XML 66 R12.htm IDEA: XBRL DOCUMENT

Loans

3 Months Ended

Mar. 31, 2020

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 central and eastern 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)	March 31, 2020		December 31, 2019
Construction	$	110,865	$	88,518
Commercial real estate, other	897,817		833,238
Commercial and industrial	654,530		662,993
Residential real estate	625,366		661,476
Home equity lines of credit	128,011		132,704
Consumer, indirect	418,066		417,185
Consumer, direct	76,172		76,533
Deposit account overdrafts	610		878
Total loans, at amortized cost	$	2,911,437	$	2,873,525

Accrued interest receivable is not included in loan 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 loans was $8.8 million at March 31, 2020 and $9.1 million at December 31, 2019.

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 amortized cost of loans on nonaccrual status and loans delinquent for 90 days or more and accruing were as follows:


	March 31, 2020						December 31, 2019
(Dollars in thousands)	Nonaccrual ⁽¹⁾⁽²⁾		Accruing Loans 90+ Days Past Due		Nonaccrual ⁽¹⁾		Accruing Loans 90+ Days Past Due ⁽²⁾
Construction	$	99	$	—	$	411	$	—
Commercial real estate, other	9,577		—		6,801		907
Commercial and industrial	5,010		806		2,155		155
Residential real estate	8,640		557		6,361		2,677
Home equity lines of credit	1,152		143		1,165		108
Consumer, indirect	834		—		840		—
Consumer, direct	170		37		48		85
Total loans, at amortized cost	$	25,482	$	1,543	$	17,781	$	3,932

(1) There were no nonaccrual loans for which there was no allowance for credit losses.

(2) The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. At December 31, 2019, these loans were presented as 90+ days past due and accruing,

The new accounting for purchased credit deteriorated loans under ASU 2016-13 resulted in the movement of $3.9 million of loans from the 90+ days past due and accruing category to the nonaccrual category as of January 1, 2020. As of December 31, 2019, these loans were presented as 90+ days past due and accruing. Although they were not accruing contractual interest income, they were accreting income from the discount that was recognized due to acquisition accounting. The additional increase in nonaccrual loans compared to December 31, 2019 was due to a $1.5 million commercial relationship and several smaller commercial relationships being placed on nonaccrual. The amount of interest income recognized on nonaccrual loans during the first quarter of 2020 was $458,000.

The following table presents the aging of the amortized cost of past due loans:


	Loans Past Due												Current Loans	Total Loans
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total
March 31, 2020
Construction	$	—	$	4	$	94	$	98	$	110,767	$	110,865
Commercial real estate, other	3,707		77		8,929		12,713		885,104		897,817
Commercial and industrial	2,135		42		5,472		7,649		646,881		654,530
Residential real estate	10,790		886		4,467		16,143		609,223		625,366
Home equity lines of credit	626		267		1,055		1,948		126,063		128,011
Consumer, indirect	3,046		502		330		3,878		414,188		418,066
Consumer, direct	457		84		151		692		75,480		76,172
Deposit account overdrafts	—		—		—		—		610		610
Total loans, at amortized cost	$	20,761	$	1,862	$	20,498	$	43,121	$	2,868,316	$	2,911,437
December 31, 2019
Construction	$	5	$	—	$	411	$	416	$	88,102	$	88,518
Commercial real estate, other	376		337		7,501		8,214		825,024		833,238
Commercial and industrial	2,780		312		1,244		4,336		658,657		662,993
Residential real estate	10,538		2,918		5,872		19,328		642,148		661,476
Home equity lines of credit	642		510		1,033		2,185		130,519		132,704
Consumer, indirect	3,574		714		370		4,658		412,527		417,185
Consumer, direct	619		117		112		848		75,685		76,533
Deposit account overdrafts	—		—		—		—		878		878
Total loans, at amortized cost	$	18,534	$	4,908	$	16,543	$	39,985	$	2,833,540	$	2,873,525

The increase in loans 90+ days past due, compared to December 31, 2019, was mostly due to one $2.5 million commercial relationship. Delinquency trends remained stable, as 98.5% of Peoples' portfolio was considered “current” at March 31, 2020, compared to 98.6% at December 31, 2019.

Pledged Loans

Peoples has pledged certain loans secured by one-to-four family and multifamily residential mortgages and home equity lines of credit under a blanket collateral agreement to secure borrowings from the FHLB of Cincinnati. Peoples also has pledged commercial loans to secure borrowings with the FRB of Cleveland. Loans pledged are summarized as follows:


(Dollars in thousands)	March 31, 2020		December 31, 2019
Loans pledged to FHLB of Cincinnati	$	484,772	$	458,227
Loans pledged to FRB of Cleveland	440,349		172,693

Credit Quality Indicators

As discussed in "Note 1 Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included in Peoples' 2019 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 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 generally reviewed on a quarterly basis. 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 credit losses are taken during 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 “pass" for disclosure purposes.

The following table summarizes the risk category of loans within Peoples' loan portfolio based upon the most recent analysis performed at March 31, 2020:



(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term		Total Loans
Construction
Pass	$	4,092	$	38,085	$	30,264	$	34,158	$	1,277	$	839	$	500	$	1,085	$	109,215
Special mention	—		—		—		—		—		—		152		—		152
Substandard	—		—		—		409		—		1,089		—		—		1,498

Total	4,092		38,085		30,264		34,567		1,277		1,928		652		1,085		110,865
Commercial real estate, other
Pass	34,844		123,054		83,513		107,026		114,584		261,144		122,359		20,711		846,524
Special mention	—		44		584		2,054		4,570		6,394		1,634		125		15,280
Substandard	—		930		1,076		2,198		2,086		21,000		8,604		96		35,894
Doubtful	—		—		—		—		—		119		—		—		119
Total	34,844		124,028		85,173		111,278		121,240		288,657		132,597		20,932		897,817
Commercial and industrial
Pass	27,851		115,319		86,120		53,941		54,880		89,840		203,505		32,037		631,456
Special mention	—		205		181		168		8		1,396		4,701		15		6,659
Substandard	—		2,169		1,002		3,185		470		3,578		5,428		2,147		15,832
Doubtful	—		—		—		—		7		233		343		193		583
Total	27,851		117,693		87,303		57,294		55,365		95,047		213,977		34,392		654,530
Residential real estate
Pass	8,820		51,870		33,071		37,058		54,563		368,621		71,077		190		625,080
Special mention	—		—		—		—		—		2		—		—		2
Substandard	—		—		—		—		—		210		74		—		284

Total	8,820		51,870		33,071		37,058		54,563		368,833		71,151		190		625,366
Home equity lines of credit
Pass	3,209		14,712		15,145		15,905		14,208		48,551		16,281		4,510		128,011



Total	3,209		14,712		15,145		15,905		14,208		48,551		16,281		4,510		128,011
Consumer, indirect
Pass	34,969		122,879		104,388		61,567		29,552		9,438		55,273		—		418,066



Total	34,969		122,879		104,388		61,567		29,552		9,438		55,273		—		418,066
Consumer, direct
Pass	7,736		23,732		17,511		8,038		4,697		4,335		10,123		—		76,172



Total	7,736		23,732		17,511		8,038		4,697		4,335		10,123		—		76,172
Deposit account overdrafts	610																610
Total loans, at amortized cost	$	122,131	$	492,999	$	372,855	$	325,707	$	280,902	$	816,789	$	500,054	$	61,109	$	2,911,437

At March 31, 2020, Peoples had a total of $2.1 million of loans secured by residential real estate mortgages that were in the process of foreclosure.

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:

•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.

•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.

The following table details Peoples' amortized cost of collateral dependent loans:


(Dollars in thousands)	March 31, 2020		December 31, 2019


Commercial real estate, other	$	9,572	$	6,818
Commercial and industrial	5,791		1,962
Residential real estate	2,006		1,847
Home equity lines of credit	776		681
Consumer, indirect	—		713
Consumer, direct	—		94
Total collateral dependent loans	$	18,145	$	12,115

The increase in collateral dependent commercial and industrial loans at March 31, 2020 compared to December 31, 2019 was mostly due to one commercial relationship that became collateral dependent. In addition, the decline in collateral dependent consumer loans was driven by a change in the threshold for evaluation of individually impaired loans, which was previously $100,000 and on January 1, 2020 was changed to $250,000, thereby reducing the amount of loans considered collateral dependent which were no longer above the threshold.

The following table summarizes the loans that were modified as TDRs during the three months ended March 31:


		Recorded Investment (1)
(Dollars in thousands)	Number of Contracts	Pre-Modification		Post-Modification		Remaining Recorded Investment
March 31, 2020
Originated loans:
Commercial real estate, other	1	$	265	$	265	$	265
Commercial and industrial	1	145		145		145

Residential real estate	3	452		483		481
Home equity lines of credit	2	41		41		41
Consumer - indirect	11	175		175		175
Consumer - direct	4	57		57		57
Total	22	$	1,135	$	1,166	$	1,164
March 31, 2019
Originated loans:

Commercial and industrial	2	$	38	$	38	$	36
Residential real estate	2	399		403		403
Home equity lines of credit	2	79		79		79
Consumer, indirect	6	72		72		72
Consumer, direct	5	37		37		37
Consumer	11	109		109		109
Total	17	$	625	$	629	$	627
Acquired loans:


Residential real estate	1	$	24	$	24	$	24
Home equity lines of credit	2	65		66		66



Total	3	$	89	$	90	$	90
(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.

On March 22, 2020, federal and state government banking regulators issued a joint statement, with which the FASB concurred with 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 ASC 310-40.

Peoples did not have any 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 borrowers whose loan terms have been modified in a TDR.

Allowance for Credit Losses

Changes in the allowance for credit losses for the three months ended March 31, 2020:



(Dollars in thousands)	Beginning Balance, January 1, 2020		Initial Allowance for Purchased Credit Deteriorated Assets		Provision for Credit Losses		Charge-offs		Recoveries		Ending Balance, March 31, 2020
Construction	$	600	$	51	$	1,091	$	—	$	—	$	1,742
Commercial real estate, other	7,193		1,356		3,487		(10)		116		12,142
Commercial and industrial	4,960		860		2,656		(937)		1,204		8,743
Residential real estate	3,977		383		1,445		(118)		57		5,744
Home equity lines of credit	1,570		2		136		(14)		1		1,695
Consumer, indirect	5,389		—		6,085		(721)		125		10,878
Consumer, direct	856		34		961		(62)		14		1,803
Deposit account overdrafts	94		—		145		(213)		60		86
Total	$	24,639	$	2,686	$	16,006	$	(2,075)	$	1,577	$	42,833

The significant increase in the allowance for credit losses as of March 31, 2020 compared to January 1, 2020 was mostly due to the recent COVID-19 pandemic, and the resulting impact to economic forecasts utilized in the CECL model. Peoples calculates its allowance for credit losses using a discounted cash flow model, and incorporates economic forecasts, including U.S. unemployment, Ohio unemployment, Ohio Gross Domestic Product, and the Ohio Case Shiller Home Price Indices as economic factors. The economic forecast used in the March 31, 2020 calculation of the allowance for credit losses included higher unemployment rates and lower Ohio Gross Domestic Product, which drove much of the increase in the allowance for credit losses at March 31, 2020. Approximately 72% of the increase in the allowance for credit losses at March 31, 2020, compared to January 1, 2020, was related to the change in the economic forecast, and the remaining increase was attributable to changes in the composition of the loan portfolio. In addition, Peoples recorded an increase of $5.8 million in allowance for credit losses on January 1, 2020 related to the implementation of ASU 2016-13.

As of March 31, 2020, the CECL model produced results, based on economic forecasts, that were higher than Peoples believed to be appropriate at the time. Peoples believes the actions taken to provide relief to consumer and commercial customers, which include at least 90 days of payment relief for those customers, coupled with the Coronavirus Aid, Relief and Economic Security ("CARES") Act stimulus package and the Small Business Administration ("SBA") Paycheck Protection Program ("PPP"), indicate that Peoples would not experience the projected credit losses produced by the model. Therefore, Peoples made certain qualitative adjustments to more closely reflect its estimate of the potential losses of its loan portfolio at March 31, 2020.

During the first quarter of 2020, Peoples recognized a recovery of $1.2 million on a commercial and industrial loan that was previously charged-off.

As of March 31, 2020, Peoples had recorded an unfunded commitment liability of $2.4 million, an increase compared to $1.5 million on January 1, 2020. The unfunded commitment liability is presented in the “Accrued expenses and other liabilities” line of the Unaudited Consolidated Balance Sheets.