities. During the first quarter of 2023, Peoples executed the salesales of $96.7 million of its lower yielding available-for-sale securities which were used to pay down overnight borrowings. The loss on the salesales of the available-for-sale investment securities had a nominal impact on tangible book value as such loss was previously reflected in capital through accumulated other comprehensive loss. The realized losses recognized due to these transactions are projected to be earned back within the 2023 fiscal year.
The net loss on asset disposals and other transactions decreased slightly in the first quarter of 2023 when compared to the linked quarter and increased when compared to the prior year quarter. The net loss for the first quarter of 2023 was primarily due to net losses on furniture2024 and fixture disposals. The net loss for the linked quarter was primarily due to net losses on other assets, which was mainly due to$0.3 million of net losses on repossessed assets.
During the first three months of 2022, Peoples sold several investment securities, resulting in a net gain on investment securities, which was offset by a net loss on other transactions primarily driven by an adjustment to the gain on sale of loans recognized in the fourth quarter of 2022, and was driven by changes to the acquisition-date fair value of loans acquired in the merger with Premier that were subsequently sold.
Total Non-Interest Income, Excluding Net Gains and Losses
Total non-interest income, excluding net gains and losses, comprised 23% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the first quarter of 2023, compared to 22%2024, for the linked quarter, and 27%the for the prior year quarter. The increase in this ratio compared to the linked quarter was due to an increase in insurance income due to seasonal performance-based commissions being earned in the first quarter of each year. The decline in this ratio compared to the prior year quarter was primarily due to higher net interest income associated with a full quarter of income from the acquisition of Vantage coupled with the increases in the market interest rates.2023.
For the first quarter of 2023, electronic banking2024, insurance income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. The following table details Peoples' insurance income:
| | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2024 | December 31, 2023 | March 31, 2023 | | |
(Dollars in thousands) | | | |
| | | | | | |
| | | | | | |
Property and casualty insurance commissions | $ | 3,585 | | $ | 3,655 | | $ | 3,252 | | | | |
| | | | | | |
| | | | | | |
Performance-based commissions | 2,213 | | 32 | | 1,527 | | | | |
Life and health insurance commissions | 614 | | 582 | | 564 | | | | |
Other fees and charges | 86 | | 68 | | 82 | | | | |
Insurance income | $ | 6,498 | | $ | 4,337 | | $ | 5,425 | | | | |
| | | | | | |
Peoples' insurance income for the first quarter of 2024 increased $2.2 million when compared to linked quarter. This increase in insurance income was due to seasonal performance-based commissions being paid, which are annual in nature and typically occur in the first quarter of each year. Insurance income for the first quarter of 2024 increased $1.1 million when compared to first quarter of 2023, primarily due to new business and market increases for premiums.
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 customers. The following table details Peoples' e-banking income:
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| |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
| E-banking income | E-banking income | $ | 5,443 | | $ | 5,161 | | $ | 5,253 | | |
| E-banking income | |
| E-banking income | |
Peoples' e-banking income is derived largely from ATM and debit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income is largely dependent on the timing and volume of customer activity. E-banking income increaseddecreased for the first quarter of 2024 compared to each of the linked quarter and the prior year quarter primarily due to moredriven by a decrease in customer activity.
The following table details Peoples' insurance income:
| | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2023 | December 31, 2022 | March 31, 2022 | | |
(Dollars in thousands) | | | |
| | | | | | |
| | | | | | |
Property and casualty insurance commissions | $ | 3,252 | | $ | 3,127 | | $ | 2,862 | | | | |
| | | | | | |
| | | | | | |
Performance-based commissions | 1,527 | | 4 | | 1,346 | | | | |
Life and health insurance commissions | 564 | | 511 | | 452 | | | | |
Other fees and charges | 82 | | 90 | | 71 | | | | |
Insurance income | $ | 5,425 | | $ | 3,732 | | $ | 4,731 | | | | |
| | | | | | |
During the first quarter of 2023, Peoples' insurance income grew 45% when compared to the linked quarter. This increase in insurance income was due to seasonal performance-based commissions being earned, which are annual in nature and typically occur in the first quarter of each year. Compared to the first quarter of 2022, insurance income increased 15% and was driven by higher performance-based property and casualty insurance 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 table details Peoples’ trust and investment income:
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| |
| |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Fiduciary income | |
Fiduciary income | |
Fiduciary income | Fiduciary income | $ | 1,805 | | $ | 1,792 | | $ | 1,965 | | |
Brokerage income | Brokerage income | 1,627 | | 1,485 | | 1,649 | | |
Brokerage income | |
Brokerage income | |
Employee benefit fees | |
Employee benefit fees | |
Employee benefit fees | Employee benefit fees | 652 | | 638 | | 662 | | |
Trust and investment income | Trust and investment income | $ | 4,084 | | $ | 3,915 | | $ | 4,276 | | |
Trust and investment income | |
Trust and investment income | |
Fiduciary income and brokerage income increased slightly in the currentfirst quarter of 2024 relative to the linked quarter due to market volatility. When compared to the first quarter of 2023, fiduciary income and brokerage income increased, which was driven by an increase in fiduciary income due to an increase in assets under administration and management. When compared to the first quarter of 2022, trust and investment income declined due to less fiduciary income, primarily due to market volatility.
The following table details Peoples' assets under administration and management:
| | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) |
| Trust | |
Trust | |
Trust | Trust | $ | 1,803,887 | | $ | 1,764,639 | | $ | 1,682,334 | | $ | 1,731,454 | | $ | 1,927,828 | |
Brokerage | Brokerage | 1,318,300 | | 1,211,868 | | 1,127,831 | | 1,068,261 | | 1,152,530 | |
Total | Total | $ | 3,122,187 | | $ | 2,976,507 | | $ | 2,810,165 | | $ | 2,799,715 | | $ | 3,080,358 | |
Quarterly average | Quarterly average | $ | 3,076,285 | | $ | 2,965,985 | | $ | 2,844,181 | | $ | 2,927,405 | | $ | 3,106,021 | |
The increases in assets under administration and management at March 31, 2023,2024 compared to at December 31, 2022 and March 31, 20222023 were driven by market value fluctuationsfluctuations. The increases in assets under administration and a $30 million increasemanagement at March 31, 2024 when compared to at March 31, 2023 were primarily due to increases in brokerage income, as Peoples added new accounts and the underlying market values of assets due to an acquisition of an independent financial advisor in January of 2023.under management grew.
Deposit account service charges are based on the recovery of costs associated with services provided. The following table details Peoples' deposit account service charges:
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| |
| |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Overdraft and non-sufficient funds fees | |
Overdraft and non-sufficient funds fees | |
Overdraft and non-sufficient funds fees | Overdraft and non-sufficient funds fees | $ | 1,842 | | $ | 2,170 | | $ | 1,902 | | |
Account maintenance fees | Account maintenance fees | 1,461 | | 1,352 | | 1,311 | | |
Account maintenance fees | |
Account maintenance fees | |
Other fees and charges | |
Other fees and charges | |
Other fees and charges | Other fees and charges | 220 | | 244 | | 213 | | |
Deposit account service charges | Deposit account service charges | $ | 3,523 | | $ | 3,766 | | $ | 3,426 | | |
Deposit account service charges | |
Deposit account service charges | |
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 decreased
for the currentfirst quarter of 2024 compared to the linked quarter due to a decline in overdraft and non-sufficient funds fees.seasonality of customer activity. Deposit account service charges increased slightly forwhen comparing the currentfirst quarter comparedof 2024 to the prior yearfirst quarter of 2023 due to the Limestone Merger and increased maintenance fee rates.
The following table details the other items included within Peoples' total non-interest income:
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| |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
| Other non-interest income | |
| Other non-interest income | |
| Other non-interest income | |
Bank owned life insurance income | |
Bank owned life insurance income | |
Bank owned life insurance income | |
Lease income | Lease income | 1,077 | | 1,336 | | 775 | | |
Bank owned life insurance income | 707 | | 702 | | 431 | | |
Lease income | |
Lease income | |
Mortgage banking income | Mortgage banking income | 314 | | 281 | | 436 | | |
Other non-interest income | 668 | | 611 | | 719 | | |
Mortgage banking income | |
Mortgage banking income | |
The decrease in other non-interest income when comparing the three months ended March 31, 2024 to the linked quarter was primarily due to an excess recovery of a previously charged-off loan. The increase in other non-interest income for the first quarter of 2024 when compared to the first quarter of 2023 was driven by increased operating lease income.
Bank owned life insurance income for the first quarter of 2024 increased compared to the linked quarter primarily due to a $0.5 million death benefit. Bank owned life insurance income for the first quarter of 2024 increased when compared to the first quarter of 2023, due to the additional insurance policies acquired in the Limestone Merger.
Lease income is primarily comprised of (i) gains on the early termination of leases, net of any associated purchase accounting adjustments, (ii) month-to-month lease payments in excess of net investment in the lease, net of any associated purchase accounting adjustment (iii) fees received for referrals, (iii)(iv) gains and losses recognized on the sales of residual assets and (iv)(v) syndication income. The first quarter of 20232024 decrease in lease income when compared to the linked quarter was due to seasonal fluctuationsa large lease buyout in syndication income, as the fourth quarter of each year typically has a higher volume of originations. The first quarter of 2023 increase in lease income when compared to the first quarter of 2022 was due to a full quarter of income from the Vantage acquisition in 2023 versus only a month of income in 2022.
Bank owned life insurance income for the current quarter was relatively flat compared to the linked quarter and increased when compared to the same 2022 period. The first quarter of 2023 increase in bank owned life insurance income when compared to the first quarter of 2022 was due to an additional $30.0 million of investments in bank owned life insurance policies during the second quarter of 2022.2023.
Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage banking income for the currentfirst quarter of 2024 was relatively flat when compared to the linked quarter. Mortgage banking income declined for the current year quarter compared toeach of the prior year quarter due to the increased market interest rate environment in recent quarters and a lower volume of new loan originations.periods.
In the first quarter of 2023,2024, Peoples sold $0.8$0.2 million in loans tointo the secondary market with servicing retained and $7.4$6.9 million in loans with servicing released, compared to $2.5 million$26,000 and $9.5$7.9 million, respectively, in the fourth quarter of 2022,2023, and $7.2$0.8 million and $7.9$7.4 million, respectively, in the first quarter of 2022.2023.
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:
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| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Base salaries and wages | Base salaries and wages | $ | 20,332 | | $ | 19,747 | | $ | 17,676 | | |
Base salaries and wages | |
Base salaries and wages | |
Sales-based and incentive compensation | |
Sales-based and incentive compensation | |
Sales-based and incentive compensation | |
Employee benefits | Employee benefits | 4,115 | | 3,372 | | 3,621 | | |
Sales-based and incentive compensation | 3,945 | | 5,284 | | 3,636 | | |
Employee benefits | |
Employee benefits | |
Payroll taxes and other employment costs | |
Payroll taxes and other employment costs | |
Payroll taxes and other employment costs | Payroll taxes and other employment costs | 2,370 | | 1,591 | | 2,091 | | |
Stock-based compensation | Stock-based compensation | 2,189 | | 832 | | 1,605 | | |
Stock-based compensation | |
Stock-based compensation | |
Deferred personnel costs | |
Deferred personnel costs | |
Deferred personnel costs | Deferred personnel costs | (923) | | (2,068) | | (900) | | |
Salaries and employee benefit costs | Salaries and employee benefit costs | $ | 32,028 | | $ | 28,758 | | $ | 27,729 | | |
Salaries and employee benefit costs | |
Salaries and employee benefit costs | |
Full-time equivalent employees: | |
Full-time equivalent employees: | |
Full-time equivalent employees: | Full-time equivalent employees: | | | | |
Actual at end of period | Actual at end of period | 1,286 | | 1,267 | | 1,245 | | |
Actual at end of period | |
Actual at end of period | |
Average during the period | Average during the period | 1,283 | | 1,261 | | 1,215 | | |
Average during the period | |
Average during the period | |
Base salaries and wages for the currentfirst quarter of 2024 increased compared to the linked quarter primarily due to annual merit increases. The current quarter increase compared to the prior yearfirst quarter of 2023 was primarily driven by a risethe additional employees added in annual merit increasesthe Limestone Merger as well as a full quarter of expenses related to the additional salaries associated with the acquisition of Vantage.
The increases in employee benefits for the current quarter compared to the linked quarter, was primarily due to annual contributions to employee health savings accounts that occur primarily in the first quarter of each year. The increase in employee
benefits for the current quarter compared to the first quarter of 2022 was due to higher medical costs reflecting a full quarter of expenses in 2023 for the Vantage employees versus a month of expenses in the first quarter of 2022.merit increases.
The decrease in sales-based and incentive compensation for the currentfirst quarter of 2024 compared to the linked quarter was primarily due to $1.3 million of Vantage-related sales-based incentive compensation. Sales-based and incentive compensation increased in the first quarter of 2024 when compared to the prior year quarter due to overall company performance measures used in calculating retail incentive awards.
The decrease in employee benefits for the first quarter of 2024 compared to the linked quarter and the first quarter of 2023 was primarily due to decreased medical costs.
Payroll taxes and other employment costs for the first quarter of 2024 increased compared to the priorlinked quarter and the first quarter of 20222024 and were primarily related to higher base salaries and wages. Also impacting the increase in payroll taxes and other employment costs when compared to the linked quarter were seasonal expenses recognized in the first quarter of each year.2023 were the additional employees added in the Limestone Merger.
Stock-based compensation is generally recognized over the vesting period, which generally ranges from immediate vesting to vesting at the end of three years. An adjustment is made at the vesting date to reverse expense relating to forfeitures for performance awards, and at the date of forfeiture to reverse expense for non-vested restricted common share awards. 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, and are generally contingent on employment through the vesting period. Stock-based compensation for the first three monthsquarter of 20232024 increased when compared to the fourth quarter of 2023 and the first three months of 20222023 due to additional employees, including the ones added in the acquisition of Vantage.Limestone Merger.
Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of deferred personnel costs for each period corresponds directly with the volume of loan originations, coupled with the average deferred costs per loan that are updated annually at the beginning of each year. The decrease in deferredDeferred personnel costs for the currentfirst quarter of 2024 remained relatively flat when compared to both the linkedfourth quarter was primarily due to a prior period adjustment of costs to originate leases.2023 and the first quarter of 2023.
Peoples' net occupancy and equipment expense was comprised of the following:
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| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Depreciation | |
Depreciation | |
Depreciation | Depreciation | $ | 1,790 | | $ | 1,700 | | $ | 1,823 | | |
Repairs and maintenance costs | Repairs and maintenance costs | 1,261 | | 1,364 | | 1,378 | | |
Repairs and maintenance costs | |
Repairs and maintenance costs | |
Property taxes, utilities and other costs | |
Property taxes, utilities and other costs | |
Property taxes, utilities and other costs | Property taxes, utilities and other costs | 1,157 | | 1,014 | | 1,202 | | |
Net rent expense | Net rent expense | 747 | | 769 | | 685 | | |
Net rent expense | |
Net rent expense | |
Net occupancy and equipment expense | Net occupancy and equipment expense | $ | 4,955 | | $ | 4,847 | | $ | 5,088 | | |
Net occupancy and equipment expense | |
Net occupancy and equipment expense | |
The first quarter of 20232024 net occupancy and equipment expense increased slightly when compared to the linked quarter due to increases in depreciation and property taxes, utilities and other costs, partially offset by reductions in repairs and maintenance costs and neta prior period one time benefit to rent expense. WhenThe first quarter of 2024 net occupancy and equipment expense increased when compared to the first quarter of 2022,2023 due to additional net occupancy and equipment expense decreased due to less depreciation, repairs and maintenance costs and property taxes, utilities and other costs due to having less geographic locations as offrom the first quarter of 2023.Limestone Merger.
The following table details the other items included in total non-interest expense:
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| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | (Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Data processing and software expense | |
Data processing and software expense | |
Data processing and software expense | Data processing and software expense | $ | 4,562 | | $ | 5,013 | | $ | 2,916 | | |
Professional fees | Professional fees | 2,881 | | 3,310 | | 3,672 | | |
Professional fees | |
Professional fees | |
Amortization of other intangible assets | |
Amortization of other intangible assets | |
Amortization of other intangible assets | Amortization of other intangible assets | 1,871 | | 1,998 | | 1,708 | | |
E-banking expense | E-banking expense | 1,491 | | 1,097 | | 2,759 | | |
Franchise tax expense | 1,034 | | 546 | | 764 | | |
Marketing expense | 930 | | 737 | | 995 | | |
E-banking expense | |
E-banking expense | |
FDIC insurance premiums | |
FDIC insurance premiums | |
FDIC insurance premiums | FDIC insurance premiums | 801 | | 781 | | 1,194 | | |
Other loan expenses | Other loan expenses | 739 | | 947 | | 832 | | |
Other loan expenses | |
Other loan expenses | |
Marketing expense | |
Marketing expense | |
Marketing expense | |
Franchise tax expense | |
Franchise tax expense | |
Franchise tax expense | |
Communication expense | |
Communication expense | |
Communication expense | Communication expense | 613 | | 611 | | 625 | | |
Other non-interest expense | Other non-interest expense | 4,574 | | 4,721 | | 3,347 | | |
Other non-interest expense | |
Other non-interest expense | |
Data processing and software expenses for the first quarter 2024 decreased compared to the linked quarter due to $0.6 million of acquisition-related expense increasedin the linked quarter. The increase for the first quarter 2024 when compared to the first quarter of 2022,2023 was driven by software upgrades and implementation of new systems, coupled with the increased size of Peoples' organization.
Professional fees decreased for the currentfirst quarter compared to the comparative periods due to less acquisition-related expenses being reported when compared to those periods.
Amortization of other intangible assets for the current quarter2024 decreased when compared to the linked quarter due to decreased amortizationless acquisition-related expenses. Professional fees for the first quarter of 2024 was relatively flat when compared to the first quarter of 2023.
Amortization of other intangible assets recognized as a resultfor the first quarter of recent acquisitions.2024 decreased when compared to the linked quarter due to additional expenses attributable to the Limestone Merger during the fourth quarter of 2023. Amortization of other intangible assets for the current quarter increased when compared to the first quarter of 20222023 due to amortization of intangible assets recognized in the Vantage acquisition.Limestone Merger during the first quarter of 2023.
Peoples' e-banking expense is comprised of costs associated with debit and ATM cards, as well as Internet and mobilecards. The decrease in electronic banking costs. E-banking expense increased during the current quarterincome compared to the linked quarter and is correlated to e-banking income, which also increased from the linked quarter primarilywas due to morea decline in customer activity. E-banking expense decreasedincreased for the first quarter of 20232024 when compared to the first quarter of 20222023 due to a declineadditional customers brought in customer activityfrom the Limestone Merger.
Peoples' FDIC insurance premiums for the first quarter of 2024 were relatively flat when compared to last year.the linked quarter. FDIC insurance premiums for the first quarter of 2024 increased when compared to the first quarter of 2023 due to organic and acquisitive growth and an increase in rates assessed by the FDIC.
Other loan expenses during the first quarter of 2024 increased when compared to the respective prior comparative periods primarily due to increases in miscellaneous loan and collection expenses.
Marketing expense for the first quarter of 2024 decreased when compared to the linked quarter due to lower advertising expense. Marketing expense for the first quarter of 2024 increased when compared to the first quarter of 2023 due to higher donations.
Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end. The increase versus the linked quarter was driven by a refund receiveddecrease in the linked quarter. The increase from the first quarter of 2022 was driven by recent growth through acquisitions and organic means.
Marketingfranchise tax expense increased for the first quarter of 20232024 when compared to the linked quarter primarily due to higher media advertising expenses and donations compared to the prior period.
Peoples' FDIC insurance premiums decreased for the current quarter compared to the first quarter of 2022 due to an adjustment2023 was driven by a lower apportionment in Ohio.
Other non-interest expense for the first quarter of 2022 relating to prior acquisitions.
Other loan expenses during the first three months of 20232024 decreased when compared to the linked quarter primarily due to lower indirect lending volume and decreased collectiona decrease in postage expense.
Other non-interest expense increased during The increase for the currentfirst quarter of 2024 when compared to the first quarter of 2022 due to an2023 was driven by the increase in acquisition-related expenses related to the Limestone Merger.depreciation expense for operating leases.
Income Tax Expense
Peoples recorded income tax expense of $8.3 million with an effective tax rate of 21.8% for the first quarter of 2024, compared to income tax expense of $9.7 million with an effective tax rate of 22.3% for the linked quarter and income tax expense of $7.0 million with an effective tax rate of 21.0% for the first quarter of 2023, compared to income tax expense of $7.1 million with an effective tax rate of 21.0% for the linked quarter and income tax expense of $6.0 million with an effective tax rate of 20.2% for the first quarter of 2022. Income tax expense for the first quarter of 2023, compared to the linked quarter, was relatively flat due to similar income before income taxes.2023. The increasedecrease in income tax expense for the three months ended March 31, 2023,when compared to the three months ended March 31, 2022,fourth quarter of 2023 was driven by a higher income before income taxes.primarily due to lower pre-tax income.
Additional information regarding income taxes can be found in "Note 13. Income Taxes" of the Notes to the Consolidated Financial Statements included in Peoples' 20222023 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 | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Pre-provision net revenue: | |
Pre-provision net revenue: | |
Pre-provision net revenue: | |
Income before income taxes | |
Income before income taxes | |
Income before income taxes | |
Add: provision for credit losses | |
Add: provision for credit losses | |
Add: provision for credit losses | |
| Add: loss on OREO | |
| Add: loss on OREO | |
| Add: loss on OREO | |
Add: loss on investment securities | |
Add: loss on investment securities | |
Add: loss on investment securities | |
Add: loss on other assets | |
Add: loss on other assets | |
Add: loss on other assets | |
Add: loss on other transactions | |
Add: loss on other transactions | |
Add: loss on other transactions | |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | |
Pre-provision net revenue: | | |
Income before income taxes | $ | 33,606 | | $ | 33,980 | | $ | 29,538 | | |
Add: provision for credit losses | 1,853 | | 2,301 | | — | | |
| Add: loss on OREO | 10 | | — | | 1 | | |
Add: loss on investment securities | 1,935 | | 168 | | — | | |
Add: loss on other assets | 229 | | 278 | | 22 | | |
Add: loss on other transactions | 7 | | 23 | | 104 | | |
| Less: recovery of credit losses | — | | — | | 6,807 | | |
Less: gain on investment securities | — | | — | | 130 | | |
Pre-provision net revenue | |
| Pre-provision net revenue | |
| | Pre-provision net revenue | Pre-provision net revenue | $ | 37,640 | | $ | 36,750 | | $ | 22,728 | | |
| Total average assets | Total average assets | $7,222,464 | $7,067,193 | $7,067,816 | |
| Total average assets | |
| Total average assets | |
| Pre-provision net revenue to total average assets (annualized) | |
| Pre-provision net revenue to total average assets (annualized) | |
| Pre-provision net revenue to total average assets (annualized) | Pre-provision net revenue to total average assets (annualized) | 2.11 | % | 2.06 | % | 1.30 | % | |
Weighted-average common shares outstanding - diluted | Weighted-average common shares outstanding - diluted | 28,021,879 | 27,981,656 | 28,129,131 | |
Weighted-average common shares outstanding - diluted | |
Weighted-average common shares outstanding - diluted | |
Pre-provision net revenue per common share - diluted | Pre-provision net revenue per common share - diluted | $ | 1.34 | | $ | 1.31 | | $ | 0.81 | | |
Pre-provision net revenue per common share - diluted | |
Pre-provision net revenue per common share - diluted | |
The increasedecrease in the PPNR for the first quarter of 2024 compared to the fourth quarter of 2023 was driven by decreased net interest income and lower accretion income. The increase in PPNR for the first quarter of 2024 when compared to the first quarter of 20222023 was driven by
due to increased net interest income reflecting the positive impact of recent increases in marketthe additional net interest rates as well as a provision for credit losses inincome from Limestone customers after the first quarter of 2023 compared to the recovery of credit losses in the first quarter of 2022.Limestone Merger.
Core Non-Interest Expense (Non-US GAAP)
Core non-interest expense is a financial measure used to evaluate Peoples' recurring expense stream. This measure is Non-US GAAP since it excludes the impact of all acquisition-related expenses, pension settlement charges and COVID-19-related expenses.
The following table provides a reconciliation of this Non-US GAAP measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | |
Core non-interest expense: | |
Core non-interest expense: | |
Core non-interest expense: | |
Total non-interest expense | |
Total non-interest expense | |
Total non-interest expense | |
| Less: acquisition-related expenses | |
| Less: acquisition-related expenses | |
| Less: acquisition-related expenses | |
| | | Three Months Ended | |
| | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
(Dollars in thousands) | |
| Core non-interest expense: | | |
Total non-interest expense | $ | 56,479 | | $ | 53,366 | | $ | 51,629 | | |
| Less: acquisition-related expenses | 551 | | 702 | | 1,373 | | |
Less: pension settlement charges | — | | 46 | | — | | |
| Less: COVID-19-related expenses | — | | 2 | | 94 | | |
| Core non-interest expense | Core non-interest expense | $ | 55,928 | | $ | 52,616 | | $ | 50,162 | | |
| Core non-interest expense | |
| Core non-interest expense | |
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-equivalentFTE 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-equivalentFTE 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 | |
| March 31, 2023 | December 31, 2022 | March 31, 2022 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
| Efficiency ratio: | Efficiency ratio: | | |
| Efficiency ratio: | |
| Efficiency ratio: | |
Total non-interest expense | |
Total non-interest expense | |
Total non-interest expense | Total non-interest expense | $ | 56,479 | | $ | 53,366 | | $ | 51,629 | | |
Less: amortization of other intangible assets | Less: amortization of other intangible assets | 1,871 | | 1,998 | | 1,708 | | |
Less: amortization of other intangible assets | |
Less: amortization of other intangible assets | |
Adjusted total non-interest expense | |
Adjusted total non-interest expense | |
Adjusted total non-interest expense | Adjusted total non-interest expense | 54,608 | | 51,368 | | 49,921 | | |
| Total non-interest income | Total non-interest income | 19,060 | | 19,034 | | 20,050 | | |
| Less: net (loss) gain on investment securities | (1,935) | | (168) | | 130 | | |
Total non-interest income | |
| Total non-interest income | |
| Less: net loss on investment securities | |
| Less: net loss on investment securities | |
| Less: net loss on investment securities | |
Less: net loss on asset disposals and other transactions | Less: net loss on asset disposals and other transactions | (246) | | (302) | | (127) | | |
Total non-interest income excluding net gains and losses | 21,241 | | 19,504 | | 20,047 | | |
Less: net loss on asset disposals and other transactions | |
Less: net loss on asset disposals and other transactions | |
Total non-interest income excluding net losses | |
Total non-interest income excluding net losses | |
Total non-interest income excluding net losses | |
| Net interest income | Net interest income | 72,878 | | 70,613 | | 54,310 | | |
Add: fully tax-equivalent adjustment (a) | 399 | | 412 | | 391 | | |
Net interest income on a fully tax-equivalent basis | 73,277 | | 71,025 | | 54,701 | | |
| Net interest income | |
| Net interest income | |
Add: FTE adjustment (a) | |
Add: FTE adjustment (a) | |
Add: FTE adjustment (a) | |
Net interest income on an FTE basis | |
Net interest income on an FTE basis | |
Net interest income on an FTE basis | |
Adjusted revenue | Adjusted revenue | $ | 94,518 | | $ | 90,529 | | $ | 74,748 | | |
Adjusted revenue | |
Adjusted revenue | |
Efficiency ratio | |
Efficiency ratio | |
Efficiency ratio | Efficiency ratio | 57.78 | % | 56.74 | % | 66.79 | % | |
| Efficiency ratio adjusted for non-core items: | 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 | |
Core non-interest expense | Core non-interest expense | $ | 55,928 | | $ | 52,616 | | $ | 50,162 | | |
Less: amortization of other intangible assets | Less: amortization of other intangible assets | 1,871 | | 1,998 | | 1,708 | | |
Less: amortization of other intangible assets | |
Less: amortization of other intangible assets | |
Adjusted core non-interest expense | Adjusted core non-interest expense | 54,057 | | 50,618 | | 48,454 | | |
Non-interest income excluding net gains and losses | 21,241 | | 19,504 | | 20,047 | | |
Net interest income on a fully tax-equivalent basis | 73,277 | | 71,025 | | 54,701 | | |
Adjusted core non-interest expense | |
Adjusted core non-interest expense | |
Non-interest income excluding net losses | |
Non-interest income excluding net losses | |
Non-interest income excluding net losses | |
Net interest income on an FTE basis | |
Net interest income on an FTE basis | |
Net interest income on an FTE basis | |
Adjusted revenue | |
Adjusted revenue | |
Adjusted revenue | Adjusted revenue | $ | 94,518 | | $ | 90,529 | | $ | 74,748 | | |
Efficiency ratio adjusted for non-core items | Efficiency ratio adjusted for non-core items | 57.19 | % | 55.91 | % | 64.82 | % | |
Efficiency ratio adjusted for non-core items | |
Efficiency ratio adjusted for non-core items | |
(a) Tax effect is calculated using a 23.3% blended corporate income tax rate for each of the three months ended March 31, 2023 and December 31, 2022, and a 22.9%23.2% blended corporate income tax rate for the three months ended March 31, 2022.2024, and a 23.3% blended corporate income tax rate for the three months ended December 31, 2023 and March 31, 2023.
The efficiency ratio andincreased compared to the linked quarter mainly as the result of an increase of interest expense on deposits. The efficiency ratio compared to the prior year quarter was relatively flat. The efficiency ratio, adjusted for non-core items, was 58.1% for the first quarter of 2023 increased when2024, compared to 54.9% for the linked quarter, primarily due toand 57.2% for the increases in non-interest expenses due to seasonal first quarter of 2023. Peoples continues to focus on controlling expenses, partially offset by higher net interest income driven by increaseswhile recognizing necessary costs in order to continue growing the market interest rates. The improvements in the efficiency ratio and the efficiency ratio adjusted for non-core items compared to the prior year quarter were driven by higher net interest income due to increases in market interest rates over the last twelve months.business.
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 and acquisition-related expenses, pension settlement charges and COVID-19-related expenses.
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 | |
| March 31, 2023 | December 31, 2022 | March 31, 2022 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
| Annualized net income adjusted for non-core items: | Annualized net income adjusted for non-core items: | |
| Annualized net income adjusted for non-core items: | |
| Annualized net income adjusted for non-core items: | |
Net income | |
Net income | |
Net income | Net income | $ | 26,560 | | $ | 26,849 | | $ | 23,577 | | |
| Add: net loss on investment securities | Add: net loss on investment securities | 1,935 | | 168 | | — | | |
| Add: net loss on investment securities | |
| Add: net loss on investment securities | |
Less: tax effect of net loss on investment securities (a) | Less: tax effect of net loss on investment securities (a) | 406 | | 35 | | — | | |
Less: net gain on investment securities | — | | — | | 130 | | |
Add: tax effect of net gain on investment securities (a) | — | | — | | 27 | | |
Less: tax effect of net loss on investment securities (a) | |
Less: tax effect of net loss on investment securities (a) | |
| Add: net loss on asset disposals and other transactions | Add: net loss on asset disposals and other transactions | 246 | | 302 | | 127 | | |
| Add: net loss on asset disposals and other transactions | |
| Add: net loss on asset disposals and other transactions | |
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) | |
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) | 52 | | 63 | | 27 | | |
| Add: acquisition-related expenses | Add: acquisition-related expenses | 551 | | 702 | | 1,373 | | |
Less: tax effect of acquisition-related expenses (a) | 116 | | 147 | | 288 | | |
Add: pension settlement charges | — | | 46 | | — | | |
Less: tax effect of pension settlement charges (a) | — | | 10 | | — | | |
| Add: COVID-19-related expenses | — | | 2 | | 94 | | |
Less: tax effect of COVID-19-related expenses (a) | — | | — | | 20 | | |
| Add: acquisition-related expenses | |
| Add: acquisition-related expenses | |
Less: tax effect of acquisition-related expenses (a) | |
Less: tax effect of acquisition-related expenses (a) | |
Less: tax effect of acquisition-related expenses (a) | |
| Net income adjusted for non-core items (after tax) | |
| Net income adjusted for non-core items (after tax) | |
| | Net income adjusted for non-core items (after tax) | Net income adjusted for non-core items (after tax) | $ | 28,718 | | 27,814 | | 24,733 | | |
Days in the period | Days in the period | 90 | | 92 | | 90 | | |
Days in the period | |
Days in the period | |
Days in the year | |
Days in the year | |
Days in the year | Days in the year | 365 | | 365 | | 365 | | |
Annualized net income | Annualized net income | $ | 107,716 | | $ | 106,520 | | $ | 95,618 | | |
Annualized net income | |
Annualized net income | |
Annualized net income adjusted for non-core items (after tax) | |
Annualized net income adjusted for non-core items (after tax) | |
Annualized net income adjusted for non-core items (after tax) | Annualized net income adjusted for non-core items (after tax) | $ | 116,467 | | $ | 110,349 | | $ | 100,306 | | |
Return on average assets: | Return on average assets: | | |
Return on average assets: | |
Return on average assets: | |
Annualized net income | |
Annualized net income | |
Annualized net income | Annualized net income | $ | 107,716 | | $ | 106,520 | | $ | 95,618 | | |
Total average assets | Total average assets | 7,222,464 | | 7,067,193 | | 7,067,816 | | |
Total average assets | |
Total average assets | |
Return on average assets | |
Return on average assets | |
Return on average assets | Return on average assets | 1.49 | % | 1.51 | % | 1.35 | % | |
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: | |
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) | |
Annualized net income adjusted for non-core items (after tax) | Annualized net income adjusted for non-core items (after tax) | $ | 116,467 | | $ | 110,349 | | $ | 100,306 | | |
Total average assets | Total average assets | 7,222,464 | | 7,067,193 | | 7,067,816 | | |
Total average assets | |
Total average assets | |
Return on average assets adjusted for non-core items (after tax) | Return on average assets adjusted for non-core items (after tax) | 1.61 | % | 1.56 | % | 1.42 | % | |
Return on average assets adjusted for non-core items (after tax) | |
Return on average assets adjusted for non-core items (after tax) | |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average assets adjusted for non-core items for the currentfirst quarter of 2024 decreased slightly when compared to the linked quarter, due to a decrease in annualized net income resulting from lower net interest income, partially offset by an increase in average assets.assets resulting from the excess cash held on balance sheet as well as increases in non-interest expenses. The increasedecrease in the return on average assets adjusted for non-core items for the first quarter of 2023,2024, compared to the first quarter of 2022,2023, was attributable to higheran increase in annualized net income primarily due to an increase in net interest income, and non-interest income, which were drivenpartially offset by the increasesassets acquired in market interest rates.the Limestone Merger and an increase in expenses.
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 | |
| March 31, 2023 | December 31, 2022 | March 31, 2022 | |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
(Dollars in thousands) | |
(Dollars in thousands) | |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | March 31, 2022 | |
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: | |
Annualized net income excluding amortization of other intangible assets: | |
Net income | |
Net income | |
Net income | Net income | $ | 26,560 | | $ | 26,849 | | $ | 23,577 | | |
Add: amortization of other intangible assets | Add: amortization of other intangible assets | 1,871 | | 1,998 | | 1,708 | | |
Add: amortization of other intangible assets | |
Add: amortization of other intangible assets | |
Less: tax effect of amortization of other intangible assets (a) | |
Less: tax effect of amortization of other intangible assets (a) | |
Less: tax effect of amortization of other intangible assets (a) | Less: tax effect of amortization of other intangible assets (a) | 393 | | 420 | | 359 | | |
Net income excluding amortization of other intangible assets | Net income excluding amortization of other intangible assets | $ | 28,038 | | $ | 28,427 | | $ | 24,926 | | |
Net income excluding amortization of other intangible assets | |
Net income excluding amortization of other intangible assets | |
Days in the period | |
Days in the period | |
Days in the period | Days in the period | 90 | | 92 | | 90 | | |
Days in the year | Days in the year | 365 | | 365 | | 365 | | |
Days in the year | |
Days in the year | |
Annualized net income | |
Annualized net income | |
Annualized net income | Annualized net income | $ | 107,716 | | $ | 106,520 | | $ | 95,618 | | |
Annualized net income excluding amortization of other intangible assets | Annualized net income excluding amortization of other intangible assets | $ | 113,710 | | $ | 112,781 | | $ | 101,089 | | |
Annualized net income excluding amortization of other intangible assets | |
Annualized net income excluding amortization of other intangible assets | |
Average tangible equity: | |
Average tangible equity: | |
Average tangible equity: | Average tangible equity: | | |
Total average stockholders' equity | Total average stockholders' equity | $ | 801,465 | | $ | 768,650 | | $ | 834,752 | | |
Total average stockholders' equity | |
Total average stockholders' equity | |
Less: average goodwill and other intangible assets | |
Less: average goodwill and other intangible assets | |
Less: average goodwill and other intangible assets | Less: average goodwill and other intangible assets | 325,545 | | 327,377 | | 304,124 | | |
Average tangible equity | Average tangible equity | $ | 475,920 | | $ | 441,273 | | $ | 530,628 | | |
Average tangible equity | |
Average tangible equity | |
Return on total average stockholders' equity ratio: | |
Return on total average stockholders' equity ratio: | |
Return on total average stockholders' equity ratio: | Return on total average stockholders' equity ratio: | | |
Annualized net income | Annualized net income | $ | 107,716 | | $ | 106,520 | | $ | 95,618 | | |
Annualized net income | |
Annualized net income | |
Total average stockholders' equity | |
Total average stockholders' equity | |
Total average stockholders' equity | Total average stockholders' equity | $ | 801,465 | | $ | 768,650 | | $ | 834,752 | | |
Return on total average stockholders' equity | Return on total average stockholders' equity | 13.44 | % | 13.86 | % | 11.45 | % | |
Return on total average stockholders' equity | |
Return on total average stockholders' equity | |
Return on average tangible equity ratio: | |
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 | $ | 113,710 | | $ | 112,781 | | $ | 101,089 | | |
Annualized net income excluding amortization of other intangible assets | |
Annualized net income excluding amortization of other intangible assets | |
Average tangible equity | |
Average tangible equity | |
Average tangible equity | Average tangible equity | $ | 475,920 | | $ | 441,273 | | $ | 530,628 | | |
Return on average tangible equity | Return on average tangible equity | 23.89 | % | 25.56 | % | 19.05 | % | |
Return on average tangible equity | |
Return on average tangible equity | |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on total average stockholders' equity and average tangible equity ratios were lower in the current quarter relativedecreased when compared to the linked quarter due to issuance of treasury stock for employee stock awardsa decrease in annualized net income mainly attributable to a decrease in net interest income and an increase in non-interest expense. The decreases in the return on total average stockholders' equity and average tangible equity ratios in the first quarter of 2024 when compared to the same period of 2023 were due to the issuance of 6.8 million common shares as well as decreasesconsideration in accumulated other comprehensive losses on available-for-sale investment securities,the Limestone Merger, an increase in acquisition-related expenses, partially offset by an increase in total net interest income driven by the recent2023 increases in market interest rates. The return on total average stockholders' equityrates and average tangible equity ratios were higher inadditional net interest income from Limestone following the current quarter when compared to the same 2022 period due to greater accumulated other comprehensive losses on available-for-sale investment securities in 2023, which reduced average tangible equity.Limestone Merger.
FINANCIAL CONDITION
Cash and Cash Equivalents
At March 31, 2023,2024, Peoples' interest-bearing deposits in other banks had increased $0.7$10.9 million from December 31, 2022.2023. The total cash and cash equivalents balance included $53.7$318.5 million of excess cash reserves being maintained at the FRB of Cleveland at March 31, 2023,2024, compared to $33.1$309.8 million at December 31, 2022.2023. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances.
Through the first three months of 2023,2024, Peoples' total cash and cash equivalents increased $3.1$3.0 million, as Peoples had $48.0which reflected cash inflows of $37.0 million of cash provided by operating activities and $45.1$89.1 million of cash provided by financing activities, substantiallymostly offset by $90.0cash outflows of $123.1 million of cash used in investing activities. Peoples' cash used in investing activities reflected net cash outflows from held-to-maturity investment securities of $133.8 million and cash outflows from a $52.4 million net increase in loans held for investment, partially offset by net cash inflows from available-for-sale investment securities of $100.4 million. The cash provided by financing activities was largely driven by a $106.0$273.6 million net increase in interest-bearing deposits and $26.8 million of proceeds from long-term borrowings, partially offset by net cash outflows of $34.3 million, $11.0 million and $9.5 million from a net decrease in non-interest-bearingnon-interest bearing deposits of $99.3 million and a net decrease in short-term borrowings of $87.6 million. Peoples' use of cash dividends paid,in investing activities reflected a net cash outflow from available-for-sale investment securities of $78.7 million and payments on long-term borrowings, respectively. Peoples paid $82.9a $43.3 million net increase in cashloans held for the Vantage acquisition during the first quarter of 2022.investment.
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) | Weighted Average Yield | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | Weighted Average Yield | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
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 | 1.54 | % | $ | 58,438 | | $ | 152,422 | | $ | 172,055 | | $ | 175,255 | | $ | 167,406 | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 2.10 | % | 98,311 | | 88,115 | | 80,915 | | 82,465 | | 80,654 | |
States and political subdivisions | States and political subdivisions | 2.19 | % | 224,996 | | 225,882 | | 230,022 | | 249,402 | | 231,644 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1.83 | % | 605,270 | | 604,653 | | 624,061 | | 691,735 | | 753,353 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 1.58 | % | 52,153 | | 50,049 | | 52,504 | | 58,301 | | 58,112 | |
Bank-issued trust preferred securities | Bank-issued trust preferred securities | 5.38 | % | 10,329 | | 10,278 | | 10,287 | | 10,440 | | 10,670 | |
| Total fair value | Total fair value | | $ | 1,049,497 | | $ | 1,131,399 | | $ | 1,169,844 | | $ | 1,267,598 | | $ | 1,301,839 | |
| Total fair value | |
| Total fair value | |
Total amortized cost | Total amortized cost | | $ | 1,196,521 | | $ | 1,300,719 | | $ | 1,349,800 | | $ | 1,389,621 | | $ | 1,381,259 | |
Net unrealized loss | Net unrealized loss | | $ | (147,024) | | $ | (169,320) | | $ | (179,956) | | $ | (122,023) | | $ | (79,420) | |
Held-to-maturity securities, at amortized cost: | Held-to-maturity securities, at amortized cost: | |
Obligations of: | Obligations of: | |
Obligations of: | |
Obligations of: | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | |
U.S. government sponsored agencies | U.S. government sponsored agencies | 4.61 | % | $ | 194,184 | | $ | 132,366 | | $ | 59,871 | | $ | 50,990 | | $ | 38,486 | |
States and political subdivisions (a) | States and political subdivisions (a) | 2.23 | % | 144,844 | | $ | 145,022 | | 145,252 | | 151,034 | | 151,217 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 3.83 | % | 245,294 | | 176,215 | | 111,707 | | 112,095 | | 115,613 | |
Commercial mortgage-backed securities | Commercial mortgage-backed securities | 2.49 | % | 109,750 | | 106,609 | | 90,971 | | 86,601 | | 79,340 | |
Total amortized cost | Total amortized cost | | $ | 694,072 | | $ | 560,212 | | $ | 407,801 | | $ | 400,720 | | $ | 384,656 | |
Other investment securities | Other investment securities | | $ | 52,763 | | $ | 51,609 | | $ | 39,039 | | $ | 41,655 | | $ | 41,840 | |
Total investment securities: | Total investment securities: | |
Amortized cost | Amortized cost | | $ | 1,943,356 | | $ | 1,912,540 | | $ | 1,796,640 | | $ | 1,831,996 | | $ | 1,807,755 | |
Amortized cost | |
Amortized cost | |
Carrying value | Carrying value | | $ | 1,796,332 | | $ | 1,743,220 | | $ | 1,616,684 | | $ | 1,709,973 | | $ | 1,728,335 | |
| |
(a)Amortized cost is presented net of the allowance for credit losses of $238 at March 31, 2024 and at December 31, 2023, and $241 at March 31, 2023, $241 at December 31, 2022 and $286 at March 31, 2022.2023.
For the first quarter of 2023,2024, total investment securities increased compared to the priorlinked quarter, largely due to investments made in held-to-maturity residential mortgage-backed securities and obligationspurchases of U.S.higher yielding government sponsored agencies, inagency securities which were used to collateralize certain government deposits. During the fourth quarter of 2023, Peoples executed the sales of $36.5 million of lower yielding available-for-sale investment securities for an effortafter-tax loss of $1.3 million. Proceeds from the sales were used to improvepurchase higher yielding agency investment yields and reduce risk, partially offset by the reduction in available-for-sale securities. During the first quarter of 2023, Peoples executed the salesales of $96.7 million of its lower yielding available-for-sale securities for an after-tax loss of $1.6 million. Proceeds from the salesales were used to pay down overnight borrowings. The realized losses recognized due to thesethe first
quarter of 2023 transactions are projected to bewere earned back within the 2023 fiscal year.
2023 transactions are expected to be earned back within 14 months of the transaction dates. 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 and Leases
The following table provides information regarding outstanding loan balances:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Originated loans: | |
Originated loans and leases: | | Originated loans and leases: | |
Construction | Construction | $ | 222,915 | | $ | 212,869 | | $ | 175,388 | | $ | 144,062 | | $ | 171,934 | |
Commercial real estate, other | Commercial real estate, other | 995,176 | | 919,531 | | 891,576 | | 899,774 | | 854,721 | |
Commercial real estate | Commercial real estate | 1,218,091 | | 1,132,400 | | 1,066,964 | | 1,043,836 | | 1,026,655 | |
Commercial and industrial | Commercial and industrial | 840,194 | | 835,178 | | 814,593 | | 777,050 | | 791,307 | |
Premium finance | Premium finance | 158,263 | | 159,197 | | 167,682 | | 152,237 | | 145,813 | |
Leases | Leases | 251,711 | | 226,438 | | 178,083 | | 149,894 | | 97,168 | |
Residential real estate | Residential real estate | 386,964 | | 384,262 | | 381,104 | | 373,010 | | 364,989 | |
Home equity lines of credit | Home equity lines of credit | 132,531 | | 132,093 | | 124,524 | | 115,935 | | 107,414 | |
Consumer, indirect | Consumer, indirect | 647,177 | | 629,426 | | 592,309 | | 563,088 | | 524,778 | |
Consumer, direct | Consumer, direct | 99,299 | | 98,706 | | 99,282 | | 95,371 | | 87,994 | |
Consumer | Consumer | 746,476 | | 728,132 | | 691,591 | | 658,459 | | 612,772 | |
Deposit account overdrafts | Deposit account overdrafts | 749 | | 722 | | 597 | | 851 | | 699 | |
Total originated loans | $ | 3,734,979 | | $ | 3,598,422 | | $ | 3,425,138 | | $ | 3,271,272 | | $ | 3,146,817 | |
Acquired loans (a): | |
Total originated loans and leases | |
Acquired loans and leases (a): | |
Construction | |
Construction | |
Construction | Construction | $ | 9,381 | | $ | 34,072 | | $ | 40,233 | | $ | 58,526 | | $ | 66,371 | |
Commercial real estate, other | Commercial real estate, other | 485,886 | | 503,987 | | 531,903 | | 560,249 | | 602,511 | |
Commercial real estate | Commercial real estate | 495,267 | | 538,059 | | 572,136 | | 618,775 | | 668,882 | |
Commercial and industrial | Commercial and industrial | 50,945 | | 57,456 | | 62,879 | | 81,402 | | 95,844 | |
Premium finance | — | | — | | — | | — | | — | |
| Leases | |
Leases | |
Leases | Leases | 102,930 | | 118,693 | | 134,764 | | 164,628 | | 169,900 | |
Residential real estate | Residential real estate | 325,638 | | 339,098 | | 352,257 | | 369,995 | | 391,440 | |
Home equity lines of credit | Home equity lines of credit | 41,852 | | 45,765 | | 50,001 | | 53,400 | | 54,874 | |
Consumer, indirect | — | | — | | — | | — | | — | |
| Consumer, direct | Consumer, direct | 8,107 | | 9,657 | | 14,032 | | 16,433 | | 19,396 | |
Consumer | 8,107 | | 9,657 | | 14,032 | | 16,433 | | 19,396 | |
Total acquired loans | $ | 1,024,739 | | $ | 1,108,728 | | $ | 1,186,069 | | $ | 1,304,633 | | $ | 1,400,336 | |
Total loans | $ | 4,759,718 | | $ | 4,707,150 | | $ | 4,611,207 | | $ | 4,575,905 | | $ | 4,547,153 | |
Consumer, direct | |
Consumer, direct | |
| Total acquired loans and leases | |
Total acquired loans and leases | |
Total acquired loans and leases | |
Total loans and leases | |
| Percent of loans to total loans: | | |
Percent of loans and leases to total loans and leases: | |
| Percent of loans and leases to total loans and leases: | |
| Percent of loans and leases to total loans and leases: | |
Construction | |
Construction | |
Construction | Construction | 4.9 | % | 5.2 | % | 4.7 | % | 4.4 | % | 5.2 | % | 5.1 | % | 5.9 | % | 6.1 | % | 7.0 | % | 4.9 | % |
Commercial real estate, other | Commercial real estate, other | 31.1 | % | 30.2 | % | 30.9 | % | 32.0 | % | 32.1 | % | Commercial real estate, other | 36.2 | % | 35.7 | % | 36.0 | % | 34.8 | % | 31.1 | % |
Commercial real estate | Commercial real estate | 36.0 | % | 35.4 | % | 35.6 | % | 36.4 | % | 37.3 | % | Commercial real estate | 41.3 | % | 41.6 | % | 42.1 | % | 41.8 | % | 36.0 | % |
Commercial and industrial | Commercial and industrial | 18.7 | % | 19.0 | % | 19.0 | % | 18.8 | % | 19.5 | % | Commercial and industrial | 19.6 | % | 19.2 | % | 18.6 | % | 19.4 | % | 18.7 | % |
Premium finance | Premium finance | 3.3 | % | 3.4 | % | 3.6 | % | 3.3 | % | 3.2 | % | Premium finance | 3.8 | % | 3.3 | % | 3.1 | % | 2.7 | % | 3.3 | % |
Leases | Leases | 7.4 | % | 7.3 | % | 6.8 | % | 6.9 | % | 5.9 | % | Leases | 6.8 | % | 6.7 | % | 6.6 | % | 6.3 | % | 7.4 | % |
Residential real estate | Residential real estate | 15.0 | % | 15.4 | % | 15.9 | % | 16.2 | % | 16.6 | % | Residential real estate | 12.6 | % | 12.9 | % | 13.0 | % | 13.2 | % | 15.0 | % |
Home equity lines of credit | Home equity lines of credit | 3.7 | % | 3.8 | % | 3.8 | % | 3.7 | % | 3.6 | % | Home equity lines of credit | 3.6 | % | 3.4 | % | 3.4 | % | 3.3 | % | 3.7 | % |
Consumer, indirect | Consumer, indirect | 13.6 | % | 13.4 | % | 12.8 | % | 12.3 | % | 11.5 | % | Consumer, indirect | 10.5 | % | 10.8 | % | 11.0 | % | 11.0 | % | 13.6 | % |
Consumer, direct | Consumer, direct | 2.3 | % | 2.3 | % | 2.5 | % | 2.4 | % | 2.4 | % | Consumer, direct | 1.8 | % | 2.1 | % | 2.2 | % | 2.3 | % | 2.3 | % |
Consumer | Consumer | 15.9 | % | 15.7 | % | 15.3 | % | 14.7 | % | 13.9 | % | Consumer | 12.3 | % | 12.9 | % | 13.2 | % | 13.3 | % | 15.9 | % |
| Total percentage | Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Total percentage | |
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 | $ | 384,005 | | $ | 392,364 | | $ | 400,736 | | $ | 410,007 | | $ | 420,024 | |
|
(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-endThe period-end total loan and lease balances at March 31, 20232024 increased $52.6$43.6 million, or 4%3% annualized, compared to at December 31, 2022.2023. The increase in the period-end loan and lease balance at March 31, 2024 compared to December 31, 2023 was primarily driven by increases of (i) $46.8 million in other commercial real estate loans, (ii) $35.8 million in premium finance loans and
(iii) $29.6 million in commercial and industrial loans, partially offset by decreases of (a) $49.3 million in construction loans, (b) $16.2 million in indirect consumer loans and (c) $15.2 million in direct consumer loans. The increase in the period-end loan and lease balances at March 31, 2024 compared to at March 31, 2023 was primarily driven by loans acquired in the Limestone Merger totaling $1.1 billion. Excluding the loans acquired in the Limestone Merger, the period-end loan and lease balance increased $499.3 million, or 10%, driven by increases of (i) $57.5$198.1 million, $100.6 million, $80.7 million, $68.1 million, $37.3 million, and $23.5 million in other commercial real estate loans, (ii) $17.8 million in indirect consumercommercial and industrial loans, and (iii) $9.5 million inpremium finance loans, leases, partially offset by a reductions of $14.6 million in construction loans, and $10.8 million in residential real estate loans. The increasehome equity lines of $212.6 million in the period-end loancredit, respectively.
and lease balances when compared to March 31, 2022 was primarily driven by increases of $122.4 million in indirect consumer loans and $87.6 million in leases, partially offset by a reduction of $43.8 million in residential real estate loans. The increases in the period-end loan and lease balances when compared to the prior periods was due to growth. The reduction in the period-end residential real estate loans balance when compared to all comparative prior periods was due to a lower inventory of homes for sale.
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 March 31, 2023:2024:
| (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: | |
Apartment complexes | $ | 120,995 | | $ | 179,179 | | $ | 300,174 | | 64.1 | % |
Mixed-use facilities | 19,478 | | 4,787 | | 24,265 | | 5.2 | % |
Assisted living facilities and nursing homes | 16,385 | | 5,226 | | 21,611 | | 4.6 | % |
Land only | 21,690 | | 8,081 | | 29,771 | | 6.4 | % |
Office buildings and complexes | 12,301 | | 4,158 | | 16,459 | | 3.5 | % |
| Industrial | 6,734 | | 4,047 | | 10,781 | | 2.3 | % |
| | Construction: | |
| Construction: | | |
Apartment complexes | | Apartment complexes | $ | 180,949 | | $ | 202,623 | | $ | 383,572 | | 59.8 | % |
Residential property | | Residential property | 19,607 | | 32,085 | | 51,692 | | 8.1 | % |
Land development | | Land development | 36,985 | | 14,583 | | 51,568 | | 8.0 | % |
Land only | | Land only | 24,612 | | 7,674 | | 32,286 | | 5.0 | % |
Assisted living facilities and nursing homes | | Assisted living facilities and nursing homes | 1,408 | | 19,672 | | 21,080 | | 3.3 | % |
| Lodging and lodging related | |
| Lodging and lodging related | |
| Lodging and lodging related | | 3,578 | | 16,456 | | 20,034 | | 3.1 | % |
Industrial | | Industrial | 10,619 | | 5,287 | | 15,906 | | 2.5 | % |
| Student housing | |
Student housing | |
Student housing | | 10,107 | | 4,893 | | 15,000 | | 2.4 | % |
| Other (a) | |
| Other (a) | |
| Other (a) | Other (a) | 34,713 | | 30,391 | | 65,104 | | 13.9 | % | 26,822 | | 23,223 | 23,223 | | 50,045 | 50,045 | | 7.8 | 7.8 | % |
Total construction | Total construction | $ | 232,296 | | $ | 235,869 | | $ | 468,165 | | 100.0 | % | Total construction | $ | 314,687 | | $ | 326,496 | | $ | 641,183 | | 100.0 | 100.0 | % |
(a) All other total exposures by industry are less than 2% of the Total Exposure.
| (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: | |
Apartment complexes | | Apartment complexes | $ | 345,711 | | $ | 3,495 | | $ | 349,206 | | 15.1 | % |
Retail facilities: | |
Owner occupied | |
Owner occupied | |
Owner occupied | | $ | 56,251 | | $ | 1,399 | | $ | 57,650 | | 2.5 | % |
Non-owner occupied | | Non-owner occupied | 243,285 | | 905 | | 244,190 | | 10.6 | % |
Total retail facilities | | Total retail facilities | $ | 299,536 | | $ | 2,304 | | $ | 301,840 | | 13.1 | % |
Light industrial facilities: | | Light industrial facilities: | | | | |
Owner occupied | | Owner occupied | $ | 144,172 | | $ | 2,927 | | $ | 147,099 | | 6.4 | % |
Non-owner occupied | | Non-owner occupied | 97,301 | | 4,594 | | 101,895 | | 4.4 | % |
Total light industrial facilities | | Total light industrial facilities | $ | 241,473 | | $ | 7,521 | | $ | 248,994 | | 10.8 | % |
Office buildings and complexes: | Office buildings and complexes: | | | Office buildings and complexes: | | | | |
Owner occupied | Owner occupied | $ | 61,296 | | $ | 1,943 | | $ | 63,239 | | 4.0 | % | Owner occupied | $ | 84,118 | | $ | 3,598 | | $ | 87,716 | | 3.8 | 3.8 | % |
Non-owner occupied | Non-owner occupied | 90,954 | | 3,846 | | 94,800 | | 6.1 | % | Non-owner occupied | 132,981 | | 8,292 | 8,292 | | 141,273 | 141,273 | | 6.1 | 6.1 | % |
Total office buildings and complexes | Total office buildings and complexes | 152,250 | | 5,789 | | 158,039 | | 10.1 | % | Total office buildings and complexes | $ | 217,099 | | $ | 11,890 | | $ | 228,989 | | 9.9 | 9.9 | % |
Retail facilities: | |
Lodging and lodging related: | |
Owner occupied | |
Owner occupied | |
Owner occupied | Owner occupied | 39,551 | | 1,480 | | 41,031 | | 2.6 | % | $ | 30,235 | | $ | — | | $ | 30,235 | | 1.3 | 1.3 | % |
Non-owner occupied | Non-owner occupied | 144,979 | | 4,008 | | 148,987 | | 9.5 | % | Non-owner occupied | 124,559 | | — | — | | 124,559 | 124,559 | | 5.4 | 5.4 | % |
Total retail facilities | 184,530 | | 5,488 | | 190,018 | | 12.1 | % |
Total lodging and lodging related | | Total lodging and lodging related | $ | 154,794 | | $ | — | | $ | 154,794 | | 6.7 | % |
Assisted living facilities and nursing homes | | Assisted living facilities and nursing homes | $ | 140,712 | | $ | 5,167 | | $ | 145,879 | | 6.3 | % |
Warehouse facilities: | |
Owner occupied | |
Owner occupied | |
Owner occupied | | $ | 41,361 | | $ | 592 | | $ | 41,953 | | 1.8 | % |
Non-owner occupied | | Non-owner occupied | 44,530 | | 128 | | 44,658 | | 1.9 | % |
Total warehouse facilities | | Total warehouse facilities | $ | 85,891 | | $ | 720 | | $ | 86,611 | | 3.7 | % |
Restaurant/bar facilities: | |
Owner occupied | |
Owner occupied | |
Owner occupied | | $ | 40,747 | | $ | 20 | | $ | 40,767 | | 1.8 | % |
Non-owner occupied | | Non-owner occupied | 35,427 | | — | | 35,427 | | 1.5 | % |
Total restaurant/bar facilities | | Total restaurant/bar facilities | $ | 76,174 | | $ | 20 | | $ | 76,194 | | 3.3 | % |
Mixed-use facilities: | Mixed-use facilities: | |
Owner occupied | |
Owner occupied | |
Owner occupied | Owner occupied | 44,518 | | 550 | | 45,068 | | 2.9 | % | $ | 37,696 | | $ | 1,233 | | $ | 38,929 | | 1.7 | 1.7 | % |
Non-owner occupied | Non-owner occupied | 60,932 | | 1,323 | | 62,255 | | 4.0 | % | Non-owner occupied | 27,130 | | 1,586 | 1,586 | | 28,716 | 28,716 | | 1.2 | 1.2 | % |
Total mixed-use facilities | Total mixed-use facilities | 105,450 | | 1,873 | | 107,323 | | 6.9 | % | Total mixed-use facilities | $ | 64,826 | | $ | 2,819 | | $ | 67,645 | | 2.9 | 2.9 | % |
Apartment complexes | 112,419 | | 37,757 | | 150,176 | | 9.6 | % |
Light industrial facilities: | | |
Education services: | |
Owner occupied | Owner occupied | 92,338 | | 2,726 | | 95,064 | | 6.1 | % |
Non-owner occupied | 47,983 | | 3,055 | | 51,038 | | 3.2 | % |
Total light industrial facilities | 140,321 | | 5,781 | | 146,102 | | 9.3 | % |
Assisted living facilities and nursing homes | 62,701 | | 5,151 | | 67,852 | | 4.3 | % |
Warehouse facilities: | |
Owner occupied | Owner occupied | 36,307 | | 1,285 | | 37,592 | | 2.3 | % |
Non-owner occupied | 27,590 | | 241 | | 27,831 | | 1.8 | % |
Total warehouse facilities | 63,897 | | 1,526 | | 65,423 | | 4.1 | % |
Lodging and lodging related: | |
Owner occupied | 28,859 | | 661 | | 29,520 | | 1.9 | % |
Non-owner occupied | 79,821 | | 1 | | 79,822 | | 5.1 | % |
Total lodging and lodging related | 108,680 | | 662 | | 109,342 | | 7.0 | % |
Education services: | |
Owner occupied | Owner occupied | 18,148 | | — | | 18,148 | | 1.2 | % | $ | 16,279 | | $ | — | | $ | 16,279 | | 0.7 | 0.7 | % |
Non-owner occupied | Non-owner occupied | 31,734 | | 5,523 | | 37,257 | | 2.4 | % | Non-owner occupied | 29,749 | | 4,000 | 4,000 | | 33,749 | 33,749 | | 1.5 | 1.5 | % |
Total education services | Total education services | 49,882 | | 5,523 | | 55,405 | | 3.6 | % | Total education services | $ | 46,028 | | $ | 4,000 | | $ | 50,028 | | 2.2 | 2.2 | % |
Healthcare facilities: | |
Owner occupied | 21,855 | | 300 | | 22,155 | | 1.4 | % |
Non-owner occupied | 9,518 | | — | | 9,518 | | 0.6 | % |
Total healthcare facilities | 31,373 | | 300 | | 31,673 | | 2.0 | % |
Restaurant/bar facilities: | |
Owner occupied | 28,715 | | 9 | | 28,724 | | 1.8 | % |
Non-owner occupied | 10,464 | | 248 | | 10,712 | | 0.7 | % |
Total restaurant/bar facilities | 39,179 | | 257 | | 39,436 | | 2.5 | % |
Land only | |
Owner occupied | 6,143 | | 339 | | 6,482 | | 0.4 | % |
Non-owner occupied | 32,257 | | — | | 32,257 | | 2.1 | % |
Total land only | 38,400 | | 339 | | 38,739 | | 2.5 | % |
| Other (a) | |
| Other (a) | |
| | Other (a) | Other (a) | 430,380 | | 15,645 | | 446,025 | | 28.5 | % | 571,536 | | 31,808 | 31,808 | | 603,344 | 603,344 | | 26.0 | 26.0 | % |
Total commercial real estate, other | Total commercial real estate, other | $ | 1,481,062 | | $ | 85,752 | | $ | 1,566,814 | | 100.0 | % | Total commercial real estate, other | $ | 2,243,780 | | $ | 69,744 | | $ | 2,313,524 | | 100.0 | 100.0 | % |
|
(a) All other total exposures by industry are less than 2% of the Total Exposure.
Peoples' commercial lending activities continue to focus on lending opportunities within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Maryland. InFor all other states, the aggregate outstanding balances of commercial loans in each state were less than 4%3% of total loans at both March 31, 20232024 and December 31, 2022.2023. The repayment of premium finance loans is secured by the underlying insurance policy prepaid premium, and therefore, has no geographical impact from a repayment perspective. The repayment of leases is secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.
Small Business Administration Paycheck Protection Program ("PPP")
In March 2020, the Coronavirus Aid, Relief, and Economic Security ("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 are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following table details Peoples' PPP loan balances and related income:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
PPP aggregate outstanding principal balances | $ | 2,184 | | $ | 2,458 | | $ | 3,789 | | $ | 15,582 | | $ | 42,871 | |
PPP net deferred loan origination fees | 25 | | 27 | | 61 | | 421 | | 995 | |
Accretion of net deferred loan origination fees | 2 | | 34 | | 360 | | 574 | | 1,215 | |
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) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Construction | Construction | $ | 1,273 | | $ | 1,250 | | $ | 1,464 | | $ | 1,531 | | $ | 2,731 | |
Commercial real estate, other | Commercial real estate, other | 16,474 | | 17,710 | | 17,695 | | 18,708 | | 21,055 | |
Commercial and industrial | Commercial and industrial | 8,307 | | 8,229 | | 8,611 | | 8,572 | | 10,114 | |
Premium finance | Premium finance | 433 | | 344 | | 553 | | 311 | | 345 | |
Leases | Leases | 9,109 | | 8,495 | | 7,890 | | 7,585 | | 5,875 | |
| Residential real estate | Residential real estate | 6,504 | | 6,357 | | 6,464 | | 6,332 | | 6,495 | |
Residential real estate | |
Residential real estate | |
Home equity lines of credit | Home equity lines of credit | 1,717 | | 1,693 | | 1,644 | | 1,699 | | 1,894 | |
Consumer, indirect | Consumer, indirect | 7,781 | | 7,448 | | 6,912 | | 6,234 | | 5,172 | |
Consumer, direct | Consumer, direct | 1,619 | | 1,575 | | 1,592 | | 1,321 | | 1,036 | |
| Deposit account overdrafts | Deposit account overdrafts | 86 | | 61 | | 41 | | 53 | | 51 | |
Deposit account overdrafts | |
Deposit account overdrafts | |
Allowance for credit losses | Allowance for credit losses | $ | 53,303 | | $ | 53,162 | | $ | 52,866 | | $ | 52,346 | | $ | 54,768 | |
As a percent of total loans | As a percent of total loans | 1.12 | % | 1.13 | % | 1.15 | % | 1.14 | % | 1.20 | % | As a percent of total loans | 1.05 | % | 1.01 | % | 1.03 | % | 1.02 | % | 1.12 | % |
The reductionincrease in the allowance for credit losses at March 31, 20232024 compared to MarchDecember 31, 20222023 was largely attributable to (i) a deterioration in macro-economic conditions used within the CECL model, (ii) an increase of reserves on individually analyzed loans and (iii) loan growth. The increase in the allowance for credit losses at September 30, 2023 and at June 30, 2023, when compared to the prior periods presented was driven by decreasesthe establishment of an allowance for credit losses for loans acquired in the allowances for individually analyzed loans, offset by loan growth and deterioration in the economic forecast.Limestone Merger.
Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 20222023 Form 10-K and "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed Consolidated Financial Statements.Statements in this Form 10-Q.
The following table summarizes Peoples’ net charge-offs and recoveries: | | Three Months Ended |
| Three Months Ended | | | Three Months Ended |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Gross charge-offs: | Gross charge-offs: | | | | | Gross charge-offs: | | | | | |
Construction | Construction | $ | 9 | | $ | 16 | | $ | — | | $ | — | | $ | — | |
Commercial real estate, other | Commercial real estate, other | $ | 33 | | 132 | | 57 | | 22 | | 278 | |
Commercial and industrial | Commercial and industrial | 1 | | 24 | | 36 | | 420 | | 463 | |
Premium finance | Premium finance | 23 | | 42 | | 38 | | 30 | | 14 | |
Leases | |
Residential real estate | |
Home equity lines of credit | |
Consumer, indirect | |
Consumer, direct | |
Consumer | |
Deposit account overdrafts | |
Total gross charge-offs | |
Recoveries: | |
| Commercial real estate, other | |
| Commercial real estate, other | |
| Commercial real estate, other | |
Commercial and industrial | |
Premium finance | |
Leases | |
Residential real estate | |
Home equity lines of credit | |
Consumer, indirect | |
Consumer, direct | |
| | Three Months Ended |
| Three Months Ended | | | Three Months Ended |
(Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Leases | 469 | | 888 | | 731 | | 493 | | 473 | |
Residential real estate | 41 | | 144 | | 168 | | 47 | | 309 | |
Home equity lines of credit | 19 | | 42 | | 5 | | 25 | | 16 | |
Consumer, indirect | 929 | | 799 | | 600 | | 449 | | 385 | |
Consumer, direct | 104 | | 86 | | 81 | | 60 | | 136 | |
Consumer | 1,033 | | 885 | | 681 | | 509 | | 521 | |
Deposit account overdrafts | 227 | | 308 | | 274 | | 405 | | 259 | |
Total gross charge-offs | $ | 1,855 | | $ | 2,481 | | $ | 1,990 | | $ | 1,951 | | $ | 2,333 | |
Recoveries: | | |
| Commercial real estate, other | $ | 27 | | 33 | | $ | 39 | | $ | 176 | | $ | 49 | |
Commercial and industrial | — | | 40 | | 3 | | 2 | | 4 | |
Premium finance | 9 | | 4 | | 1 | | 8 | | — | |
Leases | 80 | | 81 | | 99 | | 64 | | 176 | |
Residential real estate | 29 | | 20 | | 36 | | 14 | | 14 | |
Home equity lines of credit | — | | 16 | | — | | — | | 29 | |
Consumer, indirect | 79 | | 88 | | 71 | | 83 | | 86 | |
Consumer, direct | 15 | | 16 | | 9 | | 11 | | 11 | |
Consumer | Consumer | 94 | | 104 | | 80 | | 94 | | 97 | |
Deposit account overdrafts | Deposit account overdrafts | 72 | | 50 | | 44 | | 52 | | 54 | |
Total recoveries | Total recoveries | $ | 311 | | $ | 348 | | $ | 302 | | $ | 410 | | $ | 423 | |
Net charge-offs (recoveries): | Net charge-offs (recoveries): | | |
Construction | |
Construction | |
Construction | Construction | $ | 9 | | $ | 16 | | $ | — | | $ | — | | $ | — | |
Commercial real estate, other | Commercial real estate, other | 6 | | 99 | | 18 | | (154) | | 229 | |
Commercial and industrial | Commercial and industrial | 1 | | (16) | | 33 | | 418 | | 459 | |
Premium finance | Premium finance | 14 | | 38 | | 37 | | 22 | | 14 | |
Leases | Leases | 389 | | 807 | | 632 | | 429 | | 297 | |
Residential real estate | Residential real estate | 12 | | 124 | | 132 | | 33 | | 295 | |
Home equity lines of credit | Home equity lines of credit | 19 | | 26 | | 5 | | 25 | | (13) | |
Consumer, indirect | Consumer, indirect | 850 | | 711 | | 529 | | 366 | | 299 | |
Consumer, direct | Consumer, direct | 89 | | 70 | | 72 | | 49 | | 125 | |
Consumer | Consumer | 939 | | 781 | | 601 | | 415 | | 424 | |
Deposit account overdrafts | Deposit account overdrafts | 155 | | 258 | | 230 | | 353 | | 205 | |
Total net charge-offs | Total net charge-offs | $ | 1,544 | | $ | 2,133 | | $ | 1,688 | | $ | 1,541 | | $ | 1,910 | |
Ratio of net charge-offs to average total loans (annualized): | Ratio of net charge-offs (recoveries) to average total loans (annualized): | | Ratio of net charge-offs (recoveries) to average total loans (annualized): |
Construction | Construction | — | % | — | % | — | % | — | % | — | % | Construction | — | % | — | % | — | % | — | % | — | % |
Commercial real estate, other | Commercial real estate, other | — | % | 0.01 | % | — | % | (0.01) | % | 0.02 | % | Commercial real estate, other | 0.01 | % | (0.03) | % | 0.01 | % | — | % | — | % |
Commercial and industrial | Commercial and industrial | — | % | — | % | — | % | 0.04 | % | 0.03 | % | Commercial and industrial | 0.02 | % | 0.03 | % | 0.01 | % | (0.03) | % | — | % |
Premium finance | Premium finance | — | % | — | % | — | % | — | % | — | % | Premium finance | — | % | — | % | — | % | — | % | — | % |
Leases | Leases | 0.04 | % | 0.07 | % | 0.06 | % | 0.04 | % | 0.03 | % | Leases | 0.07 | % | 0.13 | % | 0.05 | % | 0.04 | % | 0.04 | % |
Residential real estate | Residential real estate | — | % | 0.01 | % | 0.01 | % | — | % | 0.03 | % | Residential real estate | — | % | — | % | — | % | — | % | — | % |
Home equity lines of credit | Home equity lines of credit | — | % | — | % | — | % | — | % | — | % | Home equity lines of credit | — | % | — | % | — | % | — | % | — | % |
Consumer, indirect | Consumer, indirect | 0.07 | % | 0.06 | % | 0.05 | % | 0.03 | % | 0.03 | % | Consumer, indirect | 0.09 | % | 0.07 | % | 0.05 | % | 0.06 | % | 0.07 | % |
Consumer, direct | Consumer, direct | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | Consumer, direct | 0.01 | % | 0.01 | % | 0.01 | % | — | % | 0.01 | % |
Consumer | Consumer | 0.08 | % | 0.07 | % | 0.06 | % | 0.04 | % | 0.04 | % | Consumer | 0.10 | % | 0.08 | % | 0.06 | % | 0.06 | % | 0.08 | % |
Deposit account overdrafts | Deposit account overdrafts | 0.01 | % | 0.02 | % | 0.02 | % | 0.03 | % | 0.02 | % | Deposit account overdrafts | 0.02 | % | 0.02 | % | 0.02 | % | 0.02 | % | 0.01 | % |
Total | Total | 0.13 | % | 0.18 | % | 0.15 | % | 0.14 | % | 0.17 | % | Total | 0.22 | % | 0.23 | % | 0.15 | % | 0.09 | % | 0.13 | % |
Each with "--%" not meaningful.
NetTotal net charge-offs during the first quarter of 2024 were $3.3 million, or 0.22% of average total loans on an annualized basis, compared to $3.5 million, or 0.23% of average total loans on an annualized basis, during the fourth quarter of 2023 wereand $1.5 million, or 0.13% of average total loans on an annualized basis.basis, during the first quarter of 2023. The decrease for the currentfirst quarter of 2024 when compared to the linked quarter was driven by a decrease in net charge-offs on leases residential real estateand commercial and industrial loans and deposit account overdrafts, partially offset byduring the first quarter of 2024. The increase in net charge-offs during the first quarter of 2024 versus the prior year first quarter was primarily attributable to an increase in charge-offs on (i) leases, (ii) indirect consumer loans. The decrease in net charge-offs during the current quarter versus the prior year quarter was primarily attributable to decreases in net charge-offs in (i)loans, (iii) commercial and
industrial loans, (ii) residential real estate loans, and (iii)(iv) other commercial real estate loans, partially offset by an increase in net charge-offs in indirect consumer loans.recoveries on leases during the first quarter of 2024.
The following table details Peoples’ nonperforming assets:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Loans 90+ days past due and accruing: | Loans 90+ days past due and accruing: | | Loans 90+ days past due and accruing: | |
| Commercial real estate, other | |
Commercial real estate, other | |
Commercial real estate, other | Commercial real estate, other | 150 | | 167 | | 1,472 | | 330 | | 603 | |
Commercial and industrial | Commercial and industrial | 228 | | 130 | | 266 | | 89 | | 53 | |
Premium finance | Premium finance | 764 | | 504 | | 308 | | 304 | | 613 | |
Leases | Leases | 2,491 | | 3,041 | | 4,654 | | 5,722 | | 3,921 | |
Residential real estate | Residential real estate | 238 | | 917 | | 1,499 | | 1,687 | | 677 | |
Home equity lines of credit | Home equity lines of credit | 127 | | 58 | | 23 | | 89 | | 75 | |
Consumer, indirect | Consumer, indirect | 13 | | — | | 195 | | 15 | | 17 | |
Consumer, direct | Consumer, direct | 3 | | 25 | | 7 | | — | | — | |
Consumer | Consumer | 16 | | 25 | | 202 | | 15 | | 17 | |
Total loans 90+ days past due and accruing | Total loans 90+ days past due and accruing | $ | 4,014 | | $ | 4,842 | | $ | 8,424 | | $ | 8,236 | | $ | 5,959 | |
Nonaccrual loans: | Nonaccrual loans: | | |
Construction | |
Construction | |
Construction | Construction | $ | 1 | | $ | 12 | | $ | 2 | | $ | 5 | | $ | 6 | |
Commercial real estate, other | Commercial real estate, other | 11,345 | | 12,121 | | 11,916 | | 14,253 | | 14,942 | |
Commercial and industrial | Commercial and industrial | 3,064 | | 3,462 | | 2,385 | | 1,849 | | 3,393 | |
Leases | Leases | 3,884 | | 3,178 | | 2,094 | | 1,573 | | 1,731 | |
Residential real estate | Residential real estate | 8,641 | | 9,496 | | 8,728 | | 9,194 | | 9,135 | |
Home equity lines of credit | Home equity lines of credit | 793 | | 820 | | 921 | | 890 | | 937 | |
Consumer, indirect | Consumer, indirect | 2,147 | | 2,176 | | 1,627 | | 1,558 | | 1,628 | |
Consumer, direct | Consumer, direct | 105 | | 208 | | 158 | | 166 | | 231 | |
Consumer | Consumer | 2,252 | | 2,384 | | 1,785 | | 1,724 | | 1,859 | |
Total nonaccrual loans | Total nonaccrual loans | $ | 29,980 | | $ | 31,473 | | $ | 27,831 | | $ | 29,488 | | $ | 32,003 | |
| Total nonperforming loans ("NPLs") | Total nonperforming loans ("NPLs") | $ | 33,994 | | $ | 36,315 | | $ | 36,255 | | $ | 37,724 | | $ | 37,962 | |
| Total nonperforming loans ("NPLs") | |
| Total nonperforming loans ("NPLs") | |
OREO: | OREO: | | |
Commercial | |
Commercial | |
Commercial | Commercial | $ | 8,730 | | $ | 8,730 | | $ | 8,730 | | $ | 9,065 | | $ | 9,106 | |
Residential | Residential | 48 | | 165 | | 110 | | 145 | | 301 | |
Total OREO | Total OREO | $ | 8,778 | | $ | 8,895 | | $ | 8,840 | | $ | 9,210 | | $ | 9,407 | |
Total nonperforming assets ("NPAs") | Total nonperforming assets ("NPAs") | $ | 42,772 | | $ | 45,210 | | $ | 45,095 | | $ | 46,934 | | $ | 47,369 | |
Criticized loans (a) | Criticized loans (a) | $ | 198,812 | | $ | 191,355 | | $ | 164,775 | | $ | 181,395 | | $ | 190,315 | |
Classified loans (b) | Classified loans (b) | 93,168 | | 89,604 | | 94,848 | | 115,483 | | 109,530 | |
Asset Quality Ratios (c): | Asset Quality Ratios (c): | |
Nonaccrual loans as a percent of total loans (d) | |
Nonaccrual loans as a percent of total loans (d) | |
Nonaccrual loans as a percent of total loans (d) | Nonaccrual loans as a percent of total loans (d) | 0.63 | % | 0.67 | % | 0.60 | % | 0.64 | % | 0.70 | % | 0.51 | % | 0.41 | % | 0.43 | % | 0.48 | % | 0.63 | % |
NPLs as a percent of total loans (d) | NPLs as a percent of total loans (d) | 0.71 | % | 0.77 | % | 0.79 | % | 0.82 | % | 0.83 | % | NPLs as a percent of total loans (d) | 0.63 | % | 0.52 | % | 0.58 | % | 0.58 | % | 0.71 | % |
NPAs as a percent of total assets (d) | NPAs as a percent of total assets (d) | 0.58 | % | 0.63 | % | 0.64 | % | 0.64 | % | 0.65 | % | NPAs as a percent of total assets (d) | 0.50 | % | 0.43 | % | 0.48 | % | 0.48 | % | 0.58 | % |
NPAs as a percent of total loans and OREO (d) | NPAs as a percent of total loans and OREO (d) | 0.90 | % | 0.96 | % | 0.98 | % | 1.02 | % | 1.04 | % | NPAs as a percent of total loans and OREO (d) | 0.74 | % | 0.64 | % | 0.70 | % | 0.70 | % | 0.90 | % |
Allowance for credit losses as a percent of nonaccrual loans | Allowance for credit losses as a percent of nonaccrual loans | 177.80 | % | 168.91 | % | 189.95 | % | 177.52 | % | 171.13 | % | Allowance for credit losses as a percent of nonaccrual loans | 206.70 | % | 245.79 | % | 240.29 | % | 212.57 | % | 177.80 | % |
Allowance for credit losses as a percent of NPLs (d) | Allowance for credit losses as a percent of NPLs (d) | 156.80 | % | 146.39 | % | 145.82 | % | 138.76 | % | 144.27 | % | Allowance for credit losses as a percent of NPLs (d) | 166.11 | % | 194.38 | % | 178.23 | % | 176.30 | % | 156.80 | % |
Criticized loans as a percent of total loans (a) | Criticized loans as a percent of total loans (a) | 4.18 | % | 4.07 | % | 3.57 | % | 3.96 | % | 4.19 | % | Criticized loans as a percent of total loans (a) | 4.14 | % | 3.82 | % | 3.50 | % | 3.68 | % | 4.18 | % |
Classified loans as a percent of total loans (b) | Classified loans as a percent of total loans (b) | 1.96 | % | 1.90 | % | 2.06 | % | 2.52 | % | 2.41 | % | Classified loans as a percent of total loans (b) | 2.38 | % | 1.95 | % | 2.05 | % | 1.86 | % | 1.96 | % |
|
(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) NPLs include loans 90+ days past due and accruing and nonaccrual loans. NPLs in periods prior to March 31, 2023 also include TDRs. NPAs include nonperforming loans and OREO.
Compared to at December 31, 2022,2023, Peoples' NPAs decreasedincreased from 0.63% to 0.58%0.43% of total assets. Loansassets to 0.50% at March 31, 2024. Total loans 90+ days past due and accruing decreasedincreased at March 31, 2024 compared to at December 31, 2022,2023, mostly due to declinesincreases in residential real estatenonperforming premium finance loans. Total nonaccrual loans increased at March 31, 2024 compared to at December 31, 2023, mostly due to increases in nonaccrual commercial and industrial loans and leases that were 90+ days past due, partially offset by an increase in premium finance loans that that were 90+ days past due.leases. During the first quarter of 2023,2024, criticized loans increased $7.5$21.3 million, while classified loans increased $3.6$27.5 million when compared to at December 31, 2022.2023. The increase in the amountamounts of criticized loans compared to at December 31, 20222023 was primarily related todriven by loan downgrades, of three commercialpartially offset by loan upgrades and industrial relationships.criticized loan pay-offs. The increase in the amount of classified loans compared to the linked quarterat December 31, 2023 was primarily driven by the downgrade of one commercialloan downgrades, partially offset by loan upgrades and industrial relationship.classified loan pay-offs.
Deposits
The following table details Peoples’ deposit balances:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Non-interest-bearing deposits (a) | Non-interest-bearing deposits (a) | $ | 1,555,064 | | $ | 1,589,402 | | $ | 1,635,953 | | $ | 1,661,865 | | $ | 1,666,668 | |
Interest-bearing deposits: | Interest-bearing deposits: | | |
Interest-bearing demand accounts (a) | Interest-bearing demand accounts (a) | 1,085,169 | | 1,160,182 | | 1,162,012 | | 1,143,010 | | 1,179,199 | |
Interest-bearing demand accounts (a) | |
Interest-bearing demand accounts (a) | |
Savings accounts | Savings accounts | 1,024,638 | | 1,068,547 | | 1,077,383 | | 1,080,053 | | 1,065,678 | |
Retail certificates of deposit ("CDs") | 622,091 | | 530,236 | | 544,741 | | 584,259 | | 612,936 | |
Retail CDs | |
Money market deposit accounts | Money market deposit accounts | 579,106 | | 617,029 | | 624,708 | | 645,242 | | 656,266 | |
Governmental deposit accounts | Governmental deposit accounts | 649,303 | | 625,965 | | 734,734 | | 728,057 | | 734,784 | |
Brokered CDs | Brokered CDs | 273,156 | | 125,580 | | 86,089 | | 86,739 | | 87,395 | |
Total interest-bearing deposits | Total interest-bearing deposits | 4,233,463 | | 4,127,539 | | 4,229,667 | | 4,267,360 | | 4,336,258 | |
Total deposits | Total deposits | $ | 5,788,527 | | $ | 5,716,941 | | $ | 5,865,620 | | $ | 5,929,225 | | $ | 6,002,926 | |
Demand deposits as a percent of total deposits | Demand deposits as a percent of total deposits | 46 | % | 48 | % | 48 | % | 47 | % | 47 | % | Demand deposits as a percent of total deposits | 35 | % | 38 | % | 39 | % | 42 | % | 46 | % |
|
(a)The sum of amounts presented is considered total demand deposits.
At March 31, 2023,2024, period-end total deposits increased $71.6$174.3 million, or 1%2%, compared to at December 31, 2022.2023, primarily driven by increases of (i) $237.0 million in retail CDs, (ii) $98.5 million in governmental deposits, partially offset by decreases of (a) $99.3 million in non-interest-bearing demand deposit accounts, (b) $92.0 million in brokered CDs, (c) $36.6 million in interest-bearing demand deposit accounts, and (d) $17.8 million in savings accounts. The increase whenin governmental deposit accounts was due to the seasonality of those balances, which are typically higher in the first quarter and third quarter of each year.
At March 31, 2024, period-end total deposits increased $1.5 billion, or 27%, compared to at DecemberMarch 31, 2022 was2023, primarily driven by an increase of $147.6 milliondeposits acquired in brokered certificates of deposits, which are primarily used as a source of funding.the Limestone Merger. Excluding the increase in brokered certificates of deposits,Limestone deposit balances, total deposits at March 31, 2023 decreased $76.02024 increased $784.8 million, or 1%14%, when compared to at December 31, 2022March 31,2023, primarily due to reductionsincreases of (i) $75.0$956.9 million in interest-bearing deposit accounts, (ii) $43.9retail CDs, $210.3 million in savings accounts, (iii) $37.9brokered CDs, and $191.2 million in money market deposit accounts, partially offset by decreases of $270.9 million, $191.8 million, and (iv) $34.3$158.4 million in non-interest bearing deposits, savings accounts, and interest-bearing demand deposit accounts, partially offset by an increase of $91.9 million in retail certificates of deposit.
Period-end deposit balances decreased $214.4 million, or 4%, compared to at March 31, 2022. Deposits decreased primarily due to reductions in non-interest-bearing deposits, interest-bearing deposit accounts, governmental deposit accounts, and money market deposit accounts of $111.6 million, $94.0 million, $85.5 million and $77.2 million, respectively, partially offset by an increase of $185.8 million in brokered certificates of deposits.respectively.
As part of its funding strategy, Peoples hedges 90-day brokered CDs with interest rate swaps. The interest rate swaps pay a fixed rate of interest while receiving three-month LIBOR,a floating rate component of interest tied to term SOFR, which offsets the rate on the brokered CDs. As of March 31, 2023,2024, Peoples had thirteen11 effective interest rate swaps, with an aggregate notional value of $125.0$105.0 million, which were designated as cash flow hedges of overnight brokered CDs and are expected to be extended every 90 days through the maturity dates of the interest rate swaps. Peoples continually evaluates the overall balance sheet position given the interest rate environment.
Borrowed Funds
The following table details Peoples’ short-term borrowings and long-term borrowings:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Short-term borrowings: | Short-term borrowings: | | Short-term borrowings: | |
Overnight borrowings | $ | 390,000 | | $ | 400,000 | | $ | (5,000) | | $ | — | | $ | — | |
FHLB 90-day advances | — | | — | | 40,000 | | 40,000 | | 40,000 | |
Current portion of long-term FHLB advances | — | | — | | — | | — | | 15,000 | |
FHLB Overnight borrowings | |
| Retail repurchase agreements | Retail repurchase agreements | 100,670 | | 100,138 | | 98,611 | | 286,442 | | 89,275 | |
| Retail repurchase agreements | |
| Retail repurchase agreements | |
Bank Term Funding Program ("BTFP") | |
| Total short-term borrowings | |
Total short-term borrowings | |
Total short-term borrowings | Total short-term borrowings | $ | 490,670 | | $ | 500,138 | | $ | 133,611 | | $ | 326,442 | | $ | 144,275 | |
Long-term borrowings: | Long-term borrowings: | | |
FHLB advances | |
FHLB advances | |
FHLB advances | FHLB advances | $ | 33,941 | | $ | 34,158 | | $ | 34,662 | | $ | 35,348 | | $ | 85,564 | |
| Vantage non-recourse debt | Vantage non-recourse debt | 47,864 | | 53,147 | | 55,781 | | 74,622 | | 102,364 | |
Junior subordinated debt securities | 13,824 | | 13,788 | | 13,753 | | 13,717 | | 13,682 | |
| Vantage non-recourse debt | |
| Vantage non-recourse debt | |
Other long-term borrowings | |
Total long-term borrowings | Total long-term borrowings | $ | 95,629 | | $ | 101,093 | | $ | 104,196 | | $ | 123,687 | | $ | 201,610 | |
Total borrowed funds | Total borrowed funds | $ | 586,299 | | $ | 601,231 | | $ | 237,807 | | $ | 450,129 | | $ | 345,885 | |
BorrowedTotal borrowed funds, in total, which include overnight borrowings, are mainly a function of loan growth and changes in total deposit balances. Other long-term borrowings include trust preferred securities held for investments and floating rate junior subordinated deferrable interest debentures. Total borrowed funds at March 31, 2024 decreased compared to at December 31, 2022,2023, primarily due to lower overnight borrowings. Total short-termlong-term borrowings at March 31, 20232024 increased when compared to at March 31, 20222023 due to outstandingan increase in FHLB overnightadvances and other long-term borrowings of $390.0 million at March 31, 2023, while there were no FHLB overnightassumed in the Limestone Merger as well as additional borrowings at March 31, 2022.under the BTFP.
Capital/Stockholders’ Equity
At March 31, 2023,2024, 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 March 31, 2023,2024, Peoples had a capital conservation buffer of 5.35%5.60%.
The following table details Peoples' risk-based capital levels and corresponding ratios:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Capital Amounts: | Capital Amounts: | | | Capital Amounts: | | |
Common Equity Tier 1 | Common Equity Tier 1 | $ | 624,292 | | $ | 604,566 | | $ | 584,880 | | $ | 564,708 | | $ | 547,215 | |
Tier 1 | Tier 1 | 638,116 | | 618,354 | | 598,633 | | 578,425 | | 560,897 | |
Total (Tier 1 and Tier 2) | Total (Tier 1 and Tier 2) | 682,477 | | 662,421 | | 643,189 | | 622,516 | | 607,493 | |
Net risk-weighted assets | Net risk-weighted assets | $ | 5,110.318 | | $ | 5,071,240 | | $ | 4,955,627 | | $ | 4,857,818 | | $ | 4,752,428 | |
Capital Ratios: | Capital Ratios: | |
Common Equity Tier 1 | Common Equity Tier 1 | 12.22 | % | 11.92 | % | 11.80 | % | 11.62 | % | 11.51 | % |
Common Equity Tier 1 | |
Common Equity Tier 1 | | 11.69 | % | 11.75 | % | 11.57 | % | 11.36 | % | 12.22 | % |
Tier 1 | Tier 1 | 12.49 | % | 12.19 | % | 12.08 | % | 11.91 | % | 11.80 | % | Tier 1 | 12.50 | % | 12.58 | % | 12.31 | % | 12.10 | % | 12.49 | % |
Total (Tier 1 and Tier 2) | Total (Tier 1 and Tier 2) | 13.35 | % | 13.06 | % | 12.98 | % | 12.81 | % | 12.78 | % | Total (Tier 1 and Tier 2) | 13.40 | % | 13.38 | % | 13.14 | % | 12.92 | % | 13.35 | % |
Tier 1 leverage ratio | Tier 1 leverage ratio | 9.02 | % | 8.92 | % | 8.64 | % | 8.38 | % | 8.29 | % | Tier 1 leverage ratio | 9.43 | % | 9.57 | % | 9.34 | % | 9.64 | % | 9.02 | % |
Peoples' regulatoryrisk-risk based capital and related ratio levels improved during the first quarter of 2023ratios at March 31, 2024 decreased slightly when compared to at December 31, 2022 and2023, due to lower net income, partially offset by an increase in expenses from the Limestone Merger. Compared to at March 31, 20222023, the tier 1 risk-based capital and the total risk-based capital ratios improved due to higher net income, during the first quarter of 2023, partially offset by the impact of the Limestone Merger and dividends paid. The ratios were negatively impactedcommon equity tier 1 risk-based capital ratio at March 31, 2022 by the cash acquisition of Vantage, in connection with which Peoples recorded goodwill and intangible assets. The impact of the Vantage acquisition on Peoples' regularity capital and related ratios levels2024 decreased compared to at March 31, 2022, was partially offset by net income exceeding dividends declared during2023 due to the period ended March 31, 2022.common shares issued in the Limestone Merger.
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) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Tangible equity: | Tangible equity: | | Tangible equity: | |
Total stockholders' equity | Total stockholders' equity | $ | 819,543 | | $ | 785,328 | | $ | 760,511 | | $ | 786,824 | | $ | 808,340 | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 324,562 | | 326,329 | | 328,428 | | 328,132 | | 341,865 | |
Tangible equity | Tangible equity | $ | 494,981 | | $ | 458,999 | | $ | 432,083 | | $ | 458,692 | | $ | 466,475 | |
| Tangible assets: | Tangible assets: | | |
| Tangible assets: | |
| Tangible assets: | |
Total assets | |
Total assets | |
Total assets | Total assets | $ | 7,311,520 | | $ | 7,207,304 | | $ | 7,005,854 | | $ | 7,278,292 | | $ | 7,239,261 | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 324,562 | | 326,329 | | 328,428 | | 328,132 | | 341,865 | |
Tangible assets | Tangible assets | $ | 6,986,958 | | $ | 6,880,975 | | $ | 6,677,426 | | $ | 6,950,160 | | $ | 6,897,396 | |
| Tangible book value per common share: | Tangible book value per common share: | |
Tangible book value per common share: | |
Tangible book value per common share: | |
Tangible equity | |
Tangible equity | |
Tangible equity | Tangible equity | $ | 494,981 | | $ | 458,999 | | $ | 432,083 | | $ | 458,692 | | $ | 466,475 | |
Common shares outstanding | Common shares outstanding | 28,488,158 | | 28,287,837 | | 28,278,078 | | 28,290,115 | | 28,453,175 | |
| Tangible book value per common share | Tangible book value per common share | $ | 17.37 | | $ | 16.23 | | $ | 15.28 | | $ | 16.21 | | $ | 16.39 | |
Tangible book value per common share | |
Tangible book value per common share | |
| Tangible equity to tangible assets ratio: | Tangible equity to tangible assets ratio: | |
Tangible equity to tangible assets ratio: | |
Tangible equity to tangible assets ratio: | |
Tangible equity | |
Tangible equity | |
Tangible equity | Tangible equity | $ | 494,981 | | $ | 458,999 | | $ | 432,083 | | $ | 458,692 | | $ | 466,475 | |
Tangible assets | Tangible assets | $ | 6,986,958 | | $ | 6,880,975 | | $ | 6,677,426 | | $ | 6,950,160 | | $ | 6,897,396 | |
| Tangible equity to tangible assets | |
Tangible equity to tangible assets | |
Tangible equity to tangible assets | Tangible equity to tangible assets | 7.08 | % | 6.67 | % | 6.47 | % | 6.60 | % | 6.76 | % | 7.37 | % | 7.33 | % | 6.85 | % | 7.00 | % | 7.08 | % |
| | |
Tangible book value per common share increased to $17.37$18.39 at March 31, 2023,2024 compared to $16.23$18.16 at December 31, 2022.2023. The change in tangible book value per common share was due to tangible equity increasing during the first quarter of 2023 as a result of a decrease2024 primarily due to net income over the last three months, which was partially offset by an increase in other comprehensive losses recognized on available-for-sale investment securities, which the decrease was driven by sales during the quarter.securities. Tangible book value per common share at March 31, 2024 increased compared to at March 31, 20222023 primarily due to net income over the last twelve months, which was partially offset by an increase in accumulated other comprehensive loss.loss as well as the impact of the common shares issued in the Limestone Merger.
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 financial 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 increaseimpact 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 methodsIRR, including the review of assumptions used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 2022 Form 10-K.modeling IRR.
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 Decrease in Economic Value of Equity | Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated (Decrease) Increase in Economic Value of Equity |
(in Basis Points) | (in Basis Points) | March 31, 2023 | | December 31, 2022 | | March 31, 2023 | | December 31, 2022 | (in Basis Points) | March 31, 2024 | | December 31, 2023 | | March 31, 2024 | | December 31, 2023 |
300 | 300 | $ | 10,891 | | | 3.7 | % | | $ | 13,000 | | 4.4 | % | | $ | (110,529) | | | (7.5) | % | | $ | (82,959) | | (5.4) | % | 300 | $ | 14,508 | | | 4.3 | | 4.3 | % | | $ | 15,063 | | 4.6 | 4.6 | % | | $ | (164,796) | | | (9.5) | | (9.5) | % | | $ | (157,625) | | (9.4) | (9.4) | % |
200 | 200 | 7,534 | | | 2.6 | % | | 8,716 | | 3.0 | % | | (72,312) | | | (4.9) | % | | (55,809) | | (3.6) | % | 200 | 9,732 | | | 2.9 | | 2.9 | % | | 10,282 | | 3.1 | 3.1 | % | | (112,780) | | | (6.5) | | (6.5) | % | | (107,620) | | (6.4) | (6.4) | % |
100 | 100 | 4,161 | | | 1.4 | % | | 4,380 | | 1.5 | % | | (35,824) | | | (2.4) | % | | (28,157) | | (1.8) | % | 100 | 4,932 | | | 1.5 | | 1.5 | % | | 5,468 | | 1.7 | 1.7 | % | | (56,684) | | | (3.3) | | (3.3) | % | | (53,585) | | (3.2) | (3.2) | % |
(100) | (100) | (8,608) | | | (2.9) | % | | (11,404) | | (3.9) | % | | 6,268 | | | 0.4 | % | | (21,124) | | (1.4) | % | (100) | (7,892) | | | (2.3) | | (2.3) | % | | (7,427) | | (2.3) | (2.3) | % | | 34,400 | | | 2.0 | | 2.0 | % | | 31,722 | | 1.9 | 1.9 | % |
(200) | (200) | (23,095) | | | (7.8) | % | | (27,659) | | (9.4) | % | | (35,500) | | | (2.4) | % | | (80,484) | | (5.2) | % | (200) | (16,888) | | | (5.0) | | (5.0) | % | | (15,446) | | (4.7) | (4.7) | % | | 47,397 | | | 2.7 | | 2.7 | % | | 46,537 | | 2.8 | 2.8 | % |
(300) | (300) | (38,575) | | | (13.1) | % | | (43,728) | | (14.8) | % | | (105,742) | | | (7.1) | % | | (152,152) | | (9.8) | % | (300) | (20,705) | | | (6.1) | | (6.1) | % | | (16,822) | | (5.1) | (5.1) | % | | 47,323 | | | 2.7 | | 2.7 | % | | 47,198 | | 2.8 | 2.8 | % |
This table uses a standard, parallel shock analysis for assessing the IRR to net interest income and the economic value of equity. A parallel shock assumes all points on the yield curve (one year, two year, three year, etc.) are directionally changed by the same degree. Management regularly assesses the impact of both increasing and decreasing interest rates. The table above shows the impact of upward and downward parallel shocks of 100, 200 and 300 basis points.
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.
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 impact that might occur as a result of the Federal Reserve Board increasing short-term interest rates in the future could be offset by an inverse movement in long-term interest rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term interest rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at March 31, 2023,2024, consideration of the bear steepener and bear flattener scenarios provide insights which were not captured by parallel shifts.
The bear steepener scenario highlights the risk to net interest income and economic value of equity when short-term interest rates remain constant while long-term interest rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are generally correlated with short-term interest rates, remain constant, while asset yields, which are correlated with long-term interest rates, rise. At March 31, 2023,2024, the bear steepener scenario produced an increase in net interest income of 0.1%0.7% and a decline in the economic value of equity of 1.4%0.7%.
The bear flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates rise while long-term rates remain constant. In such a scenario, Peoples' variable rate asset yields along with deposit and short-term borrowing costs, which are correlated with short-term rates, increase, while long-term asset yields and long-term borrowing costs, which are more correlated with long-term rates, remain constant. Increased deposit and funding costs would be more than offset by increased variable rate asset yields; resulting in an increased amount of net interest income and a higher net interest margin. At March 31, 2023,2024, the bear flattener scenario produced no changean increase of 3.0% to net interest income and a decline in the economic value of equity of 0.8%1.0%.
As of March 31, 2023, the yield curve was inverted. A notable non-parallel shift scenario would be a continued increase in short-term interest rates relative to long-term interest rates in which the yield curve would further invert. As of March 31, 2023, this inversion scenario would have resulted in no change to net interest income and a decrease in the economic value of equity of (0.8)%. Peoples was within its policy limitations for this alternative scenario as of March 31, 2023, which set the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of the economic value of equity.
Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of March 31, 2023,2024, Peoples had entered into thirteen11 interest rate swap contracts with an aggregate notional value of $125.0$105.0 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 March 31, 2023,2024, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income. The table above illustrates this point as changes to net interest income
increase in the rising interest 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, 2022 was largely attributable to increased effective duration within the investment securities portfolio.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. TheIn light of the bank failures in 2023, Peoples revisited the model assumptions, and determined the methods used by the ALCO to monitor
and evaluate the adequacy of Peoples Bank's liquidity position remain appropriate and are largely unchanged from those disclosed in Peoples' 20222023 Form 10-K.
At March 31, 2023,2024, Peoples Bank had liquid assets of $318.0$565.4 million, which represented 3.9%5.4% of total assets and unfunded loan commitments. Peoples also had an additional $231.4$158.7 million of unpledged investment securities not included in the measurement of liquid assets.
Management believes the current mix of short-term liquidity sources, loan and security portfolio cash flows, and availability of other funding sources will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.
Off-Balance Sheet Activities and Contractual Obligations
In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.
Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples Bank's exposure to credit loss in the event of nonperformance by the counter-party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. Peoples Bank uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties.
Peoples Bank routinely engages in activities that involve, to varying degrees, elements of risk that are not reflected in whole or in part in the Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.
The following table details the total contractual amount of loan commitments and standby letters of credit:
| (Dollars in thousands) | (Dollars in thousands) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | (Dollars in thousands) | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | March 31, 2023 |
Home equity lines of credit | Home equity lines of credit | $ | 201,692 | | $ | 197,995 | | $ | 194,685 | | $ | 188,803 | | $ | 184,616 | |
Unadvanced construction loans | Unadvanced construction loans | 241,225 | | 270,229 | | 320,825 | | 237,129 | | 203,719 | |
Other loan commitments | Other loan commitments | 717,149 | | 730,015 | | 653,384 | | 566,624 | | 616,696 | |
Loan commitments | Loan commitments | $ | 1,160,066 | | $ | 1,198,239 | | $ | 1,168,894 | | $ | 992,556 | | $ | 1,005,031 | |
Standby letters of credit | Standby letters of credit | $ | 15,046 | | $ | 15,451 | | $ | 15,096 | | $ | 15,977 | | $ | 12,729 | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item 3 is provided under the caption “Interest Rate Sensitivity and Liquidity” under “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in this Form 10-Q, and is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Peoples' management, with the participation of Peoples' President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer, has evaluated the effectiveness of Peoples’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2023.2024. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:
(a)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure;
(b)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
(c)Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended March 31, 2023,2024, that have materially affected, or are reasonably likely to materially affect, Peoples’ internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Peoples or one of its subsidiaries from time to time is engaged in various litigation matters including the defense of claims of improper loan or deposit practices or lending violations. In addition, 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, Peoples' management believes that damages, if any, and other amounts related to pending legal 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 theThere have been no other material changes from those risk factors previously disclosed under “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 20222023 Form 10-K. These risk factors are not the only risks Peoples faces. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect Peoples’ business, financial condition and/or operating results. In the first quarter of 2023, we identified the following additional risk factor:
General Risks
•The impact of larger or similar-sized financial institutions encountering problems may adversely affect Peoples' business, earnings and financial condition.
Peoples is exposed to the risk that when a peer financial institution experiences financial difficulties, there could be an adverse impact on the regional banking industry and the business environment in which Peoples operates. The recent bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of panic and uncertainty in the investor community and among bank customers generally. While Peoples does not believe that the circumstances of these three banks' failures are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the banking industry, including Peoples. Peoples will continue to monitor the ongoing events concerning these three banks as well as any future potential bank failures and volatility within the banking industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the banking industry.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)Not applicable.
(b)Not applicable.
(c)The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Exchange Act of Peoples’ common shares during the three months ended March 31, 2023:2024:
| | | | | | | | | | | | | | | | | | | | |
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 (3) |
Maximum Number (or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (3) |
January 1 – 31, 2023 | 2,077 | | (2) | $ | 28.38 | | (2) | — | | $ | 22,606,290 | |
February 1 – 28, 2023 | 24,350 | | (3) | $ | 30.27 | | (3) | — | | $ | 22,606,290 | |
March 1 – 31, 2023 | 2,579 | | (2)(3) | $ | 30.43 | | (2)(3) | — | | $ | 22,606,290 | |
Total | 29,006 | | | $ | 30.15 | | | — | | $ | 22,606,290 | |
| | | | | | | | | | | | | | | | | | | | |
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) |
January 1 – 31, 2024 | 63,322 | | (1)(2) | $ | 30.28 | | (2)(3) | 61,367 | | $ | 17,755,053 | |
February 1 – 29, 2024 | 64,802 | | (1)(3) | $ | 28.67 | | (2) | 39,538 | | $ | 16,616,711 | |
March 1 – 31, 2024 | 1,514 | | (2)(3) | $ | 27.97 | | | — | | $ | 16,616,711 | |
Total | 129,638 | | | $ | 29.45 | | | 100,905 | | $ | 16,616,711 | |
(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 no61,367 and 39,538 common shares repurchased under the share repurchase program during the three months ended March 31, 2023.January and February 2024, respectively.
(2)Information reported includes 2,0771,955 common shares and 9521,320 common shares purchased in open market transactions during January 20232024 and March 2023,2024, respectively, by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.
(3)Information reported includes 24,35025,264 common shares and 1,627194 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 (now known as the Peoples Bancorp Inc. Fourth Amended and Restated 2006 Equity Plan) and vested during February 2023 and March 2023,2024, respectively.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a)None.
(b)Not applicable.
(c) The following details the activity in respect of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” (as each term is defined in Item 408(a) of Regulation S-K) by any director or any officer (as defined in Rule 16a-1(f) under the Exchange Act) of Peoples during the three months ending March 31, 2024:
| | | | | | | | | | | | | | | | | | | | |
| | | | Trading Arrangement | | |
| | Action | Date | Rule 10b5-1* | Total Common Shares to be Sold | Expiration Date |
David F. Dierker (Director) | Adopt | February 2, 2024 | X | 11,000 | December 26, 2024 |
| | | | | | |
*Intended to satisfy the affirmative defense of Rule 10b5-1(c) |
ITEM 6. EXHIBITS | | | | | | | | | | | | | | |
Exhibit Number | | Description | | Exhibit Location |
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| | | | |
| | | | |
| | | | |
| | | | |
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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.+ | | Included as Annex A to the preliminary joint proxy statement/prospectus which forms a part of the Registration Statement of Peoples Bancorp Inc. ("Peoples") on Form S-4/A filedaccepted on May 28, 2021 with a filing date of June 1, 2021 (Registration No. 333-256040) |
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| | Agreement and Plan of Merger, dated as of October 24, 2022, by and between Peoples Bancorp Inc. and Limestone Bancorp, Inc.+ | | Included as Annex A to the preliminary joint proxy statement/prospectus which forms a part of the Registration Statement of Peoples on Form S-4/A filed on January 6, 2023 (Registration No. 333-268728) |
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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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+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 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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| | 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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| | Summary ofConsulting Agreement dated March 20, 2024, among Charles W. Sulerzyski, Peoples Bancorp Inc. Annual Incentive Plan for Executive Officers and other employees of Peoples Bancorp Inc. [Effective beginning with the fiscal year beginning January 1, 2023Bank++ | | Incorporated herein by reference to Exhibit 10.4 to Peoples' AnnualCurrent Report on Form 10-K for the fiscal year ended December 31, 20228-K dated and filed on March 21, 2024 (File No. 0-16772) ("Peoples' 2022 Form 10-K") |
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| | Summary of Perquisites for Executive Officers of Peoples Bancorp Inc. | | Incorporated herein by reference to Exhibit 10.5 to Peoples' 2022 Form 10-K |
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| | Summary of Base Salaries for Executive Officers of Peoples Bancorp Inc. | | Filed herewith |
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| | Summary of Compensation for Directors of Peoples Bancorp Inc. | | Incorporated herein by reference to Exhibit 10.7 to Peoples' 2022 Form 10-K |
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| | First Amendment to the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan (adopted and approved by the Board of Directors of Peoples Bancorp Inc. on January 26, 2023) | | Incorporated herein by reference to Exhibit 10.8(b) to Peoples' 2022 Form 10-K |
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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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| | | | | | | | | | | | | | ++Management Compensation Plan or Agreement |
# Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 20232024 of Peoples Bancorp Inc. are the following documents formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 20232024 (Unaudited) and at December 31, 2022;2023; (ii) Consolidated Statements of Operations (Unaudited) for the three months and the three months ended March 31, 20232024 and 2022;2023; (iii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 20232024 and 2022;2023; (iv) Consolidated Statements of Stockholders' Equity (Unaudited) for the three months and the three months ended March 31, 20232024 and 2022;2023; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months and the three months ended March 31, 20232024 and 2022;2023; 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 embedded 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: | May 4, 20232, 2024 | By: /s/ | CHARLES W. SULERZYSKITYLER WILCOX |
| | | Charles W. SulerzyskiTyler Wilcox |
| | | President and Chief Executive Officer |
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Date: | May 4, 20232, 2024 | By: /s/ | KATIE BAILEY |
| | | Katie Bailey |
| | | Executive Vice President, |
| | | Chief Financial Officer and Treasurer |