11Note 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 central and southeastern Ohio, west central West Virginia, and northeastern Kentucky. The major classifications of loan balances, excluding loans held for sale, were as follows:



	March 31,		December 31,
(Dollars in thousands)	2011		2010
Commercial real estate	$	438,224	$	452,875
Commercial and industrial	147,386		153,192
Real estate construction	32,839		22,478
Residential real estate	197,513		200,275
Home equity lines of credit	47,906		48,130
Consumer	82,521		81,567
Deposit account overdrafts	1,640		2,201
Total loans	$	948,029	$	960,718

~~Note 4.~~ ~~Long-Term Borrowings~~

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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 loans included in the loan balances above are summarized as follows:

~~Long-term~~



	March 31,		December 31,
(Dollars in thousands)	2011		2010
Commercial real estate	$	3,528	$	3,616
Commercial and industrial	203		200
Residential real estate	17,238		17,893
Consumer	134		123
Total outstanding balance	$	21,103	$	21,832
Net carrying amount	$	20,500	$	21,229

Peoples has pledged certain loans secured by 1-4 family and multifamily residential mortgages under a blanket collateral agreement to secure borrowings ~~consisted~~from the FHLB. The amount of such pledged loans totaled $182.5 million and $181.8 million at March 31, 2011 and December 31, 2010, respectively. Peoples also had pledged commercial loans to secure borrowings with the FRB. The amount of such pledged loans totaled $166.6 million and $195.6 million at March 31, 2011 and December 31, 2010, 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 ~~following:~~

September 30, 2010 December 31, 2009
(Dollars in thousands) Balance
Weighted-
Average
Rate
Balance
Weighted-Average
Rate
Callable national market repurchase agreements $65,000 3.43% $145,000 4.01%
FHLB convertible rate advances 7,500 4.81% 7,500 4.81%
FHLB putable non-amortizing, fixed rate advances 60,000 3.28% 60,000 3.28%
FHLB amortizing, fixed rate advances 22,220 3.60% 18,613 3.56%
FHLB non-amortizing, fixed rate advances 10,000 3.53% 15,000 3.90%
Total long-term borrowings $164,720 3.47% $246,113 3.82%

Peoples’ national market repurchase agreements consist of agreements with unrelated financial service companies and have original maturities ranging from 3 to 10 years. In general, these agreements may not be terminated by Peoples prior to the maturity without incurring additional costs. The callable agreements contain call option features, in which the buyer has the right, at its discretion, to terminate the repurchase agreement after an initial period ranging from 3 months to 5 years. After the initial call period, the buyer has the right to terminate the agreement on a quarterly basis thereafter until maturity. If the buyer exercises its option, Peoples would bedate such payments were required to ~~repay~~be made under the ~~agreement~~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 investment in whole at the quarterly date. During the third quarter of 2010, Peoples prepaid $60.0 million of repurchase agreements resulting in early termination fees of $3.6 million. These repurchase agreements had a weighted-average cost of 4.53%loans on nonaccrual status and accruing loans delinquent for 90 days or more were ~~scheduled to mature over the next two fiscal years.~~as follows:



					Accruing Loans
	Nonaccrual Loans				90+ Days Past Due
	March 31,		December 31,		March 31,		December 31,
(Dollars in thousands)	2011		2010		2011		2010
Commercial real estate	$	25,961	$	34,392	$	—	$	—
Commercial and industrial	1,536		1,714		—		—
Real Estate Construction	1,008		—		—		—
Residential real estate	2,491		3,790		—		27
Home equity lines of credit	361		554		37		—
Consumer	—		—		—		—
Total	$	31,357	$	40,450	$	37	$	27

The ~~FHLB advances consist~~amounts shown above exclude nonaccrual loans held-for-sale, which totaled $951,000 at both March 31, 2011 and December 31, 2010.

Table of ~~various borrowings with original maturities ranging from 3 to 20 years that generally may not be repaid prior to maturity without Peoples incurring a penalty.~~ Contents

The ~~rate on~~following table presents the ~~convertible rate advances are fixed from initial periods ranging from one to four years, depending on~~aging of the specific advance. After the initial fixed rate period, the FHLB has the option to convert each advance to a LIBOR based, variable rate advance. If the FHLB exercises its option, Peoples may repay the advancerecorded investment in whole or in part on the conversion date or any subsequent repricing date without a prepayment fee. At all other times, early repayment of any convertible rate advance would result in Peoples incurring a prepayment penalty. For the putable advances, the FHLB has the option, at its sole discretion following an initial period of three months, to terminate the debtpast due loans and require Peoples to repay the advance prior to the final stated maturity. After the initial period, the FHLB has the option to terminate the debt on a quarterly basis. If the advance is terminated prior to maturity, the FHLB will offer Peoples replacement funding at the then-prevailing rate on an advance product then-offered by the FHLB, subject to normal FHLB underwriting criteria. leases:



	Loans Past Due								Current		Total
(Dollars in thousands)	30 - 59 days		60 - 89 days		90 + Days		Total		Loans		Loans
March 31, 2011
Commercial real estate	$	4,893	$	805	$	13,748	$	19,446	$	418,778	$	438,224
Commercial and industrial	1,594		99		—		1,693		145,693		147,386
Real estate construction	—		—		1,008		1,008		31,831		32,839
Residential real estate	4,815		945		1,981		7,741		189,772		197,513
Home equity lines of credit	412		64		—		476		47,430		47,906
Consumer	70		368		37		475		82,046		82,521
Deposit account overdrafts	53		—		—		53		1,587		1,640
Total	$	11,837	$	2,281	$	16,774	$	30,892	$	917,137	$	948,029
December 31, 2010
Commercial real estate	$	3,208	$	5,378	$	14,652	$	23,238	$	429,637	$	452,875
Commercial and industrial	563		11		247		821		152,371		153,192
Real estate construction	4		—		815		819		21,659		22,478
Residential real estate	4,321		2,022		1,959		8,302		191,973		200,275
Home equity lines of credit	725		119		—		844		47,286		48,130
Consumer	186		58		458		702		80,865		81,567
Deposit account overdrafts	—		—		—		—		2,201		2,201
Total	$	9,007	$	7,588	$	18,131	$	34,726	$	925,992	$	960,718

Credit Quality Indicators

As discussed in Note 81 of Peoples' 2010 Form 10-K, Peoples categorizes the majority of its loans into risk categories based upon an established risk grading matrix based on a scale of 1 to 8. A description of the ~~Notes~~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 debt 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 asset 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 jeopardizes the orderly repayment of debt. They are characterized by the distinct possibility that the bank 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 ~~Consolidated Financial Statements included~~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 ~~Peoples’ 2009 Form 10-K, long-term FHLB advances~~this risk grade are ~~collateralized by~~considered to be non-collectible and of such little value that their continuance as bankable assets ~~owned by Peoples.~~is not warranted. This does not mean the 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.

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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 describe above would be considered as being “not rated”.

The ~~aggregate minimum annual retirements~~following table summarizes the risk category of ~~long-term borrowings in future periods are as follows:~~
Peoples' loan portfolio based upon the most recent analysis performed:



	Pass Rated		Watch		Substandard		Doubtful		Not		Total
(Dollars in thousands)	(Grades 1 - 4)		(Grade 5)		(Grade 6)		(Grade 7)		Rated		Loans
March 31, 2011
Commercial real estate	$	314,531	$	56,892	$	60,992	$	—	$	5,809	$	438,224
Commercial and industrial	105,873		14,336		7,860		—		19,317		147,386
Real estate construction	26,400		2,999		3,069		—		371		32,839
Residential real estate	4,413		2,432		7,696		20		182,952		197,513
Home equity lines of credit	801		793		1,461		—		44,851		47,906
Consumer	95		—		—		—		82,426		82,521
Deposit account overdrafts	—		—		—		—		1,640		1,640
Total	$	452,113	$	77,452	$	81,078	$	20	$	337,366	$	948,029
December 31, 2010
Commercial real estate	$	320,306	$	49,901	$	77,634	$	—	$	5,034	$	452,875
Commercial and industrial	122,874		6,325		9,427		247		14,319		153,192
Real estate construction	14,991		3,017		3,495		—		975		22,478
Residential real estate	5,186		2,135		8,031		—		184,923		200,275
Home equity lines of credit	283		339		2,106		—		45,402		48,130
Consumer	89		—		—		—		81,478		81,567
Deposit account overdrafts	—		—		—		—		2,201		2,201
Total	$	463,729	$	61,717	$	100,693	$	247	$	334,332	$	960,718

(Dollars in thousands) Balance
Weighted-Average
Rate
Quarter Ended December 31, 2010 $7,017 3.89%
Year Ended December 31, 2011 15,390 4.03%
Year Ended December 31, 2012 7,408 3.58%
Year Ended December 31, 2013 2,225 3.67%
Year Ended December 31, 2014 1,721 3.55%
Year Ended December 31, 2015 1,466 3.55%
Thereafter 129,493 3.36%
Total long-term borrowings $164,720 3.47%
Impaired Loans

The following tables summarize loans classified as impaired:



	Unpaid		Recorded Investment				Total				Average		Interest
	Principal		With		Without		Recorded		Related		Recorded		Income
(Dollars in thousands)	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
March 31, 2011
Commercial real estate	$	52,684	$	2,886	$	22,104	$	24,990	$	739	$	27,948	$	—
Commercial and industrial	2,172		1,526		—		1,526		163		1,547		—
Real estate construction	2,202		—		1,008		1,008		—		862		—
Residential real estate	1,123		—		1,510		1,510		—		1,720		—
Home equity lines of credit	522		361		96		457		85		228		—
Total	$	58,703	$	4,773	$	24,718	$	29,491	$	987	$	32,305	$	—
December 31, 2010
Commercial real estate	$	58,178	$	6,403	$	27,550	$	33,953	$	1,789	$	21,361	$	10
Commercial and industrial	2,333		1,086		729		1,815		572		1,713		5
Real estate construction	1,755		330		485		815		22		913		—
Residential real estate	1,170		631		506		1,137		320		867		9
Home equity lines of credit	522		520		—		520		254		535		—
Total	$	63,958	$	8,970	$	29,270	$	38,240	$	2,957	$	25,389	$	24

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Allowance for Loan Losses

Changes in the allowance for loan losses in the periods ended March 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
March 31, 2011
Balance, January 1, 2011	$	21,806		$	2,160		$	1,400		$	431		$	721		$	248		$	26,766
Charge-offs	(7,078		)	(835		)	(201		)	(247		)	(283		)	(136		)	(8,780		)
Recoveries	315			59			443			10			222			103			1,152
Net charge-offs	(6,763		)	(776		)	242			(237		)	(61		)	(33		)	(7,628		)
Provision for loan losses	4,570			350			—			250			130			11			5,311
Balance, March 31, 2011	$	19,613		$	1,734		$	1,642		$	444		$	790		$	226		$	24,449

Period-end amount allocated to:
Loans individually evaluated for impairment	$	739		$	163		$	—		$	85		$	—		$	—		$	987
Loans collectively evaluated for impairment	18,874			1,571			1,642			359			790			226			23,462
Ending balance	$	19,613		$	1,734		$	1,642		$	444		$	790		$	226		$	24,449

March 31, 2010
Balance, January 1, 2010	$	22,125		$	1,586		$	1,619		$	528		$	1,074		$	325		$	27,257
Charge-offs	(6,423		)	(919		)	(201		)	(12		)	(349		)	(230		)	(8,134		)
Recoveries	505			25			18			24			235			122			929
Net charge-offs	(5,918		)	(894		)	(183		)	12			(114		)	(108		)	(7,205		)
Provision for loan losses	3,181			3,300			—			—			—			20			6,501
Balance, March 31, 2010	$	19,388		$	3,992		$	1,436		$	540		$	960		$	237		$	26,553

Period-end amount allocated to:
Loans individually evaluated for impairment	$	1,684		$	1,665		$	85		$	99		$	—		$	—		$	3,533
Loans collectively evaluated for impairment	17,704			2,327			1,351			441			960			237			23,020
Ending balance	$	19,388		$	3,992		$	1,436		$	540		$	960		$	237		$	26,553

Note 5. 5 Stockholders’ Equity

The following table details the progression in shares of Peoples’ preferred, common and treasury stock during the period presented:



	Preferred Stock		Common Stock	Treasury Stock
Shares at December 31, 2010	39,000		11,070,022	612,695
Changes related to stock-based compensation awards:
Release of restricted common shares			5,337	647
Changes related to deferred compensation plan:
Purchase of treasury stock				2,162
Reissuance of treasury stock				(9,209	)
Repurchase of preferred shares	(21,000	)
Common shares issued under dividend reinvestment plan			5,443
Shares at March 31, 2011	18,000		11,080,802	606,295

Preferred Common
Treasury
Stock
Stock Stock
Shares at December 31, 2009 39,000 11,031,892 657,255
Changes related to stock-based compensation awards:
Release of restricted common shares 6,202
Exercise of common stock options (31,008)
Purchase of treasury stock 9,164
Rabbi Trust payout (11,165)
Common shares issued under dividend reinvestment plan 24,662
Shares at September 30, 2010 39,000 11,062,756 624,246

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Under its Amended Articles of Incorporation, Peoples is authorized to issue up to 50,000 preferred shares, in one or more series, having such voting powers, designations, preferences, rights, qualifications, limitations and restrictions as determined by the Board of Directors. In 2009, Peoples’ Board of Directors created a series of preferred shares designated as Peoples’ Fixed Rate Cumulative Perpetual Preferred Shares, Series A, each without par value and having a liquidation preference of $1,000 per share, and fixed 39,000 shares as the authorized number of such shares (the “Series A Preferred Shares”). These Series A Preferred Shares subsequently were sold to the United States Department of the Treasury (the “U.S. Treasury”), along with a ten-year warrant (the ~~“Warrant&# 8221;~~“Warrant”) to purchase 313,505 Peoples common shares at an exercise price of $18.66 per share (subject to certain anti-dilution and other adjustments), for an aggregate purchase price of $39 million in cash in connection with Peoples’ participation in the U.S. Treasury’s TARP Capital Purchase Program.

The Series A Preferred Shares accrue cumulative quarterly dividends at a rate of 5% per annum from January 30, 2009 to, but excluding February 15, 2014, and 9% per annum thereafter. These dividends will be paid only if, as and when declared by Peoples’ Board of Directors. The Series A Preferred Shares have no maturity date and rank senior to the common shares with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of Peoples. Peoples has the option to redeem the Series A Preferred Shares at 100% of their liquidation preference plus accrued and unpaid dividends, subject to the approval of the Board of Governors of the Federal Reserve System and the Office of the Comptroller of Currency. The Series A Preferred Shares are ~~ge nerally~~generally non-voting.

The U.S. Treasury has agreed not to exercise voting power with respect to any common shares issued to it upon exercise of the Warrant. Any common shares issued by Peoples upon exercise of the Warrant will be issued from common shares held in treasury to the extent available. If no treasury shares are available, common shares will be issued from authorized but unissued common shares.

The Securities Purchase Agreement, pursuant to which the Series A Preferred Shares and the Warrant were sold, contains limitations on the payment of dividends on the common shares after January 30, 2009. Prior to the earlier of (i) January 30, 2012 and (ii) the date on which the Series A Preferred Shares have been redeemed in whole or the U.S. Treasury has transferred the Series A Preferred Shares to third parties which are not Affiliates (as defined in the Securities Purchase Agreement) of the U.S. Treasury, any increase in common share dividends by Peoples or any of its subsidiaries would be prohibited without the prior approval of the U.S. Treasury.

If the Series A Preferred Shares were ~~redeemed,~~repurchased in full, Peoples has the right to repurchase the Warrant at its appraised value. Otherwise, the U.S. Treasury must liquidate the related Warrant at the current market price.

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On February 2, 2011, Peoples completed the repurchase of 21,000 of the Series A Preferred Shares held by the U.S. Treasury, for an aggregate purchase price of $21,224,583, which included a pro rata accrued dividend of approximately $224,583. In connection with this repurchase, Peoples recognized the pro rata unamortized discount originally recorded at the time of issuance, which totaled $186,000.

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Note 6.6 Comprehensive Income (Loss)

The components of other comprehensive income (loss) were as follows:



	Three Months Ended
	March 31,
(Dollars in thousands)	2011			2010
Net income	$	1,869		$	1,315
Other comprehensive income (loss):
Available-for-sale investment securities:
Gross unrealized holding gain (loss) arising in the period	419			(5,988		)
Related tax (expense) benefit	(147		)	2,096
Less: reclassification adjustment for net gain (loss) included in net income	360			(970		)
Related tax (expense) benefit	(126		)	340
Net effect on other comprehensive income (loss)	38			(3,262		)
Defined benefit plans:
Amortization of unrecognized loss and service cost on pension plan	38			—
Related tax expense	(13		)	—
Net effect on other comprehensive income (loss)	25			—
Total other comprehensive income (loss), net of tax	63			(3,262		)
Total comprehensive income (loss)	$	1,932		$	(1,947	)

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2010 2009 2010 2009
Net income (loss) $413 $(4,065) $5,013 $2,976
Other comprehensive (loss) income:
Available-for-sale investment securities:
Gross unrealized holding (loss) gain arising in the period (4,915) 12,088 (12,681) 29,939
  Related tax benefit (expense) 1,720 (4,231) 4,438 (10,478)
Non-credit losses on securities during the period – (465) – (932)
  Related tax benefit – 163 – 326
Less: reclassification adjustment for net gain included in net income (loss) 3,818 (5,654) 5,066 (5,066)
  Related tax (expense) benefit (1,337) 1,979 (1,773) 1,773
    Net effect on other comprehensive (loss) income (5,676) 11,230 (11,536) 22,148
Defined benefit plans:
Amortization of unrecognized loss and service cost on pension plan 38 42 115 126
  Related tax expense (13) (15) (40) (44)
    Net effect on other comprehensive (loss) income 25 27 75 82
    Total other comprehensive (loss) income, net of tax (5,651) 11,257 (11,461) 22,230
    Total comprehensive (loss) income $(5,238) $7,192 $(6,448) $25,206

The following details the change in the components of Peoples’ accumulated other comprehensive income (loss) for the ~~nine~~three months ended ~~September 30, 2010:~~
March 31, 2011:



(Dollars in thousands)	Unrealized i(Loss Gain) on Securities			Unrecognized Net Pension and Postretirement Costs			Accumulated Comprehensive (Loss) Income
Balance, December 31, 2010	$	(2,038	)	$	(2,415	)	$	(4,453	)
Current period change, net of tax	38			25			63
Balance, March 31, 2011	$	(2,000	)	$	(2,390	)	$	(4,390	)

Unrecognized
Unrealized Net Pension and Accumulated
Gain (Loss) Postretirement Comprehensive
(Dollars in thousands) on Securities Costs Income (Loss)
Balance, December 31, 2009 $13,068 $(3,581) $9,487
Current period change, net of tax (11,536) 75 (11,461)
Balance, September 30, 2010 $1,532 $(3,506) $(1,974)

Note 7.7 Employee Benefit Plans

Peoples sponsors a noncontributory defined benefit pension plan that covers substantially all employees hired before January 1, 2010. The plan provides retirement benefits based on an employee’s years of service and compensation. For employees hired before January 1, 2003, the amount of postretirement benefit is based on the employee’s average monthly compensation pay over the highest five consecutive years out of the employee’s last ten years with Peoples while an eligible employee. For employees hired on or after January 1, 2003, the amount of postretirement benefit is based on 2% of the employee’s annual compensation plus accrued interest. Effective January 1, 2010, the pension plan was closed to new entrants. On November 18, 2010, Peoples' Board of Directors authorized a freeze of the accrual of pension plans benefits, which was effective March 1, 2011. Peoples recognized this freeze as a curtailment as of December 31, 2010 and March 1, 2011, under the terms of the pension plan. Peoples also has a contributory ~~postretir ement~~post-retirement benefit plan for former employees who were retired as of December 31, 1992. The plan provides health and life insurance benefits. Peoples’ policy is to fund the cost of the benefits as they are incurred.

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The following tables detail the components of the net periodic benefit cost for the plans:



	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Dollars in thousands)	2011			2010			2011			2010
Service cost	$	—		$	188		$	—		$	—
Interest cost	172			196			3			3
Expected return on plan assets	(280		)	(287		)	—			—
Amortization of prior service cost	—			1			—			(1		)
Amortization of net loss	8			37			(2		)	(2		)
Net periodic benefit cost	$	(100	)	$	135		$	1		$	—

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~~Pension Benefits:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2010 2009 2010 2009
Service cost $188 $200 $563 $599
Interest cost 196 196 588 589
Expected return on plan assets (287) (298) (861) (895)
Amortization of prior service cost 1 1 3 3
Amortization of net loss 37 36 112 108
Net periodic benefit cost $135 $135 $405 $404

~~Postretirement Benefits:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2010 2009 2010 2009
Interest cost 4 4 10 12
Amortization of prior service cost (1) (1) (2) (2)
Amortization of net gain (2) (1) (7) (2)
Net periodic benefit cost $1 $2 $1 $8

Note 8.8 Stock-Based Compensation

Under the Peoples Bancorp Inc. Amended and Restated 2006 Equity Plan (the “2006 Equity Plan”), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights or any combination thereof covering up to 500,000 common shares to employees and non-employee directors. Prior to 2007, Peoples granted nonqualified and incentive stock options to employees and nonqualified stock options to non-employee directors under the 2006 Equity Plan and predecessor plans. Since February 2007, Peoples has granted a combination of restricted common shares and stock appreciation rights (“SARs”) to be settled in common shares to employees and restricted common shares to non-employee directors subject to the terms and conditions prescribed by the 2006 Equity Plan.

In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common shares.

Stock Options

Under the provisions of the 2006 Equity Plan and predecessor stock option plans, the exercise price per share of any stock option granted may not be less than the fair market value of the underlying common shares on the date of grant of the stock option. All stock options granted to both employees and non-employee directors expire ten years from the date of grant. The most recent stock options granted to employees and non-employee directors occurred in 2006. ~~The following summarizes the changes to Peoples’ stock options for the period ended September 30, 2010:~~

Number of Shares
Weighted- Average
Exercise
Price
Weighted-
Average
Remaining Contractual
Life
Aggregate Intrinsic
Value
Outstanding at January 1 270,757 $23.90
Granted – –
Exercised 34,464 13.57
Expired 29,642 24.60
Outstanding at September 30 206,651 $25.52 3.1 years $–

Exercisable at September 30 206,651 $25.52 3.1 years $–

~~For the nine months ended September 30, 2010, the total intrinsic value of stock options exercised was $86,000.~~ The following table summarizes ~~information concerning~~ Peoples’ stock options outstanding at ~~September 30, 2010:~~March 31, 2011:



			Options Outstanding & Exercisable
Range of Exercise Prices			Common Shares Subject to Options Outstanding	Weighted- Average Remaining Contractual Life	Weighted-Average Exercise Price
$15.55	to	$21.71	9,876	1.2 years	$	20.08
$21.72	to	$23.58	47,640	1.7 years	22.32
$23.59	to	$25.94	41,343	1.2 years	23.96
$26.01	to	$27.74	41,354	3.0 years	27.08
$28.25	to	$28.26	34,028	3.9 years	28.25
$28.57	to	$30.00	31,410	3.7 years	29.02
Total			205,651	2.5 years	$	25.50

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Options Outstanding Options Exercisable
Range of Exercise Prices Option Shares Outstanding
Weighted-
Average
Remaining Contractual
Life
Weighted-
Average
Exercise Price
Option Shares Exercisable
Weighted-Average Exercise
Price
$13.47 to $15.54 635 0.7 years $15.54 635 $15.54
$15.55 to $21.71 9,241 2.0 years 20.39 9,241 20.39
$21.72 to $23.58 47,640 2.2 years 22.32 47,640 22.32
$23.59 to $25.94 41,343 1.7 years 23.96 41,343 23.96
$26.01 to $27.74 41,354 3.8 years 27.08 41,354 27.08
$28.25 to $28.26 34,028 4.6 years 28.25 34,028 28.25
$28.57 to $30.00 32,410 4.3 years 29.01 32,410 29.01
Total 206,651 3.1 years $25.52 206,651 $25.52

Stock Appreciation Rights

SARs granted to employees have an exercise price equal to the fair market value of Peoples’ common shares on the date of grant and will be settled using common shares of Peoples. Additionally, the SARs granted will vest three years from the grant date and expire ten years from the date of grant. ~~The following summarizes the changes to Peoples’ SARs for the period ended September 30, 2010:~~

Number of Shares Weighted-Average Exercise Price
Weighted- Average Remaining Contractual
Life
Aggregate Intrinsic
Value

Outstanding at January 1 53,756 $25.80
Granted – –
Exercised – –
Forfeited 9,088 25.29
Outstanding at September 30 44,668 $25.91 6.0 years $–
Exercisable at September 30 23,110 $27.90 4.8 years $–

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The following table summarizes ~~information concerning~~ Peoples’ SARs outstanding at ~~September 30, 2010:~~March 31, 2011:

Exercise Prices Number of Shares Outstanding Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price Number of Shares Exercisable
$23.26 5,000 2.9 years $23.26 5,000
$23.77 20,793 7.3 years 23.77 235
$23.80 to $27.99 1,000 7.2 years 23.80 –
$29.25 17,875 5.4 years 29.25 17,875
Total 44,668 6.0 years $25.91 23,110



Exercise Prices		Number of Common Shares Subject to SARs Outstanding & Exercisable	Weighted- Average Remaining Contractual Life
	$23.26	5,000	2.5 years
	$23.77	18,936	6.8 years
	$23.80	1,000	6.7 years
	$29.25	17,506	4.6 years
Total		42,442	5.4 years

Restricted Shares

Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on common shares awarded to non-employee directors expire after six months, while the restrictions on common shares awarded to employees expire after three years. In the first quarter of 2011, Peoples granted restricted shares to officers and key employees with both time-based and performance-based vesting periods. For those shares subject to time-based vesting, the restrictions on these shares will vest after two years. For the shares subject to performance-based vesting, the restrictions on these shares will vest after two years upon the achievement of a cumulative diluted earnings per common share of $3.10 for the three-year period ending December 31, 2012.

The following summarizes the changes to Peoples’ restricted common shares for the period ended ~~September 30, 2010:~~March 31, 2011:



	Time Vesting			Performance Vesting
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1	7,337	$	19.88	—	$	—
Awarded	7,423	13.31		3,531	13.14
Released	5,337	22.09		—	—
Outstanding at March 31	9,423	$	13.45	3,531	$	13.14

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(Dollars in thousands)	March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010		March 31, 2010
Residential	$	101,760	$	113,559	$	141,779	$	156,962	$	140,736
Commercial	2,734		26,090		23,749		25,319		33,675
Total fair value	$	104,494	$	139,649	$	165,528	$	182,281	$	174,411
Total amortized cost	$	102,295	$	136,997	$	162,066	$	181,727	$	173,933
Net unrealized gain	$	2,199	$	2,652	$	3,462	$	554	$	478

September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 2010 2010 2010 2009 2009
Residential $141,779 $156,962 $140,736 $153,621 $164,461
Commercial 23,749 25,319 33,675 24,188 26,274
Total fair value $165,528 $182,281 $174,411 $177,809 $190,735
Total amortized cost $162,066 $181,727 $173,933 $177,370 $193,481
Net unrealized gain (loss) $3,462 $554 $478 $439 $(2,746)

The non-agency portfolio consists entirely of first lien residential and commercial mortgages and all securities are rated AAA or equivalent by Moody’s, Standard & ~~Poor’s~~Poor's and/or Fitch. Nearly all of the underlying loans in these securities were originated in 2003 or earlier and have fixed interest rates.

Loans

The following table provides information regarding outstanding loan balances:

September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 2010 2010 2010 2009 2009
Gross portfolio loans:
   Commercial real estate $454,499 $471,046 $501,917 $503,034 $478,518
   Commercial and industrial 178,014 165,916 165,934 159,915 160,677
   Real estate contruction 39,621 36,490 34,894 32,427 67,143
   Residential real estate 205,125 207,314 212,569 215,735 216,571
   Home equity lines of credit 49,435 50,259 49,444 49,183 48,991
   Consumer 82,894 83,735 85,231 90,144 94,374
   Deposit account overdrafts 1,291 1,346 1,299 1,620 1,765
        Total portfolio loans $1,010,879 $1,016,106 $1,051,288 $1,052,058 $1,068,039

Percent of loans to total loans:
Commercial real estate 45.0% 46.4% 47.7% 47.8% 44.8%
Commercial and industrial 17.6% 16.3% 15.8% 15.2% 15.0%
Real estate contruction 3.9% 3.6% 3.3% 3.1% 6.3%
Residential real estate 20.3% 20.4% 20.2% 20.5% 20.3%
Home equity lines of credit 4.9% 4.9% 4.7% 4.7% 4.6%
Consumer 8.2% 8.3% 8.2% 8.5% 8.8%
Deposit account overdrafts 0.1% 0.1% 0.1% 0.2% 0.2%
    Total percentage 100.0% 100.0% 100.0% 100.0% 100.0%

Residential real estate loans
   being serviced for others $235,538 $234,134 $230,183 $227,792 $220,605



(Dollars in thousands)	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010
Gross portfolio loans:
Commercial real estate	$	438,224		$	452,875		$	454,499		$	471,046		$	501,917
Commercial and industrial	147,386			153,192			178,014			165,916			165,934
Real estate construction	32,839			22,478			39,621			36,490			34,894
Residential real estate	197,513			200,275			205,125			207,314			212,569
Home equity lines of credit	47,906			48,130			49,435			50,259			49,444
Consumer	82,521			81,567			82,894			83,735			85,231
Deposit account overdrafts	1,640			2,201			1,291			1,346			1,299
Total portfolio loans	$	948,029		$	960,718		$	1,010,879		$	1,016,106		$	1,051,288
Percent of loans to total loans:
Commercial real estate	46.2		%	47.1		%	45.0		%	46.4		%	47.7		%
Commercial and industrial	15.5		%	15.9		%	17.6		%	16.3		%	15.8		%
Real estate construction	3.5		%	2.3		%	3.9		%	3.6		%	3.3		%
Residential real estate	20.8		%	20.8		%	20.3		%	20.4		%	20.2		%
Home equity lines of credit	5.1		%	5.0		%	4.9		%	4.9		%	4.7		%
Consumer	8.7		%	8.7		%	8.2		%	8.3		%	8.2		%
Deposit account overdrafts	0.2		%	0.2		%	0.1		%	0.1		%	0.1		%
Total percentage	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

Residential real estate loans being serviced for others	$	258,626		$	250,630		$	235,538		$	234,134		$	230,183

During ~~2010, Peoples actively reduced its exposure~~the first quarter of 2011, new commercial loan production remained steady, driven in part by the addition of several new lenders in recent months. However, total loan balances declined during the quarter, due in large part to sizable paydowns, including the payoff of a single $10 million commercial ~~real estate loans to enhance the overall balance sheet risk profile, resulting in lower balances at September 30, 2010 versus prior periods.~~and industrial loan. Contributing to the ~~decline since year-end 2010~~first quarter decrease was the impact of ~~payoffs exceeding new loan production due to lower demand stemming from current~~charge-offs remaining elevated, as discussed in greater detail later in this discussion. Unfavorable economic conditions ~~plus charge-offs~~continue to persist within Peoples' market areas, which adversely affects demand for new loans. In addition, the utilization of lines of credit by commercial borrowers remains lower than historical levels. Real estate construction loans increased during the first quarter of 2011, primarily as a result of advances on existing loans.

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One of Peoples' strategic goals for the remainder of 2011, and ~~problem~~future years, will be quality loan ~~workouts. Peoples experienced good demand for~~growth. Given current concentrations in commercial real estate lending, the primary emphasis of future lending activity will be on commercial and industrial, ~~loans during the third quarter of 2010, producing higher balances at quarter-end.~~

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~~Residential real estate~~small business and consumer lending opportunities. However, management believes some sizable loan ~~balances continue to be impacted by customer demand for long-term, fixed-rate mortgages,~~payoffs could occur in future quarters, which Peoples generally sells to the secondary market with the servicing rights retained. During 2009 and the first half of 2010, the secondary market has offered historically low long-term fixed rates producing significantly higher refinancing activity causing an increase in Peoples’ serviced loan portfolio.

could offset new production.

Loan Concentration

Peoples categorizes its commercial loans according to standard industry classifications and monitors for concentrations in a single industry or multiple industries that could be impacted by changes in economic conditions in a similar manner. ~~Peoples’~~Peoples' commercial lending activities continue to be spread over a diverse range of businesses from all sectors of the economy, with no single industry comprising over 10% of ~~Peoples’~~Peoples' total loan portfolio.

Loans secured by commercial real estate, including commercial construction loans, continue to comprise approximately half of ~~Peoples’~~Peoples' loan portfolio. The following table provides information regarding the largest concentrations of commercial real estate loans within the loan portfolio at ~~September 30, 2010:~~
March 31, 2011:



(Dollars in thousands)	Outstanding Balance		Loan Commitments		Total Exposure		% of Total
Commercial, mortgage loans:
Lodging and lodging related	$	67,916	$	170	$	68,086	15.3	%
Office buildings and complexes:
Owner occupied	6,876		159		7,035		1.6	%
Non-owner occupied	29,435		143		29,578		6.6	%
Total office buildings and complexes	36,311		302		36,613		8.2	%
Apartment complexes	56,038		643		56,681		12.7	%
Retail facilities:
Owner occupied	9,917		38		9,955		2.2	%
Non-owner occupied	26,773		398		27,171		6.1	%
Total retail facilities	36,690		436		37,126		8.3	%
Residential property:
Owner occupied	3,328		511		3,839		0.9	%
Non-owner occupied	27,024		88		27,112		6.1	%
Total residential property	30,352		599		30,951		7.0	%
Light industrial facilities:
Owner occupied	21,860		100		21,960		4.9	%
Non-owner occupied	11,580		—		11,580		2.6	%
Total light industrial facilities	33,440		100		33,540		7.5	%
Assisted living facilities and nursing homes	28,667		—		28,667		6.4	%
Land and land development	21,343		225		21,568		4.8	%
Health care facilities	18,615		26		18,641		4.2	%
Other	108,852		4,229		113,081		25.4	%
Total commercial, mortgage	$	438,224	$	6,730	$	444,954	100.0	%
Real estate, construction loans:
Assisted living facilities and nursing homes	$	15,813	$	3,042	$	18,855	37.0	%
Health care facilities	2,143		10,391		12,534		24.6	%
Land and land development	3,227		906		4,133		8.1	%
Other	11,656		3,722		15,378		30.2	%
Total real estate, construction	$	32,839	$	18,061	$	50,900	100.0	%

Outstanding Loan Total % of
(Dollars in thousands) Balance Commitments Exposure Total
Commercial real estate loans:
Lodging and lodging related $52,221 $225 $52,446 11.3%
Office buildings and complexes:
    Owner occupied 7,042 298 7,340 1.6%
    Non-owner occupied 38,124 484 38,608 8.3%
        Total office buildings and complexes 45,166 782 45,948 9.9%
Apartment complexes 56,321 1,122 57,443 12.4%
Retail facilities:
    Owner occupied 10,713 41 10,754 2.3%
    Non-owner occupied 34,380 964 35,344 7.6%
        Total retail facilities 45,093 1,005 46,098 9.9%
Residential property:
    Owner occupied 4,083 561 4,644 1.0%
    Non-owner occupied 30,793 73 30,866 6.7%
        Total residential property 34,876 634 35,510 7.7%
Light industrial facilities:
    Owner occupied 22,262 112 22,374 4.8%
    Non-owner occupied 12,598 – 12,598 2.7%
       Total light industrial facilities 34,860 112 34,972 7.5%
Assisted living facilities and nursing homes 33,829 – 33,829 7.3%
Land and land development 26,113 3,006 29,119 6.3%
Health care facilities 20,675 26 20,701 4.5%
Other 105,345 2,502 107,847 23.2%
    Total commercial real estate $454,499 $9,414 $463,913 100.0%
Real estate construction loans:
Assisted living facilities and nursing homes $2,314 $6,616 $8,930 17.8%
Lodging and lodging related 16,883 96 16,979 33.8%
Land and land development 4,632 476 5,108 10.2%
Other 15,792 3,353 19,145 38.2%
    Total real estate construction $39,621 $10,541 $50,162 100.0%

~~Peoples’~~Peoples' commercial lending activities continue to focus on lending opportunities inside its primary and secondary market areas with loans outside Peoples’ primary market areas comprising approximately 10% of total outstanding loan balances, at both September 30, 2010 and December 31, 2009. The majority of those out-of-market loans are still based inwithin Ohio, West Virginia and ~~Kentucky, with total outstanding balances of $69.8 million and $77.9 million at September 30, 2010 and December 31, 2009, respectively.~~Kentucky. In all other states, the aggregate outstanding balance in each state was less than $4.0 ~~million.~~million at both March 31, 2011 and December 31, 2010.

Allowance for Loan Losses

~~The following table presents changes in Peoples’ allowance for loan losses:~~

~~Table Of Contents~~

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
(Dollars in thousands) 2010 2010 2009 2010 2009
Balance, beginning of period $27,168 $26,553 $23,151 $27,257 $22,931
Gross charge-offs:
  Commercial real estate 7,557 4,676 5,980 18,655 13,862
  Commercial and industrial 97 157 527 1,173 560
  Residential real estate 382 145 251 729 1,229
  Real estate construction – 68 – 68 –
  Home equity lines of credit 40 6 26 58 67
  Consumer 247 242 348 838 1,068
  Deposit account overdrafts 282 223 347 735 977
    Total gross charge-offs 8,605 5,517 7,479 22,256 17,763
Recoveries:
  Commercial real estate 355 275 93 1,134 1,122
  Commercial and industrial 28 119 6 173 47
  Residential real estate 28 68 43 114 192
  Real estate construction – – – – –
  Home equity lines of credit 2 1 5 27 11
  Consumer 156 153 176 544 450
  Deposit account overdrafts 73 58 86 253 293
    Total recoveries 642 674 409 2,245 2,115
Net charge-offs:
  Commercial real estate 7,202 4,401 5,887 17,521 12,740
  Commercial and industrial 69 38 521 1,000 513
  Residential real estate 354 77 208 615 1,037
  Real estate construction – 68 – 68 –
  Home equity lines of credit 38 5 21 31 56
  Consumer 91 89 172 294 618
  Deposit account overdrafts 209 165 261 482 684
    Total net charge-offs 7,963 4,843 7,070 20,011 15,648
Provision for loan losses 8,005 5,458 10,168 19,964 18,966
     Balance, end of period $27,210 $27,168 $26,249 $27,210 $26,249
Ratio of net charge-offs to average loans (annualized):

  Commercial real estate 2.81% 1.70% 2.14% 2.25% 1.55%
  Commercial and industrial 0.03% 0.01% 0.19% 0.13% 0.06%
  Residential real estate 0.14% 0.03% 0.08% 0.08% 0.13%
  Real estate construction – % 0.03% – % 0.01% – %
  Home equity lines of credit 0.01% – % 0.01% – % 0.01%
  Consumer 0.04% 0.03% 0.06% 0.04% 0.07%
  Deposit account overdrafts 0.08% 0.06% 0.09% 0.06% 0.08%
    Total 3.11% 1.86% 2.57% 2.57% 1.90%

During the third quarter, eight commercial loan relationships with an aggregate outstanding principal balance of $12.1 million became impaired. These loan relationships were subsequently written down by $6.1 million to the estimated net realizable value of the underlying collateral as of September 30, 2010, accounting for the higher gross charge-offs compared to the first two quarters of 2010. Gross charge-offs for the nine months ended September 30, 2010, were higher than the same period in 2009, due to ongoing workout efforts on existing impaired loans and continued declines in commercial real estate values.

The amount of the allowance for loan losses at end of each period represents ~~management’s~~management's estimate of expected losses from existing loans based upon its formal quarterly analysis of the loan portfolio. While this process involves allocations being

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made to specific loans and pools of loans, the entire allowance is available for all losses incurred within the loan portfolio. The following details ~~management’s~~management's allocation of the allowance for loan losses:

~~Table Of Contents~~


	September 30,	June 30,	March 31,	December 31,	September 30,
(Dollars in thousands)	2010	2010	2010	2009	2009	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010
Commercial real estate	$21,382	$20,198	$19,388	$22,125		$	19,613		$	21,806		$	21,382		$	20,198		$	19,388
Commercial and industrial	2,826	3,954	3,992	1,586		1,734			2,160			2,826			3,954			3,992
Total commercial	$24,208	$24,152	$23,380	$23,711	$23,218
Residential real estate	1,414	1,359	1,436	1,619	1,210	1,642			1,400			1,414			1,359			1,436
Home equity lines of credit	497	534	540	528	501	444			431			497			534			540
Consumer	830	872	960	1,074	995	790			721			830			872			960
Deposit account overdrafts	261	251	237	325	325	226			248			261			251			237
Total allowance for loan losses	$27,210	$27,168	$26,553	$27,257	$26,249	$	24,449		$	26,766		$	27,210		$	27,168		$	26,553
As a percentage of total loans	2.68%	2.66%	2.53%	2.59%	2.46%	2.58		%	2.79		%	2.68		%	2.66		%	2.53		%

The significant allocations to commercial loans reflect the higher credit risk associated with this type of lending and the size of this loan category in relationship to the entire loan portfolio. The increased allowance for commercial real estate loans in the second and third quarters of 2010 primarily ~~reflects~~reflected changes to the qualitative factors used in determining the appropriate level of allowance for lodging and lodging related loans ~~– Peoples’~~– Peoples' largest industrial ~~concentration – given~~concentration. At March 31, 2011, the ~~continued impact~~allowance for loan losses was lower than recent quarters, reflecting a decrease in loans rated as substandard and the utilization of general economic conditions both within Peoples’ market area and nationally on this industry. The overall higher allocations to commercial loans in prior quarters primarily reflected higher loss factorsspecific reserves for ~~graded~~certain impaired loans due to ~~recent elevated charge-off levels, along with continued deterioration in credit quality of various commercial~~the loans ~~based on~~being charged-down during the ~~financial condition~~first quarter to the estimated net realizable value of the ~~borrowers. Another significant contributing factor was the impact of distressed commercial real estate values and general economic conditions on specific reserves for impaired loans.~~

underlying collateral.

The allowance allocated to the residential real estate and consumer loan categories is based upon ~~Peoples’~~Peoples' allowance methodology for homogeneous pools of loans. The fluctuations in these allocations have been directionally consistent with the changes in loan quality, loss experience and changes in loan balances in each category.

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The following table summarizes Peoples’ net charge-offs:



	Three Months Ended
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010
(Dollars in thousands)
Gross charge-offs:
Commercial real estate	$	7,078		$	6,913		$	7,557		$	4,676		$	6,423
Commercial and industrial	835			109			97			157			919
Residential real estate	201			400			382			145			201
Real estate construction	—			—			—			68			—
Home equity lines of credit	247			72			40			6			12
Consumer	283			236			247			242			349
Deposit account overdrafts	136			194			282			223			230
Total gross charge-offs	8,780			7,924			8,605			5,517			8,134
Recoveries:
Commercial real estate	315			187			355			275			505
Commercial and industrial	59			48			28			119			25
Residential real estate	443			111			28			68			18
Real estate construction	—			—			—			—			—
Home equity lines of credit	10			7			2			1			24
Consumer	222			127			156			153			235
Deposit account overdrafts	103			48			73			58			122
Total recoveries	1,152			528			642			674			929
Net charge-offs (recoveries):
Commercial real estate	6,763			6,726			7,202			4,401			5,918
Commercial and industrial	776			61			69			38			894
Residential real estate	(242		)	289			354			77			183
Real estate construction	—			—			—			68			—
Home equity lines of credit	237			65			38			5			(12		)
Consumer	61			109			91			89			114
Deposit account overdrafts	33			146			209			165			108
Total net charge-offs	$	7,628		$	7,396		$	7,963		$	4,843		$	7,205
Ratio of net charge-offs to average loans (annualized):
Commercial real estate	2.84		%	2.72		%	2.81		%	1.70		%	2.26		%
Commercial and industrial	0.33		%	0.02		%	0.03		%	0.01		%	0.34		%
Residential real estate	(0.10		)%	0.12		%	0.14		%	0.03		%	0.07		%
Real estate construction	—		%	—		%	—		%	0.03		%	—		%
Home equity lines of credit	0.10		%	0.02		%	0.01		%	—		%	—		%
Consumer	0.03		%	0.04		%	0.04		%	0.03		%	0.04		%
Deposit account overdrafts	0.01		%	0.01		%	0.08		%	0.06		%	0.04		%
Total	3.21		%	2.93		%	3.11		%	1.86		%	2.76		%

First quarter 2011 charge-offs were impacted by $4.9 million in losses on two existing impaired commercial real estate loan relationships, which became under-collateralized during the quarter as a result of continued weakness in commercial real estate values. Of this amount, $3.1 million was attributable to a relationship collateralized by undeveloped land located within Peoples' northeastern Kentucky market area, which was considered impaired and placed on nonaccrual status during the second quarter of 2010. The remaining $1.8 million was attributable to a relationship collateralized by non-owner occupied retail facilities located within central Ohio, which was considered impaired and placed on nonaccrual status in late 2009. At March 31, 2011, these relationships had an aggregate unpaid principal balance of $20.3 million and Peoples' recorded investment after the first quarter 2011 charge-offs was $9.1 million, which represented the estimated net realizable fair value of the underlying collateral. In addition, several other existing impaired loans continued to progress through the workout process, which resulted in the loans being charged-down by $1.1 million to the estimated net realizable value of their underlying collateral.

Table of Contents

The following table details Peoples’ nonperforming assets:


	September 30,	June 30,	March 31,	December 31,	September 30,
(Dollars in thousands)	2010			2009		March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010
Loans 90+ days past due and accruing:
Commercial real estate	$–	$459	$–	$164	$–	$	—		$	—		$	—		$	459		$	—
Commercial and industrial	31	–			679	37			—			31			—			—
Residential real estate	–	22	–	238	311	—			27			—			22			—
Consumer	–			9	3
Total	31	481	–	411	993	37			27			31			481			—
Nonaccrual loans:
Commercial real estate	30,083	29,676	22,706	25,852	33,326	27,934			34,392			30,083			29,676			22,706
Commercial and industrial	2,051	2,877	3,019	2,884	3,107	1,536			1,714			2,051			2,877			3,019
Residential real estate	4,481	4,933	3,567	4,687	4,125	2,491			3,790			4,481			4,933			3,567
Home equity	562	564	536	546	574	361			554			562			564			536
Consumer	7	–	4	3	4	—			—			7			—			4
Total	37,184	38,050	29,832	33,972	41,136	32,322			40,450			37,184			38,050			29,832
Total nonperforming loans (NPLs)	37,215	38,531	29,832	34,383	42,129	32,359			40,477			37,215			38,531			29,832
Other real estate owned (OREO)
Commercial	4,305	4,752	5,857	6,087	1,062	4,220			4,280			4,305			4,752			5,857
Residential	30	140	176	226	176	180			215			30			140			176
Total	4,335	4,892	6,033	6,313	1,238	4,400			4,495			4,335			4,892			6,033
Total nonperforming assets (NPAs)	$41,550	$43,423	$35,865	$40,696	$43,367	$	36,759		$	44,972		$	41,550		$	43,423		$	35,865
NPLs as a percent of total loans	3.67%	3.77%	2.84%	3.27%	3.94%	3.41		%	4.19		%	3.67		%	3.77		%	2.84		%
NPAs as a percent of total assets	2.21%		1.79%	2.03%	2.16%	2.04		%	2.45		%	2.21		%	2.21		%	1.79		%
NPAs as a precent of gross loans and OREO	4.08%	4.23%	3.39%	3.85%	4.06%
Allowance for loan losses as a
percent of NPLs	73.1%	70.5%	89.0%	79.3%	62.3%
NPAs as a percent of gross loans and OREO						3.85		%	4.64		%	4.08		%	4.23		%	3.39		%
Allowance for loan losses as a percent of NPLs						75.56		%	66.10		%	73.10		%	70.50		%	89.00		%

The decline in nonperforming assets during the first quarter of 2011 occurred primarily as a result of ~~returning a single commercial real estate loan relationship, with total outstanding balances of $1.6 million, to accruing status. Continued weakness in~~ the ~~commercial real estate market resulted in third quarter 2010 write-downs totaling $447,000~~previously discussed charge-downs on two commercial properties held in OREO. As previously noted, during the third quarter, Peoples placed $12.1 million of commercial loans on nonaccrual status, which were written down to the estimated net realizable value of the underlying collateral of $6.1 million as of September 30, 2010.

~~Table Of Contents~~

~~Peoples’~~impaired loans. Peoples' nonaccrual commercial real estate loans primarily consist of non-owner occupied commercial properties and real estate development projects. In general, management believes repayment of these loans is dependent on the sale of the underlying collateral. As such, the carrying values of these loans are ultimately supported by ~~management’s~~management's estimate of the net proceeds Peoples would receive upon the sale of the collateral. These estimates are based in part on market values provided by independent, licensed or certified appraisers periodically, but no less frequently than annually. Given the sustained weakness in commercial real estate values, management continues to monitor changes in real estate values from quarter-to-quarter and updates its estimates as needed based on ~~observ able~~observable changes in market prices and/or updated appraisals for similar properties.

At September 30, 2010, Peoples’ nonaccrual commercial real estate loans included $1.5 million of loans to a single commercial borrower that were classified as held-for-sale and written down to their estimated fair value. Management will continue to market these loans during the fourth quarter, which, if sold, would remove the loans from Peoples’ nonperforming loans.

Certain nonaccrual loans are not considered impaired and not evaluated individually by Peoples. These loans consist primarily of smaller balance homogenous consumer and residential real estate loans that are collectively evaluated for impairment. The following tables summarize loans classified as impaired:

September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 2010 2010 2010 2009 2009
Loans with an allocated allowance for loan losses $11,877 $14,451 $14,590 $18,188 $15,688
Loans with no allocated allowance for loan losses 24,155 21,880 13,557 15,052 23,988
Total impaired loans $36,032 $36,331 $28,147 $33,240 $39,676
Allowance for loan losses allocated to impaired loans $2,857 $3,815 $3,532 $5,738 $5,761

Nonaccrual loans not considered impaired $2,252 $2,135 $1,924 $1,738 $2,561

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2010 2009 2010 2009
Average investment in impaired loans $34,391 $39,484 $32,542 $39,326
Interest income recognized on impaired loans $5 $– $9 $19

Peoples has not allocated a portion of the allowance for loan losses to certain impaired loans because those loans either have been written down previously to the amount expected to be collected or possess characteristics indicative of Peoples’ ability to collect the remaining outstanding principal from the sale of collateral and/or enforcement of guarantees by the principals.

Overall, management believes the allowance for loan losses was adequate at ~~September 30, 2010,~~March 31, 2011, based on all significant information currently available. Still, there can be no assurance the allowance for loan losses will be adequate to cover future losses or that the amount of nonperforming loans will remain at current levels, especially considering the current economic uncertainty that exists and the concentration of commercial loans in Peoples’ loan portfolio.

Table Ofof Contents

Deposits

The following table details Peoples’ deposit balances:



(Dollars in thousands)	March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010		March 31, 2010
Interest-bearing deposits:
Retail certificates of deposit	$	420,828	$	430,886	$	436,250	$	448,900	$	472,034
Money market deposit accounts	270,574		289,657		297,229		290,477		296,196
Governmental/public funds	149,961		119,572		139,843		136,119		143,068
Savings accounts	132,323		122,444		120,975		120,086		117,526
Interest-bearing demand accounts	97,561		96,507		92,585		94,542		88,425
Total retail interest-bearing deposits	1,071,247		1,059,066		1,086,882		1,090,124		1,117,249
Brokered certificates of deposits	70,522		87,465		95,862		105,093		116,464
Total interest-bearing deposits	1,141,769		1,146,531		1,182,744		1,195,217		1,233,713
Non-interest-bearing deposits	219,175		215,069		209,693		203,559		201,337
Total deposits	$	1,360,944	$	1,361,600	$	1,392,437	$	1,398,776	$	1,435,050

September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 2010 2010 2010 2009 2009
Interest-bearing deposits:
  Retail certificates of deposit $490,446 $512,327 $546,760 $537,549 $561,619
  Money market deposit accounts 297,229 290,477 296,196 263,257 245,621
  Governmental/public funds 139,843 136,119 143,068 147,745 137,655
  Savings accounts 120,975 120,086 117,526 112,074 113,104
  Interest-bearing demand accounts 92,585 94,542 88,425 91,878 87,153
    Total retail interest-bearing deposits 1,141,078 1,153,551 1,191,975 1,152,503 1,145,152
  Brokered certificates of deposits 41,666 41,666 41,738 45,383 61,412
    Total interest-bearing deposits 1,182,744 1,195,217 1,233,713 1,197,886 1,206,564
Non-interest-bearing deposits 209,693 203,559 201,337 198,000 187,011
    Total deposits $1,392,437 $1,398,776 $1,435,050 $1,395,886 $1,393,575

~~During 2010,~~In the first quarter of 2011, management ~~has focused~~maintained its focus on ~~reducing~~changing Peoples' deposit mix away from higher-cost, non-core deposits ~~given recent growth in lower-cost deposits and lack~~as a means of ~~attractive investment opportunities.~~reducing overall funding costs. This strategy has included more selective pricing of out-of-market certificates of deposit (“CDs”), governmental/public fund deposits and similar non-core deposits. These actions accounted for much of the ~~third quarter 2010~~ decline in retail CDs and ~~also led a single commercial customer to reduce its specially-priced CDs and~~ money market accounts ~~by $10 million each~~since year-end 2010. Also during the first quarter of 2011, Peoples experienced seasonal increases in governmental/public funds from tax collections, as well as consumer savings and non-interest-bearing deposit balances.

Since March 31, 2010, Peoples has reduced the ~~second quarter, further contributing~~amount of brokered CDs due to the ~~decrease~~growth in retail ~~CDs since December 31, 2009. Savings and money market~~ deposit ~~balances were higher than in recent quarters due to customer preference for insured deposits over short-term investment alternatives.~~

Peoples’ retail CD balances included deposits obtained from customers outside its primary market areas, primarily school districts, government entities and credit unions located in the Midwest. These deposits totaled $54.2 million at September 30, 2010, versus $63.4 million at June 30, 2010 and $68.1 million a year ago.balances. Management expects further reductions in these balances in future quarters, as these deposits are not expected to be renewed based on ~~Peoples’~~Peoples' current deposit ~~pricing strategies.~~strategies and expected funding needs. Still, management continues to consider these deposits to be an alternative funding source to ~~brokered deposits and~~ other wholesale funding for satisfying potential future liquidity needs.

Borrowed Funds

The following table details Peoples’ short-term and long-term borrowings:


	September 30,	June 30,	March 31,	December 31,	September 30,
(Dollars in thousands)	2010			2009		March 31, 2011		December 31, 2010		September 30, 2010		June 30, 2010		March 31, 2010
Short-term borrowings:
Retail repurchase agreements	$49,060	$49,765	$49,714	$51,921	$48,344	$	42,283	$	51,509	$	49,060	$	49,765	$	49,714
FHLB advances	–			25,000	–
Total short-term borrowings	49,060	49,765	49,714	76,921	48,344

Long-term borrowings:
FHLB advances	99,720	104,981	105,206	101,113	132,085	86,907		92,703		99,720		104,981		105,206
National market repurchase agreements	65,000	135,000		145,000		65,000		65,000		65,000		135,000		135,000
Total long-term borrowings	164,720	239,981	240,206	246,113	277,085	151,907		157,703		164,720		239,981		240,206
Subordinated notes held
by subsidiary trust	22,557	22,548	22,539	22,530	22,522
Subordinated notes held by subsidiary trust						22,574		22,565		22,557		22,548		22,539
Total borrowed funds	$236,337	$312,294	$312,459	$345,564	$347,951	$	216,764	$	231,777	$	236,337	$	312,294	$	312,459

~~Commission File Number: 0-16772~~

PEOPLES BANCORP INC.
(Exact name of Registrant as specified in its charter)
Ohio
~~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)~~
			(Zip Code)
Registrant’s telephone number, including area code:					(740) 373-3155
		Not Applicable
	~~Not Applicable~~
	(Former name, former address and former fiscal year, if changed since last report)



Large accelerated filer o	Accelerated filer x	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o



Table of Contents
PART I – FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
	CONSOLIDATED BALANCE SHEETS (Unaudited)	3
	CONSOLIDATED STATEMENTS OF INCOME (Unaudited)	4
	CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)	5
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	5
	NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION	1821
	~~SELECTED FINANCIAL DATA~~	18
	~~EXECUTIVE SUMMARY~~	22
	~~RESULTS OF OPERATIONS~~	23
	~~FINANCIAL CONDITION~~	30
SELECTED FINANCIAL DATA	21
EXECUTIVE SUMMARY	24
RESULTS OF OPERATIONS	25
FINANCIAL CONDITION	31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3941
ITEM 4. CONTROLS AND PROCEDURES	3941
PART II – OTHER INFORMATION	4142
ITEM 1. LEGAL PROCEEDINGS	4142
ITEM 1A. RISK FACTORS	4142
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4142
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	4142
ITEM 4. (REMOVED AND RESERVED)	4142
ITEM 5. OTHER INFORMATION	42
ITEM 6. EXHIBITS	42
SIGNATURES	43
EXHIBIT INDEX	44


	September 30,	December 31,	March 31, 2011			December 31, 2010
(Dollars in thousands)	2010	2009	March 31, 2011			December 31, 2010
Assets
Cash and cash equivalents:
Cash and due from banks	$30,354	$29,969	$	28,677		$	28,324
Interest-bearing deposits in other banks	44,306	11,804	5,010			46,320
Total cash and cash equivalents	74,660	41,773	33,687			74,644

Available-for-sale investment securities, at fair value (amortized cost of
$608,427 at September 30, 2010 and $706,444 at December 31, 2009)	610,783	726,547
Held-to-maturity investment securities, at amortized cost (fair value of
$3,053 at September 30, 2010 and $963 at December 31, 2009)	2,964	963
Available-for-sale investment securities, at fair value (amortized cost of $635,218 at March 31, 2011 and $617,121 at December 31, 2010)			632,140			613,986
Held-to-maturity investment securities, at amortized cost (fair value of $2,929 at March 31, 2011 and $2,954 at December 31, 2010)			2,965			2,965
Other investment securities, at cost	24,356	24,356	24,356			24,356
Total investment securities	638,103	751,866	659,461			641,307

Loans, net of deferred fees and costs	1,010,879	1,052,058	948,029			960,718
Allowance for loan losses	(27,210)	(27,257)	(24,449		)	(26,766		)
Net loans	983,669	1,024,801	923,580			933,952

Loans held for sale	4,082	1,874	2,103			4,755
Bank premises and equipment, net	24,244	24,844	24,853			24,934
Bank owned life insurance	53,419	52,924	53,619			53,532
Goodwill	62,520	62,520	62,520			62,520
Other intangible assets	2,414	3,079	2,245			2,350
Other assets	40,578	38,146	39,522			39,991
Total assets	$1,883,689	$2,001,827	$	1,801,590		$	1,837,985

Liabilities
Deposits:
Non-interest-bearing	$209,693	$198,000	$	219,175		$	215,069
Interest-bearing	1,182,744	1,197,886	1,141,769			1,146,531
Total deposits	1,392,437	1,395,886	1,360,944			1,361,600

Short-term borrowings	49,060	76,921	42,283			51,509
Long-term borrowings	164,720	246,113	151,907			157,703
Junior subordinated notes held by subsidiary trust	22,557	22,530	22,574			22,565
Accrued expenses and other liabilities	21,156	16,409	13,397			13,927
Total liabilities	1,649,930	1,757,859	1,591,105			1,607,304

Stockholders’ Equity
Preferred stock, no par value, 50,000 shares authorized, 39,000 shares
issued at September 30, 2010, and December 31, 2009	38,619	38,543
Common stock, no par value, 24,000,000 shares authorized,
11,062,756 shares issued at September 30, 2010 and 11,031,892 shares
issued at December 31, 2009, including shares in treasury	166,152	166,227
Preferred stock, no par value, 50,000 shares authorized, 18,000 shares issued at March 31, 2011, and 39,000 issued at December 31, 2010			17,850			38,645
Common stock, no par value, 24,000,000 shares authorized, 11,080,802 shares issued at March 31, 2011 and 11,070,022 shares issued at December 31, 2010, including shares in treasury			166,408			166,298
Retained earnings	46,545	46,229	45,835			45,547
Accumulated comprehensive (loss) income, net of deferred income taxes	(1,974)	9,487
Treasury stock, at cost, 624,246 shares at September 30, 2010 and
657,255 shares at December 31, 2009	(15,583)	(16,518)
Accumulated other comprehensive loss, net of deferred income taxes			(4,390		)	(4,453		)
Treasury stock, at cost, 606,295 shares at March 31, 2010 and 612,695 shares at December 31, 2010			(15,218		)	(15,356		)
Total stockholders’ equity	233,759	243,968	210,485			230,681
Total liabilities and stockholders’ equity	$1,883,689	$2,001,827	$	1,801,590		$	1,837,985


	For the Three Months		For the Nine Months		For the Three Months Ended
	Ended September 30,		Ended September 30,		March 31,
(Dollars in thousands, except per share data)	2010	2009	2010	2009	2011			2010
Interest Income:
Interest and fees on loans	$ 14,262	$ 16,053	$ 43,656	$ 49,021	$	12,678		$	14,827
Interest and dividends on taxable investment securities	7,688	8,716	23,392	26,321	6,203			7,984
Interest on tax-exempt investment securities	590	682	1,850	2,147	425			642
Other interest income	32	21	57	62	11			4
Total interest income	22,572	25,472	68,955	77,551	19,317			23,457
Interest Expense:
Interest on deposits	4,693	6,490	14,790	20,052	3,985			5,144
Interest on short-term borrowings	62	111	209	388	35			81
Interest on long-term borrowings	2,058	2,907	6,630	9,200	1,310			2,293
Interest on junior subordinated notes held by subsidiary trust	495		1,485		492			498
Total interest expense	7,308	10,003	23,114	31,125	5,822			8,016
Net interest income	15,264	15,469	45,841	46,426	13,495			15,441
Provision for loan losses	8,005	10,168	19,964	18,965	(5,311		)	(6,501		)
Net interest income after provision for loan losses	7,259	5,301	25,877	27,461	8,184			8,940
Gross impairment losses on investment securities	–	(6,395)	(1,620)	(6,395)	—			(820		)
Less: Non-credit losses included in other comprehensive income	–	(465)	166	(465)	—			166
Net impairment losses on investment securities	–	(5,930)	(1,786)	(5,930)	—			(986		)

Other Income:
Deposit account service charges	2,415	2,703	7,170	7,718	2,174			2,298
Insurance income	2,216	2,228	6,888	7,378	2,832			2,411
Trust and investment income	1,226	1,189	3,991	3,484	1,325			1,556
Electronic banking income	1,180	986	3,443	2,929	1,221			1,088
Mortgage banking income	354	276	856	1,384	374			235
Bank owned life insurance	137	254	495	807	87			185
Net gain on investment securities	3,818	276	6,852	864	360			16
Net loss on assets	(443)	(41)	(1,681)	(103)
Loss on debt extinguishment	(3,630)	–	(3,630)	–
Loss on loans held for sale	(565)	–	(658)	–
Net gain on assets disposals and other transactions					60			17
Other non-interest income	183	150	691	568	361			241
Total other income	6,891	8,021	24,417	25,029	8,794			8,047
Other Expenses:
Salaries and employee benefit costs	7,232	7,015	22,105	22,038	7,627			7,377
Net occupancy and equipment	1,383	1,398	4,341	4,366	1,501			1,518
Professional fees	847	742	2,140	2,183	795			692
FDIC insurance					662			617
Electronic banking expense	668	618	1,830	1,781	618			605
FDIC insurance	617	687	1,846	2,782
Data processing and software	461	603	1,558	1,704	463			570
Foreclosed real estate and other loan expenses					350			646
Franchise tax	373	466	1,120	1,293	401			373
Foreclosed real estate and other loan expenses	282	249	1,400	736
Amortization of other intangible assets	224	307	704	956	162			245
Other non-interest expense	1,871	2,002	5,798	6,271	2,039			1,932
Total other expenses	13,958	14,087	42,842	44,110	14,618			14,575
Income (loss) before income taxes	192	(6,695)	5,666	2,450
Income tax (benefit) expense	(221)	(2,630)	653	(526)
Net income (loss)	$ 413	$ (4,065)	$ 5,013	$ 2,976
Income before income taxes					2,360			1,426
Income tax expense					(491		)	(111		)
Net income					$	1,869		$	1,315
Preferred dividends	514	512	1,539	1,364	(523		)	(513		)
Net (loss) income available to common shareholders	$ (101)	$ (4,577)	$ 3,474	$ 1,612

Net income available to common shareholders					$	1,346		$	802
Earnings per common share - basic	$ (0.01)	$ (0.44)	$ 0.33	$ 0.16	$	0.13		$	0.08
Earnings per common share - diluted	$ (0.01)	$ (0.44)	$ 0.33	$ 0.16	$	0.13		$	0.08

Weighted-average number of common shares outstanding - basic	10,437,770	10,372,946	10,417,316	10,359,569	10,471,819			10,391,542
Weighted-average number of common shares outstanding - diluted	10,437,770	10,372,946	10,425,463	10,372,630	10,477,360			10,400,243

Cash dividends declared on common shares	$ 1,053	$ 1,047	$ 3,158	$ 5,852	$	1,058		$	1,051
Cash dividends declared per common share	$ 0.10		$ 0.30	$ 0.56	$	0.10		$	0.10

x

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



									Accumulated
									Other						Total
	Preferred			Common		Retained			Comprehensive			Treasury			Stockholders'
(Dollars in thousands)	Stock			Stock		Earnings			Loss			Stock			Equity
Balance, December 31, 2010	$	38,645		$	166,298	$	45,547		$	(4,453	)	$	(15,356	)	$	230,681
Net income						1,869									1,869
Other comprehensive loss, net of tax									63						63
Preferred stock dividends						(318		)							(318		)
Amortization of discount on preferred stock	205					(205		)							—
Common stock cash dividends declared						(1,058		)							(1,058		)
Reissuance of treasury stock for deferred compensation plan												176			176
Purchase of treasury stock												(38		)	(38		)
Common shares issued under dividend reinvestment plan				77											77
Stock-based compensation expense				33											33
Repurchase of preferred stock	(21,000		)												(21,000		)
Balance, March 31, 2011	$	17,850		$	166,408	$	45,835		$	(4,390	)	$	(15,218	)	$	210,485

				Accumulated Comprehensive
	Preferred Stock	Common Stock	Retained Earnings	Accumulated Comprehensive	Treasury
(Dollars in thousands, except per share data)	Preferred Stock	Common Stock	Retained Earnings	Income (Loss)	Stock	Total
Balance, December 31, 2009	$38,543	$166,227	$46,229	$9,487	$(16,518)	$243,968
Net income			5,013			5,013
Other comprehensive loss, net of tax				(11,461)		(11,461)
Exercise of common stock options		(428)			855	427
Preferred stock dividends			(1,463)			(1,463)
Amortization of discount on preferred stock	76		(76)			–
Cash dividends declared of $0.30 per common share			(3,158)			(3,158)
Tax benefit from exercise of stock options		(46)				(46)
Reissuance of treasury stock for deferred
compensation plan					216	216
Purchase of treasury stock					(136)	(136)
Common shares issued under dividend
reinvestment plan		325				325
Stock-based compensation expense		74				74
Balance, September 30, 2010	$38,619	$166,152	$46,545	$(1,974)	$(15,583)	$233,759


	Nine Months Ended		Three Months Ended
	September 30,		March 31,
(Dollars in thousands)	2010	2009	2011			2010
Net cash provided by operating activities	$33,280	$21,625	$	13,317		$	11,128
Investing activities
Investing activities:
Available-for-sale securities:
Purchases	(207,754)	(187,374)	(80,103		)	(43,388		)
Proceeds from sales	150,617	41,521	26,879			21
Proceeds from maturities, calls and prepayments	152,995	135,727	32,290			46,105
Purchase of held-to-maturity securities	(2,000)	–	—			(2,000		)
Net decrease in loans	18,819	19,513
Net decrease (increase) in loans			5,112			(6,478		)
Net expenditures for premises and equipment	(1,447)	(1,853)	(437		)	(253		)
Proceeds from sales of other real estate owned	444	512	152			310
Investment in limited partnership and tax credit funds	(249)	(248)
Net cash provided by investing activities	111,425	7,798
Financing activities
Net cash used in investing activities			(16,107		)	(5,683		)
Financing activities:
Net increase in non-interest-bearing deposits	11,693	6,971	4,106			3,337
Net (decrease) increase in interest-bearing deposits	(15,214)	20,159	(4,785		)	35,801
Net decrease in short-term borrowings	(27,861)	(50,508)	(9,226		)	(27,207		)
Proceeds from long-term borrowings	5,000	5,000	—			5,000
Payments on long-term borrowings	(81,392)	(36,211)	(5,795		)	(10,907		)
Issuance of preferred shares and common stock warrant	–	39,000
Repurchase of preferred stock			(21,000		)	—
Preferred stock dividends	(1,463)	(1,056)	(449		)	(488		)
Cash dividends paid on common shares	(2,844)	(6,482)	(980		)	(943		)
Purchase of treasury stock	(136)	(190)	(38		)	(46		)
Proceeds from issuance of common shares	445	4	—			284
Excess tax expense for stock-based compensation	(46)	(10)	—			(8		)
Net cash used in financing activities	(111,818)	(23,323)
Net increase in cash and cash equivalents	32,887	6,100
Net cash (used in) provided by financing activities			(38,167		)	4,823
Net (decrease) increase in cash and cash equivalents			(40,957		)	10,268
Cash and cash equivalents at beginning of period	41,773	35,598	74,644			41,773
Cash and cash equivalents at end of period	$74,660	$41,698	$	33,687		$	52,041



			Fair Value Measurements at Reporting Date Using
(Dollars in thousands)			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2011
Obligations of:
U.S. Treasury and government agencies	$	38	$	—	$	38	$	—
U.S. government sponsored agencies	12,084		—		12,084		—
States and political subdivisions	38,401		—		38,401		—
Residential mortgage-backed securities	523,844		18,400		505,444		—
Commercial mortgage-backed securities	41,189		—		41,189		—
Bank-issued trust preferred securities	13,266		—		13,266		—
Equity securities	3,318		3,190		128		—
Total available-for-sale securities	$	632,140	$	21,590	$	610,550	$	—
December 31, 2010
Obligations of:
U.S. Treasury and government agencies	$	39	$	—	$	39	$	—
U.S. government sponsored agencies	12,262		—		12,262		—
States and political subdivisions	47,379		—		47,379		—
Residential mortgage-backed securities	507,534		18,179		489,355		—
Commercial mortgage-backed securities	30,700		3,545		27,155		—
Bank-issued trust preferred securities	12,984		—		12,984		—
Equity securities	3,088		2,960		128		—
Total available-for-sale securities	$	613,986	$	24,684	$	589,302	$	—

(Dollars in thousands)	Bank-Issued Trust Preferred Securities	Collateralized Debt Obligations
Balance, December 31, 2009	$1,000	$165
Other-than-temporary impairment loss
included in earnings	–	(986)
Calls	(1,000)	–
Unrealized loss included in comprehensive income	–	821
Balance, September 30, 2010	$ –	$ –


	September 30, 2010		December 31, 2009
	Carrying	Fair	Carrying	Fair	March 31, 2011				December 31, 2010
(Dollars in thousands)	Amount	Value	Amount	Value	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$74,660		$41,773		$	33,687	$	33,687	$	74,644	$	74,644
Investment securities	638,103	638,192	751,866		659,461		659,425		641,307		641,296
Loans	987,751	868,828	1,026,675	892,182	925,683		830,456		938,707		825,547

Financial liabilities:
Deposits	$1,392,437	$1,410,812	$1,395,886	$1,406,371	$	1,360,944	$	1,374,749	$	1,361,600	$	1,380,336
Short-term borrowings	49,060		76,921		42,283		42,283		51,509		51,509
Long-term borrowings	164,720	176,435	246,113	253,943	151,907		156,916		157,703		164,075
Junior subordinated notes held by subsidiary trust	22,557	23,885	22,530	25,968	22,574		23,836		22,565		23,861



(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2011
Obligations of:
U.S. Treasury and government agencies	$	36	$	2	$	—		$	38
U.S. government sponsored agencies	12,614		44		(574		)	12,084
States and political subdivisions	37,462		1,074		(135		)	38,401
Residential mortgage-backed securities	527,125		13,089		(16,370		)	523,844
Commercial mortgage-backed securities	42,888		317		(2,016		)	41,189
Bank-issued trust preferred securities	13,879		107		(720		)	13,266
Equity securities	1,214		2,200		(96		)	3,318
Total available-for-sale securities	635,218		16,833		$	(19,911	)	$	632,140
December 31, 2010
Obligations of:
U.S. Treasury and government agencies	$	38	$	1	$	—		$	39
U.S. government sponsored agencies	12,753		55		(546		)	12,262
States and political subdivisions	46,717		1,063		(401		)	47,379
Residential mortgage-backed securities	512,398		14,155		(19,019		)	507,534
Commercial mortgage-backed securities	30,124		648		(72		)	30,700
Bank-issued trust preferred securities	13,877		79		(972		)	12,984
Equity securities	1,214		1,970		(96		)	3,088
Total available-for-sale securities	$	617,121	$	17,971	$	(21,106	)	$	613,986

				Non-Credit
				Losses included
		Gross	Gross	in Other
	Amortized	Unrealized	Unrealized	Comprehensive	Fair
(Dollars in thousands)	Cost	Gains	Losses	Income	Value
September 30, 2010
Obligations of:
U.S. Treasury and government agencies	$59	$1	$–	$–	$60
U.S. government sponsored agencies	12,896	109	–	–	13,005
States and political subdivisions	48,531	2,760	(3)	–	51,288
Residential mortgage-backed securities	487,998	13,871	(16,206)	–	485,663
Commercial mortgage-backed securities	43,855	999	–	–	44,854
U.S. government-backed student loan pools	–	–	–	–	–
Bank-issued trust preferred securities	13,875	168	(1,139)	–	12,904
Equity securities	1,213	1,847	(51)	–	3,009
Total available-for-sale securities	$608,427	$19,755	$(17,399)	$–	$610,783

December 31, 2009
Obligations of:
U.S. Treasury and government agencies	$81	$1	$–	$–	$82
U.S. government sponsored agencies	4,384	89	–	–	4,473
States and political subdivisions	60,943	2,064	(54)	–	62,953
Residential mortgage-backed securities	546,131	17,576	(4,882)	–	558,825
Commercial mortgage-backed securities	23,656	675	(143)	–	24,188
U.S. government-backed student loan pools	52,972	6,547	(77)	–	59,442
Bank-issued trust preferred securities	16,073	47	(2,294)	–	13,826
Collateralized debt obligations	986	–	(655)	(166)	165
Equity securities	1,218	1,426	(51)	–	2,593
Total available-for-sale securities	$706,444	$28,425	$(8,156)	$(166)	$726,547

	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, 2010
Obligations of states and
political subdivisions	$226	$3	1	$–	$–	–	$226	$3
Mortgage-backed securities:
Residential	143,082	15,779	18	9,416	427	7	152,498	16,206
Commercial	–	–	–	–	–	–	–	–
Bank-issued trust
preferred securities	992	7	1	6,878	1,132	6	7,870	1,139
Equity securities	–	–	–	125	51	1	125	51
Total	$144,300	$15,789	$20	$16,419	$1,610	$14	$160,719	$17,399

December 31, 2009
Obligations of states and
political subdivisions	$3,284	$54	6	$–	$–	–	$3,284	$54
Mortgage-backed securities:
Residential	37,720	2,400	7	60,120	2,482	19	97,840	4,882
Commercial	1,966	143	1	–	–	–	1,966	143
U.S. government-backed
student loan pools	–	–	–	2,923	77	1	2,923	77
Bank-issued trust
preferred securities	–	–	–	11,574	2,294	10	11,574	2,294
Collateralized debt obligations	–	–	–	165	655	2	165	655
Equity securities	–	–	–	125	51	1	125	51
Total	$42,970	$2,597	14	$74,907	$5,559	33	$117,877	$8,156

(Dollars in thousands)	Within 1 Year	1 to 5 Years	5 to 10 Years	Over 10 Years	Total
Amortized cost
Obligations of:
U.S. Treasury and government agencies	$–	$19	$40	$–	$59
U.S. government sponsored agencies	–	1,105	11,791	–	12,896
States and political subdivisions	1,290	11,880	12,467	22,894	48,531
Residential mortgage-backed securities	–	3,464	81,975	402,559	487,998
Commercial mortgage-backed securities	–	–	20,611	23,244	43,855
Bank-issued trust preferred securities	–	–	–	13,875	13,875
Equity securities	–	–	–	1,213	1,213
Total available-for-sale securities	$1,290	$16,468	$126,884	$463,785	$608,427
Fair value
Obligations of:
U.S. Treasury and government agencies	$–	$20	$40	$–	$60
U.S. government sponsored agencies	–	1,193	11,812	–	13,005
States and political subdivisions	1,298	12,347	13,426	24,217	51,288
Residential mortgage-backed securities	–	3,635	84,847	397,181	485,663
Commercial mortgage-backed securities	–	–	21,105	23,749	44,854
Bank-issued trust preferred securities	–	–	–	12,904	12,904
Equity securities	–	–	–	3,009	3,009
Total available-for-sale securities	$1,298	$17,195	$131,230	$461,060	$610,783
Total average yield	7.45%	5.81%	4.80%	4.46%	4.58%

(Dollars in thousands)	Balance	Weighted-Average Rate
Quarter Ended December 31, 2010	$7,017	3.89%
Year Ended December 31, 2011	15,390	4.03%
Year Ended December 31, 2012	7,408	3.58%
Year Ended December 31, 2013	2,225	3.67%
Year Ended December 31, 2014	1,721	3.55%
Year Ended December 31, 2015	1,466	3.55%
Thereafter	129,493	3.36%
Total long-term borrowings	$164,720	3.47%

		Unrecognized
	Unrealized	Net Pension and	Accumulated
	Gain (Loss)	Postretirement	Comprehensive
(Dollars in thousands)	on Securities	Costs	Income (Loss)
Balance, December 31, 2009	$13,068	$(3,581)	$9,487
Current period change, net of tax	(11,536)	75	(11,461)
Balance, September 30, 2010	$1,532	$(3,506)	$(1,974)

	Number of Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1	270,757	$23.90
Granted	–	–
Exercised	34,464	13.57
Expired	29,642	24.60
Outstanding at September 30	206,651	$25.52	3.1 years	$–

Exercisable at September 30	206,651	$25.52	3.1 years	$–

			Options Outstanding			Options Exercisable
Range of Exercise Prices			Option Shares Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price	Option Shares Exercisable	Weighted-Average Exercise Price
$13.47	to	$15.54	635	0.7 years	$15.54	635	$15.54
$15.55	to	$21.71	9,241	2.0 years	20.39	9,241	20.39
$21.72	to	$23.58	47,640	2.2 years	22.32	47,640	22.32
$23.59	to	$25.94	41,343	1.7 years	23.96	41,343	23.96
$26.01	to	$27.74	41,354	3.8 years	27.08	41,354	27.08
$28.25	to	$28.26	34,028	4.6 years	28.25	34,028	28.25
$28.57	to	$30.00	32,410	4.3 years	29.01	32,410	29.01
Total			206,651	3.1 years	$25.52	206,651	$25.52

	Number of Shares	Weighted-Average Exercise Price	Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value




Outstanding at January 1	53,756	$25.80
Granted	–	–
Exercised	–	–
Forfeited	9,088	25.29
Outstanding at September 30	44,668	$25.91	6.0 years	$–
Exercisable at September 30	23,110	$27.90	4.8 years	$–

Exercise Prices			Number of Shares Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price	Number of Shares Exercisable
$23.26			5,000	2.9 years	$23.26	5,000
$23.77			20,793	7.3 years	23.77	235
$23.80	to	$27.99	1,000	7.2 years	23.80	–
$29.25			17,875	5.4 years	29.25	17,875
Total			44,668	6.0 years	$25.91	23,110

		Weighted-
		Average
	Number	Grant Date
	of Shares	Fair Value
Outstanding at January 1	13,991	$24.48
Awarded	2,000	14.82
Released	6,202	28.80
Forfeited	1,021	23.77
Outstanding at September 30	8,768	$19.30


	At or For the Three Months		At or For the Nine Months		At or For the Three Months Ended
	Ended September 30,		Ended September 30,		March 31,
	2010	2009	2010	2009	2011			2010
SIGNIFICANT RATIOS
Return on average stockholders' equity	0.69%	(6.70%)	2.78%	1.74%	3.47		%	2.19		%
Return on average common stockholders' equity	(0.20%)	(8.97%)	2.29%	1.11%	2.83		%	1.58		%
Return on average assets	0.08%	(0.79%)	0.34%	0.20%	0.42		%	0.26		%
Net interest margin	3.58%	3.45%	3.54%	3.47%	3.43		%	3.52		%
Efficiency ratio (a)	58.78%	58.28%	59.71%	60.00%	65.21		%	60.07		%
Average stockholders' equity to average assets	12.14%	11.84%	12.13%	11.27%	11.96		%	12.11		%
Average loans to average deposits	72.00%	77.45%	73.47%	78.53%	70.24		%	75.49		%
Dividend payout ratio	N/A	N/A	90.90%	363.03%	78.60		%	131.05		%


ASSET QUALITY RATIOS
Nonperforming loans as a percent of total loans (b)(c)	3.67%	3.94%	3.67%	3.94%	3.41		%	2.84		%
Nonperforming assets as a percent of total assets (b)(c)	2.21%	2.16%	2.21%	2.16%	2.04		%	1.79		%
Allowance for loan losses to loans net of unearned interest (c)	2.68%	2.46%	2.68%	2.46%	2.58		%	2.53		%
Allowance for loan losses to nonperforming loans (b)(c)	73.10%	62.30%	73.10%	62.30%	75.56		%	89.00		%
Provision for loan losses to average loans (annualized)	3.12%	3.69%	2.57%	2.30%	2.24		%	0.61		%
Net charge-offs as a percentage of average loans (annualized)	3.11%	2.57%	2.57%	1.90%	3.21		%	2.76		%


CAPITAL INFORMATION (c)
Tier 1 common capital ratio					11.72		%	10.60		%
Tier 1 capital ratio	16.22%	15.06%	16.22%	15.06%	15.25		%	15.51		%
Total risk-based capital ratio	17.55%	16.39%	17.55%	16.39%	16.60		%	16.83		%
Leverage ratio	10.26%	9.82%	10.26%	9.82%	9.81		%	9.97		%
Tangible equity to tangible assets (d)	9.28%	9.21%	9.28%	9.21%	8.39		%	9.06		%
Tangible common equity to tangible assets (d)	7.16%	7.22%	7.16%	7.22%	7.36		%	7.07		%
Tangible assets (d)	$1,818,755	$1,938,949	$1,818,755	$1,938,949	$	1,736,825		$	1,937,914
Tangible equity (d)	168,825	178,558	168,825	178,558	145,720			175,485
Tangible common equity (d)	$130,206	$140,040	$130,206	$140,040	$	127,870		$	136,917


PER COMMON SHARE DATA
Earnings per share – Basic	$(0.01)	$(0.44)	$0.33	$0.16	$	0.13		$	0.08
Earnings per share – Diluted	(0.01)	(0.44)	0.33	0.16	0.13			0.08
Cash dividends declared per common share	0.10	0.10	0.30	0.56
Cash dividends declared per share					0.10			0.10
Book value per share (c)	18.69	19.85	18.69	19.85	18.39			19.43
Tangible book value per share (c) (d)	$12.47	$13.50	$12.47	$13.50	$	12.21		$	13.15
Weighted-average common shares outstanding – Basic	10,437,770	10,372,946	10,417,316	10,359,569	10,471,819			10,391,542
Weighted-average common shares outstanding – Diluted	10,437,770	10,372,946	10,425,463	10,372,630	10,477,360			10,400,243
Common shares outstanding at end of period	10,438,510	10,371,357	10,438,510	10,371,357	10,474,507			10,408,096


(a)	Non-interest expense (less intangible asset amortization) as a percentage of fully tax-equivalent net interest income plus non-interest income (excluding gains or losses on investment securities and asset disposals).


(b)	Nonperforming loans include loans 90 days past due and accruing, renegotiated loans and nonaccrual loans. Nonperforming assets include nonperforming loans and other real estate owned.


(d)	These amounts represent non-GAAP measures since they exclude the balance sheet impact of intangible assets acquired through acquisitions on both total stockholders’ equity and total assets. Additional information regarding the calculation of these measures can be found later in this discussion under the caption “Capital/Stockholders’ Equity”.

~~(2)~~
(1)	competitive pressures among financial institutions or from non-financial institutions, which may increase significantly, ~~including~~impacting product and pricing pressures and ~~Peoples’~~Peoples' ability to attract, develop and retain qualified professionals;

~~(3)~~
(2)	changes in the interest rate environment, which may adversely impact interest margins;

~~(4)~~
(3)	changes in prepayment speeds, loan originations, sale volumes and charge-offs, which may be less favorable than expected and adversely impact the amount of interest income generated;

~~(5)~~
(4)	general economic conditions and weakening in the real estate market, either nationally or in the states in which Peoples and its subsidiaries do business may be ~~less favorable~~worse than expected, which could decrease the demand for loans, deposits and other financial services and increase loan delinquencies and defaults;

~~(6)~~
(5)	political developments, wars or other hostilities, which may disrupt or increase volatility in securities markets or other economic conditions;

~~(7)~~
(6)	the nature, extent and timing of legislative or regulatory changes or actions, including in particular the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the regulations to be promulgated thereunder, which may adversely affect the business of Peoples and its subsidiaries;

~~(8)~~
(7)	changes in accounting standards, policies, estimates or procedures may adversely affect Peoples’ reported financial condition or results of operations;