Loans | Loans Peoples' loan portfolio has consisted 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 in a business combination. The major classifications of loan balances, excluding loans held for sale, were as follows at December 31: (Dollars in thousands) 2015 2014 Originated loans: Commercial real estate, construction $ 63,785 $ 37,901 Commercial real estate, other 471,184 434,660 Commercial real estate 534,969 472,561 Commercial and industrial 288,130 249,975 Residential real estate 288,783 254,169 Home equity lines of credit 74,176 62,463 Consumer 227,133 169,913 Deposit account overdrafts 1,448 2,933 Total originated loans $ 1,414,639 $ 1,212,014 Acquired loans: Commercial real estate, construction $ 12,114 $ 1,051 Commercial real estate, other 265,092 121,475 Commercial real estate 277,206 122,526 Commercial and industrial 63,589 30,056 Residential real estate 276,772 225,274 Home equity lines of credit 32,253 18,232 Consumer 7,981 12,796 Deposit account overdrafts — — Total acquired loans $ 657,801 $ 408,884 Total loans $ 2,072,440 $ 1,620,898 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, commonly referred to as "purchased credit impaired" loans. The carrying amounts of these loans included in the loan balances above are summarized as follows at December 31: (Dollars in thousands) 2015 2014 Commercial real estate $ 16,893 $ 7,762 Commercial and industrial 3,040 1,041 Residential real estate 27,155 15,183 Consumer 193 306 Total outstanding balance $ 47,281 $ 24,292 Net carrying amount $ 35,064 $ 19,067 Changes in the accretable yield for acquired purchased credit impaired loans the year ended December 31, 2015 were as follows: (Dollars in thousands) Accretable Yield Balance, December 31, 2014 $ 3,172 Additions: Reclassification from nonaccretable to accretable 2,093 NB&T Financial Group, Inc. 3,611 Accretion (1,834 ) Balance, December 31, 2015 $ 7,042 Cash flows expected to be collected on purchased credit impaired loans are estimated semi-annually by incorporating several key assumptions similar to those used in 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 amount of principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Peoples has pledged certain loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings from the FHLB. The amount of such pledged loans totaled $ 554.8 million and $ 457.1 million at December 31, 2015 and 2014 , respectively. Peoples also had pledged commercial loans to secure borrowings with the FRB. The outstanding balances of these loans totaled $ 195.5 million and $ 150.7 million at December 31, 2015 and 2014 , respectively. Related Party Loans In the normal course of its business, Peoples Bank has granted loans to certain directors and officers of Peoples Bancorp Inc., including their affiliates, families and entities in which they are principal owners. At December 31, 2015 , no related party loan was past due 90 or more days, renegotiated or on nonaccrual status. Activity in related party loans is presented in the table below. Other changes primarily consist of changes in related party status and new directors elected during the year. (Dollars in thousands) Balance, December 31, 2014 $ 15,192 New loans and disbursements 10,361 Repayments (6,915 ) Other changes (538 ) Balance, December 31, 2015 $ 18,100 Nonaccrual and Past Due Loans A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on nonaccrual status regardless of whether or not such loan is considered past due. The recorded investments in loans on nonaccrual status and accruing loans delinquent for 90 days or more were as follows at December 31: Accruing Loans 90+ Days Past Due Nonaccrual Loans (Dollars in thousands) 2015 2014 2015 2014 Originated loans: Commercial real estate, construction $ 921 $ — $ — $ — Commercial real estate, other 7,041 2,575 — — Commercial real estate 7,962 2,575 — — Commercial and industrial 480 1,286 680 — Residential real estate 3,057 3,049 169 818 Home equity lines of credit 321 341 — 20 Consumer 92 19 1 2 Total originated loans $ 11,912 $ 7,270 $ 850 $ 840 Acquired loans: Commercial real estate, construction $ — $ 96 $ — $ — Commercial real estate, other 469 9 2,425 567 Commercial real estate 469 105 2,425 567 Commercial and industrial 247 708 1,306 301 Residential real estate 798 304 1,353 1,083 Home equity lines of credit 98 19 35 — Consumer 7 — — 8 Total acquired loans $ 1,619 $ 1,136 $ 5,119 $ 1,959 Total loans $ 13,531 $ 8,406 $ 5,969 $ 2,799 The following table presents the aging of the recorded investment in past due loans and leases at December 31: Loans Past Due Current Loans Total Loans (Dollars in thousands) 30 - 59 days 60 - 89 days 90 + Days Total 2015 Originated loans: Commercial real estate, construction $ 913 $ — $ 8 $ 921 $ 62,864 $ 63,785 Commercial real estate, other 7,260 1,258 379 8,897 462,287 471,184 Commercial real estate 8,173 1,258 387 9,818 525,151 534,969 Commercial and industrial 1,437 215 767 2,419 285,711 288,130 Residential real estate 3,124 1,105 1,263 5,492 283,291 288,783 Home equity lines of credit 161 7 104 272 73,904 74,176 Consumer 1,387 250 32 1,669 225,464 227,133 Deposit account overdrafts — — — — 1,448 1,448 Total originated loans $ 14,282 $ 2,835 $ 2,553 $ 19,670 $ 1,394,969 $ 1,414,639 Acquired loans: Commercial real estate, construction $ — $ — $ 40 $ 40 $ 12,074 $ 12,114 Commercial real estate, other 1,592 352 2,730 4,674 260,418 265,092 Commercial real estate 1,592 352 2,770 4,714 272,492 277,206 Commercial and industrial 177 232 1,553 1,962 61,627 63,589 Residential real estate 4,910 2,480 1,745 9,135 267,637 276,772 Home equity lines of credit 318 20 95 433 31,820 32,253 Consumer 90 31 — 121 7,860 7,981 Deposit account overdrafts — — — — — — Total acquired loans $ 7,087 $ 3,115 $ 6,163 $ 16,365 $ 641,436 $ 657,801 Total loans $ 21,369 $ 5,950 $ 8,716 $ 36,035 $ 2,036,405 $ 2,072,440 2014 Originated loans: Commercial real estate, construction $ — $ — $ — $ — $ 37,901 $ 37,901 Commercial real estate, other 565 285 1,220 2,070 432,590 434,660 Commercial real estate 565 285 1,220 2,070 470,491 472,561 Commercial and industrial 17 18 1,245 1,280 248,695 249,975 Residential real estate 4,502 1,062 1,902 7,466 246,703 254,169 Home equity lines of credit 344 425 129 898 61,565 62,463 Consumer 1,136 157 2 1,295 168,618 169,913 Deposit account overdrafts 65 — — 65 2,868 2,933 Total originated loans $ 6,629 $ 1,947 $ 4,498 $ 13,074 $ 1,198,940 $ 1,212,014 Acquired loans: Commercial real estate, construction $ — $ — $ 96 $ 96 $ 955 $ 1,051 Commercial real estate, other 1,067 143 567 1,777 119,698 121,475 Commercial real estate 1,067 143 663 1,873 120,653 122,526 Commercial and industrial 46 6 815 867 29,189 30,056 Residential real estate 4,026 1,331 1,179 6,536 218,738 225,274 Home equity lines of credit 9 19 — 28 18,204 18,232 Consumer 245 27 8 280 12,516 12,796 Deposit account overdrafts — — — — — — Total acquired loans $ 5,393 $ 1,526 $ 2,665 $ 9,584 $ 399,300 $ 408,884 Total loans $ 12,022 $ 3,473 $ 7,163 $ 22,658 $ 1,598,240 $ 1,620,898 Credit Quality Indicators As discussed in Note 1, 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. “Watch” (grade 5): Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned” classification. Loans in this 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 the 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 of the collateral pledged, if any. Loans so classified have one or more well-defined weaknesses that jeopardize the orderly repayment of the loan. They are characterized by the distinct possibility that Peoples will sustain some loss if the deficiencies are not corrected. “Doubtful” (grade 7): Loans in this risk grade have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate 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 each such loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, Peoples typically does not maintain a recorded investment in loans within this category. Consumer loans and other smaller-balance loans are evaluated and categorized as “substandard”, “doubtful” or “loss” based upon the regulatory definition of these classes and consistent with regulatory requirements. All other loans not evaluated individually, nor meeting the regulatory conditions to be categorized as described above, would be considered as being “not rated”. The following table summarizes the risk category of Peoples' loan portfolio based upon the most recent analysis performed at December 31: Pass Rated Watch Substandard Doubtful Not Rated Total Loans (Dollars in thousands) (Grades 1 - 4) (Grade 5) (Grade 6) (Grade 7) 2015 Originated loans: Commercial real estate, construction $ 62,225 $ — $ 913 $ — $ 647 $ 63,785 Commercial real estate, other 434,868 18,710 17,595 — 11 471,184 Commercial real estate 497,093 18,710 18,508 — 658 534,969 Commercial and industrial 259,183 23,601 5,344 — 2 288,130 Residential real estate 21,903 1,168 12,282 187 253,243 288,783 Home equity lines of credit 785 — 175 — 73,216 74,176 Consumer 208 — 3 — 226,922 227,133 Deposit account overdrafts — — — — 1,448 1,448 Total originated loans $ 779,172 $ 43,479 $ 36,312 $ 187 $ 555,489 $ 1,414,639 Acquired loans: Commercial real estate, construction $ 12,114 $ — $ — $ — $ — $ 12,114 Commercial real estate, other 233,630 13,866 17,521 75 — 265,092 Commercial real estate 245,744 13,866 17,521 75 — 277,206 Commercial and industrial 56,077 3,078 4,238 196 — 63,589 Residential real estate 18,027 1,409 1,786 — 255,550 276,772 Home equity lines of credit 316 — — — 31,937 32,253 Consumer 256 — — — 7,725 7,981 Deposit account overdrafts — — — — — — Total acquired loans $ 320,420 $ 18,353 $ 23,545 $ 271 $ 295,212 $ 657,801 Total loans $ 1,099,592 $ 61,832 $ 59,857 $ 458 $ 850,701 $ 2,072,440 2014 Originated loans: Commercial real estate, construction $ 37,637 $ — $ — $ — $ 264 $ 37,901 Commercial real estate, other 405,224 12,316 17,120 — — 434,660 Commercial real estate 442,861 12,316 17,120 — 264 472,561 Commercial and industrial 239,168 8,122 2,684 1 — 249,975 Residential real estate 21,296 1,195 11,601 56 220,021 254,169 Home equity lines of credit 767 — 965 — 60,731 62,463 Consumer 60 1 8 — 169,844 169,913 Deposit account overdrafts — — — — 2,933 2,933 Total originated loans $ 704,152 $ 21,634 $ 32,378 $ 57 $ 453,793 $ 1,212,014 Acquired loans: Commercial real estate, construction $ 955 $ — $ — $ — $ 96 $ 1,051 Commercial real estate, other 106,115 7,100 8,260 — — 121,475 Commercial real estate 107,070 7,100 8,260 — 96 122,526 Commercial and industrial 27,313 255 2,294 194 — 30,056 Residential real estate 13,458 833 1,540 — 209,443 225,274 Home equity lines of credit 98 — — — 18,134 18,232 Consumer 279 — — — 12,517 12,796 Deposit account overdrafts — — — — — — Total acquired loans $ 148,218 $ 8,188 $ 12,094 $ 194 $ 240,190 $ 408,884 Total loans $ 852,370 $ 29,822 $ 44,472 $ 251 $ 693,983 $ 1,620,898 Impaired Loans The following tables summarize loans classified as impaired at December 31: Unpaid Principal Balance Recorded Investment Total Recorded Investment Average Recorded Investment Interest Income Recognized With Without Related Allowance (Dollars in thousands) Allowance Allowance 2015 Commercial real estate, construction $ 957 $ — $ 957 $ 957 $ — $ 227 $ 3 Commercial real estate, other 23,430 6,396 12,775 19,171 1,363 13,071 815 Commercial real estate $ 24,387 $ 6,396 $ 13,732 $ 20,128 $ 1,363 $ 13,298 $ 818 Commercial and industrial 5,670 1,224 4,130 5,354 351 4,049 246 Residential real estate 31,304 370 28,834 29,204 106 26,785 1,354 Home equity lines of credit 425 — 419 419 — 325 18 Consumer 383 — 298 298 — 295 28 Total $ 62,169 $ 7,990 $ 47,413 $ 55,403 $ 1,820 $ 44,752 $ 2,464 2014 Commercial real estate, construction $ 9,914 $ — $ 9,909 9,909 $ — $ 4,378 $ 540 Commercial real estate, other 8,668 653 7,742 8,395 189 4,056 248 Commercial real estate $ 18,582 $ 653 $ 17,651 $ 18,304 $ 189 $ 8,434 $ 788 Commercial and industrial 3,747 1,945 1,767 3,712 816 1,414 73 Residential real estate 6,889 53 6,372 6,425 9 3,582 272 Home equity lines of credit 500 — 498 498 — 298 18 Consumer 391 — 386 386 — 221 24 Total $ 30,109 $ 2,651 $ 26,674 $ 29,325 $ 1,014 $ 13,949 $ 1,175 At December 31, 2015 , Peoples' impaired loans shown in the table above included loans that were classified as troubled debt restructurings. In assessing whether or not a borrower is experiencing financial difficulties, Peoples considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the borrower is currently in payment default on any of the borrower's debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the borrower has declared or is in the process of declaring bankruptcy; and (iv) the borrower's projected cash flow is insufficient to satisfy contractual payments due under the original terms of the loan without a modification. Peoples considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by Peoples include the borrower's ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to the unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan. The most common concessions granted by Peoples generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt, (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (iii) a temporary period of interest-only payments, and (iv) a reduction in the contractual payment amount for either a short period or the remaining term of the loan. The following table summarizes the loans that were modified as a TDR during the years ended December 31, 2015 and 2014 . Recorded Investment (1) (Dollars in thousands) Number of Contracts Pre-Modification Post-Modification Remaining Recorded Investment December 31,2015 Originated loans: Commercial real estate, other 5 $ 900 $ 900 $ 881 Commercial and industrial 4 834 834 834 Residential real estate 4 207 207 115 Home equity lines of credit 11 402 402 389 Consumer 12 95 95 94 Total 36 $ 2,438 $ 2,438 $ 2,313 Acquired loans: Residential real estate 4 $ 246 $ 246 $ 246 Home equity lines of credit 1 8 8 7 Total 5 $ 254 $ 254 $ 253 December 31,2014 Originated loans: Residential real estate 22 $ 996 $ 997 $ 967 Home equity lines of credit 12 238 238 232 Consumer 10 108 108 102 Total 44 $ 1,342 $ 1,343 $ 1,301 Acquired loans: Commercial real estate, construction 1 $ 96 $ 96 $ 96 Commercial and industrial 3 605 605 594 Residential real estate 4 235 235 234 Consumer 5 9 9 6 Total 13 $ 945 $ 945 $ 930 (1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. The following table presents those loans modified in a TDR during the year that subsequently defaulted (i.e., 90 days or more past due following a modification) during the years ended December 31, 2015 and 2014 : 2015 2014 (Dollars in thousands) Number of Contracts Recorded Investment (1) Impact on the Allowance for Loan Losses Number of Contracts Recorded Investment (1) Impact on the Allowance for Loan Losses Originated loans: Residential real estate 1 $ 151 $ — 1 $ 33 $ — Home equity lines of credit — — — 2 28 — Total 1 $ 151 $ — 3 $ 61 $ — Acquired loans: Residential real estate — $ — $ — 1 $ 56 $ — Total — $ — $ — 1 $ 56 $ — (1) The amounts shown are inclusive of all partial paydowns and charge-offs. Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. Peoples had no commitments to lend additional funds to the related borrowers whose loan terms have been modified in a TDR. Allowance for Loan Losses Changes in the allowance for loan losses in the periods ended December 31 , were as follows: (Dollars in thousands) Commercial Real Estate Commercial and Industrial Residential Real Estate Home Equity Lines of Credit Consumer Deposit Account Overdrafts Total Balance, January 1, 2015 $ 9,825 $ 4,036 $ 1,627 $ 694 $ 1,587 $ 112 $ 17,881 Charge-offs (242 ) (13,576 ) (628 ) (125 ) (1,353 ) (774 ) (16,698 ) Recoveries 104 98 315 119 755 171 1,562 Net (charge-offs) recoveries (138 ) (13,478 ) (313 ) (6 ) (598 ) (603 ) (15,136 ) (Recovery of) provision for loan losses (2,611 ) 14,824 (57 ) 44 982 612 13,794 Balance, December 31, 2015 $ 7,076 $ 5,382 $ 1,257 $ 732 $ 1,971 $ 121 $ 16,539 Period-end amount allocated to: Loans individually evaluated for impairment $ 1,363 $ 351 $ 106 $ — $ — $ — $ 1,820 Loans collectively evaluated for impairment 5,713 5,031 1,151 732 1,971 121 14,719 Balance, December 31, 2015 $ 7,076 $ 5,382 $ 1,257 $ 732 $ 1,971 $ 121 $ 16,539 Balance, January 1, 2014 $ 13,215 $ 2,174 $ 881 $ 343 $ 316 $ 136 $ 17,065 Charge-offs (203 ) (199 ) (478 ) (128 ) (1,191 ) (516 ) (2,715 ) Recoveries 2,060 77 169 36 697 153 3,192 Net recoveries (charge-offs) 1,857 (122 ) (309 ) (92 ) (494 ) (363 ) 477 (Recovery of) provision for loan losses (5,247 ) 1,984 1,055 443 1,765 339 339 Balance, December 31, 2014 $ 9,825 $ 4,036 $ 1,627 $ 694 $ 1,587 $ 112 $ 17,881 Period-end amount allocated to: Loans individually evaluated for impairment $ 189 $ 816 $ 9 $ — $ — $ — $ 1,014 Loans collectively evaluated for impairment 9,636 3,220 1,618 694 1,587 112 16,867 Balance, December 31, 2014 $ 9,825 $ 4,036 $ 1,627 $ 694 $ 1,587 $ 112 $ 17,881 The reduction in the allowance for originated loan losses allocated to commercial real estate was driven by decreased historical loss rates. Historical loss rates are calculated using charge-offs and recoveries within each portfolio over the past five years. The increase in provision for originated commercial and industrial loans during 2015 was primarily related to a specific allowance for one relationship which was charged off in 2015. The reduction in the allowance for originated residential real estate was driven by net recoveries in recent years reducing the historical loss rates. The changes in the home equity lines of credit and consumer categories of the allowance for originated loan losses and the related provision for originated loan losses recorded during 2015 were driven by net charge-off activity and increases in the size of the respective loan portfolios. Allowance for Acquired Loan Losses Acquired loans are recorded at their fair value as of the acquisition date with no valuation allowance, and monitored for changes in credit quality and subsequent increases or decreases in expected cash flows. Decreases in expected cash flows of acquired credit impaired loans are recognized as an impairment, with the amount of the expected loss included in management's evaluation of the appropriateness of the allowance for loan losses. Management reforecasts the estimated cash flows expected to be collected on acquired purchased credit impaired impaired loans semi-annually. The methods utilized to estimate the required allowance for loan losses for nonimpaired acquired loans are similar to those utilized for originated loans; however, Peoples records a provision for loan losses only when the computed allowance exceeds the remaining fair value adjustment. The following table presents activity in the allowance for loan losses for acquired loans as of December 31: (Dollars in thousands) 2015 2014 2013 Purchased credit impaired loans: Balance, January 1 $ — $ — $ — Charge-offs (63 ) — — Recoveries — — — Net recoveries (charge-offs) (63 ) — — Provision for loan losses 303 — — Balance, December 31 $ 240 $ — $ — As of December 31, 2015 , the expected cash flows for acquired credit impaired loans had decreased from those as of the respective acquisition dates, resulting in Peoples recording a provision for loan losses with respect to those acquired loans. During 2014 and 2013, the discount recorded on acquired loans was in excess of the calculated allowance for loan losses for the acquired portfolios. |