| Loans and Leases | Loans and Leases Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' footprint. Peoples also originates insurance premium finance loans and leases nationwide through its Peoples Premium Finance and North Star Leasing divisions, and Vantage Financial, LLC ("Vantage") subsidiary, respectively. Loans and leases throughout this document are referred to as "total loans" and "loans held for investment". The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows: (Dollars in thousands) March 31, December 31, 2021 Construction $ 238,305 $ 210,232 Commercial real estate, other 1,457,232 1,550,081 Commercial and industrial 887,151 891,392 Premium finance 145,813 136,136 Leases 267,068 122,508 Residential real estate 756,429 771,718 Home equity lines of credit 162,288 163,593 Consumer, indirect 524,778 530,532 Consumer, direct 107,390 104,652 Deposit account overdrafts 699 756 Total loans, at amortized cost $ 4,547,153 $ 4,481,600 On March 7, 2022, Peoples completed the acquisition of Vantage, which included $140.3 million of leases. During the first quarter of 2022, Peoples experienced elevated levels of payoffs and amortization of previously-acquired loans, which partially offset loan growth. Peoples is a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender. At March 31, 2022, the PPP loans had an amortized cost of $41.9 million, and were included in the commercial and industrial loan balances. As of March 31, 2022, deferred loan origination fees, net of deferred origination costs, totaled $1.0 million for PPP loans. During the first quarter of 2022, Peoples recorded amortization of net deferred loan origination fees of $1.2 million on PPP loans compared to $4.7 million for the first quarter of 2021. The remaining net deferred loan origination fees will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in "Net interest income". Accrued interest receivable is not included within the loan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest receivable on loans was $11.2 million at March 31, 2022 and $12.0 million at December 31, 2021. Nonaccrual and Past Due Loans A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due. The amortized cost of loans on nonaccrual status and of loans delinquent for 90 days or more and accruing were as follows: March 31, 2022 December 31, 2021 (Dollars in thousands) Nonaccrual (a) Accruing Loans 90+ Days Past Due Nonaccrual (a) Accruing Loans 90+ Days Past Due Construction $ 6 $ — $ 6 $ 90 Commercial real estate, other 14,942 603 17,067 689 Commercial and industrial 3,393 53 3,572 1,139 Premium finance — 613 — 865 Leases 1,731 3,921 1,581 — Residential real estate 9,135 677 9,647 805 Home equity lines of credit 937 75 1,039 50 Consumer, indirect 1,628 17 1,574 — Consumer, direct 231 — 279 85 Total loans, at amortized cost $ 32,003 $ 5,959 $ 34,765 $ 3,723 (a) There were $3.0 million of nonaccrual loans for which there was no allowance for credit losses at March 31, 2022 and $2.6 million at December 31, 2021. During the first three months of 2022, nonaccrual loans declined compared to December 31, 2021, which was due to the payoff of one commercial relationship, coupled with other smaller reductions. The increase in accruing loans 90+ days past due, compared to December 31, 2021, was the result of the additional leases acquired from Vantage, the majority of which related to in-process renewals. As of March 31, 2022, the short-term modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment for current borrowers, Peoples had made were insignificant. Under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As such, these modifications made in accordance with the CARES Act were not included in Peoples' nonaccrual or accruing loans 90+ days past due at March 31, 2022. The amount of interest income recognized on loans past due 90 days or more during the three months ended March 31, 2022 was $0.3 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, 2022 Construction $ — $ 50 $ — $ 50 $ 238,255 $ 238,305 Commercial real estate, other 1,348 402 11,607 13,357 1,443,875 1,457,232 Commercial and industrial 2,195 344 2,528 5,067 882,084 887,151 Premium finance 488 396 613 1,497 144,316 145,813 Leases 691 2,097 4,318 7,106 259,962 267,068 Residential real estate 7,594 1,408 4,827 13,829 742,600 756,429 Home equity lines of credit 1,305 178 576 2,059 160,229 162,288 Consumer, indirect 3,432 648 537 4,617 520,161 524,778 Consumer, direct 243 27 110 380 107,010 107,390 Deposit account overdrafts — — — — 699 699 Total loans, at amortized cost $ 17,296 $ 5,550 $ 25,116 $ 47,962 $ 4,499,191 $ 4,547,153 Loans Past Due Current Loans Total Loans (Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total December 31, 2021 Construction $ 658 $ — $ 90 $ 748 $ 209,484 $ 210,232 Commercial real estate, other 2,891 1,600 12,561 17,052 1,533,029 1,550,081 Commercial and industrial 1,132 1,278 3,595 6,005 885,387 891,392 Premium finance 751 266 865 1,882 134,254 136,136 Leases 426 247 1,581 2,254 120,254 122,508 Residential real estate 8,276 2,241 5,188 15,705 756,013 771,718 Home equity lines of credit 1,137 619 625 2,381 161,212 163,593 Consumer, indirect 4,220 895 615 5,730 524,802 530,532 Consumer, direct 457 135 200 792 103,860 104,652 Deposit account overdrafts — — — — 756 756 Total loans, at amortized cost $ 19,948 $ 7,281 $ 25,320 $ 52,549 $ 4,429,051 $ 4,481,600 Delinquency trends remained stable, as 98.9% of Peoples' loan portfolio was considered “current” at March 31, 2022, compared to 98.8% at December 31, 2021. Pledged Loans Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages, home equity lines of credit and commercial real estate loans under a blanket collateral agreement to secure borrowings from the FHLB. Peoples also has pledged eligible commercial and industrial loans to secure borrowings with the FRB. Loans pledged are summarized as follows: (Dollars in thousands) March 31, 2022 December 31, 2021 Loans pledged to FHLB $ 778,724 $ 769,863 Loans pledged to FRB 354,788 294,728 Credit Quality Indicators As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2021 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, including loans acquired from Premier Financial Bancorp, Inc. ("Premier"), is as follows: “Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist. “Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position. “Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the weaknesses are not corrected. “Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of each of these loans as an estimated loss is deferred until its more exact status may be determined. “Loss” (grade 8): Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for credit losses are taken during the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category. Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard,” or “loss” consistent with the regulatory definitions and requirements of these classes. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the prospect of collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as “pass" for disclosure purposes. The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at March 31, 2022: Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Total Loans Construction Pass $ 10,938 $ 103,230 $ 82,437 $ 28,828 $ 1,505 $ 3,778 $ 2,230 $ 8,303 $ 232,946 Special mention — 290 — — 735 2,088 — — 3,113 Substandard — — — 936 74 1,236 — — 2,246 Total 10,938 103,520 82,437 29,764 2,314 7,102 2,230 8,303 238,305 Commercial real estate, other Pass 41,514 233,605 237,601 211,205 123,682 474,266 22,142 5,788 1,344,015 Special mention — 369 2,990 7,204 3,803 29,427 — 47 43,793 Substandard — 685 1,790 1,548 692 64,160 363 34 69,238 Doubtful — — — — — 170 — — 170 Loss — — — — — 16 — — 16 Total 41,514 234,659 242,381 219,957 128,177 568,039 22,505 5,869 1,457,232 Commercial and industrial Pass 42,086 244,652 102,825 83,851 51,733 123,134 185,861 14,262 834,142 Special mention — 80 11,521 2,765 2,135 5,348 11,783 8 33,632 Substandard 50 452 1,757 2,357 1,303 8,431 3,646 354 17,996 Doubtful — — — — — 1,120 261 100 1,381 Total 42,136 245,184 116,103 88,973 55,171 138,033 201,551 14,724 887,151 Premium finance Pass 78,071 67,706 — 36 — — — — 145,813 Total 78,071 67,706 — 36 — — — — 145,813 Leases Pass 37,400 120,040 57,017 31,453 8,625 2,978 — 257,513 Special mention 29 5,084 143 191 92 — 5,539 Substandard 249 2,154 475 597 536 5 4,016 Total 37,678 127,278 57,635 32,241 9,253 2,983 — — 267,068 Term Loans at Amortized Cost by Origination Year Revolving Loans Converted to Term (Dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Total Loans Residential real estate Pass 25,271 143,964 67,907 48,501 32,489 421,537 — — 739,669 Substandard — — — — — 16,569 — — 16,569 Loss — — — — — 191 — — 191 Total 25,271 143,964 67,907 48,501 32,489 438,297 — — 756,429 Home equity lines of credit Pass 7,216 36,184 21,568 17,212 15,275 63,211 1,622 3,705 162,288 Total 7,216 36,184 21,568 17,212 15,275 63,211 1,622 3,705 162,288 Consumer, indirect Pass 54,119 206,803 144,551 55,214 39,004 25,087 — — 524,778 Total 54,119 206,803 144,551 55,214 39,004 25,087 — — 524,778 Consumer, direct Pass 16,378 42,203 23,228 11,259 6,952 7,370 — — 107,390 Total 16,378 42,203 23,228 11,259 6,952 7,370 — — 107,390 Deposit account overdrafts 699 — — — — — — — 699 Total loans, at amortized cost $ 314,020 $ 1,207,501 $ 755,810 $ 503,157 $ 288,635 $ 1,250,122 $ 227,908 $ 32,601 $ 4,547,153 The following table summarizes the risk category of loans within Peoples' loan portfolio, including acquired loans, based upon the most recent analysis performed at December 31, 2021: Term Loans at Amortized Cost by Origination Year (Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Construction Pass $ 85,276 $ 78,026 $ 29,514 $ 3,498 $ 1,233 $ 2,982 $ 2,411 $ 6,948 $ 202,940 Special mention 290 — — 735 3,850 137 — — 5,012 Substandard — — 947 77 153 1,103 — — 2,280 Total 85,566 78,026 30,461 4,310 5,236 4,222 2,411 6,948 210,232 Commercial real estate, other Pass 253,259 259,113 217,938 143,094 143,975 392,212 21,320 11,940 1,430,911 Special mention 157 2,716 7,875 3,839 6,292 31,626 — 49 52,505 Substandard — 1,675 824 691 3,124 59,415 371 37 66,100 Doubtful — — — — — 542 — — 542 Loss — — — — — 23 — — 23 Total 253,416 263,504 226,637 147,624 153,391 483,818 21,691 12,026 1,550,081 Commercial and industrial Pass 299,117 105,646 84,144 56,361 22,182 100,030 174,848 15,888 842,328 Special mention 82 11,745 2,559 2,179 132 5,445 7,563 9 29,705 Substandard 465 2,059 2,691 812 4,995 3,342 3,085 367 17,449 Doubtful — — — — — 1,648 262 100 1,910 Total 299,664 119,450 89,394 59,352 27,309 110,465 185,758 16,364 891,392 Premium finance Pass 135,896 240 — — — — — — 136,136 Total 135,896 240 — — — — — — 136,136 Term Loans at Amortized Cost by Origination Year (Dollars in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving Loans Converted to Term Total Loans Leases Pass 78,048 25,954 13,368 2,972 337 — — 120,679 Special mention 34 29 22 159 4 — 248 Substandard 196 438 462 479 6 — 1,581 Total 78,278 26,421 13,852 3,610 347 — — — 122,508 Residential real estate Pass 141,845 74,169 53,434 33,690 44,377 407,541 — — 755,056 Substandard — — — — — 16,302 — — 16,302 Loss — — — — — 360 — — 360 Total 141,845 74,169 53,434 33,690 44,377 424,203 — — 771,718 Home equity lines of credit Pass 35,898 23,276 18,035 16,124 14,991 53,302 1,967 3,287 163,593 Total 35,898 23,276 18,035 16,124 14,991 53,302 1,967 3,287 163,593 Consumer, indirect Pass 226,287 163,830 63,353 45,672 21,754 9,636 — — 530,532 Total 226,287 163,830 63,353 45,672 21,754 9,636 — — 530,532 Consumer, direct Pass 47,308 26,792 13,293 8,411 3,218 5,630 — — 104,652 Total 47,308 26,792 13,293 8,411 3,218 5,630 — — 104,652 Deposit account overdrafts 756 — — — — — — — 756 Total loans, at amortized cost $ 1,304,914 $ 775,708 $ 508,459 $ 318,793 $ 270,623 $ 1,091,276 $ 211,827 $ 38,625 $ 4,481,600 Collateral Dependent Loans Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans: • Construction loans are typically secured by owner occupied commercial real estate or non-owner occupied investment real estate. Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction. • Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. • Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable, and other commercial property. • Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage. • Home equity lines of credit are generally secured by second mortgages on residential real estate property. • Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral. • Leases are secured by commercial equipment and other essential business assets. • Premium finance loans are secured by the unearned portion of the insurance premium being financed. The following table details Peoples' amortized cost of collateral dependent loans: (Dollars in thousands) March 31, 2022 December 31, 2021 Construction $ 1,279 $ 1,291 Commercial real estate, other 12,333 37,220 Commercial and industrial 3,139 8,340 Residential real estate 2,007 2,877 Home equity lines of credit 388 391 Total collateral dependent loans $ 19,146 $ 50,119 The decrease in collateral dependent loans at March 31, 2022, compared to December 31, 2021, was primarily due to three large commercial relationships that were no longer considered collateral dependent at March 31, 2022. Troubled Debt Restructurings The following tables summarize the loans that were modified as TDRs during the three months ended March 31: Three Months Ended Recorded Investment (a) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment 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 March 31, 2021 Construction 1 $ 344 $ 344 $ 344 Residential real estate 3 170 174 172 Home equity lines of credit 1 46 46 46 Consumer, indirect 4 78 78 78 Consumer, direct 3 18 18 18 Consumer 7 96 96 96 Total 12 $ 656 $ 660 $ 658 (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. Three Months Ended On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not in the scope of accounting for TDRs, as defined in ASC 310-40. Peoples did not have any loans that were modified as a TDR during the first three months ended March 31, 2022 or March 31, 2021 that subsequently defaulted (i.e., 90 days or more past due following a modification during the year). Peoples had no commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR. Allowance for Credit Losses Changes in the allowance for credit losses for the three months ended March 31, 2022 and March 31, 2021 are summarized below: (Dollars in thousands) Beginning Balance, December 31, 2021 Initial Allowance for Acquired Purchased Credit Deteriorated Assets (Recovery of) Provision for Credit Losses (a) 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 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) Beginning Balance, (Recovery of) Provision for Credit Losses (a) Charge-offs Recoveries Ending Balance, March 31, 2021 Construction $ 1,887 $ (1,058) $ — $ — $ 829 Commercial real estate, other 17,536 455 (157) — 17,834 Commercial and industrial 12,763 (2,362) (293) — 10,108 Premium finance 1,095 81 (16) — 1,160 Residential real estate 6,044 (991) (133) 15 4,935 Home equity lines of credit 1,860 (358) (12) 4 1,494 Consumer, indirect 8,030 (108) (505) 105 7,522 Consumer, direct 1,081 (101) (36) 26 970 Deposit account overdrafts 63 31 (103) 54 45 Total $ 50,359 $ (4,411) $ (1,255) $ 204 $ 44,897 (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) (a) Amount does not include the provision for the allowance for credit losses on unfunded commitments. (Dollars in thousands) (a) Peoples adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) on January 1, 2020. (b) Amount does not include the provision for the allowance for credit losses on unfunded commitments. During the 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. At March 31, 2022, Peoples had recorded an allowance for unfunded commitments of $2.2 million, a decrease compared to $2.5 million at December 31, 2021. The allowance for unfunded commitments (also referred to as "unfunded commitment liability") is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets. The change in the allowance for unfunded commitments is also reflected in the "Recovery of credit losses" line of the Unaudited Consolidated Statements of Operations. |
