Acquisitions

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisitions

Acquisitions

Limestone Bancorp, Inc.

As of the close of business on April 30, 2023, Peoples completed the Limestone Merger. In connection with the Limestone Merger, Limestone Bank, Inc., which operated 20 branches in Kentucky, merged into Peoples Bank. As consideration in the Limestone Merger, Limestone shareholders were paid 0.90 common shares of Peoples for each full share of Limestone that was owned at the merger date, resulting in the issuance of 6,827,668 common shares by Peoples, or aggregate consideration of $177.9 million. Peoples accounted for this transaction as a business combination under the acquisition method.

Peoples recorded acquisition-related expenses related to the Limestone Merger, which included $4.4 million and $15.7 million in non-interest expense for the three months and the nine months ended September 30, 2023, respectively. For the third quarter of 2023, the $4.4 million of acquisition-related non-interest expense consisted of $2.1 million in other non-interest expense, $1.3 million in data processing and software expense, $0.6 million in salaries and employee benefit costs, and $0.4 million in professional fees. For the nine months ended September 30, 2023, the $15.7 million of acquisition-related non-interest expense consisted of $5.7 million in salaries and employee benefit costs, $5.5 million in professional fees, $3.0 million in other non-interest expense, $1.3 million in data processing and software expense, and $0.2 million in various other non-interest expense line items. The other non-interest expenses were primarily due to $1.8 million of early contract termination fees on Limestone contracts driven by the system conversions, which took place in the third quarter of 2023.

The following table provides the preliminary purchase price calculation as of the date of the Limestone Merger, and the assets acquired and liabilities assumed at their estimated fair values. The estimated fair values below were considered preliminary as of September 30, 2023, and are subject to adjustment for up to one year after April 30, 2023. Valuations subject to change include, but are not limited to, loans, including the designation of PCD loans, deferred tax assets and liabilities, long-term borrowings, and certain other assets and other liabilities.

(Dollars in thousands)	Fair Value
Total purchase price	$	177,931
Assets
Cash and balances due from banks	6,422
Interest-bearing deposits in other banks	87,115
Total cash and cash equivalents	93,537
Available-for-sale investment securities, at fair value	166,944
Other investment securities	5,716
Total investment securities	172,660
Loans	1,079,980
Allowance for credit losses (on PCD loans)	(1,161)
Net loans	1,078,819
Bank premises and equipment, net of accumulated depreciation	17,690

(Dollars in thousands)	Fair Value
Bank owned life insurance	31,343
Other intangible assets	27,722
Other assets	34,925
Total assets	1,456,696
Liabilities
Deposits:
Non-interest-bearing	262,727
Interest-bearing	971,457
Total deposits	1,234,184
Short-term borrowings	60,000
Long-term borrowings	33,744
Accrued expenses and other liabilities	12,967
Total liabilities	1,340,895
Net assets	115,801
Goodwill	$	62,130

The goodwill recorded in connection with the Limestone Merger is related to expected synergies to be gained from the combination of Limestone with Peoples' operations. The employees retained from the Limestone Merger and the geographic locations of Limestone should allow Peoples to continue to grow the loan and deposit portfolios while also increasing Peoples' ability to penetrate the new markets, which should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill. Peoples recorded a core deposit asset in other intangible assets related to the Limestone Merger.

The estimated fair values presented in the above table reflect additional information that was obtained during the three months ended September 30, 2023, which resulted in changes to certain fair value estimates made as of the date of the Limestone Merger. 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, 2023:

(Dollars in thousands)	Fair Value
Cash and balances due from banks	1,162
Total cash and cash equivalents	1,162
Loans	727
Allowance for credit losses (on PCD loans)	(153)
Net loans	574
Other assets	(447)
Total assets	1,289
Net assets	1,289
Goodwill	$	(1,289)

Loans acquired by Peoples in a business combination that have evidence of more than insignificant credit deterioration, which includes loans as to which Peoples believes it is probable that Peoples will be unable to collect all contractually required payments, are considered "purchased credit deteriorated" (or "PCD") loans. Acquired PCD loans are reported net of the unamortized fair value adjustment. These loans are recorded at the purchase price, and an allowance for credit losses is determined based upon discrete credit marks, along with discounted cash flow models based upon similar pools of loans, using a similar methodology as for other loans. The following table details the fair value adjustment for acquired PCD loans as of the acquisition date:

(Dollars in thousands)	Par Value		Allowance for Credit Losses		Non-Credit (Discount) Premium		Fair Value
PCD loans
Commercial real estate, other	16,390		(418)		(877)		15,095
Commercial and industrial	16,466		(379)		(610)		15,477
Residential real estate	6,994		(259)		(979)		5,756
Home equity lines of credit	774		(18)		11		767
Consumer	1,029		(86)		78		1,021
Fair value	$	41,653	$	(1,160)	$	(2,377)	$	38,116

Peoples' operating results for the three months and the nine months ended September 30, 2023 include the operating results of the acquired assets and assumed liabilities of Limestone subsequent to the Limestone Merger. Due to the timing of the acquisition closing and the conversion of Limestone systems, as well as other streamlining and integration of the operating activities into those of Peoples, historical reporting for the former Limestone operations is impracticable and the separate disclosures of revenue from the assets acquired and income before income taxes is impracticable for the periods subsequent to the acquisition. The following table presents unaudited pro forma information as if the Limestone Merger had occurred on January 1, 2022. 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 and customer deposit intangibles that would have resulted had the assets and liabilities been acquired as of January 1, 2022. The pro forma information excludes Peoples' acquisition-related expenses as described above as well as a provision of credit losses of $9.4 million recorded to establish an allowance for credit losses for non-purchased credit deteriorated loans relating to the acquired loans. The pro forma information reflects the adoption of the current expected credit loss ("CECL") accounting standard by Limestone as of January 1, 2023. The pro forma information does not necessarily reflect the results of operations that would have occurred had Peoples acquired Limestone on January 1, 2022. 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, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Net interest income	$	88,541	$	83,235	$	266,367	$	228,719
Non-interest income	23,204		22,594		63,756		66,524
Net income	31,906		33,319		98,810		92,639

Vantage Financial, LLC

On March 7, 2022, Peoples Bank purchased 100% of the equity of Vantage, a nationwide provider of equipment financing headquartered in Excelsior, Minnesota. Peoples Bank acquired assets comprising Vantage's lease business, including $154.9 million in leases and certain third-party debt in the amount of $106.9 million. Under the terms of the acquisition agreement, Peoples Bank paid cash consideration of $54.0 million, and also repaid $28.9 million in recourse debt on behalf of Vantage, for total consideration of $82.9 million. Vantage offers mid-ticket equipment leases, primarily for business essential information technology equipment across a wide-array of industries.

Peoples recorded acquisition-related expenses during the nine months ended September 30, 2023 of $46,000 related to the Vantage acquisition, which consisted of professional fees. Peoples recorded acquisition-related expenses during the first nine months of 2022 of $1.5 million related to the Vantage acquisition, which included $1.1 million in professional fees.

The following table provides the final purchase price calculation as of the date of the acquisition of Vantage, and the assets acquired and liabilities assumed at their estimated fair values.

(Dollars in thousands) Fair Value

(Dollars in thousands)	Fair Value
Total purchase price	$	82,893
Net assets at fair value
Assets
Cash and due from banks	$	1,444
Leases	155,726
Allowance for credit losses (on PCD leases)	(801)
Net leases	154,925
Bank premises and equipment	116
Other intangible assets	13,207
Other assets	1,506
Total assets	$	171,198
Liabilities
Borrowings	$	106,919
Accrued expenses and other liabilities	8,550
Total liabilities	$	115,469
Net assets	$	55,729
Goodwill	$	27,164

The goodwill recorded in connection with the Vantage acquisition is related to expected synergies to be gained from the combination of Vantage with Peoples' operations. The employees retained from the Vantage acquisition, along with Peoples' resources, should allow Peoples to continue to grow the lease portfolio 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. Peoples recorded other intangible assets, which included a customer relationship intangible, a trade-name intangible and non-compete agreements, related to this transaction.

The following table details the fair value adjustment for acquired PCD leases related to the Vantage acquisition as of the acquisition date:

(Dollars in thousands)	Par Value		Allowance for Credit Losses		Non-Credit Premium		Fair Value
PCD leases
Leases	$	3,412	$	(801)	$	1,120	$	3,731
Fair value	$	3,412	$	(801)	$	1,120	$	3,731