Company Quick10K Filing
Quick10K
Peoples Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$32.77 21 $678
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-26 Other Events, Exhibits
8-K 2019-05-06 Regulation FD, Exhibits
8-K 2019-04-25 Shareholder Vote
8-K 2019-04-23 Earnings, Other Events, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-04-12 Other Events, Exhibits
8-K 2019-04-03 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-31 Other Events, Exhibits
8-K 2019-01-22 Earnings, Exhibits
8-K 2019-01-22 Earnings, Other Events, Exhibits
8-K 2019-01-22 Earnings, Exhibits
8-K 2018-12-21 Other Events, Exhibits
8-K 2018-11-16 Officers, Exhibits
8-K 2018-11-02 Regulation FD, Exhibits
8-K 2018-10-29 Other Events, Exhibits
8-K 2018-10-23 Earnings, Other Events, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-08-29 Regulation FD, Exhibits
8-K 2018-07-27 Earnings, Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Other Events, Exhibits
8-K 2018-06-28 Other Events, Exhibits
8-K 2018-06-28 Other Events, Exhibits
8-K 2018-04-24 Earnings, Other Events, Exhibits
8-K 2018-04-13 Other Events, Exhibits
8-K 2018-03-28 Other Events, Exhibits
8-K 2018-03-26 Other Events, Exhibits
8-K 2018-02-28 Regulation FD, Exhibits
8-K 2018-02-16 Other Events, Exhibits
8-K 2018-01-26 Earnings, Exhibits
8-K 2018-01-22 Earnings, Other Events, Exhibits
8-K 2018-01-09 Other Events
COP ConocoPhillips 69,550
VOYA Voya Financial 7,720
PACW Pacwest Bancorp 4,740
TCF TCF Financial 3,530
CWST Casella Waste Systems 1,770
WNC Wabash National 823
LION Fidelity Southern 803
LOB Live Oak Bancshares 676
RSSV Resort Savers 0
NOVA Nova Star Innovations 0
PEBO 2019-03-31
Part I
Item 1. Financial Statements
Note 1 Summary of Significant Accounting Policies
Note 2 Fair Value of Assets and Liabilities
Note 3 Investment Securities
Note 4 Loans
Note 5 Long-Term Borrowings
Note 6 Stockholders' Equity
Note 7 Employee Benefit Plans
Note 8 Earnings per Common Share
Note 9 Derivative Financial Instruments
Note 10 Stock-Based Compensation
Note 11 Revenue
Note 12 Acquisitions
Note 13 Leases
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
Part II
Item 1 Legal Proceedings
Item 1A Risk Factors
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Mine Safety Disclosures
Item 5 Other Information
Item 6 Exhibits
EX-10.1 exhibit101basesalaries.htm
EX-31.1 exhibit311-0331201910xq.htm
EX-31.2 exhibit312-0331201910xq.htm
EX-32 exhibit32-0331201910xq.htm

Peoples Bancorp Earnings 2019-03-31

PEBO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pebo0331201910q.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
  x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
            For the quarterly period ended March 31, 2019
                                                                                        
OR
  o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
            For the transition period from ____ to ____

Commission File Number: 000-16772
pebonewlogoa16.jpg
PEOPLES BANCORP INC.
(Exact name of Registrant as specified in its charter)
Ohio
 
 
 
31-0987416
(State or other jurisdiction of incorporation or organization)
 
 
 
(I.R.S. Employer Identification No.)
138 Putnam Street, P.O. Box 738, Marietta, Ohio
 
 
 
45750
(Address of principal executive offices)
 
 
 
(Zip Code)
Registrant’s telephone number, including area code:
 
 
 
(740) 373-3155
 
 
Not Applicable
 
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated
filer o
Accelerated filer x
Non-accelerated filer o

Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,692,615 common shares, without par value, at April 30, 2019.




Table of Contents
 
 



2


PART I
ITEM 1.  FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
March 31,
2019
December 31,
2018
 
(Dollars in thousands)
(Unaudited)
 
Assets
 
 
Cash and cash equivalents:
 
 
Cash and due from banks
$
59,334

$
61,775

Interest-bearing deposits in other banks
22,738

15,837

Total cash and cash equivalents
82,072

77,612

Available-for-sale investment securities, at fair value (amortized cost of $806,641 at March 31, 2019 and $804,655 at December 31, 2018)
802,570

791,891

Held-to-maturity investment securities, at amortized cost (fair value of $36,066 at March 31, 2019 and $36,963 at December 31, 2018)
35,606

36,961

Other investment securities
41,449

42,985

Total investment securities
879,625

871,837

Loans, net of deferred fees and costs (a)
2,737,580

2,728,778

Allowance for loan losses
(20,939
)
(20,195
)
Net loans
2,716,641

2,708,583

Loans held for sale
2,191

5,470

Bank premises and equipment, net of accumulated depreciation
55,890

56,542

Bank owned life insurance
69,419

68,934

Goodwill
151,245

151,245

Other intangible assets
9,997

10,840

Other assets
50,039

40,391

Total assets
$
4,017,119

$
3,991,454

Liabilities
 
 
Deposits:
 
 
Non-interest-bearing
$
628,464

$
607,877

Interest-bearing
2,508,949

2,347,588

Total deposits
3,137,413

2,955,465

Short-term borrowings
191,363

356,198

Long-term borrowings
105,995

109,644

Accrued expenses and other liabilities
47,227

50,007

Total liabilities
3,481,998

3,471,314

Stockholders’ equity
 
 
Preferred stock, no par value, 50,000 shares authorized, no shares issued at March 31, 2019 and December 31, 2018


Common stock, no par value, 24,000,000 shares authorized, 20,130,076 shares issued at March 31, 2019 and 20,124,378 shares issued at December 31, 2018, including shares in treasury
385,427

386,814

Retained earnings
168,847

160,346

Accumulated other comprehensive loss, net of deferred income taxes
(7,497
)
(12,933
)
Treasury stock, at cost, 492,380 shares at March 31, 2019 and 601,289 shares at December 31, 2018
(11,656
)
(14,087
)
Total stockholders’ equity
535,121

520,140

Total liabilities and stockholders’ equity
$
4,017,119

$
3,991,454

(a) Also referred to throughout the document as "total loans" and "loans held for investment."
See Notes to the Unaudited Consolidated Financial Statements


3


PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)    
 
Three Months Ended
 
March 31,
(Dollars in thousands, except per share data)
2019
2018
Interest income:
 
 
Interest and fees on loans
$
34,053

$
26,881

Interest and dividends on taxable investment securities
5,810

5,650

Interest on tax-exempt investment securities
537

643

Other interest income
176

52

Total interest income
40,576

33,226

Interest expense:
 
 
Interest on deposits
4,844

2,213

Interest on short-term borrowings
1,173

968

Interest on long-term borrowings
645

686

Total interest expense
6,662

3,867

Net interest income
33,914

29,359

(Recoveries of) provision for loan losses
(263
)
1,983

Net interest income after (recoveries of) provision for loan losses
34,177

27,376

Non-interest income:
 
 
Insurance income
4,621

4,655

Trust and investment income
3,112

3,068

Electronic banking income
2,987

2,785

Deposit account service charges
2,341

2,120

Mortgage banking income
788

351

Bank owned life insurance income
485

468

Commercial loan swap fees
146

116

Net gain on investment securities
30

1

Net (loss) gain on asset disposals and other transactions
(182
)
74

Other non-interest income (a)
1,101

1,331

Total non-interest income
15,429

14,969

Non-interest expense:
 
 
Salaries and employee benefit costs
19,135

15,990

Net occupancy and equipment expense
2,978

2,866

Electronic banking expense
1,577

1,528

Data processing and software expense
1,545

1,322

Professional fees
1,276

1,718

Franchise tax expense
705

644

Amortization of other intangible assets
694

754

Marketing expense
594

325

FDIC insurance expense
371

366

Communication expense
278

344

Foreclosed real estate and other loan expenses
255

228

Other non-interest expense
2,452

2,136

Total non-interest expense
31,860

28,221

Income before income taxes
17,746

14,124

Income tax expense
3,377

2,383

  Net income
$
14,369

$
11,741

Earnings per common share - basic
$
0.74

$
0.64

Earnings per common share - diluted
$
0.73

$
0.64

Weighted-average number of common shares outstanding - basic
19,366,008

18,126,089

Weighted-average number of common shares outstanding - diluted
19,508,868

18,256,035

Cash dividends declared
$
5,868

$
4,771

Cash dividends declared per common share
$
0.30

$
0.26

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in realized and unrealized gains on equity investment securities recorded in other non-interest income of $809,000 and $460,000 for the three months ended March 31, 2019 and March 31, 2018, respectively.

See Notes to the Unaudited Consolidated Financial Statements


4


PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
    
 
Three Months Ended
 
March 31,
(Dollars in thousands)
2019
2018
Net income
$
14,369

$
11,741

Other comprehensive income (loss):
 
 
Available-for-sale investment securities:
 
 
Gross unrealized holding gain (loss) arising during the period
8,725

(10,113
)
Related tax (expense) benefit
(1,832
)
3,178

Less: reclassification adjustment for net gain included in net income
30

1

Related tax expense
(6
)

Amounts reclassified out of accumulated other comprehensive loss per ASU 2016-01 (a)

(5,020
)
Net effect on other comprehensive income (loss)
6,869

(11,956
)
Defined benefit plans:
 
 
Net gain arising during the period
2


Amortization of unrecognized loss and service cost on benefit plans
17

26

Related tax expense
(4
)
(6
)
Net effect on other comprehensive income
15

20

Cash flow hedges:
 
 
Net (loss) gain arising during the period
(1,833
)
1,378

  Related tax benefit (expense)
385

(289
)
Net effect on other comprehensive (loss) income
(1,448
)
1,089

Total other comprehensive income (loss), net of tax
5,436

(10,847
)
Total comprehensive income
$
19,805

$
894

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, which resulted in the reclassification of $5.0 million in net unrealized gains on equity
investment securities from accumulated other comprehensive loss to retained earnings.
See Notes to the Unaudited Consolidated Financial Statements



5



CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
 
 
 
Accumulated Other Comprehensive Loss
 
Total Stockholders' Equity
 
Common Stock
Retained Earnings
Treasury Stock
(Dollars in thousands)
Balance, December 31, 2018
$
386,814

$
160,346

$
(12,933
)
$
(14,087
)
$
520,140

Net income

14,369



14,369

Other comprehensive income, net of tax


5,436


5,436

Cash dividends declared

(5,868
)


(5,868
)
Reissuance of treasury stock for common share awards
(2,761
)


2,761


Reissuance of treasury stock for deferred compensation plan for Boards of Directors



2

2

Repurchase of treasury stock in connection with employee incentive plan and under compensation plan for Boards of Directors



(450
)
(450
)
Common shares issued under dividend reinvestment plan
181




181

Common shares issued under compensation plan for Boards of Directors
40



118

158

Stock-based compensation
1,153




1,153

Balance, March 31, 2019
$
385,427

$
168,847

$
(7,497
)
$
(11,656
)
$
535,121

 
See Notes to the Unaudited Consolidated Financial Statements





6


PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
 
March 31,
(Dollars in thousands)
2019
2018
Net cash provided by operating activities
$
6,279

$
11,669

Investing activities:
 
 
Available-for-sale investment securities:
 
 
Purchases
(37,462
)
(44,359
)
Proceeds from sales
7,425


Proceeds from principal payments, calls and prepayments
25,799

29,582

Held-to-maturity investment securities:
 
 
Proceeds from principal payments
1,277

1,184

Other investment securities:
 
 
Purchases
(246
)
(198
)
Proceeds from sales
2,694

110

Net increase in loans held for investment
(6,811
)
(46,404
)
Net expenditures for premises and equipment
(1,584
)
(1,476
)
Proceeds from sales of other real estate owned
2

104

Return of limited partnership and tax credit funds
1

1

Net cash used in investing activities
(8,905
)
(61,456
)
Financing activities:
 

 

Net increase in non-interest-bearing deposits
20,587

14,794

Net increase in interest-bearing deposits
161,293

68,050

Net decrease in short-term borrowings
(168,023
)
(26,016
)
Payments on long-term borrowings
(503
)
(587
)
Cash dividends paid
(5,719
)
(4,741
)
Repurchase of treasury stock in connection with employee incentive program and compensation plan for Boards of Directors to be held as treasury stock
(450
)
(1,056
)
Proceeds from issuance of common shares
3

2

Contingent consideration payments made after a business combination
(102
)
(224
)
Net cash provided by financing activities
7,086

50,222

Net increase in cash and cash equivalents
4,460

435

Cash and cash equivalents at beginning of period
77,612

72,194

Cash and cash equivalents at end of period
$
82,072

$
72,629

 
 
 
Supplemental cash flow information:
 
 
     Interest paid
6,499

2,914

     Income taxes paid

30

Supplemental noncash disclosures:
 
 
     Transfers from loans to other real estate owned
14


 
 See Notes to the Unaudited Consolidated Financial Statements



7


PEOPLES BANCORP INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies 

Basis of Presentation: The accompanying Unaudited Consolidated Financial Statements of Peoples Bancorp Inc. and its subsidiaries ("Peoples" refers to Peoples Bancorp Inc. and its consolidated subsidiaries collectively, except where the context indicates the reference relates solely to Peoples Bancorp Inc.) have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these financial statements do not contain all of the information and footnotes required by US GAAP for annual financial statements and should be read in conjunction with Peoples’ Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (“Peoples' 2018 Form 10-K”).
The accounting and reporting policies followed in the presentation of the accompanying Unaudited Consolidated Financial Statements are consistent with those described in Note 1 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Peoples’ 2018 Form 10-K, as updated by the information contained in this Form 10-Q.  Management has evaluated all significant events and transactions that occurred after March 31, 2019 for potential recognition or disclosure in these consolidated financial statements.  In the opinion of management, these consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated.  Such adjustments are normal and recurring in nature.  Intercompany accounts and transactions have been eliminated.  The Consolidated Balance Sheet at December 31, 2018, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2018 Form 10-K. 
The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Results of operations for interim periods are not necessarily indicative of the results to be expected for the full year, due in part to seasonal variations and unusual or infrequently occurring items. Peoples’ insurance income includes performance-based insurance commissions that are recognized by Peoples when received, which typically occurs, for the most part, during the first quarter of each year. For the three months ended March 31, 2019 and 2018, the amount of performance-based insurance commissions recognized totaled $1.4 million and $1.3 million, respectively.
New Accounting Pronouncements: From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that are adopted by Peoples as of the required effective dates. The following accounting pronouncements should be read in conjunction with Note 1 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Peoples’ 2018 Form 10-K.
Accounting Standards Update ("ASU") 2017-04 - Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples early adopted this new accounting guidance as of January 1, 2019, and it will be incorporated in the October 1, 2019 annual goodwill and intangible assets impairment analysis, but it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This accounting guidance replaces the current "incurred loss" model for recognizing credit losses with an "expected loss" model, referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, Peoples will be required to present certain financial assets carried at amortized cost, such as loans held-for-investment and held-to-maturity debt securities, at the net amount expected to be collected. ASU 2018-19 clarified that receivables arising from operating leases are not within the scope of Subtopic 326-20, and should be accounted for according to Topic 842.
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current US GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, Peoples expects that the adoption of the CECL model will materially affect how the allowance for loan losses is determined and could require significant increases to the allowance for loan losses. Moreover, the CECL model may create more volatility in the level of Peoples' allowance for loan losses. If required to


8


materially increase the level of allowance for loan losses for any reason, such increase could adversely affect Peoples' business, financial condition and results of operations.
The new CECL standard will become effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples has a committee that meets regularly to monitor progress and oversee the project. Peoples has implemented a third-party software solution, and is utilizing the tool to run test calculations throughout 2019 in anticipation of the full implementation at the beginning of 2020. Peoples will complete model validation during 2019, and is currently refining the economic forecasting process, documenting accounting policies, reviewing business processes and evaluating potential changes to the control environment. Peoples is presently evaluating the impact that the CECL model will have on Peoples' financial statements and expects to recognize a one-time cumulative-effect adjustment to the allowance for loan loss provision as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. The impact of the adoption will depend on relevant data at the adoption date, including the characteristics of the loan portfolio, macroeconomic conditions and forecasts. Peoples has not yet determined the magnitude of any such one-time cumulative-effect adjustment or of the overall impact of the new standard on Peoples' financial condition or results of operations.
Note 2 Fair Value of Assets and Liabilities
Fair value represents the amount expected to be received to sell an asset or paid to transfer a liability in its principal or most advantageous market in an orderly transaction between market participants at the measurement date. In accordance with fair value accounting guidance, Peoples measures, records and reports various types of assets and liabilities at fair value on either a recurring or a non-recurring basis in the Consolidated Financial Statements. Those assets and liabilities are presented below in the sections entitled “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis” and “Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis.”
Depending on the nature of the asset or liability, Peoples uses various valuation methodologies and assumptions to estimate fair value. The measurement of fair value under US GAAP uses a hierarchy, which is described in Note 1 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Peoples' 2018 Form 10‑K.
Assets and liabilities are assigned to a level within the fair value hierarchy based on the lowest level of significant input used to measure fair value. Assets and liabilities may change levels within the fair value hierarchy due to market conditions or other circumstances. Those transfers are recognized on the date of the event that prompted the transfer. There were no transfers of assets or liabilities required to be measured at fair value on a recurring basis between levels of the fair value hierarchy during the periods presented.
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis
The following table provides the fair value for assets and liabilities required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets by level in the fair value hierarchy.
 
Recurring Fair Value Measurements at Reporting Date
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
Level 1
Level 2
Level 3
 
Level 1
Level 2
Level 3
 
Assets:
 
 
 
 
 
 
 
Available-for-sale investment securities:
 
 
 
 
 
 
 
Obligations of:
 
 
 
 
 
 
 
  States and political subdivisions
$

$
84,827

$

 
$

$
88,587

$

Residential mortgage-backed securities

706,976


 

692,608


Commercial mortgage-backed securities

6,649


 

6,707


Bank-issued trust preferred securities

4,118


 

3,989


Total available-for-sale securities

802,570


 

791,891


Equity investment securities
109

190


 
94

183


Derivative assets (a)

5,521


 

4,544


Liabilities:
 
 
 
 
 
 
 
Derivative liabilities (b)
$

$
6,404

$

 
$

$
3,562

$

(a) Included in Other assets on the Consolidated Balance Sheets. For additional information, see Note 9 Derivative Financial Instruments of the Notes to the Unaudited Consolidated Financial Statements.


9


(b) Included in Other liabilities on the Consolidated Balance Sheets. For additional information, see Note 9 Derivative Financial Instruments of the Notes to the Unaudited Consolidated Financial Statements.
Available-for-Sale Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Equity Investment Securities: The fair values of Peoples' equity investment securities are obtained from quoted prices in active exchange markets for identical assets or liabilities (Level 1) or quoted prices in less active markets (Level 2).
Derivative Assets and Liabilities: Derivative assets and liabilities are recognized on the Consolidated Balance Sheets at their fair value within other assets/liabilities. The fair value for derivative instruments is determined based on market prices, broker-dealer quotations on similar products, or other related input parameters (Level 2).
Assets and Liabilities Required to be Measured and Reported at Fair Value on a Non-Recurring Basis
The following table provides the fair value for each class of assets and liabilities required to be measured and reported at fair value on a non-recurring basis on the Unaudited Consolidated Balance Sheets by level in the fair value hierarchy.
 
Non-Recurring Fair Value Measurements at Reporting Date
 
March 31, 2019
 
December 31, 2018
(Dollars in thousands)
Level 1
Level 2
Level 3
 
Level 1
Level 2
Level 3
 
Impaired loans
$

$

$
27,200

 
$

$

$
24,129

Other real estate owned ("OREO")


81

 


94

Impaired Loans: Impaired loans are measured and reported at fair value when the amounts to be received are less than the carrying value of the loans. One of the allowable methods for determining the amount of impairment is estimating fair value using the fair value of the collateral for collateral-dependent loans. Management’s determination of the fair value for these loans uses a market approach representing the estimated net proceeds to be received from the sale of the collateral based on observable market prices or the market value provided by independent, licensed or certified appraisers (Level 3), less estimated selling costs. At March 31, 2019, impaired loans with an aggregate principal balance of $33.2 million were outstanding and reported at fair value of $27.2 million.  For the three months ended March 31, 2019, Peoples recognized an increase of $752,000 in the specific reserve on impaired loans, through the allowance for loan losses.
Other Real Estate Owned ("OREO"): OREO, included in other assets on the Consolidated Balance Sheets, is comprised primarily of commercial and residential real estate properties acquired by Peoples in satisfaction of a loan. OREO obtained in satisfaction of a loan is recorded at the lower of cost or estimated fair value, less estimated costs to sell the property. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is based on recent real estate appraisals and is updated at least annually. These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available (Level 3).


10


Financial Instruments Not Required to be Measured or Reported at Fair Value
The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets.
 
Fair Value Measurements of Other Financial Instruments
(Dollars in thousands)
Fair Value Hierarchy Level
March 31, 2019
 
December 31, 2018
Carrying Amount
Fair Value
 
Carrying Amount
Fair Value
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
1
$
82,072

$
82,072

 
$
77,612

$
77,612

Held-to-maturity investment securities:
 
 
 
 
 
 
   Obligations of:
 
 
 
 
 
 
States and political subdivisions
2
4,401

4,965

 
4,403

4,896

Residential mortgage-backed securities
2
28,348

28,276

 
29,044

28,603

Commercial mortgage-backed securities
2
2,857

2,825

 
3,514

3,464

        Total held-to-maturity securities
 
35,606

36,066

 
36,961

36,963

Other investment securities:
 
 
 
 
 
 
Federal Home Loan Bank ("FHLB") stock
2
27,586

27,586

 
29,367

29,367

Federal Reserve Bank ("FRB") stock
2
12,294

12,294

 
12,294

12,294

Nonqualified deferred compensation
2
1,210

1,210

 
987

987

United Bankers' Bancorporation Inc. ("UBB") stock
2
60

60

 
60

60

Other investment securities (a)
 
41,150

41,150

 
42,708

42,708

Net loans
3
2,716,641

2,884,562

 
2,708,583

2,907,537

Loans held for sale
2
2,191

2,069

 
5,470

5,492

Bank owned life insurance
3
69,419

69,419

 
68,934

68,934

Servicing rights (b)
3
2,507

3,973

 
2,655

4,568

Liabilities:
 
 
 
 
 
 
Deposits
2
$
3,137,413

$
3,149,980

 
$
2,955,465

$
2,953,452

Short-term borrowings
2
191,363

191,259

 
356,198

349,994

Long-term borrowings
2
105,995

104,285

 
109,644

107,696

(a) Other investment securities, as reported on the Consolidated Balance Sheets, also includes equity investment securities for 2018, which are reported in the Assets and Liabilities Required to be Measured and Reported at Fair Value on a Recurring Basis table above.
(b) Included in other intangible assets on the Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or market value.
 For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument.  These instruments include cash and cash equivalents, demand and other non-maturity deposits, and overnight borrowings.  Peoples used the following methods and assumptions in estimating the fair value of the following financial instruments:
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, balances due from other banks, interest-bearing deposits in other banks, federal funds sold and other short-term investments with original maturities of ninety days or less. The carrying amount for cash and due from banks is a reasonable estimate of fair value. (Level 1).
Held-to-Maturity Investment Securities: The fair values used by Peoples are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatility, LIBOR yield curves, credit spreads and prices from market makers and live trading systems (Level 2). Management reviews the valuation methodology and quality controls utilized by the pricing services in management's overall assessment of the reasonableness of the fair values provided, and challenges prices when management believes a material discrepancy in pricing exists.
Other Investment Securities: Other investment securities are measured at their respective redemption values (Level 2).
Net Loans: The fair value of portfolio loans assumes sale of the notes to a third-party financial investor. Accordingly, this value is not necessarily the value to Peoples if the notes were held to maturity.  Peoples considered


11


interest rate, credit and market factors in estimating the fair value of loans (Level 3). Fair values for loans are estimated using a discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and other market factors, including liquidity.
Loans Held for Sale: Loans originated and intended to be sold in the secondary market, generally one-to-four family residential loans, are carried, in aggregate, at the lower of cost or estimated fair value. The use of a valuation model using quoted prices of similar instruments are significant inputs in arriving at the fair value (Level 2).
Bank Owned Life Insurance: Peoples' bank owned life insurance policies are recorded at their cash surrender value (Level 3). Peoples recognizes tax-exempt income from the periodic increases in the cash surrender value of these policies and from death benefits.
Servicing Rights: The fair value of the servicing rights is determined by using a discounted cash flow model, which estimates the present value of the future net cash flows of the servicing portfolio based on various factors, such as servicing costs, expected prepayment speeds and discount rates (Level 3).
Deposits: The fair value of fixed maturity certificates of deposit ("CDs") is estimated using a discounted cash flow calculation based on current rates offered for deposits of similar remaining maturities (Level 2).
Short-term Borrowings: The fair value of short-term borrowings is estimated using discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). 
Long-term Borrowings: The fair value of long-term borrowings is estimated using a discounted cash flow analysis based on rates currently available to Peoples for borrowings with similar terms (Level 2). 
Certain financial assets and financial liabilities that are not required to be measured or reported at fair value can be subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  These financial assets and liabilities include the following: customer relationships, deposit base, banking center networks, and other information required to compute Peoples’ aggregate fair value that are not included in the above information.  Accordingly, the above fair values are not intended to represent the aggregate fair value of Peoples.
Note 3 Investment Securities 

Available-for-sale
The following table summarizes Peoples' available-for-sale investment securities:
(Dollars in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
March 31, 2019
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
83,822

$
1,240

$
(235
)
$
84,827

Residential mortgage-backed securities
711,917

4,034

(8,975
)
706,976

Commercial mortgage-backed securities
6,706


(57
)
6,649

Bank-issued trust preferred securities
4,196

116

(194
)
4,118

Total available-for-sale securities
$
806,641

$
5,390

$
(9,461
)
$
802,570

December 31, 2018
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
88,358

$
787

$
(558
)
$
88,587

Residential mortgage-backed securities
705,289

2,720

(15,401
)
692,608

Commercial mortgage-backed securities
6,812


(105
)
6,707

Bank-issued trust preferred securities
4,196

75

(282
)
3,989

Total available-for-sale securities
$
804,655

$
3,582

$
(16,346
)
$
791,891


The unrealized losses related to residential mortgage-backed securities at March 31, 2019 and December 31, 2018, were attributed to changes in market interest rates and spreads since the securities were purchased.


12


The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the periods ended March 31 were as follows:
 
 
Three Months Ended
 
March 31,
(Dollars in thousands)
2019
2018
Gross gains realized
$
30

$
2

Gross losses realized

1

Net gain realized
$
30

$
1

The cost of investment securities sold, and any resulting gain or loss, was based on the specific identification method and recognized as of the trade date.
The following table presents a summary of available-for-sale investment securities that had an unrealized loss:
 
Less than 12 Months
 
12 Months or More
 
Total
(Dollars in thousands)
Fair
Value
Unrealized Loss
No. of Securities
 
Fair
Value
Unrealized Loss
No. of Securities
 
Fair
Value
Unrealized Loss
March 31, 2019
 
 
 
 
 
 
 
 
 
 
Obligations of:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$

$


 
$
11,886

$
235

8

 
$
11,886

$
235

Residential mortgage-backed securities
14,171

93

28

 
476,571

8,882

147

 
490,742

8,975

Commercial mortgage-backed securities



 
6,653

57

3

 
6,653

57

Bank-issued trust preferred securities



 
1,805

194

2

 
1,805

194

Total
$
14,171

$
93

28

 
$
496,915

$
9,368

160

 
$
511,086

$
9,461

December 31, 2018
 
 
 
 
 
 
 
 
 
 
Obligations of:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
10,173

$
18

17

 
$
19,918

$
540

20

 
$
30,091

$
558

Residential mortgage-backed securities
47,562

226

50

 
517,335

15,175

170

 
564,897

15,401

Commercial mortgage-backed securities



 
6,707

105

3

 
6,707

105

Bank-issued trust preferred securities



 
1,718

282

2

 
1,718

282

Total
$
57,735

$
244

67

 
$
545,678

$
16,102

195

 
$
603,413

$
16,346


Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair value on a quarterly basis.  At March 31, 2019, management concluded no individual securities were other-than-temporarily impaired since Peoples did not have the intent to sell, nor was it more likely than not that Peoples would be required to sell, any of the securities with an unrealized loss prior to recovery. Further, the unrealized losses at both March 31, 2019 and December 31, 2018 were largely attributable to changes in market interest rates and spreads since the securities were purchased.
At March 31, 2019, approximately 99% of the mortgage-backed securities with a market value that had been at an unrealized loss position for twelve months or more were issued by U.S. government sponsored agencies. The remaining 1%, or two positions, consisted of privately issued mortgage-backed securities with all of the underlying mortgages originated prior to 2004. Both of these positions had a fair value of less than 90% of their book value, with an aggregate book and fair value of $214,000 and $146,000, respectively. Management analyzed the underlying credit quality of these securities and concluded the unrealized losses were primarily attributable to the floating rate nature of these investments and the low number of loans remaining in these securities.
The unrealized losses with respect to the two bank-issued trust preferred securities that had been in an unrealized loss position for twelve months or more at March 31, 2019 were primarily attributable to the subordinated nature of the debt.


13


The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at March 31, 2019.  The weighted-average yields are based on the amortized cost.  In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date.  
 
(Dollars in thousands)
Within 1 Year
1 to 5 Years
5 to 10 Years
Over 10 Years
Total
Amortized cost
 
 
 
 
 
Obligations of:
 
 
 
 
 
States and political subdivisions
$
889

$
15,450

$
23,997

$
43,486

$
83,822

Residential mortgage-backed securities
2

11,925

62,267

637,723

711,917

Commercial mortgage-backed securities

5,625


1,081

6,706

Bank-issued trust preferred securities


4,196


4,196

Total available-for-sale securities
$
891

$
33,000

$
90,460

$
682,290

$
806,641

Fair value
 
 
 
 
 
Obligations of:
 
 
 
 
 
States and political subdivisions
$
887

$
15,504

$
24,388

$
44,048

$
84,827

Residential mortgage-backed securities
2

11,865

61,313

633,796

706,976

Commercial mortgage-backed securities

5,588


1,061

6,649

Bank-issued trust preferred securities


4,118


4,118

Total available-for-sale securities
$
889

$
32,957

$
89,819

$
678,905

$
802,570

Total weighted-average yield
2.26
%
2.53
%
2.75
%
3.00
%
2.95
%
Held-to-Maturity
The following table summarizes Peoples’ held-to-maturity investment securities:
(Dollars in thousands)
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
March 31, 2019
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
4,401

$
564

$

$
4,965

Residential mortgage-backed securities
28,348

340

(412
)
28,276

Commercial mortgage-backed securities
2,857


(32
)
2,825

Total held-to-maturity securities
$
35,606

$
904

$
(444
)
$
36,066

December 31, 2018
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
4,403

$
493

$

$
4,896

Residential mortgage-backed securities
29,044

191

(632
)
28,603

Commercial mortgage-backed securities
3,514


(50
)
3,464

Total held-to-maturity securities
$
36,961

$
684

$
(682
)
$
36,963

There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the three months ended March 31, 2019 and 2018.


14


The following table presents a summary of held-to-maturity investment securities that had an unrealized loss:
 
Less than 12 Months
 
12 Months or More
 
Total
(Dollars in thousands)
Fair
Value
Unrealized Loss
No. of Securities
 
Fair
Value
Unrealized Loss
No. of Securities
 
Fair
Value
Unrealized Loss
March 31, 2019
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
$

$


 
$
11,925

$
412

4

 
$
11,925

$
412

Commercial mortgage-backed securities



 
2,825

32

1

 
2,825

32

Total
$

$


 
$
14,750

$
444

5

 
$
14,750

$
444

December 31, 2018
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
$

$


 
$
13,102

$
632

5

 
$
13,102

$
632

Commercial mortgage-backed securities



 
3,464

50

1

 
3,464

50

Total
$

$


 
$
16,566

$
682

6

 
$
16,566

$
682

The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at March 31, 2019.  The weighted-average yields are based on the amortized cost.  In some cases, the issuers may have the right to call or prepay obligations without call or prepayment penalties prior to the contractual maturity date. 
 
(Dollars in thousands)
Within 1 Year
1 to 5 Years
5 to 10 Years
Over 10 Years
Total
Amortized cost
 
 
 
 
 
Obligations of:
 
 
 
 
 
States and political subdivisions
$

$
306

$
2,983

$
1,112

$
4,401

Residential mortgage-backed securities

416

7,992

19,940

28,348

Commercial mortgage-backed securities



2,857

2,857

Total held-to-maturity securities
$

$
722

$
10,975

$
23,909

$
35,606

Fair value
 
 
 
 
 
Obligations of:
 
 
 
 
 
States and political subdivisions
$

$
308

$
3,538

$
1,119

$
4,965

Residential mortgage-backed securities

414

8,232

19,630

28,276

Commercial mortgage-backed securities



2,825

2,825

Total held-to-maturity securities
$

$
722

$
11,770

$
23,574

$
36,066

Total weighted-average yield
%
2.43
%
2.90
%
2.78
%
2.81
%
Other Investment Securities
Peoples' other investment securities on the Consolidated Balance Sheet consist largely of shares of FHLB of Cincinnati and FRB of Cleveland, and equity investment securities.
The following table summarizes the carrying value of Peoples' other investment securities:
(Dollars in thousands)
March 31, 2019
December 31, 2018
FHLB stock
$
27,586

$
29,367

FRB stock
12,294

12,294

Nonqualified deferred compensation
1,210

987

Equity investment securities
299

277

UBB stock
60

60

Total other investment securities
$
41,449

$
42,985

During the first quarter of 2019, Peoples redeemed $1.8 million of FHLB stock to be in compliance with requirements of the FHLB of Cincinnati.
During the three months ended March 31, 2019, Peoples recorded the change in the fair value of equity investment securities held at March 31, 2019 in other non-interest income, resulting in unrealized gains of $22,000. During the three


15


months ended March 31, 2018, Peoples recorded the change in the fair value of equity investment securities held at March 31, 2018 in other non-interest income, resulting in unrealized losses of $460,000. Net realized gains on sales of equity investment securities, included in other non-interest income during the first three months of 2019, consisted of a realized gain of $787,000 related to the sale of restricted Class B Visa stock, which had been held at a carrying cost and fair value of $0 due to the litigation liability associated with the stock.
At March 31, 2019, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies. There were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.
Pledged Securities
Peoples had pledged available-for-sale investment securities with carrying values of $500.8 million and $430.0 million at March 31, 2019 and December 31, 2018, respectively, and held-to-maturity investment securities with carrying values of $16.2 million and $16.9 million at March 31, 2019 and December 31, 2018, respectively, to secure public and trust department deposits, and repurchase agreements in accordance with federal and state requirements.  Peoples also pledged available-for-sale investment securities with carrying values of $58.0 million and $60.1 million at March 31, 2019 and December 31, 2018, respectively, and held-to-maturity securities with carrying values of $16.1 million and $16.7 million at March 31, 2019 and December 31, 2018, respectively, to secure additional borrowing capacity at the FHLB and the FRB.

Note 4 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 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,
2019
December 31, 2018
Originated loans:
 
 
Commercial real estate, construction
$
116,992

$
124,013

Commercial real estate, other
630,679

632,200

    Commercial real estate
747,671

756,213

Commercial and industrial
558,070

530,207

Residential real estate
297,667

296,860

Home equity lines of credit
90,831

93,326

Consumer, indirect
410,172

407,167

Consumer, direct
69,710

71,674

   Consumer
479,882

478,841

Deposit account overdrafts
518

583

Total originated loans
$
2,174,639

$
2,156,030

Acquired loans:
 
 
Commercial real estate, construction
$
7,966

$
12,404

Commercial real estate, other
171,785

184,711

    Commercial real estate
179,751

197,115

Commercial and industrial
34,837

35,537

Residential real estate
308,137

296,937

Home equity lines of credit
38,084

40,653

Consumer, indirect
111

136

Consumer, direct
2,021

2,370

   Consumer
2,132

2,506

Total acquired loans
$
562,941

$
572,748

Loans, net of deferred fees and costs
$
2,737,580

$
2,728,778



16


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)
March 31,
2019
December 31,
2018
Commercial real estate
$
11,076

$
11,955

Commercial and industrial
1,251

1,287

Residential real estate
19,275

20,062

Consumer
57

58

Total outstanding balance
$
31,659

$
33,362

Net carrying amount
$
20,884

$
22,475

Changes in the accretable yield for purchased credit impaired loans for the three months ended March 31 were as follows:
(Dollars in thousands)
March 31,
2019
March 31,
2018
Balance, beginning of period
$
8,955

$
6,704

Accretion
(484
)
(412
)
Balance, March 31
$
8,471

$
6,292

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-estimation date compared to the previous cash flow re-estimation date would not have a material impact on amounts recorded since the last re-estimation. Peoples completed a re-estimation of cash flows on purchased credit impaired loans in August 2018.
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 of Cincinnati. The amount of loans pledged under this blanket collateral agreement totaled $500.3 million and $505.7 million at March 31, 2019 and December 31, 2018, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB of Cleveland. The outstanding balances of these loans totaled $182.5 million and $180.9 million at March 31, 2019 and December 31, 2018, 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.


17


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)
March 31,
2019
December 31,
2018
 
March 31,
2019
December 31,
2018
Originated loans:
 
 
 
 
 
Commercial real estate, construction
$
703

$
710

 
$

$

Commercial real estate, other
6,273

6,565

 

786

    Commercial real estate
6,976

7,275

 

786

Commercial and industrial
2,015

1,673

 


Residential real estate
4,098

4,105

 
239

398

Home equity lines of credit
520

596

 
42

7

Consumer, indirect
599

480

 
4


Consumer, direct
22

56

 


    Consumer
621

536

 
4


Total originated loans
$
14,230

$
14,185

 
$
285

$
1,191

Acquired loans:
 
 
 
 
 
Commercial real estate, other
$
313

$
319

 
$
15

$
15

Commercial and industrial
36

36

 
50

18

Residential real estate
1,770

1,921

 
724

1,032

Home equity lines of credit
740

637

 


Total acquired loans
$
2,859

$
2,913

 
$
789

$
1,065

Total loans
$
17,089

$
17,098

 
$
1,074

$
2,256

    





















18


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
 
March 31, 2019
 
 
 
 
 
 
 
Originated loans:
 
 
 
 
 
 
 
Commercial real estate, construction
$

$

$
703

$
703

 
$
116,289

$
116,992

Commercial real estate, other
466

149

6,066

6,681

 
623,998

630,679

    Commercial real estate
466

149

6,769

7,384

 
740,287

747,671

Commercial and industrial
1,641

4,228

1,118

6,987

 
551,083

558,070

Residential real estate
3,339

1,074

2,347

6,760

 
290,907

297,667

Home equity lines of credit
406

123

428

957

 
89,874

90,831

Consumer, indirect
2,291

189

216

2,696

 
407,476

410,172

Consumer, direct
204

24

5

233

 
69,477

69,710

    Consumer
2,495

213

221

2,929

 
476,953

479,882

Deposit account overdrafts




 
518

518

Total originated loans
$
8,347

$
5,787

$
10,883

$
25,017

 
$
2,149,622

$
2,174,639

Acquired loans:
 
 
 
 
 
 
 
Commercial real estate, construction
$
503

$
330

$

$
833

 
$
7,133

$
7,966

Commercial real estate, other
2,130

5

233

2,368

 
169,417

171,785

    Commercial real estate
2,633

335

233

3,201

 
176,550

179,751

Commercial and industrial
309

96

86

491

 
34,346

34,837

Residential real estate
6,451

680

1,586

8,717

 
299,420

308,137

Home equity lines of credit
168


623

791

 
37,293

38,084

Consumer, indirect




 
111

111

Consumer, direct
34

4


38

 
1,983

2,021

    Consumer
34

4


38


2,094

2,132

Total acquired loans
$
9,595

$
1,115

$
2,528

$
13,238

 
$
549,703

$
562,941

Total loans
$
17,942

$
6,902

$
13,411

$
38,255

 
$
2,699,325

$
2,737,580



19


 
Loans Past Due
 
Current
Loans
Total
Loans
(Dollars in thousands)
30 - 59 days
60 - 89 days
90 + Days
Total
 
December 31, 2018
 
 
 
 
 
 
 
Originated loans:
 
 
 
 
 
 
 
Commercial real estate, construction
$

$

$
710

$
710

 
$
123,303

$
124,013

Commercial real estate, other
12

736

7,151

7,899

 
624,301

632,200

    Commercial real estate
12

736

7,861

8,609

 
747,604

756,213

Commercial and industrial
1,678

3,520

1,297

6,495

 
523,712

530,207

Residential real estate
4,457

1,319

2,595

8,371

 
288,489

296,860

Home equity lines of credit
531

30

431

992

 
92,334

93,326

Consumer, indirect
3,266

488

165

3,919

 
403,248

407,167

Consumer, direct
308

50

42

400

 
71,274

71,674

    Consumer
3,574

538

207

4,319


474,522

478,841

Deposit account overdrafts




 
583

583

Total originated loans
$
10,252

$
6,143

$
12,391

$
28,786

 
$
2,127,244

$
2,156,030

Acquired loans:
 
 
 
 
 
 
 
Commercial real estate, construction
$
511

$

$

$
511

 
$
11,893

$
12,404

Commercial real estate, other
523

457

233

1,213

 
183,498

184,711

    Commercial real estate
1,034

457

233

1,724

 
195,391

197,115

Commercial and industrial
111

13

18

142

 
35,395

35,537

Residential real estate
6,124

1,823

1,885

9,832

 
287,105

296,937

Home equity lines of credit
238

233

534

1,005

 
39,648

40,653

Consumer, indirect




 
136

136

Consumer, direct
23

6


29

 
2,341

2,370

    Consumer
23

6


29

 
2,477

2,506

Total acquired loans
$
7,530

$
2,532

$
2,670

$
12,732

 
$
560,016

$
572,748

Total loans
$
17,782

$
8,675

$
15,061

$
41,518

 
$
2,687,260

$
2,728,778

Delinquency trends remained stable, as 98.6% of Peoples' portfolio was considered “current” at March 31, 2019, compared to 98.5% at December 31, 2018.
Credit Quality Indicators
As discussed in Note 1 Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Peoples' 2018 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


20


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 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 “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)
March 31, 2019
 
 
 
 
 
 
Originated loans:
 
 
 
 
 
 
Commercial real estate, construction
$
114,901

$

$
1,454

$

$
637

$
116,992

Commercial real estate, other
611,063

9,969

9,615

32


630,679

    Commercial real estate
725,964

9,969

11,069

32

637

747,671

Commercial and industrial
526,379

19,957

11,734



558,070

Residential real estate
14,002

259

11,682

171

271,553

297,667

Home equity lines of credit
17




90,814

90,831

Consumer, indirect
6




410,166

410,172

Consumer, direct
27




69,683

69,710

   Consumer
33




479,849

479,882

Deposit account overdrafts




518

518

Total originated loans
$
1,266,395

$
30,185

$
34,485

$
203

$
843,371

$
2,174,639

Acquired loans: