Loans (Tables)

6 Months Ended

Jun. 30, 2018

Financing Receivable, Allowance for Credit Losses [Line Items]

Loans

Loans

Peoples' loan portfolio consists of various types of loans originated primarily as a result of lending opportunities within Peoples' primary market areas of northeastern, central, southwestern and southeastern Ohio, west central West Virginia, and northeastern Kentucky. Acquired loans consist of loans purchased in 2012 or 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). 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)	June 30, 2018		December 31, 2017
Originated loans:
Commercial real estate, construction	$	107,255	$	107,118
Commercial real estate, other	650,512		595,447
Commercial real estate	757,767		702,565
Commercial and industrial	471,270		438,051
Residential real estate	299,934		304,523
Home equity lines of credit	89,957		88,902
Consumer, indirect	373,384		340,390
Consumer, direct	71,545		67,010
Consumer	444,929		407,400
Deposit account overdrafts	860		849
Total originated loans	$	2,064,717	$	1,942,290
Acquired loans:
Commercial real estate, construction	$	14,780	$	8,319
Commercial real estate, other	207,195		165,120
Commercial real estate	221,975		173,439
Commercial and industrial	40,938		34,493
Residential real estate	309,629		184,864
Home equity lines of credit	45,933		20,575
Consumer, indirect	198		329
Consumer, direct	3,101		1,147
Consumer	3,299		1,476
Total acquired loans	$	621,774	$	414,847
Loans, net of deferred fees and costs	$	2,686,491	$	2,357,137

Peoples has acquired various loans through business combinations for 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 purchased credit impaired loans included in the loan balances above are summarized as follows:

(Dollars in thousands)	June 30, 2018		December 31, 2017
Commercial real estate, other	$	13,279	$	8,117
Commercial and industrial	1,274		767
Residential real estate	21,842		19,532
Consumer	63		33
Total outstanding balance	$	36,458	$	28,449
Net carrying amount	$	25,710	$	19,564

Changes in the accretable yield for purchased credit impaired loans for the six months ended June 30 were as follows:

(Dollars in thousands)	June 30, 2018			June 30, 2017
Balance, beginning of period	$	6,704		$	7,132
Additions:
ASB Financial Corp.	2,415			—
Accretion	(897		)	(876		)
Balance, June 30	$	8,222		$	6,256

Peoples completes annual re-estimations of cash flows on acquired purchased credit impaired loans in August of each year. At the end of each quarter, Peoples evaluates factors to determine if a material change has occurred in acquired loans accounted for and if a re-estimation is needed. Factors evaluated to determine if a re-estimation is needed include changes in: risk ratings, maturity dates, charge-offs, payoffs, nonaccrual status and loans that have become past due. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly the amount of principal, expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Peoples evaluates changes quarterly and compares the new estimated cash flows to those at the previous cash flow re-estimation date and the related materiality of the changes, and when compared to the total loan portfolio, the differences in estimated cash flows at the most recent cash flow re-estimate date compared to the previous cash flow re-estimate date would not have a material impact on amounts recorded since the last re-estimation.

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 loans and could change the amount of interest income and possibly the principal expected to be collected. In re-forecasting future estimated cash flows, credit loss expectations are adjusted as necessary.

Pledged Loans

Peoples pledges certain 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 $585.6 million and $487.2 million at June 30, 2018 and December 31, 2017, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB. The outstanding balances of these loans totaled $69.8 million and $74.0 million at June 30, 2018 and December 31, 2017, respectively.

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 loans delinquent for 90 days or more and accruing were as follows:

	Nonaccrual Loans				Loans 90+ Days Past Due and Accruing
(Dollars in thousands)	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Originated loans:
Commercial real estate, construction	$	725	$	754	$	—	$	—
Commercial real estate, other	6,406		6,877		213		—
Commercial real estate	7,131		7,631		213		—
Commercial and industrial	1,274		739		—		—
Residential real estate	4,056		3,546		282		548
Home equity lines of credit	481		550		6		50
Consumer, indirect	314		256		—		—
Consumer, direct	17		39		4		16
Consumer	331		295		4		16
Total originated loans	$	13,273	$	12,761	$	505	$	614
Acquired loans:
Commercial real estate, other	$	252	$	192	$	402	$	215
Commercial and industrial	427		259		—		45
Residential real estate	1,846		2,168		1,026		730
Home equity lines of credit	271		312		—		22
Consumer, direct	—		—		42		—
Total acquired loans	$	2,796	$	2,931	$	1,470	$	1,012
Total loans	$	16,069	$	15,692	$	1,975	$	1,626

The following table presents the aging of the recorded investment in past due loans:

	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
June 30, 2018
Originated loans:
Commercial real estate, construction	$	—	$	—	$	725	$	725	$	106,530	$	107,255
Commercial real estate, other	972		—		6,516		7,488		643,024		650,512
Commercial real estate	972		—		7,241		8,213		749,554		757,767
Commercial and industrial	1,023		—		1,225		2,248		469,022		471,270
Residential real estate	1,451		682		2,180		4,313		295,621		299,934
Home equity lines of credit	365		139		253		757		89,200		89,957
Consumer, indirect	2,051		248		85		2,384		371,000		373,384
Consumer, direct	199		36		12		247		71,298		71,545
Consumer	2,250		284		97		2,631		442,298		444,929
Deposit account overdrafts	—		—		—		—		860		860
Total originated loans	$	6,061	$	1,105	$	10,996	$	18,162	$	2,046,555	$	2,064,717
Acquired loans:
Commercial real estate, construction	$	—	$	177	$	—	$	177	$	14,603	$	14,780
Commercial real estate, other	350		205		485		1,040		206,155		207,195
Commercial real estate	350		382		485		1,217		220,758		221,975
Commercial and industrial	206		337		98		641		40,297		40,938
Residential real estate	966		1,917		2,011		4,894		304,735		309,629
Home equity lines of credit	116		—		192		308		45,625		45,933
Consumer, indirect	2		—		—		2		196		198
Consumer, direct	38		8		42		88		3,013		3,101
Consumer	40		8		42		90		3,209		3,299
Total acquired loans	$	1,678	$	2,644	$	2,828	$	7,150	$	614,624	$	621,774
Total loans	$	7,739	$	3,749	$	13,824	$	25,312	$	2,661,179	$	2,686,491

	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
December 31, 2017
Originated loans:
Commercial real estate, construction	$	—	$	—	$	—	$	—	$	107,118	$	107,118
Commercial real estate, other	990		—		6,492		7,482		587,965		595,447
Commercial real estate	990		—		6,492		7,482		695,083		702,565
Commercial and industrial	1,423		92		706		2,221		435,830		438,051
Residential real estate	4,562		1,234		2,408		8,204		296,319		304,523
Home equity lines of credit	502		80		395		977		87,925		88,902
Consumer, indirect	2,153		648		105		2,906		337,484		340,390
Consumer, direct	417		46		48		511		66,499		67,010
Consumer	2,570		694		153		3,417		403,983		407,400
Deposit account overdrafts	—		—		—		—		849		849
Total originated loans	$	10,047	$	2,100	$	10,154	$	22,301	$	1,919,989	$	1,942,290
Acquired loans:
Commercial real estate, construction	$	—	$	—	$	—	$	—	$	8,319	$	8,319
Commercial real estate, other	775		948		312		2,035		163,085		165,120
Commercial real estate	775		948		312		2,035		171,404		173,439
Commercial and industrial	—		1		171		172		34,321		34,493
Residential real estate	4,656		1,391		1,910		7,957		176,907		184,864
Home equity lines of credit	126		—		301		427		20,148		20,575
Consumer, indirect	3		—		—		3		326		329
Consumer, direct	10		11		—		21		1,126		1,147
Consumer	13		11		—		24		1,452		1,476
Total acquired loans	$	5,570	$	2,351	$	2,694	$	10,615	$	404,232	$	414,847
Total loans	$	15,617	$	4,451	$	12,848	$	32,916	$	2,324,221	$	2,357,137

During the first six months of 2018, Peoples' delinquency trends improved compared to the balances at December 31, 2017, as total loans past due declined in both the originated and acquired loan portfolios. Delinquency trends improved during the second quarter as approximately 99.0% of Peoples' portfolio was considered “current” at June 30, 2018, compared to 98.8% at March 31, 2018 and 98.9% at June 30, 2017.

Credit Quality Indicators

As discussed in Note 1 of the Notes to the Consolidated Financial Statements included in Peoples' 2017 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. A description of the general characteristics of the risk grades used by Peoples 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. They are characterized by the distinct possibility that Peoples will sustain some loss if the deficiencies 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 loan 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 loan losses are taken in 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” based upon the regulatory definition of these classes and consistent with regulatory requirements. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “not rated.”

The following table summarizes the risk category of loans within Peoples' loan portfolio based upon the most recent analysis performed:

	Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
June 30, 2018
Originated loans:
Commercial real estate, construction	$	105,358	$	—	$	1,505	$	—	$	392	$	107,255
Commercial real estate, other	623,482		6,055		20,975		—		—		650,512
Commercial real estate	728,840		6,055		22,480		—		392		757,767
Commercial and industrial	422,966		44,346		3,958		—		—		471,270
Residential real estate	15,441		519		12,482		222		271,270		299,934
Home equity lines of credit	502		—		—		—		89,455		89,957
Consumer, indirect	47		—		—		—		373,337		373,384
Consumer, direct	25		—		—		—		71,520		71,545
Consumer	72		—		—		—		444,857		444,929
Deposit account overdrafts	—		—		—		—		860		860
Total originated loans	$	1,167,821	$	50,920	$	38,920	$	222	$	806,834	$	2,064,717
Acquired loans:
Commercial real estate, construction	$	11,348	$	1,291	$	2,141	$	—	$	—	$	14,780
Commercial real estate, other	186,989		10,252		9,511		443		—		207,195
Commercial real estate	198,337		11,543		11,652		443		—		221,975
Commercial and industrial	37,777		781		2,087		293		—		40,938
Residential real estate	20,134		1,969		1,803		176		285,547		309,629
Home equity lines of credit	43		—		—		—		45,890		45,933
Consumer, indirect	4		—		—		—		194		198
Consumer, direct	44		—		—		—		3,057		3,101
Consumer	48		—		—		—		3,251		3,299
Total acquired loans	$	256,339	$	14,293	$	15,542	$	912	$	334,688	$	621,774
Total loans	$	1,424,160	$	65,213	$	54,462	$	1,134	$	1,141,522	$	2,686,491

	Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
December 31, 2017
Originated loans:
Commercial real estate, construction	$	100,409	$	5,502	$	754	$	—	$	453	$	107,118
Commercial real estate, other	561,320		17,189		16,938		—		—		595,447
Commercial real estate	661,729		22,691		17,692		—		453		702,565
Commercial and industrial	420,477		13,062		4,512		—		—		438,051
Residential real estate	17,896		1,000		11,371		216		274,040		304,523
Home equity lines of credit	454		—		—		—		88,448		88,902
Consumer, indirect	55		8		—		—		340,327		340,390
Consumer, direct	33		—		—		—		66,977		67,010
Consumer	88		8		—		—		407,304		407,400
Deposit account overdrafts	—		—		—		—		849		849
Total originated loans	$	1,100,644	$	36,761	$	33,575	$	216	$	771,094	$	1,942,290
Acquired loans:
Commercial real estate, construction	$	8,267	$	—	$	52	$	—	$	—	$	8,319
Commercial real estate, other	149,486		6,527		9,107		—		—		165,120
Commercial real estate	157,753		6,527		9,159		—		—		173,439
Commercial and industrial	32,011		157		2,325		—		—		34,493
Residential real estate	12,543		593		1,105		—		170,623		184,864
Home equity lines of credit	124		—		—		—		20,451		20,575
Consumer, indirect	12		—		—		—		317		329
Consumer, direct	35		—		—		—		1,112		1,147
Consumer	47		—		—		—		1,429		1,476
Total acquired loans	$	202,478	$	7,277	$	12,589	$	—	$	192,503	$	414,847
Total loans	$	1,303,122	$	44,038	$	46,164	$	216	$	963,597	$	2,357,137

In the first six months of 2018, Peoples' classified loans, which are loans categorized as substandard or doubtful, increased compared to the balances at December 31, 2017 mostly due to acquired ASB Financial Corp. ("ASB") loans, which were partially offset by paydowns on classified loans.

Impaired Loans

The following table summarizes loans classified as impaired:

	Unpaid Principal Balance		Recorded Investment				Total Recorded Investment				Average Recorded Investment		Interest Income Recognized
			With Allowance		Without Allowance				Related Allowance
(Dollars in thousands)
June 30, 2018
Commercial real estate, construction	$	2,552	$	—	$	2,465	$	2,465	$	—	$	1,317	$	22
Commercial real estate, other	18,010		14		16,683		16,697		1		14,132		257
Commercial real estate	20,562		14		19,148		19,162		1		15,449		279
Commercial and industrial	3,372		1,481		1,692		3,173		191		2,292		51
Residential real estate	28,074		523		25,974		26,497		47		23,598		661
Home equity lines of credit	1,739		68		1,668		1,736		14		1,676		42
Consumer, indirect	434		133		308		441		31		286		14
Consumer, direct	150		57		93		150		45		98		4
Consumer	584		190		401		591		76		384		18
Total	$	54,331	$	2,276	$	48,883	$	51,159	$	329	$	43,399	$	1,051
December 31, 2017
Commercial real estate, construction	$	821	$	—	$	754	$	754	$	—	$	788	$	—
Commercial real estate, other	14,909		14		13,606		13,620		1		14,392		503
Commercial real estate	15,730		14		14,360		14,374		1		15,180		503
Commercial and industrial	1,690		951		572		1,523		199		1,668		65
Residential real estate	24,743		477		22,626		23,103		58		23,195		1,246
Home equity lines of credit	1,707		81		1,624		1,705		18		1,505		85
Consumer, indirect	273		70		206		276		26		184		20
Consumer, direct	87		56		28		84		37		79		7
Consumer	360		126		234		360		63		263		27
Total	$	44,230	$	1,649	$	39,416	$	41,065	$	339	$	41,811	$	1,926

Peoples' impaired loans shown in the table above included loans that were classified 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 June 30:

		Three Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
June 30, 2018
Originated loans:
Residential real estate	5	$	717	$	717	$	717
Home equity lines of credit	3	61		61		61
Consumer, indirect	14	230		230		230
Consumer, direct	5	27		27		27
Consumer	19	257		257		257
Total originated loans	27	$	1,035	$	1,035	$	1,035
Acquired loans:
Residential real estate	11	720		720		720
Home equity lines of credit	4	86		86		86
Consumer, direct	3	57		57		57
Total acquired loans	18	$	863	$	863	$	863
June 30, 2017
Originated loans:
Commercial real estate, other	1	$	14	$	14	$	14
Commercial and industrial	2	137		137		137
Residential real estate	4	288		288		288
Home equity lines of credit	1	43		43		45
Consumer, indirect	4	54		54		54
Consumer, direct	5	6		6		6
Consumer	9	60		60		60
Total originated loans	17	$	542	$	542	$	544
Acquired loans:
Residential real estate	5	$	179	$	179	$	179
Total acquired loans	5	$	179	$	179	$	179
(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.

The following table summarizes the loans that were modified as a TDR during the six months ended June 30:

		Six Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
June 30, 2018
Originated loans:
Residential real estate	7	$	910	$	910	$	911
Home equity lines of credit	3	61		61		61
Consumer, indirect	21	316		316		302
Consumer, direct	7	31		31		31
Consumer	28	347		347		333
Total originated loans	38	$	1,318	$	1,318	$	1,305
Acquired loans:
Commercial real estate, other	1	$	50	$	50	$	48
Residential real estate	13	989		989		989
Home equity lines of credit	4	86		86		86
Consumer, direct	3	57		57		57
Total acquired loans	21	$	1,182	$	1,182	$	1,180
June 30, 2017
Originated loans:
Commercial real estate, other	1	$	14	$	14	$	14
Commercial and industrial	2	137		137		137
Residential real estate	6	393		393		392
Home equity lines of credit	4	269		269		268
Consumer, indirect	7	121		121		97
Consumer, direct	5	6		6		6
Consumer	12	127		127		103
Total originated loans	25	$	940	$	940	$	914
Acquired loans:
Commercial real estate, other	2	$	271	$	271	$	267
Commercial and industrial	1	38		38		38
Residential real estate	7	276		276		276
Home equity lines of credit	4	294		294		291
Consumer, direct	2	10		10		9
Total acquired loans	16	$	889	$	889	$	881
(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.

Peoples did not have any originated or acquired 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 debtors whose terms have been modified in a TDR.

Allowance for Originated Loan Losses

Changes in the allowance for originated loan losses for the six months ended June 30 were as follows:

(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Home Equity Lines of Credit			Consumer Indirect			Consumer Direct			Deposit Account Overdrafts			Total
Balance, January 1, 2018	$	7,797		$	5,813		$	904		$	693		$	2,944		$	464		$	70		$	18,685
Charge-offs	(849		)	(38		)	(227		)	(57		)	(1,479		)	(219		)	(420		)	(3,289		)
Recoveries	43			—			67			9			272			84			116			591
Net charge-offs	(806		)	(38		)	(160		)	(48		)	(1,207		)	(135		)	(304		)	(2,698		)
Provision for (recovery of) loan losses	1,280			(410		)	261			(27		)	1,602			136			329			3,171
Balance, June 30, 2018	$	8,271		$	5,365		$	1,005		$	618		$	3,339		$	465		$	95		$	19,158
Period-end amount allocated to:
Loans individually evaluated for impairment	$	1		$	191		$	47		$	14		$	31		$	45		$	—		$	329
Loans collectively evaluated for impairment	8,270			5,174			958			604			3,308			420			95			18,829
Ending balance	$	8,271		$	5,365		$	1,005		$	618		$	3,339		$	465		$	95		$	19,158
Balance, January 1, 2017	$	7,172		$	6,353		$	982		$	688		$	2,312		$	518		$	171		$	18,196
Charge-offs	(25		)	(117		)	(206		)	(20		)	(1,000		)	(169		)	(520		)	(2,057		)
Recoveries	116			—			109			6			424			106			111			872
Net recoveries (charge-offs)	91			(117		)	(97		)	(14		)	(576		)	(63		)	(409		)	(1,185		)
Provision for (recovery of) loan losses	65			491			75			2			813			(53		)	321			1,714
Balance, June 30, 2017	$	7,328		$	6,727		$	960		$	676		$	2,549		$	402		$	83		$	18,725
Period-end amount allocated to:
Loans individually evaluated for impairment	$	264		$	423		$	135		$	62		$	6		$	2		$	—		$	892
Loans collectively evaluated for impairment	7,064			6,304			825			614			2,543			400			83			17,833
Ending balance	$	7,328		$	6,727		$	960		$	676		$	2,549		$	402		$	83		$	18,725

Allowance 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 estimate the required allowance for loan 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.

The following table presents activity in the allowance for loan losses for acquired loans for the three and six months ended June 30:

	Three Months Ended				Six Months Ended
(Dollars in thousands)	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Purchased credit impaired loans:
Balance, beginning of period	$	108	$	90	$	108	$	233
Recovery of loan losses	—		—		—		(143		)
Balance, June 30	$	108	$	90	$	108	$	90

During the first quarter of 2017, Peoples recorded a recovery of loan losses that was related to an acquired purchased credit impaired loan that was paid off during the quarter.

Schedule of Financing Receivables, Type

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)	June 30, 2018		December 31, 2017
Originated loans:
Commercial real estate, construction	$	107,255	$	107,118
Commercial real estate, other	650,512		595,447
Commercial real estate	757,767		702,565
Commercial and industrial	471,270		438,051
Residential real estate	299,934		304,523
Home equity lines of credit	89,957		88,902
Consumer, indirect	373,384		340,390
Consumer, direct	71,545		67,010
Consumer	444,929		407,400
Deposit account overdrafts	860		849
Total originated loans	$	2,064,717	$	1,942,290
Acquired loans:
Commercial real estate, construction	$	14,780	$	8,319
Commercial real estate, other	207,195		165,120
Commercial real estate	221,975		173,439
Commercial and industrial	40,938		34,493
Residential real estate	309,629		184,864
Home equity lines of credit	45,933		20,575
Consumer, indirect	198		329
Consumer, direct	3,101		1,147
Consumer	3,299		1,476
Total acquired loans	$	621,774	$	414,847
Loans, net of deferred fees and costs	$	2,686,491	$	2,357,137

Schedule of Financing Receivables Acquired with Deteriorated Credit Quality

Peoples has acquired various loans through business combinations for 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 purchased credit impaired loans included in the loan balances above are summarized as follows:

(Dollars in thousands)	June 30, 2018		December 31, 2017
Commercial real estate, other	$	13,279	$	8,117
Commercial and industrial	1,274		767
Residential real estate	21,842		19,532
Consumer	63		33
Total outstanding balance	$	36,458	$	28,449
Net carrying amount	$	25,710	$	19,564

Certain Loans Acquired In Transfer Not Accounted For As Debt Securities Accretable Yield

Changes in the accretable yield for purchased credit impaired loans for the six months ended June 30 were as follows:

(Dollars in thousands)	June 30, 2018			June 30, 2017
Balance, beginning of period	$	6,704		$	7,132
Additions:
ASB Financial Corp.	2,415			—
Accretion	(897		)	(876		)
Balance, June 30	$	8,222		$	6,256

Nonaccrual and Past Due Loans

The recorded investments in loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as follows:

	Nonaccrual Loans				Loans 90+ Days Past Due and Accruing
(Dollars in thousands)	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Originated loans:
Commercial real estate, construction	$	725	$	754	$	—	$	—
Commercial real estate, other	6,406		6,877		213		—
Commercial real estate	7,131		7,631		213		—
Commercial and industrial	1,274		739		—		—
Residential real estate	4,056		3,546		282		548
Home equity lines of credit	481		550		6		50
Consumer, indirect	314		256		—		—
Consumer, direct	17		39		4		16
Consumer	331		295		4		16
Total originated loans	$	13,273	$	12,761	$	505	$	614
Acquired loans:
Commercial real estate, other	$	252	$	192	$	402	$	215
Commercial and industrial	427		259		—		45
Residential real estate	1,846		2,168		1,026		730
Home equity lines of credit	271		312		—		22
Consumer, direct	—		—		42		—
Total acquired loans	$	2,796	$	2,931	$	1,470	$	1,012
Total loans	$	16,069	$	15,692	$	1,975	$	1,626

Aging Of The Recorded Investment In Past Due Loans And Leases

The following table presents the aging of the recorded investment in past due loans:

	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
June 30, 2018
Originated loans:
Commercial real estate, construction	$	—	$	—	$	725	$	725	$	106,530	$	107,255
Commercial real estate, other	972		—		6,516		7,488		643,024		650,512
Commercial real estate	972		—		7,241		8,213		749,554		757,767
Commercial and industrial	1,023		—		1,225		2,248		469,022		471,270
Residential real estate	1,451		682		2,180		4,313		295,621		299,934
Home equity lines of credit	365		139		253		757		89,200		89,957
Consumer, indirect	2,051		248		85		2,384		371,000		373,384
Consumer, direct	199		36		12		247		71,298		71,545
Consumer	2,250		284		97		2,631		442,298		444,929
Deposit account overdrafts	—		—		—		—		860		860
Total originated loans	$	6,061	$	1,105	$	10,996	$	18,162	$	2,046,555	$	2,064,717
Acquired loans:
Commercial real estate, construction	$	—	$	177	$	—	$	177	$	14,603	$	14,780
Commercial real estate, other	350		205		485		1,040		206,155		207,195
Commercial real estate	350		382		485		1,217		220,758		221,975
Commercial and industrial	206		337		98		641		40,297		40,938
Residential real estate	966		1,917		2,011		4,894		304,735		309,629
Home equity lines of credit	116		—		192		308		45,625		45,933
Consumer, indirect	2		—		—		2		196		198
Consumer, direct	38		8		42		88		3,013		3,101
Consumer	40		8		42		90		3,209		3,299
Total acquired loans	$	1,678	$	2,644	$	2,828	$	7,150	$	614,624	$	621,774
Total loans	$	7,739	$	3,749	$	13,824	$	25,312	$	2,661,179	$	2,686,491

	Loans Past Due								Current Loans		Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
December 31, 2017
Originated loans:
Commercial real estate, construction	$	—	$	—	$	—	$	—	$	107,118	$	107,118
Commercial real estate, other	990		—		6,492		7,482		587,965		595,447
Commercial real estate	990		—		6,492		7,482		695,083		702,565
Commercial and industrial	1,423		92		706		2,221		435,830		438,051
Residential real estate	4,562		1,234		2,408		8,204		296,319		304,523
Home equity lines of credit	502		80		395		977		87,925		88,902
Consumer, indirect	2,153		648		105		2,906		337,484		340,390
Consumer, direct	417		46		48		511		66,499		67,010
Consumer	2,570		694		153		3,417		403,983		407,400
Deposit account overdrafts	—		—		—		—		849		849
Total originated loans	$	10,047	$	2,100	$	10,154	$	22,301	$	1,919,989	$	1,942,290
Acquired loans:
Commercial real estate, construction	$	—	$	—	$	—	$	—	$	8,319	$	8,319
Commercial real estate, other	775		948		312		2,035		163,085		165,120
Commercial real estate	775		948		312		2,035		171,404		173,439
Commercial and industrial	—		1		171		172		34,321		34,493
Residential real estate	4,656		1,391		1,910		7,957		176,907		184,864
Home equity lines of credit	126		—		301		427		20,148		20,575
Consumer, indirect	3		—		—		3		326		329
Consumer, direct	10		11		—		21		1,126		1,147
Consumer	13		11		—		24		1,452		1,476
Total acquired loans	$	5,570	$	2,351	$	2,694	$	10,615	$	404,232	$	414,847
Total loans	$	15,617	$	4,451	$	12,848	$	32,916	$	2,324,221	$	2,357,137

Loans By Risk Category

The following table summarizes the risk category of loans within Peoples' loan portfolio based upon the most recent analysis performed:

	Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
June 30, 2018
Originated loans:
Commercial real estate, construction	$	105,358	$	—	$	1,505	$	—	$	392	$	107,255
Commercial real estate, other	623,482		6,055		20,975		—		—		650,512
Commercial real estate	728,840		6,055		22,480		—		392		757,767
Commercial and industrial	422,966		44,346		3,958		—		—		471,270
Residential real estate	15,441		519		12,482		222		271,270		299,934
Home equity lines of credit	502		—		—		—		89,455		89,957
Consumer, indirect	47		—		—		—		373,337		373,384
Consumer, direct	25		—		—		—		71,520		71,545
Consumer	72		—		—		—		444,857		444,929
Deposit account overdrafts	—		—		—		—		860		860
Total originated loans	$	1,167,821	$	50,920	$	38,920	$	222	$	806,834	$	2,064,717
Acquired loans:
Commercial real estate, construction	$	11,348	$	1,291	$	2,141	$	—	$	—	$	14,780
Commercial real estate, other	186,989		10,252		9,511		443		—		207,195
Commercial real estate	198,337		11,543		11,652		443		—		221,975
Commercial and industrial	37,777		781		2,087		293		—		40,938
Residential real estate	20,134		1,969		1,803		176		285,547		309,629
Home equity lines of credit	43		—		—		—		45,890		45,933
Consumer, indirect	4		—		—		—		194		198
Consumer, direct	44		—		—		—		3,057		3,101
Consumer	48		—		—		—		3,251		3,299
Total acquired loans	$	256,339	$	14,293	$	15,542	$	912	$	334,688	$	621,774
Total loans	$	1,424,160	$	65,213	$	54,462	$	1,134	$	1,141,522	$	2,686,491

	Pass Rated (Grades 1 - 4)		Special Mention (Grade 5)		Substandard (Grade 6)		Doubtful (Grade 7)		Not Rated		Total Loans
(Dollars in thousands)
December 31, 2017
Originated loans:
Commercial real estate, construction	$	100,409	$	5,502	$	754	$	—	$	453	$	107,118
Commercial real estate, other	561,320		17,189		16,938		—		—		595,447
Commercial real estate	661,729		22,691		17,692		—		453		702,565
Commercial and industrial	420,477		13,062		4,512		—		—		438,051
Residential real estate	17,896		1,000		11,371		216		274,040		304,523
Home equity lines of credit	454		—		—		—		88,448		88,902
Consumer, indirect	55		8		—		—		340,327		340,390
Consumer, direct	33		—		—		—		66,977		67,010
Consumer	88		8		—		—		407,304		407,400
Deposit account overdrafts	—		—		—		—		849		849
Total originated loans	$	1,100,644	$	36,761	$	33,575	$	216	$	771,094	$	1,942,290
Acquired loans:
Commercial real estate, construction	$	8,267	$	—	$	52	$	—	$	—	$	8,319
Commercial real estate, other	149,486		6,527		9,107		—		—		165,120
Commercial real estate	157,753		6,527		9,159		—		—		173,439
Commercial and industrial	32,011		157		2,325		—		—		34,493
Residential real estate	12,543		593		1,105		—		170,623		184,864
Home equity lines of credit	124		—		—		—		20,451		20,575
Consumer, indirect	12		—		—		—		317		329
Consumer, direct	35		—		—		—		1,112		1,147
Consumer	47		—		—		—		1,429		1,476
Total acquired loans	$	202,478	$	7,277	$	12,589	$	—	$	192,503	$	414,847
Total loans	$	1,303,122	$	44,038	$	46,164	$	216	$	963,597	$	2,357,137

Schedule Of Impaired Loans

The following table summarizes loans classified as impaired:

	Unpaid Principal Balance		Recorded Investment				Total Recorded Investment				Average Recorded Investment		Interest Income Recognized
			With Allowance		Without Allowance				Related Allowance
(Dollars in thousands)
June 30, 2018
Commercial real estate, construction	$	2,552	$	—	$	2,465	$	2,465	$	—	$	1,317	$	22
Commercial real estate, other	18,010		14		16,683		16,697		1		14,132		257
Commercial real estate	20,562		14		19,148		19,162		1		15,449		279
Commercial and industrial	3,372		1,481		1,692		3,173		191		2,292		51
Residential real estate	28,074		523		25,974		26,497		47		23,598		661
Home equity lines of credit	1,739		68		1,668		1,736		14		1,676		42
Consumer, indirect	434		133		308		441		31		286		14
Consumer, direct	150		57		93		150		45		98		4
Consumer	584		190		401		591		76		384		18
Total	$	54,331	$	2,276	$	48,883	$	51,159	$	329	$	43,399	$	1,051
December 31, 2017
Commercial real estate, construction	$	821	$	—	$	754	$	754	$	—	$	788	$	—
Commercial real estate, other	14,909		14		13,606		13,620		1		14,392		503
Commercial real estate	15,730		14		14,360		14,374		1		15,180		503
Commercial and industrial	1,690		951		572		1,523		199		1,668		65
Residential real estate	24,743		477		22,626		23,103		58		23,195		1,246
Home equity lines of credit	1,707		81		1,624		1,705		18		1,505		85
Consumer, indirect	273		70		206		276		26		184		20
Consumer, direct	87		56		28		84		37		79		7
Consumer	360		126		234		360		63		263		27
Total	$	44,230	$	1,649	$	39,416	$	41,065	$	339	$	41,811	$	1,926

Troubled Debt Restructurings on Financing Receivables

The following table summarizes the loans that were modified as a TDR during the three months ended June 30:

		Three Months Ended
		Recorded Investment (a)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
June 30, 2018
Originated loans:
Residential real estate	5	$	717	$	717	$	717
Home equity lines of credit	3	61		61		61
Consumer, indirect	14	230		230		230
Consumer, direct	5	27		27		27
Consumer	19	257		257		257
Total originated loans	27	$	1,035	$	1,035	$	1,035
Acquired loans:
Residential real estate	11	720		720		720
Home equity lines of credit	4	86		86		86
Consumer, direct	3	57		57		57
Total acquired loans	18	$	863	$	863	$	863
June 30, 2017
Originated loans:
Commercial real estate, other	1	$	14	$	14	$	14
Commercial and industrial	2	137		137		137
Residential real estate	4	288		288		288
Home equity lines of credit	1	43		43		45
Consumer, indirect	4	54		54		54
Consumer, direct	5	6		6		6
Consumer	9	60		60		60
Total originated loans	17	$	542	$	542	$	544
Acquired loans:
Residential real estate	5	$	179	$	179	$	179
Total acquired loans	5	$	179	$	179	$	179
(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.

Troubled Debt Restructurings during prior 12 months that subsequently defaulted

Summary Of Activity In Allowance For Loan And Lease Losses

Changes in the allowance for originated loan losses for the six months ended June 30 were as follows:

(Dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Residential Real Estate			Home Equity Lines of Credit			Consumer Indirect			Consumer Direct			Deposit Account Overdrafts			Total
Balance, January 1, 2018	$	7,797		$	5,813		$	904		$	693		$	2,944		$	464		$	70		$	18,685
Charge-offs	(849		)	(38		)	(227		)	(57		)	(1,479		)	(219		)	(420		)	(3,289		)
Recoveries	43			—			67			9			272			84			116			591
Net charge-offs	(806		)	(38		)	(160		)	(48		)	(1,207		)	(135		)	(304		)	(2,698		)
Provision for (recovery of) loan losses	1,280			(410		)	261			(27		)	1,602			136			329			3,171
Balance, June 30, 2018	$	8,271		$	5,365		$	1,005		$	618		$	3,339		$	465		$	95		$	19,158
Period-end amount allocated to:
Loans individually evaluated for impairment	$	1		$	191		$	47		$	14		$	31		$	45		$	—		$	329
Loans collectively evaluated for impairment	8,270			5,174			958			604			3,308			420			95			18,829
Ending balance	$	8,271		$	5,365		$	1,005		$	618		$	3,339		$	465		$	95		$	19,158
Balance, January 1, 2017	$	7,172		$	6,353		$	982		$	688		$	2,312		$	518		$	171		$	18,196
Charge-offs	(25		)	(117		)	(206		)	(20		)	(1,000		)	(169		)	(520		)	(2,057		)
Recoveries	116			—			109			6			424			106			111			872
Net recoveries (charge-offs)	91			(117		)	(97		)	(14		)	(576		)	(63		)	(409		)	(1,185		)
Provision for (recovery of) loan losses	65			491			75			2			813			(53		)	321			1,714
Balance, June 30, 2017	$	7,328		$	6,727		$	960		$	676		$	2,549		$	402		$	83		$	18,725
Period-end amount allocated to:
Loans individually evaluated for impairment	$	264		$	423		$	135		$	62		$	6		$	2		$	—		$	892
Loans collectively evaluated for impairment	7,064			6,304			825			614			2,543			400			83			17,833
Ending balance	$	7,328		$	6,727		$	960		$	676		$	2,549		$	402		$	83		$	18,725

Allowance for Loan Losses Acquired Loans [Table Text Block]

The following table presents activity in the allowance for loan losses for acquired loans for the three and six months ended June 30:

	Three Months Ended				Six Months Ended
(Dollars in thousands)	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
Purchased credit impaired loans:
Balance, beginning of period	$	108	$	90	$	108	$	233
Recovery of loan losses	—		—		—		(143		)
Balance, June 30	$	108	$	90	$	108	$	90