Leases (Notes)

9 Months Ended

Sep. 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

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