UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172021
OR
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o ☐ | 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: 0-16772000-16772
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PEOPLES BANCORP INC. |
(Exact name of Registrant as specified in its charter) |
Ohio | | | | 31-0987416 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
138 Putnam Street, P.O. Box 738, Marietta, Ohio | | | | 45750 |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.
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Large accelerated filero | o | Accelerated filerx | ☒ |
Non-accelerated filero(Do not check if a smaller reporting company)
| o | Smaller reporting companyo | ☐ |
| | Emerging growth companyo | ☐ |
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 o ☐ No x☒
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
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:18,281,11228,272,537 common shares, without par value, at October 25, 2017.
November 4, 2021.
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Table of Contents |
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Table of Contents |
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
| | | | | | | | |
| September 30, 2021 | December 31, 2020 |
|
(Dollars in thousands) | (Unaudited) | |
Assets | | |
Cash and cash equivalents: | | |
Cash and balances due from banks | $ | 129,842 | | $ | 60,902 | |
Interest-bearing deposits in other banks | 369,840 | | 91,198 | |
Total cash and cash equivalents | 499,682 | | 152,100 | |
Available-for-sale investment securities, at fair value (amortized cost of $1,294,654 at September 30, 2021 and $734,544 at December 31, 2020) (a) | 1,297,090 | | 753,013 | |
Held-to-maturity investment securities, at amortized cost (fair value of $240,000 at September 30, 2021 and $68,082 at December 31, 2020) (a) | 243,100 | | 66,458 | |
Other investment securities | 34,486 | | 37,560 | |
Total investment securities (a) | 1,574,676 | | 857,031 | |
Loans and leases, net of deferred fees and costs (b) | 4,491,028 | | 3,402,940 | |
Allowance for credit losses | (77,382) | | (50,359) | |
Net loans | 4,413,646 | | 3,352,581 | |
Loans held for sale | 2,699 | | 4,659 | |
Bank premises and equipment, net of accumulated depreciation | 91,210 | | 60,094 | |
Bank owned life insurance | 72,920 | | 71,591 | |
Goodwill | 267,015 | | 171,260 | |
Other intangible assets | 28,400 | | 13,337 | |
Other assets | 109,504 | | 78,111 | |
Total assets | $ | 7,059,752 | | $ | 4,760,764 | |
Liabilities | | |
Deposits: | | |
Non-interest-bearing | $ | 1,559,993 | | $ | 997,323 | |
Interest-bearing | 4,272,027 | | 2,913,136 | |
Total deposits | 5,832,020 | | 3,910,459 | |
Short-term borrowings | 184,693 | | 73,261 | |
Long-term borrowings | 99,411 | | 110,568 | |
| | |
Accrued expenses and other liabilities | 111,746 | | 90,803 | |
Total liabilities | 6,227,870 | | 4,185,091 | |
Stockholders’ equity | | |
Preferred shares, no par value, 50,000 shares authorized, no shares issued at September 30, 2021 and at December 31, 2020 | — | | — | |
Common stock, no par value, 50,000,000 shares authorized, 29,806,435 shares issued at September 30, 2021 and 21,193,402 shares issued at December 31, 2020, including at each date shares held in treasury | 685,428 | | 422,536 | |
Retained earnings | 189,508 | | 190,691 | |
Accumulated other comprehensive (loss) income, net of deferred income taxes | (5,888) | | 1,336 | |
Treasury stock, at cost, 1,599,593 shares at September 30, 2021 and 1,686,046 shares at December 31, 2020 | (37,166) | | (38,890) | |
Total stockholders’ equity | 831,882 | | 575,673 | |
Total liabilities and stockholders’ equity | $ | 7,059,752 | | $ | 4,760,764 | |
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| | | | | | |
| September 30, 2017 | December 31, 2016 |
(Dollars in thousands) |
Assets | | |
Cash and due from banks | $ | 53,585 |
| $ | 58,129 |
|
Interest-bearing deposits in other banks | 16,458 |
| 8,017 |
|
Total cash and cash equivalents | 70,043 |
| 66,146 |
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Available-for-sale investment securities, at fair value (amortized cost of $792,810 at September 30, 2017 and $777,017 at December 31, 2016) | 797,021 |
| 777,940 |
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Held-to-maturity investment securities, at amortized cost (fair value of $42,808 at September 30, 2017 and $43,227 at December 31, 2016) | 42,163 |
| 43,144 |
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Other investment securities, at cost | 38,371 |
| 38,371 |
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Total investment securities | 877,555 |
| 859,455 |
|
Loans, net of deferred fees and costs | 2,327,035 |
| 2,224,936 |
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Allowance for loan losses | (18,992 | ) | (18,429 | ) |
Net loans | 2,308,043 |
| 2,206,507 |
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Loans held for sale | 3,653 |
| 4,022 |
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Bank premises and equipment, net | 51,777 |
| 53,616 |
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Bank owned life insurance | 61,696 |
| 60,225 |
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Goodwill | 132,631 |
| 132,631 |
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Other intangible assets | 11,228 |
| 13,387 |
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Other assets | 35,786 |
| 36,359 |
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Total assets | $ | 3,552,412 |
| $ | 3,432,348 |
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Liabilities | | |
Deposits: | | |
Non-interest-bearing | $ | 724,846 |
| $ | 734,421 |
|
Interest-bearing | 1,939,836 |
| 1,775,301 |
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Total deposits | 2,664,682 |
| 2,509,722 |
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Short-term borrowings | 193,717 |
| 305,607 |
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Long-term borrowings | 195,890 |
| 145,155 |
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Accrued expenses and other liabilities | 40,737 |
| 36,603 |
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Total liabilities | 3,095,026 |
| 2,997,087 |
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Stockholders’ equity | | |
Preferred stock, no par value, 50,000 shares authorized, no shares issued at September 30, 2017 and December 31, 2016 | — |
| — |
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Common stock, no par value, 24,000,000 shares authorized, 18,948,358 shares issued at September 30, 2017 and 18,939,091 shares issued at December 31, 2016, including shares in treasury | 344,831 |
| 344,404 |
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Retained earnings | 128,465 |
| 110,294 |
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Accumulated other comprehensive income (loss), net of deferred income taxes | 51 |
| (1,554 | ) |
Treasury stock, at cost, 703,530 shares at September 30, 2017 and 795,758 shares at December 31, 2016 | (15,961 | ) | (17,883 | ) |
Total stockholders’ equity | 457,386 |
| 435,261 |
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Total liabilities and stockholders’ equity | $ | 3,552,412 |
| $ | 3,432,348 |
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(a) Available-for-sale investment securities and held-to-maturity investment securities are presented net of allowance for credit losses of $0 and $236, respectively, at September 30, 2021 and $0 and $60, respectively, at December 31, 2020.
(b) Also referred to throughout this document as "total loans" and "loans held for investment."
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (Unaudited) | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands, except per share data) | 2017 | 2016 | | 2017 | 2016 | (Dollars in thousands, except per share data) | 2021 | 2020 | | 2021 | 2020 |
Interest income: | | | | Interest income: | |
Interest and fees on loans | $ | 26,370 |
| $ | 23,493 |
| | $ | 76,133 |
| $ | 69,850 |
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Interest and fees on loans and leases | | Interest and fees on loans and leases | $ | 40,748 | | $ | 35,580 | | | $ | 115,196 | | $ | 104,651 | |
Interest and dividends on taxable investment securities | 5,615 |
| 4,456 |
| | 15,280 |
| 13,875 |
| Interest and dividends on taxable investment securities | 3,755 | | 2,786 | | | 9,497 | | 12,310 | |
Interest on tax-exempt investment securities | 701 |
| 771 |
| | 2,257 |
| 2,332 |
| Interest on tax-exempt investment securities | 882 | | 614 | | | 2,358 | | 1,903 | |
Other interest income | 42 |
| 10 |
| | 83 |
| 37 |
| Other interest income | 82 | | 33 | | | 175 | | 317 | |
Total interest income | 32,728 |
| 28,730 |
| | 93,753 |
| 86,094 |
| Total interest income | 45,467 | | 39,013 | | | 127,226 | | 119,181 | |
Interest expense: | | | | Interest expense: | |
Interest on deposits | 1,865 |
| 1,427 |
| | 5,081 |
| 4,531 |
| Interest on deposits | 2,399 | | 2,669 | | | 7,793 | | 10,582 | |
Interest on short-term borrowings | 369 |
| 109 |
| | 853 |
| 301 |
| Interest on short-term borrowings | 91 | | 742 | | | 283 | | 2,355 | |
Interest on long-term borrowings | 1,274 |
| 1,071 |
| | 3,564 |
| 3,064 |
| Interest on long-term borrowings | 399 | | 483 | | | 1,334 | | 1,629 | |
| Total interest expense | 3,508 |
| 2,607 |
| | 9,498 |
| 7,896 |
| Total interest expense | 2,889 | | 3,894 | | | 9,410 | | 14,566 | |
Net interest income | 29,220 |
| 26,123 |
| | 84,255 |
| 78,198 |
| Net interest income | 42,578 | | 35,119 | | | 117,816 | | 104,615 | |
Provision for loan losses | 1,086 |
| 1,146 |
| | 2,657 |
| 2,828 |
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Net interest income after provision for loan losses | 28,134 |
| 24,977 |
| | 81,598 |
| 75,370 |
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Provision for credit losses | | Provision for credit losses | 8,994 | | 4,728 | | | 7,333 | | 33,531 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 33,584 | | 30,391 | | | 110,483 | | 71,084 | |
| Non-interest income: | | | | Non-interest income: | |
Electronic banking income | | Electronic banking income | 4,326 | | 3,765 | | | 12,655 | | 10,568 | |
Trust and investment income | | Trust and investment income | 4,158 | | 3,435 | | | 12,223 | | 10,013 | |
Insurance income | 3,345 |
| 3,137 |
| | 10,861 |
| 10,934 |
| Insurance income | 3,367 | | 3,608 | | | 11,923 | | 10,929 | |
Trust and investment income | 2,838 |
| 2,692 |
| | 8,497 |
| 7,850 |
| |
Electronic banking income | 2,544 |
| 2,765 |
| | 7,692 |
| 7,867 |
| |
Deposit account service charges | 2,407 |
| 2,833 |
| | 7,130 |
| 7,999 |
| Deposit account service charges | 2,549 | | 2,266 | | | 6,578 | | 6,995 | |
Net gain (loss) on investment securities | 1,861 |
| (1 | ) | | 2,219 |
| 862 |
| |
Mortgage banking income | 535 |
| 427 |
| | 1,389 |
| 852 |
| Mortgage banking income | 766 | | 2,658 | | | 2,726 | | 4,346 | |
Bank owned life insurance income | 482 |
| 491 |
| | 1,471 |
| 911 |
| Bank owned life insurance income | 437 | | 462 | | | 1,329 | | 1,514 | |
Commercial loan swap fees | 76 |
| 569 |
| | 995 |
| 997 |
| Commercial loan swap fees | 73 | | 68 | | | 194 | | 1,267 | |
Net (loss) gain on asset disposals and other transactions | (25 | ) | (224 | ) | | 81 |
| (1,024 | ) | |
Net loss on asset disposals and other transactions | | Net loss on asset disposals and other transactions | (308) | | (28) | | | (459) | | (237) | |
Net (loss) gain on investment securities | | Net (loss) gain on investment securities | (166) | | 2 | | | (704) | | 383 | |
Other non-interest income | 383 |
| 624 |
| | 1,499 |
| 1,549 |
| Other non-interest income | 1,144 | | 534 | | | 2,605 | | 1,393 | |
Total non-interest income | 14,446 |
| 13,313 |
| | 41,834 |
| 38,797 |
| Total non-interest income | 16,346 | | 16,770 | | | 49,070 | | 47,171 | |
Non-interest expense: | | | | Non-interest expense: | |
Salaries and employee benefit costs | 15,141 |
| 14,584 |
| | 45,686 |
| 42,881 |
| Salaries and employee benefit costs | 25,589 | | 19,410 | | | 68,276 | | 57,313 | |
Professional fees | | Professional fees | 6,426 | | 1,720 | | | 13,459 | | 5,247 | |
Net occupancy and equipment expense | 2,619 |
| 2,768 |
| | 7,980 |
| 8,155 |
| Net occupancy and equipment expense | 3,551 | | 3,383 | | | 10,167 | | 9,688 | |
Data processing and software expense | | Data processing and software expense | 2,529 | | 1,838 | | | 7,394 | | 5,344 | |
Electronic banking expense | 1,448 |
| 1,650 |
| | 4,487 |
| 4,568 |
| Electronic banking expense | 2,037 | | 2,095 | | | 6,006 | | 5,839 | |
Professional fees | 1,393 |
| 1,661 |
| | 4,532 |
| 5,243 |
| |
Data processing and software expense | 1,092 |
| 741 |
| | 3,330 |
| 2,503 |
| |
Amortization of other intangible assets | 869 |
| 1,008 |
| | 2,603 |
| 3,023 |
| Amortization of other intangible assets | 1,279 | | 857 | | | 3,267 | | 2,314 | |
Marketing expense | | Marketing expense | 1,223 | | 456 | | | 2,810 | | 1,561 | |
Franchise tax expense | 583 |
| 529 |
| | 1,750 |
| 1,550 |
| Franchise tax expense | 810 | | 882 | | | 2,487 | | 2,645 | |
Marketing expense | 488 |
| 380 |
| | 1,122 |
| 1,192 |
| |
FDIC insurance expense | 449 |
| 549 |
| | 1,339 |
| 1,706 |
| |
FDIC insurance premium | | FDIC insurance premium | 807 | | 570 | | | 1,596 | | 717 | |
Other loan expenses | | Other loan expenses | 487 | | 342 | | | 1,443 | | 1,255 | |
Communication expense | 334 |
| 518 |
| | 1,134 |
| 1,730 |
| Communication expense | 411 | | 283 | | | 1,079 | | 857 | |
Foreclosed real estate and other loan expenses | 214 |
| 189 |
| | 589 |
| 540 |
| |
Other non-interest expense | 1,928 |
| 2,265 |
| | 6,017 |
| 6,538 |
| Other non-interest expense | 12,711 | | 2,479 | | | 17,762 | | 7,665 | |
Total non-interest expense | 26,558 |
| 26,842 |
| | 80,569 |
| 79,629 |
| Total non-interest expense | 57,860 | | 34,315 | | | 135,746 | | 100,445 | |
Income before income taxes | 16,022 |
| 11,448 |
| | 42,863 |
| 34,538 |
| |
Income tax expense | 5,127 |
| 3,656 |
| | 13,393 |
| 10,789 |
| |
Net income | $ | 10,895 |
| $ | 7,792 |
| | $ | 29,470 |
| $ | 23,749 |
| |
Earnings per common share - basic | $ | 0.60 |
| $ | 0.43 |
| | $ | 1.62 |
| $ | 1.31 |
| |
Earnings per common share - diluted | $ | 0.60 |
| $ | 0.43 |
| | $ | 1.61 |
| $ | 1.31 |
| |
(Loss) income before income taxes | | (Loss) income before income taxes | (7,930) | | 12,846 | | | 23,807 | | 17,810 | |
Income tax (benefit) expense | | Income tax (benefit) expense | (2,172) | | 2,636 | | | 3,999 | | 3,616 | |
Net (loss) income | | Net (loss) income | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
| (Loss) earnings per common share - basic | | (Loss) earnings per common share - basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
(Loss) earnings per common share - diluted | | (Loss) earnings per common share - diluted | $ | (0.28) | | $ | 0.51 | | | $ | 0.99 | | $ | 0.70 | |
Weighted-average number of common shares outstanding - basic | 18,056,202 |
| 17,993,443 |
| | 18,043,692 |
| 18,015,249 |
| Weighted-average number of common shares outstanding - basic | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Weighted-average number of common shares outstanding - diluted | 18,213,533 |
| 18,110,710 |
| | 18,199,959 |
| 18,123,660 |
| Weighted-average number of common shares outstanding - diluted | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
Cash dividends declared | $ | 4,020 |
| $ | 2,912 |
| | $ | 11,299 |
| $ | 8,564 |
| Cash dividends declared | $ | 7,093 | | $ | 6,770 | | | $ | 20,991 | | $ | 20,622 | |
Cash dividends declared per common share | $ | 0.22 |
| $ | 0.16 |
| | $ | 0.62 |
| $ | 0.47 |
| Cash dividends declared per common share | $ | 0.36 | | $ | 0.34 | | | $ | 1.07 | | $ | 1.02 | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Net (loss) income | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
Other comprehensive (loss) income: | | | | | |
Available-for-sale investment securities: | | | | | |
Gross unrealized holding (loss) gain arising during the period | (7,685) | | (2,974) | | | (16,738) | | 15,480 | |
Related tax benefit (expense) | 1,592 | | 624 | | | 3,493 | | (3,251) | |
Reclassification adjustment for net loss (gain) included in net (loss) income | 166 | | (2) | | | 704 | | (383) | |
Related tax (benefit) expense | (44) | | — | | | (157) | | 80 | |
| | | | | |
| | | | | |
Net effect on other comprehensive (loss) income | (5,971) | | (2,352) | | | (12,698) | | 11,926 | |
Defined benefit plan: | | | | | |
Net gain (loss) arising during the period | 1,818 | | (533) | | | 1,826 | | (1,054) | |
Related tax (expense) benefit | (407) | | 113 | | | (408) | | 222 | |
Amortization of unrecognized gain and service cost on benefit plans | 20 | | 33 | | | 81 | | 97 | |
Related tax expense | (5) | | (7) | | | (18) | | (21) | |
Recognition of gain due to settlement and curtailment | 143 | | 531 | | | 143 | | 1,050 | |
Related tax expense | (32) | | (112) | | | (32) | | (221) | |
Net effect on other comprehensive income | 1,537 | | 25 | | | 1,592 | | 73 | |
Cash flow hedges: | | | | | |
Net gain (loss) arising during the period | 858 | | 803 | | | 4,800 | | (9,661) | |
Related tax (expense) benefit | (90) | | (168) | | | (918) | | 2,029 | |
Net effect on other comprehensive income (loss) | 768 | | 635 | | | 3,882 | | (7,632) | |
Total other comprehensive (loss) income, net of tax | (3,666) | | (1,692) | | | (7,224) | | 4,367 | |
Total comprehensive (loss) income | $ | (9,424) | | $ | 8,518 | | | $ | 12,584 | | $ | 18,561 | |
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| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2017 | 2016 | | 2017 | 2016 |
Net income | $ | 10,895 |
| $ | 7,792 |
| | $ | 29,470 |
| $ | 23,749 |
|
Other comprehensive income: | | | | | |
Available-for-sale investment securities: | | | | | |
Gross unrealized holding (loss) gain arising in the period | (236 | ) | (4,068 | ) | | 5,448 |
| 14,681 |
|
Related tax benefit (expense) | 83 |
| 1,424 |
| | (1,906 | ) | (5,139 | ) |
Less: reclassification adjustment for net gain (loss) included in net income | 1,861 |
| (1 | ) | | 2,219 |
| 862 |
|
Related tax expense | (652 | ) | — |
| | (777 | ) | (302 | ) |
Net effect on other comprehensive (loss) income | (1,362 | ) | (2,643 | ) | | 2,100 |
| 8,982 |
|
Defined benefit plans: | | | | | |
Net loss arising during the period | (1 | ) | — |
| | (1 | ) | — |
|
Amortization of unrecognized loss and service cost on benefit plans | 25 |
| 21 |
| | 72 |
| 66 |
|
Related tax expense | (9 | ) | (9 | ) | | (25 | ) | (22 | ) |
Net effect on other comprehensive income | 15 |
| 12 |
| | 46 |
| 44 |
|
Cash flow hedges: | | | | | |
Net (loss) gain arising during the period | (63 | ) | 68 |
| | (832 | ) | (184 | ) |
Related tax benefit (expense) | 22 |
| (24 | ) | | 291 |
| 64 |
|
Net effect on other comprehensive (loss) income | (41 | ) | 44 |
| | (541 | ) | (120 | ) |
Total other comprehensive (loss) income, net of tax expense | (1,388 | ) | (2,587 | ) | | 1,605 |
| 8,906 |
|
Total comprehensive income | $ | 9,507 |
| $ | 5,205 |
| | $ | 31,075 |
| $ | 32,655 |
|
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, June 30, 2021 | | $ | 422,652 | | $ | 202,359 | | $ | (2,222) | | $ | (37,284) | | $ | 585,505 | |
| | | | | | |
Net loss | | — | | (5,758) | | — | | — | | (5,758) | |
Other comprehensive loss, net of tax | | — | | — | | (3,666) | | — | | (3,666) | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (7,093) | | | — | | (7,093) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (51) | | — | | — | | 51 | | — | |
| | | | | | |
| | | | | | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (78) | | (78) | |
| | | | | | |
Common shares issued under dividend reinvestment plan | | 277 | | — | | — | | — | | 277 | |
Common shares issued under compensation plan for Boards of Directors | | 16 | | — | | — | | 44 | | 60 | |
| | | | | | |
Common shares issued under employee stock purchase plan | | 37 | | — | | — | | 101 | | 138 | |
Stock-based compensation | | 598 | | — | | — | | — | | 598 | |
| | | | | | |
Issuance of common shares related to merger with Premier Financial Bancorp, Inc. | | 261,899 | | — | | — | | — | | 261,899 | |
| | | | | | |
Balance, September 30, 2021 | | $ | 685,428 | | $ | 189,508 | | $ | (5,888) | | $ | (37,166) | | $ | 831,882 | |
| | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity | | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| Common Shares | Retained Earnings | Treasury Stock | | | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | (Dollars in thousands) | |
Balance, December 31, 2016 | $ | 344,404 |
| $ | 110,294 |
| $ | (1,554 | ) | $ | (17,883 | ) | $ | 435,261 |
| |
Balance, December 31, 2020 | | Balance, December 31, 2020 | | $ | 422,536 | | $ | 190,691 | | $ | 1,336 | | $ | (38,890) | | $ | 575,673 | |
| Net income | — |
| 29,470 |
| — |
| — |
| 29,470 |
| Net income | | — | | 19,808 | | — | | — | | 19,808 | |
Other comprehensive income, net of tax | — |
| — |
| 1,605 |
| — |
| 1,605 |
| |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | — | | — | | (7,224) | | — | | (7,224) | |
| Cash dividends declared | — |
| (11,299 | ) | — |
| — |
| (11,299 | ) | Cash dividends declared | | — | | (20,991) | | — | | — | | (20,991) | |
Exercise of stock appreciation rights | (6 | ) | — |
| — |
| 6 |
| — |
| |
Reissuance of treasury stock for common stock awards | (1,467 | ) | — |
| — |
| 1,467 |
| — |
| |
| Reissuance of treasury stock for common share awards | | Reissuance of treasury stock for common share awards | | (2,223) | | — | | — | | 2,223 | | — | |
| Reissuance of treasury stock for deferred compensation plan for Boards of Directors | — |
| — |
| — |
| 500 |
| 500 |
| Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 74 | | 74 | |
Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors | — |
| — |
| — |
| (411 | ) | (411 | ) | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,076) | | (1,076) | |
| Common shares issued under dividend reinvestment plan | 385 |
| — |
| — |
| — |
| 385 |
| Common shares issued under dividend reinvestment plan | | 655 | | — | | — | | — | | 655 | |
Common shares issued under compensation plan for Boards of Directors | 72 |
| — |
| — |
| 168 |
| 240 |
| Common shares issued under compensation plan for Boards of Directors | | 81 | | — | | — | | 228 | | 309 | |
| Common shares issued under employee stock purchase plan | 81 |
| — |
| — |
| 192 |
| 273 |
| Common shares issued under employee stock purchase plan | | 98 | | — | | — | | 275 | | 373 | |
Stock-based compensation expense | 1,362 |
| — |
| — |
| — |
| 1,362 |
| |
Balance, September 30, 2017 | $ | 344,831 |
| $ | 128,465 |
| $ | 51 |
| $ | (15,961 | ) | $ | 457,386 |
| |
Stock-based compensation | | Stock-based compensation | | 2,382 | | — | | — | | — | | 2,382 | |
| Issuance of common shares related to merger with Premier Financial Bancorp, Inc. | | Issuance of common shares related to merger with Premier Financial Bancorp, Inc. | | 261,899 | | — | | — | | — | | 261,899 | |
| Balance, September 30, 2021 | | Balance, September 30, 2021 | | $ | 685,428 | | $ | 189,508 | | $ | (5,888) | | $ | (37,166) | | $ | 831,882 | |
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, June 30, 2020 | | $ | 421,236 | | $ | 173,572 | | $ | 4,634 | | $ | (30,265) | | $ | 569,177 | |
| | | | | | |
Net income | | — | | 10,210 | | — | | — | | 10,210 | |
Other comprehensive income, net of tax | | — | | — | | (1,692) | | — | | (1,692) | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (6,770) | | — | | — | | (6,770) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (321) | | — | | — | | 321 | | — | |
| | | | | | |
| | | | | | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (66) | | (66) | |
Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (5,000) | | (5,000) | |
Common shares issued under dividend reinvestment plan | | 220 | | — | | — | | — | | 220 | |
Common shares issued under compensation plan for Boards of Directors | | (11) | | — | | — | | 63 | | 52 | |
| | | | | | |
Common shares issued under employee stock purchase plan | | (23) | | — | | — | | 134 | | 111 | |
Stock-based compensation | | 614 | | — | | — | | — | | 614 | |
| | | | | | |
| | | | | | |
| | | | | | |
Balance, September 30, 2020 | | $ | 421,715 | | $ | 177,012 | | $ | 2,942 | | $ | (34,813) | | $ | 566,856 | |
| | | | | | | | | | | | | | | | | | |
| | | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
| | Common Shares | Retained Earnings | Treasury Stock |
(Dollars in thousands) | |
Balance, December 31, 2019 | | $ | 420,876 | | $ | 187,149 | | $ | (1,425) | | $ | (12,207) | | $ | 594,393 | |
| | | | | | |
Net income | | — | | 14,194 | | — | | — | | 14,194 | |
Other comprehensive income, net of tax | | — | | — | | 4,367 | | — | | 4,367 | |
| | | | | | |
| | | | | | |
Cash dividends declared | | — | | (20,622) | | — | | — | | (20,622) | |
| | | | | | |
Reissuance of treasury stock for common share awards | | (2,583) | | — | | — | | 2,583 | | — | |
| | | | | | |
Reissuance of treasury stock for deferred compensation plan for Boards of Directors | | — | | — | | — | | 59 | | 59 | |
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors | | — | | — | | — | | (1,052) | | (1,052) | |
Common shares repurchased under share repurchase program then in effect | | — | | — | | — | | (25,000) | | (25,000) | |
Common shares issued under dividend reinvestment plan | | 463 | | — | | — | | — | | 463 | |
Common shares issued under compensation plan for Boards of Directors | | 9 | | — | | — | | 316 | | 325 | |
Common shares issued under performance unit awards, net of tax | | 41 | | — | | — | | 138 | | 179 | |
Common shares issued under employee stock purchase plan | | (40) | | — | | — | | 350 | | 310 | |
Stock-based compensation | | 2,949 | | — | | — | | — | | 2,949 | |
Impact of adoption of new accounting standard, net of taxes (a) | | — | | (3,709) | | — | | — | | (3,709) | |
| | | | | | |
| | | | | | |
Balance, September 30, 2020 | | $ | 421,715 | | $ | 177,012 | | $ | 2,942 | | $ | (34,813) | | $ | 566,856 | |
(a)On January 1, 2020, Peoples adopted ASU 2016-13, which resulted in a reduction to retained earnings of $3.7 million, net of statutory federal corporate income tax.
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2017 | 2016 | (Dollars in thousands) | 2021 | 2020 |
Net cash provided by operating activities | $ | 45,730 |
| $ | 42,195 |
| Net cash provided by operating activities | $ | 66,722 | | $ | 55,992 | |
Investing activities: | | Investing activities: | |
Available-for-sale investment securities: | | Available-for-sale investment securities: | |
Purchases | (140,791 | ) | (95,481 | ) | Purchases | (715,263) | | (171,251) | |
Proceeds from sales | 7,381 |
| 30,622 |
| Proceeds from sales | 480,127 | | 11,582 | |
Proceeds from principal payments, calls and prepayments | 111,315 |
| 93,172 |
| Proceeds from principal payments, calls and prepayments | 227,574 | | 248,021 | |
Held-to-maturity investment securities: | | Held-to-maturity investment securities: | |
Purchases | (1,310 | ) | — |
| Purchases | (181,331) | | (8,404) | |
Proceeds from principal payments | 1,997 |
| 1,747 |
| Proceeds from principal payments | 3,774 | | 3,834 | |
Net increase in loans | (99,829 | ) | (94,149 | ) | |
Net expenditures for bank premises and equipment | (3,016 | ) | (4,893 | ) | |
Other investment securities: | | Other investment securities: | |
Purchases | | Purchases | (1,221) | | (5,901) | |
Proceeds from sales | | Proceeds from sales | 8,552 | | 7,937 | |
| Net decrease (increase) in loans held for investment | | Net decrease (increase) in loans held for investment | 156,598 | | (505,161) | |
Net expenditures for premises and equipment | | Net expenditures for premises and equipment | (5,893) | | (3,702) | |
Proceeds from sales of other real estate owned | 494 |
| 148 |
| Proceeds from sales of other real estate owned | 153 | | 96 | |
Purchase of bank owned life insurance | — |
| (35,000 | ) | |
| Proceeds from bank owned life insurance contracts | | Proceeds from bank owned life insurance contracts | — | | 109 | |
Business acquisitions, net of cash received | (450 | ) | (244 | ) | Business acquisitions, net of cash received | 136,119 | | (94,856) | |
Return of (investment in) limited partnership and tax credit funds | 6 |
| (2,954 | ) | |
Net cash used in investing activities | (124,203 | ) | (107,032 | ) | |
Investment in limited partnership and tax credit funds | | Investment in limited partnership and tax credit funds | (2,900) | | (13) | |
Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 106,289 | | (517,709) | |
Financing activities: | | Financing activities: | |
Net (decrease) increase in non-interest-bearing deposits | (9,575 | ) | 27,529 |
| |
Net increase in non-interest-bearing deposits | | Net increase in non-interest-bearing deposits | 69,557 | | 311,704 | |
Net increase in interest-bearing deposits | 164,513 |
| 12,040 |
| Net increase in interest-bearing deposits | 95,881 | | 348,779 | |
Net (decrease) increase in short-term borrowings | (111,890 | ) | 2,421 |
| |
Net increase (decrease) in short-term borrowings | | Net increase (decrease) in short-term borrowings | 32,625 | | (154,914) | |
Proceeds from long-term borrowings | 54,403 |
| 55,000 |
| Proceeds from long-term borrowings | — | | 50,000 | |
Payments on long-term borrowings | (3,823 | ) | (21,899 | ) | Payments on long-term borrowings | (2,156) | | (1,857) | |
| Cash dividends paid | (10,855 | ) | (8,215 | ) | Cash dividends paid | (20,915) | | (20,147) | |
Repurchase of treasury stock under share repurchase program | — |
| (4,965 | ) | |
Repurchase of treasury stock in connection with employee incentive plan and compensation plan for Boards of Directors to be held as treasury stock | (411 | ) | (369 | ) | |
Purchase of treasury stock under share repurchase program | | Purchase of treasury stock under share repurchase program | — | | (25,000) | |
Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | | Purchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock | (1,076) | | (1,052) | |
Proceeds from issuance of common shares | 8 |
| 15 |
| Proceeds from issuance of common shares | 655 | | 262 | |
| Net cash provided by financing activities | 82,370 |
| 61,557 |
| Net cash provided by financing activities | 174,571 | | 507,775 | |
Net increase (decrease) in cash and cash equivalents | 3,897 |
| (3,280 | ) | |
Net increase in cash and cash equivalents | | Net increase in cash and cash equivalents | 347,582 | | 46,058 | |
Cash and cash equivalents at beginning of period | 66,146 |
| 71,115 |
| Cash and cash equivalents at beginning of period | 152,100 | | 115,193 | |
Cash and cash equivalents at end of period | $ | 70,043 |
| $ | 67,835 |
| Cash and cash equivalents at end of period | $ | 499,682 | | $ | 161,251 | |
| Supplemental cash flow information: | | Supplemental cash flow information: | |
Interest paid | | Interest paid | $ | 10,262 | | $ | 15,179 | |
Income taxes paid | | Income taxes paid | 6,450 | | 7,500 | |
| Supplemental noncash disclosures: | | Supplemental noncash disclosures: | |
Transfers from loans to other real estate owned | | Transfers from loans to other real estate owned | 210 | | 163 | |
Lease right-of-use assets obtained in exchange for lessee operating lease liabilities | | Lease right-of-use assets obtained in exchange for lessee operating lease liabilities | 101 | | 38 | |
See Notes to the Unaudited Condensed Consolidated Financial Statements
PEOPLES BANCORP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
Basis of Presentation: The accompanying Unaudited Condensed Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States (“("US GAAP”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, 2016 (“20162020 ("Peoples' 2020 Form 10-K”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"Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 20162020 Form 10-K, as updated by the information contained in this quarterly report on Form 10-Q.10-Q for the quarterly period ended September 30, 2021 (this "Form 10-Q"). Management has evaluated all significant events and transactions that occurred after September 30, 20172021 for potential recognition or disclosure in these unaudited condensed consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Such adjustments are normal and recurring in nature. All intercompanyIntercompany accounts and transactions have been eliminated. The Consolidated Balance Sheet at December 31, 2016,2020, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 20162020 Form 10-K. Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers a lease to be past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, the lease is typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged off amounts are credited to the allowance for credit losses.
Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. The initial allowance for credit losses determined on a collective basis is allocated to individual leases. The total of the purchase price and the allowance for credit losses is the initial amortized cost basis of these leases. The variance between the initial amortized cost basis and the fair value of a lease is considered an interest premium or discount, which is amortized or accreted into interest income on a level yield method over the life of the lease.
Leases acquired by Peoples in a business combination that are not considered purchased credit deteriorated are recorded at the fair value and the difference between the acquisition date fair value and the contractual amounts due at the acquisition date represents the discount or premium to the leases' cost basis and is accreted or amortized to interest income over the leases' remaining life using the level yield method.
The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following paragraphs related to new pronouncements should be read in conjunction with "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples’ 2020 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") 2017-122021-05 - Derivatives and HedgingLeases (Topic 815)842): Targeted improvementsLessors - Certain Leases with Variable Lease Payments. This ASU addresses stakeholders' concerns by amending the lease classification requirements for lessors to accounting for hedging activities. The amendments in thisalign them with practice under Topic 840. This ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments will beis effective for interim and annual reporting periodsfiscal years beginning after December 15, 2018 (effective January 1, 20192021, for Peoples).all entities. Peoples will adoptearly adopted this new accounting guidanceASU as required, and it isof September 30, 2021. The adoption of this ASU did not expected to have a materialan impact on Peoples' consolidated financial statements.
ASU 2017-112020-04 - Earnings Per ShareReference Rate Reform (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)848): (Part 1) Accounting for certain financial instruments with down round features and (Part II), ReplacementFacilitation of the indefinite deferral for mandatory redeemable financial instrumentsEffects of certain nonpublic entities Reference Rate Reform on Financial Reporting. This ASU allows relief where the benchmark interest rate is changed on a loan, lease or hedging relationship between March 12, 2020
and certain mandatory redeemable non-controlling interests with a scope exception. Part IDecember 31, 2022. This ASU was early adopted as of the update addresses the complexity of accounting for certain financial instruments with down round features such as warrants or convertible instrumentsSeptember 30, 2021, and will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2017-09 - Compensation - Stock Compensation (Topic 718): Scope and Modification Accounting. An entity may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect of the change can vary significantly. Modification is currently defined as "a change in any of the terms or conditions of a share-based payment award." The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. The amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2017-07 - Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments will improve the consistency, transparency, and usefulness of financial information and will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt this new accounting guidance as required, and it will have nosignificant impact on Peoples' consolidated financial statements, asbut is expected to reduce the accrual for pension plan benefits for all participants was frozen asaccounting burden of March 1, 2011.assessing contracts impacted by reference rate reform.
ASU 2017-042019-12 - Intangibles - Goodwill and OtherIncome Taxes (Topic 350)740): Simplifying the TestAccounting for Goodwill Impairment. This ASU is to simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consideration. Phase 2 of the project will not impact Peoples' consolidated financial statements. ASU 2017-01 will become effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Peoples will adopt Phase 1 of this new accounting guidance as required and management will apply this guidance to future transactions upon adoption. Phase 2, which was released as ASU 2017-05 will not impact Peoples' consolidated financial statements.
ASU 2014-09 - Revenue from Contracts with Customers (Topic 606). There are many aspects of this new accounting guidance that are still being interpreted and the FASB has issued updates to certain aspects of the guidance to address implementation issues. The FASB issued updates in March, April, May and December of 2016, and September of 2017, clarifying several areas of the guidance. These clarifications included:
•Principal versus agent considerations,
•Collectibility, sales tax and non-cash consideration, practical expedients for contract modifications and
completed contracts,
•Identification of performance obligations
•Licensing implementation guidance, and
Transition provisions for public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include, or the inclusion of, its financial statements or financial information in another public business entity's filing.
This accounting guidance can be implemented using either a full retrospective method or a modified retrospective approach. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018 for Peoples). Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. Peoples will adopt this new accounting guidance in 2018, as required, and expects to adopt the new guidance using the modified retrospective approach. The modified retrospective approach uses a cumulative-effect adjustment to retained earnings to reflect uncompleted contracts in the initial application of the guidance. Peoples' preliminary analysis indicates that certain non-interest income financial statement line items contain revenue streams that are in the scope of this update, the most substantial of which is insurance income. Based on Peoples’ evaluation to date, Peoples does not expect the adoption of this accounting guidance to have a significant impact on Peoples’ financial condition or results of operations; however, the review is ongoing. Peoples will continue to evaluate the impact of this accounting guidance, including any additional guidance issued, during the completion of this internal assessment.
ASU 2016-13 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss (“CECL”) model. Under the CECL model, Peoples will be required to present
certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity debt securities, at the net amount expected to be collected.
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current US GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, Peoples expects that the adoption of the CECL model will materially affect how the allowance for loan losses is determined and could require significant increases to the allowance for loan losses. Moreover, the CECL model may create more volatility in the level of Peoples' allowance for loan losses. If required to materially increase the level of allowance for loan losses for any reason, such increase could adversely affect Peoples' business, financial condition and results of operations.
The new CECL standard will become effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples is currently evaluating the impact that the CECL model will have on Peoples' financial statements and expects to recognize a one-time cumulative-effect adjustment to the allowance for loan loss provision as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. Peoples has not yet determined the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on Peoples' financial condition or results of operations.
ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.Income Taxes. The amendments in this ASU require all excesssimplify the accounting for income tax benefits or tax deficiencies of stock awardstaxes by removing certain exceptions to be recognizedthe general principles in the income statement when the awards vest or are settled.Topic 740. The amendments also allow an employer to repurchase moreimprove consistent application of an employee’s shares than it could under previous guidanceand simplify US GAAP for tax withholding purposes without triggering liability accountingother areas of Topic 740 by clarifying and to make a policy election to account for forfeitures as they occur. Peoples adopted this pronouncement as of January 1, 2017, and will continue using an estimated forfeiture rate. In the first nine months of 2017, Peoples recorded a tax benefit of $123,000 associated with the adoption of this ASU for the tax benefit of awards that settled or vested during the year, with the majority recorded in the first quarter of 2017.
ASU 2016-02 - Leases (Topic 842): This ASU was issued to improve the financial reporting of leasing activities and provide a faithful representation of leasing transactions and improve understanding and comparability of a lessee's financial statements. Under the new accounting guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. This ASU will require both finance and operating leases to be recognized on the balance sheet. This ASU will affect all companies and organizations that lease real estate. This ASU will become effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2016-01 - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Theamending existing guidance. These amendments in this ASU are intended to enhance the reporting model for financial instruments to provide users of financial statements with more useful information. The amendments require equity investments to be measured at fair value with changes in fair value recognized in net income. However, a reporting organization may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment (if any,) from observable price changes in orderly transactions for similar investments of the same issuer. This ASU will be effective for fiscal years beginning after December 15, 2017 (effective2020, and interim periods within those fiscal years. Peoples adopted this ASU as of January 1, 2018 for Peoples). Peoples is currently evaluating the impact2021. The adoption of adopting the new accounting guidancethis ASU did not have a material effect on Peoples' consolidated financial statements which may result in an impact to the income statement on a quarterly and annual basis, as market values fluctuate. Peoples will adopt this accounting guidance as of the required effective date. As of September 30, 2017, Peoples had net unrealized gains on equity securities of $6.5 million.statements.
Note 2 Fair Value of Assets and Liabilities Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Unaudited Condensed Consolidated Financial InstrumentsStatements. 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' 2020 Form 10-K.Available-for-sale securitiesAssets 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 were comprisedbetween levels of the following:fair value hierarchy during the periods presented.
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis |
| | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using |
(Dollars in thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
Fair Value |
September 30, 2017 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 104,560 |
| $ | — |
| $ | 104,560 |
| $ | — |
|
Residential mortgage-backed securities | 672,106 |
| — |
| 672,106 |
| — |
|
Commercial mortgage-backed securities | 7,128 |
| — |
| 7,128 |
| — |
|
Bank-issued trust preferred securities | 5,154 |
| — |
| 5,154 |
| — |
|
Equity securities | 8,073 |
| 7,914 |
| 159 |
| — |
|
Total available-for-sale securities | $ | 797,021 |
| $ | 7,914 |
| $ | 789,107 |
| $ | — |
|
December 31, 2016 | | | | |
Obligations of: | | | | |
U.S. government sponsored agencies | $ | 1,000 |
| $ | — |
| $ | 1,000 |
| $ | — |
|
States and political subdivisions | 117,230 |
| — |
| 117,230 |
| — |
|
Residential mortgage-backed securities | 626,567 |
| — |
| 626,567 |
| — |
|
Commercial mortgage-backed securities | 19,291 |
| — |
| 19,291 |
| — |
|
Bank-issued trust preferred securities | 4,899 |
| — |
| 4,899 |
| — |
|
Equity securities | 8,953 |
| 8,734 |
| 219 |
| — |
|
Total available-for-sale securities | $ | 777,940 |
| $ | 8,734 |
| $ | 769,206 |
| $ | — |
|
Held-to-maturity securitiesThe following table provides the fair value for assets and liabilities required to be measured and reported at fair value were comprisedon a recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Recurring Fair Value Measurements at Reporting Date |
| | September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| |
Assets: | | | | | | | | |
Available-for-sale investment securities: | | | | | | | | |
Obligations of: | | | | | | | | |
| | | | | | | | |
U.S. government sponsored agencies | | $ | — | | $ | 78,481 | | $ | — | | | $ | — | | $ | 5,363 | | $ | — | |
States and political subdivisions | | — | | 252,919 | | — | | | — | | 114,919 | | — | |
Residential mortgage-backed securities | | — | | 898,459 | | — | | | — | | 623,218 | | — | |
Commercial mortgage-backed securities | | — | | 62,552 | | — | | | — | | 4,783 | | — | |
Bank-issued trust preferred securities | | — | | 4,679 | | — | | | — | | 4,730 | | — | |
| | | | | | | | |
Total available-for-sale securities | | — | | 1,297,090 | | — | | | — | | 753,013 | | — | |
Equity investment securities (a) | | 145 | | 245 | | — | | | 107 | | 192 | | — | |
Derivative assets (b) | | — | | 15,653 | | — | | | — | | 27,332 | | — | |
Liabilities: | | | | | | | | |
Derivative liabilities (c) | | $ | — | | $ | 22,904 | | $ | — | | | $ | — | | $ | 39,395 | | $ | — | |
(a) Included in "Other investment securities" on the Unaudited Consolidated Balance Sheets. For additional information, see "Note 3 Investment Securities" of the following: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. |
| | | | | | | | | | | | |
| | Fair Value at Reporting Date Using |
(Dollars in thousands) | | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs |
Fair Value | (Level 1) | (Level 2) | (Level 3) |
September 30, 2017 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 4,463 |
| $ | — |
| $ | 4,463 |
| $ | — |
|
Residential mortgage-backed securities | 33,690 |
| — |
| 33,690 |
| — |
|
Commercial mortgage-backed securities | 4,655 |
| — |
| 4,655 |
| — |
|
Total held-to-maturity securities | $ | 42,808 |
| $ | — |
| $ | 42,808 |
| $ | — |
|
December 31, 2016 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 4,041 |
| $ | — |
| $ | 4,041 |
| $ | — |
|
Residential mortgage-backed securities | 33,762 |
| — |
| 33,762 |
| — |
|
Commercial mortgage-backed securities | 5,424 |
| — |
| 5,424 |
| — |
|
Total held-to-maturity securities | $ | 43,227 |
| $ | — |
| $ | 43,227 |
| $ | — |
|
(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 usedreported by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBORLondon Interbank Offered Rate ("LIBOR") yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Equity Investment Securities:The fair values of Peoples' equity investment securities are obtained from quoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).
Certain financial assetsDerivative Assets and financial liabilities are measured atLiabilities: The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on similar products, or other related market input parameters (Level 2).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets measured at fair value on a non-recurring basis included the following:Non-Recurring Basis
Impaired Loans: Impaired loans are measured and reported at fair value when the amounts to be received are less than the carrying value of the loans. One of the allowable methods for determining the amount of impairment is estimating fair value using the fair value of the collateral for collateral-dependent loans. Management’s determination ofThe following table provides the fair value for these loans uses a market approach representing the estimated net proceeds to be received from the saleeach class of the collateral based on observable market prices or market value provided by independent, licensed or certified appraisers (Level 2 inputs). At September 30, 2017, impaired loans with an aggregate outstanding principal balance of $33.0 million were measured and reported at a fair value of $27.0 million. For the three and nine months ended September 30, 2017, Peoples recognized $83,000 and $408,000 of recoveries on impaired loans, respectively, through the allowance for loan losses.
The following table presents the fair values of financial assets and liabilities carried on Peoples’ Unaudited Consolidated Balance Sheets, including those financial assets and financial liabilities that are notrequired to be measured and reported at fair value on a recurringnon-recurring basis or non-recurring basis:
|
| | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(Dollars in thousands) | Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
Financial assets: | | | | | |
Cash and cash equivalents | $ | 70,043 |
| $ | 70,043 |
| | $ | 66,146 |
| $ | 66,146 |
|
Investment securities | 877,555 |
| 878,200 |
| | 859,455 |
| 859,538 |
|
Loans (1) | 2,311,696 |
| 2,252,054 |
| | 2,210,529 |
| 2,152,544 |
|
Bank premises and equipment, net | 51,777 |
| 51,777 |
| | 53,616 |
| 53,616 |
|
Bank owned life insurance | 61,696 |
| 61,696 |
| | 60,225 |
| 60,225 |
|
Financial liabilities: | | | | | |
Deposits | $ | 2,664,682 |
| $ | 2,664,513 |
| | $ | 2,509,722 |
| $ | 2,512,647 |
|
Short-term borrowings | 193,717 |
| 193,717 |
| | 305,607 |
| 305,607 |
|
Long-term borrowings | 195,890 |
| 195,857 |
| | 145,155 |
| 145,106 |
|
Cash flow hedges (2) | 916 |
| 916 |
| | 1,779 |
| 1,779 |
|
(1) Includes loans held for sale.
(2) For additional information, see Note 9 of the Notes toon the Unaudited Consolidated Financial Statements.Balance Sheets by level in the fair value hierarchy during the nine months ended September 30, 2021 and December 31, 2020.The methodologies for estimating | | | | | | | | | | | | | | | | | | | | | | | | |
| | Non-Recurring Fair Value Measurements at Reporting Date |
| | September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| |
Assets: | | | | | | | | |
Loans held for sale | | $ | — | | $ | 2,751 | | $ | — | | | $ | — | | $ | 4,733 | | $ | — | |
Other real estate owned ("OREO") | | $ | — | | $ | — | | $ | 11,268 | | | $ | — | | $ | — | | $ | 134 | |
Servicing rights (a)(b) | | $ | — | | $ | — | | $ | 2,294 | | | $ | — | | $ | — | | $ | 2,591 | |
(a) Included in "Other intangible assets" on the Unaudited Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.
(b) Peoples established a valuation allowance on servicing rights of $16 at September 30, 2021 and $161 at December 31, 2020, as the fair value of financial assetsthe servicing rights was less than the carrying value.
Loans Held for Sale:Loans originated and liabilities thatintended to be sold in the secondary market, generally 1-4 family residential loans, are measuredcarried, in aggregate, at the lower of cost or estimated fair value. Peoples uses a valuation model using quoted market prices of similar instruments in arriving at the fair value (Level 2).
Other Real Estate Owned: OREO, included in "Other assets" on the Unaudited Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis. Peoples assesses the carrying value of OREO quarterly for impairment considering market activity and recent real estate appraisals. These appraisals may utilize a single valuation approach or non-recurring basisa combination of approaches including the comparable sales approach and the income approach (Level 3). The increase in OREO for the nine months ended September 30, 2021 was due to the OREO acquired in the Premier Financial Bancorp Inc. ("Premier") acquisition.
Servicing Rights: Servicing rights are discussed above.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 |
(Dollars in thousands) | | Fair Value Hierarchy Level | September 30, 2021 | | December 31, 2020 |
| Carrying Amount | Fair Value | | Carrying Amount | Fair Value |
| |
Assets: | | | | | | | |
Cash and cash equivalents | | 1 | $ | 499,682 | | $ | 499,682 | | | $ | 152,100 | | $ | 152,100 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Held-to-maturity investment securities: | | | | | | | |
Obligations of: | | | | | | | |
U.S. government sponsored agencies | | 2 | 29,995 | | 29,147 | | | — | | — | |
States and political subdivisions | | 2 | 124,181 | | 122,435 | | | 35,139 | | 35,484 | |
Residential mortgage-backed securities | | 2 | 41,035 | | 41,501 | | | 25,890 | | 26,742 | |
Commercial mortgage-backed securities | | 2 | 47,889 | | 46,917 | | | 5,429 | | 5,856 | |
Total held-to-maturity securities | | | 243,100 | | 240,000 | | | 66,458 | | 68,082 | |
| | | | | | | |
| | | | | | | |
Other investment securities: | | | | | | | |
Other investment securities at cost: | | | | | | | |
Federal Home Loan Bank ("FHLB") stock | | n/a | 17,918 | | 17,918 | | | 21,718 | | 21,718 | |
Federal Reserve Bank ("FRB") stock | | n/a | 13,311 | | 13,311 | | | 13,311 | | 13,311 | |
Total other investment securities at cost | | | 31,229 | | 31,229 | | | 35,029 | | 35,029 | |
Other investment securities at fair value: | | | | | | | |
Nonqualified deferred compensation (a) | | 2 | 2,083 | | 2,083 | | | 1,867 | | 1,867 | |
Other investment securities (b) | | 2 | 784 | | 784 | | | 365 | | 365 | |
Total other investment securities at fair value | | | 2,867 | | 2,867 | | | 2,232 | | 2,232 | |
Total other investment securities (b) | | | 34,096 | | 34,096 | | | 37,261 | | 37,261 | |
Loans and leases, net of deferred fees and costs | | 3 | 4,491,028 | | 4,595,800 | | | 3,402,940 | | 3,458,732 | |
Bank owned life insurance | | 3 | 72,920 | | 72,920 | | | 71,591 | | 71,591 | |
Liabilities: | | | | | | | |
Deposits | | 2 | $ | 5,832,020 | | $ | 5,546,935 | | | $ | 3,910,459 | | $ | 3,773,602 | |
Short-term borrowings | | 2 | 184,693 | | 186,028 | | | 73,261 | | 74,170 | |
Long-term borrowings | | 2 | 99,411 | | 106,497 | | | 110,568 | | 117,364 | |
(a) Nonqualified deferred compensation includes mutual funds as part of the investment.
(b) "Other investment securities", as reported on the Unaudited Consolidated Balance Sheets, also included equity investment securities at September 30, 2021
and at December 31, 2020, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
table above and not included in this table.
For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument.instruments. These instruments include cash and cash equivalents, demand and other non-maturity deposits, and overnight borrowings. Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:
Loans:Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and balances due from banks is a reasonable estimate of fair value (Level 1).
Held-to-Maturity Investment Securities:The fair values used by Peoples are obtained from an independent pricing service and represent fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing service in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Other Investment Securities: Other investment securities are measured at their respective redemption values due to restrictions placed on their transferability (Level 2).
Loans and Leases, Net of Deferred Fees and Costs: The fair value of portfolio loans and leases assumes sale of the underlying notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity. Peoples considered interest rate, credit and market factors in estimating the fair value of loans (Level 3 inputs)3). InFair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the current whole loancredit risk associated with the loans and other market financial investorsfactors, including liquidity.
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are generally requiring a higher raterecorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of return than the return inherent in loans if held to maturity given the lack of market liquidity. This divergence accounts for the majority of the difference in carrying amount over fair value. 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 (Level 2 inputs)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: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 inputs)2).
Cash flow hedges: Cash flow hedgesCertain assets and financial liabilities that are recognized in the Unaudited Consolidated Balance Sheetsnot required to be measured or reported at their fair value within other assets. Thecan be subject to fair value for derivative instrumentsadjustments in certain circumstances (for example, when there is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2 inputs)evidence of impairment).
CustomerThese assets and liabilities include the following: customer relationships, the deposit base, banking center networks, and other information required to compute Peoples’ aggregate fair value that are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.
Note 3 Investment Securities
Available-for-sale
The following table summarizes Peoples' available-for-sale investment securities:
| | | | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2021 | | | | |
Obligations of: | | | | |
| | | | |
U.S. government sponsored agencies | $ | 78,916 | | $ | 102 | | $ | (537) | | $ | 78,481 | |
States and political subdivisions | 252,706 | | 3,220 | | (3,007) | | 252,919 | |
Residential mortgage-backed securities | 894,848 | | 10,453 | | (6,842) | | 898,459 | |
Commercial mortgage-backed securities | 63,568 | | 85 | | (1,101) | | 62,552 | |
Bank-issued trust preferred securities | 4,616 | | 233 | | (170) | | 4,679 | |
| | | | |
Total available-for-sale securities | $ | 1,294,654 | | $ | 14,093 | | $ | (11,657) | | $ | 1,297,090 | |
December 31, 2020 | | | | |
Obligations of: | | | | |
| | | | |
U.S. government sponsored agencies | $ | 4,960 | | $ | 403 | | $ | — | | $ | 5,363 | |
States and political subdivisions | 110,401 | | 4,642 | | (124) | | 114,919 | |
Residential mortgage-backed securities | 609,865 | | 15,377 | | (2,024) | | 623,218 | |
Commercial mortgage-backed securities | 4,622 | | 161 | | — | | 4,783 | |
Bank-issued trust preferred securities | 4,696 | | 192 | | (158) | | 4,730 | |
| | | | |
Total available-for-sale securities | $ | 734,544 | | $ | 20,775 | | $ | (2,306) | | $ | 753,013 | |
|
| | | | | | | | | | | | |
(Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2017 | | | | |
Obligations of: | | | | |
States and political subdivisions | $ | 102,415 |
| $ | 2,343 |
| $ | (198 | ) | $ | 104,560 |
|
Residential mortgage-backed securities | 676,576 |
| 3,965 |
| (8,435 | ) | 672,106 |
|
Commercial mortgage-backed securities | 7,105 |
| 40 |
| (17 | ) | 7,128 |
|
Bank-issued trust preferred securities | 5,188 |
| 147 |
| (181 | ) | 5,154 |
|
Equity securities | 1,526 |
| 6,611 |
| (64 | ) | 8,073 |
|
Total available-for-sale securities | $ | 792,810 |
| $ | 13,106 |
| $ | (8,895 | ) | $ | 797,021 |
|
December 31, 2016 | | | | |
Obligations of: | | | | |
U.S. government sponsored agencies | $ | 1,000 |
| $ | — |
| $ | — |
| $ | 1,000 |
|
States and political subdivisions | 115,657 |
| 1,836 |
| (263 | ) | 117,230 |
|
Residential mortgage-backed securities | 633,802 |
| 3,758 |
| (10,993 | ) | 626,567 |
|
Commercial mortgage-backed securities | 19,337 |
| 41 |
| (87 | ) | 19,291 |
|
Bank-issued trust preferred securities | 5,169 |
| 91 |
| (361 | ) | 4,899 |
|
Equity securities | 2,052 |
| 6,969 |
| (68 | ) | 8,953 |
|
Total available-for-sale securities | $ | 777,017 |
| $ | 12,695 |
| $ | (11,772 | ) | $ | 777,940 |
|
Peoples' investment in equity securities was comprised largely of common stocks issued by various unrelated bank holding companies at both September 30, 2017 and December 31, 2016. At September 30, 2017, there were no securities of a single issuer that exceeded 10% of stockholders' equity.
The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the periods ended September 30 were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, | | September 30, | | September 30, |
(Dollars in thousands) | 2017 | 2016 | | 2017 | 2016 | (Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Gross gains realized | $ | 1,877 |
| $ | — |
| | $ | 2,235 |
| $ | 863 |
| Gross gains realized | $ | 150 | | $ | 2 | | | $ | 786 | | $ | 386 | |
Gross losses realized | 16 |
| 1 |
| | 16 |
| 1 |
| Gross losses realized | (316) | | — | | | (1,490) | | (3) | |
Net gain (loss) realized | $ | 1,861 |
| $ | (1 | ) | | $ | 2,219 |
| $ | 862 |
| |
Net (loss) gain realized | | Net (loss) gain realized | $ | (166) | | $ | 2 | | | $ | (704) | | $ | 383 | |
The cost of investment securities sold, and any resulting gain or loss, waswere based on the specific identification method and recognized as of the trade date.
The following table presents a summary of available-for-sale investment securities that had anbeen in a continuous unrealized loss:loss loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2021 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
| | | | | | | | | | |
U.S. government sponsored agencies | $ | 49,570 | | $ | 537 | | $ | 7 | | | $ | — | | $ | — | | $ | — | | | $ | 49,570 | | $ | 537 | |
States and political subdivisions | 128,402 | | 3,007 | | 76 | | | — | | — | | — | | | 128,402 | | 3,007 | |
Residential mortgage-backed securities | 466,518 | | 6,079 | | 72 | | | 36,160 | | 763 | | 16 | | | 502,678 | | 6,842 | |
Commercial mortgage-backed securities | 48,974 | | 1,101 | | 17 | | | — | | — | | — | | | 48,974 | | 1,101 | |
Bank-issued trust preferred securities | — | | — | | — | | | 1,830 | | 170 | | 2 | | | 1,830 | | 170 | |
| | | | | | | | | | |
Total | $ | 693,464 | | $ | 10,724 | | 172 | | | $ | 37,990 | | $ | 933 | | 18 | | | $ | 731,454 | | $ | 11,657 | |
December 31, 2020 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
States and political subdivisions | $ | 17,651 | | $ | 124 | | 5 | | | $ | — | | $ | — | | — | | | $ | 17,651 | | $ | 124 | |
Residential mortgage-backed securities | 156,659 | | 1,795 | | 45 | | | 9,892 | | 229 | | 13 | | | 166,551 | | 2,024 | |
| | | | | | | | | | |
Bank-issued trust preferred securities | 494 | | 6 | | 1 | | | 1,848 | | 152 | | 2 | | | 2,342 | | 158 | |
| | | | | | | | | | |
Total | $ | 174,804 | | $ | 1,925 | | 51 | | | $ | 11,740 | | $ | 381 | | 15 | | | $ | 186,544 | | $ | 2,306 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2017 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | 7,622 |
| $ | 62 |
| 6 |
| | $ | 3,957 |
| $ | 136 |
| 1 |
| | $ | 11,579 |
| $ | 198 |
|
Residential mortgage-backed securities | 300,639 |
| 3,348 |
| 77 |
| | 163,685 |
| 5,087 |
| 51 |
| | 464,324 |
| 8,435 |
|
Commercial mortgage-backed securities | 3,875 |
| 17 |
| 2 |
| | — |
| — |
| — |
| | 3,875 |
| 17 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| | 2,818 |
| 181 |
| 3 |
| | 2,818 |
| 181 |
|
Equity securities | — |
| — |
| — |
| | 112 |
| 64 |
| 1 |
| | 112 |
| 64 |
|
Total | $ | 312,136 |
| $ | 3,427 |
| 85 |
| | $ | 170,572 |
| $ | 5,468 |
| 56 |
| | $ | 482,708 |
| $ | 8,895 |
|
December 31, 2016 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | 23,501 |
| $ | 263 |
| 28 |
| | $ | — |
| $ | — |
| — |
| | $ | 23,501 |
| $ | 263 |
|
Residential mortgage-backed securities | 427,088 |
| 8,495 |
| 108 |
| | 46,631 |
| 2,498 |
| 22 |
| | 473,719 |
| 10,993 |
|
Commercial mortgage-backed securities | 7,770 |
| 87 |
| 4 |
| | — |
| — |
| — |
| | 7,770 |
| 87 |
|
Bank-issued trust preferred securities | — |
| — |
| — |
| | 2,637 |
| 361 |
| 3 |
| | 2,637 |
| 361 |
|
Equity securities | 263 |
| 3 |
| 1 |
| | 110 |
| 65 |
| 1 |
| | 373 |
| 68 |
|
Total | $ | 458,622 |
| $ | 8,848 |
| 141 |
| | $ | 49,378 |
| $ | 2,924 |
| 26 |
| | $ | 508,000 |
| $ | 11,772 |
|
Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair valuean allowance for credit losses on a quarterly basis. At September 30, 2017,2021, management concluded that no individual securities were other-than-temporarily impaired sinceat an unrealized loss position required an allowance for credit losses. At September 30, 2021, Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both September 30, 20172021 and December 31, 20162020 were largely attributable to changes in market interest rates and spreads since the securities were purchased.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 $5.7 million at September 30, 2021 and $2.7 million at December 31, 2020.
At September 30, 2017,2021, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or four2 positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. TwoNeither of the four2 positions had a fair value of less than 90% of theirits book value, with an aggregate book and fair value of $0.7 million and $0.4 million, respectively.value. Management analyzed the underlying credit quality of these mortgage-backed securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low remaining number of loans remaining inunderlying these securities.
Furthermore, theThe unrealized losses with respect to the three2 bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at September 30, 20172021 were primarily attributable to the floating-ratesubordinated nature of those investments, the current interest rate environment and spreads within that sector.
debt.
The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at September 30, 2017.2021. The weighted-average yields are based on the amortized cost. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are calculated on a fully tax-equivalent basis using a 35% federal income tax rate.
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | — | | $ | 1,996 | | $ | 66,436 | | $ | 10,484 | | $ | 78,916 | |
States and political subdivisions | 7,314 | | 28,647 | | 67,074 | | 149,671 | | 252,706 | |
Residential mortgage-backed securities | 7 | | 981 | | 56,615 | | 837,245 | | 894,848 | |
Commercial mortgage-backed securities | 1,887 | | — | | 34,169 | | 27,512 | | 63,568 | |
Bank-issued trust preferred securities | — | | — | | 4,616 | | — | | 4,616 | |
| | | | | |
Total available-for-sale securities | $ | 9,208 | | $ | 31,624 | | $ | 228,910 | | $ | 1,024,912 | | $ | 1,294,654 | |
Fair value | | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | — | | $ | 2,069 | | $ | 66,161 | | $ | 10,251 | | $ | 78,481 | |
States and political subdivisions | 7,375 | | 29,538 | | 68,100 | | 147,906 | | 252,919 | |
Residential mortgage-backed securities | 7 | | 1,006 | | 56,712 | | 840,734 | | 898,459 | |
Commercial mortgage-backed securities | 1,907 | | — | | 33,763 | | 26,882 | | 62,552 | |
Bank-issued trust preferred securities | — | | — | | 4,679 | | — | | 4,679 | |
| | | | | |
Total available-for-sale securities | $ | 9,289 | | $ | 32,613 | | $ | 229,415 | | $ | 1,025,773 | | $ | 1,297,090 | |
Total weighted-average yield | 2.07 | % | 2.56 | % | 1.19 | % | 1.58 | % | 1.54 | % |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 995 |
| $ | 11,339 |
| $ | 28,293 |
| $ | 61,788 |
| $ | 102,415 |
|
Residential mortgage-backed securities | 13 |
| 15,029 |
| 37,213 |
| 624,321 |
| 676,576 |
|
Commercial mortgage-backed securities | — |
| 5,725 |
| — |
| 1,380 |
| 7,105 |
|
Bank-issued trust preferred securities | — |
| — |
| 2,190 |
| 2,998 |
| 5,188 |
|
Equity securities | | | | | 1,526 |
|
Total available-for-sale securities | $ | 1,008 |
| $ | 32,093 |
| $ | 67,696 |
| $ | 690,487 |
| $ | 792,810 |
|
Fair value | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | 1,002 |
| $ | 11,451 |
| $ | 28,743 |
| $ | 63,364 |
| $ | 104,560 |
|
Residential mortgage-backed securities | 13 |
| 14,998 |
| 37,274 |
| 619,821 |
| 672,106 |
|
Commercial mortgage-backed securities | — |
| 5,762 |
| — |
| 1,366 |
| 7,128 |
|
Bank-issued trust preferred securities | — |
| — |
| 2,337 |
| 2,817 |
| 5,154 |
|
Equity securities | | | | | 8,073 |
|
Total available-for-sale securities | $ | 1,015 |
| $ | 32,211 |
| $ | 68,354 |
| $ | 687,368 |
| $ | 797,021 |
|
Total weighted-average yield | 3.48 | % | 3.61 | % | 3.55 | % | 3.36 | % | 3.39 | % |
Held-to-MaturityHeld-to-maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
| | (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | (Dollars in thousands) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
September 30, 2017 | | |
September 30, 2021 | | September 30, 2021 | | | |
Obligations of: | | Obligations of: | | | |
U.S. government sponsored agencies | | U.S. government sponsored agencies | $ | 29,995 | | $ | — | | $ | 85 | | $ | (933) | | $ | 29,147 | |
States and political subdivisions | | States and political subdivisions | 124,417 | | (236) | | 675 | | (2,421) | | 122,435 | |
Residential mortgage-backed securities | | Residential mortgage-backed securities | 41,035 | | — | | 661 | | (195) | | 41,501 | |
Commercial mortgage-backed securities | | Commercial mortgage-backed securities | 47,889 | | — | | 236 | | (1,208) | | 46,917 | |
Total held-to-maturity securities | | Total held-to-maturity securities | $ | 243,336 | | $ | (236) | | $ | 1,657 | | $ | (4,757) | | $ | 240,000 | |
December 31, 2020 | | December 31, 2020 | | | |
Obligations of: | | Obligations of: | | | |
States and political subdivisions | $ | 3,812 |
| $ | 651 |
| $ | — |
| $ | 4,463 |
| States and political subdivisions | $ | 35,199 | | $ | (60) | | $ | 510 | | $ | (165) | | $ | 35,484 | |
Residential mortgage-backed securities | 33,648 |
| 448 |
| (406 | ) | 33,690 |
| Residential mortgage-backed securities | 25,890 | | — | | 852 | | — | | 26,742 | |
Commercial mortgage-backed securities | 4,703 |
| — |
| (48 | ) | 4,655 |
| Commercial mortgage-backed securities | 5,429 | | — | | 427 | | — | | 5,856 | |
Total held-to-maturity securities | $ | 42,163 |
| $ | 1,099 |
| $ | (454 | ) | $ | 42,808 |
| Total held-to-maturity securities | $ | 66,518 | | $ | (60) | | $ | 1,789 | | $ | (165) | | $ | 68,082 | |
December 31, 2016 | | |
Obligations of: | | |
States and political subdivisions | $ | 3,820 |
| $ | 221 |
| $ | — |
| $ | 4,041 |
| |
Residential mortgage-backed securities | 33,858 |
| 432 |
| (528 | ) | 33,762 |
| |
Commercial mortgage-backed securities | 5,466 |
| — |
| (42 | ) | 5,424 |
| |
Total held-to-maturity securities | $ | 43,144 |
| $ | 653 |
| $ | (570 | ) | $ | 43,227 |
| |
There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for any of the three orand nine months ended September 30, 20172021 and 2016.2020.
Management evaluates held-to-maturity investment securities for an allowance for credit losses on a quarterly basis. The majority of Peoples' held-to-maturity investment securities are obligations of states and political subdivisions with the remaining securities issued by U.S. government sponsored agencies. Peoples analyzed these securities using cumulative default rate averages for investment grade municipal securities. Since December 31, 2020, Peoples has purchased securities and designated them as held-to maturity and, as a result, at September 30, 2021, Peoples recorded $236,000 of allowance for credit losses for held-to-maturity securities, compared to $60,000 at December 31, 2020.
The following table presents a summary of held-to-maturity investment securities that had anbeen in a continuous unrealized loss:loss position:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2021 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
U.S. government sponsored agencies | $ | 25,587 | | $ | 933 | | 5 | | | — | | — | | — | | | $ | 25,587 | | $ | 933 | |
States and political subdivisions | 89,532 | | 2,421 | | 37 | | | — | | — | | — | | | 89,532 | | 2,421 | |
Residential mortgage-backed securities | 17,426 | | 195 | | 2 | | | — | | — | | — | | | 17,426 | | 195 | |
Commercial mortgage-backed securities | 39,641 | | 1,208 | | 11 | | | — | | — | | — | | | 39,641 | | 1,208 | |
Total | $ | 172,186 | | $ | 4,757 | | 55 | | | $ | — | | $ | — | | — | | | $ | 172,186 | | $ | 4,757 | |
December 31, 2020 | | | | | | | | | | |
Obligations of: | | | | | | | | | | |
States and political subdivisions | $ | 18,662 | | $ | 165 | | 5 | | | $ | — | | $ | — | | — | | | $ | 18,662 | | $ | 165 | |
| | | | | | | | | | |
| | | | | | | | | | |
Total | $ | 18,662 | | $ | 165 | | 5 | | | $ | — | | $ | — | | — | | | $ | 18,662 | | $ | 165 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
(Dollars in thousands) | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss | No. of Securities | | Fair Value | Unrealized Loss |
September 30, 2017 | | | | | | | | | | |
Residential mortgage-backed securities | $ | 2,993 |
| $ | 90 |
| 1 |
| | $ | 9,361 |
| $ | 316 |
| 2 |
| | $ | 12,354 |
| $ | 406 |
|
Commercial mortgage-backed securities | 4,655 |
| 48 |
| 1 |
| | — |
| — |
| — |
| | 4,655 |
| 48 |
|
Total | $ | 7,648 |
| $ | 138 |
| 2 |
| | $ | 9,361 |
| $ | 316 |
| 2 |
| | $ | 17,009 |
| $ | 454 |
|
December 31, 2016 | | | | | | | | | | |
Residential mortgage-backed securities | $ | 12,139 |
| $ | 476 |
| 3 |
| | $ | 963 |
| $ | 52 |
| 1 |
| | $ | 13,102 |
| $ | 528 |
|
Commercial mortgage-backed securities | 5,424 |
| 42 |
| 1 |
| | — |
| — |
| — |
| | 5,424 |
| 42 |
|
Total | $ | 17,563 |
| $ | 518 |
| 4 |
| | $ | 963 |
| $ | 52 |
| 1 |
| | $ | 18,526 |
| $ | 570 |
|
The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at September 30, 2017.2021. The weighted-average yields are based on the amortized cost.cost and are computed on a fully taxable-equivalent basis using a blended federal and state corporate income tax rate of 22.3%. In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. Rates are calculated on a fully tax-equivalent basis using a 35% federal income tax rate.
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | — |
| $ | 314 |
| $ | 2,980 |
| $ | 518 |
| $ | 3,812 |
|
Residential mortgage-backed securities | — |
| 450 |
| 6,379 |
| 26,819 |
| 33,648 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| 4,703 |
| 4,703 |
|
Total held-to-maturity securities | $ | — |
| $ | 764 |
| $ | 9,359 |
| $ | 32,040 |
| $ | 42,163 |
|
Fair value | | | | | |
Obligations of: | | | | | |
States and political subdivisions | $ | — |
| $ | 320 |
| $ | 3,598 |
| $ | 545 |
| $ | 4,463 |
|
Residential mortgage-backed securities | — |
| 452 |
| 6,508 |
| 26,730 |
| 33,690 |
|
Commercial mortgage-backed securities | — |
| — |
| — |
| 4,655 |
| 4,655 |
|
Total held-to-maturity securities | $ | — |
| $ | 772 |
| $ | 10,106 |
| $ | 31,930 |
| $ | 42,808 |
|
Total weighted-average yield | — | % | 4.18 | % | 3.10 | % | 4.01 | % | 3.81 | % |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Within 1 Year | 1 to 5 Years | 5 to 10 Years | Over 10 Years | Total |
Amortized cost | | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | — | | $ | — | | $ | — | | $ | 29,995 | | $ | 29,995 | |
States and political subdivisions | — | | 989 | | 2,511 | | 120,917 | | 124,417 | |
Residential mortgage-backed securities | — | | 1,939 | | — | | 39,096 | | 41,035 | |
Commercial mortgage-backed securities | 355 | | — | | 8,655 | | 38,879 | | 47,889 | |
Total held-to-maturity securities | $ | 355 | | $ | 2,928 | | $ | 11,166 | | $ | 228,887 | | $ | 243,336 | |
Fair value | | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | — | | $ | — | | $ | — | | $ | 29,147 | | $ | 29,147 | |
States and political subdivisions | — | | 1,132 | | 2,794 | | 118,509 | | 122,435 | |
Residential mortgage-backed securities | — | | 2,015 | | — | | 39,486 | | 41,501 | |
Commercial mortgage-backed securities | 358 | | — | | 8,844 | | 37,715 | | 46,917 | |
Total held-to-maturity securities | $ | 358 | | $ | 3,147 | | $ | 11,638 | | $ | 224,857 | | $ | 240,000 | |
Total weighted-average yield | 2.25 | % | 2.29 | % | 2.37 | % | 2.05 | % | 2.07 | % |
Other Investment Securities
Peoples' other investment securities on the Unaudited Consolidated Balance SheetSheets consist largely of shares of FHLB and FRB stock.
The following table summarizes the Federal Home Loan Bankcarrying value of Cincinnati (the “FHLB”)Peoples' other investment securities:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
FHLB stock | $ | 17,918 | | $ | 21,718 | |
FRB stock | 13,311 | | 13,311 | |
Nonqualified deferred compensation | 2,083 | | 1,867 | |
Equity investment securities | 390 | | 299 | |
Other investment securities | 784 | | 365 | |
Total other investment securities | $ | 34,486 | | $ | 37,560 | |
During the nine months ended September 30, 2021, Peoples redeemed $7.5 million of FHLB stock as requested by the FHLB. During the three months ended September 30, 2021, Peoples acquired $3.7 million in FHLB stock in the Merger with Premier.
During the three and nine months ended September 30, 2021, Peoples recorded the Federal Reserve Bankchange in the fair value of Cleveland (the "FRB").equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $18,000 and $91,000, respectively. During the three and nine months ended September 30, 2020, Peoples recorded the change in the fair value of equity investment securities held during the period, in "Other non-interest income", resulting in an unrealized gain of $1,000 and an unrealized loss of $15,000, respectively.
At September 30, 2021, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.
Pledged Securities
Peoples hadhas pledged available-for-sale investment securities with carrying values of $543.1 million and $517.9 million at September 30, 2017 and December 31, 2016, respectively, and held-to-maturity investment securities with carrying values of $19.0 million and $20.0 million at September 30, 2017 and December 31, 2016, respectively, 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 with carrying values of $7.9 million and $9.2 million at September 30, 2017 and December 31, 2016, respectively, and held-to-maturity securities with carrying values of $20.9 million and $22.2 million at September 30, 2017 and December 31, 2016, respectively, to secure additional borrowing capacity at the FHLB and the FRB.FRB as well as to derivative counterparties as collateral on unrealized interest rate swaps.
The following table summarizes the carrying value of Peoples' pledged securities:
| | | | | | | | | | | | |
| | Carrying Amount |
(Dollars in thousands) | | September 30, 2021 | | December 31, 2020 |
| |
Securing public and trust department deposits, and repurchase agreements: | | | | |
Available-for-sale | | $ | 851,966 | | | $ | 547,244 | |
Held-to-maturity | | 143,467 | | | 28,287 | |
Securing collateral for cash flow hedge swaps: | | | | |
Available-for-sale | | 36,314 | | | — | |
Securing additional borrowing capacity at the FHLB and the FRB: | | | | |
Available-for-sale | | 7,036 | | | 2,175 | |
Held-to-maturity | | 556 | | | — | |
| | | | |
| | | | |
15
Note 4 Loans
Peoples' loan portfolio consists of various types of loans and leases originated primarily as a result of lending opportunities within Peoples' primary market areas of northeastern, central, southwesternfootprint. Peoples also originates insurance premium finance loans and southeastern Ohio, west central West Virginia,leases nationwide through its Peoples Premium Finance and northeastern Kentucky. Acquired loans consist of loans purchased in 2012 or thereafter in a business combination.North Star Leasing divisions, respectively. Loans that were acquired and subsequently re-underwritten,leases throughout this document are reportedreferred to as originated upon execution of such credit actions (for example, renewals"total loans" and increases in lines of credit)"loans held for investment".
The major classifications of loan balances (in each case, net of deferred fees and costs) excluding loans held for sale, were as follows:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Construction | $ | 174,784 | | $ | 106,792 | |
Commercial real estate, other | 1,629,116 | | 929,853 | |
Commercial and industrial | 858,538 | | 973,645 | |
Premium finance | 134,755 | | 114,758 | |
Leases | 111,446 | | — | |
Residential real estate | 768,134 | | 574,007 | |
Home equity lines of credit | 161,370 | | 120,913 | |
Consumer, indirect | 543,256 | | 503,527 | |
Consumer, direct | 108,702 | | 79,094 | |
Deposit account overdrafts | 927 | | 351 | |
Total loans, at amortized cost | $ | 4,491,028 | | $ | 3,402,940 | |
|
| | | | | | |
(Dollars in thousands) | September 30, 2017 | December 31, 2016 |
Originated loans: | | |
Commercial real estate, construction | $ | 111,187 |
| $ | 84,626 |
|
Commercial real estate, other | 573,256 |
| 531,557 |
|
Commercial real estate | 684,443 |
| 616,183 |
|
Commercial and industrial | 407,468 |
| 378,131 |
|
Residential real estate | 304,094 |
| 307,490 |
|
Home equity lines of credit | 88,421 |
| 85,617 |
|
Consumer, indirect | 335,436 |
| 252,024 |
|
Consumer, other | 68,286 |
| 67,579 |
|
Consumer | 403,722 |
| 319,603 |
|
Deposit account overdrafts | 507 |
| 1,080 |
|
Total originated loans | $ | 1,888,655 |
| $ | 1,708,104 |
|
Acquired loans: | | |
Commercial real estate, construction | $ | 8,565 |
| $ | 10,100 |
|
Commercial real estate, other | 174,157 |
| 204,466 |
|
Commercial real estate | 182,722 |
| 214,566 |
|
Commercial and industrial | 36,462 |
| 44,208 |
|
Residential real estate | 194,950 |
| 228,435 |
|
Home equity lines of credit | 22,366 |
| 25,875 |
|
Consumer, indirect | 408 |
| 808 |
|
Consumer, other | 1,472 |
| 2,940 |
|
Consumer | 1,880 |
| 3,748 |
|
Total acquired loans | $ | 438,380 |
| $ | 516,832 |
|
Loans, net of deferred fees and costs | $ | 2,327,035 |
| $ | 2,224,936 |
|
On September 17, 2021, Peoples hascompleted the merger with Premier effective after the close of the business day. Peoples acquired various$1.1 billion in loans, through business combinations forof which there was, at acquisition, evidence of deterioration of credit quality since origination, and for which it was probable that all contractually required payments would not be collected. The carrying amounts of these$285.3 million were considered purchased credit impaired loans included in the loan balances above are summarized as follows:deteriorated loans. See "Note 13
|
| | | | | | |
(Dollars in thousands) | September 30, 2017 | December 31, 2016 |
Commercial real estate, other | $ | 8,235 |
| $ | 11,476 |
|
Commercial and industrial | 818 |
| 1,573 |
|
Residential real estate | 20,497 |
| 23,306 |
|
Consumer | 41 |
| 76 |
|
Total outstanding balance | $ | 29,591 |
| $ | 36,431 |
|
Net carrying amount | $ | 20,581 |
| $ | 26,524 |
|
17
Acquisitions" for more detail on the merger with Premier. Effective after the close of business on March 31, 2021, Peoples acquired $83.3 million in leases from NS Leasing, LLC (" NSL"), of which $5.2 million were considered purchased credit deteriorated leases. Refer to "Note 13 Acquisitions" for more detail on the acquisition of leases from NSL.
ChangesPeoples began participating as a Small Business Administration ("SBA") Paycheck Protection Program ("PPP") lender during the second quarter of 2020. Peoples originated PPP loans of $159.2 million during the first nine months of 2021 and $488.9 million of PPP loans during the full year of 2020. At September 30, 2021, the PPP loans (including $28.2 million acquired from Premier) had an amortized cost of $135.8 million, and were included in commercial and industrial loan balance. As of September 30, 2021, deferred loan origination fees, net of deferred origination costs, totaled $4.0 million. During the accretable yieldthird quarter of 2021, Peoples recorded amortization of net deferred loan origination fees of $3.8 million on PPP loans compared to $1.9 million for purchased credit impaired loansthe third quarter of 2020. Peoples recorded accretion of net deferred loan origination fees of $11.2 million and $3.8 million, for the nine months ended September 30, 2017 were as follows:
|
| | | |
(Dollars in thousands) | Accretable Yield |
Balance, December 31, 2016 | $ | 7,132 |
|
Reclassification from nonaccretable to accretable | 1,285 |
|
Accretion | (1,279 | ) |
Balance, September 30, 2017 | $ | 7,138 |
|
Peoples completes annual re-estimations of cash flows on acquired purchased credit impaired loans in August of each year.2021 and 2020, respectively. The above reclassification from nonaccretable to accretable related toremaining net deferred loan origination fees will be amortized over the re-estimation of cash flows on the purchased credit impaired loan portfolio, coupled with the loans performing better than expected. The majority of the reclassification related to prepayment speeds decreasing in the residential portfolio, resulting in higher total expected cash flows.
Cash flows expected to be collected on purchased credit impaired loans are estimated by incorporating several key assumptions, similar to the initial estimate of fair value. These key assumptions include probability of default, and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the respective loans, or until forgiven by the SBA, and could changewill be recognized in "Net interest income".
Accrued interest receivable is not included within the amountloan balances, but is presented in the “Other assets” line of the Unaudited Consolidated Balance Sheets, with no recorded allowance for credit losses. Total interest income, and possibly the principal expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary.
Peoples pledges certainreceivable on loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings from the FHLB. The amount of such pledged loans totaled $490.1was $12.4 million and $542.5 millionat September 30, 20172021 and $10.9 million at December 31, 2016, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB. The outstanding balances of these loans totaled $84.0 million and $152.0 million at September 30, 2017 and December 31, 2016, respectively.2020.
Nonaccrual and Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due.
The recorded investments in loans on nonaccrual status and of loans delinquent for 90 days or more and accruing were as follows:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | Nonaccrual (a) | Accruing Loans 90+ Days Past Due | | Nonaccrual (a) | Accruing Loans 90+ Days Past Due |
Construction | $ | — | | $ | — | | | $ | 4 | | $ | — | |
Commercial real estate, other | 17,301 | | 1,912 | | | 9,111 | | — | |
Commercial and industrial | 5,356 | | 98 | | | 6,192 | | 50 | |
Premium finance | — | | 368 | | | — | | 204 | |
Leases | 1,411 | | 1,736 | | | — | | — | |
Residential real estate | 9,735 | | 1,156 | | | 8,375 | | 1,975 | |
Home equity lines of credit | 976 | | 61 | | | 867 | | 82 | |
Consumer, indirect | 1,069 | | — | | | 1,073 | | 39 | |
Consumer, direct | 186 | | 32 | | | 171 | | 17 | |
Total loans, at amortized cost | $ | 36,034 | | $ | 5,363 | | | $ | 25,793 | | $ | 2,367 | |
|
| | | | | | | | | | | | | |
| Nonaccrual Loans | | Loans 90+ Days Past Due and Accruing |
(Dollars in thousands) | September 30, 2017 | December 31, 2016 | | September 30, 2017 | December 31, 2016 |
Originated loans: | | | | | |
Commercial real estate, construction | $ | 776 |
| $ | 826 |
| | $ | — |
| $ | — |
|
Commercial real estate, other | 6,675 |
| 9,934 |
| | 374 |
| — |
|
Commercial real estate | 7,451 |
| 10,760 |
| | 374 |
| — |
|
Commercial and industrial | 780 |
| 1,712 |
| | 739 |
| — |
|
Residential real estate | 3,437 |
| 3,778 |
| | 231 |
| 183 |
|
Home equity lines of credit | 344 |
| 383 |
| | 15 |
| — |
|
Consumer, indirect | 154 |
| 130 |
| | — |
| 10 |
|
Consumer, other | 16 |
| 11 |
| | — |
| — |
|
Consumer | 170 |
| 141 |
| | — |
| 10 |
|
Total originated loans | $ | 12,182 |
| $ | 16,774 |
| | $ | 1,359 |
| $ | 193 |
|
Acquired loans: | | | | | |
Commercial real estate, other | $ | 982 |
| $ | 1,609 |
| | $ | 898 |
| $ | 1,506 |
|
Commercial and industrial | 498 |
| 390 |
| | 93 |
| 387 |
|
Residential real estate | 2,210 |
| 2,317 |
| | 1,184 |
| 1,672 |
|
Home equity lines of credit | 330 |
| 231 |
| | — |
| — |
|
Consumer, indirect | — |
| — |
| | — |
| 13 |
|
Consumer, other | 17 |
| 4 |
| | 8 |
| — |
|
Consumer | 17 |
| 4 |
| | 8 |
| 13 |
|
Total acquired loans | $ | 4,037 |
| $ | 4,551 |
| | $ | 2,183 |
| $ | 3,578 |
|
Total loans | $ | 16,219 |
| $ | 21,325 |
| | $ | 3,542 |
| $ | 3,771 |
|
(a) There were $0.6 million of nonaccrual loans for which there was no allowance for credit losses at September 30, 2021 and $1.3 million at December 31, 2020.During the first nine months of 2017,2021, nonaccrual loans increased compared to December 31, 2020, primarily due to the non-accrual loans acquired from Premier, which added $13.0 million in nonaccrual loans at the end of the third quarter of 2021. As of September 30, 2021, 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 declined largely90+ days past due at September 30, 2021. During the third quarter of 2021, accruing loans 90+ days past due increased primarily due to several payoffsthe loans acquired from Premier.
The amount of interest income recognized on larger relationships.loans past due 90 days or more during the three and nine months ended September 30, 2021 was $0.2 million and $0.9 million, respectively.
The following table presents the aging of the recorded investment inamortized cost of past due loans:
| | | | | | | | | | | | | | | | | | | | |
| Loans Past Due | Current Loans | Total Loans |
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total |
September 30, 2021 | | | | | | |
Construction | $ | 146 | | $ | 16 | | $ | — | | $ | 162 | | $ | 174,622 | | $ | 174,784 | |
Commercial real estate, other | 4,513 | | 2,349 | | 14,116 | | 20,978 | | 1,608,138 | | 1,629,116 | |
Commercial and industrial | 924 | | 566 | | 5,324 | | 6,814 | | 851,724 | | 858,538 | |
Premium finance | 440 | | 281 | | 368 | | 1,089 | | 133,666 | | 134,755 | |
Leases | 393 | | 194 | | 1,736 | | 2,323 | | 109,123 | | 111,446 | |
Residential real estate | 4,138 | | 2,649 | | 5,353 | | 12,140 | | 755,994 | | 768,134 | |
Home equity lines of credit | 487 | | 166 | | 758 | | 1,411 | | 159,959 | | 161,370 | |
Consumer, indirect | 2,977 | | 477 | | 346 | | 3,800 | | 539,456 | | 543,256 | |
Consumer, direct | 134 | | 224 | | 101 | | 459 | | 108,243 | | 108,702 | |
Deposit account overdrafts | — | | — | | — | | — | | 927 | | 927 | |
Total loans, at amortized cost | $ | 14,152 | | $ | 6,922 | | $ | 28,102 | | $ | 49,176 | | $ | 4,441,852 | | $ | 4,491,028 | |
December 31, 2020 | | | | | | |
Construction | $ | — | | $ | 344 | | $ | 4 | | $ | 348 | | $ | 106,444 | | $ | 106,792 | |
Commercial real estate, other | 1,943 | | 283 | | 8,643 | | 10,869 | | 918,984 | | 929,853 | |
Commercial and industrial | 567 | | 552 | | 4,535 | | 5,654 | | 967,991 | | 973,645 | |
Premium finance | 928 | | 1,073 | | 204 | | 2,205 | | 112,553 | | 114,758 | |
Residential real estate | 6,739 | | 2,688 | | 5,512 | | 14,939 | | 559,068 | | 574,007 | |
Home equity lines of credit | 309 | | 58 | | 780 | | 1,147 | | 119,766 | | 120,913 | |
Consumer, indirect | 4,362 | | 733 | | 348 | | 5,443 | | 498,084 | | 503,527 | |
Consumer, direct | 424 | | 43 | | 123 | | 590 | | 78,504 | | 79,094 | |
Deposit account overdrafts | — | | — | | — | | — | | 351 | | 351 | |
Total loans, at amortized cost | $ | 15,272 | | $ | 5,774 | | $ | 20,149 | | $ | 41,195 | | $ | 3,361,745 | | $ | 3,402,940 | |
|
| | | | | | | | | | | | | | | | | | | |
| Loans Past Due | | Current Loans | Total Loans |
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total | |
September 30, 2017 | | | | | | | |
Originated loans: | | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 111,187 |
| $ | 111,187 |
|
Commercial real estate, other | 1,693 |
| 229 |
| 6,573 |
| 8,495 |
| | 564,761 |
| 573,256 |
|
Commercial real estate | 1,693 |
| 229 |
| 6,573 |
| 8,495 |
| | 675,948 |
| 684,443 |
|
Commercial and industrial | 1,292 |
| 155 |
| 1,396 |
| 2,843 |
| | 404,625 |
| 407,468 |
|
Residential real estate | 2,076 |
| 1,368 |
| 1,777 |
| 5,221 |
| | 298,873 |
| 304,094 |
|
Home equity lines of credit | 346 |
| 184 |
| 145 |
| 675 |
| | 87,746 |
| 88,421 |
|
Consumer, indirect | 1,731 |
| 358 |
| 33 |
| 2,122 |
| | 333,314 |
| 335,436 |
|
Consumer, other | 158 |
| 89 |
| 14 |
| 261 |
| | 68,025 |
| 68,286 |
|
Consumer | 1,889 |
| 447 |
| 47 |
| 2,383 |
| | 401,339 |
| 403,722 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| | 507 |
| 507 |
|
Total originated loans | $ | 7,296 |
| $ | 2,383 |
| $ | 9,938 |
| $ | 19,617 |
| | $ | 1,869,038 |
| $ | 1,888,655 |
|
Acquired loans: | | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 8,565 |
| $ | 8,565 |
|
Commercial real estate, other | 544 |
| 176 |
| 1,089 |
| 1,809 |
| | 172,348 |
| 174,157 |
|
Commercial real estate | 544 |
| 176 |
| 1,089 |
| 1,809 |
| | 180,913 |
| 182,722 |
|
Commercial and industrial | 17 |
| 24 |
| 463 |
| 504 |
| | 35,958 |
| 36,462 |
|
Residential real estate | 1,498 |
| 1,141 |
| 2,436 |
| 5,075 |
| | 189,875 |
| 194,950 |
|
Home equity lines of credit | 112 |
| — |
| 280 |
| 392 |
| | 21,974 |
| 22,366 |
|
Consumer, indirect | 2 |
| — |
| — |
| 2 |
| | 406 |
| 408 |
|
Consumer, other | 13 |
| 18 |
| 24 |
| 55 |
| | 1,417 |
| 1,472 |
|
Consumer | 15 |
| 18 |
| 24 |
| 57 |
|
| 1,823 |
| 1,880 |
|
Total acquired loans | $ | 2,186 |
| $ | 1,359 |
| $ | 4,292 |
| $ | 7,837 |
| | $ | 430,543 |
| $ | 438,380 |
|
Total loans | $ | 9,482 |
| $ | 3,742 |
| $ | 14,230 |
| $ | 27,454 |
| | $ | 2,299,581 |
| $ | 2,327,035 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Loans Past Due | | Current Loans | Total Loans |
(Dollars in thousands) | 30 - 59 days | 60 - 89 days | 90 + Days | Total | |
December 31, 2016 | | | | | | | |
Originated loans: | | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | 826 |
| $ | 826 |
| | $ | 83,800 |
| $ | 84,626 |
|
Commercial real estate, other | 1,420 |
| 225 |
| 9,305 |
| 10,950 |
| | 520,607 |
| 531,557 |
|
Commercial real estate | 1,420 |
| 225 |
| 10,131 |
| 11,776 |
| | 604,407 |
| 616,183 |
|
Commercial and industrial | 1,305 |
| 700 |
| 1,465 |
| 3,470 |
| | 374,661 |
| 378,131 |
|
Residential real estate | 7,288 |
| 1,019 |
| 1,895 |
| 10,202 |
| | 297,288 |
| 307,490 |
|
Home equity lines of credit | 316 |
| 45 |
| 248 |
| 609 |
| | 85,008 |
| 85,617 |
|
Consumer, indirect | 2,080 |
| 273 |
| 77 |
| 2,430 |
| | 249,594 |
| 252,024 |
|
Consumer, other | 346 |
| 38 |
| — |
| 384 |
| | 67,195 |
| 67,579 |
|
Consumer | 2,426 |
| 311 |
| 77 |
| 2,814 |
|
| 316,789 |
| 319,603 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| | 1,080 |
| 1,080 |
|
Total originated loans | $ | 12,755 |
| $ | 2,300 |
| $ | 13,816 |
| $ | 28,871 |
| | $ | 1,679,233 |
| $ | 1,708,104 |
|
Acquired loans: | | | | | | | |
Commercial real estate, construction | $ | — |
| $ | — |
| $ | 40 |
| $ | 40 |
| | $ | 10,060 |
| $ | 10,100 |
|
Commercial real estate, other | 1,220 |
| 208 |
| 2,271 |
| 3,699 |
| | 200,767 |
| 204,466 |
|
Commercial real estate | 1,220 |
| 208 |
| 2,311 |
| 3,739 |
| | 210,827 |
| 214,566 |
|
Commercial and industrial | 148 |
| 3 |
| 777 |
| 928 |
| | 43,280 |
| 44,208 |
|
Residential real estate | 5,918 |
| 2,496 |
| 2,974 |
| 11,388 |
| | 217,047 |
| 228,435 |
|
Home equity lines of credit | 208 |
| 65 |
| 178 |
| 451 |
| | 25,424 |
| 25,875 |
|
Consumer, indirect | 4 |
| — |
| — |
| 4 |
| | 804 |
| 808 |
|
Consumer, other | 51 |
| — |
| 13 |
| 64 |
| | 2,876 |
| 2,940 |
|
Consumer | 55 |
| — |
| 13 |
| 68 |
| | 3,680 |
| 3,748 |
|
Total acquired loans | $ | 7,549 |
| $ | 2,772 |
| $ | 6,253 |
| $ | 16,574 |
| | $ | 500,258 |
| $ | 516,832 |
|
Total loans | $ | 20,304 |
| $ | 5,072 |
| $ | 20,069 |
| $ | 45,445 |
| | $ | 2,179,491 |
| $ | 2,224,936 |
|
During the first nine months of 2017, Peoples' delinquency trends improvedloan portfolio was considered “current” at September 30, 2021, compared to the balances98.8% at December 31, 2016,2020.
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 total loans past due declined in both the originated and acquired loan portfolios.follows:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Loans pledged to FHLB | $ | 752,382 | | $ | 740,584 | |
Loans pledged to FRB | 135,504 | | 107,340 | |
Credit Quality Indicators
As discussed in Note"Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 20162020 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix using a scale of 1 to 8. Loan grades are assigned at the time a new loan or lending commitment is extended by Peoples and may be changed at any time when circumstances warrant. Loans to borrowers with an aggregate unpaid principal balance in excess of $1.0 million are reviewed at least on an annual basis for possible credit deterioration. Loan relationships whose aggregate credit exposure to Peoples is equal to or less than $1.0 million are reviewed on an event driven basis. Triggers for review include knowledge of adverse events affecting the borrower's business, receipt of financial statements indicating deteriorating credit quality or other similar events. Adversely classified loans are reviewed on a quarterly basis. A description of the general characteristics of the risk grades used by Peoples, including loans acquired from Premier, is as follows: “Pass” (grades 1 through 4): Loans in this risk category involve borrowers of acceptable-to-strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the loan if required, for any weakness that may exist.
“Special Mention” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned.” Loans in this risk category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on a secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the loan or in Peoples' credit position.
“Substandard” (grade 6): Loans in this risk grade are inadequately protected by the borrower's current financial condition and payment capability or the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loan.loans. They are characterized by the distinct possibility that Peoples will sustain some loss if the deficienciesweaknesses are not corrected.
“Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of
certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, classification of the loaneach of these loans as an estimated loss is deferred until its more exact status may be determined.
“Loss” (grade 8):Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean a loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loancredit losses are taken induring 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” consistent with the regulatory definitions and requirements of these classes. Leases are categorized as "special mention", "substandard", or "loss" based upon delinquency status and the regulatory definitionprospect of these classes and consistent with regulatory requirements.collecting the remaining net investment balance owed under the lease. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “not rated.”“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:performed at September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total Loans |
Construction | | | | | | |
| | |
Pass | $ | 57,422 | | $ | 73,789 | | $ | 16,624 | | $ | 3,289 | | $ | 1,286 | | $ | 2,829 | | $ | 1,755 | | $ | 4,170 | | $ | 156,994 | |
Special mention | 290 | | — | | 7,185 | | 1,092 | | 3,805 | | 138 | | — | | — | | 12,510 | |
Substandard | — | | — | | 957 | | 79 | | 159 | | 4,085 | | — | | — | | 5,280 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 57,712 | | 73,789 | | 24,766 | | 4,460 | | 5,250 | | 7,052 | | 1,755 | | 4,170 | | 174,784 | |
Commercial real estate, other | | | | |
| | |
Pass | 195,110 | | 266,264 | | 240,617 | | 153,836 | | 160,057 | | 427,073 | | 23,815 | | 12,128 | | 1,466,772 | |
Special mention | 159 | | 10,353 | | 8,398 | | 7,077 | | 8,798 | | 33,558 | | — | | 51 | | 68,343 | |
Substandard | — | | 1,679 | | 6,644 | | 2,299 | | 5,668 | | 76,655 | | 371 | | 41 | | 93,316 | |
Doubtful | — | | — | | — | | — | | — | | 669 | | — | | — | | 669 | |
Loss | — | | — | | — | | — | | — | | 16 | | — | | — | | 16 | |
Total | 195,269 | | 278,296 | | 255,659 | | 163,212 | | 174,523 | | 537,971 | | 24,186 | | 12,220 | | 1,629,116 | |
Commercial and industrial | | | | | | | | |
Pass | 241,877 | | 135,119 | | 90,671 | | 67,107 | | 30,843 | | 102,471 | | 154,178 | | 14,440 | | 822,266 | |
Special mention | 82 | | 1,281 | | 2,327 | | 3,622 | | 164 | | 991 | | 2,702 | | 10 | | 11,169 | |
|
| | | | | | | | | | | | | | | | | | |
| Pass Rated (Grades 1 - 4) | Special Mention (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans |
(Dollars in thousands) |
September 30, 2017 | | | | | | |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | 104,446 |
| $ | 5,510 |
| $ | 776 |
| $ | — |
| $ | 455 |
| $ | 111,187 |
|
Commercial real estate, other | 541,073 |
| 21,062 |
| 11,121 |
| — |
| — |
| 573,256 |
|
Commercial real estate | 645,519 |
| 26,572 |
| 11,897 |
| — |
| 455 |
| 684,443 |
|
Commercial and industrial | 382,332 |
| 18,943 |
| 6,157 |
| — |
| 36 |
| 407,468 |
|
Residential real estate | 18,717 |
| 1,033 |
| 11,499 |
| 182 |
| 272,663 |
| 304,094 |
|
Home equity lines of credit | 596 |
| — |
| — |
| — |
| 87,825 |
| 88,421 |
|
Consumer, indirect | 59 |
| 9 |
| — |
| — |
| 335,368 |
| 335,436 |
|
Consumer, other | 38 |
| — |
| — |
| — |
| 68,248 |
| 68,286 |
|
Consumer | 97 |
| 9 |
| — |
| — |
| 403,616 |
| 403,722 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| 507 |
| 507 |
|
Total originated loans | $ | 1,047,261 |
| $ | 46,557 |
| $ | 29,553 |
| $ | 182 |
| $ | 765,102 |
| $ | 1,888,655 |
|
Acquired loans: | | | | | | |
Commercial real estate, construction | $ | 8,513 |
| $ | — |
| $ | 52 |
| $ | — |
| $ | — |
| $ | 8,565 |
|
Commercial real estate, other | 157,610 |
| 8,057 |
| 8,490 |
| — |
| — |
| 174,157 |
|
Commercial real estate | 166,123 |
| 8,057 |
| 8,542 |
| — |
| — |
| 182,722 |
|
Commercial and industrial | 34,651 |
| 220 |
| 1,591 |
| — |
| — |
| 36,462 |
|
Residential real estate | 13,082 |
| 604 |
| 1,365 |
| — |
| 179,899 |
| 194,950 |
|
Home equity lines of credit | 143 |
| — |
| — |
| — |
| 22,223 |
| 22,366 |
|
Consumer, indirect | 19 |
| — |
| — |
| — |
| 389 |
| 408 |
|
Consumer, other | 42 |
| — |
| — |
| — |
| 1,430 |
| 1,472 |
|
Consumer | 61 |
| — |
| — |
| — |
| 1,819 |
| 1,880 |
|
Total acquired loans | $ | 214,060 |
| $ | 8,881 |
| $ | 11,498 |
| $ | — |
| $ | 203,941 |
| $ | 438,380 |
|
Total loans | $ | 1,261,321 |
| $ | 55,438 |
| $ | 41,051 |
| $ | 182 |
| $ | 969,043 |
| $ | 2,327,035 |
|
20
|
| | | | | | | | | | | | | | | | | | |
| Pass Rated (Grades 1 - 4) | Special Mention (Grade 5) | Substandard (Grade 6) | Doubtful (Grade 7) | Not Rated | Total Loans |
(Dollars in thousands) |
December 31, 2016 | | | | | | |
Originated loans: | | | | | | |
Commercial real estate, construction | $ | 73,423 |
| $ | — |
| $ | 826 |
| $ | — |
| $ | 10,377 |
| $ | 84,626 |
|
Commercial real estate, other | 505,029 |
| 11,855 |
| 14,673 |
| — |
| — |
| 531,557 |
|
Commercial real estate | 578,452 |
| 11,855 |
| 15,499 |
| — |
| 10,377 |
| 616,183 |
|
Commercial and industrial | 346,791 |
| 15,210 |
| 16,130 |
| — |
| — |
| 378,131 |
|
Residential real estate | 47,336 |
| 957 |
| 12,828 |
| 304 |
| 246,065 |
| 307,490 |
|
Home equity lines of credit | 465 |
| — |
| 135 |
| — |
| 85,017 |
| 85,617 |
|
Consumer, indirect | 15 |
| 13 |
| — |
| — |
| 251,996 |
| 252,024 |
|
Consumer, other | 50 |
| — |
| — |
| — |
| 67,529 |
| 67,579 |
|
Consumer | 65 |
| 13 |
| — |
| — |
| 319,525 |
| 319,603 |
|
Deposit account overdrafts | — |
| — |
| — |
| — |
| 1,080 |
| 1,080 |
|
Total originated loans | $ | 973,109 |
| $ | 28,035 |
| $ | 44,592 |
| $ | 304 |
| $ | 662,064 |
| $ | 1,708,104 |
|
Acquired loans: | | | | | | |
Commercial real estate, construction | $ | 10,046 |
| $ | — |
| $ | 54 |
| $ | — |
| $ | — |
| $ | 10,100 |
|
Commercial real estate, other | 181,781 |
| 12,475 |
| 10,210 |
| — |
| — |
| 204,466 |
|
Commercial real estate | 191,827 |
| 12,475 |
| 10,264 |
| — |
| — |
| 214,566 |
|
Commercial and industrial | 42,809 |
| 227 |
| 978 |
| 194 |
| — |
| 44,208 |
|
Residential real estate | 17,170 |
| 709 |
| 1,404 |
| — |
| 209,152 |
| 228,435 |
|
Home equity lines of credit | 202 |
| — |
| — |
| — |
| 25,673 |
| 25,875 |
|
Consumer, indirect | 51 |
| — |
| — |
| — |
| 757 |
| 808 |
|
Consumer, other | 53 |
| — |
| — |
| — |
| 2,887 |
| 2,940 |
|
Consumer | 104 |
| — |
| — |
| — |
| 3,644 |
| 3,748 |
|
Total acquired loans | $ | 252,112 |
| $ | 13,411 |
| $ | 12,646 |
| $ | 194 |
| $ | 238,469 |
| $ | 516,832 |
|
Total loans | $ | 1,225,221 |
| $ | 41,446 |
| $ | 57,238 |
| $ | 498 |
| $ | 900,533 |
| $ | 2,224,936 |
|
In the first nine months of 2017, Peoples' classified loans, which are loans categorized as substandard or doubtful, declined compared to the balances at December 31, 2016 mostly due to loan payoffs.
Impaired Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Term Loans at Amortized Cost by Origination Year | | Revolving Loans Converted to Term | |
(Dollars in thousands) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | Revolving Loans | Total Loans |
Substandard | 94 | | 2,858 | | 2,739 | | 875 | | 6,921 | | 3,853 | | 5,690 | | 608 | | 23,030 | |
Doubtful | — | | — | | — | | — | | — | | 1,808 | | 265 | | 187 | | 2,073 | |
| | | | | | | | | |
Total | 242,053 | | 139,258 | | 95,737 | | 71,604 | | 37,928 | | 109,123 | | 162,835 | | 15,245 | | 858,538 | |
Premium finance | | | | | | | | | |
Pass | 131,142 | | 3,613 | | — | | — | | — | | — | | — | | — | | 134,755 | |
Total | 131,142 | | 3,613 | | — | | — | | — | | — | | — | | — | | 134,755 | |
Leases | | | | | | | | | |
Pass | 56,901 | | 30,875 | | 16,750 | | 4,473 | | 491 | | 26 | | — | | — | | 109,516 | |
Special mention | 99 | | 10 | | 68 | | 17 | | — | | — | | — | | — | | 194 | |
Substandard | 123 | | 502 | | 531 | | 572 | | 8 | | — | | — | | — | | 1,736 | |
Total | 57,123 | | 31,387 | | 17,349 | | 5,062 | | 499 | | 26 | | — | | — | | 111,446 | |
Residential real estate | | | | | | | | |
Pass | 115,657 | | 75,578 | | 55,305 | | 35,693 | | 46,720 | | 422,673 | | — | | — | | 751,626 | |
| | | | | | | | | |
Substandard | — | | — | | — | | — | | — | | 16,079 | | — | | — | | 16,079 | |
| | | | | | | | | |
Loss | — | | — | | — | | — | | — | | 429 | | — | | — | | 429 | |
Total | 115,657 | | 75,578 | | 55,305 | | 35,693 | | 46,720 | | 439,181 | | — | | — | | 768,134 | |
Home equity lines of credit | | | | | | | | |
Pass | 25,901 | | 23,840 | | 19,084 | | 17,112 | | 15,625 | | 57,574 | | 2,234 | | 3,164 | | 161,370 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 25,901 | | 23,840 | | 19,084 | | 17,112 | | 15,625 | | 57,574 | | 2,234 | | 3,164 | | 161,370 | |
Consumer, indirect | | | | | | | | |
Pass | 195,954 | | 183,489 | | 72,009 | | 53,063 | | 26,499 | | 12,242 | | — | | — | | 543,256 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 195,954 | | 183,489 | | 72,009 | | 53,063 | | 26,499 | | 12,242 | | — | | — | | 543,256 | |
Consumer, direct | | | | | | | | | |
Pass | 42,124 | | 30,880 | | 15,541 | | 9,863 | | 3,861 | | 6,433 | | — | | — | | 108,702 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 42,124 | | 30,880 | | 15,541 | | 9,863 | | 3,861 | | 6,433 | | — | | — | | 108,702 | |
Deposit account overdrafts | 927 | | — | | — | | — | | — | | — | | — | | — | | 927 | |
Total loans, at amortized cost | $ | 1,063,862 | | $ | 840,130 | | $ | 555,450 | | $ | 360,069 | | $ | 310,905 | | $ | 1,169,602 | | $ | 191,010 | | $ | 34,799 | | $ | 4,491,028 | |
The following table summarizes the risk category of Peoples' loan portfolio, including acquired loans, classified as impaired:based upon the most recent analysis performed at December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
(Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Construction | | | | | | |
| | |
Pass | $ | 27,670 | | $ | 56,361 | | $ | 554 | | $ | 15,089 | | $ | 824 | | $ | 1,194 | | $ | 3,199 | | $ | 2,003 | | $ | 104,891 | |
Special mention | — | | — | | 496 | | — | | — | | 143 | | — | | — | | 639 | |
Substandard | — | | — | | — | | 186 | | — | | 1,076 | | — | | — | | 1,262 | |
| | | | | | | | | |
| | | | | | | | | |
Total | 27,670 | | 56,361 | | 1,050 | | 15,275 | | 824 | | 2,413 | | 3,199 | | 2,003 | | 106,792 | |
Commercial real estate, other | | | | | |
| | |
Pass | 116,441 | | 125,373 | | 99,522 | | 94,465 | | 99,668 | | 215,385 | | 109,160 | | 9,748 | | 860,014 | |
Special mention | 297 | | 5,806 | | 999 | | 5,296 | | 5,125 | | 12,932 | | 3,967 | | 60 | | 34,422 | |
Substandard | — | | 1,191 | | 677 | | 1,709 | | 1,663 | | 27,066 | | 3,033 | | 110 | | 35,339 | |
Doubtful | — | | — | | — | | — | | — | | 78 | | — | | — | | 78 | |
| | | | | | | | | |
Total | 116,738 | | 132,370 | | 101,198 | | 101,470 | | 106,456 | | 255,461 | | 116,160 | | 9,918 | | 929,853 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Unpaid Principal Balance | Recorded Investment | Total Recorded Investment | | Average Recorded Investment | Interest Income Recognized |
| With Allowance | Without Allowance | Related Allowance |
(Dollars in thousands) |
September 30, 2017 | | | | | | | |
Commercial real estate, construction | $ | 821 |
| $ | — |
| $ | 776 |
| $ | 776 |
| $ | — |
| $ | 805 |
| $ | — |
|
Commercial real estate, other | 15,109 |
| 5,045 |
| 9,180 |
| 14,225 |
| 136 |
| 14,763 |
| 727 |
|
Commercial real estate | 15,930 |
| 5,045 |
| 9,956 |
| 15,001 |
| 136 |
| 15,568 |
| 727 |
|
Commercial and industrial | 2,794 |
| 2,016 |
| 603 |
| 2,619 |
| 424 |
| 2,651 |
| 384 |
|
Residential real estate | 25,974 |
| 654 |
| 23,724 |
| 24,378 |
| 151 |
| 24,273 |
| 1,675 |
|
Home equity lines of credit | 1,718 |
| 65 |
| 1,649 |
| 1,714 |
| 13 |
| 1,435 |
| 122 |
|
Consumer, indirect | 171 |
| 18 |
| 154 |
| 172 |
| 2 |
| 155 |
| 11 |
|
Consumer, other | 92 |
| 28 |
| 61 |
| 89 |
| 21 |
| 101 |
| 7 |
|
Consumer | 263 |
| 46 |
| 215 |
| 261 |
| 23 |
| 256 |
| 18 |
|
Total | $ | 46,679 |
| $ | 7,826 |
| $ | 36,147 |
| $ | 43,973 |
| $ | 747 |
| $ | 44,183 |
| $ | 2,926 |
|
December 31, 2016 | | | | | | | |
Commercial real estate, construction | $ | 894 |
| $ | — |
| $ | 866 |
| $ | 866 |
| $ | — |
| $ | 913 |
| $ | 3 |
|
Commercial real estate, other | 20,029 |
| 7,474 |
| 12,227 |
| 19,701 |
| 803 |
| 18,710 |
| 700 |
|
Commercial real estate | 20,923 |
| 7,474 |
| 13,093 |
| 20,567 |
| 803 |
| 19,623 |
| 703 |
|
Commercial and industrial | 7,289 |
| 2,732 |
| 1,003 |
| 3,735 |
| 585 |
| 3,386 |
| 125 |
|
Residential real estate | 27,703 |
| 138 |
| 27,393 |
| 27,531 |
| 24 |
| 27,455 |
| 1,419 |
|
Home equity lines of credit | 908 |
| — |
| 908 |
| 908 |
| — |
| 717 |
| 44 |
|
Consumer, indirect | 220 |
| — |
| 224 |
| 224 |
| — |
| 136 |
| 16 |
|
Consumer, other | 130 |
| — |
| 130 |
| 130 |
| — |
| 138 |
| 13 |
|
Consumer | 350 |
| — |
| 354 |
| 354 |
| — |
| 274 |
| 29 |
|
Total | $ | 57,173 |
| $ | 10,344 |
| $ | 42,751 |
| $ | 53,095 |
| $ | 1,412 |
| $ | 51,455 |
| $ | 2,320 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
(Dollars in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans | Revolving Loans Converted to Term | Total Loans |
Commercial and industrial | | | | | | | | |
Pass | 409,237 | | 97,362 | | 67,284 | | 38,450 | | 45,026 | | 77,009 | | 199,597 | | 30,680 | | 933,965 | |
Special mention | 1,034 | | 366 | | 2,018 | | 287 | | 1,453 | | 1,452 | | 12,429 | | 526 | | 19,039 | |
Substandard | 2,226 | | 3,569 | | 2,873 | | 2,167 | | 318 | | 4,163 | | 3,436 | | 1,083 | | 18,752 | |
Doubtful | — | | — | | — | | — | | 1,698 | | 191 | | — | | 187 | | 1,889 | |
| | | | | | | | | |
Total | 412,497 | | 101,297 | | 72,175 | | 40,904 | | 48,495 | | 82,815 | | 215,462 | | 32,476 | | 973,645 | |
Premium finance | | | | | | | | | |
Pass | 114,758 | | — | | — | | — | | — | | — | | — | | — | | 114,758 | |
Total | 114,758 | | — | | — | | — | | — | | — | | — | | — | | 114,758 | |
Residential real estate | | | | | | | | |
Pass | 47,147 | | 40,223 | | 24,235 | | 29,142 | | 43,105 | | 309,795 | | 65,168 | | 305 | | 558,815 | |
| | | | | | | | | |
Substandard | — | | — | | — | | — | | — | | 15,048 | | — | | — | | 15,048 | |
| | | | | | | | | |
Loss | — | | — | | — | | — | | — | | 144 | | — | | — | | 144 | |
Total | 47,147 | | 40,223 | | 24,235 | | 29,142 | | 43,105 | | 324,987 | | 65,168 | | 305 | | 574,007 | |
Home equity lines of credit | | | | | | | | |
Pass | 16,469 | | 13,513 | | 12,548 | | 12,382 | | 11,869 | | 40,626 | | 13,506 | | 4,091 | | 120,913 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 16,469 | | 13,513 | | 12,548 | | 12,382 | | 11,869 | | 40,626 | | 13,506 | | 4,091 | | 120,913 | |
Consumer, indirect | | | | | | | | | |
Pass | 210,014 | | 92,696 | | 71,807 | | 39,608 | | 17,156 | | 11,563 | | 60,683 | | — | | 503,527 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 210,014 | | 92,696 | | 71,807 | | 39,608 | | 17,156 | | 11,563 | | 60,683 | | — | | 503,527 | |
Consumer, direct | | | | | | | | | |
Pass | 31,689 | | 15,923 | | 11,085 | | 4,531 | | 2,529 | | 4,193 | | 9,144 | | — | | 79,094 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | 31,689 | | 15,923 | | 11,085 | | 4,531 | | 2,529 | | 4,193 | | 9,144 | | — | | 79,094 | |
Deposit account overdrafts | 351 | | — | | — | | — | | — | | — | | — | | — | | 351 | |
Total loans, at amortized cost | $ | 977,333 | | $ | 452,383 | | $ | 294,098 | | $ | 243,312 | | $ | 230,434 | | $ | 722,058 | | $ | 483,322 | | $ | 48,793 | | $ | 3,402,940 | |
Collateral Dependent Loans
Peoples has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:
• Construction loans are typically secured by owner occupied commercial real estate or non-owner occupied investment real estate. Typically, owner occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction.
•Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.
•Commercial and industrial loans are general secured by equipment, inventory, accounts receivable, and other commercial property.
•Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.
•Home equity lines of credit are generally secured by second mortgages on residential real estate property.
•Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.
•Leases are secured by commercial equipment and other essential business assets.
•Premium finance loans are secured by the unearned portion of the insurance premium being financed.
The following table details Peoples' impairedamortized cost of collateral dependent loans:
| | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | | December 31, 2020 |
| | | | | |
Construction | $ | 4,276 | | | | $ | — | | |
Commercial real estate, other | 35,820 | | | | 8,467 | | |
Commercial and industrial | 11,446 | | | | 6,333 | | |
Residential real estate | 1,321 | | | | 1,670 | | |
Home equity lines of credit | 393 | | | | 403 | | |
| | | | | |
| | | | | |
Total collateral dependent loans | $ | 53,256 | | | | $ | 16,873 | | |
The increase in collateral dependent loans shownat September 30, 2021, compared to December 31, 2020, was primarily due to $39.1 million in collateral dependent loans acquired from Premier.
Troubled Debt Restructurings
The following tables summarize the table above included loans that were classifiedmodified as troubled debt restructurings ("TDRs").
In assessing whether or not a borrower is experiencing financial difficulties, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the borrower is currently in payment default on any of the borrower's debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy; and (iv) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification.
Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the terms of the loan, such as (i) a reduction in the interest rate for the remaining life of the loan, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new loans with similar risk, (iii) a temporary period of interest-only payments, and (iv) a reduction in the contractual payment amount for either a short period or the remaining term of the loan.
The following table summarizes the loans that were modified as a TDR during the three months ended September 30:
|
| | | | | | | | | | | |
| | Three Months Ended |
| | Recorded Investment (1) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2017 | | | |
Originated loans: | | | |
Commercial and industrial | 1 |
| $ | 36 |
| $ | 36 |
| $ | 36 |
|
Residential real estate | 1 |
| 90 |
| 90 |
| 90 |
|
Home equity lines of credit | 2 |
| 22 |
| 22 |
| 19 |
|
Consumer, indirect | 5 |
| 34 |
| 34 |
| 34 |
|
Consumer, other | 2 |
| 9 |
| 9 |
| 9 |
|
Consumer | 7 |
| 43 |
| 43 |
| 43 |
|
Total originated loans | 11 |
| $ | 191 |
| $ | 191 |
| $ | 188 |
|
Acquired loans: | | | |
Residential real estate | 2 |
| $ | 61 |
| $ | 61 |
| $ | 61 |
|
Home equity lines of credit | 1 |
| 34 |
| 34 |
| 34 |
|
Total acquired loans | 3 |
| $ | 95 |
| $ | 95 |
| $ | 95 |
|
September 30, 2016 | | | |
Originated loans: | | | |
Residential real estate | 2 |
| $ | 75 |
| $ | 75 |
| $ | 75 |
|
Home equity lines of credit | 3 |
| 23 |
| 23 |
| 23 |
|
Consumer, indirect | 7 |
| 78 |
| 78 |
| 78 |
|
Consumer, other | 3 |
| 34 |
| 34 |
| 34 |
|
Consumer | 10 |
| 112 |
| 112 |
| 112 |
|
Total originated loans | 15 |
| $ | 210 |
| $ | 210 |
| $ | 210 |
|
Acquired loans: | | | |
Commercial real estate, other | 1 |
| $ | 224 |
| $ | 224 |
| $ | 224 |
|
Residential real estate | 2 |
| 141 |
| 141 |
| 141 |
|
Total acquired loans | 3 |
| $ | 365 |
| $ | 365 |
| $ | 365 |
|
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
The following table summarizes the loans that were modified as a TDR during theand nine months ended September 30:
| | | | Nine Months Ended | | Three Months Ended |
| | Recorded Investment (1) | | Recorded Investment (a) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment | (Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2017 | | |
Originated loans: | | |
September 30, 2021 | | September 30, 2021 | |
Construction | | Construction | 1 | | $ | 6 | | $ | 6 | | $ | 6 | |
Commercial real estate, other | | Commercial real estate, other | 2 | | 14 | | 14 | | 14 | |
Commercial and industrial | | Commercial and industrial | 3 | | 327 | | 327 | | 327 | |
Leases | | Leases | 2 | | 182 | | 184 | | 178 | |
Residential real estate | | Residential real estate | 46 | | 1,952 | | 1,956 | | 1,955 | |
Home equity lines of credit | | Home equity lines of credit | 5 | | 55 | | 55 | | 55 | |
Consumer, indirect | | Consumer, indirect | 9 | | 95 | | 95 | | 95 | |
Consumer, direct | | Consumer, direct | 3 | | 9 | | 9 | | 9 | |
Consumer | | Consumer | 12 | | 104 | | 104 | | 104 | |
Total | | Total | 71 | | $ | 2,640 | | $ | 2,646 | | $ | 2,639 | |
| September 30, 2020 | | September 30, 2020 | |
Commercial real estate, other | 1 |
| $ | 14 |
| $ | 14 |
| $ | 14 |
| Commercial real estate, other | 3 | | $ | 2,214 | | $ | 2,214 | | $ | 1,112 | |
Commercial and industrial | 3 |
| 174 |
| 174 |
| 123 |
| Commercial and industrial | 4 | | 3,657 | | 3,657 | | 3,658 | |
Residential real estate | 7 |
| 483 |
| 483 |
| 478 |
| Residential real estate | 10 | | 608 | | 608 | | 608 | |
Home equity lines of credit | 6 |
| 291 |
| 291 |
| 286 |
| Home equity lines of credit | 3 | | 68 | | 68 | | 68 | |
Consumer, indirect | 11 |
| 127 |
| 127 |
| 86 |
| Consumer, indirect | 11 | | 126 | | 126 | | 126 | |
Consumer, other | 3 |
| 10 |
| 10 |
| 10 |
| |
Consumer, direct | | Consumer, direct | 2 | | 16 | | 16 | | 16 | |
Consumer | 14 |
| 137 |
| 137 |
| 96 |
| Consumer | 13 | | 142 | | 142 | | 142 | |
Total originated loans | 31 |
| $ | 1,099 |
| $ | 1,099 |
| $ | 997 |
| |
Acquired loans: | | |
Commercial real estate, other | 2 |
| $ | 271 |
| $ | 271 |
| $ | 265 |
| |
Residential real estate | 8 |
| 264 |
| 264 |
| 263 |
| |
Home equity lines of credit | 5 |
| 328 |
| 328 |
| 323 |
| |
Consumer, other | 2 |
| 10 |
| 10 |
| 9 |
| |
Total acquired loans | 17 |
| $ | 873 |
| $ | 873 |
| $ | 860 |
| |
September 30, 2016 | | |
Originated loans: | | |
Commercial real estate, other | 1 |
| $ | 57 |
| $ | 57 |
| $ | 56 |
| |
Commercial and industrial | 6 |
| 716 |
| 724 |
| 685 |
| |
Residential real estate | 5 |
| 173 |
| 173 |
| 173 |
| |
Home equity lines of credit | 3 |
| 23 |
| 23 |
| 23 |
| |
Consumer, indirect | 9 |
| 107 |
| 107 |
| 107 |
| |
Consumer, other | 5 |
| 46 |
| 46 |
| 46 |
| |
Consumer | 14 |
| 153 |
| 153 |
| 153 |
| |
Total originated loans | 29 |
| $ | 1,122 |
| $ | 1,130 |
| $ | 1,090 |
| |
Acquired loans: | | |
Commercial real estate, other | 1 |
| $ | 223 |
| $ | 223 |
| $ | 223 |
| |
Residential real estate | 11 |
| 927 |
| 929 |
| 923 |
| |
Home equity lines of credit | 3 |
| 179 |
| 179 |
| 173 |
| |
Consumer, indirect | 2 |
| 8 |
| 8 |
| 8 |
| |
Consumer, other | 3 |
| 17 |
| 17 |
| 17 |
| |
Consumer | 5 |
| 25 |
| 25 |
| 25 |
| |
Total acquired loans | 20 |
| $ | 1,354 |
| $ | 1,356 |
| $ | 1,344 |
| |
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
| |
Total | | Total | 33 | | $ | 6,689 | | $ | 6,689 | | $ | 5,588 | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
| | (a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
|
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | Recorded Investment (a) |
(Dollars in thousands) | Number of Contracts | Pre-Modification | Post-Modification | Remaining Recorded Investment |
September 30, 2021 | | | | |
Construction | 2 | | $ | 350 | | $ | 350 | | $ | 350 | |
Commercial real estate, other | 3 | | 37 | | 37 | | 37 | |
Commercial and industrial | 3 | | 327 | | 327 | | 327 | |
Leases | 5 | | 340 | | 348 | | 334 | |
Residential real estate | 54 | | 2,367 | | 2,376 | | 2,366 | |
Home equity lines of credit | 9 | | 315 | | 315 | | 307 | |
Consumer, indirect | 16 | | 200 | | 200 | | 192 | |
Consumer, direct | 8 | | 48 | | 48 | | 45 | |
Consumer | 24 | | 248 | | 248 | | 237 | |
Total | 100 | | $ | 3,984 | | $ | 4,001 | | $ | 3,958 | |
| | | | |
September 30, 2020 | | | | |
| | | | |
Commercial real estate, other | 5 | | $ | 2,533 | | $ | 2,533 | | $ | 1,430 | |
Commercial and industrial | 5 | | 3,803 | | 3,803 | | 3,804 | |
Residential real estate | 16 | | 1,237 | | 1,267 | | 1,261 | |
Home equity lines of credit | 7 | | 123 | | 123 | | 121 | |
Consumer, indirect | 23 | | 235 | | 235 | | 216 | |
Consumer, direct | 5 | | 68 | | 68 | | 63 | |
Consumer | 28 | | 303 | | 303 | | 279 | |
Total | 61 | | $ | 7,999 | | $ | 8,029 | | $ | 6,895 | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.
|
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.
The following table presents those acquired loans modified ininto a TDR during the year that subsequently defaulted (i.e., 90 days or more past due following a modification) during the nine monthnine-month periods ended September 30, 2017 and 2016:30:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | September 30, 2020 | |
(Dollars in thousands) | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Credit Losses | | Number of Contracts | Recorded Investment (a) | Impact on the Allowance for Credit Losses | | | |
| | | | | | | | | | |
Commercial real estate, other | — | | $ | — | | — | | | 1 | | $ | 54 | | — | | | | |
Residential real estate | 3 | | 113 | | — | | | — | | — | | — | | | | |
| | | | | | | | | | |
Total | 3 | | $ | 113 | | $ | — | | | 1 | | $ | 54 | | $ | — | | | | |
(a) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
|
| | | | | | | | | | | | | | | | | |
| September 30, 2017 | | September 30, 2016 |
(Dollars in thousands) | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses | | Number of Contracts | Recorded Investment (1) | Impact on the Allowance for Loan Losses |
Acquired loans: | | | | | | | |
Residential real estate | 1 |
| $ | 44 |
| $ | — |
| | — |
| $ | — |
| $ | — |
|
Consumer, other | 1 |
| 8 |
| — |
| | — |
| — |
| — |
|
Total | 2 |
| $ | 52 |
| $ | — |
| | — |
| $ | — |
| $ | — |
|
(1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. |
Peoples did not have any originated loans that were modified as a TDR during the last twelve months that subsequently defaulted. Peoples had no commitments to lend additional funds to the related debtorsborrowers whose loan terms have been modified in a TDR.
Allowance for Originated LoanCredit Losses
Changes in the allowance for originated loancredit losses for the three months ended September 30, 2021 and September 30, 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Beginning Balance, June 30, 2021 | Initial Allowance for Acquired Purchased Credit Deteriorated Assets | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | (Recovery of) Provision for Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, September 30, 2021 |
Construction | $ | 914 | | $ | 2,127 | | $ | 638 | | $ | (243) | | $ | — | | $ | — | | $ | 3,436 | |
Commercial real estate, other | 17,233 | | 13,374 | | 5,384 | | (179) | | — | | 4 | | 35,816 | |
Commercial and industrial | 8,686 | | 4,286 | | 1,059 | | (3) | | (654) | | 4 | | 13,378 | |
Premium finance | 998 | | — | | — | | 146 | | (7) | | — | | 1,137 | |
Leases | 3,715 | | — | | — | | 1,101 | | (431) | | 120 | | 4,505 | |
Residential real estate | 4,837 | | 2,394 | | 2,645 | | (312) | | (44) | | 48 | | 9,568 | |
Home equity lines of credit | 1,504 | | 41 | | 674 | | 148 | | (180) | | 37 | | 2,224 | |
Consumer, indirect | 8,841 | | — | | — | | (2,308) | | (416) | | 43 | | 6,160 | |
Consumer, direct | 1,161 | | 112 | | 180 | | (362) | | (29) | | 17 | | 1,079 | |
Deposit account overdrafts | 53 | | — | | — | | 124 | | (135) | | 37 | | 79 | |
Total | $ | 47,942 | | $ | 22,334 | | $ | 10,580 | | $ | (1,888) | | $ | (1,896) | | $ | 310 | | $ | 77,382 | |
(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.
| | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Beginning Balance, June 30, 2020 | Initial Allowance for Acquired Purchased Credit Deteriorated Assets | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | (Recovery of) Provision for Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, September 30, 2020 |
Construction | $ | 2,662 | | $ | — | | $ | — | | $ | (148) | | $ | — | | $ | — | | $ | 2,514 | |
Commercial real estate, other | 19,148 | | — | | — | | (8) | | (109) | | 4 | | 19,035 | |
Commercial and industrial | 10,106 | | — | | — | | 3,139 | | (146) | | — | | 13,099 | |
Premium finance | — | | — | | 990 | | (2) | | (2) | | — | | 986 | |
| | | | | | | |
Residential real estate | 6,380 | | — | | — | | (371) | | (121) | | 100 | | 5,988 | |
Home equity lines of credit | 1,755 | | — | | — | | 40 | | — | | 2 | | 1,797 | |
Consumer, indirect | 12,293 | | — | | — | | 785 | | (370) | | 64 | | 12,772 | |
Consumer, direct | 1,941 | | — | | — | | (78) | | (15) | | 13 | | 1,861 | |
Deposit account overdrafts | 77 | | — | | — | | 154 | | (202) | | 47 | | 76 | |
Total | $ | 54,362 | | $ | — | | $ | 990 | | $ | 3,511 | | $ | (965) | | $ | 230 | | $ | 58,128 | |
(a)Amount does not include the provision for the allowance for credit losses on unfunded commitments.
Changes in the allowance for credit losses for the nine months ended September 30, were as follows:2021 and September 30, 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
(Dollars in thousands) | Beginning Balance, December 31, 2020 | Initial Allowance for Acquired Purchased Credit Deteriorated Assets | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | (Recovery of) Provision for Credit Losses (a) | Charge-offs | Recoveries | Ending Balance, September 30, 2021 |
Construction | $ | 1,887 | | $ | 2,127 | | $ | 638 | | $ | (1,216) | | $ | — | | $ | — | | $ | 3,436 | |
Commercial real estate, other | 17,536 | | 13,374 | | 5,384 | | (325) | | (161) | | 8 | | 35,816 | |
Commercial and industrial | 12,763 | | 4,286 | | 1,059 | | (3,800) | | (952) | | 22 | | 13,378 | |
Premium finance | 1,095 | | — | | — | | 72 | | (30) | | — | | 1,137 | |
Leases | — | | 493 | | 3,288 | | 1,450 | | (956) | | 230 | | 4,505 | |
Residential real estate | 6,044 | | 2,394 | | 2,645 | | (1,305) | | (313) | | 103 | | 9,568 | |
Home equity lines of credit | 1,860 | | 41 | | 674 | | (196) | | (196) | | 41 | | 2,224 | |
Consumer, indirect | 8,030 | | — | | — | | (891) | | (1,190) | | 211 | | 6,160 | |
Consumer, direct | 1,081 | | 112 | | 180 | | (252) | | (96) | | 54 | | 1,079 | |
Deposit account overdrafts | 63 | | — | | — | | 208 | | (327) | | 135 | | 79 | |
Total | $ | 50,359 | | $ | 22,827 | | $ | 13,868 | | $ | (6,255) | | $ | (4,221) | | $ | 804 | | $ | 77,382 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Commercial Real Estate | Commercial and Industrial | Residential Real Estate | Home Equity Lines of Credit | Consumer Indirect | Consumer Other | Deposit Account Overdrafts | Total |
Balance, January 1, 2017 | $ | 7,172 |
| $ | 6,353 |
| $ | 982 |
| $ | 688 |
| $ | 2,312 |
| $ | 518 |
| $ | 171 |
| $ | 18,196 |
|
Charge-offs | (25 | ) | (165 | ) | (451 | ) | (100 | ) | (1,493 | ) | (275 | ) | (767 | ) | (3,276 | ) |
Recoveries | 135 |
| 1 |
| 128 |
| 9 |
| 598 |
| 152 |
| 159 |
| 1,182 |
|
Net recoveries (charge-offs) | 110 |
| (164 | ) | (323 | ) | (91 | ) | (895 | ) | (123 | ) | (608 | ) | (2,094 | ) |
Provision for loan losses | 252 |
| 226 |
| 265 |
| 82 |
| 1,397 |
| 46 |
| 507 |
| 2,775 |
|
Balance, September 30, 2017 | $ | 7,534 |
| $ | 6,415 |
| $ | 924 |
| $ | 679 |
| $ | 2,814 |
| $ | 441 |
| $ | 70 |
| $ | 18,877 |
|
| | | | | | | | |
Period-end amount allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 136 |
| $ | 424 |
| $ | 151 |
| $ | 13 |
| $ | 2 |
| $ | 21 |
| $ | — |
| $ | 747 |
|
Loans collectively evaluated for impairment | 7,398 |
| 5,991 |
| 773 |
| 666 |
| 2,812 |
| 420 |
| 70 |
| 18,130 |
|
Ending balance | $ | 7,534 |
| $ | 6,415 |
| $ | 924 |
| $ | 679 |
| $ | 2,814 |
| $ | 441 |
| $ | 70 |
| $ | 18,877 |
|
| | | | | | | | |
Balance, January 1, 2016 | $ | 7,076 |
| $ | 5,382 |
| $ | 1,257 |
| $ | 732 |
| $ | 1,934 |
| $ | 37 |
| $ | 121 |
| $ | 16,539 |
|
Charge-offs | (12 | ) | (1,017 | ) | (524 | ) | (58 | ) | (1,502 | ) | (397 | ) | (544 | ) | (4,054 | ) |
Recoveries | 1,199 |
| 250 |
| 193 |
| 33 |
| 727 |
| 183 |
| 148 |
| 2,733 |
|
Net recoveries (charge-offs) | 1,187 |
| (767 | ) | (331 | ) | (25 | ) | (775 | ) | (214 | ) | (396 | ) | (1,321 | ) |
(Recovery of) provision for loan losses | (773 | ) | 1,075 |
| 194 |
| (21 | ) | 1,081 |
| 769 |
| 418 |
| 2,743 |
|
Balance, September 30, 2016 | $ | 7,490 |
| $ | 5,690 |
| $ | 1,120 |
| $ | 686 |
| $ | 2,240 |
| $ | 592 |
| $ | 143 |
| $ | 17,961 |
|
| | | | | | | | |
Period-end amount allocated to: | | | | | | | |
Loans individually evaluated for impairment | $ | 1,164 |
| $ | 506 |
| $ | 122 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,792 |
|
Loans collectively evaluated for impairment | 6,326 |
| 5,184 |
| 998 |
| 686 |
| 2,240 |
| 592 |
| 143 |
| 16,169 |
|
Ending balance | $ | 7,490 |
| $ | 5,690 |
| $ | 1,120 |
| $ | 686 |
| $ | 2,240 |
| $ | 592 |
| $ | 143 |
| $ | 17,961 |
|
Allowance(a)Amount does not include the provision for Loan Losses for Acquired Loans
Acquired loans are recorded at their fair value as of the acquisition date with no valuation allowance, and monitored for changes in credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of acquired purchased credit impaired loans are recognized as an impairment, with the amount of the expected loss included in management's evaluation of the appropriateness of the allowance for loan losses. The methods utilized to estimatecredit losses on unfunded commitments.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
(Dollars in thousands) | Beginning Balance, January 1, 2020 (a) | Initial Allowance for Acquired Purchased Credit Deteriorated Assets | Provision for Credit Losses for Acquired Non-Purchased Credit Deteriorated Assets | Provision for (Recovery of) Credit Losses (b) | Charge-offs | Recoveries | Ending Balance, September 30, 2020 |
Construction | $ | 600 | | $ | 51 | | $ | — | | $ | 1,863 | | $ | — | | $ | — | | $ | 2,514 | |
Commercial real estate, other | 7,193 | | 1,356 | | — | | 10,614 | | (254) | | 126 | | 19,035 | |
Commercial and industrial | 4,960 | | 860 | | — | | 6,368 | | (1,098) | | 2,009 | | 13,099 | |
Premium finance | — | | — | | 990 | | (2) | | (2) | | — | | 986 | |
| | | | | | | |
Residential real estate | 3,977 | | 383 | | — | | 1,626 | | (255) | | 257 | | 5,988 | |
Home equity lines of credit | 1,570 | | 2 | | — | | 237 | | (23) | | 11 | | 1,797 | |
Consumer, indirect | 5,389 | | — | | — | | 8,549 | | (1,427) | | 261 | | 12,772 | |
Consumer, direct | 856 | | 34 | | — | | 1,062 | | (128) | | 37 | | 1,861 | |
Deposit account overdrafts | 94 | | — | | — | | 360 | | (534) | | 156 | | 76 | |
Total | $ | 24,639 | | $ | 2,686 | | $ | 990 | | $ | 30,677 | | $ | (3,721) | | $ | 2,857 | | $ | 58,128 | |
(a)Peoples adopted ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326) on January 1, 2020.
(b)Amount does not include the requiredprovision for the allowance for loancredit losses for nonimpaired acquired loans are similar to those utilized for originated loans; however, Peoples records a provision for loan losses only when the computed allowance exceeds the remaining fair value adjustment. on unfunded commitments.
During the third quarter of 2017, Peoples completed its reforecast of the estimated cash flows expected to be collected on purchased credit impaired loans. As a result,2021, Peoples recorded an additionala provision for loancredit losses of $11.0 million in order to establish an allowance for credit losses for acquirednon-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2017.2021 related to the purchase credit deteriorated loans acquired from Premier. During the first nine monthssecond quarter of 2017,2021, Peoples also recognized a recoveryrecorded provision for credit losses to establish the allowance for credit losses of loan losses that was$3.3 million for the acquired non-purchased credit deteriorated leases from NSL along with an increase in allowance for credit loss of $0.5 million related to the purchase credit
deteriorated leases acquired from NSL. Lastly, economic assumptions and loss drivers used in the CECL model continued to improve in the current year, partially offsetting the increase in allowance driven by the aforementioned acquired loans and leases. The PPP loans originated during 2021 and 2020 are guaranteed by the SBA, and therefore, had no impact on the allowance for credit losses at September 30, 2021 and at December 31, 2020.
At September 30, 2021, Peoples had recorded an acquired purchasedallowance for unfunded commitments of $2.4 million, an increase compared to $2.2 million at June 30, 2021, and a decrease compared to $2.9 million at December 31, 2020. The total amount of unfunded commitments had increased compared to June 30, 2021 due to the unfunded commitments associated with the Premier acquisition and decreased compared to December 31, 2020 due to the improved economic forecast conditions. 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 impaired loan that was paid off.losses" line of the Unaudited Consolidated Statements of Operations.
Note 5 Goodwill and Other Intangible Assets Goodwill
The following table presents activitydetails changes in the allowancerecorded amount of goodwill:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Goodwill, beginning of year | $ | 171,260 | | $ | 165,701 | |
Goodwill recorded from acquisitions | 95,755 | | 5,559 | |
Goodwill, end of period | $ | 267,015 | | $ | 171,260 | |
| | |
| | |
Peoples Bank entered into the Asset Purchase Agreement, dated March 24, 2021 with NSL. The transaction closed after the close of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. On April 1, 2021, Peoples recorded $24.7 million of goodwill related to the acquisition from NSL. On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Peoples recorded $46,000 of goodwill from this completed acquisition. On September 17, 2021, Peoples completed the merger with Premier, for loan losseswhich Peoples recorded $71.0 million of goodwill. In 2020, Peoples completed its acquisition of Premium Finance, recording $5.5 million in goodwill. Also, in 2020 Peoples Insurance completed an acquisition of a property and casualty-focused independent insurance agency for acquired loanswhich $0.1 million of goodwill was recorded. For additional information on these acquisitions, refer to "Note 13 Acquisitions."
Other Intangible Assets
Other intangible assets were comprised of the following at end of period, September 30, 2021 and end of year, December 31, 2020:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | Core Deposits | | Customer Relationships | | Total |
September 30, 2021 | | | | | |
Gross intangibles | $ | 25,805 | | | $ | 25,096 | | | $ | 50,901 | |
| | | | | |
Accumulated amortization | (17,813) | | | (8,256) | | | (26,069) | |
Total acquisition-related intangibles | $ | 7,992 | | | $ | 16,840 | | | $ | 24,832 | |
Servicing rights | | | | | 2,294 | |
Indefinite-lived intangibles | | | | | 1,274 | |
Total other intangibles | | | | | $ | 28,400 | |
| | | | | |
December 31, 2020 | | | | | |
Gross intangibles | $ | 22,233 | | | $ | 12,495 | | | $ | 34,728 | |
| | | | | |
Accumulated amortization | (17,298) | | | (6,579) | | | (23,877) | |
Total acquisition-related intangibles | $ | 4,935 | | | $ | 5,916 | | | $ | 10,851 | |
Servicing rights | | | | | 2,486 | |
| | | | | |
Total other intangibles | | | | | $ | 13,337 | |
| | | | | |
| | | | | |
Other intangible assets recorded from the above-mentioned acquisitions year-to-date as of September 30, 2021 were $13.0 million of customer relationship intangible assets related to the NSL and Peoples Insurance acquisitions, and $4.2 million of core deposit intangible assets related to Premier. Refer to "Note 13 Acquisitions" for additional information. Other intangible assets recorded in 2020 included $5.0 million of customer relationship intangible assets from the threePremium Finance and nine months ended September 30:
|
| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2017 | September 30, 2016 | | September 30, 2017 | September 30, 2016 |
Purchased credit impaired loans: | | | | | |
Balance, beginning of period | $ | 90 |
| $ | 197 |
| | $ | 233 |
| $ | 240 |
|
Charge-offs | — |
| (16 | ) | | — |
| (67 | ) |
Recoveries | — |
| — |
| | — |
| — |
|
Net charge-offs | — |
| (16 | ) | | — |
| (67 | ) |
Provision for (recovery of) loan losses | 25 |
| 77 |
| | (118 | ) | 85 |
|
Balance, September 30 | $ | 115 |
| $ | 258 |
| | $ | 115 |
| $ | 258 |
|
Note 5 Long-Term Borrowings
Peoples Insurance acquisitions.The following table summarizes Peoples' long-term borrowings:details estimated aggregate future amortization of other intangible assets at September 30, 2021:
|
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(Dollars in thousands) | Balance | Weighted- Average Rate | | Balance | Weighted- Average Rate |
FHLB putable, non-amortizing, fixed-rate advances | $ | 125,000 |
| 2.00 | % | | $ | 70,000 |
| 2.49 | % |
Callable national market repurchase agreements | 40,000 |
| 3.63 | % | | 40,000 |
| 3.63 | % |
FHLB amortizing, fixed-rate advances | 23,862 |
| 2.03 | % | | 28,282 |
| 2.01 | % |
Junior subordinated debt securities | 7,061 |
| 4.78 | % | | 6,924 |
| 4.48 | % |
Unamortized debt issuance costs | (33 | ) | — | % | | (51 | ) | — | % |
Total long-term borrowings | $ | 195,890 |
| 2.43 | % | | $ | 145,155 |
| 2.81 | % |
| | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Core Deposits | | Customer Relationships | | Total |
2021 | | $ | 574 | | | $ | 934 | | | $ | 1,508 | |
2022 | | 1,620 | | | 4,014 | | | 5,634 | |
2023 | | 1,257 | | | 3,712 | | | 4,969 | |
2024 | | 1,058 | | | 2,733 | | | 3,791 | |
2025 | | 891 | | | 1,941 | | | 2,832 | |
Thereafter | | 2,592 | | | 3,506 | | | 6,098 | |
Total | | $ | 7,992 | | | $ | 16,840 | | | $ | 24,832 | |
The weighted average amortization period of other intangible assets is 8.1 years.
Servicing Rights
The following is an analysis of activity of servicing rights for the periods ended September 30,2021 and December 31, 2020:
| | | | | | | | | | | |
(Dollars in thousands) | | September 30, 2021 | December 31, 2020 |
Balance, beginning of year | | $ | 2,486 | | $ | 2,742 | |
Amortization | | (591) | | (1,121) | |
Servicing rights originated | | 415 | | 1,026 | |
| | | |
Valuation allowance | | (16) | | (161) | |
Balance, end of period | | $ | 2,294 | | $ | 2,486 | |
Peoples continually evaluatesaccounts for its overall balance sheet position givenservicing rights under the interest rate environment. During the first nine months of 2017, Peoples borrowed an additional $75.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.20% to 2.03% and mature between 2018 and 2022.
amortization method, recognizing a valuation allowance when amortized cost exceeds fair value. As of September 30, 2017, Peoples' FHLB putable and callable national market repurchase agreements had no remaining putable or callable options.2021, Peoples is requiredhas recorded a valuation allowance of $16,000 related to make quarterly interest payments.the decrease in the fair value of servicing rights. During 2020, Peoples recorded a valuation allowance of $161,000 related to the decrease in the fair value of servicing rights.
The amortizing, fixed-rate FHLB advances have a fixed ratefollowing is the breakdown of the discount rates and prepayment speeds of servicing rights for the termperiods ended September 30,2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | |
| | September 30, 2021 | December 31, 2020 |
| | Minimum | Maximum | Minimum | Maximum |
Discount rates | | 8.3 | % | 10.8 | % | 8.3 | % | 10.8 | % |
Prepayment speeds | | 8.4 | % | 27.2 | % | 12.8 | % | 21.1 | % |
The fair value of servicing rights was $2.3 million and $2.6 million at September 30, 2021 and December 31, 2020, respectively.
Peoples’ deposit balances were comprised of the following:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Retail CDs: | | |
$100 or more | $ | 343,324 | | $ | 220,532 | |
Less than $100 | 348,356 | | 225,398 | |
Retail CDs | 691,680 | | 445,930 | |
Interest-bearing deposit accounts | 1,140,639 | | 692,113 | |
Savings accounts | 1,016,755 | | 628,190 | |
Money market deposit accounts | 637,635 | | 591,373 | |
Governmental deposit accounts | 679,305 | | 385,384 | |
| | |
Brokered deposit accounts (a) | 106,013 | | 170,146 | |
Total interest-bearing deposits | 4,272,027 | | 2,913,136 | |
Non-interest-bearing deposits | 1,559,993 | | 997,323 | |
Total deposits | $ | 5,832,020 | | $ | 3,910,459 | |
(a) At September 30, 2021, brokered deposit accounts included $100.0 million of brokered demand deposits.
At December 31, 2020, brokered deposit accounts included $50.0 millionof 90-day brokered CDs and
$110.0 million of brokered demand deposits
Time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") limit of $250,000 were $134.3 million and $89.0 million at September 30, 2021 and December 31, 2020, respectively. The increase compared to December 31, 2020 was mostly due to the deposits acquired from Premier.
The contractual maturities of retail CDs and brokered CDs and demand deposits for each advance, with maturities ranging from ten to twenty years. These advances require monthly principalof the next five years and interest payments, with some having a constant prepayment rate requiring an additional principal payment annually. These advancesthereafter are not eligible for optional prepayment prior to maturity.as follows:
| | | | | | | | | | | |
(Dollars in thousands) | Retail | Brokered | Total |
Remaining three months ending December 31, 2021 (a) | $ | 142,996 | | $ | 101,307 | | $ | 244,303 | |
Year ending December 31, 2022 | 375,448 | | 4,216 | | 379,664 | |
Year ending December 31, 2023 | 66,339 | | 490 | | 66,829 | |
Year ending December 31, 2024 | 62,021 | | — | | 62,021 | |
Year ending December 31, 2025 | 22,021 | | — | | 22,021 | |
Thereafter | 22,855 | | — | | 22,855 | |
Total CDs | $ | 691,680 | | $ | 106,013 | | $ | 797,693 | |
(a) Brokered deposit accounts include $100.0 million of brokered demand deposits.
At September 30, 2021, Peoples has entered intohad 16 effective interest rate swaps, as partwith an aggregate notional value of its interest rate risk management strategy. These$150.0 million, of which $100.0 million were funded by brokered demand and savings deposits. Brokered demand deposits hedged by interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2017, Peoples had seven interest rate swaps with a notional value of $60.0 million associated with Peoples' cash outflows for various FHLB advances. The swaps become effective in 2018,
roughlyexpected to coincide withbe extended every 90 days through the maturity dates of existing FHLB advances.the swaps. Additional information regarding Peoples' interest rate swaps can be found in Note 9 of the Notes to the Unaudited Consolidated"Note 10 Derivative Financial Statements.Peoples maintains a multi-year unsecured $15.0 million revolving credit facility (the “Credit Facility”) with Raymond James Bank, N.A. that matures on March 4, 2019. Borrowings under the Credit Facility may be used: (i) to make acquisitions; (ii) to make stock repurchases; (iii) for working capital needs; and (iv) for other general corporate purposes. Each loan under the Credit Facility will bear interest per annum at a rate equal to 3.00% plus the one-month LIBOR rate, which rate will reset monthly. As of September 30, 2017, there were no borrowings outstanding under the Credit Facility. Additional information regarding the Credit Facility can be found in Note 9 of the Notes to the Consolidated Financial Statements included in Peoples' 2016 Form 10-K.
The aggregate minimum annual retirements of long-term borrowings in future periods are as follows:Instruments."
|
| | | | | |
(Dollars in thousands) | Balance | Weighted-Average Rate |
Three months ending December 31, 2017 | $ | 1,866 |
| 2.04 | % |
Year ending December 31, 2018 | 54,385 |
| 3.46 | % |
Year ending December 31, 2019 | 33,508 |
| 1.37 | % |
Year ending December 31, 2020 | 25,564 |
| 1.85 | % |
Year ending December 31, 2021 | 21,979 |
| 1.75 | % |
Thereafter | 58,588 |
| 2.62 | % |
Total long-term borrowings | $ | 195,890 |
| 2.43 | % |
Note 67 Stockholders’ Equity
The following table details the progression in Peoples’ common shares and treasury stock during the nine months ended September 30, 2017:2021:
| | | | | | | | | |
| | Common Shares | Treasury Stock |
Shares at December 31, 2020 | | 21,193,402 | | 1,686,046 | |
Changes related to stock-based compensation awards: | | | |
| | | |
Release of restricted common shares | | — | | 29,135 | |
Cancellation of restricted common shares | | — | | 7,168 | |
| | | |
Grant of restricted common shares | | — | | (101,926) | |
Grant of unrestricted common shares | | — | | (5,747) | |
Changes related to deferred compensation plan for Boards of Directors: | | | |
Purchase of treasury stock | | — | | 5,309 | |
Disbursed out of treasury stock | | — | | (2,983) | |
| | | |
Common shares issued under dividend reinvestment plan | | 23,348 | | — | |
Common shares issued under compensation plan for Boards of Directors | | — | | (5,535) | |
| | | |
Common shares issued under employee stock purchase plan | | — | | (11,874) | |
Issuance of common shares related to the merger with Premier Financial Bancorp, Inc. | | 8,589,685 | | — | |
| | | |
Shares at September 30, 2021 | | 29,806,435 | | 1,599,593 | |
|
| | | | |
| Common Shares | Treasury Stock |
Shares at December 31, 2016 | 18,939,091 |
| 795,758 |
|
Changes related to stock-based compensation awards: | | |
Release of restricted common shares | — |
| 8,719 |
|
Cancellation of restricted common shares | (3,344 | ) | 4,510 |
|
Exercise of stock options for common shares | — |
| (266 | ) |
Grant of restricted common shares | — |
| (68,707 | ) |
Grant of common shares | — |
| (300 | ) |
Changes related to deferred compensation plan for Boards of Directors: | | |
Purchase of treasury stock | — |
| 4,266 |
|
Reissuance of treasury stock | — |
| (24,634 | ) |
Common shares issued under dividend reinvestment plan | 12,611 |
| — |
|
Common shares issued under compensation plan for Boards of Directors | — |
| (7,404 | ) |
Common shares issued under employee stock purchase plan | — |
| (8,412 | ) |
Shares at September 30, 2017 | 18,948,358 |
| 703,530 |
|
On January 28, 2021, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $30.0 million of Peoples' outstanding common shares, replacing the February 27, 2020 share repurchase program which had authorized Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. At September 30, 2021, Peoples had not repurchased any common shares under the share repurchase program authorized on January 28, 2021.Under itsPeoples' Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by Peoples' Board of Directors. At September 30, 2017,2021, Peoples had no preferred shares issued or outstanding.
On October 25, 2021, Peoples' Board of Directors declared a quarterly cash dividend of $0.36 per common share, payable on November 22, 2021, to shareholders of record on November 8, 2021. The following table details the cash dividends declared per common share during the four quarters of 2021 and the comparable periods of 2020:
| | | | | | | | |
| 2021 | 2020 |
First quarter | $ | 0.35 | | 0.34 | |
Second quarter | 0.36 | | 0.34 | |
Third quarter | 0.36 | | 0.34 | |
Fourth quarter | $ | 0.36 | | $ | 0.35 | |
Total dividends declared | $ | 1.43 | | $ | 1.37 | |
Accumulated Other Comprehensive (Loss) Income (Loss)
The following table details the change in the components of Peoples’ accumulated other comprehensive (loss) income (loss) for the nine months ended September 30, 2017:2021:
| | | | | | | | | | | | | | |
(Dollars in thousands) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Loss on Cash Flow Hedge | Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2020 | $ | 14,592 | | $ | (3,872) | | $ | (9,384) | | $ | 1,336 | |
Reclassification adjustments to net income: | | | | |
Realized gain on sale of securities, net of tax | 547 | | — | | — | | 547 | |
Realized loss due to settlement and curtailment, net of tax | — | | 111 | | — | | 111 | |
Other comprehensive (loss) income, net of reclassifications and tax | (13,245) | | 1,481 | | 3,882 | | (7,882) | |
Balance, September 30, 2021 | $ | 1,894 | | $ | (2,280) | | $ | (5,502) | | $ | (5,888) | |
|
| | | | | | | | | | | | |
(Dollars in thousands) | Unrealized Gain on Securities | Unrecognized Net Pension and Postretirement Costs | Unrealized Gain (Loss) on Cash Flow Hedge | Accumulated Other Comprehensive Income (Loss) |
Balance, December 31, 2016 | $ | 581 |
| $ | (3,321 | ) | $ | 1,186 |
| $ | (1,554 | ) |
Reclassification adjustments to net income: | | | |
|
|
Realized gain on sale of securities, net of tax | (1,442 | ) | — |
| — |
| (1,442 | ) |
Other comprehensive income (loss), net of reclassifications and tax | 3,542 |
| 46 |
| (541 | ) | 3,047 |
|
Balance, September 30, 2017 | $ | 2,681 |
| $ | (3,275 | ) | $ | 645 |
| $ | 51 |
|
Note 78 Employee Benefit Plans
Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the employee’s annual compensation during the years 2003 through 2009, plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. Effective March 1, 2011, the accrual of pension plan benefits for all participants was frozen. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Effective July 1, 2013, a participant in the pension plan who is employed by Peoples also provides post-retirement health and life insurancemay 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 former employees and directors. Only those individuals who retired before January 27, 2012 were eligible for life insurancereceive his or her retirement benefits. As
The expected long-term rate of return on plan assets, which was determined as of January 1, 2011, all retirees who desire to participate in Peoples medical plan do so by electing COBRA, which provides up to 18 months of coverage; retirees over the age of 65 also have the option to pay to participate in a group Medicare supplemental plan. Peoples’ policy2021, is to fund the cost of the health benefits as they arise.
7.0%. The following tables detailtable details the components of the net periodic cost for the plans:plan described above, which is included in salaries and employee benefit costs on the Unaudited Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Interest cost | $ | 60 | | $ | 80 | | | $ | 194 | | $ | 256 | |
Expected return on plan assets | (143) | | (187) | | | (492) | | (577) | |
Amortization of net loss | 21 | | 35 | | | 84 | | 101 | |
Settlement of benefit obligation | 143 | | 531 | | | 143 | | 1,050 | |
Net periodic loss (income) | $ | 81 | | $ | 459 | | | $ | (71) | | $ | 830 | |
|
| | | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2017 | 2016 | | 2017 | 2016 |
Interest cost | $ | 112 |
| $ | 110 |
| | $ | 338 |
| $ | 329 |
|
Expected return on plan assets | (138 | ) | (123 | ) | | (415 | ) | (369 | ) |
Amortization of net loss | 26 |
| 23 |
| | 77 |
| 71 |
|
Net periodic cost | $ | — |
| $ | 10 |
| | $ | — |
| $ | 31 |
|
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. |
| | | | | | | | | | | | | |
| Postretirement Benefits |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2017 | 2016 | | 2017 | 2016 |
Interest cost | $ | 1 |
| $ | 1 |
| | $ | 3 |
| $ | 3 |
|
Amortization of net loss | (1 | ) | (2 | ) | | (5 | ) | (5 | ) |
Net periodic cost | $ | — |
| $ | (1 | ) | | $ | (2 | ) | $ | (2 | ) |
There were noPeoples recorded a settlement charges recorded incharge of $143,000 during the three orand nine months ended September 30, 2017 or2021 under the noncontributory defined benefit pension plan. Peoples recorded settlement charges of $531,000 and $1.1 million, respectively, during the three and nine months ended September 30, 20162020 under the noncontributory defined benefit pension plan.
Note 89 Earnings Per Common Share
The calculations of basic and diluted (loss) earnings per common share were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, except per common share data) | 2021 | 2020 | | 2021 | 2020 |
Net (loss) income available to common shareholders | $ | (5,758) | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
Less: Dividends paid on unvested shares | (79) | | (96) | | | (214) | | (274) | |
Add: Undistributed earnings (loss) allocated to unvested shares | 21 | | (2) | | | 2 | | 4 | |
Net (loss) earnings allocated to common shareholders | $ | (5,816) | | $ | 10,112 | | | $ | 19,596 | | $ | 13,924 | |
| | | | | |
Weighted-average common shares outstanding | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Effect of potentially dilutive common shares | 148,752 | | 133,186 | | | 138,819 | | 135,944 | |
Total weighted-average diluted common shares outstanding | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
| | | | | |
(Loss) earnings per common share: | | | | | |
Basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
Diluted | $ | (0.28) | | $ | 0.51 | | | $ | 0.99 | | $ | 0.70 | |
Anti-dilutive common shares excluded from calculation: | | | | | |
Restricted shares | — | | 69,459 | | | — | | 67,759 | |
|
| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, except per share data) | 2017 | 2016 | | 2017 | 2016 |
Distributed earnings allocated to common shareholders | $ | 3,972 |
| $ | 2,879 |
| | $ | 11,184 |
| $ | 8,471 |
|
Undistributed earnings allocated to common shareholders | 6,865 |
| 4,881 |
| | 18,134 |
| 15,189 |
|
Net earnings allocated to common shareholders | $ | 10,837 |
| $ | 7,760 |
| | $ | 29,318 |
| $ | 23,660 |
|
| | | | | |
Weighted-average common shares outstanding | 18,056,202 |
| 17,993,443 |
| | 18,043,692 |
| 18,015,249 |
|
Effect of potentially dilutive common shares | 157,331 |
| 117,267 |
| | 156,267 |
| 108,411 |
|
Total weighted-average diluted common shares outstanding | 18,213,533 |
| 18,110,710 |
| | 18,199,959 |
| 18,123,660 |
|
| | | | | |
Earnings per common share: | | | | | |
Basic | $ | 0.60 |
| $ | 0.43 |
| | $ | 1.62 |
| $ | 1.31 |
|
Diluted | $ | 0.60 |
| $ | 0.43 |
| | $ | 1.61 |
| $ | 1.31 |
|
| | | | | |
Anti-dilutive shares excluded from calculation: | | | | | |
Restricted shares, stock options and stock appreciation rights | 163 |
| 18,604 |
| | 270 |
| 24,461 |
|
Note 910 Derivative Financial Instruments with Off-Balance Sheet Risk
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 derivatives is included in the activity in "Net cash provided by operating activities" in the Unaudited Condensed Consolidated Statements of Cash Flows.DerivativesDerivative Financial Instruments and Hedging Activities - Risk Management Objective of Using DerivativesDerivative Financial Instruments
Peoples is exposed to certain risks arising from both its business operations and economic conditions. Peoples principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. Peoples manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities andliabilities. Peoples also manages interest rate risk through the use of derivative financial instruments. Specifically, Peoples enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known or expected cash amounts, the valuevalues 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 derivativesderivative 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.
Fair Values of Derivative Instruments on the Balance Sheet
Peoples' fair value of the derivative financial instruments was $4.8 million in an asset position and $3.9 million in a liability position at September 30, 2017, and there was $5.0 million in an asset position and $3.2 million in a liability position at December 31, 2016. The amounts are recorded in other assets, and accrued expenses and other liabilities on the consolidated balance sheet at the periods indicated.
Cash Flow Hedges of Interest Rate Risk
Peoples' objectives in using interest rate derivativesderivative financial instruments are to add stability to interest income and expense, and to manage its exposure to interest rate movements. To accomplish these objectives, Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As ofAt September 30, 2017,2021, Peoples had seven interest rate swaps with a notional value of $60.0 million associated with Peoples' cash outflows for various FHLB advances.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of each derivative is initially reported in accumulated other comprehensive income ("AOCI") (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Peoples assesses the effectiveness of each hedging relationship by comparing
the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transaction.
Peoples hedged its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 13 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments). Peoples entered into the seven16 interest rate swap contracts described above, wherebywith an aggregate notional value of $150.0 million. Peoples will pay a fixed rate of interest for up to ten years while receiving a floating rate component of interest equal to the three-month LIBOR rate. The interest received on the floating rate component is intended to offset the rateinterest paid on the rolling three-month brokered CDs and brokered demand deposits, which will continue to be rolled through the life of the swaps. At September 30, 2021, the interest rate swaps were designated as cash flow hedges of $100.0 million in brokered demand deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0 million of interest rate swaps were designated as cash flow hedges of 90-day FHLB advances. AmountsAdvances.
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 AOCI related to derivatives will beaccumulated other comprehensive (loss) income ("AOCI") (outside of earnings), net of tax, and are reclassified to interest income or expense as interest payments are made or received on Peoples' variable-rate assetsliabilities. Peoples assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the hedging derivative financial instrument with the changes in cash flows of the designated hedged transaction. The reset dates and the payment dates on the 90-day advances or liabilities.brokered CDs are matched to the reset dates and payment dates on the receipt of the three-month LIBOR floating portion of the swaps to ensure effectiveness of the cash flow hedge. During the three and nine months ended September 30, 2017, and September 30, 2016,2021, Peoples had no reclassifications of losses to interest expense. Peoples estimates that no interest expense amount will be reclassified inearnings of $766,000 and $2.3 million, respectively. During the fourth quarter of 2017 prior to adoption of the new accounting standards.
The amount of accumulated other comprehensive pre-tax income for Peoples' cash flow hedges was $1.0 million at September 30, 2017. There were no pre-tax net losses recorded for thethree and nine months ended September 30, 2017. Additionally,2020, Peoples had no reclassifications of losses to earnings of $732,000 and $1.2 million, respectively. During the next twelve months, Peoples estimates that minimal interest expense will be reclassified.
The following table summarizes information about the interest rate swaps designated as cash flow hedges:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
Notional amount | $ | 150,000 | | $ | 160,000 | |
Weighted average pay rates | 2.13 | % | 2.18 | % |
Weighted average receive rates | 0.76 | % | 0.38 | % |
Weighted average maturity | 3.8 years | 4.4 years |
Pre-tax unrealized losses included in AOCI | $ | (7,143) | | $ | (11,879) | |
The following table presents net gains or losses recorded in AOCI and in the three months or nine months ended September 30, 2017 or September 30, 2016.Unaudited Consolidated Statements of Operations related to the cash flow hedges:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Amount of (gain) loss recognized in AOCI, pre-tax | $ | (858) | | $ | (803) | | | $ | (4,800) | | $ | 9,661 | |
| | | | | |
The following table reflects the cash flow hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
| | | | | |
| | | | | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to debt | $ | 150,000 | | $ | 7,252 | | | $ | 160,000 | | $ | 12,063 | |
| | | | | |
Non-Designated Hedges
Peoples maintains an interest rate protection program for commercial loan customers, which was established in 2010. Under this program, Peoples provides its customeroriginates variable rate loans with a fixed-rate loan while creating a variable-rate asset for Peoples byinterest rate swaps, where the customer enteringenters 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 risk exposure in the swap by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative. Peoples had interest rate swaps associated with commercial loans with a notional value of $334.2 million and fair value of $3.5 million of equally offsetting assets and liabilities at September 30, 2017, and a notional value of $247.3 million and fair value of $3.2 million of equally offsetting assets and liabilities at December 31, 2016.derivative financial instrument. These interest rate swaps did not have a material impact on Peoples' results of operationoperations or financial condition.condition at or for the three and nine months ended September 30, 2021 and at or for the year ended December 31, 2020.
The following table reflects the non-designated hedges, which are included in the Unaudited Consolidated Balance Sheets at fair value:
: | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | Notional Amount | Fair Value | | Notional Amount | Fair Value |
Included in "Other assets": | | | | | |
Interest rate swaps related to commercial loans | $ | 403,208 | | $ | 15,653 | | | $ | 415,044 | | $ | 27,332 | |
| | | | | |
Included in "Accrued expenses and other liabilities": | | | | | |
Interest rate swaps related to commercial loans | $ | 403,208 | | $ | 15,653 | | | $ | 415,044 | | $ | 27,332 | |
| | | | | |
Pledged Collateral
Peoples pledges or receives collateral for all interest rate swaps. When the fair value of Peoples' interest rate swaps is in a net liability position, Peoples must pledge collateral, and, when the fair value of Peoples' interest rate swaps is in a net asset position, the respective counterparties must pledge collateral. At September 30, 2021 and December 31, 2020, Peoples had zero and $41.0 million, respectively, of cash pledged, while the counterparties had no amount of cash pledged at either date. Cash pledged was included in "Interest-bearing deposits in other banks" on the Audited Consolidated Balance Sheet as of December 31, 2020. Peoples had pledged $36.3 million and zero in investment securities at September 30, 2021 and December 31, 2020, respectively.
Note 1011 Stock-Based Compensation
Under the Peoples Bancorp Inc. SecondThird Amended and Restated 2006 Equity Plan (the "2006 Equity Plan"), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted stockcommon share awards, stock appreciation rights, ("SARs")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 1,081,260.891,340. The maximum number of common shares that can be issued for incentive stock options is 800,000500,000 common shares. Prior to 2007, Peoples granted nonqualified and incentive stock options to employees and nonqualified stock options to non-employee directors under the 2006 Equity Plan and predecessor plans. Since February 2009, Peoples has granted restricted common shares to employees, and restricted common sharesperiodically to non-employee directors, subject to the terms and conditions prescribed by the 2006 Equity Plan. Additionally, in 2020 and 2021, Peoples granted unrestricted common shares to non-employee directors (in addition to their directors' fees paid in common shares). In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.
Stock Appreciation Rights
SARs granted to employees have an exercise price equal to the fair market value of Peoples’ common shares on the date of grant and will be settled using common shares of Peoples. Additionally, the SARs granted to employees vested three years after the respective grant dates and are to expire ten years from the respective date of grant. The most recent grant of SARs occurred in 2008. The following table summarizes the changes to Peoples' SARs for the nine months ended September 30, 2017:
|
| | | | | | | | | | | | | |
| | Number of Common Shares Subject to SARs | | Weighted- Average Exercise Price | | Weighted-Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at January 1 | | 2,338 |
| | $ | 27.37 |
| | | | |
Exercised | | 2,024 |
| | 27.93 |
| | | | |
Outstanding at September 30 | | 314 |
| | $ | 23.77 |
| | 0.4 years | | $ | 3,083 |
|
Exercisable at September 30 | | 314 |
| | $ | 23.77 |
| | 0.4 years | | $ | 3,083 |
|
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 restricted common shares awarded to non-employee directors expire after six months, while the restrictions on restricted common shares awarded to employees expire after periods ranging from one to threefive years. Since 2018, common shares awarded to non-employee directors have vested immediately upon grant with no restrictions. In the first nine months of 2017,2021, Peoples granted an aggregate of 61,54776,819 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant datedate; provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well capitalizedwell-capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date. During the first nine months of 2017, Peoples granted, to certain key employees, an aggregate of 4,250 restricted common shares subject to time-based vesting with restrictions that will lapse three years after the grant date. Peoples also granted, to non-employee directors, an aggregate of 3,300 restricted common shares subject to time-based vesting with restrictions that will lapse six months after the grant date.
The following table summarizes the changes to Peoples’ restricted common shares for the nine months ended September 30, 2017:2021:
| | | Time-Based Vesting | | Performance-Based Vesting | | Time-Based Vesting | | Performance-Based Vesting |
| Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value | | Number of Common Shares | Weighted-Average Grant Date Fair Value |
Outstanding at January 1 | 40,316 |
| $ | 21.85 |
| | 142,415 |
| $ | 21.95 |
| Outstanding at January 1 | 67,758 | | $ | 23.71 | | | 250,992 | | $ | 33.36 | |
Awarded | 7,550 |
| 31.36 |
| | 61,457 |
| 32.42 |
| Awarded | 25,107 | | 32.58 | | | 76,819 | | 31.48 | |
Released | 7,150 |
| 26.96 |
| | 21,050 |
| 21.74 |
| Released | (9,127) | | 35.63 | | | (73,611) | | 35.43 | |
Forfeited | 2,300 |
| 24.69 |
| | 5,854 |
| 24.89 |
| Forfeited | (500) | | 34.75 | | | (6,668) | | 32.42 | |
Outstanding at September 30 | 38,416 |
| $ | 22.59 |
| | 176,968 |
| $ | 25.51 |
| Outstanding at September 30 | 83,238 | | $ | 25.01 | | | 247,532 | | $ | 32.19 | |
For the nine months ended September 30, 2017,2021, the total intrinsic value for restricted common shares released was $0.9$2.6 million compared to $0.7$2.0 million for the nine months ended September 30, 2016.2020.
Stock-Based Compensation
Peoples recognizes stock-based compensation, expense, which is included as a component of Peoples'Peoples’ salaries and employee benefit costs, for restricted and unrestricted common shares and performance unit awards, as well as purchases made by participants in the employee stock purchase plan. For restricted common shares, Peoples recognizes stock-based compensation based on the estimated fair value of
the awards expected to vest on the grant date. The estimated fair value is then expensed over the vesting period, which is normally three years. For performance unit awards, Peoples recognizes stock-based compensation over the performance period, based on the portion of the awards that was expected to vest based on the expected level of achievement of the two performance goals. Peoples also has an employee stock purchase plan whereby employees can purchase Peoples' common shares at a discount of 15%. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized for each period:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Employee stock-based compensation expense: | | | | | |
Stock grant expense | $ | 597 | | $ | 615 | | | $ | 2,381 | | $ | 2,950 | |
Employee stock purchase plan expense | 21 | | 17 | | | $ | 55 | | $ | 47 | |
Performance unit benefit | — | | — | | | $ | — | | $ | (12) | |
Total employee stock-based compensation expense | 618 | | 632 | | | $ | 2,436 | | $ | 2,985 | |
Non-employee director stock-based compensation expense | 60 | | 53 | | | $ | 310 | | $ | 288 | |
Total stock-based compensation expense | 678 | | 685 | | | $ | 2,746 | | $ | 3,273 | |
Recognized tax benefit | (151) | | (144) | | | (612) | | (687) | |
Net stock-based compensation expense | $ | 527 | | $ | 541 | | | $ | 2,134 | | $ | 2,586 | |
|
| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2017 | 2016 | | 2017 | 2016 |
Total stock-based compensation expense | $ | 351 |
| $ | 346 |
| | $ | 1,362 |
| $ | 1,009 |
|
Recognized tax benefit | (123 | ) | (121 | ) | | (477 | ) | (353 | ) |
Net expense recognized | $ | 228 |
| $ | 225 |
| | $ | 885 |
| $ | 656 |
|
Restricted common shares were the primary form of stock-based compensation awards granted by Peoples in the nine months ended September 30, 2021 and 2020. The fair value of restricted common share awards on the grant date is the market price of Peoples' common shares on that date. Total unrecognized stock-based compensation expense related to unvested restricted common share awards was $1.8$3.0 million at September 30, 2017,2021, which will be recognized over a weighted-average period of 1.9 years.
Performance Unit Award Agreement
Under the 2006 Equity Plan, Peoples may On April 1, 2020, an aggregate of 18,952 unrestricted common shares were granted as a one-time special award performance unit awards to officers, key employees and non-employee directors. On July 26, 2017, Peoples granted a total of seven performance unit awards to officers with a maximum aggregate dollar amount of $1.3 million represented by the performance units subject to such awards, with each performance unit representing $1.00. The performance unit awards granted are for the performance period beginning January 1, 2018 and ending on December 31, 2019, and will be subject to two performance goals. Twenty-five percent of the performance units subject to each award will vest if, but only if, the related target performance goal is achieved. The remaining 75% of the performance units subject to each award will vest based on the relative performance (measured by percentile ranking) with respect to the related maximum performance goal. If for the performance period, the target level of achievement for the first performance goal and/or the maximum level of achievement for the second performance goal is not reached, the dollar amount represented by the performance units associated with each performance goal will be adjusted to reflectunder the level of Vice President, with a related stock-based compensation expense of $396,000 being recognized.
In addition to the portion of directors' fees paid in common shares, non-employee director stock-based compensation expense included $135,000 during the first nine months of 2021, and $120,000 during the first nine months of 2020, reflecting separate grants of unrestricted common shares aggregating 4,347 and 3,680 common shares, respectively.
The following table details Peoples' revenue from contracts with customers:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands) | 2021 | 2020 | | 2021 | 2020 |
Insurance income: | | | | | |
Commission and fees from sale of insurance policies (a) | $ | 3,231 | | $ | 3,493 | | | $ | 9,603 | | $ | 9,117 | |
Fees related to third-party administration services (a) | 76 | | 107 | | | 276 | | 375 | |
Performance-based commissions (b) | 60 | | 9 | | | 2,044 | | 1,437 | |
Trust and investment income (a) | 4,158 | | 3,435 | | | 12,223 | | 10,013 | |
Electronic banking income: | | | | | |
Interchange income (a) | 3,280 | | 3,011 | | | 9,930 | | 8,255 | |
Promotional and usage income (a) | 1,046 | | 755 | | | 2,725 | | 2,313 | |
Deposit account service charges: | | | | | |
Ongoing maintenance fees for deposit accounts (a) | 933 | | 848 | | | 2,597 | | 2,677 | |
Transactional-based fees (b) | 1,616 | | 1,418 | | | 3,981 | | 4,318 | |
Commercial loan swap fees (b) | 73 | | 68 | | | 194 | | 1,267 | |
Other non-interest income transactional-based fees (b) | 207 | | 94 | | | 601 | | 624 | |
Total revenue from contracts with customers | $ | 14,680 | | $ | 13,238 | | | $ | 44,174 | | $ | 40,396 | |
Timing of revenue recognition: | | | | | |
Services transferred over time | $ | 12,724 | | $ | 11,649 | | | $ | 37,354 | | $ | 32,750 | |
Services transferred at a point in time | 1,956 | | 1,589 | | | 6,820 | | 7,646 | |
Total revenue from contracts with customers | $ | 14,680 | | $ | 13,238 | | | $ | 44,174 | | $ | 40,396 | |
(a) Services transferred over time.
(b) Services transferred at a point in time.
Peoples records contract assets for income that has been recognized over a period of time for fulfillment of performance achieved. Afterobligations, 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 vesting date,future. Peoples records contract liabilities for payments received for commission income related to the participant will receive that numbersale of insurance policies, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled, which is over the insurance policy period. Peoples also records contract liabilities for bonuses received related to electronic banking income, for which the performance obligations have not yet been fulfilled. The contract liabilities are recognized as income over time, during the period in which the performance obligations are fulfilled related to electronic banking income.
The following table details the changes in Peoples' contract assets and contract liabilities for the nine-month period ended September 30, 2021:
| | | | | | | | |
| Contract Assets | Contract Liabilities |
(Dollars in thousands) |
Balance, January 1, 2021 | $ | 1,247 | | $ | 5,224 | |
Additional income receivable | 144 | | — | |
| | |
Receipt of income previously receivable | (701) | | — | |
Recognition of income previously deferred | — | | (488) | |
Balance, September 30, 2021 | $ | 690 | | $ | 4,736 | |
Premier Financial Bancorp, Inc.
On September 17, 2021, Peoples completed its merger with Premier. Premier merged into Peoples, and Premier’s wholly-owned subsidiaries, Premier Bank, Inc., and Citizens Deposit Bank and Trust, Inc., which combined operate 48 branches in Kentucky, Maryland, Ohio, Virginia, West Virginia and Washington, D.C., merged into Peoples’ wholly-owned subsidiary, Peoples Bank. As consideration, Premier shareholders were paid 0.58 common shares of Peoples equalfor each full share of Premier that was owned at the acquisition date, resulting in the issuance of 8,589,685 common shares by Peoples, or $261.9 million. Peoples accounted for this transaction as a business combination under the acquisition method. Peoples completed the merger in an effort to diversify and expand its franchise, and further enhance its size and scale. Peoples believes the growth potential, and attractive market areas will benefit its future financial performance.
Peoples recorded acquisition-related expenses related to the Premier merger which included $9.8 million in other non-interest expense; $4.2 million in professional fees; $3.7 million in salaries and employee benefit costs; $181,000 in marketing expense; and $83,000 in data processing and software expense.
Peoples recorded the estimate of fair value based on initial valuations available at September 17, 2021. Due to the timing of the transaction closing date and this Form 10-Q, these estimated fair values are considered preliminary as of September 30, 2021, and are subject to adjustment for up to one year after September 17, 2021. Valuations subject to change include, but are not limited to, loans, bank premises, customer deposit intangibles (included in other intangible assets), certain deposits, trust preferred securities, deferred tax assets and liabilities, and certain other assets and other liabilities.
The following table provides the preliminary purchase price calculation as of the date of the Merger with Premier, and the assets acquired and liabilities assumed at their estimated fair values.
| | | | | | | | | | |
(Dollars in thousands) | | Unpaid Principal Balance | Fair Value | |
| | | | |
| | | | |
| | | | |
| | | | |
Premier common shares | | | 14,811,200 | | |
Number of common shares of Peoples issued for each common share of Premier | | | 0.58 | | |
Price per Peoples common share, based at closing date | | | $ | 30.49 | | |
Common share consideration | | | 261,899 | | |
Cash paid in lieu of fractional common shares | | | 25 | | |
Total consideration | | | $ | 261,924 | | |
Net assets at fair value | | | | |
Assets | | | | |
Cash and due from banks | | | $ | 251,763 | | |
Interest-bearing deposits in other banks | | | 1,025 | | |
Total cash and cash equivalents | | | 252,788 | | |
Available-for-sale investment securities | | | 563,294 | | |
| | | | |
Other investment securities | | | 4,159 | | |
Total investment securities | | | 567,453 | | |
| | | | |
Loans: | | | | |
Construction | | 97,262 | | 93,819 | | |
Commercial real estate, other | | 544,950 | | 517,315 | | |
Commercial and industrial | | 132,293 | | 127,880 | | |
| | | | |
Residential real estate | | 332,269 | | 327,508 | | |
Home equity lines of credit | | 46,969 | | 45,841 | | |
| | | | |
Consumer | | 21,083 | | 21,527 | | |
Total loans | | 1,174,826 | | 1,133,890 | | |
| | | | |
| | | | |
Bank premises and equipment | | | 33,835 | | |
Other intangible assets | | | 4,233 | | |
OREO | | | 11,101 | | |
Other assets | | | 19,671 | | |
Total assets | | | $ | 2,022,971 | | |
| | | | | | | | | | |
(Dollars in thousands) | | Unpaid Principal Balance | Fair Value | |
Liabilities | | | | |
Deposits: | | | | |
Non-interest-bearing | | | $ | 735,236 | | |
Interest-bearing | | | 1,020,887 | | |
Total deposits | | | 1,756,123 | | |
Short-term borrowings | | | 63,807 | | |
Long-term borrowings | | | 6,070 | | |
Accrued expenses and other liabilities | | | 6,036 | | |
Total liabilities | | | 1,832,036 | | |
Net assets | | | 190,935 | | |
Goodwill | | | $ | 70,989 | | |
(i)The recorded goodwill associated with the aggregate numberPremier merger is related to expected synergies and operational efficiencies to be gained from the combination of participant's performance units (and dollar valuePremier with Peoples' operations. None of such performance units) that vestedthe goodwill associated with the Premier merger is expected to be deductible for tax purposes. The geographic locations of Premier will allow Peoples to continue to grow the loan and deposit portfolios, while also increasing Peoples' ability to penetrate the new markets with wealth management and insurance services, which should benefit Peoples in future periods. Additional information regarding other intangibles recognized in the acquisition can be found in "Note 5 Goodwill and Other Intangible Assets."
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and due from banks is a reasonable estimate of fair value.
Investment Securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the performance achieved under both performance goals (ii) dividedmarket. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.
Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan, related collateral, classification status, fixed or variable interest rate, term, amortization status and current discount rates. Loans were grouped together according to similar characteristics when applying various valuation techniques. The discount rates used for loans are based on current market rates at the acquisition date for new originations for comparable loans and include adjustments for liquidity. The discount rate does not include a factor for credit losses as that has been included as a reduction to the estimated cash flows.
Bank Premises and Equipment: The fair values of premises were based on a market approach, with third-party appraisals and broker opinions of value for land, office and branch space.
OREO: The fair values of OREO were based on a market approach, with third-party appraisals and broker opinions of value for land and buildings.
Customer Deposit Intangible: The customer deposit intangible represents the low cost of funding acquired core deposits provide relative to a marginal cost of funds. The fair value was estimated based on a discounted cash flow methodology that gave consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The customer deposit intangible is being amortized over 10 years based upon the period over which estimated economic benefits are estimated to be received.
Deposits: The fair values used for the demand and savings deposits equal the amount payable on demand at the acquisition date. The fair values for time deposits were estimated using a discounted cash flow calculation that applies interest rates being offered at the acquisition date to the contractual interest rates on such time deposits.
Borrowings: Short-term borrowings consist of overnight repurchase agreements and rates, and given their short-term nature book value approximated fair value. The fair values of long-term borrowings are estimated using discounted cash flow analyses, based on incremental borrowing rates at acquisition date for similar types of instruments.
Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" loans. Acquired purchased credit deteriorated loans are reported net of the unamortized fair
value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair market value adjustment for acquired purchased credit deteriorated loans as of a common share on the dateacquisition date:
| | | | | | | | | | | | | | | |
| | |
(Dollars in thousands) | | Par Value | Allowance for Credit Losses | Non-Credit (Discount) Premium | Fair Value |
Purchased credit deteriorated loans | | | | | |
Construction | | $ | 23,232 | | $ | (2,127) | | $ | (219) | | $ | 20,886 | |
Commercial real estate, other | | 176,122 | | (13,374) | | (8,022) | | 154,726 | |
Commercial and industrial | | 26,341 | | (4,286) | | 281 | | 22,336 | |
| | | | | |
Residential real estate | | 56,005 | | (2,394) | | (2,166) | | 51,445 | |
Home equity lines of credit | | 2,014 | | (41) | | (68) | | 1,905 | |
| | | | | |
Consumer | | 1,614 | | (112) | | 63 | | 1,565 | |
Fair value | | $ | 285,328 | | $ | (22,334) | | $ | (10,131) | | $ | 252,863 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Peoples' operating results for the three-month and nine-month periods ended September 30, 2021 include the operating results of such vestingthe acquired assets and rounded downassumed liabilities of Premier subsequent to the nearest whole common share.acquisition on September 17, 2021. Due to the conversion of Premier systems during the third quarter of 2021, as well as other streamlining and integration of the operating activities into those of Peoples, historical reporting for the former Premier operations is impracticable and the disclosures of revenue from the assets acquired and income before income taxes is impracticable for the period subsequent to the acquisition. The following table presents unaudited pro forma information as if the acquisition of Premier had occurred on January 1, 2020. The pro forma adjustments include any changes in interest income due to the accretion of discounts, or amortization of premiums, associated with the fair value adjustments to acquired loans, interest-bearing deposits, long-term borrowings, trust preferred securities and customer deposit intangibles that would have resulted had the assets and liabilities been acquired as of January 1, 2020. The pro forma information excludes Peoples' acquisition-related expenses, which primarily included, but were not limited to, salaries and employee benefit costs, severance costs, professional fees, marketing expenses and deconversion costs. Those acquisition-related expenses totaled $16.2 million and $18.1 million for the quarter and year-to-date, respectively. The pro forma information also excludes a provision of credit losses of $11.0 million recorded to establish an allowance for credit losses for non-purchased credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquired loans. The pro forma information does not necessarily reflect the results of operations that would have occurred had Peoples acquired Premier on January 1, 2020. Additionally, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts.
| | | | | | | | | | | | | | | | | |
| Unaudited Pro Forma For |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2021 | September 30, 2020 | | September 30, 2021 | September 30, 2020 |
| | | | | |
| | | | | |
Net interest income | $ | 59,248 | | $ | 52,646 | | | $ | 168,644 | | $ | 156,285 | |
| | | | | |
| | | | | |
Non-interest income | 19,071 | | 18,967 | | | 57,061 | | 53,507 | |
| | | | | |
| | | | | |
| | | | | |
Net income | 17,492 | | 16,151 | | | 56,862 | | 31,529 | |
| | | | | |
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Note 11 Acquisitions
Pikeville, Kentucky Insurance AgencyOn January 31, 2017,May 4, 2021, Peoples Insurance acquired a third-partysubstantially all of the assets and rights of an insurance administration companyagency located in Piketon, OhioPikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000. Peoples accounted for this transaction as a business combination under the acquisition method.
NS Leasing, LLC
Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $0.5$116.5 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. NSL underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $24.7 million and recorded $0.5preliminary other intangibles of $14.0 million, ofwhich included a customer relationship intangibles. This acquisition did not materially impact Peoples' financial position, results of operations or cash flows.
On October 2, 2017,intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples Insurance acquired a property and casualty focused independent insurance agency with annual net revenue of approximately $0.8 million located in the Cleveland, Ohio area. This acquisition did not materially impact Peoples' financial position, results of operations or cash flows.
On October 23, 2017, Peoples entered intorecorded an Agreement and Plan of Merger (the "ASB Agreement") with ASB Financial Corp (“ASB”). The ASB Agreement calls for ASB to merge into Peoples and for ASB's wholly-owned subsidiary, American Savings Bank, fsb, which operates 6 full-service branches in southern Ohio and northern Kentucky, to merge into Peoples Bank. As of June 30, 2017, ASB had approximately $293.6additional $0.4 million in total assets, which included approximately $241.5 million in net loans, and approximately $210.4 million in total deposits. This transaction is expected to closenon-interest expense during the secondthird quarter of 2018.
2021 related to an update to the estimated earn-out provision of $2.7 million. As of
September 30, 2021, leases had grown to $111.4 million. Peoples accounted for this transaction as a business combination under the acquisition method.
The recorded goodwill associated with the NSL acquisition is related to expected synergies and operational efficiencies to be gained from the combination of NSL with Peoples' operations. The employees retained from the NSL acquisition should allow Peoples to continue to grow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill.
The bonus earn-out provision recorded by Peoples related to the NSL acquisition was determined based on a weighting of probability of outcomes, at present value. Peoples predominately weighted the outcomes of the factors at around a 100% payout expectation of the base earn-out, which is $2.7 million in total. Adjusting weighting into the bonus expectation in the third quarter resulted in an additional $625,000 of potential payout. Peoples anticipates that NSL will meet the minimums for the base earn-out payment, and will likely meet the targets set at acquisition for a 100% payout of the base earn-out.
The following table provides the preliminary purchase price calculation as of the date of acquisition for NSL and the assets acquired and liabilities assumed at their estimated fair values.
| | | | | | |
(Dollars in thousands) | | |
Total purchase price (a) | $ | 118,846 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Net assets at fair value | | |
Assets | | |
Cash and due from banks | $ | 216 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Net leases | 82,833 | | |
Bank premises and equipment, net of accumulated depreciation | 470 | | |
Other intangible assets | 14,009 | | |
Other assets | 1,225 | | |
Total assets | $ | 98,753 | | |
Liabilities | | |
| | |
| | |
| | |
| | |
| | |
Accrued expenses and other liabilities | $ | 4,627 | | |
Total liabilities | $ | 4,627 | | |
Net assets | $ | 94,126 | | |
Goodwill | $ | 24,720 | | |
(a) Includes preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. Peoples recorded an additional $0.4 million in non-interest expense related to an update to the estimated earn-out provision.
The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2021, which resulted in changes to certain fair value estimates made as of the date of acquisition. Adjustments to acquisition date estimated fair values are recorded during the period in which they occur and, as a result, previously recorded results have changed. The below table reflects the changes in the estimated fair value as they impact goodwill at September 30, 2021:
| | | | | |
(Dollars in thousands) | Change in fair value |
Net assets | |
| |
| |
| |
| |
Other intangible assets | $ | (474) | |
Other assets | (380) | |
Accrued expenses and other liabilities | 380 | |
Change in goodwill | $ | (474) | |
Leases acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes leases that Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" leases. These leases are recorded at the purchase price, and an allowance for credit losses is determined using the same methodology as for other leases. Acquired purchased credit deteriorated leases are reported net of the unamortized fair value adjustment.
The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date:
| | | | | | |
(Dollars in thousands) | NSL | |
Purchased credit deteriorated leases | | |
Par value | $ | 5,248 | | |
Allowance for credit losses | (493) | | |
Non-credit premium | 85 | | |
Fair value | $ | 4,840 | | |
| | |
| | |
| | |
| | |
| | |
| | |
Peoples recorded acquisition-related expenses related to the NSL acquisition during the third quarter of 2021, which included $13,000 in professional fees. For the first nine months of 2021, Peoples recorded acquisition-related expenses related to the NSL acquisition which included $2.1 million in professional fees; $209,000 in other non-interest expense; $3,000 in salaries and employee benefit costs; $3,000 in data processing and software expense; $2,000 in net occupancy and equipment expense; and $2,000 in marketing expense.
Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.
Lessor Arrangements
Leases originated by Peoples, that Peoples has the positive intent and ability to hold for the foreseeable future or to maturity or payoff, are reported at the net investment of the lease, net of initial direct costs, charge-offs and an allowance for credit losses. Peoples considers leases past due if any required principal or interest payments have not been received as of the date such payments were required to be made under the terms of the lease agreement. Upon detection of the reduced ability of a lessee to meet cash flow obligations, leases are typically charged down to the net realizable value, with the residual balance placed on nonaccrual status. Leases deemed to be uncollectable are charged against the allowance for credit losses, while recoveries of previously charged-off amounts are credited to the allowance for credit losses.
Peoples began originating leases with the acquisition of leases from NSL. The leases acquired were determined to be sales-type leases, as the premise for the leases is dollar buy-out, whereby the lessee pays one dollar at maturity of the lease to purchase the equipment. Originated leases continue to be classified as sales-type leases. As a lessor, Peoples originates commercial equipment leases either directly to the customer or indirectly through vendor programs. Equipment leases consist of automotive, construction, healthcare, manufacturing, office, restaurant, and other equipment. These sales-type leases do not typically contain residual value guarantees; however, if a lease contains a residual value guarantee, Peoples reduces its residual asset risk by obtaining a security deposit from the lessee. Other non-interest income noted in the table below includes gain on the early termination of leases, syndicated leases, and other fees. Additional information regarding Peoples' sales-type leases can be found in "Note 4 Loans and Leases."
The table below details Peoples' lease income:
| | | | | | | | | | | | | | | |
| Three Months Ended | | | | Nine Months Ended | | |
(Dollars in thousands) | September 30, 2021 | | | | September 30, 2021 | | |
Interest and fees on leases (a) | $ | 4,810 | | | | | 9,025 | | | |
Other non-interest income | 471 | | | | | 716 | | | |
Total lease income | $ | 5,281 | | | | | $ | 9,741 | | | |
(a)Included in "Interest and fees on loans" on the Unaudited Consolidated Statements of Operations.
For additional information, see "Note 4 Loans and Leases" of the Notes to the Unaudited Condensed
Consolidated Financial Statements.
The following table summarizes the net investments in sales-type leases, which are included in "Loans and leases, net of deferred costs" on the Unaudited Consolidated Balance Sheets:
| | | | | | |
(Dollars in thousands) | September 30, 2021 | |
Lease payments receivable, at amortized cost | $ | 139,445 | | |
Estimated residual values | 120 | | |
Initial direct costs | 802 | | |
Deferred revenue | (28,921) | | |
Total leases, at amortized cost | 111,446 | | |
Allowance for credit losses - leases | (4,505) | | |
Net investment in sales-type leases | $ | 106,941 | | |
The following table summarizes the contractual maturities of leases:
| | | | | |
(Dollars in thousands) | Balance |
Remaining three months ending December 31, 2021 | $ | 13,980 | |
Year ending December 31, 2022 | 46,706 | |
Year ending December 31, 2023 | 36,524 | |
Year ending December 31, 2024 | 24,093 | |
Year ending December 31, 2025 | 13,605 | |
Thereafter | 4,537 | |
Lease payments receivable, at amortized cost | $ | 139,445 | |
Lessee Arrangements
Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. At September 30, 2021, Peoples did not have any leases that met the criteria for finance leases. Right of Use ("ROU") assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement or remeasurement date of a lease based on the present value of lease payments over the remaining lease term. Operating lease ROU assets include lease payments made at or before the commencement date and initial indirect costs. Operating lease ROU assets exclude lease incentives. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term and do not have a ROU asset or lease liability.
The table below details Peoples' lease expense, which is included in "Net occupancy and equipment expense" in the Unaudited Consolidated Statements of Operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(Dollars in thousands) | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
Operating lease expense | $ | 358 | | | $ | 334 | | | 1,038 | | | 995 | |
Short-term lease expense | 72 | | | 71 | | | 244 | | | 231 | |
Total lease expense | $ | 430 | | | $ | 405 | | | $ | 1,282 | | | $ | 1,226 | |
Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.
The following table details the ROU assets, the lease liabilities and other information related to Peoples' operating leases:
| | | | | | | | |
(Dollars in thousands) | September 30, 2021 | December 31, 2020 |
ROU assets: | | |
Other assets | $ | 8,732 | | $ | 6,522 | |
Lease liabilities: | | |
Accrued expenses and other liabilities | $ | 9,040 | | $ | 6,776 | |
Other information: | | |
Weighted-average remaining lease term | 9.5 years | 12.4 years |
Weighted-average discount rate | 2.39 | % | 3.14 | % |
| | |
| | |
| | |
During the three and nine months ended September 30, 2021, Peoples paid cash of $345,000 and $1,005,000, respectively, for operating leases. During the three and nine months ended September 30, 2020, Peoples paid cash of $320,000 and $960,000, respectively, for operating leases.
The following table summarizes the maturity of remaining lease liabilities:
| | | | | |
(Dollars in thousands) | Balance |
Remaining three months ending December 31, 2021 | $ | 728 | |
Year ending December 31, 2022 | 2,270 | |
Year ending December 31, 2023 | 1,612 | |
Year ending December 31, 2024 | 954 | |
Year ending December 31, 2025 | 765 | |
Thereafter | 4,396 | |
Total undiscounted lease payments | $ | 10,725 | |
Imputed interest | $ | (1,685) | |
Total lease liabilities | $ | 9,040 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis (“MD&A”) represents an overview of the results of operations and financial condition of Peoples for the three and nine months ended September 30, 2021 and September 30, 2020. This MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto.
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Management’s Discussion and Analysisthe MD&A that follows:
|
| | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, | | September 30, |
| 2017 | 2016 | | 2017 | 2016 |
PER COMMON SHARE DATA | | | | | |
Earnings per common share – basic | $ | 0.60 |
| $ | 0.43 |
| | $ | 1.62 |
| 1.31 |
|
Earnings per common share – diluted | 0.60 |
| 0.43 |
| | 1.61 |
| 1.31 |
|
Cash dividends declared per common share | 0.22 |
| 0.16 |
| | 0.62 |
| 0.47 |
|
Book value per common share (a) | 25.02 |
| 24.22 |
| | 25.02 |
| 24.22 |
|
Tangible book value per common share (a)(b) | $ | 17.15 |
| $ | 16.14 |
| | $ | 17.15 |
| 16.14 |
|
Weighted-average number of common shares outstanding – basic | 18,056,202 |
| 17,993,443 |
| | 18,043,692 |
| 18,105,249 |
|
Weighted-average number of common shares outstanding – diluted | 18,213,533 |
| 18,110,710 |
| | 18,199,959 |
| 18,123,660 |
|
Common shares outstanding at end of period | 18,281,194 |
| 18,195,986 |
| | 18,281,194 |
| 18,195,986 |
|
Closing stock price at end of period | $ | 33.59 |
| $ | 24.59 |
| | $ | 33.59 |
| $ | 24.59 |
|
SIGNIFICANT RATIOS | | | | | |
Return on average stockholders' equity (c) | 9.47 | % | 7.07 | % | | 8.80 | % | 7.36 | % |
Return on average tangible stockholders' equity (c)(d) | 14.58 | % | 11.54 | % | | 13.77 | % | 12.17 | % |
Return on average assets (c) | 1.22 | % | 0.93 | % | | 1.13 | % | 0.96 | % |
Average stockholders' equity to average assets | 12.88 | % | 13.19 | % | | 12.81 | % | 13.05 | % |
Average loans to average deposits | 86.69 | % | 83.50 | % | | 86.09 | % | 82.39 | % |
Net interest margin (c)(e) | 3.67 | % | 3.54 | % | | 3.61 | % | 3.55 | % |
Efficiency ratio (f) | 60.74 | % | 64.33 | % | | 62.24 | % | 64.56 | % |
Pre-provision net revenue to total average assets (c)(g) | 1.71 | % | 1.53 | % | | 1.65 | % | 1.52 | % |
Dividend payout ratio | 36.90 | % | 37.37 | % | | 38.34 | % | 36.06 | % |
Investment securities as percentage of total assets (a) | 24.70 | % | 25.10 | % | | 24.70 | % | 25.10 | % |
ASSET QUALITY RATIOS | | | | | |
Nonperforming loans as a percent of total loans (a)(h) | 0.85 | % | 1.08 | % | | 0.85 | % | 1.08 | % |
Nonperforming assets as a percent of total assets (a)(h) | 0.56 | % | 0.72 | % | | 0.56 | % | 0.72 | % |
Nonperforming assets as a percent of total loans and other real estate owned ("OREO") (a)(h) | 0.86 | % | 1.11 | % | | 0.86 | % | 1.11 | % |
Criticized loans as a percent of total loans (a)(i) | 4.15 | % | 4.58 | % | | 4.15 | % | 4.58 | % |
Classified loans as a percent of total loans (a)(j) | 1.77 | % | 2.48 | % | | 1.77 | % | 2.48 | % |
Allowance for loan losses as a percent of total loans (a) | 0.82 | % | 0.84 | % | | 0.82 | % | 0.84 | % |
Allowance for loan losses as a percent of nonperforming loans (a)(h) | 96.11 | % | 77.50 | % | | 96.11 | % | 77.50 | % |
Provision for loan losses as a percent of average total loans | 0.19 | % | 0.21 | % | | 0.16 | % | 0.18 | % |
Net charge-offs as a percentage of average total loans (c) | 0.16 | % | 0.14 | % | | 0.12 | % | 0.09 | % |
CAPITAL RATIOS (a) | |
| | | | |
Common Equity Tier 1 (k) | 13.31 | % | 13.04 | % | | 13.31 | % | 13.04 | % |
Tier 1 | 13.60 | % | 13.34 | % | | 13.60 | % | 13.34 | % |
Total (Tier 1 and Tier 2) | 14.49 | % | 14.24 | % | | 14.49 | % | 14.24 | % |
Tier 1 leverage | 9.82 | % | 9.71 | % | | 9.82 | % | 9.71 | % |
Tangible equity to tangible assets (b) | 9.20 | % | 9.13 | % | | 9.20 | % | 9.13 | % |
| |
(a) | Data presented as of the end of the period indicated. |
| |
(b) | These amounts represent non-GAAP financial measures since they exclude goodwill and other intangible assets. Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.” |
| |
(c) | Ratios are presented on an annualized basis. |
| | | | | | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, expect per share data) | 2021 | 2020 | | 2021 | 2020 |
Operating Data (a) | | | | | |
Total interest income | $ | 45,467 | | $ | 39,013 | | | $ | 127,226 | | $ | 119,181 | |
Total interest expense | 2,889 | | 3,894 | | | 9,410 | | 14,566 | |
Net interest income | 42,578 | | 35,119 | | | 117,816 | | 104,615 | |
Provision for credit losses | 8,994 | | 4,728 | | | 7,333 | | 33,531 | |
Net (loss) gain on investment securities | (166) | | 2 | | | (704) | | 383 | |
Net loss on asset disposals and other transactions | (308) | | (28) | | | (459) | | (237) | |
Total non-interest income excluding net gains and losses (b) | 16,820 | | 16,796 | | | 50,233 | | 47,025 | |
Total non-interest expense | 57,860 | | 34,315 | | | 135,746 | | 100,445 | |
Net (loss) income (c) | (5,758) | | 10,210 | | | 19,808 | | 14,194 | |
Balance Sheet Data (a) | | | | | |
Total investment securities | $ | 1,574,676 | | $ | 928,560 | | | $ | 1,574,676 | | $ | 928,560 | |
Loans and leases, net of deferred fees and costs ("total loans") | 4,491,028 | | 3,472,085 | | | 4,491,028 | | 3,472,085 | |
Allowance for credit losses | 77,382 | | 58,128 | | | 77,382 | | 58,128 | |
Goodwill and other intangible assets | 295,415 | | 185,397 | | | 295,415 | | 185,397 | |
Total assets | 7,059,752 | | 4,911,807 | | | 7,059,752 | | 4,911,807 | |
Non-interest-bearing deposits | 1,559,993 | | 982,912 | | | 1,559,993 | | 982,912 | |
Brokered deposits | 106,013 | | 260,753 | | | 106,013 | | 260,753 | |
Other interest-bearing deposits | 4,166,014 | | 2,697,905 | | | 4,166,014 | | 2,697,905 | |
Short-term borrowings | 184,693 | | 182,063 | | | 184,693 | | 182,063 | |
Junior subordinated debentures held by subsidiary trust | 12,928 | | 7,571 | | | 12,928 | | 7,571 | |
Other long-term borrowings | 86,483 | | 103,815 | | | 86,483 | | 103,815 | |
Total stockholders' equity | 831,882 | | 566,856 | | | 831,882 | | 566,856 | |
Tangible assets (d) | 6,764,337 | | 4,726,410 | | | 6,764,337 | | 4,726,410 | |
Tangible equity (d) | 536,467 | | 381,459 | | | 536,467 | | 381,459 | |
Per Common Share Data (a) | | | | | |
(Loss) earnings per common share – basic | $ | (0.28) | | $ | 0.52 | | | $ | 0.99 | | $ | 0.70 | |
(Loss) earnings per common share – diluted | (0.28) | | 0.51 | | | 0.99 | | 0.70 | |
Cash dividends declared per common share | 0.36 | | 0.34 | | | 1.07 | | 1.02 | |
Book value per common share (e) | 29.43 | | 28.74 | | | 29.43 | | 28.74 | |
Tangible book value per common share (d)(e) | $ | 18.98 | | $ | 19.34 | | | $ | 18.98 | | $ | 19.34 | |
Weighted-average number of common shares outstanding – basic | 20,640,519 | | 19,504,503 | | | 19,751,853 | | 19,862,409 | |
Weighted-average number of common shares outstanding – diluted | 20,789,271 | | 19,637,689 | | | 19,890,672 | | 19,998,353 | |
Common shares outstanding at end of period (e) | 28,265,791 | | 19,721,783 | | | 28,265,791 | | 19,721,783 | |
Closing share price at end of period (e) | $ | 31.61 | | $ | 19.09 | | | $ | 31.61 | | $ | 19.09 | |
| | | | | | | | | | | | | | | | | |
| At or For the Three Months Ended | | At or For the Nine Months Ended |
| September 30, | | September 30, |
(Dollars in thousands, expect per share data) | 2021 | 2020 | | 2021 | 2020 |
Significant Ratios (a) | | | | | |
Return on average stockholders' equity (f) | (3.64) | % | 7.16 | % | | 4.44 | % | 3.28 | % |
Return on average tangible equity (f)(g) | (4.76) | % | 11.36 | % | | 7.82 | % | 5.38 | % |
Return on average assets (f) | (0.42) | % | 0.83 | % | | 0.51 | % | 0.40 | % |
Return on average assets adjusted for non-core items (f)(h) | 0.66 | % | 0.91 | % | | 1.02 | % | 0.47 | % |
Average stockholders' equity to average assets | 11.47 | % | 11.56 | % | | 11.48 | % | 12.29 | % |
Average total loans to average deposits | 77.17 | % | 87.44 | % | | 79.48 | % | 86.15 | % |
Net interest margin (f)(i) | 3.50 | % | 3.14 | % | | 3.41 | % | 3.27 | % |
Efficiency ratio (j) | 94.70 | % | 64.12 | % | | 78.38 | % | 64.37 | % |
Efficiency ratio adjusted for non-core items (k) | 63.93 | % | 61.81 | % | | 64.32 | % | 62.44 | % |
Pre-provision net revenue to total average assets (l) | 0.11 | % | 1.43 | % | | 0.83 | % | 1.45 | % |
Dividend payout ratio (m)(n) | NM | 66.31 | % | | NM | 145.29 | % |
Total loans to deposits (e) | 77.05 | % | 88.04 | % | | 77.05 | % | 88.04 | % |
Total investment securities as percentage of total assets (e) | 22.30 | % | 18.90 | % | | 22.30 | % | 18.90 | % |
Asset Quality Ratios (a) | | | | | |
Nonperforming loans as a percent of total loans (e)(o) | 0.92 | % | 0.84 | % | | 0.92 | % | 0.84 | % |
Nonperforming assets as a percent of total assets (e)(o) | 0.75 | % | 0.60 | % | | 0.75 | % | 0.60 | % |
Nonperforming assets as a percent of total loans and OREO (e)(o) | 1.17 | % | 0.85 | % | | 1.17 | % | 0.85 | % |
Criticized loans as a percent of total loans (e)(p) | 5.23 | % | 3.55 | % | | 5.23 | % | 3.55 | % |
Classified loans as a percent of total loans (e)(q) | 3.18 | % | 2.19 | % | | 3.18 | % | 2.19 | % |
Allowance for credit losses as a percent of total loans (e) | 1.72 | % | 1.67 | % | | 1.72 | % | 1.67 | % |
Allowance for credit losses as a percent of nonperforming loans (e)(o) | 186.93 | % | 198.72 | % | | 186.93 | % | 198.72 | % |
Provision for credit losses as a percent of average total loans | 1.01 | % | 0.55 | % | | 0.28 | % | 1.40 | % |
Net charge-offs as a percentage of average total loans | 0.18 | % | 0.08 | % | | 0.13 | % | 0.04 | % |
Capital Information (a)(e) | | | | | |
Common equity tier 1 capital ratio (r) | 12.30 | % | 12.83 | % | | 12.30 | % | 12.83 | % |
Tier 1 risk-based capital ratio | 12.58 | % | 13.07 | % | | 12.58 | % | 13.07 | % |
Total risk-based capital ratio (tier 1 and tier 2) | 13.83 | % | 14.33 | % | | 13.83 | % | 14.33 | % |
Tier 1 leverage ratio | 11.20 | % | 8.62 | % | | 11.20 | % | 8.62 | % |
Common equity tier 1 capital | $ | 567,172 | | $ | 398.553 | | | $ | 567,172 | | $ | 398.553 | |
Tier 1 capital | 580,100 | | 406,124 | | | 580,100 | | 406,124 | |
Total capital (tier 1 and tier 2) | 637,802 | | 445,101 | | | 637,802 | | 445,101 | |
Total risk-weighted assets | $ | 4,611,321 | | $ | 3,106,817 | | | $ | 4,611,321 | | $ | 3,106,817 | |
Total stockholders' equity to total assets | 11.78 | % | 11.54 | % | | 11.78 | % | 11.54 | % |
Tangible equity to tangible assets (d) | 7.93 | % | 8.07 | % | | 7.93 | % | 8.07 | % |
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(d) | These amounts represent non-GAAP financial measures since they exclude the after-tax impact of amortization of other intangible assets from earnings and exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on stockholders' equity. Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Return on Average Tangible Stockholders' Equity Ratio.”(a)Reflects the impact of the acquisitions of Premium Finance on July 1, 2020, NSL beginning April 1, 2021, and of Premier beginning September 17, 2021. (b)Total non-interest income excluding net gains and losses, is a Non-US GAAP financial measure since it excludes all gains and/or losses included in earnings. Additional information regarding the calculation of total non-interest income excluding net gains and losses can be found under the caption "Efficiency Ratio (Non-US GAAP)." (c)Net loss for the for the third quarter of 2021 included non-core non-interest expense totaling $18.4 million. Net income for the first nine months of 2021 included non-core non-interest expense totaling $23.8 million. Net income for the third quarter of 2020 and for the first nine months of 2020, included non-core non-interest expenses of $1.2 million and $3.0 million, respectively. Additional information regarding the non-core non-interest expense can be found under the caption "Core Non-Interest Expense (Non-US GAAP)." (d)These amounts represent Non-US GAAP financial measures since they exclude the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity and total assets. Additional information regarding the calculation of these Non-US GAAP financial measures can be found under the caption “Capital/Stockholders’ Equity.” (e)Data presented as of the end of the period indicated. (f)Ratios are presented on an annualized basis. (g)Return on average tangible equity ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of amortization of other intangible assets from earnings and it excludes the balance sheet impact of goodwill and other intangible assets acquired through acquisitions on total stockholders’ equity. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Return on Average Tangible Equity Ratio (Non-US GAAP).” (h)Return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement
charges and severance expenses included in earnings. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Return on Average Assets Adjusted for Non-Core Items Ratio (Non-US GAAP)." (i)Information presented on a fully tax-equivalent basis, using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal rate of 21% for 2020. (j)The efficiency ratio is defined as total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and losses). This amount represents a Non-US GAAP financial measure since it excludes amortization of other intangible assets, and all gains and losses included in earnings, and uses fully tax-equivalent net interest income. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Efficiency Ratio (Non-US GAAP).” (k)The efficiency ratio adjusted for non-core items is defined as core non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus core non-interest income excluding all gains and losses. This amount represents a Non-US GAAP financial measure since it excludes the impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a Peoples Bank Foundation, Inc. contribution, pension settlement charges and severance expenses included in earnings, and uses FTE net interest income. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption "Efficiency Ratio (Non-US GAAP).” (l)Pre-provision net revenue is defined as net interest income plus total non-interest income (excluding all gains and losses) minus total non-interest expense. This ratio represents a Non-US GAAP financial measure since it excludes the provision for (recovery of) credit losses and all gains and losses included in earnings. This measure is a key metric used by federal bank regulatory agencies in their evaluation of capital adequacy for financial institutions. Additional information regarding the calculation of this Non-US GAAP financial measure can be found under the caption “Pre-Provision Net Revenue (Non-US GAAP).” (m)The dividend payout ratio is calculated based on dividends declared during the period divided by net income, where applicable, for the period. (n)NM = not meaningful. (o)Nonperforming loans include loans 90+ days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned. (p)Includes loans categorized as special mention, substandard and doubtful. (q)Includes loans categorized as substandard and doubtful. (r)Peoples' capital conservation buffer was 5.83% at September 30, 2021 and 6.33% at September 30, 2020, compared to 2.50% for the fully phased-in capital conservation buffer required at January 1, 2019. |
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(e) | Information presented on a fully tax-equivalent basis. |
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(f) | Total non-interest expense (less amortization of other intangible assets) as a percentage of fully tax-equivalent net interest income plus total non-interest income (excluding all gains and all losses). Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Efficiency Ratio.” |
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(g) | These amounts represent non-GAAP financial measures since they exclude the provision for (recovery of) loan losses and all gains and losses included in earnings. Additional information regarding the calculation of these non-GAAP financial measures can be found under the caption “Pre-Provision Net Revenue.” |
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(h) | Nonperforming loans include loans 90 days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned. |
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(i) | Includes loans categorized as special mention, substandard or doubtful. |
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(j) | Includes loans categorized as substandard or doubtful. |
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(k) | Peoples' capital conservation buffer was 6.49% at September 30, 2017 and 6.24% at September 30, 2016, compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019. |
Forward-Looking Statements
Certain statements in this Form 10-Q, which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. WordsThese forward-looking statements are identified by the fact they are not historical facts and include words such as “anticipates,” “estimate,” “may,” “feel,” “expect,” “believes,” “plans,” “will,” “would,” “should,” “could”"anticipate," "estimate," "may," "feel," "expect," "believe," "plan," "will," "will likely," "would," "should," "could," "project," "goal," "target," "potential," "seek," "intend," and similar expressions are intended to identify theseexpressions.
These forward-looking statements but are not the exclusive meansreflect management's current expectations based on all information available to management and its knowledge of identifying such statements. Forward-looking statementsPeoples' 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. Factors that might cause such a differenceThese factors include, but are not limited to:
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(1) | the success, impact, and timing of the implementation of Peoples' business strategies, including the successful integration of acquisitions and the expansion of consumer lending activity; |
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(2) | competitive pressures among financial institutions or from non-financial institutions which may increase significantly, including product and pricing pressures, changes to third-party relationships and revenues, and Peoples' ability to attract, develop and retain qualified professionals; |
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(3) | changes in the interest rate environment due to economic conditions and/or the fiscal policies of the United States ("U.S.") government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which may adversely impact interest rates, interest margins, loan demand and interest rate sensitivity; |
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(4) | uncertainty regarding the nature, timing and effect of legislative or regulatory changes or actions, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular the rules and regulations promulgated and to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform; |
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(5) | changes in policy and other regulatory and legal developments accompanying the current presidential administration and uncertainty or speculation pending the enactment of such changes; |
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(6) | Peoples' ability to leverage the core banking system upgrade that occurred in the fourth quarter of 2016 (including the related core operating systems, data systems and products) without complications or difficulties that may otherwise result in the loss of customers, operational problems or one-time costs currently not anticipated to arise in connection with implementing new features and functionality; |
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(7) | local, regional, national and international economic conditions and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated; |
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(8) | Peoples' ability to integrate any future acquisitions which may be unsuccessful, or may be more difficult, time-consuming or costly than expected; |
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(9) | Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders; |
(1)the ever-changing effects of the COVID-19 pandemic - the duration, extent and severity of which are impossible to predict, including the possibility of further resurgence in the spread of COVID-19 or variants thereof - on economies (local, national and international), supply chains and markets, on the labor market, including the potential for a sustained reduction in labor force participation, and on our customers, counterparties, employees and third-party service providers, as well as the effects of various responses of governmental and nongovernmental authorities to the COVID-19 pandemic, including public health actions directed toward the containment of the COVID-19 pandemic (such as quarantines, shut downs and other restrictions on travel and commercial, social and other activities), the availability and effectiveness of vaccines, and the implementation of fiscal stimulus packages, which could adversely impact sales volumes, add volatility to the global stock markets, and increase loan delinquencies and defaults;
(2)changes in the interest rate environment due to economic conditions related to the COVID-19 pandemic or other factors and/or the fiscal and monetary policy measures undertaken by the U.S. government and the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") in response to such economic conditions, which may adversely impact interest rates, the interest rate yield curve, interest margins, loan demand and interest rate sensitivity;
(3)the success, impact, and timing of the implementation of Peoples' business strategies and Peoples' ability to manage strategic initiatives, including the completion and successful integration of planned acquisitions, including the recently-completed merger with Premier and the recently-completed acquisition of NSL, and the expansion of commercial and consumer lending activities, in light of the continuing impact of the COVID-19 pandemic on customers' operations and financial condition;
(4)competitive pressures among financial institutions, or from non-financial institutions, which may increase significantly, including product and pricing pressures, which can in turn impact Peoples' credit spreads, changes to third-party relationships and revenues, changes in the manner of providing services, customer acquisition and retention pressures, and Peoples' ability to attract, develop and retain qualified professionals;
(5)uncertainty regarding the nature, timing, cost, and effect of legislative or regulatory changes or actions, or deposit insurance premium levels, promulgated and to be promulgated by governmental and regulatory agencies in the State of Ohio, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Consumer Financial Protection Bureau, which may subject Peoples, its subsidiaries, or one or more acquired companies to a variety of new and more stringent legal and regulatory requirements which adversely affect their respective businesses, including in particular
the rules and regulations promulgated and to be promulgated under the CARES Act, and the follow-up legislation enacted as the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Basel III regulatory capital reform;
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(10) | changes in prepayment speeds, loan originations, levels of nonperforming assets, delinquent loans and charge-offs, which may be less favorable than expected and adversely impact the amount of interest income generated; |
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(11) | adverse changes in the economic conditions and/or activities, including, but not limited to, continued economic uncertainty in the U.S., the European Union (including uncertainty surrounding the actions to be taken to implement the referendum by British voters to exit the European Union), Asia and other areas, which could decrease sales volumes, add volatility to the global stock markets and increase loan delinquencies and defaults; |
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(12) | deterioration in the credit quality of Peoples' loan portfolio, which may adversely impact the provision for loan losses; |
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(13) | changes in accounting standards, policies, estimates or procedures which may adversely affect Peoples' reported financial condition or results of operations; |
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(14) | Peoples' assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results; |
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(15) | adverse changes in the conditions and trends in the financial markets, including political developments, 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; |
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(16) | Peoples' ability to receive dividends from its subsidiaries; |
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(17) | Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity; |
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(18) | the impact of minimum capital thresholds established as a part of the implementation of Basel III; |
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(19) | the impact of larger or similar sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity; |
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(20) | the costs and effects of regulatory and legal developments, including the outcome of potential regulatory or other governmental inquiries and legal proceedings and results of regulatory examinations; |
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(21) | Peoples' ability to secure confidential information through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, may prove inadequate, which could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss; |
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(22) | ability to anticipate and respond to technological changes which can impact Peoples' ability to respond to customer needs and meet competitive demands; |
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(23) | changes in consumer spending, borrowing and saving habits, whether due to changes in business and economic conditions, legislative or regulatory initiatives, or other factors, which may be different than anticipated; |
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(24) | the overall adequacy of Peoples' risk management program; |
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(25) | the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics, cyber attacks, civil unrest, military or terrorist activities or international conflicts; |
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(26) | significant changes in the tax laws, which may adversely affect the fair values of deferred tax assets and obligations of states and political subdivisions held in Peoples' investment securities portfolio; and |
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(27) | other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples’ reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2016 ("Peoples' 2016 Form 10-K"). |
(6)the effects of easing restrictions on participants in the financial services industry;
(7)local, regional, national and international economic conditions (including the impact of potential or imposed tariffs, a U.S. withdrawal from or significant renegotiation of trade agreements, trade wars and other changes in trade regulations, and changes in the relationship of the U.S. and its global trading partners) and the impact these conditions may have on Peoples, its customers and its counterparties, and Peoples' assessment of the impact, which may be different than anticipated;
(8)Peoples may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to Peoples' current shareholders;
(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 the COVID-19 pandemic and adversely impact the amount of interest income generated;
(10)Peoples may have more credit risk and higher credit losses to the extent there are loan concentrations by location or industry of borrowers or collateral;
(11)changes in accounting standards, policies, estimates or procedures may adversely affect Peoples' reported financial condition or results of operations;
(12)the impact of assumptions, estimates and inputs used within models, which may vary materially from actual outcomes, including under the CECL model;
(13)the discontinuation of the LIBOR and other reference rates which may result in increased expenses and litigation, and adversely impact the effectiveness of hedging strategies;
(14)adverse changes in the conditions and trends in the financial markets, including the impacts of the COVID-19 pandemic and the related responses by governmental and nongovernmental authorities to the pandemic, which may adversely affect the fair value of securities within Peoples' investment portfolio, the interest rate sensitivity of Peoples' consolidated balance sheet, and the income generated by Peoples' trust and investment activities;
(15)the volatility from quarter to quarter of mortgage banking income, whether due to interest rates, demand, the fair value of mortgage loans, or other factors;
(16)Peoples' ability to receive dividends from its subsidiaries;
(17)Peoples' ability to maintain required capital levels and adequate sources of funding and liquidity;
(18)the impact of larger or similar-sized financial institutions encountering problems, which may adversely affect the banking industry and/or Peoples' business generation and retention, funding and liquidity;
(19)Peoples' ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks, including those of Peoples' third-party vendors and other service providers, which may prove inadequate, and could adversely affect customer confidence in Peoples and/or result in Peoples incurring a financial loss;
(20)Peoples' ability to anticipate and respond to technological changes, and Peoples' reliance on, and the potential failure of, a number of third-party vendors to perform as expected, including Peoples' primary core banking system provider, which can impact Peoples' ability to respond to customer needs and meet competitive demands;
(21)operational issues stemming from and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems on which Peoples and its subsidiaries are highly dependent;
(22)changes in consumer spending, borrowing and saving habits, whether due to changes in retail distribution strategies, consumer preferences and behavior, changes in business and economic conditions (including as a result of the COVID-19 pandemic), legislative or regulatory initiatives (including those in response to the COVID-19 pandemic), or other factors, which may be different than anticipated;
(23)the adequacy of Peoples' internal controls and risk management program in the event of changes in strategic, reputational, market, economic, operational, cybersecurity, compliance, legal, asset/liability repricing, liquidity, credit and interest rate risks associated with Peoples' business;
(24)the impact on Peoples' businesses, personnel, facilities, or systems, of losses related to acts of fraud, theft, misappropriation or violence;
(25)the impact on Peoples' businesses, as well as on the risks described above, of various domestic or international widespread natural or other disasters, pandemics (including COVID-19), cybersecurity attacks, system failures, civil unrest, military or terrorist activities or international conflicts;
(26)the impact on Peoples' businesses and operating results of any costs associated with obtaining rights in intellectual property claimed by others and adequately protecting Peoples' intellectual property;
(27)risks and uncertainties associated with Peoples' entry into new geographic markets and risks resulting from Peoples' inexperience in these new geographic markets;
(28)Peoples' ability to integrate the NSL acquisition and the merger of Premier into Peoples, which may be unsuccessful, or may be more difficult, time-consuming or costly than expected;
(29)the risk that expected revenue synergies and cost savings from the merger of Peoples and Premier may not be fully realized or realized within the expected time frame;
(30)Peoples' continued ability to grow deposits;
(31)the impact of future governmental and regulatory actions upon Peoples' participation in and execution of government programs related to the COVID-19 pandemic;
(32)uncertainty regarding the impact of changes to the U.S. presidential administration and Congress on the regulatory landscape, capital markets, elevated government debt, potential changes in tax legislation that may increase tax rates and the response to and management of the COVID-19 pandemic, infrastructure spending and social programs; and,
(33)other risk factors relating to the banking industry or Peoples as detailed from time to time in Peoples' reports filed with the Securities and Exchange Commission (the "SEC"), including those risk factors included in the disclosures under the heading "ITEM 1A. RISK FACTORS" of Peoples' Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
All forward-looking statements speak only as of the filing date of this Form 10-Q and are expressly qualified in their entirety by the cautionary statements. Although management believes the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management’s knowledge of Peoples’ business and operations, it is possible that actual results may differ materially from these projections. Additionally, Peoples undertakes no obligation to
update these forward-looking statements to reflect events or circumstances after the filing date of this Form 10-Q or to reflect the occurrence of unanticipated events except as may be required by applicable legal requirements. Copies of documents filed with the SEC are available free of charge at the SEC’s website at www.sec.gov and/or from Peoples' website – www.peoplesbancorp.com under the “Investor Relations” section.
This discussion and analysis should be read in conjunction with the auditedAudited Consolidated Financial Statements, and Notes thereto, contained in Peoples’ 20162020 Form 10-K, as well as the Unaudited Condensed Consolidated Financial Statements, Notes to the Unaudited Condensed Consolidated Financial Statements, ratios, statistics and discussions contained elsewhere in this Form 10-Q.
Business Overview
The following discussion and analysis of Peoples’ Unaudited Condensed Consolidated Financial Statements is presented to provide insight into management’s assessment of the financial condition and results of operations.
Peoples offersis a diversified financial services holding company that makes available a banking products, such as deposit accounts, lending products and trust services. Peoples provides services through 76traditional offices, ATMs, mobile banking and telephone and internet-based banking. Peoples also offers a complete array of insurance products, commercial leasing and premium financing solutions, and makes available custom-tailored fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices. Peoples Bank also offers insurance premium finance lending nationwide through its Peoples Premium Finance division and, since April 1, 2021, offers lease financing through its North Star Leasing division. As of September 30, 2021, Peoples has 135 locations, including 67119 full-service bank branches and 74 Automated Teller Machines ("ATMs") in northeastern, central, southwestern and southeastern Ohio, west central West Virginia, Kentucky, Virginia, Washington D.C. and northeastern Kentucky through its financial service units – Peoples Bank and Peoples Insurance Agency, LLC ("Peoples Insurance"), a subsidiary of Peoples Bank.Maryland. Peoples Bank is subject to regulation and examination primarily by the Ohio Division of Financial Institutions (the "ODFI"), the Federal Reserve Bank ("FRB") of Cleveland and the Federal Deposit Insurance Corporation ("FDIC"(the "FDIC"). Peoples Bank ismust also subject tofollow the regulations ofpromulgated by the Consumer Financial Protection Bureau (the "CFPB") which regulates consumer financial products and services and certain financial services providers. Peoples Insurance is subject to regulation by the Ohio Department of Insurance and the state insurance regulatory agencies of those states in which Peoples Insurance may do business.
Peoples’ products and services include traditional banking products, such as deposit accounts, lending products and trust services. Peoples provides services through traditional offices, ATMs, mobile banking for consumers and telephone and internet-based banking. Peoples also offers a complete array of insurance products and makes available custom-tailored fiduciary, employee benefit plan and asset management services. Brokerage services are offered by Peoples exclusively through an unaffiliated registered broker-dealer located at Peoples Bank's offices.
Critical Accounting Policies
The accounting and reporting policies of Peoples conform to US GAAP and to general practices within the financial services industry.GAAP. The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements describes Peoples' significant account policies. Management has identified the accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to understanding Peoples’ Unaudited Condensed Consolidated Financial Statements, and Management’s Discussion and AnalysisMD&A at September 30, 2017,2021, which were unchanged from the policies disclosedare discussed in Peoples’ 20162020 Form 10-K.
Summary of Recent Transactions and Events
The following is a summary of recent transactions from 2017 and 2016, and events that have impacted or are expected to impact Peoples’ results of operations or financial condition:
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◦ | On October 23, 2017, Peoples entered into a merger agreement with ASB Financial Corp (“ASB”) that calls for ASB to merge into Peoples and for ASB’s wholly-owned subsidiary, American Savings Bank, fsb, which operates six offices located in southern Ohio and northern Kentucky, to merge into Peoples Bank. This transaction is expected to close during the second quarter of 2018, subject to the satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Peoples and of ASB. As of June 30, 2017, ASB had approximately $293.6 million in total assets, which included approximately $241.5 million in net loans, and approximately $210.4 million in total deposits. Under the terms of the ASB agreement, shareholders of ASB can elect to receive either 0.592 shares of Peoples' common stock for each share of ASB common stock or $20.00 cash per share with a limit of 15% of the merger consideration being paid in cash. |
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◦ | On October 2, 2017, Peoples Insurance acquired a property and casualty focused independent insurance agency with annual net revenue of approximately $0.8 million located in the Cleveland, Ohio area. The acquisition will not materially impact Peoples' financial position, results of operations or cash flows. |
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◦ | During the third quarter of 2017, Peoples reduced its position in certain investment securities. This action was taken as a result of the high appreciation in the market value of these securities. The sales completed resulted in a net gain on investment securities of $1.9 million, and are not a normal occurrence for our business. |
◦On September 17, 2021, Peoples completed its merger with Premier Financial Bancorp, Inc. (“Premier”), in which Peoples acquired, in an all-stock merger, Premier, a bank holding company headquartered in Huntington, West Virginia, and the parent company of Premier Bank, Inc. (“Premier Bank”) and Citizens Deposit Bank and Trust, Inc. (“Citizens”). Under the terms and subject to the conditions of the definitive Agreement and Plan of Merger dated March 26, 2021 ("Merger Agreement"), Premier merged with and into Peoples (the “Merger”), and Premier Bank and Citizens subsequently merged with and into Peoples’ wholly-owned subsidiary, Peoples Bank, in a transaction valued at $261.9 million. At the close of business on September 17, 2021, the financial services offices of each of Premier Bank and Citizens became branches of
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◦ | Peoples continually evaluates its overall balance sheet position given the interest rate environment. During the second quarter of 2017, Peoples borrowed an additional $45.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.74% to 2.03% and mature between 2020 and 2022. |
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◦ | During the first quarter of 2017, Peoples borrowed an additional $30.0 million of long-term FHLB non-amortizing advances, which have interest rates ranging from 1.20% to 1.46% and mature between 2018 and 2019. |
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◦ | On March 31, 2017, Peoples closed four full-service bank branches. The closures included two Ohio offices located in Belpre and Wilmington, and two West Virginia offices located in Huntington and Point Pleasant. Peoples will close two additional full-service bank branches in the fourth quarter of 2017, one located in Centerville, Ohio and the other located in Coshocton, Ohio. Peoples continues to evaluate its bank branch network in an effort to optimize efficiency. |
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◦ | On January 31, 2017, Peoples Insurance acquired a third-party insurance administration company located in Piketon, Ohio for total cash consideration of $0.5 million, and recorded $0.5 million of customer relationship intangibles. The acquisition did not materially impact Peoples' financial position, results of operations or cash flows. |
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◦ | On January 27, 2017, Peoples entered into two $10.0 million forward starting interest rate swaps, which will become effective in 2018 and mature between 2025 and 2027, with interest rates ranging from 2.47% to 2.53%. For additional information regarding Peoples' interest rate swaps, refer to Note 9 of the Notes to the Unaudited Consolidated Financial Statements. |
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◦ | In the fourth quarter of 2016, Peoples converted its core banking system (including ancillary systems as well as hardware, operating systems, application software and data center locations). The conversion resulted in a pre-tax combined revenue and expense impact of $1.3 million, or $0.05 in earnings per diluted share, for the full year of 2016. The costs recorded in the fourth quarter, third quarter and second quarter of 2016 were $700,000, $423,000 and $90,000, respectively. Deposit account service charges were impacted by the system conversion as Peoples granted waivers of $85,000 related to account service charges in the fourth quarter of 2016. |
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◦ | During the fourth quarter of 2016, Peoples entered into two $5.0 million forward starting interest rate swaps, which become effective in 2018 and mature in 2022 and 2026, with interest rates of 1.56% and 1.83%. For additional information regarding Peoples' interest rate swaps, refer to Note 9 of the Notes to the Unaudited Consolidated Financial Statements. |
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◦ | During the second quarter of 2016, Peoples executed the following transactions to take advantage of the low interest rates: |
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▪ | Peoples restructured $20.0 million of FHLB borrowings that had a weighted-average rate of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which has an interest rate of 2.17% and matures in 2026. |
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▪ | Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031. |
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▪ | Peoples entered into three $10.0 million forward starting interest rate swaps, which become effective in 2018 and mature between 2023 and 2025, with interest rates ranging from 1.49% to 1.56%. These swaps locked in funding rates for $40.0 million in FHLB advances that mature in 2018, which have interest rates ranging from 3.65% to 3.92%. For additional information regarding Peoples' interest rate swaps, refer to Note 9 of the Notes to the Unaudited Consolidated Financial Statements. |
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◦ | On June 8, 2016, Peoples purchased an additional $35.0 million in bank owned life insurance ("BOLI"). The additional BOLI added $560,000 in non-interest income in the first nine months of 2017, compared to the first nine months of 2016. |
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◦ | On March 4, 2016, Peoples entered into a Credit Agreement (the "RBJ Credit Agreement") with Raymond James, which provides Peoples with a revolving line of credit in the maximum aggregate principal amount of $15.0 million, that may be used: (i) to make acquisitions; (ii) to make stock repurchases; (iii) for working capital needs; and (iv) for other general corporate purposes. On March 4, 2016, Peoples paid upfront fees for the establishment of a revolving line of credit agreement of $70,600, representing 0.47% of the loan commitment under the RJB Credit Agreement. |
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◦ | Effective March 2, 2016, Peoples terminated the loan agreement with U.S. Bank National Association dated as of December 18, 2012, as amended (the "U.S. Bank Loan Agreement"). As of the termination date, Peoples had no |
outstanding borrowings under the U.S. Bank Loan Agreement. Peoples paid an immaterial non-usage feeBank. Peoples acquired $1.1 billion in loans and $1.8 billion in deposits. Peoples preliminarily recorded $71.0 million in goodwill and $4.2 million in other intangible assets in connection with the terminationMerger.
◦On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the U.S.assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc., pursuant to an Asset Purchase Agreement between Peoples Insurance and Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000, with $162,500 paid at closing and the second installment in the amount of $162,500 to be paid on the first anniversary of the closing date, less any adjustments pursuant to adverse claims incurred or sustained by or imposed by Peoples Insurance. Peoples recorded preliminary customer relationship intangible assets of $230,000 and preliminary goodwill of $46,000, related to this transaction.
◦On March 31, 2021, Peoples completed its acquisition of NS Leasing, LLC ("NSL") pursuant to an Asset Purchase Agreement, dated March 24, 2021 in which Peoples Bank acquired the equipment finance and leasing business of NSL. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as North Star Leasing, a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL's equipment finance business, including $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. Peoples Bank paid total consideration of $116.6 million, plus a potential earn-out payment to NSL of up to $3.1 million. Based in Burlington, Vermont, the North Star Leasing division underwrites, originates and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $24.7 million and preliminary other intangibles of $14.0 million, which included customer relationship intangible, trade-name intangible and non-compete agreements related to this transaction. Peoples recorded an additional $0.4 million in non-interest expense during the third quarter of 2021 related to an update to the estimated earn-out provision of $2.7 million. As of September 30, 2021, equipment leases had grown to $111.4 million.
◦Peoples began originating loans during the second quarter of 2020 under the loan guarantee program created under the CARES Act, called the Paycheck Protection Program ("PPP"). These loans were targeted to provide small businesses with financial support to cover payroll and certain other specified types of expenses for a specified period of time. Loans made under the PPP are fully guaranteed by the Small Business Administration ("SBA"). Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Agreement.Impacts." As of September 30, 2021, Peoples had $135.8 million aggregate principal amount in PPP loans outstanding (including $28.2 million acquired in the merger with Premier), which were included in commercial and industrial loan balances, compared to $187.6 million at June 30, 2021 and $366.9 million at December 31, 2020. Peoples recognized interest income of $3.1 million for deferred loan fees/cost accretion and $0.4 million of interest income on PPP loans during the third quarter of 2021, compared to $3.4 million and $0.7 million, respectively, for the second quarter of 2021 and $1.9 million and $1.2 million, respectively, for the third quarter of 2020. During the first nine months of 2021, Peoples recognized interest income of $11.2 million for deferred loan fees/cost accretion and $2.0 million of interest income on PPP loans compared to $3.8 million for deferred loan fees/costs accretion and $2.1 million of interest income during the first nine months of 2020.
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◦ | On January 6, 2016, Peoples Bank acquired a small financial advisory book of business in Marietta, Ohio for total cash consideration of $0.5 million, and recorded $0.5 million of customer relationship intangibles. The acquisition did not materially impact Peoples' financial position, results of operations or cash flows. |
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◦ | Peoples' net interest income and net interest margin are impacted by changes in market interest rates based upon actions taken by the Federal Reserve Board (the "Fed"), either directly or through its Open Market Committee. These actions include changing its target Federal Funds Rate (the interest rate at which banks lend money to each other), Discount Rate (the interest rate charged to banks for money borrowed from a Federal Reserve Bank) and longer-term market interest rates (primarily U.S. Treasury securities). Interest rates also are affected by investor demand for U.S. Treasury securities. The resulting changes in the yield curve slope have a direct impact on reinvestment rates for Peoples' earning assets. |
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◦ | The Fed raised the benchmark Federal Funds Target Rate by 25 basis points in each of December of 2016 and March and June of 2017. Peoples' management believes the Fed will likely raise the rate by 25 basis points again at its December 2017 meeting and potentially three more times in 2018. The Fed has also begun to reduce the size of its $4.5 trillion dollar balance sheet, which could result in higher interest rates as well. The minutes of the September 2017 Federal Open Market Committee meeting released in October noted concerns about raising interest rates given the low level of inflation in the economy. However, there was no indication that the Fed would alter its current posture of tightening monetary policy at future meetings. Peoples is closely monitoring interest rates, both foreign and domestic, and potential impacts of changes in interest rates to Peoples Bank’s operations. |
◦Peoples provided relief solutions to consumer and commercial borrowers, including forbearance and modifications, during the COVID-19 pandemic. Additional information can be found later in this discussion under the caption “FINANCIAL CONDITION - COVID-19 Loan Impacts."
◦On January 29, 2021, Peoples announced that on January 28, 2021, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to an aggregate of $30 million of Peoples' outstanding common shares. This program replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $40 million of Peoples' outstanding common shares, which Peoples' Board of Directors had authorized on February 27, 2020 and which was terminated on January 28, 2021. There were no common share repurchases during the first nine months of 2021, under the existing share repurchase program. On February 27, 2020, Peoples' Board of Directors approved a share repurchase program authorizing Peoples to purchase up to an aggregate of $40.0 million of Peoples' outstanding common shares. This program had replaced the share repurchase program authorizing Peoples to purchase up to an aggregate of $20.0 million of Peoples' outstanding common shares, which Peoples' Board of Directors had approved on November 3, 2015 and which was terminated on February 27, 2020. During the third quarter of 2020, Peoples repurchased 235,684 of Peoples' common shares through Peoples' then-effective common share repurchase program for a total of $5.0 million. For the first nine months of 2020, Peoples repurchased 1,119,752 in common shares for a total of $25.0 million.
◦During the third quarter of 2021, Peoples recorded a provision for credit losses of $9.0 million, compared to a provision for credit losses of $3.1 million in the linked quarter and a provision for credit losses of $4.7 million in the third quarter of 2020. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. The change in the amount of the provision for credit losses compared to the third quarter of 2020 was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to
COVID-19, coupled with the day-one allowances for credit losses required in connection with the acquisitions of loans from Premier in the third quarter of 2021.
◦For the third quarter of 2021, Peoples recorded $181,000 of expenses related to the COVID-19 pandemic, compared to $210,000 for the second quarter of 2021 and $148,000 for the third quarter of 2020. These expenses were primarily related to providing Peoples' employees meals in support of local businesses and assisting employees with childcare and elder care needs, as well as taking extra precautions in cleaning facilities.
◦During the third quarter of 2021, Peoples incurred $16.2 million of acquisition-related expenses, compared to $2.4 million in the second quarter of 2021 and $335,000 in the third quarter of 2020. Acquisition-related expenses for the nine months ended September 30, 2021 were $20.5 million, compared to $412,000 for the same period last year. The acquisition-related expenses in 2021 were primarily related to the NSL acquisition and the Premier acquisition. The acquisition-related expenses in 2020 were primarily related to the Triumph Premium Finance acquisition.
◦Peoples incurred $0.1 million in pension settlement charges for the third quarter of 2021 compared to $0.5 million for the third quarter of 2020, due to the aggregate amount of lump-sum distributions to participants in Peoples' defined benefit pension plan exceeding the threshold for recognizing such charges during the relevant period. Peoples recorded $0.1 million of pension settlement charges for the nine months ended September 30, 2021 and $1.1 million for the nine months ended September 30, 2020.
◦Effective July 1, 2020, Peoples completed the business combination under which Peoples Bank acquired the operations and assets of Triumph Premium Finance (referred to as "Premium Finance acquisition"), a division of TBK Bank, SSB. Based in Kansas City, Missouri, the division operating as Peoples Premium Finance continues to provide insurance premium financing loans for commercial customers to purchase property and casualty insurance products through its growing network of independent insurance agency partners nationwide. Peoples Bank acquired $84.7 million in loans, at the acquisition date, after fair value adjustments. Peoples also recorded $4.3 million of other intangible assets and $5.5 million of goodwill related to the acquisition. As of September 30, 2021, Peoples premium finance loans had grown to $134.8 million.
◦In an effort to stimulate an economy that was being adversely impacted by the impacts of the COVID-19 pandemic, the Federal Reserve first lowered the benchmark Federal Funds Target Rate by 50 basis points on March 3, 2020, then lowered the target rate another 100 basis points at the next FOMC meeting on March 15, 2020. The Federal Funds Target Rate range was 0% - 0.25% as of March 31, 2020 and maintained this rate as of September 30, 2021.
The impact of these transactions and events, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Results of Operations and Financial Condition.MD&A.
EXECUTIVE SUMMARY
Peoples recorded a net incomeloss of $5.8 million for the third quarter ended September 30, 2017 of $10.9 million,2021, or $0.60$0.28 per diluted common share, compared to $7.8 million, or $0.43 per diluted common share, for the same quarter a year ago and net income of $9.8$10.1 million, or $0.53$0.51 per diluted common share, for the second quarter of 2017. On a year-to-date basis,2021, and net income was $29.5of $10.2 million, or $1.61 per diluted share, compared to $23.7 million, or $1.31$0.51 per diluted share, for the same period in 2016. The increased earnings for all periods were primarily due to increasesthird quarter of 2020. Non-core items, and the related tax effect of each, in net interest(loss) income mortgage banking incomeincluded acquisition-related expenses, contract negotiation expenses, COVID-19-related expenses, a contribution to Peoples Bank Foundation, Inc., pension settlement charges, severance expenses, and net gaingains and losses on investment securities. Earningssecurities, asset disposals and other transactions. Non-core items negatively impacted earnings per diluted common share were positively impacted by $0.07 due to the gain on investment securities of $1.9 million recognized during$0.71 for the third quarter of 2017.2021, $0.10 for the second quarter of 2021, and by $0.05 for the third quarter of 2020. Net income in the third quarter of 2021 was largely affected by the acquisition of Premier.
For the first nine months of 2021, net income was $19.8 million, or $0.99 per diluted common share, compared to net income of $14.2 million, or $0.70 per diluted common share, for the nine months ended September 30, 2020. The increase in earnings was impacted primarily by the change in provision for credit losses in 2021 as compared to 2020. Non-core items negatively impacted earnings per diluted common share by $0.98 and $0.12 for the nine months ended September 30, 2021 and 2020, respectively.
Net interest income was $29.2$42.6 million infor the third quarter of 2017,2021, up 7% compared to $26.1 million for the same quarter a year ago and $28.1$39.7 million for the second quarter of 2017,2021, and an increase of 21% compared to $35.1 million for the third quarter of 2020. Net interest margin was 3.50% for the third quarter of 2021, compared to 3.45% for the second quarter of 2021, and 3.14% for the third quarter of 2020. Compared to the linked quarter and third quarter of 2020, net interest income and margin were improved due to the growth in leases and premium finance loans, coupled with the partial period impact of the Premier acquisition and lower cost of funds. Net interest income and margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves. Net interest income and net interest margin continue to be impacted by the low interest rate environment caused by COVID-19 that continued throughout the third quarter of 2021. For the first nine months of 2021, net interest income increased $13.2 million, or 13%, compared to the first nine months of 2020, while net interest margin was 3.67%, 3.54%, and 3.62%, respectively. For the nine months ended September 30, 2017,increased 14 basis points to 3.41%. The change in net interest income was $84.3 million, compared to $78.2 million for the same period in 2016, while net interest margin was 3.61% and 3.55%, respectively. The increase in net interest margin compared to all prior periods was due primarily to loan growth, with the previous increases in interest rates positively impacting net interest income and the net interest margin. In addition, during the third quarterresult of 2017, the investment yield improved largelylower funding costs due to $611,000 received on an investment security for which an other-than-temporary-impairment had previously been recorded. These proceeds added eight basis pointsa shift from higher cost overnight FHLB advances to lower cost brokered deposits, as well as a higher volume of loans and leases due to the net interest margin during the third quarterPremier, NSL and Premium Finance acquisitions.
Accretion income, net of amortization expense, from acquisitions was $816,000$1.0 million for the third quarter of 2017, compared to $801,0002021, $0.8 million for the second quarter of 2021, and $0.5 million for the third quarter of 2016 and $735,000 for the second quarter of 2017,2020, which added 108 basis points, 7 basis points, and 5 basis points, respectively, to net interest margin in both the third quarter of 2017 and the second quarter of 2017, compared to 11 basis points for the third quarter of 2016. During the third quarter of 2017, the annual re-estimation of expected cash flows for purchased credit impaired loans was completed and resulted in adjustments to accretion income, which had a positive impact for the quarter. On a year-to-date basis, the accretionmargin. Accretion income, net of amortization expense, from acquisitions was $2.2 million for the nine months ended September 30, 2021, compared to $2.6 million for the nine months ended September 30, 2020, which added 106 and 8 basis points, respectively, to net interest marginmargin.
During the third quarter of 2021, Peoples recorded a provision for credit losses of $9.0 million, compared to a provision for credit losses of $3.1 million for the second quarter of 2021 and a provision for credit losses of $4.7 million for the third quarter of 2020. Net charge-offs for the third quarter of 2021 were $1.6 million, or 0.18% of average total loans annualized, compared to net charge-offs of $0.8 million, or 0.09% of average total loans annualized, for the linked quarter and net charge-offs of $0.7 million, or 0.08% of average total loans annualized, for the third quarter of 2020. Net charge-offs for the third quarter of 2021 included one commercial and industrial loan aggregating $0.5 million. Net charge-offs for the second quarter of 2021 included $0.4 million in leases. During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, offset by the day-one allowances for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2021.
The provision for credit losses during the first nine months of 2017 compared to 12 basis points for the first nine months of 2016.
Peoples' provision for loan losses for the three months ended September 30, 2017 and September 30, 20162021 was $1.1$7.3 million, compared to $947,000 for the three months ended June 30, 2017. The slightly highera provision for loancredit losses recorded during the third quarter of 2017 compared to the linked quarter was reflective of the continued loan growth. Net charge-offs increased to $909,000 in the third quarter of 2017, compared to $765,000 for the third quarter of 2016 and $600,000 for the linked quarter of 2017. Annualized net charge-offs were 0.16% of average gross loans during the third quarter of 2017, compared to 0.14% in the third quarter of 2016 and 0.11% in the linked quarter. During the first nine months
of 2017, annualized net charge-offs were 0.12% of average gross loans compared to 0.09% in the same period of 2016. Net charge-offs were $2.1$33.5 million for the first nine months of 2017, compared to $1.4 million2020. Net charge-offs for the first nine months of 2016. The increase in2021 were $3.4 million, or 0.13% of average total loans annualized, compared to net charge-offs duringof $0.9 million, or 0.04% annualized, for the periodsfirst nine months of 2020. The change in the provision for credit losses compared to the first nine months of 2020 was primarily relateddue to residential real estateimproved economic factors and deposit account overdrafts. The allowance for loan losses at September 30, 2017 increased to $19.0 million, compared to $18.4 million at December 31, 2016. The ratioupdated loss drivers and their impact on assumptions used in the CECL model throughout the first nine months of the allowance for loan losses as a percent of total loans, net of deferred fees and costs, was 0.82% at September 30, 2017, 0.84% at September 30, 2016 and 0.82% at June 30, 2017.2021.
For the third quarter of 2017,2021, total non-interest income increased $1.1$0.5 million, or 9%3%, compared to the second quarter of 2021 and decreased $0.4 million, or 3%, from the third quarter of 2020. The rise in non-interest income compared to the linked quarter was the result of an increase in overdraft fees included in deposit account service charges of $0.5 million and a $0.2 million increase in income recognized on leases related to the early termination of leases and other fees, offset partially by declines in trust and investment income, electronic banking income and mortgage banking income. Net losses of $0.5 million realized during the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sales of securities during the third quarter of 2021, compared to net losses of $0.3 million for the linked quarter, and net gains of $26,000 for the third quarter of 2020.
For the nine months ended September 30, 2021, total non-interest income increased $1.9 million compared to the nine months ended September 30, 2020. The increase was driven by higher trust and investment income, associated with new accounts and increased market values of assets under administration and management, coupled with higher electronic banking income and $716,000 of non-interest income contributed by the leasing business.
Total non-interest expense increased $18.0 million, or 45%, for the third quarter of 2021 compared to the second quarter of 2021, and $23.5 million, or 69%, compared to the third quarter of 2016, and increased $729,000, or 5%, from the linked quarter.2020. The increase in total non-interest incomeexpense for the third quarter of 20172021 compared to the linked quarter was primarily due to the recognition of $16.5 million of acquisition-related expenses due to the closing of the Premier acquisition during the quarter. Total non-interest expense in the third quarter of 2021 also contained other non-core expenses such as a one-time expense related to contract renewal negotiations of Peoples Bank's core banking systems of $1.9 million, and $0.2 million in COVID-19-related expenses. During the second quarter of 2021, non-core expenses included acquisition-related expenses of $2.4 million and $0.2 million in COVID-19-related expenses. For the third quarter of 2020, non-core expenses included $531,000 of pension settlement charges, $335,000 of acquisition-related expenses, $192,000 of severance expenses and $148,000 of COVID-19-related expenses. Compared to the third quarter of 2016 and2020, the linked quarterincrease in total non-interest expense was primarily due to an increase in net gain on investment securities which was offset partially by decreased swap fees. Theacquisition-related expenses of $16.2 million, an increase in net gain on investment securitiessalaries and employee benefit costs of $1.9$6.2 million was largelyand an increase in amortization of intangible assets of $0.4 million. The increases in salaries and employee benefit costs and amortization of intangible assets were primarily the result of $1.8 millionthe acquisitions of gains recognized as a result of the sale of bank equity securities, which had a high amount of appreciationPremier and is not a normal occurrence for our business. The decreases in swap fees are attributed to customer demand.NSL.
For the first nine months of 2017,2021, total non-interest income grew $3.0expense increased $35.3 million or 8%, compared to the same period in 2016.last year. The increase compared to the first nine monthsvariance was driven primarily by increases of 2016 was the result of a $1.4 million increase in gain on sale of securities, a $647,000 increase in trust and investment income, a $560,000 increase in BOLI income and a $537,000 increase in mortgage banking income. These increases were partially offset by declines in service charges on deposit accounts of $869,000 and electronic banking income of $175,000. The increase in trust and investment income was attributable to higher assets under administration and management, coupled with additional income generated from transaction commissions. The increase in BOLI income was due to the $35.0 million of policies that were purchased late in the second quarter of 2016. The increase in mortgage banking income was primarily due to $48.3 million of loan sales to the secondary market in the first nine months of 2017 compared to $44.6$20.5 million in acquisition-related expenses. The remainder of the first nine months of 2016. The declines in deposit account service charges were driven by lower overdraft fees while decreases in electronic banking income were due to customer activity.
Total non-interest expense for the third quarter of 2017increase was $26.6 million, compared to $26.8 million for the third quarter of 2016 and $26.7 million for the second quarter of 2017. Total non-interest expense decreased slightly from the third quarter of 2016 due mainly to other expenses, professional fees and communication expense. The decrease in other expenses compared to the third quarter of 2016 was primarily related to $423,000 of one-time costs associated with the system upgrade of Peoples' core banking system. The decrease in professional fees was primarilylargely due to a decrease$7.2 million rise in legal fees related to collections of special assets which correlated to the decrease in nonperforming assets and classified loans from September 30, 2016. The decrease in communication expense resulted from the continued consolidation of traditional phone lines to a method of transmitting all voice traffic over the internet and the discontinuation of overlapping traditional phone line contracts that occurred during the transition. These decreases were partially offset by the increase in salaries and employee benefits which was the result of an increase in incentive compensation, which is tied to business performance. Peoples' number of full-time equivalent employees was 778 at September 30, 2017, compared to 775 at June 30, 2017 and 799 at September 30, 2016.
Total non-interest expense was up 1% during the first nine months of 2017, compared to 2016. Year-to-date, salaries and employee benefit costs, increased 7%, which was primarily due todriven by the added ongoing costs of the recent acquisitions, along with higher sales and incentive compensation tied to corporate performance for 2017. This increase wasfrom increased production, growth in medical insurance and 401(k) costs, while data processing and software costs also increased $2.1 million. These changes were partially offset by reductionsdecreases in professional fees, communication expense, other non-interest expensepension settlement charges and COVID-19-related expenses. Similar to the quarterly comparisons, the acquisitions of Premier, NSL and Premium Finance increased salaries and employee benefit costs, as well as amortization of other intangible assets.
Peoples' efficiency ratio, calculated as total non-interest expense less amortization of other intangible assets divided by fully taxable equivalenttax-equivalent ("FTE") net interest income, plus total non-interest income, excluding all gains and losses, for the third quarter of 20172021 was 60.74%94.7%, compared to 64.33%68.6% for the second quarter of 2021, and 64.1% for the third quarter of 2016 and 61.19% for2020. The change in the efficiency ratio compared to the linked quarter.quarter was primarily due to the acquisition-related expenses mentioned above. The lower efficiency ratio, inwhen adjusted for non-core items, was 63.9% for the third quarter of 20172021, compared to 64.0% for the second quarter of 2021 and 61.8% for the third quarter of 2016 was primarily due to an increase in net interest income which was slightly offset by decreased non-interest income, excluding all gains and losses.2020. The decrease from the linked quarter was due to increased net interest income which was slightly offset by decreased non-interest income, excluding all gains and losses. On a year-to-date basis, the efficiency ratio was 62.24%, compared to 64.56% for the first nine months of 2016. The improvement in the efficiency ratio during the first nine months of 2017 versus 2016 was primarily due to an increase in net interest income, slightly offset by a 1% increase in total non-interest expense.
At September 30, 2017, total assets were $3.55 billion, compared to $3.43 billion, at December 31, 2016. The $120.1 million, or 3%, increase was primarily the result of growth in loan balances, net of deferred fees and costs, of $102.1 million, or 6% annualized. Indirect consumer lending continued to be a key component of loan growth as balances increased $83.0 million, or 44% annualized, compared to December 31, 2016. The growth in indirect consumer loan balances included diversification in the portfolio beyond automobile loans, including indirect consumer loans for recreational vehicles and
motorcycles. Commercial real estate construction loans grew $25.0 million, or 35% annualized, with commercial and industrial loans growing $21.6 million, or 7% annualized, during the first nine months of 2017. Average gross loan balances for the nine months ended September 30, 2017 increased $162.3 million, or 8%,2021 was 78.4% compared to the average gross loan balances64.4% for the nine months ended September 30, 2016, due primarily to increases in indirect consumer loans, commercial real estate construction and commercial and industrial loans.
Total liabilities were $3.10 billion at September 30, 2017, up $97.9 million since December 31, 2016. The increase in liabilities during2020. When adjusted for non-core items, the efficiency ratio was 64.3% for the first nine months of 2017
2021 compared to 62.4% for the first nine months of 2020. Peoples continues to focus on controlling expenses, while recognizing some necessary costs in order to continue growing the business.
Peoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and $2.6 million for the third quarter of 2020. The income tax benefit for the third quarter of 2021, compared to the income tax expense for the linked quarter, was due to the net loss recognized in the third quarter of 2021. The increase in income tax expense for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was due to higher pre-tax income.
At September 30, 2021, total assets were $7.06 billion, compared to $5.07 billion at June 30, 2021 and $4.76 billion at December 31, 2020. Total assets grew 39% compared to June 30, 2021, and was largely attributable to the Premier acquisition, which added $1.1 billion in loans, $563.3 million in investment securities, and the recognition of goodwill on the transaction of $71.0 million. The 48% increase compared to December 31, 2020 was also driven by the Premier acquisition, along with the $83.3 million of leases acquired from NSL, subsequent growth in leases of $28.1 million, and organic loan growth of $88.2 million, offset partially by $474.2 million in forgiveness received on PPP loans during the nine months ended September 30, 2021. The allowance for credit losses at September 30, 2021 increased to $77.4 million, or 1.72% of total loans, compared to $50.4 million and 1.48%, respectively, at December 31, 2020. Total assets increased $2.0 billion, or 39%, compared to the linked quarter. The increase was a result of the Premier acquisition.
Total liabilities were $6.23 billion at September 30, 2021, up from $4.48 billion at June 30, 2021 and $4.19 billion at December 31, 2020. The increase in total liabilities compared to June 30, 2021 was primarily due to andeposits acquired from Premier of $1.8 billion, as well as retail repurchase agreements of $63.8 million. Also contributing to the increase in deposits of $155.0 million, or 6%, offset partially by a decline in total borrowings of $61.2 million, or 14%.
Interest-bearing deposits increased $164.5 million, or 9%, offset partially by a decrease in total non-interest-bearing deposits of $9.6 million, or 1%, compared to December 31, 2016. Peoples introduced new checking account product offerings for consumers. During2020 was higher total deposits associated with customers maintaining higher balances due primarily to economic stimulus payments provided by the third quarter of 2017, and continuing into the fourth quarter, Peoples will migrate customers' accounts to the new product offerings. During this migration,government, as well as changes in customer accounts are evaluated based on certain characteristics, and some accounts that were traditionally non-interest-bearing deposits are being converted to interest-bearing demand accounts. As a result, fluctuations in balances have occurred between non-interest-bearing deposits and interest-bearing demand account balances during the third quarter of 2017. These new products have increased maintenance fee requirements and Peoples expects that certain of these accounts will also result in higher fee-based income in future periods. Total certificates of deposit ("CDs") atbuying habits.
At September 30, 2017 also declined $35.62021, total stockholders' equity was $831.9 million, or 9%,an increase of $256.2 million compared to December 31, 2016.
The growth in interest-bearing deposits from December 31, 2016 was primarily the result of an increase of $105.3 million in interest-bearing deposits, $53.0 million in brokered CDs, and $38.2 million in governmental deposit accounts, offset partially by a decrease of $9.6 million in non-interest-bearing demand deposits.2020. The increase in brokered CDs was the result of adding relatively shorter term funding on the balance sheet, while the increase in governmental deposit accounts was primarily due to seasonality.
At September 30, 2017, total stockholders' equity was $457.4driven by common shares issued for the acquisition of Premier and net income for the first nine months of 2021, offset by $21.0 million in dividends paid to shareholders and the change in accumulated other comprehensive income to an increaseaccumulated other comprehensive loss of $22.1 million, or 5%, compared to December 31, 2016. Regulatory capital ratios remained significantly higher than "well capitalized" minimums. Peoples' common equity tier 1 risk-based capital ratio was 13.31% at September 30, 2017, versus 12.91% at December 31, 2016, while the tier 1 risk-based capital ratio was 13.60% at September 30, 2017, compared to 13.21% at December 31, 2016. The total risk-based capital ratio was 14.49% at September 30, 2017, compared to 14.11% at December 31, 2016. In addition, Peoples' tangible equity to tangible asset ratio was 9.20%, and tangible book value per common share was $17.15 at September 30, 2017, versus 8.80% and $15.89, respectively, at December 31, 2016.$7.2 million.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which interest income exceeds interest expense, remains Peoples' largest source of revenue. The amount of net interest income earned by Peoples each quarter is affected by various factors, including changes in market interest rates due to the Fed’sFederal Reserve’s monetary policy, the level and degree of pricing competition for both loans and deposits in Peoples’ markets, and the amount and composition of Peoples' earning assets and interest-bearing liabilities.
Net interest margin, which is calculated by dividing FTE net interest income by average interest-earning assets, serves as an important measurement of the net revenue stream generated by the volume, mix and pricing of interest-earning assets and interest-bearing liabilities. FTE net interest income is calculated by increasing interest income to convert tax-exempt income earned on obligations of states and political subdivisions and tax-exempt loans to the pre-tax equivalent of taxable income using a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020.
The following table details the calculation of FTE net interest income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Net interest income | $ | 42,578 | | $ | 39,660 | | $ | 35,119 | | | $ | 117,816 | | $ | 104,615 | |
Taxable equivalent adjustment | 351 | | 324 | | 262 | | | 970 | | 803 | |
Fully tax-equivalent net interest income | $ | 42,929 | | $ | 39,984 | | $ | 35,381 | | | $ | 118,786 | | $ | 105,418 | |
The following tables detail Peoples’ average balance sheets for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| September 30, 2021 | | June 30, 2021 | | September 30, 2020 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 199,007 | | $ | 82 | | 0.16 | % | | $ | 180,730 | | $ | 53 | | 0.12 | % | | $ | 97,430 | | $ | 33 | | 0.13 | % |
| | | | | | | | | | | |
Investment securities (a)(b): | | | | | | | | | | | |
Taxable | 979,278 | | 3,799 | | 1.55 | % | | 883,948 | | 3,217 | | 1.45 | % | | 851,092 | | 2,832 | | 1.33 | % |
Nontaxable | 173,459 | | 1,136 | | 2.62 | % | | 168,015 | | 1,095 | | 2.61 | % | | 101,403 | | 778 | | 3.07 | % |
Total investment securities | 1,152,737 | | 4,935 | | 1.71 | % | | 1,051,963 | | 4,312 | | 1.64 | % | | 952,495 | | 3,610 | | 1.52 | % |
Loans (b)(c): | | | | | | | | | | | |
Construction | 125,178 | | 1,196 | | 3.74 | % | | 87,075 | | 979 | | 4.45 | % | | 105,488 | | 1,179 | | 4.37 | % |
Commercial real estate, other | 993,259 | | 9,507 | | 3.75 | % | | 916,604 | | 8,829 | | 3.81 | % | | 857,830 | | 8,854 | | 4.04 | % |
Commercial and industrial | 789,555 | | 8,933 | | 4.43 | % | | 887,756 | | 9,241 | | 4.12 | % | | 1,047,105 | | 8,145 | | 3.04 | % |
Premium finance | 122,828 | | 1,542 | | 4.91 | % | | 108,387 | | 1,298 | | 4.74 | % | | 92,533 | | 1,871 | | 7.91 | % |
Leases | 97,068 | | 4,810 | | 19.39 | % | | 86,519 | | 4,215 | | 19.27 | % | | — | | — | | — | % |
Residential real estate (d) | 652,184 | | 6,648 | | 4.08 | % | | 607,691 | | 6,429 | | 4.23 | % | | 661,694 | | 7,870 | | 4.76 | % |
Home equity lines of credit | 126,888 | | 1,271 | | 3.97 | % | | 119,354 | | 1,180 | | 3.97 | % | | 125,351 | | 1,278 | | 4.06 | % |
Consumer, indirect | 541,329 | | 5,509 | | 4.04 | % | | 529,180 | | 5,313 | | 4.03 | % | | 477,962 | | 5,103 | | 4.25 | % |
Consumer, direct | 86,935 | | 1,385 | | 6.32 | % | | 80,409 | | 1,272 | | 6.35 | % | | 82,139 | | 1,332 | | 6.45 | % |
Total loans | 3,535,224 | | 40,801 | | 4.55 | % | | 3,422,975 | | 38,756 | | 4.50 | % | | 3,450,102 | | 35,632 | | 4.08 | % |
Allowance for credit losses | (51,610) | | | | | (46,967) | | | | | (56,519) | | | |
Net loans | 3,483,614 | | 40,801 | | 4.61 | % | | 3,376,008 | | 38,756 | | 4.56 | % | | 3,393,583 | | 35,632 | | 4.14 | % |
Total earning assets | 4,835,358 | | 45,818 | | 3.74 | % | | 4,608,701 | | 43,121 | | 3.72 | % | | 4,443,508 | | 39,275 | | 3.49 | % |
Goodwill and other intangible assets | 232,361 | | | | | 222,553 | | | | | 185,816 | | | |
Other assets | 407,428 | | | | | 351,892 | | | | | 277,290 | | | |
Total assets | $ | 5,475,147 | | | | | $ | 5,183,146 | | | | | $ | 4,906,614 | | | |
Interest-bearing deposits: | | | | | | | | | | | |
Savings accounts | $ | 737,771 | | $ | 23 | | 0.01 | % | | $ | 680,825 | | $ | 21 | | 0.01 | % | | $ | 589,100 | | $ | 34 | | 0.02 | % |
Governmental deposit accounts | 542,855 | | 458 | | 0.33 | % | | 496,906 | | 551 | | 0.44 | % | | 398,653 | | 511 | | 0.51 | % |
Interest-bearing demand accounts | 795,565 | | 74 | | 0.04 | % | | 733,913 | | 66 | | 0.04 | % | | 671,987 | | 66 | | 0.04 | % |
Money market accounts | 533,497 | | 67 | | 0.05 | % | | 564,593 | | 94 | | 0.07 | % | | 589,078 | | 216 | | 0.15 | % |
Retail certificates of deposit (e) | 457,073 | | 951 | | 0.83 | % | | 424,279 | | 980 | | 0.93 | % | | 467,431 | | 1,524 | | 1.30 | % |
Brokered deposits (e) | 155,779 | | 826 | | 2.10 | % | | 167,109 | | 865 | | 2.08 | % | | 258,875 | | 318 | | 0.49 | % |
Total interest-bearing deposits | 3,222,540 | | 2,399 | | 0.30 | % | | 3,067,625 | | 2,577 | | 0.34 | % | | 2,975,124 | | 2,669 | | 0.36 | % |
Borrowed funds: | | | | | | | | | | | |
Short-term FHLB advances | 17,174 | | 78 | | 1.80 | % | | 19,176 | | 81 | | 1.69 | % | | 137,174 | | 732 | | 2.12 | % |
Repurchase agreements and other | 63,226 | | 13 | | 0.08 | % | | 50,852 | | 11 | | 0.09 | % | | 43,184 | | 10 | | 0.09 | % |
Total short-term borrowings | 80,400 | | 91 | | 0.45 | % | | 70,028 | | 92 | | 0.53 | % | | 180,358 | | 742 | | 1.64 | % |
Long-term FHLB advances | 86,561 | | 316 | | 1.45 | % | | 101,161 | | 392 | | 1.55 | % | | 103,906 | | 402 | | 1.54 | % |
| | | | | | | | | | | |
Other borrowings | 8,470 | | 83 | | 3.92 | % | | 7,669 | | 76 | | 3.96 | % | | 7,551 | | 81 | | 4.29 | % |
Total long-term borrowings | 95,031 | | 399 | | 1.67 | % | | 108,830 | | 468 | | 1.72 | % | | 111,457 | | 483 | | 1.73 | % |
Total borrowed funds | 175,431 | | 490 | | 1.11 | % | | 178,858 | | 560 | | 1.26 | % | | 291,815 | | 1,225 | | 1.67 | % |
Total interest-bearing liabilities | 3,397,971 | | 2,889 | | 0.34 | % | | 3,246,483 | | 3,137 | | 0.39 | % | | 3,266,939 | | 3,894 | | 0.47 | % |
Non-interest-bearing deposits | 1,358,652 | | | | | 1,272,623 | | | | | 970,353 | | | |
Other liabilities | 90,741 | | | | | 82,209 | | | | | 102,267 | | | |
Total liabilities | 4,847,364 | | | | | 4,601,315 | | | | | 4,339,559 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total stockholders’ equity | 627,783 | | | | | 581,831 | | | | | 567,055 | | | |
Total liabilities and stockholders’ equity | $ | 5,475,147 | | | | | $ | 5,183,146 | | | | | $ | 4,906,614 | | | |
Interest rate spread (b) | | $ | 42,929 | | 3.40 | % | | | $ | 39,984 | | 3.33 | % | | | $ | 35,381 | | 3.02 | % |
Net interest margin (b) | 3.50 | % | | | | 3.45 | % | | | | 3.14 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| September 30, 2017 | | June 30, 2017 | | September 30, 2016 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 12,812 |
| $ | 42 |
| 1.30 | % | | $ | 12,275 |
| $ | 26 |
| 0.85 | % | | $ | 8,663 |
| $ | 10 |
| 0.46 | % |
Investment securities (a): | | | | | | | | | | | |
Taxable (b) | 780,667 |
| 5,661 |
| 2.90 | % | | 768,495 |
| 5,002 |
| 2.60 | % | | 736,677 |
| 4,500 |
| 2.44 | % |
Nontaxable (c) | 105,077 |
| 1,078 |
| 4.10 | % | | 111,003 |
| 1,172 |
| 4.22 | % | | 112,589 |
| 1,186 |
| 4.21 | % |
Total investment securities | 885,744 |
| 6,739 |
| 3.04 | % | | 879,498 |
| 6,174 |
| 2.81 | % | | 849,266 |
| 5,686 |
| 2.68 | % |
Loans (c) (d): | | | | | | | | | | | |
Commercial real estate, construction | 118,208 |
| 1,337 |
| 4.43 | % | | 107,224 |
| 1,158 |
| 4.27 | % | | 93,353 |
| 915 |
| 3.84 | % |
Commercial real estate, other | 750,260 |
| 8,890 |
| 4.64 | % | | 735,915 |
| 8,892 |
| 4.78 | % | | 707,269 |
| 8,362 |
| 4.63 | % |
Commercial and industrial | 438,524 |
| 5,196 |
| 4.64 | % | | 433,277 |
| 4,858 |
| 4.44 | % | | 378,053 |
| 3,855 |
| 3.99 | % |
Residential real estate (e) | 507,906 |
| 5,468 |
| 4.31 | % | | 520,863 |
| 5,564 |
| 4.27 | % | | 554,039 |
| 6,070 |
| 4.38 | % |
Home equity lines of credit | 110,741 |
| 1,291 |
| 4.63 | % | | 111,185 |
| 1,233 |
| 4.45 | % | | 110,232 |
| 1,246 |
| 4.50 | % |
Consumer, indirect | 322,072 |
| 2,955 |
| 3.64 | % | | 293,917 |
| 2,570 |
| 3.51 | % | | 218,318 |
| 1,975 |
| 3.64 | % |
Consumer, other | 70,204 |
| 1,270 |
| 7.18 | % | | 69,329 |
| 1,229 |
| 7.11 | % | | 72,729 |
| 1,108 |
| 6.13 | % |
Total loans | 2,317,915 |
| 26,407 |
| 4.49 | % | | 2,271,710 |
| 25,504 |
| 4.46 | % | | 2,133,993 |
| 23,531 |
| 4.35 | % |
Less: Allowance for loan losses | (18,869 | ) | | | | (18,554 | ) | | | | (17,787 | ) | | |
Net loans | 2,299,046 |
| 26,407 |
| 4.53 | % | | 2,253,156 |
| 25,504 |
| 4.50 | % | | 2,116,206 |
| 23,531 |
| 4.39 | % |
Total earning assets | 3,197,602 |
| 33,188 |
| 4.10 | % | | 3,144,929 |
| 31,704 |
| 4.01 | % | | 2,974,135 |
| 29,227 |
| 3.89 | % |
Intangible assets | 144,267 |
| | | | 145,052 |
| | | | 147,466 |
| | |
Other assets | 199,351 |
| | | | 199,720 |
| | | | 203,035 |
| | |
Total assets | $ | 3,541,220 |
| | | | $ | 3,489,701 |
| | | | $ | 3,324,636 |
| | |
Deposits: | | | | | | | | | | | |
Savings accounts | $ | 443,599 |
| $ | 65 |
| 0.06 | % | | $ | 444,824 |
| $ | 61 |
| 0.06 | % | | $ | 439,464 |
| $ | 59 |
| 0.05 | % |
Governmental deposit accounts | 309,623 |
| 200 |
| 0.26 | % | | 301,448 |
| 168 |
| 0.22 | % | | 311,650 |
| 152 |
| 0.19 | % |
Interest-bearing demand accounts | 320,788 |
| 133 |
| 0.16 | % | | 295,080 |
| 98 |
| 0.13 | % | | 264,182 |
| 61 |
| 0.09 | % |
Money market accounts | 389,292 |
| 253 |
| 0.26 | % | | 393,807 |
| 197 |
| 0.20 | % | | 400,749 |
| 175 |
| 0.17 | % |
Brokered certificates of deposit | 106,448 |
| 454 |
| 1.69 | % | | 110,160 |
| 459 |
| 1.67 | % | | 31,910 |
| 203 |
| 2.56 | % |
Retail certificates of deposit | 348,047 |
| 760 |
| 0.87 | % | | 355,256 |
| 746 |
| 0.84 | % | | 398,388 |
| 777 |
| 0.78 | % |
Total interest-bearing deposits | 1,917,797 |
| 1,865 |
| 0.39 | % | | 1,900,575 |
| 1,729 |
| 0.36 | % | | 1,846,343 |
| 1,427 |
| 0.31 | % |
Borrowed funds: | | | | | | | | | | | |
Short-term FHLB advances | 96,760 |
| 336 |
| 1.38 | % | | 83,352 |
| 201 |
| 0.96 | % | | 73,413 |
| 79 |
| 0.43 | % |
Retail repurchase agreements | 77,706 |
| 33 |
| 0.17 | % | | 76,153 |
| 32 |
| 0.17 | % | | 70,401 |
| 30 |
| 0.17 | % |
Total short-term borrowings | 174,466 |
| 369 |
| 0.84 | % | | 159,505 |
| 233 |
| 0.58 | % | | 143,814 |
| 109 |
| 0.30 | % |
Long-term FHLB advances | 153,070 |
| 788 |
| 2.04 | % | | 131,179 |
| 690 |
| 2.11 | % | | 100,938 |
| 594 |
| 2.34 | % |
Wholesale repurchase agreements | 40,000 |
| 371 |
| 3.71 | % | | 40,000 |
| 367 |
| 3.67 | % | | 40,000 |
| 371 |
| 3.71 | % |
Other borrowings | 7,003 |
| 115 |
| 6.57 | % | | 6,952 |
| 99 |
| 5.70 | % | | 6,794 |
| 106 |
| 6.11 | % |
Total long-term borrowings | 200,073 |
| 1,274 |
| 2.53 | % | | 178,131 |
| 1,156 |
| 2.60 | % | | 147,732 |
| 1,071 |
| 2.89 | % |
Total borrowed funds | 374,539 |
| 1,643 |
| 1.74 | % | | 337,636 |
| 1,389 |
| 1.65 | % | | 291,546 |
| 1,180 |
| 1.61 | % |
Total interest-bearing liabilities | 2,292,336 |
| 3,508 |
| 0.61 | % | | 2,238,211 |
| 3,118 |
| 0.56 | % | | 2,137,889 |
| 2,607 |
| 0.49 | % |
Non-interest-bearing deposits | 756,098 |
| | | | 769,406 |
| | | | 709,432 |
| | |
Other liabilities | 36,588 |
| |
| | | 34,685 |
| |
| | | 38,709 |
| |
| |
Total liabilities | 3,085,022 |
| | | | 3,042,302 |
| | |
| 2,886,030 |
| | |
Total stockholders’ equity | 456,198 |
| |
| | | 447,399 |
| |
| | | 438,606 |
| |
| |
Total liabilities and stockholders’ equity | $ | 3,541,220 |
| |
| | | $ | 3,489,701 |
| |
| | | $ | 3,324,636 |
| |
| |
Interest rate spread (b) | | $ | 29,680 |
| 3.49 | % | | | $ | 28,586 |
| 3.45 | % | | | $ | 26,620 |
| 3.40 | % |
Net interest margin (b) | 3.67 | % | | | | 3.62 | % | | | | 3.54 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| For the Nine Months Ended |
| September 30, 2021 | | September 30, 2020 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 175,755 | | $ | 175 | | 0.13 | % | | $ | 111,852 | | $ | 317 | | 0.38 | % |
| | | | | | | |
Investment securities (a)(b): | | | | | | | |
Taxable | 899,531 | | 9,636 | | 1.43 | % | | 894,008 | | 12,448 | | 1.86 | % |
Nontaxable | 149,636 | | 3,035 | | 2.70 | % | | 103,827 | | 2,409 | | 3.09 | % |
Total investment securities | 1,049,167 | | 12,671 | | 1.61 | % | | 997,835 | | 14,857 | | 1.99 | % |
Loans (b)(c): | | | | | | | |
Construction | 108,859 | | 3,169 | | 3.84 | % | | 108,426 | | 3,656 | | 4.43 | % |
Commercial real estate, other | 930,150 | | 26,938 | | 3.82 | % | | 848,202 | | 27,784 | | 4.30 | % |
Commercial and industrial | 872,421 | | 28,773 | | 4.35 | % | | 892,483 | | 24,411 | | 3.59 | % |
Premium finance | 112,925 | | 4,137 | | 4.83 | % | | 31,069 | | 1,871 | | 7.91 | % |
Leases | 61,551 | | 9,025 | | 19.34 | % | | — | | — | | — | % |
Residential real estate (d) | 624,993 | | 19,749 | | 4.21 | % | | 669,852 | | 24,498 | | 4.88 | % |
Home equity lines of credit | 122,720 | | 3,638 | | 3.96 | % | | 128,540 | | 4,546 | | 4.72 | % |
Consumer, indirect | 526,900 | | 16,025 | | 4.07 | % | | 438,784 | | 14,066 | | 4.28 | % |
Consumer, direct | 82,151 | | 3,896 | | 6.34 | % | | 78,904 | | 3,978 | | 6.73 | % |
Total loans | 3,442,670 | | 115,350 | | 4.44 | % | | 3,196,260 | | 104,810 | | 4.34 | % |
Allowance for credit losses | (49,483) | | | | | (44,323) | | | |
Net loans | 3,393,187 | | 115,350 | | 4.50 | % | | 3,151,937 | | 104,810 | | 4.40 | % |
Total earning assets | 4,618,109 | | 128,196 | | 3.68 | % | | 4,261,624 | | 119,984 | | 3.73 | % |
Goodwill and other intangible assets | 213,232 | | | | | 180,291 | | | |
Other assets | 360,842 | | | | | 264,238 | | | |
Total assets | $ | 5,192,183 | | | | | $ | 4,706,153 | | | |
Interest-bearing deposits: | | | | | | | |
Savings accounts | $ | 688,782 | | $ | 79 | | 0.02 | % | | $ | 558,514 | | $ | 140 | | 0.03 | % |
Governmental deposit accounts | 490,170 | | 1,602 | | 0.44 | % | | 366,139 | | 1,671 | | 0.61 | % |
Interest-bearing demand accounts | 743,562 | | 205 | | 0.04 | % | | 652,198 | | 385 | | 0.08 | % |
Money market accounts | 554,194 | | 294 | | 0.07 | % | | 547,291 | | 1,271 | | 0.31 | % |
Retail certificates of deposit (e) | 440,454 | | 3,054 | | 0.93 | % | | 479,185 | | 5,453 | | 1.52 | % |
Brokered deposits (e) | 166,000 | | 2,559 | | 2.06 | % | | 214,516 | | 1,662 | | 1.03 | % |
Total interest-bearing deposits | 3,083,162 | | 7,793 | | 0.34 | % | | 2,817,843 | | 10,582 | | 0.50 | % |
Borrowed funds: | | | | | | | |
Short-term FHLB advances | 18,773 | | 246 | | 1.75 | % | | 160,287 | | 2,285 | | 1.90 | % |
Repurchase agreements and other | 55,100 | | 37 | | 0.09 | % | | 45,613 | | 70 | | 0.26 | % |
Total short-term borrowings | 73,873 | | 283 | | 0.51 | % | | 205,900 | | 2,355 | | 1.54 | % |
Long-term FHLB advances | 96,765 | | 1,099 | | 1.52 | % | | 109,536 | | 1,341 | | 1.64 | % |
| | | | | | | |
Repurchase agreement and other borrowings | 7,926 | | 235 | | 3.95 | % | | 9,148 | | 288 | | 5.40 | % |
Total long-term borrowings | 104,691 | | 1,334 | | 1.70 | % | | 118,684 | | 1,629 | | 1.93 | % |
Total borrowed funds | 178,564 | | 1,617 | | 1.21 | % | | 324,584 | | 3,984 | | 1.64 | % |
Total interest-bearing liabilities | 3,261,726 | | 9,410 | | 0.39 | % | | 3,142,427 | | 14,566 | | 0.62 | % |
Non-interest-bearing deposits | 1,248,330 | | | | | 892,301 | | | |
Other liabilities | 86,209 | | | | | 92,986 | | | |
Total liabilities | 4,596,265 | | | | | 4,127,714 | | | |
| | | | | | | |
| | | | | | | |
Stockholders’ equity | 595,918 | | | | | 578,439 | | | |
Total liabilities and stockholders’ equity | $ | 5,192,183 | | | | | $ | 4,706,153 | | | |
Interest rate spread (b) | | $ | 118,786 | | 3.29 | % | | | $ | 105,418 | | 3.11 | % |
Net interest margin (b) | | | 3.41 | % | | | | 3.27 | % |
(a)Average balances are based on carrying value.
|
| | | | | | | | | | | | | | | | | |
| | | | | | | |
| For the Nine Months Ended |
| September 30, 2017 | | September 30, 2016 |
(Dollars in thousands) | Average Balance | Income/ Expense | Yield/Cost | | Average Balance | Income/ Expense | Yield/Cost |
Short-term investments | $ | 10,854 |
| $ | 83 |
| 1.02 | % | | $ | 10,052 |
| $ | 37 |
| 0.49 | % |
Investment securities (a): | | | | | | | |
Taxable (b) | 766,116 |
| 15,416 |
| 2.68 | % | | 754,922 |
| 14,010 |
| 2.47 | % |
Nontaxable (c) | 109,921 |
| 3,473 |
| 4.21 | % | | 112,331 |
| 3,588 |
| 4.26 | % |
Total investment securities | 876,037 |
| 18,889 |
| 2.87 | % | | 867,253 |
| 17,598 |
| 2.71 | % |
Loans (c) (d): | | | | | | | |
Commercial real estate, construction | 106,637 |
| 3,488 |
| 4.31 | % | | 88,373 |
| 2,566 |
| 3.81 | % |
Commercial real estate, other | 740,263 |
| 26,205 |
| 4.67 | % | | 721,620 |
| 25,195 |
| 4.59 | % |
Commercial and industrial | 434,976 |
| 14,599 |
| 4.43 | % | | 369,248 |
| 11,568 |
| 4.12 | % |
Residential real estate (e) | 519,989 |
| 16,801 |
| 4.31 | % | | 560,681 |
| 18,341 |
| 4.36 | % |
Home equity lines of credit | 111,012 |
| 3,683 |
| 4.44 | % | | 108,380 |
| 3,639 |
| 4.49 | % |
Consumer, indirect | 295,461 |
| 7,758 |
| 3.51 | % | | 195,613 |
| 5,432 |
| 3.71 | % |
Consumer, other | 69,914 |
| 3,718 |
| 7.11 | % | | 72,060 |
| 3,226 |
| 5.98 | % |
Total loans | 2,278,252 |
| 76,252 |
| 4.46 | % | | 2,115,975 |
| 69,967 |
| 4.41 | % |
Less: Allowance for loan losses | (18,671 | ) | | | | (17,333 | ) | | |
Net loans | 2,259,581 |
| 76,252 |
| 4.47 | % | | 2,098,642 |
| 69,967 |
| 4.41 | % |
Total earning assets | 3,146,472 |
| 95,224 |
| 4.02 | % | | 2,975,947 |
| 87,602 |
| 3.90 | % |
Intangible assets | 144,950 |
| | | | 148,482 |
| | |
Other assets | 201,350 |
| | | | 175,909 |
| | |
Total assets | $ | 3,492,772 |
| | | | $ | 3,300,338 |
| | |
Deposits: | | | | | | | |
Savings accounts | $ | 442,559 |
| $ | 184 |
| 0.06 | % | | $ | 433,233 |
| $ | 173 |
| 0.05 | % |
Governmental deposit accounts | 298,321 |
| 499 |
| 0.22 | % | | 304,422 |
| 444 |
| 0.19 | % |
Interest-bearing demand accounts | 300,911 |
| 310 |
| 0.14 | % | | 255,796 |
| 151 |
| 0.08 | % |
Money market accounts | 393,944 |
| 637 |
| 0.22 | % | | 399,853 |
| 500 |
| 0.17 | % |
Brokered certificates of deposit | 85,576 |
| 1,218 |
| 1.90 | % | | 41,965 |
| 890 |
| 2.83 | % |
Retail certificates of deposit | 363,747 |
| 2,233 |
| 0.82 | % | | 417,599 |
| 2,373 |
| 0.76 | % |
Total interest-bearing deposits | 1,885,058 |
| 5,081 |
| 0.36 | % | | 1,852,868 |
| 4,531 |
| 0.33 | % |
Borrowed funds: | | | | | | | |
Short-term FHLB advances | 104,703 |
| 757 |
| 0.97 | % | | 67,533 |
| 208 |
| 0.41 | % |
Retail repurchase agreements | 74,940 |
| 96 |
| 0.17 | % | | 73,275 |
| 93 |
| 0.17 | % |
Total short-term borrowings | 179,643 |
| 853 |
| 0.64 | % | | 140,808 |
| 301 |
| 0.29 | % |
Long-term FHLB advances | 136,570 |
| 2,140 |
| 2.10 | % | | 79,829 |
| 1,653 |
| 2.77 | % |
Wholesale repurchase agreements | 40,000 |
| 1,100 |
| 3.67 | % | | 40,000 |
| 1,104 |
| 3.68 | % |
Other borrowings | 6,951 |
| 324 |
| 6.21 | % | | 6,758 |
| 307 |
| 5.97 | % |
Total long-term borrowings | 183,521 |
| 3,564 |
| 2.59 | % | | 126,587 |
| 3,064 |
| 3.23 | % |
Total borrowed funds | 363,164 |
| 4,417 |
| 1.62 | % | | 267,395 |
| 3,365 |
| 1.68 | % |
Total interest-bearing liabilities | 2,248,222 |
| 9,498 |
| 0.56 | % | | 2,120,263 |
| 7,896 |
| 0.50 | % |
Non-interest-bearing deposits | 761,308 |
| | | | 715,244 |
| | |
Other liabilities | 35,650 |
| |
| | | 34,062 |
| |
| |
Total liabilities | 3,045,180 |
| | | | 2,869,569 |
| |
| |
|
Total stockholders’ equity | 447,592 |
| |
| | | 430,769 |
| |
| |
Total liabilities and stockholders’ equity | $ | 3,492,772 |
| |
| | | $ | 3,300,338 |
| |
| |
Interest rate spread (c) | | $ | 85,726 |
| 3.46 | % | | | $ | 79,706 |
| 3.40 | % |
Net interest margin (c) | | | 3.61 | % | | | | 3.55 | % |
| |
(a) | Average balances are based on carrying value. |
(b)Interest income and yieldyields are presented on a fully tax-equivalent basis, a blended federal and state corporate income tax rate of 22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020.
(c)Average balances include nonaccrual and impaired loans. Interest income includes $611,000interest earned and received on an investment securitynonaccrual loans prior to the loans being placed on nonaccrual status. Loan fees included in interest income were immaterial for which an other-than-temporary-impairment had previously been recorded.all periods presented.
| |
(c) | Interest income and yields are presented on a fully tax-equivalent basis using a 35% federal tax rate. |
| |
(d) | Average balances include nonaccrual, impaired loans and loans held for sale. 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. |
(e) (d)Loans held for sale are included in the average loan balance listed. Related interest income on loans originated for sale prior to the loan being sold is included in loan interest income.
(e)Interest related to interest rate swap transactions is included, as appropriate to the transaction, in interest expense on short-term FHLB advances and interest expense on brokered deposits for the periods presented in which FHLB advances and brokered deposits were being utilized. Peoples completed the acquisition of Premier on September 17, 2021, which impacted average total loan and deposit balances for the partial period in which the balances were included for the third quarter of 2021. Compared to the third quarter of 2020, average total loans grew mostly due to the leases acquired. Compared to the third quarter of 2020, average total deposit balances grew significantly due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers.
In addition, average total loan balances for the first nine months of 2021 were higher than the prior year period due to the lease, Premium Finance and Premier balances acquired, coupled with the PPP loans originated since the start of the pandemic and loan growth. The average total deposit balances compared to 2020 grew considerably due to the influx of funds from the PPP loan proceeds, changed customer spending habits and federal stimulus provided to customers, while the Premier acquired balances had a minimal impact on the period.
The following table provides an analysis of the changes in FTE net interest income:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Three Months Ended September 30, 2021 Compared to | | Nine Months Ended September 30, 2021 Compared to |
(Dollars in thousands) | June 30, 2021 | | September 30, 2020 | | September 30, 2020 |
Increase (decrease) in: | Rate | Volume | Total (a) | | Rate | Volume | Total (a) | | Rate | Volume | Total (a) |
INTEREST INCOME: | | | | | | | | | | | |
Short-term investments | $ | 22 | | $ | 7 | | $ | 29 | | | $ | 9 | | $ | 41 | | $ | 50 | | | $ | (314) | | $ | 172 | | $ | (142) | |
| | | | | | | | | | | |
Investment Securities (b): | | | | | | | | | | | |
Taxable | 224 | | 358 | | 582 | | | 506 | | 461 | | 967 | | | (2,939) | | 127 | | (2,812) | |
Nontaxable | 4 | | 37 | | 41 | | | (695) | | 1,053 | | 358 | | | (489) | | 1,115 | | 626 | |
Total investment income | 228 | | 395 | | 623 | | | (189) | | 1,514 | | 1,325 | | | (3,428) | | 1,242 | | (2,186) | |
Loans (b): | | | | | | | | | | | |
Construction | (848) | | 1,065 | | 217 | | | (746) | | 763 | | 17 | | | (510) | | 23 | | (487) | |
Commercial real estate, other | (883) | | 1,561 | | 678 | | | (3,242) | | 3,895 | | 653 | | | (4,252) | | 3,406 | | (846) | |
Commercial and industrial | 3,146 | | (3,454) | | (308) | | | 10,684 | | (9,896) | | 788 | | | 5,242 | | (880) | | 4,362 | |
Premium finance | 52 | | 192 | | 244 | | | (2,749) | | 2,420 | | (329) | | | (1,379) | | 3,645 | | 2,266 | |
Leases | 28 | | 567 | | 595 | | | — | | 4,810 | | 4,810 | | | — | | 9,025 | | 9,025 | |
Residential real estate | (1,179) | | 1,398 | | 219 | | | (1,110) | | (112) | | (1,222) | | | (3,182) | | (1,567) | | (4,749) | |
Home equity lines of credit | 3 | | 88 | | 91 | | | (84) | | 77 | | (7) | | | (709) | | (199) | | (908) | |
Consumer, indirect | 20 | | 176 | | 196 | | | (1,347) | | 1,753 | | 406 | | | (1,121) | | 3,080 | | 1,959 | |
Consumer, direct | (33) | | 146 | | 113 | | | (176) | | 229 | | 53 | | | (320) | | 238 | | (82) | |
Total loan income | 306 | | 1,739 | | 2,045 | | | 1,230 | | 3,939 | | 5,169 | | | (6,231) | | 16,771 | | 10,540 | |
Total interest income | $ | 556 | | $ | 2,141 | | $ | 2,697 | | | $ | 1,050 | | $ | 5,494 | | $ | 6,544 | | | $ | (9,973) | | $ | 18,185 | | $ | 8,212 | |
INTEREST EXPENSE: | | | | | | | | | | | |
Deposits: | | | | | | | | | | | |
Savings accounts | $ | — | | $ | 2 | | $ | 2 | | | $ | (51) | | $ | 40 | | $ | (11) | | | $ | (104) | | $ | 43 | | $ | (61) | |
Governmental deposit accounts | (365) | | 272 | | (93) | | | (742) | | 689 | | (53) | | | (720) | | 651 | | (69) | |
Interest-bearing demand accounts | 2 | | 6 | | 8 | | | (21) | | 29 | | 8 | | | (257) | | 77 | | (180) | |
Money market accounts | (22) | | (5) | | (27) | | | (131) | | (17) | | (148) | | | (1,002) | | 48 | | (954) | |
Retail certificates of deposit | (372) | | 343 | | (29) | | | (540) | | (33) | | (573) | | | (1,987) | | (412) | | (2,399) | |
Brokered deposits | 71 | | (110) | | (39) | | | 1,351 | | (844) | | 507 | | | 1,548 | | (674) | | 874 | |
Total deposit cost | (686) | | 508 | | (178) | | | (134) | | (136) | | (270) | | | (2,522) | | (267) | | (2,789) | |
Borrowed funds: | | | | | | | | | | | |
Short-term borrowings | 22 | | (23) | | (1) | | | (102) | | (549) | | (651) | | | (221) | | (1,851) | | (2,072) | |
Long-term borrowings | (30) | | (39) | | (69) | | | (55) | | (29) | | (84) | | | (109) | | (186) | | (295) | |
Total borrowed funds cost | (8) | | (62) | | (70) | | | (157) | | (578) | | (735) | | | (330) | | (2,037) | | (2,367) | |
Total interest expense | (694) | | 446 | | (248) | | | (291) | | (714) | | (1,005) | | | (2,852) | | (2,304) | | (5,156) | |
Fully tax-equivalent net interest income | $ | 1,250 | | $ | 1,695 | | $ | 2,945 | | | $ | 1,341 | | $ | 6,208 | | $ | 7,549 | | | $ | (7,121) | | $ | 20,489 | | $ | 13,368 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Nine Months Ended |
| | | | | | | | September 30, 2017 |
| Three Months Ended September 30, 2017 Compared to | Compared to |
(Dollars in thousands) | June 30, 2017 | | September 30, 2016 | September 30, 2016 |
Increase (decrease) in: | Rate | Volume | Total (1) | | Rate | Volume | Total (1) | Rate | Volume | Total (1) |
INTEREST INCOME: | | | | | | | | | | |
Short-term investments | $ | 14 |
| $ | 2 |
| $ | 16 |
| | $ | 24 |
| $ | 8 |
| $ | 32 |
| $ | 42 |
| $ | 4 |
| $ | 46 |
|
Investment Securities (2): | | | | | | | | | | |
Taxable | 579 |
| 80 |
| 659 |
| | 880 |
| 281 |
| 1,161 |
| 1,196 |
| 210 |
| 1,406 |
|
Nontaxable | (33 | ) | (61 | ) | (94 | ) | | (30 | ) | (78 | ) | (108 | ) | (39 | ) | (76 | ) | (115 | ) |
Total investment income | 546 |
| 19 |
| 565 |
| | 850 |
| 203 |
| 1,053 |
| 1,157 |
| 134 |
| 1,291 |
|
Loans (2): | | | | | | | | | | |
Commercial real estate, construction | 47 |
| 132 |
| 179 |
| | 155 |
| 267 |
| 422 |
| 357 |
| 565 |
| 922 |
|
Commercial real estate, other | (832 | ) | 830 |
| (2 | ) | | 19 |
| 509 |
| 528 |
| 409 |
| 601 |
| 1,010 |
|
Commercial and industrial | 266 |
| 72 |
| 338 |
| | 675 |
| 666 |
| 1,341 |
| 901 |
| 2,130 |
| 3,031 |
|
Residential real estate | 242 |
| (338 | ) | (96 | ) | | (104 | ) | (498 | ) | (602 | ) | (223 | ) | (1,317 | ) | (1,540 | ) |
Home equity lines of credit | 89 |
| (31 | ) | 58 |
| | 39 |
| 6 |
| 45 |
| (60 | ) | 104 |
| 44 |
|
Consumer, indirect | 110 |
| 275 |
| 385 |
| | 23 |
| 957 |
| 980 |
| (484 | ) | 2,810 |
| 2,326 |
|
Consumer, other | 18 |
| 23 |
| 41 |
| | 389 |
| (227 | ) | 162 |
| 647 |
| (155 | ) | 492 |
|
Total loan income | (60 | ) | 963 |
| 903 |
| | 1,196 |
| 1,680 |
| 2,876 |
| 1,547 |
| 4,738 |
| 6,285 |
|
Total interest income | 500 |
| 984 |
| 1,484 |
| | 2,070 |
| 1,891 |
| 3,961 |
| 2,746 |
| 4,876 |
| 7,622 |
|
INTEREST EXPENSE: | | | | | | | | | | |
Deposits: | | | | | | | | | | |
Savings accounts | 5 |
| (1 | ) | 4 |
| | 5 |
| 1 |
| 6 |
| 7 |
| 4 |
| 11 |
|
Governmental deposit accounts | 27 |
| 5 |
| 32 |
| | 55 |
| (7 | ) | 48 |
| 70 |
| (15 | ) | 55 |
|
Interest-bearing demand accounts | 25 |
| 10 |
| 35 |
| | 57 |
| 15 |
| 72 |
| 129 |
| 30 |
| 159 |
|
Money market accounts | 71 |
| (15 | ) | 56 |
| | 111 |
| (33 | ) | 78 |
| 149 |
| (12 | ) | 137 |
|
Brokered certificates of deposit | 33 |
| (38 | ) | (5 | ) | | (438 | ) | 689 |
| 251 |
| (514 | ) | 842 |
| 328 |
|
Retail certificates of deposit | 80 |
| (66 | ) | 14 |
| | 364 |
| (381 | ) | (17 | ) | 261 |
| (401 | ) | (140 | ) |
Total deposit cost | 241 |
| (105 | ) | 136 |
| | 154 |
| 284 |
| 438 |
| 102 |
| 448 |
| 550 |
|
Borrowed funds: | | | | | | | | | | |
Short-term borrowings | 98 |
| 38 |
| 136 |
| | 223 |
| 37 |
| 260 |
| 128 |
| 424 |
| 552 |
|
Long-term borrowings | (117 | ) | 235 |
| 118 |
| | (273 | ) | 476 |
| 203 |
| (671 | ) | 1,171 |
| 500 |
|
Total borrowed funds cost | (19 | ) | 273 |
| 254 |
| | (50 | ) | 513 |
| 463 |
| (543 | ) | 1,595 |
| 1,052 |
|
Total interest expense | 222 |
| 168 |
| 390 |
| | 104 |
| 797 |
| 901 |
| (441 | ) | 2,043 |
| 1,602 |
|
Net interest income | $ | 278 |
| $ | 816 |
| $ | 1,094 |
| | $ | 1,966 |
| $ | 1,094 |
| $ | 3,060 |
| $ | 3,187 |
| $ | 2,833 |
| $ | 6,020 |
|
(1)(a)The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the
relationship of the dollar amounts of the changeschange in each.
(2)(b)Interest income and yields are presented on a fully tax-equivalent basis using a 35%blended federal and state corporate income tax rate.
22.3% for 2021 and a statutory federal corporate income tax rate of 21% for 2020.
Net interest margin, which is calculated by dividing fully 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 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 to the pre-tax equivalent of taxable income using a 35% federal tax rate.
The following table details the calculation of FTE net interest income:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Net interest income, as reported | $ | 29,220 |
| $ | 28,090 |
| $ | 26,123 |
| | $ | 84,255 |
| $ | 78,198 |
|
Taxable equivalent adjustments | 460 |
| 496 |
| 497 |
| | 1,471 |
| 1,508 |
|
Fully tax-equivalent net interest income | $ | 29,680 |
| $ | 28,586 |
| $ | 26,620 |
| | $ | 85,726 |
| $ | 79,706 |
|
Fully tax-equivalent net interest income increased 12% in the third quarter of 2017 compared to the prior year third quarter and 4%grew 7% compared to the linked quarter. Duringquarter, benefiting from the third quarter of 2017, netPremier acquisition, growth in leases and Premium Finance balances, and the overall growth in interest-earning assets, coupled with lower deposit costs. Net interest income and net interest margin both have been negatively impacted by the excess liquidity environment present in the financial services sector since the beginning of the COVID-19 pandemic by way of increased low yielding cash reserves. Peoples recognized interest income on deferred loan fees/costs of $3.1 million and $3.4 million during the third and second quarters of 2021, respectively, along with $0.4 million and $0.7 million of interest earned on PPP loans during the third and second quarters of 2021, respectively. Net interest margin grew five basis points to 3.50% for the third quarter of 2021 compared to 3.45% for the linked quarter. The increase in net interest margin was driven by the PPP income, which benefited net interest margin by 18 basis points for the third quarter of 2021 compared to 15 basis points for the second quarter of 2021, while excess liquidity resulted in inflated cash balances which reduced net interest margin by 13 basis points compared to 12 basis points for the linked quarter.
Compared to the third quarter of 2020, net interest income increased 21%, which was due to the acquired leases, premium finance loans and additional PPP income from the deferred loan fees recognized, as well as controlled funding costs. Net interest margin expanded 36 basis points compared to 3.14% for the third quarter of 2020. The lease portfolio added $4.8 million to net interest income, and 28 basis points to net interest margin, for the third quarter of 2021. In late March of 2020, the Federal Reserve lowered the Federal Funds effective target range 150 basis points to 0.00% to 0.25%. The majority of Peoples' variable rate loan portfolio is tied to LIBOR or a prime rate, which continued to be lower than historical levels.
For the first nine months of 2021, net interest income grew 13%, and was driven by the addition of the lease and premium finance portfolios, along with PPP income, coupled with lower funding costs. Compared to the first nine months of 2020, net interest margin grew by 14 basis points and was driven by the 20 basis point addition of the leasing portfolio, while the PPP income contributed 20 basis points during 2021 compared to 6 basis points for 2020.
Accretion income, net of amortization expense, from acquisitions was $1.0 million for the third quarter of 2021, $0.8 million for the linked quarter and $0.5 million for the third quarter of 2020, which added 8 basis points, 7 basis points and 5 basis points, respectively, to net interest margin. For the first nine months of 2021, accretion income, net of amortization expense, from acquisitions which was $816,000 for the third quarter of 2017, compared to $801,000 for the third quarter of 2016totaled $2.2 million, and $735,000 for the second quarter of 2017, which added 106 basis points to net interest margin, in the thirdcompared to $2.6 million, and second quarter of 2017, and 118 basis points for the third quarter of 2016. On a year-to-date basis, the accretion income, net of amortization expense, from acquisitions added 10 basis points to net interest margin for the first nine months of 2017 compared to 12 basis points for the first nine months of 2016.
During the third quarter of 2017, compared to the linked quarter, the net interest margin improved 5 basis points. The increases in net interest margin during the periods were primarily due to loan growth and increases in the earning asset yields outpacing higher funding costs. Recent increases in interest rates, coupled with prepayments on investment securities, led to the higher investment securities yield compared to both the third quarter of 2016 and the second quarter of 2017. In addition, during the third quarter of 2017, Peoples received proceeds of $611,000 on an investment security for which there had previously been an other-than-temporary-impairment. These proceeds during the third quarter added 8 basis points to the net interest margin during the third quarter of 2017. Funding costs increased 12 basis points for the third quarter of 2017 compared to prior year third quarter and increased 5 basis points from the linked quarter, as continued increases in interest rates have impacted the total cost of funds.
Average loan balances for the third quarter of 2017 increased $183.9 million compared to the prior year third quarter, and were up $46.2 million compared to the linked quarter.2020.
Additional information regarding changes in the Unaudited Consolidated Balance Sheets can be found under appropriate captions of the “FINANCIAL CONDITION” section of this discussion.MD&A. Additional information regarding Peoples' interest rate risk and the potential impact of interest rate changes on Peoples' results of operations and financial condition can be found later in this discussionMD&A under the caption "FINANCIAL CONDITION - Interest Rate Sensitivity and Liquidity."
Provision for LoanCredit Losses
The following table details Peoples’ provision for loancredit losses: |
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Loan losses | $ | 900 |
| $ | 850 |
| $ | 978 |
| | 2,150 |
| 2,410 |
|
Checking account overdrafts | 186 |
| 97 |
| 168 |
| | $ | 507 |
| $ | 418 |
|
Provision for loan losses | $ | 1,086 |
| $ | 947 |
| $ | 1,146 |
| | $ | 2,657 |
| $ | 2,828 |
|
As a percentage of average total loans (a) | 0.19 | % | 0.17 | % | 0.21 | % | | 0.16 | % | 0.18 | % |
(a) Presented on an annualized basis | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Provision for other credit losses | $ | 8,870 | | $ | 3,035 | | $ | 4,574 | | | $ | 7,125 | | $ | 33,171 | |
Provision for checking account overdraft credit losses | 124 | | 53 | | 154 | | | 208 | | 360 | |
Provision for credit losses | $ | 8,994 | | $ | 3,088 | | $ | 4,728 | | | $ | 7,333 | | $ | 33,531 | |
As a percentage of average total loans (a) | 1.01 | % | 0.36 | % | 0.55 | % | | 0.28 | % | 1.40 | % |
(a) Presented on an annualized basis. | | | | | | |
The provision for loancredit losses recorded represents the amount needed to maintain the adequacyappropriate level of the allowance for loancredit losses based on management’s quarterly analysisestimates. During the third quarter of the loan portfolio and procedural methodology that estimates the amount of probable credit losses. This process considers various factors that affect losses, such as changes in Peoples’ loan quality,
historical loss experience and current economic conditions. The higher2021, Peoples recorded a provision for loancredit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2017, compared2021 related to the purchase credit deteriorated loans acquired from Premier. Excluding the day-one allowance for credit losses related to loans acquired from Premier, the release of allowance for credit losses was based on changes in economic factors and loss drivers used in the CECL model. Compared to the third quarter of 2020, the change in the provision for credit losses was primarily due to the impact of economic assumptions used in the CECL model and Peoples' own credit portfolio developments related to COVID-19, coupled with the day-one allowance for credit losses required in connection with the acquisitions of Premier in the third quarter of 2021 and NSL in the second quarter of 2017, was due2021.
Compared to higher checking account overdrafts coupled with growth in loan balances.the first nine months of 2020, the provision for credit losses declined significantly, as the economic forecasts utilized within the CECL model experienced notable recovery compared to those utilized during 2020, which had been impacted by the onset of the COVID-19 pandemic.
Additional information regarding changes in the allowance for loancredit losses and loan credit quality can be found later in this discussionMD&A under the caption “FINANCIAL CONDITION - Allowance for LoanCredit Losses.”
Net (Loss) Gain on Asset Disposals and Other TransactionsIncluded in Total Non-Interest Income
The following table details the netNet (loss) gain include gains and losses on investment securities, asset disposals and other transactions, which are recognized by Peoples:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Net (loss) gain on bank premises and equipment | $ | (38 | ) | $ | 133 |
| $ | 1 |
| | $ | 92 |
| $ | (126 | ) |
Net gain (loss) on other real estate owned ("OREO") | 13 |
| (24 | ) | — |
| | (11 | ) | (1 | ) |
Net loss on debt extinguishment | — |
| — |
| — |
| | — |
| (707 | ) |
Net loss on other transactions | — |
| — |
| (225 | ) | | — |
| (190 | ) |
Net (loss) gain on asset disposals and other transactions | $ | (25 | ) | $ | 109 |
| $ | (224 | ) |
| $ | 81 |
| $ | (1,024 | ) |
The net loss on bank premises and equipment during the third quarter of 2017 was primarily due to the sale of a parking lot that was no longer being utilized. The net gain on bank premises and equipment during the second quarter of 2017 was due to the sale of a previously closed branch. The net loss on bank premises and equipment during the nine months of 2016 was due mainly to the closing of a leased office and related disposal of leasehold improvements.
The net gain on OREO during the third quarter of 2017 was due to the sale of one property. The net loss on OREO during the second quarter of 2017 was due primarily to the write-down of two OREO properties.
The net loss on debt extinguishment during the nine months of 2016 was related to the prepayment of $20.0 million of FHLB advances. The net loss on other transactions during the third quarter of 2016 was related to the write-down of a tax investment.
Non-Interest Income
Insurance income comprised the largest portion of the third quarter 2017in total non-interest income. The following table details Peoples' insurance income:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Property and casualty insurance commissions | $ | 2,638 |
| $ | 2,753 |
| $ | 2,579 |
| | $ | 7,633 |
| $ | 7,699 |
|
Performance-based commissions | 99 |
| 2 |
| 91 |
| | 1,407 |
| 1,720 |
|
Life and health insurance commissions | 433 |
| 467 |
| 420 |
| | 1,310 |
| 1,318 |
|
Credit life and A&H insurance commissions | 2 |
| 17 |
| 12 |
| | 27 |
| 30 |
|
Other fees and charges | 173 |
| 175 |
| 35 |
| | 484 |
| 167 |
|
Insurance income | $ | 3,345 |
| $ | 3,414 |
| $ | 3,137 |
| | $ | 10,861 |
| $ | 10,934 |
|
The decrease in insurance incomePeoples’ net losses for the periods presented:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Net (loss) gain on investment securities | $ | (166) | | $ | (202) | | $ | 2 | | | $ | (704) | | $ | 383 | |
| | | | | | |
Net (loss) gain on asset disposals and other transactions: | | | | | | |
Net loss on other assets | $ | (270) | | $ | (132) | | $ | (43) | | | $ | (429) | | $ | (258) | |
Net (loss) gain on OREO | (32) | | 8 | | 15 | | | (24) | | (1) | |
| | | | | | |
Net (loss) gain on other transactions | (6) | | — | | — | | | (6) | | 22 | |
Net loss on asset disposals and other transactions | $ | (308) | | $ | (124) | | $ | (28) | | | $ | (459) | | $ | (237) | |
Net losses for the third quarter of 2021 were driven primarily by losses on the disposal of fixed assets acquired from Premier and the sale of investment securities during the third quarter of 2021. During the third quarter of 2021, Peoples sold a portion of its available-for-sale investment securities and reinvested the proceeds into higher-yielding investments.
For the first nine months of 2017 compared2021, a net loss on investment securities was recorded due to the sale of investment securities in order to reinvest proceeds into higher-yielding investment securities. During the second quarter of 2021, net loss on other assets was due to a market value write-down of $208,000 related to a closed office that was held for sale. The first nine months of 2021 included a net loss on other assets related to the write-down of a closed office in the second quarter of 2021 and the disposal of fixed assets acquired from Premier. The first nine months of 2020 included a net gain on investment securities that was recorded in connection with sales of investment securities. For the first nine months of 20162020, net loss on other assets was mainly duedriven by losses on repossessed assets.
Total Non-Interest Income, Excluding Net Gains and Losses
Total non-interest income, excluding net gains and losses, accounted for 28% of Peoples' total revenues (defined as net interest income plus total non-interest income excluding net gains and losses) for the three months ended September 30, 2021 compared to 29% for the decrease in performance-based commissions. The majority of performance-based commissions typically are recorded annually in the firstlinked quarter and are based on a combination32% for the third quarter of factors, such as loss experience of insurance policies sold, production volumes, and overall financial performance of the individual insurance carriers.2020. The recent decline in this ratio was driven by an increase in other fees and charges wasnet interest income due to the acquisition of a third-party insurance administration company that occurred in January 2017.leases acquired from NSL.
For the third quarter of 2021, electronic banking income comprised the largest portion of Peoples' total non-interest income, excluding net gains and losses. Peoples' electronic banking ("e-banking") services include ATM and debit cards, direct deposit services, internet and mobile banking, and remote deposit capture, and serve as alternative delivery channels to traditional sales offices for providing services to clients. The following table details Peoples' e-banking income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
| | | | | | |
| | | | | | |
E-banking income | $ | 4,326 | | $ | 4,418 | | $ | 3,765 | | | $ | 12,655 | | $ | 10,568 | |
Peoples' truste-banking income is derived largely from ATM and investmentdebit cards, as other services are mainly provided at no charge to customers. The amount of e-banking income continuesis largely dependent on the timing and volume of customer activity. The decreases in e-banking income compared to each of the linked quarter and the prior year quarter were driven by the increased usage of debit cards by customers, resulting from the COVID-19 pandemic. The increased usage has continued through the first nine months of 2021, resulting in higher e-banking income compared to the same period in 2020.
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. Additionally, changes in total assets, and the income derived from the assets is primarily in relation to increases or decreases in market values. The following tables detail Peoples’ trust and investment income and related assets under administration and management:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Fiduciary income | $ | 1,944 | | $ | 2,095 | | $ | 1,710 | | | $ | 5,941 | | $ | 5,112 | |
Brokerage income | 1,577 | | 1,494 | | 1,165 | | | 4,408 | | 3,324 | |
Employee benefit fees | 637 | | 631 | | 560 | | | 1,874 | | 1,577 | |
Trust and investment income | $ | 4,158 | | $ | 4,220 | | $ | 3,435 | | | $ | 12,223 | | $ | 10,013 | |
Fiduciary income and brokerage income are mostly driven by the values of assets under administration and management, which have increased in recent periods as the market values of existing accounts have been positively impacted and grown, coupled with new accounts added compared to prior periods. Employee benefit fees continue to increase compared to prior periods as Peoples focuses on growing the number of employee benefit plans it manages.
The following table details Peoples' assets under administration and management:
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
(Dollars in thousands) |
|
Trust | $ | 1,937,123 | | $ | 1,963,884 | | $ | 1,916,892 | | $ | 1,885,324 | | $ | 1,609,270 | |
Brokerage | 1,133,668 | | 1,119,247 | | 1,071,126 | | 1,009,521 | | 921,688 | |
Total | $ | 3,070,791 | | $ | 3,083,131 | | $ | 2,988,018 | | $ | 2,894,845 | | $ | 2,530,958 | |
Quarterly average | $ | 3,105,476 | | $ | 3,051,027 | | $ | 2,927,458 | | $ | 2,663.485 | | $ | 2,510,978 | |
The slight decline in assets under administration and management at September 30, 2021, compared to each prior period end, was largely driven by the decrease in market values late in the third quarter of 2021, while the quarterly average increased compared to prior quarters.
The following table details Peoples' insurance income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
| | | | | | |
| | | | | | |
Property and casualty insurance commissions | $ | 2,836 | | $ | 2,765 | | $ | 2,528 | | | $ | 8,356 | | $ | 7,624 | |
| | | | | | |
| | | | | | |
Life and health insurance commissions | 396 | | 430 | | 965 | | | 1,248 | | 1,494 | |
Performance-based commissions | 59 | | 35 | | 8 | | | 2,044 | | 1,437 | |
Other fees and charges | 76 | | 105 | | 107 | | | 275 | | 374 | |
Insurance income | $ | 3,367 | | $ | 3,335 | | $ | 3,608 | | | $ | 11,923 | | $ | 10,929 | |
For the third quarter of 2021, insurance income was relatively flat compared to the linked quarter. Compared to the third quarter of 2020, insurance income declined 7%, driven by decreases in life and health insurance commissions, offset partially by an increase in property and casualty insurance commissions. For the first nine months of 2021, insurance income increased $1.0 million, or 9%. This increase was driven by higher property and casualty, and performance-based commissions. Annually Peoples receives performance-based income commissions that are related to how much loss is incurred by underlying policies and the overall performance of the insurance carriers. The insurance income compared to prior periods was positively impacted by the addition of new customers.
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Fiduciary | $ | 1,956 |
| $ | 2,093 |
| $ | 1,851 |
| | $ | 5,922 |
| $ | 5,501 |
|
Brokerage | 882 |
| 884 |
| 841 |
| | 2,575 |
| 2,349 |
|
Trust and investment income | $ | 2,838 |
| $ | 2,977 |
| $ | 2,692 |
| | $ | 8,497 |
| $ | 7,850 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
(Dollars in thousands) |
Trust assets under administration and management | $ | 1,418,360 |
| $ | 1,393,435 |
| $ | 1,362,243 |
| $ | 1,301,509 |
| $ | 1,292,044 |
|
Brokerage assets under administration and management | 862,530 |
| 836,192 |
| 805,361 |
| 777,771 |
| 754,168 |
|
Total assets under administration and management | $ | 2,280,890 |
| $ | 2,229,627 |
| $ | 2,167,604 |
| $ | 2,079,280 |
| $ | 2,046,212 |
|
Quarterly average | $ | 2,254,997 |
| $ | 2,199,162 |
| $ | 2,122,036 |
| $ | 2,053,121 |
| $ | 2,031,378 |
|
People'sDeposit account service charges are based on the recovery of costs associated with services provided. The following table details Peoples' deposit account service charges was comprised of the following:charges:
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | 2017 | 2016 | (Dollars in thousands) | | 2021 | 2020 |
Overdraft and non-sufficient funds fees | $ | 1,765 |
| $ | 1,642 |
| $ | 2,105 |
| $ | 5,021 |
| $ | 5,806 |
| Overdraft and non-sufficient funds fees | $ | 1,420 | | $ | 1,012 | | $ | 1,216 | | | $ | 3,429 | | $ | 3,741 | |
Account maintenance fees | 543 |
| 545 |
| 605 |
| 1,624 |
| 1,751 |
| Account maintenance fees | 934 | | 854 | | 848 | | | 2,598 | | 2,677 | |
Other fees and charges | 99 |
| 107 |
| 123 |
| 485 |
| 442 |
| Other fees and charges | 195 | | 178 | | 202 | | | 551 | | 577 | |
Deposit account service charges | $ | 2,407 |
| $ | 2,294 |
| $ | 2,833 |
| $ | 7,130 |
| $ | 7,999 |
| Deposit account service charges | $ | 2,549 | | $ | 2,044 | | $ | 2,266 | | | $ | 6,578 | | $ | 6,995 | |
The amount of deposit account service charges, particularly fees for overdrafts and non-sufficient funds, is largely dependent on the timing and volume of customer activity. Management periodically evaluates its cost recovery fees to ensure they are reasonable based on operational costs and similar to fees charged in Peoples' markets by competitors. Deposit account service charges for the third quarter of 2021 grew compared to the linked quarter and the third quarter of 2020 due largely to an increase in volume of overdraft and non-sufficient fees charged due to customer activity. Deposit account service charges were negatively impacted during the second quarter of 2021 and the third quarter of 2020, mostly due to fiscal stimulus payments and PPP loan proceeds provided to customers, along with changed customer spending habits due to the COVID-19 pandemic. For the first nine months of 2021, compared to the same period of 2020, deposit account service charges declined and were impacted by the COVID-19 pandemic items already mentioned.
The following table details the other items included within Peoples' total non-interest income:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
| | | | | | |
Mortgage banking income | 766 | | 820 | | 2,658 | | | 2,726 | | 4,346 | |
Bank owned life insurance income | 437 | | 446 | | 462 | | | 1,329 | | 1,514 | |
Commercial loan swap fees | 73 | | 61 | | 68 | | | 194 | | 1,267 | |
Other non-interest income | 1,144 | | 803 | | 534 | | | 2,605 | | 1,393 | |
Mortgage banking income is comprised mostly of net gains from the origination and sale of real estate loans in the secondary market, and, to a lesser extent, servicing income for loans sold with servicing retained. As a result, the amount of income recognized by Peoples is largely dependent on customer demand and long-term interest rates for residential real estate loans offered in the secondary market. Mortgage banking income declined during the third quarter of 2021, compared to the linked quarter and the prior year quarter as refinancing activity slowed and a lower volume of new loan originations due to the lack of inventory of homes for sale. Compared to the first nine months of 2020, mortgage banking income declined 37%, because of lower origination volume caused by a lower inventory of homes for sale and less refinancing activity because of an increase in interest rates above historically low levels experienced as a result of the COVID-19 pandemic.
In the third quarter of 2021, Peoples recognized a gain of $0.4 million on the sale of $11.0 million in loans to the secondary market with servicing retained and $0.2 million on the sale of $10.3 million in loans with servicing released. In the second quarter of 2021, Peoples recognized a gain of $0.6 million on the sale of $15.8 million in loans with servicing retained and $185,000 on the sale of $7.8 million in loans with servicing released. In the third quarter of 2020 Peoples recognized a gain of $1.6 million on the sale of $35.2 million in loans sold servicing retained and a gain of $1.0 million on $68.2 million in loans sold servicing released. For the first nine months of 2021, Peoples recognized a gain of $1.8 million on the sale of $44.0 million in loans to the secondary market with servicing retained and a gain of $0.6 million on the sale of $27.7 million in loans with servicing released. For the first nine months of 2020, Peoples recognized a gain of $2.5 million on the sale of $78.6 million in loans sold servicing retained and a gain of $1.8 million on the sale of $124.2 million in loans sold servicing released. The volume of sales has a direct impact on the amount of mortgage banking income.
Bank owned life insurance income was down compared to the linked quarter and the third quarter of 2020. For the first nine months of 2021, bank owned life insurance declined 12%, primarily due to a $109,000 tax-free death benefit recognized during the first quarter of 2020.
Commercial loan swap fees are largely dependent on timing, interest rates, and the volume of customer activity. Commercial loan swap fees were up slightly compared to the linked quarter and the third quarter of 2020. Compared to the first nine months of 2020, commercial loan swap fees declined due to a lower volume of transactions during 2021 compared to the high volume of transactions entered into during the first nine months of 2020.
Other non-interest income increased compared to the linked quarter and the third quarter of 2020 and was driven by other fee income of $0.5 million recognized on leases related to the early termination of leases and other fees in the third quarter of 2021
compared to $0.2 million recognized in the second quarter of 2021. There was no income related to the early termination of leases in the third quarter of 2020, as NSL was not acquired until the second quarter of 2021. For the nine months ended September 30, 2021, other non-interest income was higher due to the recognition of $0.6 million related to fees received for the early termination of leases and lease syndications.
Non-Interest Expense
Salaries and employee benefit costs remain Peoples' largest non-interest expense, accounting for over one-half of total non-interest expense. The following table details Peoples' salaries and employee benefit costs:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Base salaries and wages | $ | 17,493 | | $ | 13,488 | | $ | 13,019 | | | $ | 43,746 | | $ | 38,489 | |
Sales-based and incentive compensation | 4,013 | | 4,593 | | 3,493 | | | 12,034 | | 9,320 | |
Employee benefits | 2,619 | | 2,821 | | 1,930 | | | 8,338 | | 6,471 | |
Payroll taxes and other employment costs | 1,635 | | 1,343 | | 1,148 | | | 4,471 | | 3,584 | |
Stock-based compensation | 618 | | 604 | | 632 | | | 2,437 | | 2,985 | |
Deferred personnel costs | (789) | | (921) | | (812) | | | (2,750) | | (3,536) | |
Salaries and employee benefit costs | $ | 25,589 | | $ | 21,928 | | $ | 19,410 | | | $ | 68,276 | | $ | 57,313 | |
Full-time equivalent employees: | | | | | | |
Actual at end of period | 1,181 | | 925 | | 886 | | | 1,181 | | 886 | |
Average during the period | 990 | | 914 | | 890 | | | 942 | | 893 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, |
(Dollars in thousands) | 2017 | 2016 |
Base salaries and wages | $ | 10,043 |
| $ | 9,750 |
| $ | 9,782 |
| $ | 29,860 |
| $ | 29,439 |
|
Sales-based and incentive compensation | 2,653 |
| 2,878 |
| 2,501 |
| 7,630 |
| 6,310 |
|
Employee benefits | 1,535 |
| 1,509 |
| 1,492 |
| 4,971 |
| 4,387 |
|
Stock-based compensation | 359 |
| 443 |
| 346 |
| 1,370 |
| 1,009 |
|
Deferred personnel costs | (394 | ) | (447 | ) | (453 | ) | (1,201 | ) | (1,397 | ) |
Payroll taxes and other employment costs | 945 |
| 916 |
| 916 |
| 3,056 |
| 3,133 |
|
Salaries and employee benefit costs | $ | 15,141 |
| $ | 15,049 |
| $ | 14,584 |
| $ | 45,686 |
| $ | 42,881 |
|
Full-time equivalent employees: | | | |
| | |
Actual at end of period | 778 |
| 775 |
| 799 |
| 778 |
| 799 |
|
Average during the period | 778 |
| 774 |
| 798 |
| 778 |
| 809 |
|
SalariesBase salaries and employee benefit costs forwages increased 30% compared to the thirdlinked quarter and the nine months of 2017 increased 34% compared to the third quarter andof 2020. The increase for the third quarter of 2021 compared to prior periods was primarily due to the acquisition of Premier, which included $3.4 million in acquisition-related severance expense. For the first nine months of 2016 due primarily2021, base salaries and wages increased 14% compared to an increasethe first nine months of 2020 as a result of the acquisition-related severance expense for Premier and additional salaries associated with NSL and a full nine months of Premium Finance.
The decrease in sales-based and incentive compensation and employee benefits, whichfor the third quarter of 2021 compared to the linked quarter was partially offset by a decrease in full-time equivalent employees. The increase in sales-based andprimarily due to lower incentive compensation is tiedrelated to improvementinsurance and mortgage banking. For the first nine months of 2021 compared to the same period in corporate2020, the increase was driven by the overall company performance for 2017. relative to measures used in calculating incentive awards and higher sales-based compensation from insurance and trust and investments.
The increase in employee benefits for first nine months of 2021, compared to first nine months of 2020, was due to an increase to the employer 401(k) match made during 2021, as well as higher medical costs with the addition of the Premier and NSL employees. During the second quarter of 2021, Peoples increased the matching contribution to participant's 401(k) accounts, retroactive to January 1, 2021. This true-up was completed in the second quarter of 2021 and drove the increase in employee benefits for the third quarter of 2021 compared to the third quarter of 2020.
The increase in payroll taxes and other employment costs, compared to linked quarter, was primarily due to health insurancethe taxes associated with the acquisition-related severance expense recognized in the third quarter of 2021. The increase in payroll taxes and other employment costs for the three and nine months ended September 30, 2021, compared to the same periods in 2020, was primarily related to higher base salaries and wages, coupled with the additional associates of Premier and NSL.
Stock-based compensation is generally recognized over the vesting period, which increasedgenerally ranges from immediate vesting to vesting at the end of three years, adjusted for an estimate of the portion of awards that will be forfeited. At the vesting date, an adjustment is made to increase or reverse expense for the amount of actual forfeitures compared to the estimate. Stock grants to retirement eligible grantees are expensed either immediately or over a shorter period than three years. The majority of Peoples' stock-based compensation is attributable to annual equity-based incentive awards to employees, which are awarded in the first quarter of each year and are based upon Peoples achieving certain performance goals during the prior year. Stock-based compensation for the first nine months of 2021 decreased compared to the first nine months of 2020 due to an additional $396,000 of unrestricted grants of common share awards to associates at the level of Assistant Vice President or below granted in the second quarter of 2020.
Deferred personnel costs represent the portion of current period salaries and employee benefit costs considered to be direct loan origination costs. These costs are capitalized and recognized over the life of the loan as a yield adjustment in interest income. As a result, the amount of higher claimsdeferred 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 2017.deferred personnel costs compared to the linked quarter was due to a reduction loan origination volume. The decrease in deferred personnel costs in the first
nine months of 2021 compared to first nine months of 2020 was driven by the recognition of $921,000 in deferred personnel costs during the second quarter of 2020 related to the origination of PPP loans.
Peoples' net occupancy and equipment expense was comprised of the following:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Depreciation | $ | 1,365 | | $ | 1,398 | | $ | 1,507 | | | $ | 4,134 | | $ | 4,519 | |
Repairs and maintenance costs | 1,017 | | 903 | | 767 | | | 2,863 | | 2,225 | |
Net rent expense | 371 | | 382 | | 340 | | | 1,093 | | 960 | |
Property taxes, utilities and other costs | 798 | | 606 | | 769 | | | 2,077 | | 1,984 | |
Net occupancy and equipment expense | $ | 3,551 | | $ | 3,289 | | $ | 3,383 | | | $ | 10,167 | | $ | 9,688 | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Depreciation | $ | 1,206 |
| $ | 1,200 |
| $ | 1,337 |
| | $ | 3,649 |
| $ | 3,773 |
|
Repairs and maintenance costs | 577 |
| 682 |
| 589 |
| | 1,930 |
| 1,814 |
|
Net rent expense | 264 |
| 205 |
| 244 |
| | 689 |
| 712 |
|
Property taxes, utilities and other costs | 572 |
| 561 |
| 598 |
| | 1,712 |
| 1,856 |
|
Net occupancy and equipment expense | $ | 2,619 |
| $ | 2,648 |
| $ | 2,768 |
| | $ | 7,980 |
| $ | 8,155 |
|
Professional fees forDepreciation on capitalized assets has declined during the second and third quarters of 2021, compared to both the third quarter of 2017 decreased $268,000, or 16%, from the prior year third quarter and $711,000, or 14%, between the first nine months of 20172020, and the first nine months of 2016. The decrease in professional fees was primarily due to2020 as a decrease in legal fees related to collectionsresult of special assets which correlated to the decrease in nonperformingcertain capitalized assets and classified loans from December 31, 2016.
Data processing and software expense increased $351,000, or 47%, fromimprovements reaching the third quarterend of 2016 and $827,000, or 33%, fortheir depreciable lives. In addition, Peoples recognized higher building maintenance costs during the first nine months of 20172021, compared to 2020 due to various projects including painting, window replacements, drive-thru enhancements and parking lot sealing. Property taxes, utilities and other costs also increased during the nine months ended September 30, 2021, compared to the first nine months of 2016. The increases were due to higher monthly fees which resulted in moving from2020 as a result of an in-house core processing solution to a primarily outsourced solution.
The decreaseincrease in other expenses for the first nine months of 2017costs, primarily driven by low-cost furniture and fixtures not capitalized, offset by a reduction in utilities and property taxes.
Net occupancy and equipment expense increased 5% compared to the first nine months of 2016 was2020 mainly due to increased expenses associated with maintaining the Premium Finance location for a full period, the acquisition from NSL in second quarter of 2021 and the partial period impact of the merger with Premier in the third quarter of 2021.
The following table details the other items included in total non-interest expense:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Professional fees | $ | 6,426 | | $ | 3,565 | | $ | 1,720 | | | $ | 13,459 | | $ | 5,247 | |
Data processing and software expense | 2,529 | | 2,411 | | 1,838 | | | 7,394 | | 5,344 | |
E-banking expense | 2,037 | | 2,075 | | 2,095 | | | 6,006 | | 5,839 | |
Amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Marketing expense | 1,223 | | 676 | | 456 | | | 2,810 | | 1,561 | |
Franchise tax expense | 810 | | 822 | | 882 | | | 2,487 | | 2,645 | |
FDIC insurance premiums | 807 | | 326 | | 570 | | | 1,596 | | 717 | |
Other loan expenses | 487 | | 494 | | 342 | | | 1,443 | | 1,255 | |
Communication expense | 411 | | 386 | | 283 | | | 1,079 | | 857 | |
Other non-interest expense | 12,711 | | 2,559 | | 2,479 | | | 17,762 | | 7,665 | |
Professional fees increased $2.9 million from the linked quarter and $4.7 million from the third quarter of 2020 primarily due to investment banking fees and other acquisition-related expenses, which were related to the timingpurchase of paymentsNSL and the merger with Premier. Professional fees included acquisition-related expenses of $2.4 million for postagethe third quarter of 2021, $1.8 million for the second quarter of 2021, and $319,000 for the third quarter of 2020. For the first nine months of 2021, professional fees nearly doubled compared to the prior year, and included $6.2 million of acquisition-related expenses for 2021, compared to $363,000 for 2020.
The change in data processing and software expense compared to prior periods was driven by systems and software upgrades, annual contractual increases and overall growth, which included: the implementation of enhanced functionalities for Peoples' core banking system, including making certain mobile banking tools available to customers; software upgrades; and additional network capacity and security features in the latter part of 2020 and first quarter of 2021.
E-banking expense was down slightly compared to the linked quarter, and is directly correlated to e-banking income, with the decrease due to lower costs associated with ATM processing expenses.
Peoples' amortization of other intangible assets is driven by acquisition-related activity. Amortization of other intangible assets for the third quarter of 2021 was down $89,000 compared to the second quarter of 2021 due to adjustments to the fair value of intangible assets acquired from NSL, and the related changes to intangible amortization post-acquisition. Amortization of other intangible assets increased $422,000 compared to the third quarter of 2020 as a result of the NSL acquisition effective after the close of business on March 31, 2021.
Marketing expense increased compared to the second quarter of 2021 due primarily to additional advertising campaigns relating to the addition of Premier locations. Additionally, in giving back to the community, Peoples' contributions increased during the third quarter of 2021 and included a donation to each of Marietta College and the Ohio Valley Museum of Discovery.
Peoples is subject to state franchise taxes, which are based largely on Peoples' equity, in the states where Peoples has a physical presence. Franchise tax expense also includes the Ohio Financial Institution Tax ("FIT"), which is a business privilege tax that is imposed on financial institutions organized for profit and doing business in Ohio. The Ohio FIT is based on the total equity capital in proportion to the taxpayer's gross receipts in Ohio as of the most recent year-end.
Peoples' FDIC insurance premiums increased compared to the linked quarter, due to a decline in the leverage ratio which was impacted by the NSL acquisition in the second quarter, and decreased compared to December 31, 2020. Compared to the first nine months of 2020, the FDIC insurance premiums grew as a result of credits used by Peoples during the first two quarters of 2020 to offset its FDIC insurance premium. The FDIC insurance credits were related to the level of the Federal Deposit Insurance Fund ("DIF") that had continued to be above the target threshold for banks with total consolidated assets of less than $10 billion to recognize credits. Peoples utilized the remaining credits that had been issued to it in the second quarter of 2020.
Other loan expenses decreased slightly compared to the linked quarter due to lower expenses associated with business loans. Compared to the third quarter of 2020, other loan expenses increased mostly due to higher expenses associated with real estate loans and home equity lines of credit. Other loan expenses for the nine months ended September 30, 2021 increased $188,000 compared to the nine months ended September 30, 2020 due to increased loan origination activity.
Compared to the linked quarter, third quarter of 2020, and first nine months of 2020, communications expense grew as a result of upgraded networking to certain branches (including new branches acquired from Premier coupled with the replacementaddition of the previous vendorNSL and Premium Finance locations acquired) and increased costs compared to the prior periods among certain vendors that provide communication services.
Other non-interest expense increased $10.2 million compared to the third quarter of 2020, and was mostly due to $9.6 million in 2016. The decrease in communication expense resulted from the continued consolidation of traditional phone lines to a method of transmitting all voice traffic over the internet and the discontinuation of overlapping traditional phone line contracts that occurredacquisition-related expenses recognized during the transition.third quarter of 2021.
Income Tax Expense
ForPeoples recorded an income tax benefit of $2.2 million for the third quarter of 2021, compared to income tax expense of $2.4 million for the linked quarter and income tax expense of $2.6 million for the third quarter of 2020. The income tax benefit during the third quarter of 2021, and the income tax expense recognized during the linked quarter and the third quarter of 2020 was heavily related to the amount of pre-tax income recognized during each period. Pretax income was impacted by acquisition-related expenses associated with the Premier acquisition during the third quarter of 2021. Peoples recorded income tax expense of $4.0 million for the nine months ended September 30, 2017, Peoples recorded income tax expense of $13.4 million, for an effective tax rate of 31.2%. Peoples' current estimate is that the effective tax rate for the entire year of 2017 will be approximately 31.0%2021, compared to 32.0%. In comparison, Peoples recorded an income tax expense of $10.8$3.6 million for the same period in 2016, for an effective tax rate of 31.2%.
Peoples adopted the ASU 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting as of January 1, 2017. In the first nine months of 2017, Peoples recorded a tax benefit of $123,000 associated with the adoption of this ASUended September 30, 2020. Pretax income for the tax benefitnine months ended September 30, 2021 was largely impacted by acquisition-related expenses, contract negotiation expenses and other non-core expenses.
Additional information regarding income taxes can be found in "Note 12 Income Taxes" of awards that settled or vested during the period.Notes to the Condensed Consolidated Financial Statements included in Peoples' 2020 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, (excludingexcluding all gains and all losses)losses, minus total non-interest expense and, therefore, excludes the provision for (recovery of) loan losses and all gains and/or losses included in earnings.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-GAAPNon-US GAAP financial measure to the amounts reported in Peoples' Unaudited
Condensed Consolidated Financial Statements for the periods presented:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Pre-Provision Net Revenue: | | | | | | |
Income before income taxes | $ | 16,022 |
| $ | 14,180 |
| $ | 11,448 |
| | $ | 42,863 |
| $ | 34,538 |
|
Add: provision for loan losses | 1,086 |
| 947 |
| 1,146 |
| | 2,657 |
| 2,828 |
|
Add: loss on debt extinguishment | — |
| — |
| — |
| | — |
| 707 |
|
Add: net loss on OREO | — |
| 24 |
| — |
| | 24 |
| 1 |
|
Add: net loss on investment securities | — |
| — |
| 1 |
| | — |
| — |
|
Add: net loss on other transactions | 38 |
| — |
| 225 |
| | 41 |
| 316 |
|
Less: net gain on OREO | 13 |
| — |
| — |
| | 13 |
| — |
|
Less: net gain on investment securities | 1,861 |
| 18 |
| — |
| | 2,219 |
| 862 |
|
Less: net gain on other transactions | — |
| 133 |
| 1 |
| | 133 |
| — |
|
Pre-provision net revenue | $ | 15,272 |
| $ | 15,000 |
| $ | 12,819 |
| | $ | 43,220 |
| $ | 37,528 |
|
Total average assets | $ | 3,541,220 |
| $ | 3,489,701 |
| $ | 3,324,636 |
| | $ | 3,492,772 |
| $ | 3,300,338 |
|
Pre-provision net revenue to total average assets (a) | 1.71 | % | 1.72 | % | 1.53 | % | | 1.65 | % | 1.52 | % |
(a) Presented on an annualized basis. | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Pre-provision net revenue: | | | | | | |
(Loss) income before income taxes | $ | (7,930) | | $ | 12,494 | | $ | 12,846 | | | $ | 23,807 | | $ | 17,810 | |
Add: provision for credit losses | 8,994 | | 3,088 | | 4,728 | | | 7,333 | | 33,531 | |
| | | | | | |
Add: loss on OREO | 32 | | — | | — | | | 32 | | 17 | |
Add: loss on investment securities | 316 | | 499 | | — | | | 1,490 | | 2 | |
Add: loss on other assets | 363 | | 238 | | 115 | | | 687 | | 258 | |
Add: loss on other transactions | 6 | | — | | — | | | 6 | | — | |
Less: gain on OREO | — | | 8 | | 15 | | | 8 | | 16 | |
| | | | | | |
Less: gain on investment securities | 150 | | 297 | | 2 | | | 786 | | 385 | |
| | | | | | |
Less: gain on other assets | 93 | | 106 | | 72 | | | 258 | | 22 | |
Pre-provision net revenue | $ | 1,538 | | $ | 15,908 | | $ | 17,600 | | | $ | 32,303 | | $ | 51,195 | |
| | | | | | |
| | | | | | |
Total average assets | $5,475,147 | $5,183,146 | $4,906,614 | | $5,192,183 | $ | 4,706,153 | |
Pre-provision net revenue to total average assets (annualized) | 0.11 | % | 1.23 | % | 1.43 | % | | 0.83 | % | 1.45 | % |
| | | | | | |
Weighted-average common shares outstanding - diluted | 20,789,271 | 19,461,934 | 19,637,689 | | 19,890,672 | 19,998,353 |
Pre-provision net revenue per common share - diluted | $ | 0.07 | | $ | 0.81 | | $ | 0.90 | | | $ | 1.61 | | $ | 2.55 | |
For the first nine months of 2017,The decrease in PPNR compared to the first nine monthslinked quarter and the third quarter of 2016, the increase in pre-provision net revenue2020 was mostly due largely to higher net interest income, coupled with continued expense management.non-core acquisition-related expenses recognized during the third quarter of 2021.
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-GAAPNon-US GAAP since it excludes the impact of system conversion costs.all acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution.
The following table provides a reconciliation of this non-GAAP financialNon-US GAAP measure to the comparable GAAP amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, | | September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 | (Dollars in thousands) | | 2021 | 2020 |
| Core non-interest expense: | | | | Core non-interest expense: | |
Total non-interest expense | $ | 26,558 |
| $ | 26,680 |
| $ | 26,842 |
| | $ | 80,569 |
| $ | 79,629 |
| Total non-interest expense | $ | 57,860 | | $ | 39,899 | | $ | 34,315 | | | $ | 135,746 | | 100,445 | |
Less: system conversion costs | — |
| — |
| 423 |
| | — |
| 513 |
| |
| Less: acquisition-related expenses | | Less: acquisition-related expenses | 16,209 | | 2,400 | | 335 | | | 20,520 | | 412 | |
Less: pension settlement charges | | Less: pension settlement charges | 143 | | — | | 531 | | | 143 | | 1,050 | |
Less: severance expenses | | Less: severance expenses | — | | 14 | | 192 | | | 63 | | 284 | |
| Less: COVID-19-related expenses | | Less: COVID-19-related expenses | 181 | | 210 | | 148 | | | 683 | | 1,206 | |
Less: Peoples Bank Foundation, Inc. contribution | | Less: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | 500 | | — | |
Less: contract negotiation expenses | | Less: contract negotiation expenses | 1,851 | | — | | — | | | 1,851 | | — | |
Core non-interest expense | $ | 26,558 |
| $ | 26,680 |
| $ | 26,419 |
| | $ | 80,569 |
| $ | 79,116 |
| Core non-interest expense | $ | 39,476 | | $ | 37,275 | | $ | 33,109 | | | $ | 111,986 | | $ | 97,493 | |
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 FTEfully tax-equivalent net interest income plus total non-interest income (excluding allexcluding net gains and all losses).losses. This measure is non-GAAPNon-US GAAP since it excludes amortization of other intangible assets and all gains and/orand losses included in earnings, and uses FTEfully tax-equivalent net interest income.
The following table provides a reconciliation of this non-GAAPNon-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
| | | | | | |
Efficiency ratio: | | | | | | |
Total non-interest expense | $ | 57,860 | | $ | 39,899 | | $ | 34,315 | | | $ | 135,746 | | $ | 100,445 | |
Less: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Adjusted total non-interest expense | $ | 56,581 | | $ | 38,531 | | $ | 33,458 | | | $ | 132,479 | | $ | 98,131 | |
| | | | | | |
Total non-interest income | $ | 16,346 | | $ | 15,821 | | $ | 16,770 | | | $ | 49,070 | | $ | 47,171 | |
Less: net gain on investment securities | — | | — | | 2 | | | — | | 383 | |
Add: net loss on investment securities | (166) | | (202) | | — | | | (704) | | — | |
Add: net loss on asset disposals and other transactions | (308) | | (124) | | (28) | | | (459) | | (237) | |
Total non-interest income excluding net gains and losses | $ | 16,820 | | $ | 16,147 | | $ | 16,796 | | | $ | 50,233 | | $ | 47,025 | |
| | | | | | |
Net interest income | $ | 42,578 | | $ | 39,660 | | $ | 35,119 | | | $ | 117,816 | | $ | 104,615 | |
Add: fully tax-equivalent adjustment (a) | 351 | | 324 | | 262 | | | 970 | | 803 | |
Net interest income on a fully tax-equivalent basis | $ | 42,929 | | $ | 39,984 | | $ | 35,381 | | | $ | 118,786 | | $ | 105,418 | |
| | | | | | |
Adjusted revenue | $ | 59,749 | | $ | 56,131 | | $ | 52,177 | | | $ | 169,019 | | $ | 152,443 | |
| | | | | | |
Efficiency ratio | 94.70 | % | 68.64 | % | 64.12 | % | | 78.38 | % | 64.37 | % |
| | | | | | |
Efficiency ratio adjusted for non-core items: | | | | | | |
Core non-interest expense | $ | 39,476 | | $ | 37,275 | | $ | 33,109 | | | $ | 111,986 | | $ | 97,493 | |
Less: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Adjusted core non-interest expense | $ | 38,197 | | $ | 35,907 | | $ | 32,252 | | | $ | 108,719 | | $ | 95,179 | |
| | | | | | |
Core non-interest income excluding net gains and losses | $ | 16,820 | | $ | 16,147 | | $ | 16,796 | | | $ | 50,233 | | $ | 47,025 | |
Net interest income on a fully tax-equivalent basis | 42,929 | | 39,984 | | 35,381 | | | 118,786 | | 105,418 | |
Adjusted revenue | $ | 59,749 | | $ | 56,131 | | $ | 52,177 | | | $ | 169,019 | | $ | 152,443 | |
| | | | | | |
Efficiency ratio adjusted for non-core items | 63.93 | % | 63.97 | % | 61.81 | % | | 64.32 | % | 62.44 | % |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
| | | | | | |
Efficiency ratio: | | | | | | |
Total non-interest expense | $ | 26,558 |
| $ | 26,680 |
| $ | 26,842 |
| | $ | 80,569 |
| $ | 79,629 |
|
Less: Amortization of other intangible assets | 869 |
| 871 |
| 1,008 |
| | 2,603 |
| 3,023 |
|
Adjusted total non-interest expense | $ | 25,689 |
| $ | 25,809 |
| $ | 25,834 |
| | $ | 77,966 |
| $ | 76,606 |
|
Total non-interest income | 14,446 |
| 13,717 |
| 13,313 |
| | 41,834 |
| 38,797 |
|
Less net gain (loss) on investment securities | 1,861 |
| 109 |
| (1 | ) | | 2,219 |
| 862 |
|
Less net (loss) gain on asset disposals and other transactions | (25 | ) | 18 |
| (224 | ) | | 81 |
| (1,024 | ) |
Adjusted total non-interest income | $ | 12,610 |
| $ | 13,590 |
| $ | 13,538 |
| | $ | 39,534 |
| $ | 38,959 |
|
Net interest income | $ | 29,220 |
| $ | 28,090 |
| $ | 26,123 |
| | $ | 84,255 |
| $ | 78,198 |
|
Add: Fully tax-equivalent adjustment | 460 |
| 496 |
| 497 |
| | 1,471 |
| 1,508 |
|
Net interest income on a fully taxable-equivalent basis | $ | 29,680 |
| $ | 28,586 |
| $ | 26,620 |
| | $ | 85,726 |
| $ | 79,706 |
|
Adjusted revenue | $ | 42,290 |
| $ | 42,176 |
| $ | 40,158 |
| | $ | 125,260 |
| $ | 118,665 |
|
Efficiency ratio | 60.74 | % | 61.19 | % | 64.33 | % | | 62.24 | % | 64.56 | % |
Core non-interest expense | $ | 26,558 |
| $ | 26,680 |
| $ | 26,419 |
| | $ | 80,569 |
| $ | 79,116 |
|
Less: Amortization of other intangible assets | 869 |
| 871 |
| 1,008 |
| | 2,603 |
| 3,023 |
|
Adjusted non-interest expense | $ | 25,689 |
| $ | 25,809 |
| $ | 25,411 |
| | $ | 77,966 |
| $ | 76,093 |
|
Total non-interest income | 12,610 |
| $ | 13,590 |
| 13,538 |
| | 39,534 |
| 38,959 |
|
Net interest income on fully taxable-equivalent basis | $ | 29,680 |
| $ | 28,586 |
| $ | 26,620 |
| | $ | 85,726 |
| $ | 79,706 |
|
Adjusted revenue | 42,290 |
| 42,176 |
| 40,158 |
| | 125,260 |
| 118,665 |
|
Efficiency ratio adjusted for non-core items | 60.74 | % | 61.19 | % | 63.28 | % | | 62.24 | % | 64.12 | % |
(a) Based on a 21% statutory federal corporate income tax rate.The decreaseefficiency ratio for the third quarter of 2021 was 94.7%, compared to 68.6% for the linked quarter, and 64.1% for the third quarter of 2020. The change in the efficiency ratio compared to all prior periodsthe linked quarter was primarily due to increased net interest income and the continued focus on expense management.
Management is targeting anacquisition-related expenses. The efficiency ratio, of 61% to 63%adjusted for non-core items, was 63.9% for the full yearthird quarter of 2017, absent2021, compared to 64.0% for the linked quarter and 61.8% for the third quarter of 2020. Impacting the adjusted ratios were higher salaries and employee benefits due to the Premier and NSL acquisitions along with higher advertising expenses and increased repair and maintenance expenses.
For the first nine months of 2021, the efficiency ratio grew due to higher total non-interest expense associated with the acquisition-related expenses mentioned above, operating expenses associated with the NSL and Premium Finance acquired divisions, a reduction in deferred loan costs from the PPP loans, and otherincreased sales and incentive-based compensation from higher production.
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 charges.
items to monitor performance. The return on average assets adjusted for non-core items ratio represents a Non-US GAAP financial measure since it excludes the after-tax impact of all gains and losses, acquisition-related expenses, contract negotiation expenses, pension settlement charges, severance expenses, COVID-19-related expenses and a Peoples Bank Foundation, Inc. contribution.
The following table provides a reconciliation of this Non-US GAAP financial measure to the amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements for the periods presented:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
| | | | | | |
Annualized net (loss) income adjusted for non-core items: | | | |
Net (loss) income | $ | (5,758) | | $ | 10,103 | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
| | | | | | |
Add: net loss on investment securities | 166 | | 202 | | — | | | 704 | | — | |
Less: tax effect of net loss on investment securities (a) | 35 | | 42 | | — | | | 148 | | — | |
Less: net gain on investment securities | — | | — | | 2 | | | — | | 383 | |
Add: tax effect of net gain on investment securities (a) | — | | — | | — | | | — | | 80 | |
Add: net loss on asset disposals and other transactions | 308 | | 124 | | 28 | | | 459 | | 237 | |
Less: tax effect of net loss on asset disposals and other transactions (a) | 65 | | 26 | | 6 | | | 96 | | 50 | |
| | | | | | |
| | | | | | |
| | | | | | |
Add: acquisition-related expenses | 16,209 | | 2,400 | | 335 | | | 20,520 | | 412 | |
Less: tax effect of acquisition-related expenses (a) | 3,404 | | 504 | | 70 | | | 4,309 | | 87 | |
Add: pension settlement charges | 143 | | — | | 531 | | | 143 | | 1,050 | |
Less: tax effect of pension settlement charges (a) | 30 | | — | | 112 | | | 30 | | 221 | |
Add: severance expenses | — | | 14 | | 192 | | | 63 | | 284 | |
Less: tax effect of severance expenses (a) | — | | 3 | | 40 | | | 13 | | 60 | |
Add: COVID-19-related expenses | 181 | | 210 | | 148 | | | 683 | | 1,206 | |
Less: tax effect of COVID-19-related expenses (a) | 38 | | 44 | | 31 | | | 143 | | 253 | |
Add: Peoples Bank Foundation, Inc. contribution | — | | — | | — | | | 500 | | — | |
Less: tax effect of Peoples Bank Foundation, Inc. contribution (a) | — | | — | | — | | | 105 | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Add: contract negotiation fees | 1,851 | | — | | — | | | 1,851 | | — | |
Less: tax effect of contract negotiation fees | 389 | | — | | — | | | 389 | | — | |
Net income adjusted for non-core items (after tax) | $ | 9,139 | | $ | 12,434 | | $ | 11,183 | | | $ | 39,498 | | $ | 16,409 | |
Days in the period | 92 | | 91 | | 92 | | | 273 | | 274 | |
Days in the year | 365 | | 365 | | 366 | | | 365 | | 366 | |
Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Annualized net income adjusted for non-core items (after tax) | $ | 36,258 | | $ | 49,873 | | $ | 44,489 | | | $ | 52,809 | | $ | 21,919 | |
Return on average assets: | | | | | | |
Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Total average assets | 5,475,147 | | 5,183,146 | | 4,906,614 | | | 5,192,183 | | 4,706,153 | |
Return on average assets | (0.42) | % | 0.78 | % | 0.83 | % | | 0.51 | % | 0.40 | % |
Return on average assets adjusted for non-core items: | | | |
Annualized net income adjusted for non-core items (after tax) | $ | 36,258 | | $ | 49,873 | | $ | 44,489 | | | $ | 52,809 | | $ | 21,919 | |
Total average assets | 5,475,147 | | 5,183,146 | | 4,906,614 | | | 5,192,183 | | 4,706,153 | |
Return on average assets adjusted for non-core items | 0.66 | % | 0.96 | % | 0.91 | % | | 1.02 | % | 0.47 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average assets declined during the third quarter of 2021, compared to the linked quarter and the third quarter of 2020. The decrease was driven by the provision for credit losses recognized in the third quarter due to the Premier acquisition and higher total non-interest expense recognized during the third quarter of 2021, which was mostly due to acquisition-related expenses. The return on average assets adjusted for non-core items declined compared to the linked quarter due to the higher salaries and
incentive compensation. The return on average assets and the return on average assets adjusted for non-core items both grew compared to the first nine months of 2020. The increases were mostly due to the previously mentioned higher provision for credit losses recorded during the first nine months of 2020. For additional information related to the changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”
Return on Average Tangible Stockholders' Equity Ratio (Non-US GAAP)
The return on average tangible stockholders' equity ratio is a key financial measure used to monitor performance. The return on tangible stockholders' equityThis ratio is calculated as annualized net income (less the after-tax impact of amortization of other intangible assets) divided by average tangible stockholders' equity. This measure is non-GAAPNon-US GAAP since it excludes amortization of other intangible assets from earnings and the impact of goodwill and other intangible assets acquired through acquisitions on total stockholders' equity.
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in thousands) | | 2021 | 2020 |
Annualized net income excluding amortization of other intangible assets: | | | |
Net (loss) income | $ | (5,758) | | $ | 10,103 | | $ | 10,210 | | | $ | 19,808 | | $ | 14,194 | |
Add: amortization of other intangible assets | 1,279 | | 1,368 | | 857 | | | 3,267 | | 2,314 | |
Less: tax effect of amortization of other intangible assets (a) | 269 | | 287 | | 180 | | | 686 | | 486 | |
Net income excluding amortization of other intangible assets | $ | (4,748) | | $ | 11,184 | | $ | 10,887 | | | $ | 22,389 | | $ | 16,022 | |
Days in the period | 92 | | 91 | | 92 | | | 273 | | 274 | |
Days in the year | 365 | | 365 | | 366 | | | 365 | | 366 | |
Annualized net (loss) income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Annualized net (loss) income excluding amortization of other intangible assets | $ | (18,837) | | $ | 44,859 | | $ | 43,311 | | | $ | 29,934 | | $ | 21,402 | |
Average tangible equity: | | | | | |
Total average stockholders' equity | $ | 627,783 | | $ | 581,831 | | $ | 567,055 | | | $ | 595,918 | | $ | 578,439 | |
Less: average goodwill and other intangible assets | 232,361 | | 222,553 | | 185,816 | | | 213,232 | | 180,291 | |
Average tangible equity | $ | 395,422 | | $ | 359,278 | | $ | 381,239 | | | $ | 382,686 | | $ | 398,148 | |
Return on average stockholders' equity ratio: | | | | | |
Annualized net income | $ | (22,844) | | $ | 40,523 | | $ | 40,618 | | | $ | 26,483 | | $ | 18,960 | |
Average stockholders' equity | $ | 627,783 | | $ | 581,831 | | $ | 567,055 | | | $ | 595,918 | | $ | 578,439 | |
Return on average stockholders' equity | (3.64) | % | 6.96 | % | 7.16 | % | | 4.44 | % | 3.28 | % |
Return on average tangible equity ratio: | | | |
Annualized net income excluding amortization of other intangible assets | $ | (18,837) | | $ | 44,859 | | $ | 43,311 | | | $ | 29,934 | | $ | 21,402 | |
Average tangible equity | $ | 395,422 | | $ | 359,278 | | $ | 381,239 | | | $ | 382,686 | | $ | 398,148 | |
Return on average tangible equity | (4.76) | % | 12.49 | % | 11.36 | % | | 7.82 | % | 5.38 | % |
(a) Based on a 21% statutory federal corporate income tax rate.
The return on average stockholders' equity and average tangible equity ratios were impacted by the provision for (recovery of) credit losses during each of the respective periods, as well as non-core items recognized during the periods. Intangible assets grew at September 30, 2021, compared to June 30, 2021, as Peoples recorded the intangibles and goodwill associated with the Premier acquisition, which increased average tangible equity. Additionally, during the first nine months of 2020, Peoples recorded high amounts of provision for credit losses, which negatively impacted net income, as a result of the COVID-19 pandemic.
For additional information related to changes in the provision for (recovery of) credit losses, refer to the sections in this discussion titled “Provision for (Recovery of) Credit Losses" and "Allowance for Credit Losses.”
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2017 | June 30, 2017 | September 30, 2016 | | September 30, |
(Dollars in thousands) | | 2017 | 2016 |
Annualized Net Income Excluding Amortization of Other Intangible Assets: | | | |
Net income | $ | 10,895 |
| $ | 9,766 |
| $ | 7,792 |
| | $ | 29,470 |
| $ | 23,749 |
|
Add: amortization of other intangible assets | 869 |
| 871 |
| 1,008 |
| | 2,603 |
| 3,023 |
|
Less: tax effect (at 35% tax rate) of amortization of other intangible assets | 304 |
| 305 |
| 353 |
| | 911 |
| 1,058 |
|
Net income excluding amortization of other intangible assets | $ | 11,460 |
| $ | 10,332 |
| $ | 8,447 |
| | $ | 31,162 |
| $ | 25,714 |
|
Days in the quarter | 92 |
| 91 |
| 92 |
| | 273 |
| 274 |
|
Days in the year | 365 |
| 365 |
| 366 |
| | 365 |
| 366 |
|
Annualized net income | $ | 43,225 |
| $ | 39,171 |
| $ | 30,999 |
| | $ | 39,401 |
| $ | 31,723 |
|
Annualized net income excluding amortization of other intangible assets | $ | 45,466 |
| $ | 41,442 |
| $ | 33,604 |
| | $ | 41,663 |
| $ | 34,348 |
|
Average Tangible Stockholders' Equity: | | | | | |
Total average stockholders' equity | $ | 456,198 |
| $ | 447,399 |
| $ | 438,606 |
| | $ | 447,592 |
| $ | 430,769 |
|
Less: average goodwill and other intangible assets | 144,267 |
| 145,052 |
| 147,466 |
| | 144,950 |
| 148,482 |
|
Average tangible stockholders' equity | $ | 311,931 |
| $ | 302,347 |
| $ | 291,140 |
| | $ | 302,642 |
| $ | 282,287 |
|
Return on Average Stockholders' Equity Ratio: | | | | | |
Annualized net income | $ | 43,225 |
| $ | 39,171 |
| $ | 30,999 |
| | $ | 39,401 |
| $ | 31,723 |
|
Average stockholders' equity | $ | 456,198 |
| $ | 447,399 |
| $ | 438,606 |
| | $ | 447,592 |
| $ | 430,769 |
|
Return on average stockholders' equity | 9.47 | % | 8.76 | % | 7.07 | % | | 8.80 | % | 7.36 | % |
Return on Average Tangible Stockholders' Equity Ratio: | | | |
Annualized net income excluding amortization of other intangible assets | $ | 45,466 |
| $ | 41,442 |
| $ | 33,604 |
| | $ | 41,663 |
| $ | 34,348 |
|
Average tangible stockholders' equity | $ | 311,931 |
| $ | 302,347 |
| $ | 291,140 |
| | $ | 302,642 |
| $ | 282,287 |
|
Return on average tangible stockholders' equity | 14.58 | % | 13.71 | % | 11.54 | % | | 13.77 | % | 12.17 | % |
FINANCIAL CONDITION
Cash and Cash Equivalents
At September 30, 2017,2021, Peoples' interest-bearing deposits in other banks had increased $8.4$278.6 million from December 31, 2016.2020. The total cash and cash equivalent balancesequivalents balance included $10.3$321.0 million of excess cash reserves being maintained at the Federal Reserve BankFRB of Cleveland at September 30, 2017,2021, compared to $4.4$25.1 million at December 31, 2016.2020. Peoples also acquired $252.8 million in cash and cash equivalents from Premier. The amount of excess cash reserves maintained is dependent upon Peoples' daily liquidity position, which is driven primarily by changes in deposit and loan balances.balances, coupled with increased liquidity needs due to the COVID-19 pandemic.
Through the first nine months of 2017,2021, Peoples' total cash and cash equivalents increased $3.9$347.6 million as Peoples'Peoples had net cash provided by investing activities of $106.3 million, financing activities of $174.6 million and operating activities of $128.1 million exceeded cash used in investing activities of $124.2$66.7 million. Peoples' investing activities reflected a net decrease of $156.6 million in loans and an aggregate of $896.6 million in purchases of $142.1 million in available-for-sale and held-to-maturity investment securities, and a net increase of $99.8 million in loans, which were partially offset by $120.7an aggregate of $711.5 million in net proceeds from sales, principal payments, calls and prepayments on available-for-sale and held-to-maturity investment securities. Financing activities included a $165.4 million net increase in deposits and an increase of $154.9$32.6 million in deposits which was offset partially by a net decreaseshort-term borrowings, as well as no purchases of $61.3 million in borrowingstreasury stock under the share repurchase program and $10.9$20.9 million of cash dividends paid.
Through the first nine months of 2016, Peoples' total cash and cash equivalents decreased $3.3 million, as cash used in investing activities of $107.0 million exceeded cash provided by financing and operating activities of $61.6 million and $42.2 million, respectively. Peoples' investing activities reflected a $94.1 million net increase in loans and $35.0 million in BOLI, offset partially by $30.1 million in net proceeds from investment activities. The net proceeds from the investment portfolio reflected sales and principal payments, which outpaced purchases. Financing activities included a net increase in borrowings of $35.5 million and an increase of $39.6 million in deposits which were offset partially by cash dividends paid of $8.2 million and the purchase of $5.0 million of treasury stock.
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) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Available-for-sale securities, at fair value: | | | | |
Obligations of: | | | | | |
| | | | | |
U.S. government sponsored agencies | $ | 78,481 | | $ | 14,235 | | $ | 18,471 | | $ | 5,363 | | $ | 5,383 | |
States and political subdivisions | 252,919 | | 223,853 | | 218,484 | | 114,919 | | 104,126 | |
Residential mortgage-backed securities | 898,459 | | 579,152 | | 596,181 | | 623,218 | | 726,992 | |
Commercial mortgage-backed securities | 62,552 | | 27,631 | | 27,481 | | 4,783 | | 10,568 | |
Bank-issued trust preferred securities | 4,679 | | 4,766 | | 4,730 | | 4,730 | | 4,633 | |
| | | | | |
| | | | | |
| | | | | |
Total fair value | $ | 1,297,090 | | $ | 849,637 | | $ | 865,347 | | $ | 753,013 | | $ | 851,702 | |
Total amortized cost | $ | 1,294,654 | | $ | 839,682 | | $ | 859,120 | | $ | 734,544 | | $ | 829,899 | |
Net unrealized gain | $ | 2,436 | | $ | 9,955 | | $ | 6,227 | | $ | 18,469 | | $ | 21,803 | |
Held-to-maturity securities, at amortized cost: | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | 29,995 | | $ | 30,103 | | $ | 30,211 | | $ | — | | $ | — | |
States and political subdivisions (a) | 124,181 | | 102,224 | | 92,436 | | 35,139 | | 3,539 | |
Residential mortgage-backed securities | 41,035 | | 24,067 | | 24,878 | | 25,890 | | 26,926 | |
Commercial mortgage-backed securities | 47,889 | | 23,830 | | 18,705 | | 5,429 | | 5,678 | |
Total amortized cost | $ | 243,100 | | $ | 180,224 | | $ | 166,230 | | $ | 66,458 | | $ | 36,143 | |
Other investment securities | $ | 34,486 | | $ | 32,584 | | $ | 34,026 | | $ | 37,560 | | $ | 40,715 | |
Total investment securities: | | | | | |
Amortized cost | $ | 1,572,240 | | $ | 1,052,490 | | $ | 1,059,376 | | $ | 838,562 | | $ | 906,757 | |
Carrying value | $ | 1,574,676 | | $ | 1,062,445 | | $ | 1,065,603 | | $ | 857,031 | | $ | 928,560 | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Available-for-sale securities, at fair value: | | | | |
Obligations of: | | | | | |
U.S. government sponsored agencies | $ | — |
| $ | — |
| $ | — |
| $ | 1,000 |
| $ | 1,001 |
|
States and political subdivisions | 104,560 |
| 111,390 |
| 114,712 |
| 117,230 |
| 117,839 |
|
Residential mortgage-backed securities | 672,106 |
| 664,341 |
| 640,299 |
| 626,567 |
| 607,452 |
|
Commercial mortgage-backed securities | 7,128 |
| 8,092 |
| 16,424 |
| 19,291 |
| 23,283 |
|
Bank-issued trust preferred securities | 5,154 |
| 5,144 |
| 4,964 |
| 4,899 |
| 4,783 |
|
Equity securities | 8,073 |
| 10,121 |
| 10,562 |
| 8,953 |
| 7,785 |
|
Total fair value | $ | 797,021 |
| $ | 799,088 |
| $ | 786,961 |
| $ | 777,940 |
| $ | 762,143 |
|
Total amortized cost | $ | 792,810 |
| $ | 792,803 |
| $ | 782,947 |
| $ | 777,017 |
| $ | 743,878 |
|
Net unrealized gain | $ | 4,211 |
| $ | 6,285 |
| $ | 4,014 |
| $ | 923 |
| $ | 18,265 |
|
Held-to-maturity securities, at amortized cost: | | | | |
Obligations of: |
|
|
| | | |
States and political subdivisions | $ | 3,812 |
| $ | 3,815 |
| $ | 3,818 |
| $ | 3,820 |
| $ | 3,823 |
|
Residential mortgage-backed securities | 33,648 |
| 34,264 |
| 34,812 |
| 33,858 |
| 34,203 |
|
Commercial mortgage-backed securities | 4,703 |
| 4,981 |
| 5,392 |
| 5,466 |
| 5,636 |
|
Total amortized cost | $ | 42,163 |
| $ | 43,060 |
| $ | 44,022 |
| $ | 43,144 |
| $ | 43,662 |
|
Other investment securities, at cost | $ | 38,371 |
| $ | 38,371 |
| $ | 38,371 |
| $ | 38,371 |
| $ | 38,443 |
|
Total investment portfolio: |
|
| | | | |
Amortized cost | $ | 873,344 |
| $ | 874,234 |
| $ | 865,340 |
| $ | 858,532 |
| $ | 825,983 |
|
Carrying value | $ | 877,555 |
| $ | 880,519 |
| $ | 869,354 |
| $ | 859,455 |
| $ | 844,248 |
|
(a)Amortized cost is presented net of the allowance for credit losses of $236 at September 30, 2021; $201 at June 30, 2021; $182 at March 31, 2021; $60 at December 31, 2020 and $6 at September 30, 2020.Peoples'During the third quarter of 2021, Peoples acquired, in the Premier acquisition, investment in residentialsecurities totaling $563.3 million. Peoples sold $400.6 million of available-for-sale investment securities and commercial mortgage-backed securities largely consistsreinvested $358.7 million of securities either guaranteedthe proceeds into higher-yielding investments. The increase compared to December 31, 2020 was driven by the U.S. government or issued by U.S. government sponsored agencies, suchPremier acquisition and an increase in available-for-sale commercial-mortgage backed securities that were purchased during the first nine months of 2021, coupled with purchases of available for sale and held-to-maturity obligations of state and political subdivisions, which were purchased in an effort to reduce the impact of premium amortization on the securities that were sold. At December 31, 2020, the investment security portfolio decreased compared to prior periods, as Fannie Mae and Freddie Mac. The remaining portions of Peoples' mortgage-backedPeoples had worked to execute the strategy to sell securities consist of securities issued by other entities, including other financial institutions, which are not guaranteed by the U.S. government.
The amount of these “non-agency” securities included in the residential mortgage-backed securities totals above was as follows:that had high premium
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Total fair value | $ | 2,067 |
| $ | 2,502 |
| $ | 2,702 |
| $ | 2,991 |
| $ | 3,288 |
|
Total amortized cost | 2,253 |
| 2,703 |
| 2,916 |
| 3,206 |
| 3,499 |
|
Net unrealized loss | $ | (186 | ) | $ | (201 | ) | $ | (214 | ) | $ | (215 | ) | $ | (211 | ) |
Management continues to reinvest the principal runoff from the non-agency securities in U.S. agency investments, which accounted for the decline in the past year. At September 30, 2017, Peoples' non-agency portfolio consisted entirely of first lien residential mortgages, with nearly all of the underlying loans in these securities originated prior to 2004 and possessing fixed interest rates. Management continues to monitor the non-agency portfolio closely for leading indicators of increasing stress and will continue to be proactive in taking actions to mitigate such risk when necessary.66
amortization, and reinvest into investment securities; however, not all proceeds from those sales had been reinvested by December 31, 2020.
Additional information regarding Peoples' investment portfolio can be found in Note"Note 3 Investment Securities" of the Notes to the Unaudited Condensed Consolidated Financial Statements. Loans
The following table provides information regarding outstanding loan balances:
| | (Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Gross originated loans: | | |
Commercial real estate, construction | $ | 111,187 |
| $ | 103,039 |
| $ | 93,886 |
| $ | 84,626 |
| $ | 70,838 |
| |
Originated loans: | | Originated loans: | |
Construction | | Construction | $ | 108,334 | | $ | 97,424 | | $ | 75,189 | | $ | 103,169 | | $ | 103,948 | |
Commercial real estate, other | 573,256 |
| 567,537 |
| 535,474 |
| 531,557 |
| 507,842 |
| Commercial real estate, other | 838,333 | | 836,613 | | 832,399 | | 780,324 | | 752,480 | |
Commercial real estate | 684,443 |
| 670,576 |
| 629,360 |
| 616,183 |
| 578,680 |
| Commercial real estate | 946,667 | | 934,037 | | 907,588 | | 883,493 | | 856,428 | |
Commercial and industrial | 407,468 |
| 392,097 |
| 384,548 |
| 378,131 |
| 351,340 |
| Commercial and industrial | 715,169 | | 778,122 | | 935,150 | | 943,024 | | 1,029,613 | |
Premium finance | | Premium finance | 134,755 | | 117,039 | | 109,129 | | 100,571 | | 60,908 | |
Leases | | Leases | 49,464 | | 24,217 | | — | | — | | — | |
Residential real estate | 304,094 |
| 306,385 |
| 308,153 |
| 307,490 |
| 306,374 |
| Residential real estate | 334,838 | | 324,321 | | 306,440 | | 281,623 | | 284,645 | |
Home equity lines of credit | 88,421 |
| 88,229 |
| 85,512 |
| 85,617 |
| 83,412 |
| Home equity lines of credit | 98,806 | | 95,376 | | 92,540 | | 93,296 | | 91,701 | |
Consumer, indirect | 335,436 |
| 305,580 |
| 283,106 |
| 252,024 |
| 229,334 |
| Consumer, indirect | 543,243 | | 537,926 | | 519,749 | | 503,526 | | 491,663 | |
Consumer, other | 68,286 |
| 67,287 |
| 66,283 |
| 67,579 |
| 67,973 |
| |
Consumer, direct | | Consumer, direct | 80,746 | | 78,736 | | 75,998 | | 75,591 | | 75,106 | |
Consumer | 403,722 |
| 372,867 |
| 349,389 |
| 319,603 |
| 297,307 |
| Consumer | 623,989 | | 616,662 | | 595,747 | | 579,117 | | 566,769 | |
Deposit account overdrafts | 507 |
| 521 |
| 721 |
| 1,080 |
| 1,074 |
| Deposit account overdrafts | 927 | | 498 | | 298 | | 351 | | 519 | |
Total originated loans | $ | 1,888,655 |
| $ | 1,830,675 |
| $ | 1,757,683 |
| $ | 1,708,104 |
| $ | 1,618,187 |
| Total originated loans | $ | 2,904,615 | | $ | 2,890,272 | | $ | 2,946,892 | | $ | 2,881,475 | | $ | 2,890,583 | |
Gross acquired loans (a): | | |
Commercial real estate, construction | $ | 8,565 |
| $ | 9,130 |
| $ | 9,431 |
| $ | 10,100 |
| $ | 10,242 |
| |
Acquired loans (a): | | Acquired loans (a): | |
Construction | | Construction | $ | 66,450 | | $ | 3,175 | | $ | 3,510 | | $ | 3,623 | | $ | 4,103 | |
Commercial real estate, other | 174,157 |
| 182,682 |
| 194,581 |
| 204,466 |
| 221,036 |
| Commercial real estate, other | 790,783 | | 111,647 | | 132,850 | | 149,529 | | 160,759 | |
Commercial real estate | 182,722 |
| 191,812 |
| 204,012 |
| 214,566 |
| 231,278 |
| Commercial real estate | 857,233 | | 114,822 | | 136,360 | | 153,152 | | 164,862 | |
Commercial and industrial | 36,462 |
| 39,376 |
| 44,189 |
| 44,208 |
| 48,702 |
| Commercial and industrial | 143,369 | | 27,629 | | 29,611 | | 30,621 | | 34,396 | |
Premium finance | | Premium finance | — | | 49 | | 1,461 | | 14,187 | | 43,217 | |
Leases | | Leases | 61,982 | | 71,426 | | — | | — | | — | |
Residential real estate | 194,950 |
| 206,502 |
| 216,059 |
| 228,435 |
| 238,787 |
| Residential real estate | 433,296 | | 242,276 | | 267,260 | | 292,384 | | 304,804 | |
Home equity lines of credit | 22,366 |
| 23,481 |
| 24,516 |
| 25,875 |
| 27,784 |
| Home equity lines of credit | 62,564 | | 23,025 | | 24,886 | | 27,617 | | 30,234 | |
Consumer, indirect | 408 |
| 533 |
| 656 |
| 808 |
| 952 |
| Consumer, indirect | 13 | | — | | — | | 1 | | 36 | |
Consumer, other | 1,472 |
| 1,980 |
| 2,387 |
| 2,940 |
| 3,518 |
| |
Consumer, direct | | Consumer, direct | 27,956 | | 2,700 | | 3,206 | | 3,503 | | 3,953 | |
Consumer | 1,880 |
| 2,513 |
| 3,043 |
| 3,748 |
| 4,470 |
| Consumer | 27,969 | | 2,700 | | 3,206 | | 3,504 | | 3,989 | |
Total acquired loans | $ | 438,380 |
| $ | 463,684 |
| $ | 491,819 |
| $ | 516,832 |
| $ | 551,021 |
| Total acquired loans | $ | 1,586,413 | | $ | 481,927 | | $ | 462,784 | | $ | 521,465 | | $ | 581,502 | |
Total loans | $ | 2,327,035 |
| $ | 2,294,359 |
| $ | 2,249,502 |
| $ | 2,224,936 |
| $ | 2,169,208 |
| Total loans | $ | 4,491,028 | | $ | 3,372,199 | | $ | 3,409,676 | | $ | 3,402,940 | | $ | 3,472,085 | |
| Percent of loans to total loans: | | Percent of loans to total loans: | | |
Commercial real estate, construction | 5.1 | % | 4.9 | % | 4.6 | % | 4.3 | % | 3.7 | % | |
Construction | | Construction | 3.9 | % | 3.0 | % | 2.3 | % | 3.1 | % | 3.1 | % |
Commercial real estate, other | 32.2 | % | 32.7 | % | 32.4 | % | 33.0 | % | 33.8 | % | Commercial real estate, other | 36.3 | % | 28.1 | % | 28.3 | % | 27.3 | % | 26.3 | % |
Commercial real estate | 37.3 | % | 37.6 | % | 37.0 | % | 37.3 | % | 37.5 | % | Commercial real estate | 40.2 | % | 31.1 | % | 30.6 | % | 30.4 | % | 29.4 | % |
Commercial and industrial | 19.1 | % | 18.8 | % | 19.1 | % | 19.0 | % | 18.4 | % | Commercial and industrial | 19.1 | % | 23.9 | % | 28.3 | % | 28.6 | % | 30.6 | % |
Premium finance | | Premium finance | 3.0 | % | 3.5 | % | 3.2 | % | 3.4 | % | 3.0 | % |
Leases | | Leases | 2.5 | % | 2.8 | % | — | % | — | % | — | % |
Residential real estate | 21.4 | % | 22.4 | % | 23.3 | % | 24.1 | % | 25.1 | % | Residential real estate | 17.1 | % | 16.8 | % | 16.8 | % | 16.9 | % | 17.0 | % |
Home equity lines of credit | 4.8 | % | 4.9 | % | 4.9 | % | 5.0 | % | 5.1 | % | Home equity lines of credit | 3.6 | % | 3.5 | % | 3.5 | % | 3.6 | % | 3.5 | % |
Consumer, indirect | 14.4 | % | 13.3 | % | 12.6 | % | 11.4 | % | 10.6 | % | Consumer, indirect | 12.1 | % | 16.0 | % | 15.3 | % | 14.8 | % | 14.2 | % |
Consumer, other | 3.0 | % | 3.0 | % | 3.1 | % | 3.2 | % | 3.3 | % | |
Consumer, direct | | Consumer, direct | 2.4 | % | 2.4 | % | 2.3 | % | 2.3 | % | 2.3 | % |
Consumer | 17.4 | % | 16.3 | % | 15.7 | % | 14.6 | % | 13.9 | % | Consumer | 14.5 | % | 18.4 | % | 17.6 | % | 17.1 | % | 16.5 | % |
| Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | Total percentage | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Residential real estate loans being serviced for others | $ | 409,199 |
| $ | 402,516 |
| $ | 399,279 |
| $ | 398,134 |
| $ | 389,090 |
| Residential real estate loans being serviced for others | $ | 441,085 | | $ | 454,399 | | $ | 469,788 | | $ | 485,972 | | $ | 490,170 | |
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(a) | (a) Includes all loans acquired, and related loan discount or premium recorded as part of acquisition accounting, in 2012 and 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). |
While commercial loans comprise the largest portionacquired, and related loan discount recorded as part of Peoples Bank's loan portfolio, residential real estate lending remains a focusacquisition accounting, in 2012 or thereafter. Loans that were acquired and subsequently re-underwritten are reported as originated upon execution of Peoples Bank. The originated loans may either be retainedsuch credit actions (for example, renewals and increases in Peoples Bank's loan portfolio, or sold into the secondary market. Peoples Bank's portfoliolines of residential real estate loans comprised 21.4% of total loans at September 30, 2017, and 24.1% at December 31, 2016. Peoples Bank also had $3.7 million of residential real estate loans held for sale and was servicing $409.2 million of loans, consisting primarily of one-to-four family residential mortgages, previously sold
credit).
in the secondary market. Peoples Bank requires evidence of insurance at the time of the loan closing, and additionally, has a blanket insurance policy to cover residential real estate loans that do not include an insurance escrow account.
Period-end total loan balances at September 30, 20172021 increased $32.7$1.1 billion compared to June 30, 2021. The increase compared to June 30, 2021 was mostly driven by $1.1 billion in loans acquired from Premier, coupled with organic growth in premium finance loans of $17.7 million, orgrowth in leases of $15.8 million, and organic loan growth of $14.3 million, offset partially by $132.2 million in forgiveness received on PPP loans during the quarter. Excluding the PPP loan balances, Peoples' total originated loans grew by 6% annualized compared to June 30, 2017. Indirect consumer lending continued to be a key component of loan growth, as balances increased $29.7 million, or 39% annualized, during the quarter. 2021.
The growthdecrease in indirect consumer lending included continued diversification in the portfolio beyond automobile loans, including loans for recreational vehicles and motorcycles. Commercial loans grew $17.2 million, or 5% annualized, with commercial and industrial loans growing $12.5 million, or 12% annualized, during the quarter.
Compared to December 31, 2016, period-end loan balances at SeptemberJune 30, 2017 increased $102.12021 compared to March 31, 2021 was mostly driven by $186.4 million or 6% annualized. Indirectin forgiveness proceeds received on PPP loans during the second quarter. This decrease was partially offset by $95.6 million in leases acquired from NSL, coupled with growth in in commercial real estate and consumer indirect loans.
The decline in construction loan balances increased $83.0of $28.0 million or 44% annualizedat March 31, 2021, compared to December 31, 2016. Commercial real estate2020, was mainly due to construction projects being completed and construction loans grew $36.4 million, or 6% annualized, while commercial and industrial loans grew $21.6 million, or 7% annualized, for the first nine months of 2017.then converting to permanent financing.
Loan Concentration
Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of Peoples' total loan portfolio.
Loans secured by commercial real estate, including commercial construction loans, continued to comprise the largest portion of Peoples' loan portfolio. The following table providestables provide information regarding the largest concentrations of commercial construction loans and commercial real estate loans within the loan portfolio at September 30, 2017:2021:
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(Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
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Construction: | | | | |
Apartment complexes | $ | 76,292 | | $ | 135,048 | | $ | 211,340 | | 47.7 | % |
Mixed-use facilities | 14,641 | | 43,992 | | 58,633 | | 13.2 | % |
Assisted living facilities and nursing homes | 15,804 | | 30,708 | | 46,512 | | 10.5 | % |
Land only | 25,959 | | 12,968 | | 38,927 | | 8.8 | % |
Office buildings and complexes | 3,523 | | 15,969 | | 19,492 | | 4.4 | % |
Storage facility | 8,966 | | 5,291 | | 14,257 | | 3.2 | % |
Lodging and lodging related | 7,784 | | 6,091 | | 13,875 | | 3.1 | % |
Retail | 5,408 | | 6,470 | | 11,878 | | 2.7 | % |
Residential property | 4,529 | | 4,932 | | 9,461 | | 2.1 | % |
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Other (a) | 11,878 | | 7,118 | | 18,996 | | 4.3 | % |
Total construction | $ | 174,784 | | $ | 268,587 | | $ | 443,371 | | 100.0 | % |
(a) All other outstanding balances are less than 2% of the total loan portfolio.
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(Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, construction: | | | | |
Apartment complexes | $ | 45,081 |
| $ | 53,788 |
| $ | 98,869 |
| 39.4 | % |
Mixed commercial use facilities | 7,485 |
| 27,167 |
| 34,652 |
| 13.8 | % |
Office buildings | 3,363 |
| 28,287 |
| 31,650 |
| 12.6 | % |
Light industrial | 10,735 |
| 4,074 |
| 14,809 |
| 5.9 | % |
Assisted living facilities and nursing homes | 9,024 |
| 966 |
| 9,990 |
| 4.0 | % |
Land development | 8,943 |
| — |
| 8,943 |
| 3.6 | % |
Residential property | 2,461 |
| 2,514 |
| 4,975 |
| 2.0 | % |
Other | 32,660 |
| 14,134 |
| 46,794 |
| 18.7 | % |
Total commercial real estate, construction | $ | 119,752 |
| $ | 130,930 |
| $ | 250,682 |
| 100.0 | % |
68
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(Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, other: | | | | |
Office buildings and complexes: | | | | |
Owner occupied | $ | 78,614 | | $ | 3,199 | | $ | 81,813 | | 4.9 | % |
Non-owner occupied | 93,863 | | 3,795 | | 97,658 | | 5.8 | % |
Total office buildings and complexes | 172,477 | | 6,994 | | 179,471 | | 10.7 | % |
Retail facilities: | | | | |
Owner occupied | 55,417 | | 1,752 | | 57,169 | | 3.4 | % |
Non-owner occupied | 128,759 | | 471 | | 129,230 | | 7.7 | % |
Total retail facilities | 184,176 | | 2,223 | | 186,399 | | 11.1 | % |
Mixed-use facilities: | | | | |
Owner occupied | 55,549 | | 1,582 | | 57,131 | | 3.4 | % |
Non-owner occupied | 63,214 | | 458 | | 63,672 | | 3.8 | % |
Total mixed-use facilities | 118,763 | | 2,040 | | 120,803 | | 7.2 | % |
Apartment complexes | 98,159 | | 1,468 | | 99,627 | | 5.9 | % |
Light industrial facilities: | | | | |
Owner occupied | 79,414 | | 1,531 | | 80,945 | | 4.8 | % |
Non-owner occupied | 34,473 | | 757 | | 35,230 | | 2.1 | % |
Total light industrial facilities | 113,887 | | 2,288 | | 116,175 | | 6.9 | % |
Assisted living facilities and nursing homes | 81,539 | | 750 | | 82,289 | | 4.9 | % |
Warehouse facilities: | | | | |
Owner occupied | 38,685 | | 1,400 | | 40,085 | | 2.4 | % |
Non-owner occupied | 38,614 | | 27 | | 38,641 | | 2.3 | % |
Total warehouse facilities | 77,299 | | 1,427 | | 78,726 | | 4.7 | % |
Lodging and lodging related: | | | | |
Owner occupied | 15,131 | | 210 | | 15,341 | | 0.9 | % |
Non-owner occupied | 119,043 | | 150 | | 119,193 | | 7.1 | % |
Total lodging and lodging related | 134,174 | | 360 | | 134,534 | | 8.0 | % |
Education services: | | | | |
Owner occupied | 15,615 | | 98 | | 15,713 | | 0.9 | % |
Non-owner occupied | 22,460 | | 4,000 | | 26,460 | | 1.6 | % |
Total education services | 38,075 | | 4,098 | | 42,173 | | 2.5 | % |
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Restaurant/bar facilities: | | | | |
Owner occupied | 22,361 | | — | | 22,361 | | 1.3 | % |
Non-owner occupied | 14,644 | | — | | 14,644 | | 0.9 | % |
Total restaurant/bar facilities | 37,005 | | — | | 37,005 | | 2.2 | % |
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Agriculture | 32,865 | | 1,976 | | 34,841 | | 2.1 | % |
Other (a) | 540,697 | | 26,225 | | 566,922 | | 33.8 | % |
Total commercial real estate, other | $ | 1,629,116 | | $ | 49,849 | | $ | 1,678,965 | | 100.0 | % |
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(Dollars in thousands) | Outstanding Balance | Loan Commitments | Total Exposure | % of Total |
Commercial real estate, other: | | | | |
Office buildings and complexes: | | | | |
Owner occupied | $ | 42,537 |
| $ | 2,409 |
| $ | 44,946 |
| 5.8 | % |
Non-owner occupied | 44,859 |
| 288 |
| 45,147 |
| 5.8 | % |
Total office buildings and complexes | 87,396 |
| 2,697 |
| 90,093 |
| 11.6 | % |
Mixed commercial use facilities: | | | | |
Owner occupied | 36,611 |
| 1,070 |
| 37,681 |
| 4.9 | % |
Non-owner occupied | 34,006 |
| 970 |
| 34,976 |
| 4.5 | % |
Total mixed commercial use facilities | 70,617 |
| 2,040 |
| 72,657 |
| 9.4 | % |
Apartment complexes | 67,267 |
| 187 |
| 67,454 |
| 8.7 | % |
Light industrial facilities: | | | | |
Owner occupied | 50,500 |
| 308 |
| 50,808 |
| 6.5 | % |
Non-owner occupied | 13,178 |
| — |
| 13,178 |
| 1.7 | % |
Total light industrial facilities | 63,678 |
| 308 |
| 63,986 |
| 8.2 | % |
Retail facilities: | | | | |
Owner occupied | 20,493 |
| 565 |
| 21,058 |
| 2.7 | % |
Non-owner occupied | 37,626 |
| 982 |
| 38,608 |
| 5.0 | % |
Total retail facilities | 58,119 |
| 1,547 |
| 59,666 |
| 7.7 | % |
Lodging and lodging related | 38,571 |
| 2,994 |
| 41,565 |
| 5.4 | % |
Assisted living facilities and nursing homes | 31,352 |
| 250 |
| 31,602 |
| 4.1 | % |
Warehouse facilities | 27,937 |
| 605 |
| 28,542 |
| 3.7 | % |
Other | 302,476 |
| 18,622 |
| 321,098 |
| 41.2 | % |
Total commercial real estate, other | $ | 747,413 |
| $ | 29,250 |
| $ | 776,663 |
| 100.0 | % |
(a) All other outstanding balances are less than 2% of the total loan portfolio.Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas within Ohio, Kentucky, West Virginia, Virginia, Washington, D.C. and Kentucky.Maryland. In all other states, the aggregate outstanding balances of commercial loans in each state were not materialless than 4% of total loans at either September 30, 20172021 or December 31, 2016.2020. The repayment of premium finance loans are secured by the underlying insurance policy, and therefore, have no geographical impact from a repayment perspective. The repayment of leases are secured by the underlying equipment collateral and not real estate, which mitigates geographic risk.
COVID-19 Loan Impacts
Small Business Administration Paycheck Protection Program
In March 2020, the CARES Act created the PPP targeted to provide small businesses with support to cover payroll and certain other specified expenses. Loans made under the PPP are fully guaranteed by the SBA. The PPP loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll and/or to make certain mortgage interest, lease and utility payments, and certain other criteria
are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness.
Peoples is a PPP participating lender, and the PPP loans originated (including $28.2 million acquired in the merger with Premier) are included in commercial and industrial loans. Peoples also recorded deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, which will be amortized over the life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The following tables detail Peoples' PPP loans and related income:
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(Dollars in millions) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
PPP aggregate outstanding principal balances | $ | 139.8 | | $ | 194.7 | | $ | 349.9 | | $ | 374.8 | | $ | 472.0 | |
PPP net deferred loan origination fees | 4.0 | | 7.1 | | 9.3 | | 7.9 | | 11.6 | |
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| Three Months Ended | | Nine Months Ended |
| September 30, 2021 | June 30, 2021 | September 30, 2020 | | September 30, |
(Dollars in millions) | | 2021 | 2020 |
Amortization of net deferred loan origination fees | $ | 3.1 | | $ | 3.4 | | $ | 1.9 | | | $ | 11.2 | | $ | 3.8 | |
Allowance for LoanCredit Losses
The amount of the allowance for loancredit 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 incurredexpected within the loan portfolio.
The following details management's allocation of the allowance for loancredit losses:
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(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Commercial real estate | $ | 39,252 | | $ | 18,147 | | $ | 18,663 | | $ | 19,423 | | $ | 21,549 | |
Commercial and industrial | 13,378 | | 8,686 | | 10,108 | | 12,763 | | 13,099 | |
Premium finance | 1,137 | | 998 | | 1,160 | | 1,095 | | 986 | |
Leases | 4,505 | | 3,715 | | — | | — | | — | |
Total commercial | 58,272 | | 31,546 | | 29,931 | | 33,281 | | 35,634 | |
Residential real estate | 9,568 | | 4,837 | | 4,935 | | 6,044 | | 5,988 | |
Home equity lines of credit | 2,224 | | 1,504 | | 1,494 | | 1,860 | | 1,797 | |
Consumer, indirect | 6,160 | | 8,841 | | 7,522 | | 8,030 | | 12,772 | |
Consumer, direct | 1,079 | | 1,161 | | 970 | | 1,081 | | 1,861 | |
Consumer | 7,239 | | 10,002 | | 8,492 | | 9,111 | | 14,633 | |
Deposit account overdrafts | 79 | | 53 | | 45 | | 63 | | 76 | |
Allowance for credit losses | $ | 77,382 | | $ | 47,942 | | $ | 44,897 | | $ | 50,359 | | $ | 58,128 | |
As a percent of total loans | 1.72 | % | 1.42 | % | 1.32 | % | 1.48 | % | 1.67 | % |
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(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Commercial real estate | $ | 7,534 |
| $ | 7,328 |
| $ | 7,066 |
| $ | 7,172 |
| $ | 7,490 |
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Commercial and industrial | 6,415 |
| 6,727 |
| 6,534 |
| 6,353 |
| 5,690 |
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Total commercial | 13,949 |
| 14,055 |
| 13,600 |
| 13,525 |
| 13,180 |
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Residential real estate | 924 |
| 960 |
| 1,145 |
| 982 |
| 1,120 |
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Home equity lines of credit | 679 |
| 676 |
| 675 |
| 688 |
| 686 |
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Consumer, indirect | 2,814 |
| 2,549 |
| 2,409 |
| 2,312 |
| 2,240 |
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Consumer, other | 441 |
| 402 |
| 438 |
| 518 |
| 592 |
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Consumer | 3,255 |
| 2,951 |
| 2,847 |
| 2,830 |
| 2,832 |
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Deposit account overdrafts | 70 |
| 83 |
| 111 |
| 171 |
| 143 |
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Originated allowance for loan losses | 18,877 |
| 18,725 |
| 18,378 |
| 18,196 |
| 17,961 |
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Acquired allowance for loan losses | 115 |
| 90 |
| 90 |
| 233 |
| 258 |
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Allowance for loan losses | $ | 18,992 |
| $ | 18,815 |
| $ | 18,468 |
| $ | 18,429 |
| $ | 18,219 |
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As a percent of total loans, net of deferred fees and costs | 0.82 | % | 0.82 | % | 0.82 | % | 0.83 | % | 0.84 | % |
During the third quarter of 2021, Peoples recorded a provision for credit losses of $11.0 million in order to establish an allowance for credit losses for non-purchase credit deteriorated loans of $10.6 million, and a liability for unfunded commitments of $0.4 million, both relating to the acquisition of Premier. Peoples also recorded a $22.3 million increase in the allowance for credit losses during the third quarter of 2021 related to the purchase credit deteriorated loans acquired from Premier. The increases at September 30, 2021 compared to prior periods are due to the Premier and NSL acquisitions.
During the second quarter, Peoples increased its allowance for credit losses due to the establishment of an allowance for credit losses on the leases acquired from NSL. Peoples recorded $3.3 million in provision for credit losses during the second quarter of 2021 in order to establish the allowance for credit losses for the acquired leases and $493,000 to establish the allowance for credit losses on leases identified as purchase credit deteriorated at the acquisition date and added an additional $427,000 in allowance for credit losses on growth in leases during the second quarter of 2021. The decreases in the allowance for credit losses for March 31, 2021 compared to December 31, 2020, and from December 31, 2020 compared to September 30, 2020, were due to developments related to COVID-19 and the resulting positive impact on the economic assumptions used in estimating the allowance for credit losses under the CECL model.
During much of 2020, Peoples increased its allowance for credit losses based on CECL model results, which incorporated economic forecasts that included the impact of COVID-19 on certain economic factors. These forecasts included higher unemployment rates nationally and in Ohio, and lower Ohio Gross Domestic Product, which are the key assumptions within the CECL
At September 30, 2017,model, compared to prior periods. During the third quarter of 2020, Peoples also recorded allowance for loancredit losses increased to $19.0associated with the loans acquired from Triumph Premium Finance on July 1, 2020, which had included $84.7 million compared to $18.2 millionin loans at September 30, 2016the acquisition date.
Additional information regarding Peoples' allowance for credit losses can be found in "Note 1 Summary of Significant Accounting Policies" in Peoples' 2020 Form 10-K and $18.5 million at December 31, 2016. The ratio"Note 4 Loans and Leases" of the allowance for loan losses as a percent of total loans net of deferred fees and costs, was 0.82% at September 30, 2017, compared to 0.84% at September 30, 2016 and 0.83% at December 31, 2016. The continued decline in this ratio was primarily dueNotes to the stabilization of Peoples' asset quality metrics.Unaudited Condensed Consolidated Financial Statements.
The significant allocations of allowance for loan losses to commercial loans reflect the higher credit risk associated with this type of lending and the size of this loan category in relationship to the entire loan portfolio. The allowance allocated to the residential real estate and consumer loan categories is based upon Peoples' allowance methodology for homogeneous pools of loans. The fluctuations in these allocations have been directionally consistent with the changes in loan quality, loss experience and loan balances in these categories.
The following table summarizes Peoples’ net charge-offs and recoveries: | | | | | | | | | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Gross charge-offs: | | | | | |
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Commercial real estate, other | $ | — | | $ | 4 | | $ | 157 | | $ | 274 | | $ | 109 | |
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Commercial and industrial | 654 | | 5 | | 293 | | 465 | | 146 | |
Premium finance | 7 | | 7 | | 16 | | 1 | | 2 | |
Leases | 431 | | 525 | | — | | — | | — | |
Residential real estate | 44 | | 136 | | 133 | | 98 | | 121 | |
Home equity lines of credit | 180 | | 4 | | 12 | | 80 | | — | |
Consumer, indirect | 416 | | 269 | | 505 | | 498 | | 370 | |
Consumer, direct | 29 | | 31 | | 36 | | 59 | | 15 | |
Consumer | 445 | | 300 | | 541 | | 557 | | 385 | |
Deposit account overdrafts | 135 | | 89 | | 103 | | 139 | | 202 | |
Total gross charge-offs | $ | 1,896 | | $ | 1,070 | | $ | 1,255 | | $ | 1,614 | | $ | 965 | |
Recoveries: | | | | | |
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Commercial real estate, other | $ | 4 | | $ | 4 | | $ | — | | $ | 74 | | $ | 4 | |
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Commercial and industrial | 4 | | 18 | | — | | 512 | | — | |
Premium finance | — | | — | | — | | — | | — | |
Leases | 120 | | 110 | | — | | — | | — | |
Residential real estate | 48 | | 40 | | 15 | | 45 | | 100 | |
Home equity lines of credit | 37 | | — | | 4 | | 1 | | 2 | |
Consumer, indirect | 43 | | 63 | | 105 | | 41 | | 64 | |
Consumer, direct | 17 | | 11 | | 26 | | 12 | | 13 | |
Consumer | 60 | | 74 | | 131 | | 53 | | 77 | |
Deposit account overdrafts | 37 | | 44 | | 54 | | 30 | | 47 | |
Total recoveries | $ | 310 | | $ | 290 | | $ | 204 | | $ | 715 | | $ | 230 | |
Net charge-offs (recoveries): | | | | | |
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Commercial real estate, other | $ | (4) | | $ | — | | $ | 157 | | $ | 200 | | $ | 105 | |
| | | | | |
Commercial and industrial | 650 | | (13) | | 293 | | (47) | | 146 | |
Premium finance | 7 | | 7 | | 16 | | 1 | | 2 | |
Leases | 311 | | 415 | | — | | — | | — | |
Residential real estate | (4) | | 96 | | 118 | | 53 | | 21 | |
Home equity lines of credit | 143 | | 4 | | 8 | | 79 | | (2) | |
Consumer, indirect | 373 | | 206 | | 400 | | 457 | | 306 | |
Consumer, direct | 12 | | 20 | | 10 | | 47 | | 2 | |
Consumer | 385 | | 226 | | 410 | | 504 | | 308 | |
Deposit account overdrafts | 98 | | 45 | | 49 | | 109 | | 155 | |
Total net charge-offs | $ | 1,586 | | $ | 780 | | $ | 1,051 | | $ | 899 | | $ | 735 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Gross charge-offs: | | | | | |
Commercial real estate, other | $ | — |
| $ | 25 |
| $ | — |
| $ | 13 |
| $ | 28 |
|
Commercial and industrial | 48 |
| — |
| 117 |
| — |
| — |
|
Residential real estate | 245 |
| 98 |
| 108 |
| 63 |
| 146 |
|
Home equity lines of credit | 80 |
| 17 |
| 3 |
| 15 |
| 29 |
|
Consumer, indirect | 494 |
| 516 |
| 483 |
| 571 |
| 674 |
|
Consumer, other | 106 |
| 129 |
| 40 |
| 185 |
| 177 |
|
Consumer | 600 |
| 645 |
| 523 |
| 756 |
| 851 |
|
Deposit account overdrafts | 246 |
| 172 |
| 349 |
| 229 |
| 210 |
|
Total gross charge-offs | $ | 1,219 |
| $ | 957 |
| $ | 1,100 |
| $ | 1,076 |
| $ | 1,264 |
|
Recoveries: | | | | | |
Commercial real estate, other | $ | 19 |
| $ | 14 |
| $ | 102 |
| $ | 10 |
| $ | 18 |
|
Commercial and industrial | 1 |
| — |
| — |
| 56 |
| — |
|
Residential real estate | 19 |
| 20 |
| 89 |
| 85 |
| 123 |
|
Home equity lines of credit | 3 |
| 3 |
| 3 |
| 22 |
| 8 |
|
Consumer, indirect | 175 |
| 217 |
| 206 |
| 333 |
| 253 |
|
Consumer, other | 46 |
| 56 |
| 50 |
| 42 |
| 56 |
|
Consumer | 221 |
| 273 |
| 256 |
| 375 |
| 309 |
|
Deposit account overdrafts | 47 |
| 47 |
| 65 |
| 27 |
| 41 |
|
Total recoveries | $ | 310 |
| $ | 357 |
| $ | 515 |
| $ | 575 |
| $ | 499 |
|
Net charge-offs (recoveries): | | | | | |
Commercial real estate, other | $ | (19 | ) | $ | 11 |
| $ | (102 | ) | $ | 3 |
| $ | 10 |
|
Commercial and industrial | 47 |
| — |
| 117 |
| (56 | ) | — |
|
Residential real estate | 226 |
| 78 |
| 19 |
| (22 | ) | 23 |
|
Home equity lines of credit | 77 |
| 14 |
| — |
| (7 | ) | 21 |
|
Consumer, indirect | 319 |
| 299 |
| 277 |
| 238 |
| 421 |
|
Consumer, other | 60 |
| 73 |
| (10 | ) | 143 |
| 121 |
|
Consumer | 379 |
| 372 |
| 267 |
| 381 |
| 542 |
|
Deposit account overdrafts | 199 |
| 125 |
| 284 |
| 202 |
| 169 |
|
Total net charge-offs | $ | 909 |
| $ | 600 |
| $ | 585 |
| $ | 501 |
| $ | 765 |
|
71
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Ratio of net charge-offs to average total loans (annualized): |
| | | | | |
Commercial real estate, other | — | % | — | % | 0.02 | % | 0.02 | % | 0.01 | % |
| | | | | |
Commercial and industrial | 0.08 | % | — | % | 0.04 | % | (0.01) | % | 0.02 | % |
| | | | | |
Leases | 0.03 | % | 0.05 | % | — | % | — | % | — | % |
Residential real estate | — | % | 0.01 | % | 0.01 | % | 0.01 | % | — | % |
Home equity lines of credit | 0.02 | % | — | % | — | % | — | % | — | % |
Consumer, indirect | 0.04 | % | 0.02 | % | 0.05 | % | 0.05 | % | 0.03 | % |
Consumer, direct | — | % | — | % | — | % | 0.01 | % | — | % |
Consumer | 0.04 | % | 0.02 | % | 0.05 | % | 0.06 | % | 0.03 | % |
Deposit account overdrafts | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.02 | % |
Total | 0.18 | % | 0.09 | % | 0.13 | % | 0.10 | % | 0.08 | % |
Each with "--%" not meaningful. |
| | | | | | | | | | |
| Three Months Ended |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Ratio of net charge-offs (recoveries) to average total loans (annualized): | | |
Commercial real estate | — | % | 0.01 | % | (0.01 | )% | — | % | — | % |
Commercial and industrial | 0.01 | % | — | % | 0.02 | % | (0.01 | )% | — | % |
Residential real estate | 0.04 | % | 0.01 | % | —% |
| — | % | — | % |
Home equity lines of credit | 0.02 | % | 0.01 | % | —% |
| — | % | — | % |
Consumer, indirect | 0.05 | % | 0.05 | % | 0.05 | % | 0.06 | % | 0.04 | % |
Consumer, other | 0.01 | % | 0.01 | % | — | % | — | % | 0.07 | % |
Consumer | 0.06 | % | 0.06 | % | 0.05 | % | 0.06 | % | 0.11 | % |
Deposit account overdrafts | 0.03 | % | 0.02 | % | 0.05 | % | 0.04 | % | 0.03 | % |
Total | 0.16 | % | 0.11 | % | 0.11 | % | 0.09 | % | 0.14 | % |
Net charge-offs during the third quarter of 2021 were 0.18% of average total loans on an annualized basis. Although, gross charge-offs in many loan categories declined compared to the linked quarter, the primary factor in the increase of total gross charge-offs was one commercial and industrial loan charge-off of $500,000 during the quarter. Peoples recognized a $450,000 charge-off on a commercial and industrial loan relationship, while also recording a $508,000 recovery on a previously charged-off commercial and industrial loan relationship during the fourth quarter of 2020. During the second quarter of 2020, Peoples recorded a $750,000 recovery on a commercial loan relationship that had been previously charged-off.The following table details Peoples’ nonperforming assets:
| | (Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Loans 90+ days past due and accruing: | | Loans 90+ days past due and accruing: | |
| Commercial real estate, other | $ | 1,272 |
| $ | 224 |
| $ | 456 |
| $ | 1,506 |
| $ | 1,636 |
| Commercial real estate, other | $ | 1,912 | | $ | 1,361 | | $ | 55 | | $ | — | | $ | 80 | |
| Commercial and industrial | 832 |
| 919 |
| 1,358 |
| 387 |
| 452 |
| Commercial and industrial | 98 | | 161 | | — | | 50 | | 74 | |
Premium finance | | Premium finance | 368 | | 216 | | 109 | | 205 | | — | |
Leases | | Leases | 1,736 | | 1,522 | | — | | — | | — | |
Residential real estate | 1,415 |
| 1,406 |
| 1,020 |
| 1,855 |
| 1,792 |
| Residential real estate | 1,156 | | 342 | | 662 | | 1,975 | | 2,548 | |
Home equity lines of credit | 15 |
| 34 |
| 111 |
| — |
| 199 |
| Home equity lines of credit | 61 | | 60 | | 180 | | 82 | | 27 | |
Consumer, indirect | — |
| — |
| 61 |
| — |
| 82 |
| Consumer, indirect | — | | 39 | | 24 | | 39 | | 86 | |
Consumer, other | 8 |
| — |
| — |
| 23 |
| — |
| |
Consumer, direct | | Consumer, direct | 32 | | 40 | | 14 | | 17 | | — | |
Consumer | 8 |
| — |
| 61 |
| 23 |
| 82 |
| Consumer | 32 | | 79 | | 38 | | 56 | | 86 | |
Total loans 90+ days past due and accruing | $ | 3,542 |
| $ | 2,583 |
| $ | 3,006 |
| $ | 3,771 |
| $ | 4,161 |
| Total loans 90+ days past due and accruing | $ | 5,363 | | $ | 3,741 | | $ | 1,044 | | $ | 2,368 | | $ | 2,815 | |
Nonaccrual loans: | | | | Nonaccrual loans: | | |
Commercial real estate, construction | $ | 776 |
| $ | 797 |
| $ | 819 |
| $ | 826 |
| $ | 855 |
| |
Construction | | Construction | $ | — | | $ | 4 | | $ | 4 | | $ | 4 | | $ | 4 | |
Commercial real estate, other | 7,321 |
| 7,711 |
| 8,893 |
| 10,792 |
| 10,020 |
| Commercial real estate, other | 17,207 | | 7,965 | | 8,084 | | 8,744 | | 8,762 | |
Commercial real estate | 8,097 |
| 8,508 |
| 9,712 |
| 11,618 |
| 10,875 |
| Commercial real estate | 17,207 | | 7,969 | | 8,088 | | 8,748 | | 8,766 | |
Commercial and industrial | 584 |
| 626 |
| 639 |
| 1,620 |
| 1,365 |
| Commercial and industrial | 4,133 | | 3,938 | | 4,067 | | 4,017 | | 4,067 | |
Leases | | Leases | 1,411 | | — | | — | | — | | — | |
Residential real estate | 4,055 |
| 4,271 |
| 4,019 |
| 4,481 |
| 3,951 |
| Residential real estate | 8,046 | | 5,811 | | 6,182 | | 6,080 | | 6,027 | |
Home equity lines of credit | 589 |
| 450 |
| 438 |
| 554 |
| 458 |
| Home equity lines of credit | 661 | | 572 | | 624 | | 708 | | 754 | |
Consumer, indirect | 79 |
| 138 |
| 153 |
| 9 |
| — |
| Consumer, indirect | 850 | | 704 | | 825 | | 883 | | 801 | |
Consumer, other | 31 |
| 23 |
| 1 |
| 81 |
| — |
| |
Consumer, direct | | Consumer, direct | 177 | | 100 | | 146 | | 160 | | 148 | |
Consumer | 110 |
| 161 |
| 154 |
| 90 |
| — |
| Consumer | 1,027 | | 804 | | 971 | | 1,043 | | 949 | |
Total nonaccrual loans | $ | 13,435 |
| $ | 14,016 |
| $ | 14,962 |
| $ | 18,363 |
| $ | 16,649 |
| Total nonaccrual loans | $ | 32,485 | | $ | 19,094 | | $ | 19,932 | | $ | 20,596 | | $ | 20,563 | |
Nonaccrual troubled debt restructurings ("TDRs"): | | Nonaccrual troubled debt restructurings ("TDRs"): | |
| Commercial real estate, other | | Commercial real estate, other | $ | 94 | | $ | 99 | | $ | 337 | | 367 | | $ | 772 | |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Nonaccrual troubled debt restructurings (TDRs): | | | | |
Commercial real estate, other | $ | 336 |
| $ | 335 |
| $ | 558 |
| $ | 751 |
| $ | 742 |
|
Commercial and industrial | 694 |
| 821 |
| 910 |
| 482 |
| 384 |
|
Residential real estate | 1,592 |
| 1,543 |
| 1,699 |
| 1,614 |
| 1,484 |
|
Home equity lines of credit | 85 |
| 101 |
| 102 |
| 60 |
| 47 |
|
Consumer, indirect | 75 |
| 102 |
| 58 |
| 6 |
| 30 |
|
Consumer, other | 2 |
| 3 |
| 4 |
| 49 |
| 10 |
|
Consumer | 77 |
| 105 |
| 62 |
| 55 |
| 40 |
|
Total nonaccrual TDRs | 2,784 |
| 2,905 |
| 3,331 |
| 2,962 |
| 2,697 |
|
Total nonperforming loans (NPLs) | $ | 19,761 |
| $ | 19,504 |
| $ | 21,299 |
| $ | 25,096 |
| $ | 23,507 |
|
Other real estate owned (OREO): | | | | | |
Commercial | $ | 167 |
| $ | 545 |
| $ | 545 |
| $ | 594 |
| $ | 594 |
|
Residential | 109 |
| 107 |
| 132 |
| 67 |
| 125 |
|
Total OREO | 276 |
| 652 |
| 677 |
| 661 |
| 719 |
|
Total nonperforming assets (NPAs) | $ | 20,037 |
| $ | 20,156 |
| $ | 21,976 |
| $ | 25,757 |
| $ | 24,226 |
|
Criticized loans (a)(c) | 96,671 |
| 111,480 |
| 101,284 |
| 99,182 |
| 99,294 |
|
Classified loans (b)(c) | 41,233 |
| 53,041 |
| 56,503 |
| 57,736 |
| 53,755 |
|
Asset Quality Ratios: | | | | | |
NPLs as a percent of total loans | 0.85 | % | 0.85 | % | 0.95 | % | 1.13 | % | 1.08 | % |
NPAs as a percent of total assets | 0.56 | % | 0.57 | % | 0.64 | % | 0.75 | % | 0.72 | % |
NPAs as a percent of total loans and OREO | 0.86 | % | 0.88 | % | 0.98 | % | 1.16 | % | 1.11 | % |
Allowance for loan losses as a percent of NPLs | 96.11 | % | 96.47 | % | 86.71 | % | 73.43 | % | 77.50 | % |
Criticized loans as a percent of total loans (a) | 4.15 | % | 4.86 | % | 4.50 | % | 4.46 | % | 4.58 | % |
Classified loans as a percent of total loans (b) | 1.77 | % | 2.31 | % | 2.51 | % | 2.59 | % | 2.48 | % |
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Commercial and industrial | 1,223 | | 1,774 | | 2,034 | | 2,175 | | 2,250 | |
Residential real estate | 1,689 | | 1,784 | | 2,064 | | 2,295 | | 2,481 | |
Home equity lines of credit | 315 | | 129 | | 156 | | 159 | | 165 | |
Consumer, indirect | 219 | | 193 | | 206 | | 190 | | 160 | |
Consumer, direct | 9 | | 6 | | 15 | | 11 | | 45 | |
Consumer | 228 | | 199 | | 221 | | 201 | | 205 | |
Total nonaccrual TDRs | $ | 3,549 | | $ | 3,985 | | $ | 4,812 | | $ | 5,197 | | $ | 5,873 | |
Total nonperforming loans ("NPLs") | $ | 41,397 | | $ | 26,820 | | $ | 25,788 | | $ | 28,161 | | $ | 29,251 | |
OREO: | | | | | |
Commercial | $ | 10,804 | | $ | — | | $ | — | | $ | — | | $ | 145 | |
Residential | $ | 464 | | $ | 239 | | $ | 134 | | $ | 134 | | $ | 148 | |
Total OREO | $ | 11,268 | | $ | 239 | | $ | 134 | | $ | 134 | | $ | 293 | |
Total nonperforming assets ("NPAs") | $ | 52,665 | | $ | 27,059 | | $ | 25,922 | | $ | 28,295 | | $ | 29,544 | |
Criticized loans (a) | $ | 234,845 | | $ | 113,802 | | $ | 116,424 | | $ | 126,619 | | $ | 123,219 | |
Classified loans (b) | 142,628 | | 69,166 | | 76,095 | | 72,518 | | 76,009 | |
Asset Quality Ratios (c): | | | | | |
NPLs as a percent of total loans (d) | 0.92 | % | 0.79 | % | 0.76 | % | 0.82 | % | 0.84 | % |
NPAs as a percent of total assets (d) | 0.75 | % | 0.53 | % | 0.50 | % | 0.59 | % | 0.60 | % |
NPAs as a percent of total loans and OREO(d) | 1.17 | % | 0.80 | % | 0.76 | % | 0.84 | % | 0.85 | % |
Allowance for credit losses as a percent of NPLs (d) | 186.93 | % | 178.75 | % | 174.10 | % | 180.14 | % | 198.72 | % |
Criticized loans as a percent of total loans (a) | 5.23 | % | 3.37 | % | 3.41 | % | 3.72 | % | 3.55 | % |
Classified loans as a percent of total loans (b) | 3.18 | % | 2.05 | % | 2.23 | % | 2.13 | % | 2.19 | % |
(a) Includes loans categorized as special mention, substandard or doubtful.
(b) Includes loans categorized as substandard or doubtful.
(c) Data presented as of the end of the period indicated.
(d) Nonperforming loans include loans 90+ days past due and accruing, TDRs and nonaccrual loans. Nonperforming assets include nonperforming loans and OREO.
During the third quarter of 2021, nonperforming assets increased $25.6 million, or 95%, compared to June 30, 2021. The increase in nonperforming assets compared to the prior quarter was primarily attributable to nonperforming loans and other real estate owned acquired from Premier. The nonperforming loans as a percent of total loans and nonperforming assets as a percent of total assets ratios both increased compared to June 30, 2021, due to the acquired nonperforming loans. The increase in nonperforming assets of $1.1 million at June 30, 2021, compared to March 31, 2021, was primarily due to acquisition of NSL. Nonperforming assets declined $2.3 million at March 31, 2021, compared to December 31, 2020, and was mostly due to several small relationships in both loans 90+ days past due and accruing and nonaccrual loans.
Criticized loans, which are those categorized as special mention, substandard or doubtful, increased $121.0 million, or 106%, compared to June 30, 2021 and increased $111.6 million, or 91%, compared to September 30, 2020. The increase in the amount of criticized loans compared to June 30, 2021 was the result of criticized loans acquired from Premier, offset by the pay-off of six commercial and industrial loans with an aggregate principal balance of $12.3 million and several smaller loans. Criticized loans declined $2.6 million at June 30, 2021, which was primarily due to the payoff of several smaller commercial loans.
Classified loans, which are those categorized as substandard or doubtful, increased by $73.5 million, or 106%, compared to June 30, 2021, and were up $66.6 million, or 88%, compared to September 30, 2020. The increase was driven by loans acquired from Premier.
On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred as to the approach, regarding accounting for loan modifications for borrowers affected by COVID-19. In this guidance, short-term modifications, made on a good faith basis in response to COVID-19, to borrowers who were current prior to any relief, are not considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment which are insignificant. Under the guidance, borrowers that are considered to be current are those that were less than 30 days past due on their contractual payments at the time a modification program is implemented. In addition, modification or deferral programs mandated by the U.S. federal government or any state government related to COVID-19 are not TDRs within the scope of ASC 310-40.
On August 3, 2020, federal and state banking regulators issued a joint statement, encouraging financial institutions to consider prudent accommodation options to mitigate losses for the borrower and financial institution beyond the initial accommodation period. In this guidance, institutions should also provide consumers with available options for repaying missed payments at the end of their accommodation to avoid delinquencies, as well as options for changes to terms to support sustainable and affordable payments for the long term. These considerations should also include prudent risk management practices at the financial institution based on the credit risk of the borrower. Peoples is actively working with its customers to address any further accommodation needs while carefully evaluating the associated credit risk of the borrowers.
Deposits
The following table details Peoples’ deposit balances:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Non-interest-bearing deposits (a) | $ | 1,559,993 | | $ | 1,181,045 | | $ | 1,206,034 | | $ | 997,323 | | $ | 982,912 | |
Interest-bearing deposits: | | | | | |
Interest-bearing demand accounts (a) | 1,140,639 | | 732,478 | | 722,470 | | 692,113 | | 666,134 | |
Savings accounts | 1,016,755 | | 689,086 | | 676,345 | | 628,190 | | 589,625 | |
Retail certificates of deposit ("CDs") | 691,680 | | 417,466 | | 433,214 | | 445,930 | | 461,216 | |
Money market deposit accounts | 637,635 | | 547,412 | | 586,099 | | 591,373 | | 581,398 | |
Governmental deposit accounts | 679,305 | | 498,390 | | 511,937 | | 385,384 | | 409,967 | |
Brokered deposits | 106,013 | | 166,746 | | 168,130 | | 170,146 | | 260,753 | |
Total interest-bearing deposits | 4,272,027 | | 3,051,578 | | 3,098,195 | | 2,913,136 | | 2,969,093 | |
Total deposits | $ | 5,832,020 | | $ | 4,232,623 | | $ | 4,304,229 | | $ | 3,910,459 | | $ | 3,952,005 | |
Demand deposits as a percent of total deposits | 46 | % | 45 | % | 45 | % | 43 | % | 42 | % |
| | | | | |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Non-interest-bearing deposits (a) | $ | 724,846 |
| $ | 772,061 |
| $ | 785,047 |
| $ | 734,421 |
| $ | 745,468 |
|
Interest-bearing deposits: | | | | | |
Retail certificates of deposit (CDs) (b) | 343,122 |
| 352,758 |
| 353,918 |
| 360,464 |
| 390,568 |
|
Money market deposit accounts | 388,876 |
| 397,211 |
| 386,999 |
| 407,754 |
| 411,111 |
|
Governmental deposit accounts | 289,895 |
| 297,560 |
| 330,477 |
| 251,671 |
| 286,716 |
|
Savings accounts | 440,633 |
| 443,110 |
| 445,720 |
| 436,344 |
| 438,087 |
|
Interest-bearing demand accounts (a) | 384,261 |
| 303,501 |
| 292,187 |
| 278,975 |
| 270,490 |
|
Brokered certificates of deposit (b) | 93,049 |
| 110,943 |
| 107,817 |
| 40,093 |
| 33,017 |
|
Total interest-bearing deposits | 1,939,836 |
| 1,905,083 |
| 1,917,118 |
| 1,775,301 |
| 1,829,989 |
|
Total deposits | $ | 2,664,682 |
| $ | 2,677,144 |
| $ | 2,702,165 |
| $ | 2,509,722 |
| $ | 2,575,457 |
|
| |
(a) | The sum of amounts presented are considered total demand deposits. |
| |
(b) | Prior periods reclassified. |
(a)The sum of amounts presented is considered total demand deposits.
At September 30, 2021, period-end deposits increased $1.6 billion, or 38%, compared to June 30, 2021, and increased $1.9 billion, or 48%, compared to September 30, 2020. The increase in total deposit balancesdeposits compared to June 30, 2021 was driven primarily by $1.8 billion in deposits acquired in the merger with Premier including $392.2 million in non-interest bearing deposits, $652.9 million in interest-bearing demand accounts, $327.0 million in savings accounts, $285.4 million in retail CDs, $155.6 million in money market accounts and $11.1 million in brokered deposits. The decrease in total deposits at June 30, 2021 compared to March 31, 2021 was related to declines in money market deposits, non-interest bearing deposits, and retail CDs. At March 31, 2021, compared to December 31, 2016 was primarily due to increases of $105.3 million in interest-bearing deposits, $53.0 million in brokered CDs and $38.2 million in governmental deposit accounts offset partially by2020, Peoples experienced a decrease of $9.6 million in non-interest-bearing demand deposits. Shifts in balances occurred between non-interest-
bearing deposits and interest-bearing demand account balances as consumers are being migrated to new products during the third quarter and continuing into the fourth quarter, of 2017. During this migration, customer accounts are evaluated based on certain characteristics, and some accounts that were traditionally non-interest-bearing deposits are being converted to interest-bearing demand accounts. The increase in brokered CDs was the result of adding relatively shorter term funding on the balance sheet while thesignificant increase in governmental deposit accounts, which was primarilymostly due to seasonality.seasonal fluctuation within these accounts.
Total demanddeposits in all periods presented were higher due to customers maintaining larger balances, as a result of PPP loan proceeds, fiscal stimulus payments and changes in customer spending habits in light of the COVID-19 pandemic. In prior quarterly periods in the table above, Peoples experienced increases in most low-cost deposit accounts comprised 42% of total deposits at September 30, 2017, compared to 40% at June 30, 2017 and December 31, 2016, and 39% at September 30, 2016. categories.
Peoples continues its deposit strategy of growing low-cost core deposits, such as checking and savings accounts, and reducingreduced its reliance on brokered deposits in each quarterly period, beginning after June 30, 2020. This decline was largely due to the increase in deposit balances from customers, which allowed Peoples to reduce its position in the higher-cost non-corebrokered CDs during each period. As part of its funding strategy, Peoples hedges 90-day brokered deposits suchwith interest rate swaps. The swaps pay a fixed rate of interest while receiving three-month LIBOR, which offsets the rate on the brokered deposits. As of September 30, 2021, Peoples had 16 effective interest rate swaps, with an aggregate notional value of $150.0 million, of which $100.0 million were designated as retail CDs.cash flow hedges of overnight brokered deposits, which are expected to be extended every 90 days through the maturity dates of the swaps. The remaining $50.0 million of interest rate swaps hedged 90-day FHLB advances, which are also expected to be extended every 90 days through the maturity dates of the swaps. Peoples continually evaluates the overall balance sheet position given the interest rate environment.
Borrowed Funds
The following table details Peoples’ short-term and long-term borrowings:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Short-term borrowings: | | | | | |
| | | | | |
FHLB 90-day advances | $ | 50,000 | | $ | — | | $ | — | | $ | — | | $ | 110,000 | |
Current portion of long-term FHLB advances | 15,000 | | 15,000 | | 20,000 | | 20,000 | | 25,000 | |
Retail repurchase agreements | 119,693 | | 51,496 | | 47,868 | | 53,261 | | 47,063 | |
| | | | | |
Total short-term borrowings | $ | 184,693 | | $ | 66,496 | | $ | 67,868 | | $ | 73,261 | | $ | 182,063 | |
Long-term borrowings: | | | | | |
FHLB advances | $ | 86,483 | | $ | 87,393 | | $ | 102,645 | | $ | 102,957 | | $ | 103,815 | |
| | | | | |
| | | | | |
| | | | | |
Junior subordinated debt securities | 12,928 | | 7,688 | | 7,650 | | 7,611 | | 7,571 | |
Total long-term borrowings | $ | 99,411 | | $ | 95,081 | | $ | 110,295 | | $ | 110,568 | | $ | 111,386 | |
Total borrowed funds | $ | 284,104 | | $ | 161,577 | | $ | 178,163 | | $ | 183,829 | | $ | 293,449 | |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Short-term borrowings: | | | | | |
FHLB advances | $ | 116,597 |
| $ | 65,000 |
| $ | 32,000 |
| $ | 231,000 |
| $ | 90,000 |
|
Retail repurchase agreements | 77,120 |
| 77,532 |
| 73,752 |
| 74,607 |
| 72,807 |
|
Total short-term borrowings | 193,717 |
| 142,532 |
| 105,752 |
| 305,607 |
| 162,807 |
|
Long-term borrowings: | | | | | |
FHLB advances | 148,862 |
| 172,038 |
| 127,581 |
| 98,282 |
| 100,743 |
|
National market repurchase agreements | 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
|
Unamortized debt issuance costs | (33 | ) | (39 | ) | (45 | ) | (51 | ) | (57 | ) |
Junior subordinated debt securities | 7,061 |
| 7,015 |
| 6,970 |
| 6,924 |
| 6,877 |
|
Total long-term borrowings | 195,890 |
| 219,014 |
| 174,506 |
| 145,155 |
| 147,563 |
|
Total borrowed funds | $ | 389,607 |
| $ | 361,546 |
| $ | 280,258 |
| $ | 450,762 |
| $ | 310,370 |
|
Peoples' short-term FHLB advances generally consist ofBorrowed funds, in total, which include overnight borrowings, maintainedare mainly a function of loan growth and changes in connection with the management of Peoples' daily liquidity position. Peoples' short-term FHLB advances at September 30, 2017total deposit balances. Total borrowed funds increased $51.6 million and $84.6 million76% compared to June 30, 20172021, primarily due to the addition of $63.8 million retail
repurchase agreements from Premier. The decline in borrowed funds at September 30, 2021, compared to September 30, 2020 was mostly due to swap funding being moved to brokered deposits rather than the use of rolling 90-day advances to fund liquidity needs, which was partially offset by the acquired retail repurchase agreements from Premier during the third quarter of 2021.
Accrued Expenses and March 31, 2017, respectively.Other Liabilities
Accrued expenses and other liabilities increased $23.8 million, or 27%, compared to June 30, 2021 and increased $12.2 million compared to September 30, 2020. The increase in short-term borrowings wascompared to fund loan growth duringthe end of the second quarter of 2021 was the result of an increase in interest payable and third quarters of 2017. Peoples continually evaluates the overall balance sheet position given the interest rate environment.
Dueother liabilities offset by with changes related to the interest rate environment, Peoples took action with respectfair value of swap derivatives at September 30, 2021. The increase compared to $80 millionthe end of long-term borrowings that were scheduled to mature in 2018, with interest rates ranging from 2.79% to 3.92%. During the firstthird quarter of 2017, and throughout 2016, these actions included:
| |
▪ | On January 27, 2017, Peoples entered into two $10.0 million forward starting interest rate swaps, which will become effective in 2018 and mature between 2025 and 2027, with interest rates ranging from 2.47% to 2.53%. |
| |
▪ | During the fourth quarter of 2016, Peoples entered into two $5.0 million forward starting interest rate swaps, which become effective in 2018 and mature in 2022 and 2026, with interest rates of 1.56% and 1.83%. |
| |
▪ | During the second quarter of 2016, Peoples executed the following transactions to take advantage of the low interest rates: |
Peoples restructured $20.0 million2020 was also the result of FHLB borrowings that hadan increase in accrued interest payable offset by a weighted-average ratedecrease in the fair value of 2.97%, resulting in a $700,000 loss. Peoples replaced these borrowings with a long-term FHLB advance, which had an interest rate of 2.17% and matures in 2026.
Peoples borrowed an additional $35.0 million of long-term FHLB amortizing advances, which had interest rates ranging from 1.08% to 1.40%, and mature between 2019 and 2031.
Peoples entered into three $10.0 million forward starting interest rate swaps, which become effective in 2018 and mature between 2023 and 2025, with interest rates ranging from 1.49% to 1.56%swap derivatives . These swaps locked in funding rates for $40.0 million in FHLB advances that mature in 2018, which have interest rates ranging from 3.65% to 3.92%
Additional information regarding Peoples' interest rate swaps can be found in Note 9"Note 10 Derivative Financial Instruments" of the Notes to the UnconsolidatedUnaudited Condensed Consolidated Financial Statements.
Capital/Stockholders’ Equity
At September 30, 2017,2021, capital levels for both Peoples and Peoples Bank remained substantially higher than the minimum amounts needed to be considered "well capitalized" institutions under applicable banking regulations. These higher capital levels reflect Peoples' desire to maintain a strong capital position. During the first quarter of 2015, Peoples adopted the Basel III regulatory capital framework, as approved by the federal banking agencies. The adoption of this new framework modified the calculations and well capitalized thresholds of the existing risk-based capital ratios and added the new Common Equity Tier 1 risk-based capital ratio. Additionally, under the new rules, inIn 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. The capital conservation buffer is being phased in from 0.625% beginning January 1, 2016 toof 2.50% by January 1, 2019, and, which applies to the Common Equity Tiercommon equity tier 1 ("CET1") ratio, the tier 1 capital ratio and the total risk-based capital ratio. At September 30, 2017, Peoples'2021, Peoples had a capital conservation buffer of 6.49%, compared to 2.50% for the fully phased-in capital conservation buffer required by January 1, 2019. As such, Peoples exceeded the minimum ratios including the capital conservation buffer at September 30, 2017.5.83%.
The following table details Peoples' risk-based capital levels and corresponding ratios:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Capital Amounts: | | | | | |
Common Equity Tier 1 | $ | 567,172 | | $ | 383,502 | | $ | 418,089 | | $ | 409,400 | | $ | 398,553 | |
Tier 1 | 580,100 | | 391,190 | | 425,739 | | 417,011 | | 406,124 | |
Total (Tier 1 and Tier 2) | 637,802 | | 431,424 | | 463,872 | | 456,384 | | 445,101 | |
Net risk-weighted assets | $ | 4,611,321 | | $ | 3,382,736 | | $ | 3,365,637 | | $ | 3,146,767 | | $ | 3,106,817 | |
Capital Ratios: | | | | | |
Common Equity Tier 1 | 12.30 | % | 11.34 | % | 12.42 | % | 13.01 | % | 12.83 | % |
Tier 1 | 12.58 | % | 11.56 | % | 12.65 | % | 13.25 | % | 13.07 | % |
Total (Tier 1 and Tier 2) | 13.83 | % | 12.75 | % | 13.78 | % | 14.50 | % | 14.33 | % |
Tier 1 leverage ratio | 11.20 | % | 7.87 | % | 9.00 | % | 8.97 | % | 8.62 | % |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Capital Amounts: | | | | | |
Common Equity Tier 1 | $ | 326,966 |
| $ | 318,849 |
| $ | 310,856 |
| $ | 306,506 |
| $ | 301,222 |
|
Tier 1 | 334,027 |
| 325,865 |
| 317,826 |
| 313,430 |
| 308,099 |
|
Total (Tier 1 and Tier 2) | 355,951 |
| 348,309 |
| 340,147 |
| 334,957 |
| 328,948 |
|
Net risk-weighted assets | $ | 2,456,797 |
| $ | 2,419,335 |
| $ | 2,382,874 |
| $ | 2,373,359 |
| $ | 2,309,951 |
|
Capital Ratios: | | | | | |
Common Equity Tier 1 | 13.31 | % | 13.18 | % | 13.05 | % | 12.91 | % | 13.04 | % |
Tier 1 | 13.60 | % | 13.47 | % | 13.34 | % | 13.21 | % | 13.34 | % |
Total (Tier 1 and Tier 2) | 14.49 | % | 14.40 | % | 14.27 | % | 14.11 | % | 14.24 | % |
Leverage ratio | 9.82 | % | 9.72 | % | 9.60 | % | 9.66 | % | 9.71 | % |
During the third quarter of 2021, Peoples' reported a net loss of $5.8 million and declared dividends of $7.1 million. However, regulatory capital ratioslevels increased due to the merger with Premier. Net risk-weighted assets grew compared to June 30, 2017 and December 31, 2016, largely2021 mostly due to increased earnings which exceeded the dividends declaredmerger with Premier, along with growth in premium finance loans and paidgrowth in leases during the periods, coupled with relatively stablequarter. The NSL acquisition negatively impacted the regulatory capital ratios at March 31, 2021, as the purchase price was included in net risk-weighted assets.assets and there was no capital issued in connection with the NSL acquisition.
In 2020, Peoples repurchased common shares during each quarter of the year, which reduced regulatory capital levels. Peoples also completed the Premium Finance acquisition on July 1, 2020, which impacted regulatory capital levels due to the recognition of goodwill and intangibles associated with the acquisition. Peoples did not repurchase any common shares in the first nine months of 2021.
In addition to traditional capital measurements, management uses tangible capital measures to evaluate the adequacy of Peoples' stockholders' equity. Such ratios represent non-GAAPNon-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-GAAPNon-US GAAP financial measures to amounts reported in Peoples' Unaudited Condensed Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Tangible equity: | | | | | |
Total stockholders' equity | $ | 831,882 | | $ | 585,505 | | $ | 578,893 | | $ | 575,673 | | $ | 566,856 | |
Less: goodwill and other intangible assets | 295,415 | | 221,576 | | 184,007 | | 184,597 | | 185,397 | |
Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Tangible assets: | | | | | |
Total assets | $ | 7,059,752 | | $ | 5,067,634 | | $ | 5,143,052 | | $ | 4,760,764 | | $ | 4,911,807 | |
Less: goodwill and other intangible assets | 295,415 | | 221,576 | | 184,007 | | 184,597 | | 185,397 | |
Tangible assets | $ | 6,764,337 | | $ | 4,846,058 | | $ | 4,959,045 | | $ | 4,576,167 | | $ | 4,726,410 | |
| | | | | |
Tangible book value per common share: | | | | |
Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | |
Common shares outstanding | 28,265,791 | | 19,660,877 | | 19,629,633 | | 19,563,979 | | 19,721,783 | |
| | | | | |
Tangible book value per common share | $ | 18.98 | | $ | 18.51 | | $ | 20.12 | | $ | 19.99 | | $ | 19.34 | |
| | | | | |
Tangible equity to tangible assets ratio: | | | | |
Tangible equity | $ | 536,467 | | $ | 363,929 | | $ | 394,886 | | $ | 391,076 | | $ | 381,459 | |
Tangible assets | $ | 6,764,337 | | $ | 4,846,058 | | $ | 4,959,045 | | $ | 4,576,167 | | $ | 4,726,410 | |
| | | | | |
Tangible equity to tangible assets | 7.93 | % | 7.51 | % | 7.96 | % | 8.55 | % | 8.07 | % |
| | | | | |
| | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Tangible equity: | | | | | |
Total stockholders' equity | $ | 457,386 |
| $ | 451,353 |
| $ | 443,009 |
| $ | 435,261 |
| $ | 440,637 |
|
Less: goodwill and other intangible assets | 143,859 |
| 144,692 |
| 145,505 |
| 146,018 |
| 147,005 |
|
Tangible equity | $ | 313,527 |
| $ | 306,661 |
| $ | 297,504 |
| $ | 289,243 |
| $ | 293,632 |
|
Tangible assets: | | | | | |
Total assets | $ | 3,552,412 |
| $ | 3,525,126 |
| $ | 3,459,276 |
| $ | 3,432,348 |
| $ | 3,363,585 |
|
Less: goodwill and other intangible assets | 143,859 |
| 144,692 |
| 145,505 |
| 146,018 |
| 147,005 |
|
Tangible assets | $ | 3,408,553 |
| $ | 3,380,434 |
| $ | 3,313,771 |
| $ | 3,286,330 |
| $ | 3,216,580 |
|
Tangible book value per common share: | | | | |
Tangible equity | $ | 313,527 |
| $ | 306,661 |
| $ | 297,504 |
| $ | 289,243 |
| $ | 293,632 |
|
Common shares outstanding | 18,281,194 |
| 18,279,036 |
| 18,270,508 |
| 18,200,067 |
| 18,195,986 |
|
Tangible book value per common share | $ | 17.15 |
| $ | 16.78 |
| $ | 16.28 |
| $ | 15.89 |
| $ | 16.14 |
|
Tangible equity to tangible assets ratio: | | | | |
Tangible equity | $ | 313,527 |
| $ | 306,661 |
| $ | 297,504 |
| $ | 289,243 |
| $ | 293,632 |
|
Tangible assets | $ | 3,408,553 |
| $ | 3,380,434 |
| $ | 3,313,771 |
| $ | 3,286,330 |
| $ | 3,216,580 |
|
Tangible equity to tangible assets | 9.20 | % | 9.07 | % | 8.98 | % | 8.80 | % | 9.13 | % |
Tangible book value per common share increased to $18.98 at September 30, 2021, compared to $18.51 at June 30, 2021. The change in tangible book value per common share was due to tangible equity increasing at a higher rate than shares outstanding during the third quarter of 2021. The increase in tangible book value per common share at December 31, 2020, compared to September 30, 2020, was the result of higher stockholders' equity as net income exceeded dividends declared during the period, as well as a reduction in common shares outstanding as Peoples actively repurchased common shares.The tangible equity to tangible assets ratio increased at September 30, 2021 compared to June 30, 2021. This increase was driven by higher tangible assets related to the merger with Premier which provided for increases in loans, investment securities, cash and cash equivalents, and other assets, coupled with the intangible assets recorded during the third quarter of 2021 associated with the merger with Premier and the NSL acquisition. The decline in the tangible equity to tangible assets ratio at September 30, 2017March 31, 2021 compared to June 30, 2017, March 31, 2017 and December 31, 20162020, was mostlylargely due to higher net income, coupled with an increase in accumulated other comprehensive incomeassets that was driven by the NSL acquisition, for which the purchase price was paid and recorded on March 31, 2021. The higher tangible equity to tangible assets ratio at December 31, 2020, compared to September 30, 2020, was attributable to higher tangible equity, while tangible assets declined due to a slight recoveryreductions in the market value of investment securities.securities and total loans.
Interest Rate Sensitivity and Liquidity
While Peoples is exposed to various business risks, the risks relating to interest rate sensitivity and liquidity are major risks that can materially impact future results of operations and financial condition due to their complexity and dynamic nature. The objective of Peoples' asset/liabilityasset-liability management (“ALM”) 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 ALMasset-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”("IRR") is one of the most significant risks arising in the normal course of business of financial services companies like Peoples. IRR is the potential for economic loss due to future interest rate changes that can impact the earnings stream, as well as market values, of financial assets and liabilities. Peoples' exposure to IRR is due primarily to differences in the maturity or repricing of earning assets and interest-bearing liabilities. In addition, other factors, such as prepayments of loans and investment securities, or early withdrawal of deposits, can expose Peoplesaffect Peoples' exposure to IRR and increase interest costs or reduce revenue streams.
Peoples has assigned overall management of IRR to its Asset-Liability Committee (the “ALCO”), which has established an IRR management policy that sets minimum requirements and guidelines for monitoring and managing the level of IRR. The methods used by the ALCO to assess IRR remain largely unchanged from those disclosed in Peoples' 20162020 Form 10-K.
The following table shows the estimated changes in net interest income and the economic value of equity based upon a standard, parallel shock analysis with balances held constant (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Increase in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated Decrease in Economic Value of Equity |
(in Basis Points) | September 30, 2017 | | December 31, 2016 | | September 30, 2017 | | December 31, 2016 |
300 | $ | 4,572 |
| | 4.0 | % | | $ | (1,100 | ) | (1.0 | )% | | $ | (89,378 | ) | | (13.1 | )% | | $ | (88,004 | ) | (15.0 | )% |
200 | 3,805 |
| | 3.3 | % | | 83 |
| 0.1 | % | | (60,496 | ) | | (8.9 | )% | | (57,925 | ) | (9.9 | )% |
100 | 2,496 |
| | 2.2 | % | | 603 |
| 0.6 | % | | (29,942 | ) | | (4.4 | )% | | (27,441 | ) | (4.7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Increase (Decrease) in Interest Rate | Estimated Increase (Decrease) in Net Interest Income | | Estimated Increase (Decrease) in Economic Value of Equity |
(in Basis Points) | September 30, 2021 | | December 31, 2020 | | September 30, 2021 | | December 31, 2020 |
300 | $ | 26,191 | | | 12.5 | % | | $ | 22,034 | | 17.3 | % | | $ | 12,475 | | | 1.0 | % | | $ | 117,235 | | 15.7 | % |
200 | 17,360 | | | 8.3 | % | | 15,899 | | 12.5 | % | | 11,544 | | | 0.9 | % | | 95,189 | | 12.7 | % |
100 | 8,646 | | | 4.1 | % | | 8,981 | | 7.1 | % | | 10,550 | | | 0.8 | % | | 60,384 | | 8.1 | % |
(100) | (9,792) | | | (4.7) | % | | (7,030) | | (5.5) | % | | (120,471) | | | (9.6) | % | | (116,205) | | (15.5) | % |
| | | | | | | | | | | | | |
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.rates, as well as assumptions regarding prepayment speeds on mortgage-backed securities. These and other modeling assumptions are monitored closely by Peoples on an ongoing basis.
With respect to investment prepayment speeds, the assumptions used are the results of a third-party prepayment model which projects the rate at which the underlying mortgages will prepay. These prepayment speeds affect the amount forecasted for cash flow reinvestment, premium amortization, and were last updateddiscount accretion assumed in May 2017.
At September 30, 2017, Peoples' Unaudited Consolidated Balance Sheet remained positioned for a rising interest rate environment,risk modeling results. This prepayment activity is generally the result of refinancing activity and tends to increase as illustrated bylonger term interest rates decline, much like the potential increasecurrent environment. The assumptions in the interest rate risk model could be incorrect, leading to either a lesser or greater impact on net interest income shown in the above table. or asset duration.
While parallel interest rate shock scenarios are useful in assessing the level of IRR inherent in Peoples' Unaudited Consolidated Balance Sheet,the balance sheet, interest rates typically move in a non-parallelnonparallel manner with differences in the timing, direction and magnitude of changes in short-term and long-term interest rates. Thus, any benefit that couldmight occur as a result of the Federal Reserve Board increasing short-term interest rates in the future quarters could be offset by an inverse movement in long-term rates, and vice versa. For this reason, Peoples considers other interest rate scenarios in addition to analyzing the impact of parallel yield curve shifts. These include various flattening and steepening scenarios in which short-term and long-term rates move in different directions with varying magnitude. Peoples believes these scenarios to be more reflective of how interest rates change versus the severe parallel rate shocks described above. Given the shape of market yield curves at September 30, 2021, consideration of the bear steepener and bull flattener scenarios provides insights which were not captured by parallel shifts. These scenarios were evaluated as the current environment suggests these may be possible outcomes for the trajectory of interest rates.
The bear steepener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates rise. In such a scenario, Peoples' deposit and borrowing costs, which are correlated with short-term rates, remain constant, while asset yields, which are correlated with long-term rates, rise. Increased asset yields would not be offset by increases in deposit or funding costs; resulting in an increased amount of net interest income and higher net interest margin. At September 30, 2021, the bear steepener scenario resulted in an increase in both net interest income and the economic value of equity of 0.8% and 5.5%, respectively.
The bull flattener scenario highlights the risk to net interest income and the economic value of equity when short-term rates remain constant while long-term rates fall. In such a scenario, Peoples’ deposit and borrowing costs, which are correlated with short-term rates, remain constant while asset yields, which are correlated with long-term rates, fall. Asset yields driven lower by increased investment securities premium amortization would not be offset by reductions in deposit or funding costs; resulting in a decreased amount of net interest income and lower net interest margin. At September 30, 2021, the bull flattener scenario resulted in a decrease in both net interest income and the economic value of equity of -0.5% and -0.9%, respectively. Peoples was within the policy limitations for this alternative scenario as of September 30, 2021, which sets the maximum allowable downside exposure as 5.0% of net interest income and 10.0% of economic value of equity.
Peoples has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2017,2021, Peoples had sevenentered into sixteen interest rate swap contracts with an aggregate notional value of $150.0 million. Additional information regarding Peoples’ interest rate swaps with a notionalcan be found in “Note 10 Derivative Financial Instruments” of the Notes to the Unaudited Condensed Consolidated Financial Statements.
At September 30, 2021, Peoples' Unaudited Consolidated Balance Sheet was positioned to benefit from rising interest rates in terms of the potential impact on net interest income and the economic value of $60.0 million.equity. The table above illustrates this point as changes to net interest income increase in the rising rate scenarios. While the heavy concentration of floating rate loans remains the largest contributor to the level of asset sensitivity, the decrease in economic value of equity asset sensitivity, as measured, from December 31, 2020 was largely attributable to increased effective duration in the investment securities portfolio.
Liquidity
In addition to IRR management, another major objective of the ALCO is to maintain a sufficient level of liquidity. The methods used by the ALCO to monitor and evaluate the adequacy of Peoples'Peoples Bank's liquidity position remain unchanged from those disclosed in Peoples' 20162020 Form 10-K.
At September 30, 2017,2021, Peoples Bank had liquid assets of $173.5$607.8 million, which represented 4.4%7.7% of total assets and unfunded loan commitments. This amount exceeded the minimal level by $94.6 million, or 2.4% of total loans and unfunded commitments, currently required under Peoples' liquidity policy. Peoples also had an additional $71.6$246.5 million of unpledged investment securities not included in the measurement of liquid assets.
Management believes the current balance of cash and cash equivalents, and anticipated investment portfolio cash flows from the investment portfolio, along withand the availability of other funding sources, will allow Peoples to meet anticipated cash obligations, as well as special needs and off-balance sheet commitments.
Since March 31, 2020, there has been an increase in deposit balances due to the influx of funds from the government fiscal stimulus, the PPP and other government actions. Peoples anticipates that these deposit balances will decline over time as the funds are used for intended business purposes; however, this deposit outflow should be partially offset as the associated PPP loans are forgiven and loan reimbursement funds are received. At the same time, we have experienced a decrease in the utilization rate for commercial lines of credit. This decrease is related to the receipt of PPP loan proceeds and other increased cash flows to certain companies. Peoples expects the commercial line of credit utilization percentage to revert back to more historical averages as time progresses. The utilization percentage for consumer line of credit products has been relatively steady. Off-Balance Sheet Activities and Contractual Obligations
In the normal course of business, Peoples is a party to financial instruments with off-balance sheet risk necessary to meet the financing needs of Peoples' customers. These financial instruments include commitments to extend credit and standby letters of credit. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract amounts of these instruments express the extent of involvement Peoples has in these financial instruments.
Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of Peoples' customers. Standby letters of credit are instruments issued by Peoples Bank guaranteeing the beneficiary payment by Peoples Bank in the event of default by Peoples Bank's customer in the performance of an obligation or service. Historically, most loan commitments and standby letters of credit expire unused. Peoples'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 consolidated financial statements.Unaudited Condensed Consolidated Financial Statements. These activities are part of Peoples'Peoples Bank's normal course of business and include traditional off-balance sheet credit-related financial instruments, interest rate contracts and commitments to make additional
capital contributions in low-income housing tax credit investments. Traditional off-balance sheet credit-related financial instruments continue to represent the most significant off-balance sheet exposure.
The following table details the total contractual amount of loan commitments and standby letters of credit:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 |
Home equity lines of credit | $ | 177,963 | | $ | 134,516 | | $ | 124,027 | | $ | 117,792 | | $ | 113,185 | |
Unadvanced construction loans | 271,483 | | 207,403 | | 190,715 | | 141,009 | | 123,338 | |
Other loan commitments | 646,374 | | 542,429 | | 555,102 | | 535,250 | | 498,472 | |
Loan commitments | $ | 1,095,820 | | $ | 884,348 | | $ | 869,844 | | $ | 794,051 | | $ | 734,995 | |
Standby letters of credit | $ | 12,358 | | $ | 10,252 | | $ | 10,295 | | $ | 14,342 | | $ | 13,177 | |
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| | | | | | | | | | | | | | | |
(Dollars in thousands) | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 |
Home equity lines of credit | $ | 84,101 |
| $ | 86,086 |
| $ | 86,037 |
| $ | 85,024 |
| $ | 83,267 |
|
Unadvanced construction loans | 103,732 |
| 92,669 |
| 116,168 |
| 119,075 |
| 100,484 |
|
Other loan commitments | 280,974 |
| 302,710 |
| 267,132 |
| 269,669 |
| 268,259 |
|
Loan commitments | $ | 468,807 |
| $ | 481,465 |
| $ | 469,337 |
| $ | 473,768 |
| $ | 452,010 |
|
Standby letters of credit | $ | 21,788 |
| $ | 26,458 |
| $ | 25,797 |
| $ | 25,651 |
| $ | 27,072 |
|
The increase in loan commitments at September 30, 2021 was primarily the result of the Premier acquisition. Management does not anticipate that Peoples’Peoples Bank’s current off-balance sheet activities will have a material impact on its future results of operations and financial condition based on historical experience and recent trends.
ITEM 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 AND FINANCIAL CONDITION”OPERATIONS” in this Quarterly Report on Form 10-Q, and is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Peoples' management, with the participation of Peoples' President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer, has evaluated the effectiveness of Peoples’ disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2017.2021. Based upon that evaluation, Peoples’ President and Chief Executive Officer and Peoples’ Executive Vice President, Chief Financial Officer and Treasurer have concluded that:
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(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; |
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(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 |
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(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. |
(a)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be accumulated and communicated to Peoples’ management, including its President and Chief Executive Officer and its Executive Vice President, Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure;
(b)information required to be disclosed by Peoples in this Quarterly Report on Form 10-Q and other reports Peoples files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
(c)Peoples’ disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in Peoples' internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during Peoples' fiscal quarter ended September 30, 2017,2021, 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
In the ordinary course of their respective businesses or operations, Peoples or one of its subsidiaries may be named as a plaintiff, a defendant, or a party to a legal proceeding or any of their respective properties may be subject to various pending and threatened legal proceedings and various actual and potential claims. In view of the inherent difficulty of predicting the outcome of such matters, Peoples cannot state what the eventual outcome of any such matters will be. However, based on management's current knowledge and after consultation with legal counsel, management believes these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Peoples.
ITEM 1A. RISK FACTORS
The accounting treatment ofdisclosure below supplements the interest rate swaps entered into by Peoples as part of its interest rate management strategy, may change if the hedging relationship is not as effective as currently anticipated. These interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from a counterparty in exchange for Peoples making fixed payments. As of September 30, 2017, Peoples had 7 interest rate swaps with a notional value of $60.0 million. The swaps become effective in 2018, roughly to coincide with the maturity of existing FHLB advances.
Although Peoples expects that the hedging relationship will be highly effective as described above, it has not assumed that there will be no ineffectiveness in the hedging relationship. As of September 30, 2017, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $0.9 million. As of September 30, 2017, Peoples has no minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $6.0 million against its obligations under these agreements. If Peoples had breached any of these provisions at September 30, 2017, it could have been required to settle its obligations under the agreements at the termination value.
There have been no other material changes from those risk factors previously disclosed inunder “ITEM 1A. RISK FACTORS” of Part I of Peoples’ 20162020 Form 10-K. Those risk factors are not the only risks Peoples faces. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect Peoples’ business, financial condition and/or operating results.
Changes in the federal, state, or local tax laws may negatively impact our financial performance. On October 28, 2021, President Biden unveiled his revised infrastructure plan, which removed a proposal to implement an increase in the federal corporate income tax rate, but would implement a stock buyback tax as part of a package of tax reforms to help fund the spending proposals in the plan. The revised Biden plan is in the early stages of the legislative process. If adopted as proposed, the stock buyback tax could adversely affect Peoples' determination to repurchase common shares in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table details repurchases by Peoples and purchases by “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of Peoples’ common shares during the three months ended September 30, 2017:2021:
| | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Common Shares Purchased | | Average Price Paid per Common Share | | Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Number (or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1 – 31, 2021 | — | |
| $ | — | |
| — | | $ | 30,000,000 | |
August 1 – 31, 2021 | 1,363 | | (2) | $ | 29.07 | | (2) | — | | $ | 30,000,000 | |
September 1 – 30, 2021 | 700 | | (3) | $ | 31.22 | | (3) | — | | $ | 30,000,000 | |
Total | 2,063 | | | $ | 29.80 | | | — | | $ | 30,000,000 | |
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| | | | | | | | | | | | |
Period | (a) Total Number of Common Shares Purchased | | (b) Average Price Paid per Common Share | | (c) Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Maximum Number ( or Approximate Dollar Value) of Common Shares that May Yet Be Purchased Under the Plans or Programs (1) |
July 1- 31, 2017 | — |
|
| $ | — |
| | — |
| $ | 15,049,184 |
|
August 1-31, 2017 | — |
| | — |
| | — |
| 15,049,184 |
|
September 1-30, 2017 (2)(3) | 2,380 |
| | 31.23 |
| | — |
| 15,049,184 |
|
Total | 2,380 |
| | $ | 31.23 |
| | — |
| $ | 15,049,184 |
|
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(1) | On November 3, 2015, Peoples announced that on that same date, Peoples' Board of Directors authorized a share repurchase program authorizing Peoples to purchase up to $20.0 million of its outstanding common shares. No common shares were purchased under this share repurchase program during the three months ended September 30, 2017. |
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(2) | Information reported includes 1,324 common shares withheld in September, to pay income tax associated with restricted common shares which vested. |
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(3) | Information reported includes 1,056 common shares purchased in open market transactions during September 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. |
(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 no common shares repurchased under the share repurchase program during the three months ended September 30, 2021.
(2)Information reported includes an aggregate of 1,363 common shares withheld to satisfy income taxes associated with restricted common shares which were granted under the Peoples Bancorp Inc. Third Amended and Restated 2006 Equity Plan and vested during August 2021.
(3)Information reported includes 700 common shares purchased in open market transactions during September 2021 by Peoples Bank under the Rabbi Trust Agreement. The Rabbi Trust Agreement establishes a rabbi trust that holds assets to provide funds for the payment of the benefits under the Peoples Bancorp Inc. Third Amended and Restated Deferred Compensation Plan for Directors of Peoples Bancorp Inc. and Subsidiaries.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
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Exhibit Number | | Description | Exhibit Location | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit
| | DescriptionAgreement and Plan of Merger, dated as of March 26, 2021, by and between Peoples Bancorp Inc. and Premier Financial Bancorp, Inc.+
| | Incorporated herein by reference to Exhibit Location 2.1 to the Current Report of Peoples Bancorp Inc. ("Peoples") on Form 8-K dated and filed on March 31, 2021 (File No. 0-16772) | | | | | | 3.1(a) | | Amended Articles of Incorporation of Peoples Bancorp Inc. (as filed with the Ohio Secretary of State on May 3, 1993)P | | Incorporated herein by reference to Exhibit 3(a) to thePeoples' Registration Statement on Form 8-B of Peoples Bancorp Inc. ("Peoples") filed on July 20, 1993 (File No. 0-16772) | | | | | | | | 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) | | Filed herewithIncorporated 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") | | | | | |
| | | | | | Exhibit
| | Description
| | Exhibit Location
| | | | | | | | 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) | | Filed herewithIncorporated herein by reference to Exhibit 3.1(c) to Peoples' September 30, 2017 Form 10-Q | | | | | | | | 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”) | | | | | | | | 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) | | | | | | | | Certificate of Amendment by Directors to Articles filed with the Ohio Secretary of State of the State of Ohio 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) | | | | | | | | Amended ArticlesCertificate of Incorporation of Peoples Bancorp Inc. (This document representsAmendment by the Shareholders to the Amended Articles of Incorporation of Peoples Bancorp Inc. in compiled form incorporating all amendments. The compiled document has not been(as filed with the Ohio Secretary of State.)State on July 28, 2021) | | Incorporated herein by reference to Exhibit 3.1(g) to Peoples’ AnnualPeoples' Quarterly Report on Form 10-K10-Q for the fiscal yearquarterly period ended December 31, 2008June 30, 2021 (File No. 0-16772) ("Peoples' June 30, 2021 Form 10-Q") | | | | | | 3.2(a) | | Amended Articles of Incorporation of Peoples Bancorp Inc. (representing the Amended Articles of Incorporation in compiled form incorporating all amendments through the date of this Quarterly Report on Form 10-Q) [For purposes of SEC reporting compliance only--not filed with Ohio Secretary of State]
| | Incorporated herein by reference to Exhibit 3.1(h) to Peoples' June 30, 2021 Form 10-Q | | | | | | 3.2(a) | | Code of Regulations of Peoples Bancorp Inc.P | | Incorporated herein by reference to Exhibit 3(b) to Peoples’ Registration Statement on Form 8-B filed on July 20, 1993 (File No. 0-16772) | | | | | | | | 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 | | | | | | | | Certificate regarding adoption of amendments to Sections 3.01, 3.03, 3.04, 3.05, 3.06, 3.07, 3.08 and 3.11 of the Code of Regulations of Peoples Bancorp Inc. by shareholders on April 8, 2004 | | Incorporated herein by reference to Exhibit 3(a) to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 (File No. 0-16772) | | | | | | +Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of SEC Regulation S-K. A copy of any omitted schedules or exhibits will be furnished supplementally by Peoples Bancorp Inc. to the SEC 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 | | | | | | | | | | | | | | | | | | | | | | | 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) | | | | | | | | 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) | | | | | | | | 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 30, 201028, 2018 Form 10-Q/A"8-K") | | | | | | | | 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(f)3.2 to Peoples’Peoples' June 30, 201028, 2018 Form 10-Q/A8-K | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | FormIndenture, dated February 26, 2004, between First National Bankshares Corporation, as issuer, and Wilmington Trust Company, as trustee, related to Floating Rate Junior Subordinated Debt Securities due 2034 | | Filed herewith | | | | | | | | First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., as successor to First National Bankshares Corporation | | Filed herewith | | | | | | | | Second Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., as successor to Premier Financial Bancorp, Inc. | | Filed herewith | | | | | | | | Amended and Restated Declaration of Trust of FNB Capital Trust One, dated as of February 26, 2004; NOTE: Pursuant to the First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., Premier Financial Bancorp, Inc. succeeded to and was substituted for First National Bankshares Corporation as "Sponsor" and pursuant to theSecond Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. Second Amendedsucceeded and Restated 2006 Equity Plan Performance Unit Award Agreement usedwas substituted for Premier Financial Bancorp, Inc. as "Sponsor" | | Filed herewith | | | | | | | | | | | | | | | | | | Notice of Removal of Administrators and Appointment of Replacements, dated September 17, 2021, delivered to be used to evidence grants of performance units to executive officers ofWilmington Trust Company by the Successor Administrators named therein and Peoples Bancorp Inc. on and after July 26, 2017 | | Incorporated herein by reference to Exhibit 10.1 to Peoples’ Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 (File No. 0-16772)Filed herewith | | | | | | | | Guarantee Agreement, dated February 26, 2004, between First National Bankshares Corporation, as guarantor, and Wilmington Trust Company, as guarantee trustee, related to the Capital Securities (as defined therein); NOTE: Pursuant to the First Supplemental Indenture, dated January 15, 2016, between Wilmington Trust Company, as trustee, and Premier Financial Bancorp, Inc., Premier Financial Bancorp, Inc. succeeded to and was substituted for First National Bankshares Corporation as "Guarantor" and pursuant to theSecond Supplemental Indenture, dated September 17, 2021, between Wilmington Trust Company, as trustee, and Peoples Bancorp Inc., Peoples Bancorp Inc. succeeded and was substituted for Premier Financial Bancorp, Inc. as "Guarantor" | | Filed herewith | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rule 13a-14(a)/15d-14(a) Certifications [President and Chief Executive Officer] | | Filed herewith |
| | | | | | | | | | | | | | | Exhibit Number | | Description | | Exhibit Location | | | | | | | | | | | | | | | | | | | | | | | | | | | | Rule 13a-14(a)/15d-14(a) Certifications [Executive Vice President, Chief Financial Officer and Treasurer] | | Filed herewith | | | | | | | | Section 1350 Certifications | | Furnished herewith | | | | | |
| | | | | | Exhibit
Number 101.INS | | Description
| | Exhibit Location
| | | | | | 101.INS | | Inline XBRL Instance Document ## | | Submitted electronically herewith # | | | | | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | Submitted electronically herewith # | | | | | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Submitted electronically herewith # | | | | | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | Submitted electronically herewith # | | | | | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Submitted electronically herewith # | | | | | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Submitted electronically herewith # | | | | | | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | | Submitted electronically herewith | | | | | | | | | | | | | | # Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 20172021 of Peoples Bancorp Inc. are the following documents formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited) at September 30, 20172021 (Unaudited) and December 31, 2016;2020; (ii) Consolidated Statements of Income (unaudited)Operations (Unaudited) for the three and nine months ended September 30, 20172021 and 2016;2020; (iii) Consolidated Statements of Comprehensive (Loss) Income (unaudited)(Unaudited) for the three and nine months ended September 30, 20172021 and 2016;2020; (iv) Consolidated StatementStatements of Stockholders' Equity (unaudited)(Unaudited) for the nine months ended September 30, 2017;2021 and 2020; (v) Condensed Consolidated Statements of Cash Flows (unaudited)(Unaudited) for the nine months ended September 30, 20172021 and 2016;2020; and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements. | ## The instance document does not appear in the interactive data file because its XBRL tags are imbedded within the Inline XBRL document. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | | PEOPLES BANCORP INC. | | | | | Date: | November 5, 2021 | By: /s/ | CHARLES W. SULERZYSKI | | | | Charles W. Sulerzyski | | | | President and Chief Executive Officer | | | | | | | | | Date: | November 5, 2021 | By: /s/ | PEOPLES BANCORP INC.KATIE BAILEY | | | | Katie Bailey | Date: | October 26, 2017 | By: /s/ | CHARLES W. SULERZYSKI | | | | Charles W. Sulerzyski | | | | President and Chief Executive Officer | | | | | | | | | Date: | October 26, 2017 | By: /s/ | JOHN C. ROGERS | | | | John C. Rogers | | | | Executive Vice President, | | | | Chief Financial Officer and Treasurer |
|