Leases (Notes)

6 Months Ended

Jun. 30, 2021

Leases

Peoples has elected certain practical expedients, in accordance with Accounting Standards Codification 842 - Leases ("ASC 842"). Peoples has also made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component for all leases subject to ASC 842.

Lessor Arrangements

Peoples began investing in leases with the acquisition of leases from NSL. The leases acquired were determined to be sales-type leases, as the premise for the leases are 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 leases either directly to the customer or indirectly through vendor programs. Leases consist of automotive, construction, healthcare, manufacturing, office, restaurant, and other equipment. These sales-type leases do not typically contain residual value guarantees, however, Peoples reduces its residual asset risk by obtaining security deposits from the lessee. Additional information regarding Peoples' sales-type leases can be found in "Note 1 Summary of Significant Accounting Policies" and "Note 4 Loans and Leases."

The table below details Peoples' lease income:


	Three Months Ended		Six Months Ended
(Dollars in thousands)	June 30, 2021		June 30, 2021
Interest and fees on leases (a)	$	4,215	4,215
Other non-interest income	245		245
Total lease income	$	4,460	$	4,460

(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)	June 30, 2021
Lease payments receivable, at amortized cost	$	120,404
Estimated residual values	155
Initial direct costs	453
Deferred revenue	(25,369)
Total leases, at amortized cost	95,643
Allowance for credit losses - leases	(3,715)
Net investment in sales-type leases	$	91,928

The following table summarizes the contractual maturities of leases:


(Dollars in thousands)	Balance
Remaining six months ending December 31, 2021	$	23,671
Year ending December 31, 2022	40,037
Year ending December 31, 2023	29,146
Year ending December 31, 2024	17,567
Year ending December 31, 2025	8,564
Thereafter	1,419
Lease payment receivables, at amortized cost	$	120,404

Lessee Arrangements

Peoples leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to thirty years. Certain leases may include options to extend or terminate the lease. Only those renewal and termination options which Peoples is reasonably certain of exercising are included in the calculation of the lease liability. Certain leases contain rent escalation clauses calling for rent increases over the term of the lease, which are included in the calculation of the lease liability. Short-term leases of certain facilities and equipment, with lease terms of 12 months or less, are recognized on a straight-line basis over the lease term. At June 30, 2021, Peoples did not have any finance leases or any significant lessor agreements. 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.

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				Six Months Ended
(Dollars in thousands)	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Operating lease expense	$	350	$	327	680		661
Short-term lease expense	100		84		172		160
Total lease expense	$	450	$	411	$	852	$	821

Peoples utilizes an incremental borrowing rate to determine the present value of lease payments for each lease, as the lease agreements do not provide an implicit rate. The estimated incremental borrowing rate reflects a secured rate and is based on the term of the lease and the interest rate environment at the lease commencement or remeasurement date.

The following table details the ROU asset, the lease liability and other information related to Peoples' operating leases:


(Dollars in thousands)	June 30, 2021			December 31, 2020
ROU asset:
Other assets	$	6,577		$	6,522
Lease liability:
Accrued expenses and other liabilities	$	6,863		$	6,776
Other information:
Weighted-average remaining lease term	11.8 years			12.4 years
Weighted-average discount rate	2.94		%	3.14		%

During the three and six months ended June 30, 2021, Peoples paid cash of $340,000 and $660,000, respectively, for operating leases. During the three and six months ended June 30, 2020, Peoples paid cash of $319,000 and $640,000, respectively, for operating leases.

The following table summarizes the maturity of remaining lease liabilities:


(Dollars in thousands)	Balance
Remaining six months ending December 31, 2021	$	789
Year ending December 31, 2022	1,194
Year ending December 31, 2023	996
Year ending December 31, 2024	724
Year ending December 31, 2025	586
Thereafter	4,240
Total undiscounted lease payments	$	8,529
Imputed interest	$	(1,666)
Total lease liability	$	6,863