Company Quick10K Filing
Quick10K
Peoples Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$32.00 20 $626
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
8-K 2019-01-31 Other Events, Exhibits
8-K 2019-01-22 Earnings, Exhibits
8-K 2019-01-22 Earnings, Exhibits
8-K 2019-01-22 Earnings, Other Events, 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, Exhibits
8-K 2018-10-23 Earnings, Other Events, 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
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SNV Synovus Financial
ISBC Investors Bancorp
GWB Great Western Bancorp
FBNC First Bancorp
GABC German American Bancorp
TSC Tristate Capital Holdings
SFST Southern First Bancshares
CCB Coastal Financial
SVBI Severn Bancorp
PEBO 2018-09-30
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 Financial Instruments with Off-Balance Sheet Risk
Note 10 Stock-Based Compensation
Note 11 Revenue
Note 12 Acquisitions
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 exhibit101timebasedrsafore.htm
EX-10.2 exhibit102performancebased.htm
EX-31.1 exhibit311-0930201810xq.htm
EX-31.2 exhibit312-0930201810xq.htm
EX-32 exhibit32-0930201810xq.htm

Peoples Bancorp Earnings 2018-09-30

PEBO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 pebo09301810q.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 September 30, 2018
                                                                                        
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: 0-16772
pebonewlogoa14.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: 19,555,775 common shares, without par value, at November 6, 2018.




Table of Contents
 
 



2


PART I
ITEM 1.  FINANCIAL STATEMENTS
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
September 30,
2018
December 31,
2017
 
(Dollars in thousands)
(Unaudited)
 
Assets
 
 
Cash and due from banks
$
60,567

$
58,121

Interest-bearing deposits in other banks
34,606

14,073

Total cash and cash equivalents
95,173

72,194

Available-for-sale investment securities, at fair value (amortized cost of $819,431 at September 30, 2018 and $797,732 at December 31, 2017) (a)
793,325

795,187

Held-to-maturity investment securities, at amortized cost (fair value of $37,095 at September 30, 2018 and $41,213 at December 31, 2017)
37,790

40,928

Other investment securities (a)
43,044

38,371

Total investment securities
874,159

874,486

Loans, net of deferred fees and costs
2,707,727

2,357,137

Allowance for loan losses
(19,879
)
(18,793
)
Net loans
2,687,848

2,338,344

Loans held for sale
4,776

2,510

Bank premises and equipment, net of accumulated depreciation
57,527

52,510

Bank owned life insurance
68,439

62,176

Goodwill
151,673

133,111

Other intangible assets
11,728

11,465

Other assets
51,766

34,890

Total assets
$
4,003,089

$
3,581,686

Liabilities
 
 
Deposits:
 
 
Non-interest-bearing
$
617,447

$
556,010

Interest-bearing
2,423,676

2,174,320

Total deposits
3,041,123

2,730,330

Short-term borrowings
296,830

209,491

Long-term borrowings
111,099

144,019

Accrued expenses and other liabilities
49,747

39,254

Total liabilities
3,498,799

3,123,094

Stockholders’ equity
 
 
Preferred stock, no par value, 50,000 shares authorized, no shares issued at September 30, 2018 and December 31, 2017


Common stock, no par value, 24,000,000 shares authorized, 20,119,194 shares issued at September 30, 2018 and 18,952,385 shares issued at December 31, 2017, including shares in treasury
386,142

345,412

Retained earnings (b)
152,976

134,362

Accumulated other comprehensive loss, net of deferred income taxes (b)
(20,590
)
(5,215
)
Treasury stock, at cost, 609,250 shares at September 30, 2018 and 702,449 shares at December 31, 2017
(14,238
)
(15,967
)
Total stockholders’ equity
504,290

458,592

Total liabilities and stockholders’ equity
$
4,003,089

$
3,581,686

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities (including those held in participant accounts in the Peoples Bancorp Inc. Nonqualified Deferred Compensation Plan) from available-for-sale investment securities to other investment securities. At December 31, 2017, $7.8 million of equity investment securities were included in available-for-sale investment securities.
(b) As of January 1, 2018, Peoples adopted ASU 2014-09 (which resulted in a reduction to retained earnings and an increase in other liabilities of $3.1 million, net of federal income taxes, to reflect uncompleted contracts in the initial application of the guidance) and 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


3


PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)    
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Dollars in thousands, except per share data)
2018
2017
 
2018
2017
Interest income:
 
 
 
 
 
Interest and fees on loans
$
33,355

$
26,370

 
$
91,486

$
76,133

Interest and dividends on taxable investment securities
5,577

5,615

 
17,057

15,280

Interest on tax-exempt investment securities
613

701

 
1,891

2,257

Other interest income
86

42

 
192

83

Total interest income
39,631

32,728

 
110,626

93,753

Interest expense:
 
 
 
 
 
Interest on deposits
4,018

1,865

 
9,332

5,081

Interest on short-term borrowings
1,617

369

 
3,760

853

Interest on long-term borrowings
672

1,274

 
2,043

3,564

Total interest expense
6,307

3,508

 
15,135

9,498

Net interest income
33,324

29,220

 
95,491

84,255

Provision for loan losses
1,302

1,086

 
4,473

2,657

Net interest income after provision for loan losses
32,022

28,134

 
91,018

81,598

Non-interest income:
 
 
 
 
 
Insurance income
3,388

3,345

 
11,412

10,861

Trust and investment income
3,110

2,838

 
9,410

8,497

Electronic banking income
2,890

2,544

 
8,460

7,692

Deposit account service charges
2,652

2,407

 
7,160

7,130

Mortgage banking income
1,060

535

 
2,380

1,389

Bank owned life insurance income
495

482

 
1,460

1,471

Commercial loan swap fees
355

76

 
617

995

Net gain (loss) on asset disposals and other transactions
12

(25
)
 
(319
)
81

Net gain (loss) on investment securities

1,861

 
(146
)
2,219

Other non-interest income (a)
391

383

 
2,143

1,499

Total non-interest income
14,353

14,446

 
42,577

41,834

Non-interest expense:
 
 
 
 
 
Salaries and employee benefit costs
17,908

15,141

 
51,923

45,686

Net occupancy and equipment expense
2,850

2,619

 
8,519

7,980

Electronic banking expense
1,552

1,403

 
4,409

4,293

Data processing and software expense
1,408

1,092

 
4,089

3,330

Professional fees
1,395

1,393

 
6,135

4,532

Amortization of other intangible assets
862

869

 
2,477

2,603

Franchise tax expense
616

583

 
1,874

1,750

Marketing expense
456

488

 
1,437

1,122

FDIC insurance expense
391

449

 
1,173

1,339

Foreclosed real estate and other loan expenses
373

214

 
923

589

Communication expense
305

334

 
949

1,134

Other non-interest expense
2,713

1,973

 
11,113

6,211

Total non-interest expense
30,829

26,558

 
95,021

80,569

Income before income taxes
15,546

16,022

 
38,574

42,863

Income tax expense
2,821

5,127

 
6,216

13,393

  Net income
$
12,725

$
10,895

 
$
32,358

$
29,470

Earnings per common share - basic
$
0.65

$
0.60

 
$
1.70

$
1.62

Earnings per common share - diluted
$
0.65

$
0.60

 
$
1.69

$
1.61

Weighted-average number of common shares outstanding - basic
19,325,457

18,056,202

 
18,875,290

18,043,692

Weighted-average number of common shares outstanding - diluted
19,466,865

18,213,533

 
19,004,087

18,199,959

Cash dividends declared
$
5,472

$
4,020

 
$
15,709

$
11,299

Cash dividends declared per common share
$
0.28

$
0.22

 
$
0.82

$
0.62

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in a reduction to other non-interest income of $16,000 for the three months ended September 30, 2018 and a gain to other non-interest income of $208,000 for the nine months ended September 30, 2018.
See Notes to the Unaudited Consolidated Financial Statements


4


PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
    
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Dollars in thousands)
2018
2017
 
2018
2017
Net income
$
12,725

$
10,895

 
$
32,358

$
29,470

Other comprehensive income:
 
 
 
 
 
Available-for-sale investment securities:
 
 
 
 
 
Gross unrealized holding (loss) gain arising during the period
(5,813
)
(236
)
 
(18,587
)
5,448

Related tax benefit (expense)
1,221

83

 
3,904

(1,906
)
Less: reclassification adjustment for net gain (loss) included in net income

1,861

 
(146
)
2,219

Related tax (expense) benefit

(652
)
 
31

(777
)
Amounts reclassified out of accumulated other comprehensive loss per ASU 2016-01 (a)


 
(5,020
)

Related tax benefit


 
1,054


Net effect on other comprehensive (loss) income
(4,592
)
(1,362
)
 
(18,534
)
2,100

Defined benefit plans:
 
 
 
 
 
Net gain (loss) arising during the period
1,177

(1
)
 
1,177

(1
)
  Related tax expense
(247
)

 
(247
)

Amortization of unrecognized loss and service cost on benefit plans
28

25

 
80

72

Related tax expense
(6
)
(9
)
 
(17
)
(25
)
Recognition of loss due to settlement and curtailment
176


 
176


Related tax expense
(37
)

 
(37
)

Net effect on other comprehensive income
1,091

15

 
1,132

46

Cash flow hedges:
 
 
 
 
 
Net gain (loss) arising during the period
651

(63
)
 
2,566

(832
)
  Related tax (expense) benefit
(137
)
22

 
(539
)
291

Net effect on other comprehensive income (loss)
514

(41
)
 
2,027

(541
)
Total other comprehensive (loss) income, net of tax expense
(2,987
)
(1,388
)
 
(15,375
)
1,605

Total comprehensive income
$
9,738

$
9,507

 
$
16,983

$
31,075

(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, 2017
$
345,412

$
134,362

$
(5,215
)
$
(15,967
)
$
458,592

Amounts reclassified out of retained earnings, net of tax, per ASU 2014-09

(3,055
)


(3,055
)
Net income

32,358



32,358

Other comprehensive income (loss), net of tax

5,020

(15,375
)

(10,355
)
Cash dividends declared

(15,709
)


(15,709
)
Exercise of stock appreciation rights
(2
)


2


Reissuance of treasury stock for common share awards
(2,674
)


2,674


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



46

46

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



(1,271
)
(1,271
)
Common shares issued under dividend reinvestment plan
497




497

Common shares issued under compensation plan for Boards of Directors
85



157

242

Common shares issued under employee stock purchase plan
68



121

189

Stock-based compensation expense
1,858




1,858

Issuance of common shares related to acquisition of ASB Financial Corp. ("ASB")
40,898




40,898

Balance, September 30, 2018
$
386,142

$
152,976

$
(20,590
)
$
(14,238
)
$
504,290

 
See Notes to the Unaudited Consolidated Financial Statements





6


PEOPLES BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended
 
September 30,
(Dollars in thousands)
2018
2017
Net cash provided by operating activities
$
50,263

$
45,852

Investing activities:
 
 
Available-for-sale investment securities:
 
 
Purchases
(120,492
)
(140,791
)
Proceeds from sales
14,489

7,381

Proceeds from principal payments, calls and prepayments
93,336

111,315

Held-to-maturity investment securities:
 
 
Purchases

(1,310
)
Proceeds from principal payments
3,521

1,997

Other investment securities:
 
 
Purchases
(2,547
)

Proceeds from sales
7,544


Net increase in loans held for investment
(113,433
)
(99,829
)
Net expenditures for bank premises and equipment
(3,660
)
(3,016
)
Proceeds from sales of other real estate owned
265

494

Business acquisitions, net of cash received
4,695

(450
)
(Investment in) return of limited partnership and tax credit funds
(5,399
)
6

Net cash used in investing activities
(121,681
)
(124,203
)
Financing activities:
 

 

Net increase (decrease) in non-interest-bearing deposits
31,950

(9,575
)
Net increase in interest-bearing deposits
79,761

164,513

Net increase (decrease) in short-term borrowings
2,515

(111,890
)
Proceeds from long-term borrowings

54,403

Payments on long-term borrowings
(3,092
)
(3,823
)
Cash dividends paid
(15,266
)
(10,855
)
Repurchase of treasury stock in connection with employee incentive plan and compensation plan for Boards of Directors to be held as treasury stock
(1,271
)
(411
)
Proceeds from issuance of common shares
24

8

Contingent consideration payments made after a business combination
(224
)
(122
)
Net cash provided by financing activities
94,397

82,248

Net increase in cash and cash equivalents
22,979

3,897

Cash and cash equivalents at beginning of period
72,194

66,146

Cash and cash equivalents at end of period
$
95,173

$
70,043

 
 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, 2017 (“Peoples' 2017 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 of the Notes to the Consolidated Financial Statements included in Peoples’ 2017 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 September 30, 2018 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, 2017, contained herein, has been derived from the audited Consolidated Balance Sheet included in Peoples’ 2017 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.
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.
Accounting Standards Update ("ASU") 2018-14 - Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): This update modifies the disclosure requirements for employees that sponsor defined benefit pension or other postretirement plans. This update will remove some current disclosure requirements and require an explanation of the reasons for significant gains and losses related to changes in the benefit obligation, the projected benefit obligation and fair value of plan assets for plans with projected benefit obligations in excess of plan assets, and the accumulated benefit obligation and fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets. This ASU will become effective for interim and annual reporting periods beginning after December 15, 2020 (effective January 1, 2021 for Peoples). Peoples is currently reviewing this update and will adopt this new accounting guidance as required. This new accounting guidance is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-13 - Fair Value Measurement (Topic 820): The amendment in this update modify the disclosure requirements for fair value measurements. The amendment removes, modifies and adds to required disclosures related to certain fair value measurements. This ASU will become effective for interim and annual reporting periods beginning after December 15, 2019 (effective January 1, 2020 for Peoples). Peoples is currently reviewing the impact of this update and will adopt this new accounting guidance as required. This new accounting guidance is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2016-02 - Leases (Topic 842): There are aspects of this new accounting guidance that are still being interpreted and the FASB has issued updates to certain aspects of the guidance to address implementation issues. The FASB issued an update in January 2018 (ASU 2018-01) and two in July of 2018 (ASU 2018-10 and 2018-11), which are to provide transparency and comparability and clarify several areas of the guidance. ASU 2018-01 provides an optional transition practical expedient to not evaluate land easements that exist or expired before the entity's adoption of Topic 842, and were not previously accounted for as leases. ASU 2018-10 provides several areas of improvement and clarification to the original standard, including:
optional practical expedient that affects entities with land easements that existed or expired before the adoption,
a rate implicit in the lease of zero should be used when applying the definition,


8


requirements about lease classification reassessments related to modified terms and conditions,
accounting for the exercise by a lessee of an option to extend or terminate the lease or to purchase,
re-measurement of variable lease payments using the index or rate at the measurement date,
period covered by a lessor-only option to terminate the lease is included in the lease term,
operating leases acquired as part of a previous business combination classified as direct financing leases or sales-type leases,
adjustments to earnings rather than equity when applying retrospectively to prior reporting period, and
determining loss allowance of the net investment in the lease, including cash flow.
ASU 2018-11 addresses comparative reporting at adoption, including an option to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. It also includes the options of separating components of lease contracts, accounting for non-lease components with the lease if the lease is classified as an operating lease and the timing of components are the same. Under ASU 2016-02 and the related updates, a lessee will be required to recognize assets and liabilities for leases with terms of more than 12 months. These ASUs will become effective for interim and annual reporting periods affected beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples is currently identifying the population of leases that will be impacted by ASU 2016-02, and assessing the impact of the guidance provided in the subsequent updates, and will adopt this new accounting guidance as required. Peoples expects to recognize a one-time cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the new standard is effective. This new accounting guidance is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-09 - Codification Improvements: This update has been issued to address suggestions received from stakeholders on the Codification and to make other incremental improvements to GAAP. The improvements facilitate Codification updates for technical corrections, clarifications, and other minor improvements. The amendments in this update that do not require transition guidance became effective upon issuance of this update and did not have an impact on Peoples' consolidated financial statements. Many of the amendments in this update do have transition guidance with effective dates for annual periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-07 - Compensation - Stock Compensation (Topic 718): This update has been issued as part of a simplification initiative which will expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and improve aspects of the accounting for non-employee share-based payment transactions. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and it is not expected to have a material impact on Peoples' consolidated financial statements.
ASU 2018-06 - Codification Improvements (Topic 942): This update has been issued to increase stakeholders' awareness of the improvements to Topic 942, Financial Services - Depository and Lending. This update supersedes outdated guidance related to the Office of the Comptroller of the Currency's Banking Circular 202, Accounting for Net Deferred Tax Charges. The amendments became effective May 7, 2018, and did not have an impact on Peoples' consolidated financial statements.
ASU 2018-05 - Income Taxes (Topic 740): The amendments in this ASU clarify required disclosures in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC 740 for certain income tax effects of the Tax Cuts and Jobs Act for the reporting period. As of December 31, 2017, Peoples partially completed the accounting for the income tax effects of the enactment of the Tax Cuts and Jobs Act; however, in certain cases, Peoples made reasonable estimates of the effects of a reduced federal corporate income tax rate on its existing deferred tax balances. In other cases, Peoples has not been able to make a reasonable estimate and continued to account for those items based on its existing accounting under ASC 740, and the provisions of the tax laws that were in effect immediately prior to enactment of the Tax Cuts and Jobs Act. In all cases, Peoples will continue to make and refine its calculations during the one-year re-measurement period permitted under this ASU as additional analysis is completed. In addition, these estimates may be affected as Peoples gains a more thorough understanding of the new tax reform legislation.
ASU 2018-02 - Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Peoples early adopted ASU 2018-02, reclassifying income tax effects of the Tax Cuts and Jobs Act of $0.9 million from accumulated other comprehensive loss to retained earnings as of December 31, 2017.


9


ASU 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of the amendments in this ASU is to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships, and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The FASB issued an update in October of 2018, providing an eligible U.S. benchmark interest rate for purposes of applying hedge accounting. The amendments will be effective for interim and annual reporting periods beginning after December 15, 2018 (effective January 1, 2019 for Peoples). Peoples will adopt this new accounting guidance as required, and 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.
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 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 continues to make progress on the design and development of estimation methodologies, current and future data requirements, and is in the process of implementing a technological solution to assist in the future calculations under the new methodology. Peoples is currently 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. Peoples believes that the adoption of the standard will result in an overall increase in the allowance for loan losses; however, the magnitude of the increase at 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 intended to maximize the use of observable inputs and minimize the use of unobservable inputs.  This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
Level 1: Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. government and agency securities actively traded in over-the-counter markets.
Level 2: Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from, or corroborated by, observable market data.  This category generally includes certain U.S. government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale.


10


Level 3: Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investment securities, retained interests from securitizations, and certain collateralized debt obligations.
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
 
September 30, 2018
 
December 31, 2017
(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
$

$
93,790

$

 
$

$
101,569

$

Residential mortgage-backed securities

688,656


 

673,664


Commercial mortgage-backed securities

6,713


 

6,976


Bank-issued trust preferred securities

4,166


 

5,129


Equity investment securities (a)



 
7,694

155


Total available-for-sale securities

793,325


 
7,694

787,493


 
 
 
 
 
 
 
 
Held-to-maturity investment securities:
 
 
 
 
 
 
 
Obligations of:
 
 
 
 
 
 
 
  States and political subdivisions
$

$
4,889

$

 
$

$
4,417

$

Residential mortgage-backed securities

28,718


 

32,227


Commercial mortgage-backed securities

3,488


 

4,569


Total held-to-maturity securities

37,095


 

41,213


 
 
 
 
 
 
 
 
Equity investment securities (a)
104

174


 



Loans held for sale

4,776


 

2,510


Derivative assets (b)

8,766


 

4,594


 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative liabilities (c)
$

$
4,871

$

 
$

$
3,241

$

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities. As of December 31, 2017, equity investment securities had a net unrealized gain of $6.5 million.
(b) Included in Other assets on the Consolidated Balance Sheets. For additional information, see Note 9 of the Notes to the Unaudited Consolidated Financial Statements.
(c) Included in Other liabilities on the Consolidated Balance Sheets. For additional information, see Note 9 of the Notes to the Unaudited Consolidated Financial Statements.
Investment Securities Available-for-Sale and Held-to-Maturity: 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.


11


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).
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).
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 Consolidated Balance Sheets by level in the fair value hierarchy.
 
Non-Recurring Fair Value Measurements at Reporting Date
 
September 30, 2018
 
December 31, 2017
(Dollars in thousands)
Level 1
Level 2
Level 3
 
Level 1
Level 2
Level 3
 
Impaired loans
$

$

$
25,038

 
$

$

$
20,602

Other real estate owned (OREO)


106

 


208

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 September 30, 2018, impaired loans had an aggregate outstanding principal balance of $31.3 million.  For the three and nine months ended September 30, 2018, Peoples recognized a reduction in the specific reserve on impaired loans, through the allowance for loan losses, of $182,000 and $153,000, respectively.
Other Real Estate Owned: Other real estate owned ("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 selling costs. 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).
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.


12


 
Fair Value Measurements of Other Financial Instruments
(Dollars in thousands)
Fair Value Hierarchy Level
September 30, 2018
 
December 31, 2017
Carrying Amount
Fair Value
 
Carrying Amount
Fair Value
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
1
$
95,173

$
95,173

 
$
72,194

$
72,194

Other investment securities:
 
 
 
 
 
 
Federal Home Loan Bank ("FHLB") stock
2
29,368

29,368

 
28,132

28,132

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

12,294

 
10,179

10,179

Nonqualified deferred compensation (a)
2
1,044

1,044

 


Federal Home Loan Mortgage Corp ("FHLMC") stock
2
60

60

 
60

60

Total other investment securities
 
42,766

42,766

 
38,371

38,371

Loans, net of deferred fees and costs
3
2,687,848

2,780,292

 
2,338,344

2,274,194

Bank owned life insurance
3
68,439

68,439

 
62,176

62,176

Bank premises and equipment, net of accumulated depreciation
3
57,527

57,527

 
52,510

52,510

Servicing rights (b)
3
2,682

2,682

 
2,305

2,305

Liabilities:
 
 
 
 
 
 
Deposits
2
$
3,041,123

$
3,029,072

 
$
2,730,330

$
2,730,071

Short-term borrowings
2
296,830

295,542

 
209,491

209,628

Long-term borrowings
2
111,099

101,779

 
144,019

142,108

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities (including those held in participant accounts in the Peoples Bancorp Inc. Nonqualified Deferred Compensation Plan) from available-for-sale investment securities to other investment securities.
(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).
Other Investment Securities: Certain restricted equity investment securities that do not have readily determinable fair values and for which Peoples does not exercise significant influence, are carried at cost. These cost method securities are reported as Other investment securities on the Consolidated Balance Sheets and consist primarily of shares of the FHLB of Cincinnati and the FRB of Cleveland. Other investment securities are measured at their respective redemption values (Level 2).
Loans, Net of Deferred Fees and Costs: 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 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.
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.
Bank Premises and Equipment, Net of Accumulated Depreciation: Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets owned. Major improvements to leased facilities are capitalized and included in bank premises at cost less accumulated depreciation, which is calculated on the straight-line method over the lesser of the remaining term of the leased facility or the estimated economic life of the improvement (Level 3).


13


Servicing Rights ("SRs"): SRs are recorded at fair value at the time of the sale of the loans to the third-party investor. Peoples follows the amortization method for the subsequent measurement of each class of separately recognized servicing assets and liabilities. Under the amortization method, Peoples amortizes the value of servicing assets or liabilities in proportion to, and over the period of, estimated net servicing income or net servicing loss, and assesses servicing assets or liabilities for impairment or increased obligation based on the fair value at each reporting date. The fair value of the SRs 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 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
September 30, 2018
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
94,014

$
585

$
(809
)
$
93,790

Residential mortgage-backed securities
714,360

1,558

(27,262
)
688,656

Commercial mortgage-backed securities
6,861


(148
)
6,713

Bank-issued trust preferred securities
4,196

132

(162
)
4,166

Total available-for-sale securities
$
819,431

$
2,275

$
(28,381
)
$
793,325

December 31, 2017
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
100,039

$
1,786

$
(256
)
$
101,569

Residential mortgage-backed securities
684,100

2,582

(13,018
)
673,664

Commercial mortgage-backed securities
7,004

11

(39
)
6,976

Bank-issued trust preferred securities
5,195

141

(207
)
5,129

Equity investment securities (a)
1,394

6,520

(65
)
7,849

Total available-for-sale securities
$
797,732

$
11,040

$
(13,585
)
$
795,187

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale
investment securities to other investment securities.

The unrealized losses related to residential mortgage-backed securities at September 30, 2018 and December 31, 2017, were attributed to changes in market interest rates and spreads since the securities were purchased.
At December 31, 2017, Peoples' investment in equity investment securities was comprised largely of common stocks issued by various unrelated bank holding companies.


14



The gross gains and gross losses realized by Peoples from sales of available-for-sale securities for the periods ended September 30 were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Dollars in thousands)
2018
2017
 
2018
2017
Gross gains realized
$

$
1,877

 
$
5

$
2,235

Gross losses realized

16

 
151

16

Net gain (loss) realized
$

$
1,861

 
$
(146
)
$
2,219

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
September 30, 2018
 
 
 
 
 
 
 
 
 
 
Obligations of:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
30,112

$
224

52

 
$
9,480

$
585

6

 
$
39,592

$
809

Residential mortgage-backed securities
224,049

5,503

113

 
405,124

21,759

128

 
629,173

27,262

Commercial mortgage-backed securities
3,127

44

1

 
3,587

104

2

 
6,714

148

Bank-issued trust preferred securities



 
1,838

162

2

 
1,838

162

Total
$
257,288

$
5,771

166

 
$
420,029

$
22,610

138

 
$
677,317

$
28,381

December 31, 2017
 
 
 
 
 
 
 
 
 
 
Obligations of:
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
16,985

$
89

18

 
$
5,308

$
167

1

 
$
22,293

$
256

Residential mortgage-backed securities
274,998

3,462

77

 
291,812

9,556

88

 
566,810

13,018

Commercial mortgage-backed securities
2,487

23

1

 
1,274

16

1

 
3,761

39

Bank-issued trust preferred securities



 
2,792

207

3

 
2,792

207

Equity investment securities (a)
276

1

1

 
112

64

1

 
388

65

Total
$
294,746

$
3,575

97

 
$
301,298

$
10,010

94

 
$
596,044

$
13,585

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities.

Management systematically evaluates available-for-sale investment securities for other-than-temporary declines in fair value on a quarterly basis.  At September 30, 2018, 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 September 30, 2018 and December 31, 2017 were largely attributable to changes in market interest rates and spreads since the securities were purchased.
At September 30, 2018, 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 $217,000 and $145,000, 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.


15


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 September 30, 2018 were primarily attributable to the subordinated nature of the debt.
The table below presents the amortized cost, fair value and total weighted-average yield of available-for-sale securities by contractual maturity at September 30, 2018.  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
$
714

$
12,538

$
26,289

$
54,473

$
94,014

Residential mortgage-backed securities
994

12,898

46,292

654,176

714,360

Commercial mortgage-backed securities

5,678


1,183

6,861

Bank-issued trust preferred securities


4,196


4,196

Total available-for-sale securities
$
1,708

$
31,114

$
76,777

$
709,832

$
819,431

Fair value
 
 
 
 
 
Obligations of:
 
 
 
 
 
States and political subdivisions
$
713

$
12,489

$
26,184

$
54,404

$
93,790

Residential mortgage-backed securities
990

12,590

44,656

630,420

688,656

Commercial mortgage-backed securities

5,548


1,165

6,713

Bank-issued trust preferred securities


4,166


4,166

Total available-for-sale securities
$
1,703

$
30,627

$
75,006

$
685,989

$
793,325

Total weighted-average yield
2.52
%
2.78
%
3.38
%
2.84
%
2.88
%
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
September 30, 2018
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
4,451

$
438

$

$
4,889

Residential mortgage-backed securities
29,765

79

(1,126
)
28,718

Commercial mortgage-backed securities
3,574


(86
)
3,488

Total held-to-maturity securities
$
37,790

$
517

$
(1,212
)
$
37,095

December 31, 2017
 
 
 
 
Obligations of:
 
 
 
 
States and political subdivisions
$
3,810

$
607

$

$
4,417

Residential mortgage-backed securities
32,487

269

(529
)
32,227

Commercial mortgage-backed securities
4,631


(62
)
4,569

Total held-to-maturity securities
$
40,928

$
876

$
(591
)
$
41,213

There were no gross gains or gross losses realized by Peoples from sales of held-to-maturity securities for the three and nine months ended September 30, 2018 and 2017.


16


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
September 30, 2018
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
11,826

$
182

6

 
$
11,260

$
944

3

 
$
23,086

$
1,126

Commercial mortgage-backed securities



 
3,488

86

1

 
3,488

86

Total
$
11,826

$
182

6

 
$
14,748

$
1,030

4

 
$
26,574

$
1,212

December 31, 2017
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
1,476

$
4

2

 
$
12,098

$
525

3

 
$
13,574

$
529

Commercial mortgage-backed securities



 
4,569

62

1

 
4,569

62

Total
$
1,476

$
4

2

 
$
16,667

$
587

4

 
$
18,143

$
591

The table below presents the amortized cost, fair value and total weighted-average yield of held-to-maturity securities by contractual maturity at September 30, 2018.  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
$

$
309

$
2,982

$
1,160

$
4,451

Residential mortgage-backed securities

428

8,060

21,277

29,765

Commercial mortgage-backed securities



3,574

3,574

Total held-to-maturity securities
$

$
737

$
11,042

$
26,011

$
37,790

Fair value
 
 
 
 
 
Obligations of:
 
 
 
 
 
States and political subdivisions
$

$
309

$
3,410

$
1,170

$
4,889

Residential mortgage-backed securities

415

8,028

20,275

28,718

Commercial mortgage-backed securities



3,488

3,488

Total held-to-maturity securities
$

$
724

$
11,438

$
24,933

$
37,095

Total weighted-average yield
%
2.97
%
3.08
%
2.70
%
2.82
%
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. As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment securities to other investment securities.
The following table summarizes the carrying value of Peoples' other investment securities:
(Dollars in thousands)
September 30, 2018
December 31, 2017
FHLB stock
$
29,368

$
28,132

FRB stock
12,294

10,179

Equity investment securities (a)
278


Other
1,104

60

Total other investment securities
$
43,044

$
38,371

(a) As of January 1, 2018, Peoples adopted ASU 2016-01, resulting in the reclassification of equity investment securities from available-for-sale investment
securities to other investment securities.

At September 30, 2018, there were no equity investment securities of a single issuer that exceeded 10% of Peoples' stockholders' equity.


17


Pledged Securities
Peoples had pledged available-for-sale investment securities with carrying values of $514.9 million and $522.7 million at September 30, 2018 and December 31, 2017, respectively, and held-to-maturity investment securities with carrying values of $17.1 million and $18.3 million at September 30, 2018 and December 31, 2017, 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 $61.8 million and $6.7 million at September 30, 2018 and December 31, 2017, respectively, and held-to-maturity securities with carrying values of $17.4 million and $19.9 million at September 30, 2018 and December 31, 2017, 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 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)
September 30,
2018
December 31, 2017
Originated loans:
 
 
Commercial real estate, construction
$
103,562

$
107,118

Commercial real estate, other
630,720

595,447

    Commercial real estate
734,282

702,565

Commercial and industrial
510,591

438,051

Residential real estate
299,768

304,523

Home equity lines of credit
92,892

88,902

Consumer, indirect
396,701

340,390

Consumer, direct
72,601

67,010

   Consumer
469,302

407,400

Deposit account overdrafts
649

849

Total originated loans
$
2,107,484

$
1,942,290

Acquired loans:
 
 
Commercial real estate, construction
$
13,050

$
8,319

Commercial real estate, other
191,993

165,120

    Commercial real estate
205,043

173,439

Commercial and industrial
41,188

34,493

Residential real estate
308,178

184,864

Home equity lines of credit
42,961

20,575

Consumer, indirect
161

329

Consumer, direct
2,712

1,147

   Consumer
2,873

1,476

Total acquired loans
$
600,243

$
414,847

Loans, net of deferred fees and costs
$
2,707,727

$
2,357,137



18


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)
September 30,
2018
December 31,
2017
Commercial real estate, other
$
12,812

$
8,117

Commercial and industrial
1,343

767

Residential real estate
20,488

19,532

Consumer
61

33

Total outstanding balance
$
34,704

$
28,449

Net carrying amount
$
23,639

$
19,564

Changes in the accretable yield for purchased credit impaired loans for the nine months ended September 30 were as follows:
(Dollars in thousands)
September 30,
2018
September 30,
2017
Balance, beginning of period
$
6,704

$
7,132

Reclassification from nonaccretable to accretable
2,019

1,285

Additions:
 
 
ASB Financial Corp. (preliminary)
2,047


Accretion
(1,392
)
(1,279
)
Balance, September 30
$
9,378

$
7,138

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, resulting in the reclassification from nonaccretable to accretable yield shown in the table above.
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 such pledged loans totaled $524.1 million and $487.2 million at September 30, 2018 and December 31, 2017, respectively. Peoples also pledges commercial loans to secure borrowings with the FRB of Cleveland. The outstanding balances of these loans totaled $198.9 million and $74.0 million at September 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.


19


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)
September 30,
2018
December 31,
2017
 
September 30,
2018
December 31,
2017
Originated loans:
 
 
 
 
 
Commercial real estate, construction
$
725

$
754

 
$

$

Commercial real estate, other
6,712

6,877

 


    Commercial real estate
7,437

7,631

 


Commercial and industrial
1,308

739

 


Residential real estate
3,842

3,546

 
373

548

Home equity lines of credit
582

550

 
84

50

Consumer, indirect
405

256

 


Consumer, direct
31

39

 

16

    Consumer
436

295

 

16

Total originated loans
$
13,605

$
12,761

 
$
457

$
614

Acquired loans:
 
 
 
 
 
Commercial real estate, construction
$

$

 
$
401

$

Commercial real estate, other
225

192

 
60

215

    Commercial real estate
225

192

 
461

215

Commercial and industrial
61

259

 

45

Residential real estate
1,970

2,168

 
965

730

Home equity lines of credit
374

312

 

22

Consumer, indirect


 
2


Total acquired loans
$
2,630

$
2,931

 
$
1,428

$
1,012

Total loans
$
16,235

$
15,692

 
$
1,885

$
1,626

    



20


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
 
September 30, 2018
 
 
 
 
 
 
 
Originated loans:
 
 
 
 
 
 
 
Commercial real estate, construction
$

$

$
725

$
725

 
$
102,837

$
103,562

Commercial real estate, other
521

601

6,418

7,540

 
623,180

630,720

    Commercial real estate
521

601

7,143

8,265

 
726,017

734,282

Commercial and industrial
624

865

988

2,477

 
508,114

510,591

Residential real estate
826

2,544

2,126

5,496

 
294,272

299,768

Home equity lines of credit
320

62

410

792

 
92,100

92,892

Consumer, indirect
2,308

222

220

2,750

 
393,951

396,701

Consumer, direct
289

5

20

314

 
72,287

72,601

    Consumer
2,597

227

240

3,064

 
466,238

469,302

Deposit account overdrafts




 
649

649

Total originated loans
$
4,888

$
4,299

$
10,907

$
20,094

 
$
2,087,390

$
2,107,484

Acquired loans:
 
 
 
 
 
 
 
Commercial real estate, construction
$
9

$

$
401

$
410

 
$
12,640

$
13,050

Commercial real estate, other
1,318

136

140

1,594

 
190,399

191,993

    Commercial real estate
1,327

136

541

2,004

 
203,039

205,043

Commercial and industrial
1,263

15

20

1,298

 
39,890

41,188

Residential real estate
1,382

1,215

1,963

4,560

 
303,618

308,178

Home equity lines of credit
572

107

210

889

 
42,072

42,961

Consumer, indirect
5


2

7

 
154

161

Consumer, direct
19

12


31

 
2,681

2,712

    Consumer
24

12

2

38


2,835

2,873

Total acquired loans
$
4,568

$
1,485

$
2,736

$
8,789

 
$
591,454

$
600,243

Total loans
$
9,456

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